MIKE SINGLETON | Invictus Research

In our latest podcast episode, we dive deep into the world of macro investing with Mike Singleton, senior analyst and founder of Invictus Research. This episode explains how an investment strategy be enhanced by understanding the bigger economic picture.

Mike worked at prominent investment firms like Broad Run Investment Management, Main Street Capital, and T. Rowe Price. He shares his journey from focusing on individual companies to understanding the broader macroeconomic forces that drive market performance. This shift in perspective led him to establish Invictus Research, where he now provides macroeconomic research to both institutional and retail clients.

One of the key takeaways from this episode is the importance of understanding the business cycle. Mike explains that regardless of your investment strategy—whether it's fundamental, bottom-up, or technical—overlaying an understanding of the business cycle can significantly improve your investment process. He emphasizes that the three macro variables that matter most are real growth, inflation, and monetary policy.

Mike also sheds light on how different economic regimes impact various sectors and stocks. For instance, in a reflationary regime where both real growth and inflation are rising, cyclical sectors like technology, consumer discretionary, financials, and industrials tend to outperform. On the other hand, defensive sectors like healthcare, utilities, and staples may underperform.

The episode also delves into the impact of elections on markets. Mike points out that while the common question is whether markets perform better under Democrat or Republican administrations, the data doesn't show a significant difference. However, election years tend to be good for stocks, often due to incumbent administrations stimulating the economy ahead of voting.

For those interested in learning more about macro investing and the business cycle, Mike recommends checking out the resources available on the Invictus Research website. They offer a white paper, courses, and their flagship product, the Daily Edge—a daily video overview of economic data and market moves.

This interview was recorded before Joe Biden withdrew as the Democratic candidate, but the facts remain the same.

MIKE SINGLETON, CFA is the Senior Analyst and Founder of Invictus Research, a provider of macro-economic research to institutional and retail clients. Before that, he worked at Broad Run Investment Management, a private investment firm where he was responsible for leading investments of over $100 mm in client capital. Prior to that, he held investment management roles at Main Street Capital and T. Rowe Price. Mike graduated summa cum laude and with departmental honors from the University of Notre Dame, where he studied Finance and Theology. He is a CFA charterholder and a member of the CFA Society of Washington, DC.

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Mike Singleton - Macro Strategies for Election Year Investing

Chloe: Shares for beginners. Phil Muscatello and Fin pods are authorized reps of Money Sherpa. The information in this podcast is general in nature and doesn't take into account your personal situation.

Mike Singleton: You don't have to be a macro investor or part of a global macro strategy to use business cycle research to improve your investment process. I would go so far as to say any investor, regardless of your strategy, whether it's fundamental, bottom up, or you're a technician, any investment strategy can be improved by overlying and understanding of the business cycle.

Phil: G'day and welcome back to shares for beginners. I'm, um, Phil Muscatello. The us stock market is trading at all time highs. Well, except for maybe overnight last night. Can it run any higher? And do elections affect markets? My guest today is Mike Singleton from Invictus Research. He likes to focus on cycles, including the upcoming, um, us presidential cycle. Hello, Mike.

Mike Singleton: Hi Phil. Thanks for having me. It's a pleasure to be here.

Phil: Thank you very much for coming on. Mike Singleton, CFA, is the senior analyst and founder of Invictus Research, a provider of macroeconomic research to institutional and retail clients. Before that, he worked at broad run Investment Management, a private investment firm, and he held investment management roles at Main Street Capital and T. Rowe Price. Wow, Mike, what a year. Politics here in Australia is so, uh, dull, uh, in comparison. Do you think that elections matter to markets? And what are your thoughts, thoughts on current events?

Mike Singleton: Historically? I guess there's a few ways of answering this. In the United States, there's two political parties, which I'm sure everyone knows. And a common question is, do markets tend to perform better under Democrat administrations or republican administrations? I have never seen a persuasive back test proving that one party does better than the other. That said, maybe I just haven't cut the numbers the right way. So, in that sense, I don't think elections are all that important. There is election seasonality, so to speak. In other words, if you look at the last hundred years of data or so, stocks in general tend to perform a little bit better in election years. And there are a few fundamental reasons why that might be the case. Historically, incumbent administrations tend to stimulate the economy ahead of elections. I'm sure they would never admit to doing that, but you can see it pretty consistently in the backtest data, so that's something that's worth considering, I would say. I just ran a back test, actually. When you look at years in which the S and P 500 is up 10% or more through June, historically returns in the last six months of the years tend to be very good, up, uh, four and a half percent. That's better than average. If you look at just those years where it's an election year, the s and P 500 tends to be another 6%, so it's even better than the average year. And generally speaking, when you look at the historical data, that's true. Election years just tend to be pretty good years for stocks. As far as this election, specifically in the United States, between President Biden and President Trump, I would just point out that there is reduced uncertainty in this election, as opposed to most elections, because both President Biden and President Trump have been president. So we generally know what their policies are going to look like. And we also know that stocks have performed pretty well under both administrations. So it's difficult for us at Invictus to get bearish on stocks or risk assets more broadly on the premise of either one of them being president for the next four years.

Phil: So you focus on macro as opposed to fundamentals or momentum. What is macro, and why do you believe that macro matters?

Mike Singleton: It's a great question, and I would actually bucket macro investing as being a part of fundamental investing. It's different from bottom up, uh, stock specific investing. So, like you referenced a second ago, we spend more of our time looking at the business cycle and less of our time analyzing individual companies for competitive advantage, or their growth runways, or their management teams or stuff like that. That is actually how I began my career. When I started my career at broad run investment management, I spent all of my time looking at individual companies, trying to determine how they made money, what the returns on investment were, how their management teams were incentivized, the valuation of the individual stocks. And that was great. It was a really good experience. I really can't complain about it. It was super valuable. However, something I realized after working there for a few years, those factors don't explain all of the price action. I would go into the office every morning, and I would look at my brokerage account, and I would see this stock was up and this stock was down, and I wouldn't know why. And I would think, hey, I know these stocks pretty well. I've covered them for months or years, or however long, and it was very frustrating to not understand why certain things are happening, why an investment in this company would draw down 15%. You want to know why that's happening? And eventually, I discovered that the majority of the price action, even for individual stocks, especially over the short run, even to the intermediate term, is really governed by macro or exogenous forces, and I can actually define those a little bit better for you. So the three macro variables that

00:05:00

Mike Singleton: matter most are, uh, real growth, inflation and monetary policy. So macroeconomic investing and research has a reputation for being kind of esoteric, kind of difficult to follow. And the truth is, it really shouldn't be. That doesn't mean it's easy, but it's not complicated. If you get real growth, inflation and monetary policy, directionally. Right. You're going to get a ton of other stuff right as well. Right. You're going to hopefully mitigate downside risk when you're on the cusp of a slowdown or a recession. And it's going to give you the confidence to really capture the upside through a bull market, to be fully invested, or if you use leverage, hopefully you know when to put leverage on and to take leverage off. So that's the idea of it. And eventually I started my own firm, that's Invictus, and given my experience, decided it would be best to focus on those top down macroeconomic forces. So really that's what we focus on at Invictus, getting the growth cycle, the inflation cycle and the monetary policy cycle directionally correct.

Phil: I was going to ask that you mentioned top down and bottom up, so that's what that means. Bottom up is when you're looking at the fundamentals of a business, and then top down is when you're looking at the forces that are playing on it, like you call it, the exogenous forces. So I just wanted to dig into a little bit about how you're looking at things. So, uh, are you looking at these top down forces and how they then will impact on particular stocks, is that how it's worth or particular sectors and stocks within that sector?

Mike Singleton: Sure. So maybe I'll start with an example. So if you look at, and this is something that I did not fully appreciate when I was beginning my investment career, if you look at a chart of any economic growth figure, whether it's growth in GDP or the manufacturing PMI data or the New York Fed's weekly economic Index, overlay it against S and P 500 earnings and the year over year performance of the S and P 500 itself, they're all highly correlated. And that should make sense intuitively, even though it sounds like it contradicts some popular theories about stocks like random walk. But it really should make sense because over time, economic activity is what drives earnings growth for corporations. If I'm buying a bunch of food from the store that goes to some company's bottom line and that company becomes more valuable as a result. So if you believe that earnings growth, EPS growth, drives the fundamental performance of stocks and their price over time, then you shouldn't be surprised that various measures of economic activity tend to correspond pretty closely to the price action and financial markets. So hopefully that makes sense that the top down economic data actually does correspond to some extent, to a close extent, with the performance of corporations. So how do we go a step deeper at Invictus? Well, the first thing that we ask ourselves is what kind of economic regime are we in? What are growth, inflation and monetary policy doing? And let's put monetary policy to the side, because that's sort of the third leg of the stool, so to speak. If we're just looking at growth in inflation and really we're looking at the rate of change of those two variables, that implies there are four distinct economic regimes. You can have real growth going up and inflation going down. You can have them both going up at the same time. You can have growth going down, but inflation going up, that'd be sort of stagflationary. Or you can have them both going down at the same time. Right now, we believe that real growth and inflation are going up at the same time. That's what we call reflation. What we would do is we would say, given that we think we're in a reflationary economic regime right now, we're going to run a bunch of back tasks to determine what the equity sectors and style factor risks are that tend to outperform or underperform during this economic regime. And because we know that growth and inflation tend to be what matter most to markets, we tend to get very statistically significant results to these back tests, and a lot of them are very, very intuitive. Macro should be intuitive. So when the economy is expanding, when you're experiencing economic reflation, you want to buy assets that participate in that economic expansion. Generally speaking, that means that you want to own cyclically sensitive, risky assets. So think technology stocks, consumer discretionary stocks, financials, industrials. What tends to underperform? Well, defensives. Companies that don't participate as fully in the economic cycle. Healthcare stocks, utilities, staples. Think about it. You don't go to the doctor any more or less because the economy is growing well or because you're making more money, pay more to your utility provider. They have less cyclical businesses. But again, you actually want to own more cyclical businesses when the economy is accelerating and earnings growth is accelerating. And we run back tests with that same logic based on not just sectors, but also style factors. So large cap versus small cap, growth versus value, high leverage versus low leverage, et cetera, et cetera. And we find lists of companies that tend to perform well through the various economic regimes that we're looking at. And then from there, we apply some more quantitative criteria that we like, and that's how we would pick individual stocks. But it would also work. If you were looking at sector ETF's, right, you might just buy, if you're bullish on consumer discretionary, you could just buy the consumer discretionary ETF. You don't necessarily have to look at the

00:10:00

Mike Singleton: individual stocks underlying it. And historically, something like 75% of the price action for a given security is explainable by its sector. So a lot of times, if your highest conviction call is in, you know, a sector or factor risk, you just want to buy that sector or factor risk. You don't need to go buying the individual securities if you don't have an edge there.

Phil: So, we all know about inflation, but explain real growth, what is it and how is it measured?

Mike Singleton: So there's a couple of ways of explaining it. Real growth is nominal growth, less inflation. Another way of thinking about it is as economic output growth, right? So the volume of goods and services that are being provided in an economy, that's one explanation for it. If you want to know what drives real growth over the long run, this is kind of important to internalize it's growth in the labor force plus growth in labor productivity over time. So that gives you kind of the trend level of growth around which the cycle oscillates. In the US, we estimate that trend growth is around a percent and a half. So generally speaking, you're going to see the real growth cycle data going forward kind of oscillate around that level. When you're in an expansion, it'll be higher than that. When you're in a, uh, contraction, it'll be lower than that. But that's kind of your base case in terms of setting expectations. In Australia, it'll be a little bit different because Australia has different fertility rates, different immigration dynamics, different productivity dynamics, which are very hard to predict as it happens. But generally speaking, that's how you want to think about real growth. And the real growth data, uh, tends to correlate the most closely with the performance of risk assets like stocks, currency, etcetera.

Phil: So do you believe that we're in a real growth phase right at the moment?

Mike Singleton: Yes. Yeah. And there are a few reasons that I believe that a very good indicator for evaluating the real growth data. Most people look at GDP. I think GDP has quite a few shortcomings, one of which is that it's low frequency. It's only released quarterly. Second, it comes out on a very late lag. It's published. The advanced estimate is only published a month after the quarter ends, and then you get two subsequent revisions after that, which can be really substantial. GDP is also kind of an accounting contrivance in terms of how it's computed. You have massive swing factors like changes in private inventories, net exports, government spending, which are not super organic, so to speak. They're acyclical. They can throw off the quarter to quarter data. They create a lot of noise. So a figure that we like instead of GDP is something called the weekly economic Index, which is published by the New York Fed. And this is a composite of a variety of real growth measures like steel production, electricity output, rail car traffic, payroll taxes, withheld measures of staffing growth. And this is actually a much better measure of the real growth cycle. And it likewise tends to correspond very closely with stock returns. Right now, the weak economic index is showing that the US is growing real growth at about 3%, just a hair under 3%, the fastest level of growth since mid 2022. So given that real growth is accelerating by this measure, that's pretty good evidence of faster economic growth over reflation. It's very hard to fake these numbers. You could say GDP number is being distorted by this or that. It's very hard to make the case that all of these high frequency real time statistics are being distorted in the exact same way at the exact same time. The irony of this is that most people in the US anyway, will not acknowledge that real growth is accelerating. If you ask them, they'll say, what are you talking about? They'll say, Q two, GDP nowcast has been revised down from this to that. Or they'll say the unemployment rate is up from 3.4% to 4%. Or consumer spending is this or that. And generally speaking, when no one acknowledges the bull case for why stocks should go up, that's generally sort of a bullish, contrarian indicator. It is remarkable how many investors I talk to and how few of them will just acknowledge that the US economy is reaccelerating. They don't believe it until you show them the data.

Phil: It's hard to feel that way, isn't it? Because when you look at a chart and you see how much stocks have run over the last six months or so, and even before, people sort of get nervous and they start thinking, are we at the top of the cycle. And I guess it's nice to have this kind of data that you're talking about to show that maybe there's still some growth to run in the future, right?

Mike Singleton: Well, I mean, the truth is, as long as real growth is positive, and especially if it's accelerating, higher stocks perform really, really well.

Phil: Presumably there, presumably the value and valuation will go up because it all, like you say, impacts the bottom line in this kind of cycle.

Mike Singleton: Well, valuations tend to contract when the Fed is increasing interest rates really quickly, which we do not think will happen. We think the Fed is more likely to cut than hike at this point. So you probably won't see an interest rate driven contraction valuation or when risk appetite declines and the so called equity risk premium declines. Now, that generally does not happen when real growth is accelerating. When real growth is accelerating, the equity risk premium generally goes down. It doesn't go up. So valuations expand rather than contract.

00:15:00

Mike Singleton: Could something happen to change that historical relationship? Yes. Is that the bet that we want to make right now? No. And I think that a lot of the dynamics that have enabled accelerating growth to this point in 2024 are still in place. So I wouldn't bet on a change in economic condition. I would bet that what's happening right now is going to persist until something changes. And look, there's also incentives for policymakers to continue to stimulate the economy. In the US right now, the Democrats are still the incumbent party. The treasury has about $750 billion in its general account that it can sort of dispense at its discretion. As that money gets spent, I that will be stimulative and it will get spent. Even if the treasury is not being political, it probably will get spent in the next three to six months. And more government spending, all else equal, boosts corporate profits and tends to be a tailwind for stocks. And again, it's just hard to get bearish on either real growth or risk assets. Against that backdrop, super is one of.

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Phil: So the three factors that you mentioned, there's real growth, inflation, monetary policy cycles. The interplay between those three, inflation seems to be coming down. Does that mean monetary policy, which is the Fed setting interest rates, do you see that as being a factor? The fact that inflation is coming down, that the Fed will tend to cut rates.

Mike Singleton: So whether or not inflation is coming down really depends on the time horizon that you're talking about. Obviously, between mid 2022 and 2023, inflation came down quickly. At the beginning of 2024. Actually, in December of 2023, we said we thought that was over and inflation would begin to reaccelerate in January and February and March of 2024, we did see a re acceleration of inflation. We saw inflation data month, ah, over month. That was consistent with three to 4% annualized inflation. That's why all the headline numbers began to pick up again then in May and in June. We've seen very soft data so far. You know, the question is, is May and June going to be reflective of a new trend, or is it sort of outlier data? We would suggest that it's probably outlier data. The labor market remains very tight by what we consider the most important measures. Income growth and consumption growth are still comping around 5.5% on an annualized basis. The truth is, the us economy can't sustain output growth of 5.5%. It can sustain growth of maybe 1.5% or 2% or 2.5% over the long term. And so what that means is trend inflation is going to look like 3% or 3.5% until something throws consumption growth or income growth out of that 5.5% range, probably a recession. That's typically what's done in. So we think inflation will probably continue to move up from here until it's in that three to 4% range. That said, when you listen to the Fed, specifically chair Powell and his most recent public appearances, the way he's talking about things, he's clearly, and the FOMC is, in my view, pretty clearly moving their discussion of risks away from inflation and toward the labor market. Right. They're talking more about things like the unemployment rate being up. And in our view, that's probably kind of a red herring. We think the labor market remains strong, but we're not in the business of telling the Fed what to do. They tell us what they're looking at and then we react to it. And there are a couple of reasons to be concerned about the unemployment rate. So, first of all, in the US, the unemployment rate is up from 3.4% at the beginning of 2023 to 4.1% now. So it's up 70 basis points. Historically, the increase in the unemployment rate from the cycle trough to the first month of a recession is 62 basis points. So by that measure, which is sort of an average, the increase in the unemployment rate that we've already seen is enough to say that we're in a recession. Of course, that's not how the NBER makes decisions, but it's a reason to be concerned. There's also a famous recession rule called the SAHM rule, invented by an economist called Claudia SAHM to kind of determine whether or not we're in a recession before the NBER makes that determination. And it's really hard to verbalize what the rule is, but it's when the three month moving average of the unemployment rate increases more than 50 basis points above the twelve month low of that three month moving average. Feel free to pause or google what I just said, because I know that's kind of confusing. But the long and short of it is if the unemployment rate in the US goes from 4.1% to 4.2% in either July or August, that will trigger the SAHM recession rule, which is kind of a widely followed recession rule in the US, widely followed by investors, widely followed by the Fed and policymakers. We think that if that SOM rule triggers the odds of a rate cut are very, very high because the policy rates five and a quarter to 5.5%. Inflation by any measure is, call it 3%, something like that. So policy is very, very restrictive.

00:20:00

Mike Singleton: The Fed will probably not keep policy at such a restrictive level when one of their primary recession indicators is flashing red. Now, like I said, we think that this will be a red herring, it will be a false recession indication, but we think that the Fed will probably still cut 25 basis points because the balance of risks has changed. And the Fed is, in a sense, a risk management institution, just like investors are. It doesn't want to cause a recession. And so, right or wrong, we suspect that they will probably cut interest rates in the next meeting or two, which sounds like it's in contrast of, uh, with our reflation call, but that is our expectation.

Phil: Why do you think the unemployment rate is a red herring? Why don't you think it matters at the moment?

Mike Singleton: So there are a couple of reasons. The first is that there are two surveys that the BLS uses to collect employment data. I'm sure your listeners have heard of them. There's the household survey and there's the establishment survey. The household survey is the BLS calling up households and saying, hey, do you have a job? And the establishment survey is asking companies how many people are in your payrolls? So, as I think is sort of widely known, under the Biden administration, we've seen probably at least eight to 10 million immigrants, roughly half of which have been illegal. Their estimates, the number is much higher than that. The reason that I'm bringing it up is because illegal immigrants are not going to be captured in the household survey. If the BLS calls an illegal immigrant and asks if they're employed, the illegal immigrant is going to hang up immediately, right? There's no sense in talking to a government institution. However, if the immigrant is there legally, then they probably would answer, yes, I have a job now. The establishment survey will capture both legal and illegal immigrants on the payrolls data. And as a result, the establishment survey data has been much stronger than the household survey data. If we recalculated the unemployment rate using the non farm payrolls data rather than the employment level data from the household survey, it actually shows that the unemployment rate is at a cycle low. So there is that. I'll also say, look, labor market data in general is infamously a lagging indicator. It lags coincident economic data. So if you were to look at the rate of change in non front payrolls or something like the Kansas City Fed's labor market conditions index, it tends to lag, say, the weekly economic index, or GDP growth, by about six months. So the fact that real economic growth is accelerating again, like we just talked about, is an indication that the labor market is likely to tighten up again. Right? So it's not to say that a recession is impossible. It is to say that there's enough evidence, we think, that a nonlinear increase in the unemployment rate is a, uh, pretty low probability event. From here, another ten basis points, that can absolutely happen, maybe even another 20 or 30 basis points. But a spike to 5%, 6%, 7% unemployment, we really see very little evidence of that. And in fact, I think, I would say the odds of the labor market retightening and the unemployment rate going back below 4%, no one's talking about that. No one's pricing that in. I would say that's much more probable than a 5% plus unemployment rate.

Phil: So at this current point in these three cycles that you're looking at, which sectors do you think will benefit if.

Mike Singleton: We'Re right about our reflation call for the economy? Historically, the sectors that have benefited most have been first and foremost, cyclical ones. So obviously, technology has been the leading sector year to date since we pivoted to reflation. Then you've got consumer discretionary industrials, financials, basic materials, energy. That's where we would be looking for long opportunities. Historically speaking, small cap stocks tend to perform better than large cap stocks through reflations. Now, to be clear, they both earn positive returns. And large cap stocks still perform better, better than average, through reflations, but they tend to lag. Small cap stocks this year has been sort of a counterexample to that because large cap tech has been leading the market for a pretty long time, honestly. But we are seeing some evidence recently of a rotation into small caps. We saw a 5.2 standard deviation delta between small cap and large cap performance last Thursday. Historically, thrusts like that have sometimes presaged broader factor rotations into small caps. We'll see if that happens this time. The fact that we've seen significant follow through, we've seen small cap outperform almost every day since then is pretty good evidence that we're seeing factor rotation and, uh, an expansion in market breadth. That's a very good thing. Such broadening of market breadth, such broadening in participation, generally presages better than average returns in a statistically significant way, both in small caps and in large caps. But technicians have a saying that sector rotation is the lifeblood of a bull market. You have some stocks outperform and the index goes higher and then they start to underperform, but other stocks begin to outperform, and that takes the index higher. And invictus, we think that's what's happening right now.

Phil: What do you think is the dynamic that's causing this? And just to time stamp the recording of this interview, it's July 18 or 17th, depending on which part of the planet you are. But this sector rotation, what do you think of the dynamics and the forces that are where the money is suddenly taking the focus

00:25:00

Phil: off the magnificent seven and then going into the Russell, for example, which we've seen a bit more movement in over the last week or so.

Mike Singleton: I think it's a couple of things. First, investors were very, very short the Russell 2000 going into last week, when we saw that big factor reversal that I referenced, I don't remember the exact numbers off the top of my head, but I think it was 99th percentile short positioning on a one year and a three year basis. So hedge funds were really short the Russell. And when positioning gets very crowded like that, forward returns over the subsequent three months, six months, tend to be very good. So at the very least, hopefully, you knew not to be short the Russell when everyone else was short the Russell at the exact same time. That's clearly been an element. You don't see a major index trade up as fast as the Russell had without a positioning element being in place. That said, we suspect it's not just a positioning driven move. We also think it's the market, recognizing that the fundamental outlook for the us economy is improving. Like we said earlier, real economic growth by a bunch of different measures is continuing to accelerate higher, and we're kind of approaching that 3% level, which, given us demographic and productivity characteristics, is really, really strong. The US economy is doing, I think, better than most people expect. I think it's, in terms of the election, sort of a heads I win, tails I win scenario, in the sense that if Biden wins, President Biden wins, which looks unlikely right now. It's more of the same for stocks, which have been pretty good. And if President Trump wins, it probably means tax cuts, it probably means deregulation, it probably means fiscal deficits that don't get any smaller, at the very least. And all of those things tend to be very, very good for corporate profits. And not just corporate profits, but also small businesses. So if you look at the NFIB small business data in the US, it's pretty hard to find evidence of political bias and broad based economic data. The small business community really prefers Trump, there's no doubt about it, when you look at how that data corresponds to the betting markets or who's in office at a given time. And so you could make the case that maybe that doesn't matter, it's just sort of sentiment. But you could also make the case that that's going to have a reflexive, positive impact on the us economy. Because if small businesses are becoming more optimistic and because of President Trump's reelection odds going up, and they're hiring people on that premise, and they're making new investments on that premise, that in and of itself does improve GDP growth and economic conditions. And so it's possible that small business, which has been a drag on the us economy for the last four years, ends up becoming a tailwind. And if so, that would be even better for corporate profits. And a lot of that investment would also help large cap stocks, too, because the us economy is so integrated between large and small companies that it just ends up being, uh, an all in tailwind for broad based us economic growth.

Phil: Your website mentions a study by s and p global that macro accounts for 70% of all price action in individual stocks. Tell us about that study. And, I mean, technical analysts might sort of wonder where those forces are coming from. But, yeah, tell us about that study and what it shows to.

Mike Singleton: So the study was very technical in nature, and it wasn't meant to be instructive, so to speak. I think, uh, it was really just observing the same thing that I observed when I was starting my career at broad run, and I was looking at the stocks in my portfolio and wondering, hey, this company is doing well, why is the stock going down? Or, hey, this company just missed earnings, why is it going up? And my determination, and this is also likewise, based on regressions and statistics and whatnot, is that it's really not just about what that individual company is doing and how they're executing their business plan. It's also about what the rest of the economy is doing and whether the wind is at your back or the wind is at your face. And that would have saved me a lot of heartache. I think it would have given me a better feel for knowing whether a stock trading down 15% was an opportunity or whether it was a risk, if I had been aware of the business cycle. And of course, it didn't take me that long to catch on. I think when you make a few bad investments, you start to really roll up your sleeves and try and figure out what's going on. And that led me to the, uh, wonderful world of business cycle analysis and macroeconomic investing. And it's been fabulously helpful in terms of risk management, improving the risk profile of my returns, and it's led me to starting Invictus, which has been a really wonderful thing as well. But I think that study is more or less just acknowledging what I sort of learned early in my career is fundamental. Bottom up analysis is really important, but it's not the only thing that matters. And you can really improve your analytical skills by integrating a top down business cycle overlay in addition to that.

Phil: So if listeners want to find out more and learn about macro, do you have any resources on your website for people to learn?

Mike Singleton: So on our website, we have a, uh, description of our process at Invictus. It's about a page long. We have a white paper describing the business cycle and kind of giving you a ten minute masterclass on how to evaluate the business cycle. We also have a couple of courses that are a couple of hours in length that are just sort of designed to shorten the learning curve in terms of the business cycle from months or years to a few hours.

00:30:00

Mike Singleton: Our flagship product is called the Daily Edge. It's a five to ten minute video overview of the prior day's economic data and major financial market moves. And the point is to put this data in the context of the business cycle and talk about the implications for forward returns for the different asset classes. So stocks, credit, cryptocurrencies, etcetera, and I'll also say that we're coming out with a new artificial intelligence enabled app that's trained on all of our research. And the reason I say that is because macroeconomic investing and research has a reputation for being complicated. And now you can interact with an app that's trained on all of our research the same way that you would an analyst. So historically, finance has been sort of a mentorship business. And to get really good at research or investing, you have a mentor in the business that kept it kind of exclusive and inaccessible to a lot of people. But now with AI, we can scale that mentorship dynamic up by training the AI on the same data. That AI app will be out in the next month or so, but I wanted to bring it up now because it's going to be really good.

Phil: So does the AI strip out the emotion? Does emotion and human feelings ever creep into macro analysis?

Mike Singleton: That's a good question. So my business partner, who's from Sydney and has a PhD in artificial intelligence, might be better suited to answer that. I think you would say no, but I don't know.

Phil: Yeah, well, hopefully you're trying to keep human emotion out of all of this anyway with the amount of research and study that you're doing. So is there anything that we've missed in the interview that would help inform listeners a little bit more about the importance of macro and studying and understanding the forces that it applies?

Mike Singleton: Yeah. So I think what I would say is you don't have to be a macro investor or part of a global macro strategy to use business cycle research to improve your investment process. I would go so far as to say any investor, regardless of your strategy, whether it's fundamental, bottom up, or you're a technician, any investment strategy can be improved by overlying and understanding of the business cycle because it's helpful to understand when you may be entering a period of increasing risk and you want to take some chips off the table, or it can give you the confidence to be fully invested through a bull market. And a lot of investors don't appreciate this, but upside risk can be just as important as downside risk. And when you're in a bull market, you really want to be taking advantage of being in a bull market. You don't want to be sitting in 40 or 50% cash. And right now, there are a lot of people sitting in 40 or 50% cash because they can't build the conviction to be fully invested. I think that if you had a good understanding of the business cycle, it would actually help you do that very effectively. That doesn't mean that you're always right or that you're never wrong, but it does help you assess the probabilities. And really good investing is all about assessing the probabilities.

Phil: Mike, how can listeners find out more about Invictus research?

Mike Singleton: So you can find us at, uh, Invictus dash research.com, or you can follow me on Twittervictusmacro.

Phil: Although it's x these days, not Twitter, isn't it?

Mike Singleton: You're right. I have to stop saying Twitter.

Phil: I know, it's very hard to do, though, isn't it? You can't even say tweet anymore. It's like a post on x, isn't it?

Mike Singleton: Right. I called Meta Facebook like two and a half years after they changed their name. So I've got to get with the times.

Phil: Fantastic. Mike Singleton, thank you very much for joining me today.

Mike Singleton: Thanks again, Phil.

Chloe: Thanks for listening to shares for beginners. You can find more@sharesforbeginners.com if you enjoy listening, please take a moment to rate or review in your podcast player or tell a friend who might want to learn more about investing for their future.

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