Lead-Lag Live

Active Management in Volatile Markets with Eric Nyquist

• Michael A. Gayed, CFA

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Market volatility has soared, and investors are more bearish than they've been since 2008 – even more so than during COVID. But what if this extreme pessimism is actually a buying signal? Eric Nyquist of Howard Capital makes a compelling case that "bears sound smart, but they're usually wrong," highlighting how contrarian indicators often provide the clearest path forward during market uncertainty.

In this fascinating conversation, Eric breaks down Howard Capital's systematic approach to navigating turbulent markets. Their proprietary "Byline" and "Pivot Point" systems work together like a head coach and coordinator – the Byline determining overall market exposure based on trend analysis, while the Pivot Points fine-tune shorter-term adjustments. This rules-based methodology eliminates emotional decision-making, which Eric identifies as the primary reason most investors significantly underperform the market over time.

Drawing from Howard's impressive track record during previous market downturns, Eric explains how tactical management isn't about predicting market movements but responding systematically to what's actually happening. Their approach allowed them to navigate 2008 with less than 10% drawdowns and position clients optimally during the 2020 COVID crash. Most enlightening is Eric's perspective on risk itself – arguing that true risk isn't volatility but the erosion of purchasing power, making quality equities potentially less risky than bonds over the long term.

For advisors and investors struggling with client emotions during market turbulence, this episode provides invaluable insights into how disciplined, tactical approaches can deliver both peace of mind and superior long-term results. As Eric notes, "the value of a good advisor and money manager far outsees the cost," particularly when they save clients from making costly behavioral mistakes during times of market stress.


DISCLAIMER – PLEASE READ: This is a sponsored episode for which Lead-Lag Publishing, LLC has been paid a fee. Lead-Lag Publishing, LLC does not guarantee the accuracy or completeness of the information provided in the episode or make any representation as to its quality. All statements and expressions provided in this episode are the sole opinion of Howard Capital and Lead-Lag Publishing, LLC expressly disclaims any responsibility for action taken in connection with the information provided in the discussion. The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contain

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Speaker 1:

I truly believe that the value of a good advisor and a money manager far outsees the cost, and that's all that should matter. I don't think investors should necessarily penny pinch on that when they probably wouldn't do that if they needed heart surgery. They're probably not going to the cheapest doctor for that, probably not hiring the cheapest personal trainer. If they want to get in shape, things of that sort, so yeah, you want to get in shape, things of that sort, so yeah, you want to look at your life savings the same way. I believe that if an advisor and a money manager can help a client increase their return by one, one and a half percent per year versus them doing themselves, save them even more than that in the time effort and worry. Save them even more than that in the time effort and worry it takes them managing that. Or save them even more than that from making it, from preventing them from making those classic behavioral mistakes um, that we're all, uh subject to making, um then they're well worth it.

Speaker 2:

If any of those three apply I think it's a good conversation with uh, my friend Eric Nyquist here. This conversation is sponsored by Howard Capital. They are one of my clients A number of different interesting active tactical strategies which we'll touch on. And active tends to have a much better time when there's volatility. It looks like, if you haven't noticed, volatility is picking up meaningfully, as well as some of the more traditional correlations, returning finally to the what looked like pre-2020 era. So, with all that said, my name is Michael Guy, a publisher of the Lead Laggard Board. Joining me here is Mr Eric Nyquist of Howard Capital. Eric, we did an interview last month. I think it was pretty well received, but for those who don't know about your background, introduce yourself. Who are you? What have you done throughout your career? Where are you in Howard Capital?

Speaker 1:

Yeah, absolutely Michael. Yeah, no problem. Happy Friday everybody. Great day today. My name is Eric Nyquist. I'm the vice president of ETF sales and distribution here at Howard Capital.

Speaker 1:

Been in the industry since coming out of college at Mercer. Graduated there I felt like I was a little bit more of an athlete student. I had some great success in baseball. I had a decent opportunity to go play in the Blue Jays organization before a couple of surgeries Put my career down, but always been competitive in nature, always wanted to figure out how to win and to win in business. You know I just kind of found myself into this industry kind of unconsciously due to, you know, just some of my parents' struggles through the mid-2000s with money. You know 2008 definitely didn't help with that and they ended up separating. So you know, I just know that money stress, money problems, is a big reason for divorce in America, nevertheless many other mental problems. So that drove me to be where I am today and I try to work every day to just help investors, advisors, navigate these markets with confidence the best I can. Let's talk about confidence.

Speaker 2:

So much of why momentum happens is because of confidence around recency bias that the most recent past will persist into the future. Something then inevitably breaks the confidence. I'm curious to get the view here from what's going on the last several weeks around what's broken the confidence of the market. I know everyone's arguing it's tariffs. I think it's far more than that.

Speaker 1:

Yeah well, I think it's a lot of. It has to do with just general uncertainty around what the administration is doing right now, and they're doing a lot. I mean, we saw it early on in Trump's first election in 2016, where the markets were pretty volatile for the first couple months, ended up having a pretty good year. I think we could see something similar, but I think it's important for investors to point out, or to hear, that a lot of investors struggle with a herd mentality. When news and information is ubiquitous, now, so bad piece of information comes out, people tend to overreact and when too many people start selling, they themselves feel like it's the right time to get on the bandwagon. And an important technical indicator to consider, especially right now, is consumer sentiment. Investors are very bearish. They're as bearish as they've been since 2008,. Not even COVID. They are very bearish and you know that could be several reasons to that, but I want everyone listening to know that oftentimes, from a technical standpoint, consumer sentiment is a contrarian indicator for them. When it tends to bottom, that typically tends to be the best time to buy, and the market seems to turn around in most cases when sentiment goes down. Vice versa, when sentiment is euphoric, like we saw. Let's just talk about 1999, 2000,. Near the top of the market is where you saw the largest inflows during the tech bubble boom in the 90s, followed by a three-year downturn in the market. So I think it's important for investors not to necessarily hop on the bandwagon and follow the herd. Stick to a disciplined approach and I'll also throw this note in you know bears. They usually sound smart, michael, but they're usually wrong. And you can just look at the stock market since its inception to see that there are temporary dips in the markets. Most of them should be considered buying opportunities.

Speaker 1:

I believe it pays to be an optimist, not only in investing but in life in general. That's true in life and true in the stock market. There are plenty of reasons to question today's bull market and we are in a secular bull market bull market and we are in a secular bull market, don't get that mistaken. But if you're looking for reasons to sell, you'll rarely have trouble finding it. But oftentimes it's typically, you know, not the right move and I encourage investors not to just, you know, give up an abandoned ship.

Speaker 1:

You know, yes, maybe we shouldn't be full on pedal to the metal right now. Our firm has taken a defensive posture, but it's not like we're all out of the market. I think the market's just looking for some clarity. Businesses cannot remain cautious forever, and once they have more clarity around these tariffs aka April 2nd I think it could be a signal of a bottom. Then they're going to start making moves. So instead of giving into fears, we should hope for the best and have a process in place if things go wrong, and I believe that we have one here at Howard Gap.

Speaker 2:

Can we talk about the defensive posture? When you say defensive posture, I think a lot of people don't really understand what the term defensive means, or at least they have different definitions of what defensive means predict where things are happening or what things are going to happen.

Speaker 1:

Instead, we're identifying major trends in the market and looking at real-time leading indicators and responding to what's actually happening and adjusting exposure accordingly. Our process is very rules-based, it's systematic, it completely removes emotions from the investment decision-making process, and so when I say defensive posture, I mean typically, you know, when we're in an offensive position. If the market's in an uptrend, we're going to be let's call it 100% invested. To trend to the downside, we're going to start taking layers off the table according to our signals, not an all-in or all-out game.

Speaker 1:

History has shown that that rarely works and again, the worst case scenario hardly ever happens, and when it doesn't, markets tend to revert back up to the upside and people who go all out may have a tough time finding their way back in. And that happens over and over, and I'd say that that's primarily the number one reason why investors underperform their market. They let their emotions get the best of them, they react off their emotions and those decisions tend to hurt them far more than they help them. So, getting directly to your question, defensive posture means we're not all out, but we have taken some equity exposure off the table, kind of, like you know, pressing the brakes a little bit. You know not full gas pedal down, but we're not putting on the emergency brake just yet.

Speaker 2:

Talk to me about sort of the ranges with which you take equity down, meaning, are we talking a step function like 2.5%, then 5%, then 7.5%, or is it something else?

Speaker 1:

Yeah, absolutely so. The primary levels of exposure are dictated by our primary trend following tool, the HCM byline. It's a proprietary algorithm that is looking at the overall breadth of the market and the overall trends of the market. So typically when we reduce exposure, to simply put Michael, it's about a third at a time by the byline. We do have a bit of a shorter to intermediate term tool that can take us a little bit quicker to 20% cash position, but the overall macro exposure decisions are dictated by the byline, which is a more intermediate to longer term trend indicator.

Speaker 1:

We're not trying to sidestep every hic, a bear market or recession that could cause some lasting pain, loss of time, tough to get back from. That's what we really want to avoid here. So corrections like we're in right now um typically not going to phase the byline on a huge level. It's typically not going to trigger a massive sell signal like that. But it's based on the strength of the signal, michael. So some of our strategies can go out on the first signal up to 50% and then up to 100%, but it depends on the strength of the signal and typically our strategies don't go 100% out unless there's a catastrophic event going on, like 2008 was the last time all our strategies went completely to cash, but that was a situation where you had banks failing, massive risks and recession going on. So those things we don't want to be involved in. But even in times of COVID we weren't 100% out, but we did take a decent amount of exposure off the table to mitigate the downside risk for our investors.

Speaker 2:

So how that applies in practice to some of the different funds that you offer. Lay them out to the audience. What are the different strategies? How are they operating versus each other? Just give us some context there. Yeah, certainly. How are they operating versus each other? Just give us some context there.

Speaker 1:

Yeah, certainly so. Our firm has a full lineup of portfolios, managed accounts that advisors could have access to more investors for as little as $25,000. We have four proprietary mutual funds. All have separate systems, separate agendas, but with the ultimate goal of achieving risk-adjusted returns.

Speaker 1:

In alpha, the three ETFs I'm in charge of, they use our proprietary tools, their trend-following proprietary technical tools, to try and enhance upside capture when the market's doing well and try to preserve your capital in the risk of a significant downturn. In the risk of a significant downturn, two of our ETFs track the companies within the NASDAQ 100 and S&P 500. And our third is more of a high-octane, large-cap ETF that can gain up to 200% equity exposure. We also have a. You know our tactical component, michael, as you well know. But for your audience, you know difference between active and tactical. Tactical is a little bit more about increasing or decreasing general equity exposure in your strategies versus active, bit more of stock selection having to do with that. So you know we're not trying to predict which stock is going to rise or fall. We use a relative strength algorithm that's looking at three separate measures of relative strength and the one showing the highest amount of relative strength. That's where we're going to focus our portfolios with that.

Speaker 2:

You find that when markets get volatile, there's more and more interest around active strategies like what Howard Capital offers.

Speaker 1:

Well, I would say so, Michael, as long as they have a process. I would argue this, you know, because I definitely think that there's a big reason why a lot of people like to use strategic you know low cost index funds and I'm a fan of them. Strategic, you know low cost index funds and I'm a fan of them. I don't think it should be all in one and all in the other, because strategic funds, if you have a client, if you're an investor who's disciplined, who knows over time that the S&P is going to rise history proves that then you could just dollar cost average into that and you'll do better than most active managers. And you could just dollar cost average into that and you'll do better than most active managers, especially those that are just really trying to guess and use intuition more so. But having the benefits of an active or tactical money manager in my opinion, michael, is more at least. This is why Howard Capital has developed the byline and its rules based process is because oftentimes investors struggle with discipline and if they say they don't, they're probably you know, probably lying to you, probably full of it. So, basically, you know, because history shows and you look back at the dot-com bubble, you look at 2008,. The most outflows in 2008 happened near the bottom. Most of the inflows the majority happened in 1999 to 2000. So they struggle with discipline and having a process in place that removes emotional decision making from the equation and just responds to what the actual market data is telling us.

Speaker 1:

Having that approach can help advisors and investors stay the course and on track towards their long term objectives, and oftentimes way more oftentimes than not. If they stay invested, stay according to their plan, keep dollar cost averaging, they're going to do much better over time than just trying to time the market. That has proven to be a loser's game. About 75% of day traders end up losing money. So I highly encourage investors not to go that route, unless it's just some play money on the side. But you know this is not a game to play, especially in this market. This isn't 2000, where you can buy meme stocks that are just soaring through the roof. No, you got to focus on high quality businesses and be selective in this type of market environment, especially until we get some more clarity.

Speaker 2:

All right, that's actually a good direction to go, because I think, just in the same way people have different definitions around defensive, they also have different definitions around quality, high quality, right when it comes to companies. So talk to me about how you know what would drive the process there in terms of determining what stocks to position into.

Speaker 1:

Yeah, so you mentioned stocks. So yeah, high quality investments let's talk about. I think in today's market it might be more suitable for investors necessarily to go into an etf that's already diversified than a single stock. Because here's the deal while while our company and myself recognize the importance of fundamentals I partner with fundamental managers, money managers and wholesalers all the time we recognize the importance of fundamentals but also recognize that even great businesses can see severe price drawdowns in bad markets. So my point being, if investors are getting emotional, let's just go into an ETF that will help mitigate some of that downturn. But I like to focus, you know, I mean, michael, I'm a big fan of you know large and mega cap companies because I mean, for multiple reasons, I know a lot of people saying they're overvalued. I don't necessarily see that going away, I would like to see it broadening out of somewhat. But you're going into proven businesses that have tremendous balance sheets and cash flow reserves, that have already been proving their earnings, growing their dividends, have a tremendous moat in competitive advantage, and that's just kind of the nature of capitalism.

Speaker 1:

Not only that, you know, globalization has flipped businesses on its head. We don't believe in just going international just to go international sake, to diversify across the board. Oftentimes globalization is. Oftentimes these biggest, strongest businesses are doing business all over the world. I mean, think about it there's a Starbucks everywhere in the world. Apple sells everywhere in the world. Nike is selling everywhere in the world. So to us it just makes sense to avoid to own those high quality, large and mega cap you know top of the line innovative businesses, because they're all typically industry leaders as well and getting and they have international exposure without direct international risks such as currency risks, geopolitical conflicts, etc. So I would stress ETFs more than individual stocks right now. I stress, to tell you to predict which stock might lead the run, I'll give you one Netflix. I think that's a powerful one that's been holding up and that might be a leader coming out in the next market runoff.

Speaker 2:

In general, I think passive makes sense towards the end of a bear market. Active tends to make more sense, or relative basis towards the end of a bull market, because I think one of the big appeals of active obviously is that risk management side. It's not that you really, I would argue, actively managing return, you're actively managing risk, which means you need to be in an environment where there's risk to begin with. As you talk to advisors, high network investors, what do you typically see in terms of those that are looking for more active strategies? Meaning, do they tend to be of the mindset that everything in their portfolio should be active right, because they're worried about volatility, especially in periods like this? Or, yeah, it was more of a sort of a blend mindset?

Speaker 1:

Yeah, I'm going to always lean towards the blend. Michael, I don't believe our strategy is the end-all be-all. I don't believe any strategy is. Again, I'll go back to the majority. Of active managers typically underperform the S&P. When I see people leaning towards active management is when I see investors that struggle with discipline, which most do so.

Speaker 1:

Hiring someone that's looking at the markets that may, you know, be more, that is more involved and has a team around them that you're hiring is that answer and can help. You know, I oftentimes think advisors they get paid. You know most of how they get paid is oftentimes being a behavioral coach, not necessarily picking the best fund. A behavioral coach, not necessarily picking the best fund. I don't believe that the difference between investors underperforming the market versus outperforming the market is them buying a specific fund, a specific five-star fund, versus a three-star fund. I believe the ultimate way that they do that is not letting their emotions get the best of them.

Speaker 1:

I truly believe that the value of a good advisor and a money manager far outsees the cost, and that's all that should matter. I don't think investors should necessarily penny pinch on that when they probably wouldn't do that if they needed heart surgery. They're probably not going to the cheapest doctor for that, probably not hiring the cheapest personal trainer if they want to get in shape, things of that sort. So, yeah, you want to look at your life savings the same way one and a half percent per year versus them doing themselves. Save them even more than that in the time, effort and worry it takes them managing that, or save them even more than that from making it, from preventing them from making those classic behavioral mistakes that we're all subject to making. Then they're well worth it.

Speaker 2:

if any of those three apply. Let's talk about behavioral finance and behavioral mistakes. We know from prospect theory that people feel the pain of a loss of a dollar twice as much as the gain of a dollar, which is why when losses start to mount, people get kind of crazy. Despite all the longer-term charts to your point about, things ultimately hopefully come back, unless you're in a lost decade, which might not look like they're kind of in. But how do you deal with emotion? And one thing is to say that hypothetically. But when people are calling you up and saying, listen, what are we doing here? Hard to get them to be rational.

Speaker 1:

Yeah Well, I think that is. That's a great point, michael, and you brought up the last decade. I'll have you know that's another reason for potentially hiring an active or tactical money manager. I mean, our longest running strategy during the lost decade was up over 100% through 2000 to 2010. I think the S&P was only up about seven during that time.

Speaker 1:

Back to the behavior finance question. You're right, loss aversion is much more powerful than getting the same amount in gain. That's true in investing, that's true in most of our lives how we deal with that and how. This is why advisors you know our longest advisors that have been working with us. You know oftentimes, when I ask them why they use Howard Capital, they're saying you know much higher retention rate with their clients because they know we're at least doing something about it when, when things can get really bad, go awry. We're human beings, we're going to be emotional, but we want to have a process that removes our ego from the investment equation, because it's typically going to hurt us far more than it helps us. We know that. And also why we use algorithms to try and combat the speed of these modern markets because the speed of these markets is leaving investors wondering how they can compete and even rationalize decisions in real time based on a market like this. So we want to remove emotions completely and let the math and probabilities and real-time market data show us what to do. So, getting back to the retention rate, advisors love us using us because they have clear answers for their clients.

Speaker 1:

Clients call us up. They say why do you take this trade? It's because, michael, it's because the math put us there. Will the trade work? I don't know, and neither do you. But we know that math gives us an edge. We know that the probabilities are in our favor. That's what we want to trade math and probabilities.

Speaker 1:

So that's really the answer is that you know the trend's down. We're dictating caution. We are hired not to deviate from our system. We're not hired based on how Vance Howard and I think. We are hired to trade a system and to trade a rule-based process with discipline, and let the math and probabilities dictate what we do so and we show it every week on our WealthWatch newsletter that any of your clients can sign up for by going to howardcmcom, click on the resources tab and you can sign up. You'll see our weekly WealthWatch newsletter, which will you know, oftentimes we're going to show you the byline as well as you know kind of what works, you know what is building up in the markets, like what the data is showing us now in the present moment.

Speaker 2:

So you mentioned there's been a more defensive posture. Let's talk about what takes the defensive posture out, meaning what makes you get more offensive.

Speaker 1:

Yeah, it goes back to the trends, michael, the overall trends of the market. If the trend is up, we're going to increase exposure. If the trend is down, we're going to decrease exposure in tranches not an all in or all out game. So when the market turns, you know we've got a shorter term indicator we call the HCM pivot point system which can help us bring us in. You know, when the market is showing, you know signs of rallying, falling, a pullback, but then the confirmation signals of the byline. We need to establish trend to put the gas pedal back on and get 100% back in. The pivot points can help us pop in and out a little bit quicker to capture some of those gains. But the byline really dictates how much exposure we get if we're going 100% or even over 100% if this signal is strong enough. So to us it's all about following the trends of the market and if we can catch the majority of the uptrend and avoid the majority of a significant downtrend and we can do that systematically through enough market cycles, we can show significant outperformance over the long term and our longest running portfolio proves that. And that's how investors and advisors should, that's how investors should judge their advisors and that's how advisors and investors should judge us.

Speaker 1:

It should never be about the shorter term, like the news media always wants to dictate. The shorter term. What can we expect in the next week? Oh my gosh, markets are down as much as they were on March 10th. Who cares? I've never heard anybody and maybe you have, michael, let me know. I have yet to hear anybody say that they've gotten rich watching CNBC or Kramer. Not to doubt Kramer, I think he's funny. But to take that stuff seriously and be always ingrained with that stuff is a recipe for disaster.

Speaker 2:

And that's a fact. That's a good quote. No one has ever gotten rich watching CNBC, not that I've heard of Michael. Maybe you have, yeah, no. Well, I've heard of Michael. Maybe you have, yeah, no, I. Well. I think that's a fair statement because, in fairness, if it's on. Cbc. It's already probably priced in like that puts missed by a lot of people. I mean news is not, but it doesn't mean prices already moves on not to mention Michael.

Speaker 1:

I mean some of your guys watching might watch some of their segments on YouTube. I just I laughed at one of my colleagues yesterday. You know not to get into specific, but they're always like showing these crazy headlines on these YouTubes with like short little quotes from these guys talking I don't even know what they're saying, they're talking gibberish. It's almost like they're trying to sound smart. Um, and the audience? I don't know what the audience is doing. I'm like do you guys understand what they're talking about? Again, it goes back to my point. Bears are usually bears, sound smart, sound smart, but they're usually wrong. In fact, if people are fans of you know, I again, I'm more of a natural optimist. If you're a CNBC watcher, I like Tom Lee, he's my favorite person on CNBC. You can tell by listening to him that he's, you know, speaks with honesty and conviction with what he's saying and he's a natural bull.

Speaker 1:

And I think, if you know you're a pessimist in life, you're probably unhappy and you don't want to stay like that. Guys. You want to be optimistic, you want to remain bullish Because, just look at it, for the long term, this thing will turn around. We may have another leg down here, but eventually it's going to turn and if we do fall into something eventually which is inevitable we will fall into another recession. I'm not trying to predict it, but we've got the Fed. You know who's going to come in and they're going to quantitative ease and then things are going to be reaching all time highs again. I can say that with 100 percent certainty.

Speaker 2:

So it's a question of the, the when with that and that's always the challenge and then, obviously, having the patience for that, let's talk about some of the specifics around timeframes here. So a lot of ways to be tactile the short-term, intermediate, long-term. How do you define timeframes in terms of the pivot points and everything that Howard Capital does?

Speaker 1:

Yeah, absolutely so. The pivot points are used within 20% of our funds, that's mutual funds and ETFs. That more works on a shorter to intermediate term basis. It's not we're not trying to J-trade here or make thousands of trades with this, maybe one or two a month max. It's going to obviously depend on the volatility of the market and the action that's going on. But pivot point's a little bit more short to intermediate term use with 20% of the funds. The other 80% is kind of dictated by the HCM byline, which is a longer term trend indicator.

Speaker 1:

For you guys listening, you know it's again, it's proprietary but it's, you know. Look at the 200 day moving average as an example. That's that's kind of a gauge on a technical level, a longer term trend indicator to the market. So that's kind of the time frames we're looking at. We're not trying to day trade over here and we're not trying to again time the market. I know you kind of mentioned there the when we get away from predictions. I can give your audience some information based on things that I've read personally, but again, it's the cost of what they're paying for it. Um, so, um, I'm not trying to predict and um, and I don't think people necessarily should either. And that goes back to why you know hiring an advisor um is often, you know, often well worth the cost. You're better off focusing on your business, increasing your income, being around your family and trying to live this life for the short period of time that we're here and not getting concerned about the day-to-day activity with this.

Speaker 1:

But people like that, they know we're doing something about it, not based on necessarily day-to-day but, yes, to answer your question, direct pivot's a little bit more shorter term.

Speaker 1:

You know we like to look at kind of weekly charts for that sort of thing and the byline you know being a little bit longer in cater. I like to put it this way, michael, you know, like the byline, it defines the big picture. The pivot points fine-tune the specific actions taken within the strategy. Think of it your audience can think of it like a football team. The byline is the head coach. It decides the game plan and whether the team should focus on offense or defense. The pivot points acts more like the offensive or defensive coordinator, helping identify shorter term adjustments and strategies within the overall game plan. So together, you know, we believe it creates a flexible yet disciplined approach to market participation, trying to optimize participation while having that discipline risk buffer in case things get bad. I also like to mention this the byline and the pivots are kind of like a belt and suspenders. Michael, there are two protocols in place to keep your pants from falling down.

Speaker 2:

You're a fan of the analogies. I love analogies like that and I don't need the image of pants falling down. I don't know if the audience does as well, but I think it's a good way to think about it. You mentioned sort of the longer term playbook, of the longer term playbook. Talk to me about sort of the last, maybe major bear market as far as how our capital managed through it. I mean, I think it's instructive because nobody knows what tomorrow brings. It could be certainly a bull market that continues. I mean this could just be to your point, just kind of nothing, burger, and everyone forgets about it in a few months. But yeah, every bear market also starts off with the same feeling, right? So any kind of war stories that you can even point to around how our capital is done?

Speaker 1:

Jason Richards yeah, absolutely, I mean again. We can go all the way back to our inception in 1999. I accepted, obviously, just before the dot com bubble, so that's that great timing there. But with the help of the by line, our firm was able to navigate through that pretty well. 2008, we did extremely well. We were down less than 10% across all our strategies. Again, through the last decade, our longest running strategy was up over 100%, compared to the S&P being up roughly 7%, 8%, getting to the latest into this decade, 2020, we navigated extremely well. We reduced exposure. We were out about 60% to 80% in our strategies and then we got fully back in the market. The market bottomed, I believe, on March 23rd. Our strategies were all fully back invested by April 14th. I believe that was around the same time frame that the Imperial College over in London was telling us everybody was going to die and there was a lot of fear. I could tell just by being on the phone with advisors, but we ended up that year up anywhere between 30 to 50% in our strategies.

Speaker 1:

2022 was the worst year Howard Capital's had in our history, being primarily a tactical manager that specializes in trend analysis when there's no real trend, like there was in 2022, a manager like us could struggle. But that pivot point system I was talking to you about, michael, the little bit shorter term tool, was an evolution in our trading process due to what we experienced in 2022. And our portfolio manager, ceo Vince Howard, as competitive as he is, you know, and as humble as he is, he knows, you know, he never wants something like that to happen again. That's not what we get hired to do. And, um, and he's not dogmatic from the standpoint of saying, oh, we've had these great equations, these algorithms, going back, you know, 20 years. Why change anything? Nope, as markets evolved, michael, so are we. Um, so the pivot points will allow us to take advantage of some of those intermediate term run-ups. At the same time, when markets start to deteriorate, the pivots can help us exit out about 20% cash within our strategies to help mitigate these sharp declines before they turn into full-blown sellouts. Our ETFs also our ETFs used to only be able to go to cash equivalents, short-term treasuries. That wasn't really helping us in 2022 due to the Fed hiking rates and we also got whipsawed a couple of times, and that's going to happen.

Speaker 1:

And you mentioned the pants analogy. Going back to active tactical managers audience. I'm not saying that we're going to outperform the market every single year. I'm saying we've got a process in place that removes behavior from the decision making, which behavioral finance shows. That's the number one reasons investors underperform the market. Every active manager is going to get caught with their pants down every once in a while caught with their pants down every once in a while. But the important part is that we get back up and we respond accordingly and we keep moving forward without overblown changes to our process. We didn't really change our process.

Speaker 1:

I would not say that More of an evolution and enhancement. I think a change difference between a change and an enhancement to me, michael, is an enhancement would be like let's just say your favorite steak is medium or filet mignon. An enhancement would be I add your favorite steak seasoning to it Full out. Change would be, let's say oh, you know, maybe we should go with a ribeye. Let's try and cook it medium this time. That's not what we're doing. So I think, going forward, investors will see favorable results. In the first year of the pivots In 2024, our ETFs first full year of the pivots in 2024, our ETFs outperformed. Lgh outperformed the S&P by about 250 basis points. Qqh outperformed the NASDAQ by almost 10%, so pretty good, and it allows us to take advantage of a little bit intermediate term volatility. I mean that yen carry trade was actually uh ended up being a really good trade force uh memories on that.

Speaker 2:

That was a fun day for me as somebody who uh has been on that kick for some time.

Speaker 1:

yeah, that was one market, michael and'll also add 2022, there was nowhere to hide. Most strategies were down. There were some managers that performed very well. Kudos to them. So, overall, we haven't seen a market like that in 40, 50 years, not since our portfolio manager, vance Howard, has started managing money. So we've seen something like that. We're going to perform better if something like that occurs again and that's kind of the beauty of running a quant strategy too, michael is that we have the capability of of taking the data, taking the data in our strategies and running it across vast data sets in order to optimize our, you know, and validate the effectiveness of our signals and optimize the parameters if necessary. So it's still new. We're still getting better and better. That's always what we're seeking to do for our clients.

Speaker 2:

Let's talk about the kind of education you put out there, because you know what you're doing as a firm is not typical in the management side of the industry. It takes a certain degree of communication and understanding. Some people might be skeptical, right. So talk about what you do to get the word out.

Speaker 1:

What we do to get the word out. I mean, it's kind of why I'm on the podcast with you right now. But I go back to I don't want to compete with fundamental managers. We seek to complement their strategies. Most advisors and portfolio managers. They use Howard Capital to enhance their existing allocations rather than making wholesale changes. Our strategy seeks to work within their existing framework to help improve client outcomes. It provides kind of an active tactical risk control mechanism to navigate these extreme market conditions when trends dictate caution. So again, while we recognize the importance of fundamentals, we also believe that complementing a more fundamental approach with a more quantitative tactical approach can create a more comprehensive approach to investing in a more full spectrum view of the market. By balancing shorter term conviction with longer term flexibility and I've run analysis with this it makes for a more adaptive portfolio and a more resilient and less vulnerable portfolio through market cycles. So you know not saying we're the perfect. A lot of advisors like to use this as an arrow in their quiver and if their clients, especially those nearing or in retirement, are either concerned one about a 40, 50% drawdown in their account which could greatly affect sequence of withdrawals, we can help with that. We can be a solution there because our portfolios can actually go to cash.

Speaker 1:

On the other side of the spectrum, a lot of folks are worried about running out of money in retirement and you know longevity risk people are living longer. Right, I have this. You know thing that I mentioned, michael. You know the best thing, michael, for you and your family is that you live a really long life, but the worst thing for your money is that you live a really long life. So how do we address these two things? When it comes to market risk sequence of withdrawal risk, longevity risk Investors need to be in equities.

Speaker 1:

It's the only proven vehicle to be able to outpace inflation and purchasing power risk, because cost of living can double for people in retirement. If you're too conservative, that often brings up more risk. I like to define money like this, michael Money to me is not currency, at least not in my industry. Money to me is purchasing power. So when purchasing power is getting eroded, that's risky. But when it's in something that's providing dividends that's historically, you know, growing its earnings and far outpacing inflation, that's not risky. So I kind of have it on the opposite spectrum. I think equities are less risky than bonds, to be honest with you.

Speaker 1:

Eric. For those who want to track more of the firm's thoughts, learn more about the funds, where would you point them to? Howardcmcom, howardcmcom. Howardcmcom. You can go, or HowardCMFundscom. Either way, howardcm Funds will just take you directly to the Funding ETF website. If you want to check out our firm in general, get some materials on us, to learn about us, you can just go to HowardCMcom. You can find everything you need there and you'll be able to find our home office number. Ask for Eric Nyquist. I'm happy to talk to any of you about anything that you might be concerned on or any questions you have relating to our firm.

Speaker 2:

Appreciate those that watched this episode of Lead Lag Live, sponsored by Howard Capital. Again, I'm a fan of the way that the firm looks at markets, because I'm a fan of active in general and like everything else, there are cycles where active works, cycles when passive works, cycles when they don't. I happen to think that we're probably in a good environment for active on a go-forward basis, but of course I'm a little bit biased. Thank you, eric, I appreciate it.

Speaker 1:

Of course, Michael have a great.

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Michael A. Gayed, CFA

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