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Birds, Puppies, and Risk

Birds, Puppies, and Risk

November 04, 2022

Every year, a group of friends and I make the journey to South Dakota for our annual pheasant hunt. Other than the 27-hour drive from Florida to the middle of South Dakota, it is an event that I look forward to each year. This year was especially exciting because I brought with me a new Vizsla puppy “Piper” that I have been working with for the past several months. There are a few reasons I really enjoy upland game bird hunting. The main reason is that I am impatient and sitting still for long periods of time is really not my thing. Pheasant hunting requires quite a bit of walking and physical exercise that keeps my interest. The second reason is the thrill of flushing wilds birds never gets old. All the trip planning, strategy, practice, and effort comes down to a few split seconds to identify, aim, and hopefully harvest a genuine South Dakota wild rooster. Finally, watching a well-trained dog work cover, hold a point, then retrieve a downed bird is quite enjoyable. While my new puppy Piper was not quite ready for prime time this season, she hunted and listened very well and had some pretty amazing points…unfortunately they were all field sparrows and not pheasants. In the end, it was a good learning experience for her to set up for off season training to hit the fields again soon.

We hunt on some private and some public land for what are called “Fair Chase” pheasants. This simply means, they do not stalk pen raised birds and we do not have a guide. Success and failure are up to our group. Over the past 9 or 10 years, I have learned quite a bit about techniques that can make or break our time in the field. The later in the season you hunt, the wiser these winged speed demons get so you must be smart to be successful. There have been several failed attempts over the years which enhance our knowledge to hopefully not repeat the same mistakes, although it for sure still happens.

One thing I would argue is the most important factor is finding a habitat with the right recipe for birds to thrive. Understanding the four components of life for a bird surviving the wild on a vastly changing climate in the upper Midwest is key. Those four things are food, water, grit, and shelter (or cover). If one of those is absent, your chances of finding birds go down; with each one missing the chances are reduced exponentially. Armed with this experience and understanding, our group was able to find some good areas to hunt, although with the drought across the region, it was more challenging than in years past. A key element became scarce and therefore the bird numbers were lower than we expected and that is often how nature works.

As an investment professional I often get asked, “Is this a good investment?” or “Is this a good time to get into the market?” The reality is answering these questions without some form of basis for analysis is very difficult and as with most things in life the answer is complicated and depends on a variety of factors, not the least of which is their own personal risk tolerance and time frame. When approaching growing wealth through investing, I would argue that a better approach is similar to hunting pheasants in South Dakota. Begin with the questions, “Is the environment in my favor” and “Are the elements of success present?” If the answer to those questions is unknown, then we are starting off on shaky ground and taking a fragile approach to understanding risk. Just as our group would not stop hunting a dry barren field with no cover, you shouldn’t throw assets at risk in the hope of a win over time. The odds will likely not be in your favor. Could you be successful? Sure, randomness is always possible, and there have been more times than I care to admit that a pheasant flies up next to our parked truck after our group has been standing around talking. However, is that the best method of finding more birds, likely not!

If you are following me so far, this should bring a question into your mind, “What makes for a favorable environment to place assets at risk?” If you sit down with 5 economists you will get about 9 answers to that question, because it can change with time and experience. However, in our humble opinion there are a few key elements that have been time tested and historically do well in a variety of market environments. The first is that of momentum, or in other words, am I sailing against the wind or am I sailing with the wind? This is important because market momentum can be used as a measure of overall market sentiment that can support buying and selling. It is an unemotional data point that we find to be very significant.

The next ingredient is risk, or phrased differently, how much risk are we willing to take to achieve a desired result? If you see risk as scary and not opportunity, then investing will be a real challenge. Defined risk is healthy and if we understand how our investment reacts in various environments then our comfort level can grow over time. The third ingredient is to know when you need your money. Since we likely do not have a perpetual time frame that Warren Buffet and his company Berkshire Hathaway has, sitting on something for decades might not be a strategy that fits our goals. In that case, to really nail down whether now is the right time to invest, we have to define our timeline. The final ingredient is to be willing to embrace the randomness of the markets. I have said this a few times in the past and will say it many times again, “Crazy things happen more often than we are willing to admit.” If that is the case, we must have positions in places that can potentially benefit from the chaos. Taking blind risk naked and hoping for success because, “Markets always go up over time” is not a strategy…it is fragile.

The Defender Strategy is designed to consider these key elements of success. Is it a perfect hedge? No, the only perfect hedge is in a Japanese Garden…nothing is fool proof, but it does put the math on our side! For the month of October, the model ended mostly flat across the board. We didn’t take the ride down the first two weeks, nor did we participate in the rally during the last two weeks. Again, the ingredients were not there to take more risk, so we remained disciplined which helped everyone have a smoother ride. For November, we will remain in defensive position, however the environment is improving slightly. We will keep the alternative signal managers on for November to diversify strategies and attempt to capture some upside if it should occur.

On a complete side note, if you ever wondered what will completely drain a puppy of that endless energy, three days of hunting and running hard in South Dakota is the secret! Until next time, have a great month!

The Top Risk On asset classes are as follows in order of momentum:

  1. None


Due to the increased Risk Off position for November 2022 we are still holding that position as very short-term treasuries to continue to harvest over a 3% annual yield while waiting. This position has very little sensitivity to interest rates and very low cost to hold at.


With a higher Risk Off position in the portfolio, our hedge trade becomes less important and can detract from performance if we have too much exposure. Therefore, we will maintain a reduced hedge position for the month.


Disclosures – The Pacific Financial Group

Kidder Advisers is not affiliated with The Pacific Financial Group, Inc. (TPFG). The information presented is believed to be accurate but has not been independently verified. TPFG makes no warranties as to the accuracy of the information or any representations made or implied. Articles cited/linked to are the express opinion of the third-party author. There are no affiliations between TPFG and any third-party links. All information may be changed without notice. The information should not be construed or interpreted as an offer or solicitation to purchase or sell a financial instrument or service and should not be relied on or deemed the provision of tax, legal, accounting or investment advice. Past performance is not a guarantee of future results. All investments contain risks to include the total loss of invested principal. Diversification does not protect against the risk of loss.