David Toohey, FIAA CAIA CIMA

When Bond Markets Sneeze, Equity Markets Catch a Cold The sudden and significant surge in bond yields is not fully priced in to equity valuation models in my view and this will have tail risk implications for equity markets: - Target prices in Bull, Base and Bear cases need to be recalibrated and Bear scenarios can look very asymmetric due to the current macro environment - Valuations will be reassessed in light of the new interest rate reality - Anticipated pro business policies from Trump administration are currently keeping equity prices higher, however relative attractiveness of higher bond yields vis-a-vis equity earnings yields will be an important factor for portfolio managers.

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Everyone wants to start an ETF - few think about life after launch. Without distribution reach and brand power, most new entrants will struggle to compete with the big boys. This week’s ETF newsletter is out and covers the above plus:  👉 Hong Kong’s ETF surge: HKEX’s ETP market now ranks #3 globally by turnover, with daily trading averaging HK$37.8 bn (US$4.9 bn) — overtaking South Korea and Japan as assets doubled to HK$650 bn over the past decade.  👉 Precious-metal FOMO: Australian investors have poured nearly A$1 bn (US$646 m) into gold ETFs this year, the highest ever, as safe-haven demand and “FOMO” drive record inflows.  👉 Big Three dethroned: Vanguard, BlackRock and State Street still dominate but now command just 57% of ETF flows YTD, their lowest share in a decade, as new issuers chip away at the incumbents’ moat.  👉 Crypto consolidation: FalconX is acquiring 21Shares in a landmark deal that unites a $2 trillion-volume crypto-trading platform with one of the largest digital-asset ETP managers ($11 bn AUM).  👉 UK tax trap: From April 2026, crypto ETNs in Stocks & Shares ISAs will be reclassified as Innovative Finance ISA holdings; unless platforms offer IFISAs, investors may be forced to sell.  👉 Leveraged-ETF arms race: U.S. issuers including Volatility Shares, ProShares and T-Rex are seeking SEC approval for 3x–5x leveraged funds tied to the Dow Jones, Nvidia, CoreWeave and crypto assets, a fresh wave of high-risk innovation. If you work in ETFs, you don’t want to miss this. Subscribe now to get the full stories delivered every week — or DM us for the link.

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This 25-year fund manager just explained me why most careers fail. Cole Wilcox started as a 19-year-old stockbroker. Now he manages millions at Longboard Asset Management. His first lesson came watching clients lose everything in the dot-com crash. "I'd see brokers tell clients to sell winners after 10% gains," he told me on the Blunt Dollar podcast. "But when stocks dropped 50%, they'd go silent." The pattern was always the same: → Quick to take small profits → Slow to cut the portfolio losses → Eventually ride positions to zero → Blame it on the "market conditions" That early trauma shaped his entire philosophy. Cole's "double zero" concept has changed how I think about diversification. This is how it works: In American roulette, you can bet every number. Perfect diversification, right? But when the ball lands on double zero, everyone loses. Only the house wins. That's your portfolio in 2008. In March 2020. In every crisis where correlation hits one. His mission: engineer portfolios that remove the double zero entirely. Here's what broke my brain: Cole's strategy loses 60% of the time. Six out of ten trades are losers. By design. But the 40% that win? They win 4x bigger than the losses. "Most investors can't handle that," he said. "They need to be right. Markets don't care about being right. They care about asymmetry." September 2008. Lehman Brothers collapses. Markets in freefall. Cole's portfolio? Already sitting in Treasury bills. Not because he predicted it. Because trends had turned negative months earlier. The system saved them before they knew they needed saving. "We don't predict crashes," he explained. "We build systems that survive them." They bought Tesla at $3-4 billion market cap. Held for years as it grew to $1 trillion+. Never checked quarterly earnings. Never watched CNBC. Just followed the trend. "Macro trends take years, not quarters. While everyone's refreshing their Bloomberg terminal, we're playing a completely different game." I also loved his advice to young professionals: "Keep your burn rate low. Every dollar you don't spend is a dollar you can invest in learning." Most chase high salaries then spend it all on lifestyle. The smart ones compound knowledge while others compound debt. After 25 years surviving every market disaster, Cole's built something remarkable: A system that embraces losing to win. That finds opportunity in others' panic. That compounds through chaos. His parting wisdom: "Finance is a marathon. The get-rich-quick crowd never makes it past year five." The patient ones? They're still here 25 years later. Still learning. Still compounding. Still removing double zeros. Link to the full episode in the comments. PS. If you made it this far, ♻️ share this with your network and 🔔 follow my profile.

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One of the key challenges faced by investors aiming to generate long-term returns with a diversified portfolio is ‘line-item thinking’. This is where we obsess over the success or failure of individual positions, often losing sight of our true investment goals and the principles of sound diversification. A good investment decision is not the same as a good portfolio decision. Portfolio objectives are often framed in terms of beating a benchmark or ‘optimising’ for a given level of risk. Neither of these feels quite right. A benchmark-centric approach implicitly assumes that the benchmark is the correct base mix of assets for our requirements; while optimisations that are striving for ‘return maximisation’ within certain parameters suffer from inputting forecasts that we know will be wrong into a system very sensitive to those incorrect forecasts. Rather I think for most individuals the objectives of our portfolios should be something along the lines of: To maximise the probability of delivering good outcomes and minimise the probability of very bad outcomes. It follows that any decision we make regarding our portfolio should be consistent with achieving those aims; and this is where the issue of line-item thinking arises. What is line-item thinking? It is characterised by these types of behaviours: – Thinking about the attractiveness of an investment on a standalone basis, or relative to one other asset. (I expect US equities to outperform emerging market equities, so I am overweight). – Thinking about how an investment will perform in one future scenario. (I don’t think there will be a recession this year, so I prefer high yield to high grade credit). – Thinking in terms of profit and loss, and whether an individual position ‘added value’. (This position detracted value and therefore was a mistake). Although line-item thinking can seem reasonable in isolation, it is often antithetical to good portfolio decision making The principal reason we build portfolios that combine different holdings is diversification. The future is unknowable and therefore we want to create a combination of holdings that is robust to that uncertainty. If we could predict the future, we would only hold one security. Good diversification is about making choices that we expect to work in a world that we don’t expect to happen. Line-item thinking creates a major problem because instead of considering the role each holding plays in meeting the objectives of our diversified portfolio, we think about them independently – did this asset, fund or view outperform or not? This mindset inevitably leads us to trade too much, chase performance take on too much risk (concentration) and portfolios that are less resilient to an unknown future. --- There is a link to the full post in the comments, which covers the problem of outcome bias, and how to judge whether a position is working in a portfolio context (it is more than just - has it outperformed?)

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