Epsilon Theory In Full


The soul of Epsilon Theory is our long-form content, a library of hundreds of pieces written by Ben, Rusty and others over the course of the last 5+ years. These are the print-and-take-home-for the weekend notes that made Epsilon Theory what it is today.

In the Trenches: Less Is More

By Peter Cecchini | May 2, 2019 | 1 Comment

At some point, all Fed Chairs learn that their primary function is just to wave their hands. Jay Powell has learned this sooner than most.

ET contributor Pete Cecchini goes way off the Wall Street reservation with this: the bullish narrative for U.S. equity risk makes sense only if one accepts a narrative that the Fed will proactively move to prevent a U.S. slowdown before it happens.

Don’t believe it.

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Starry Eyes and Starry Skies

By Rusty Guinn | April 29, 2019 | 8 Comments

The student loan crisis is a Big Deal. And it is only a part of a Bigger Deal: the Myth of College.

This issue will be front-and-center in the upcoming elections. We will all be handed our very own ‘Yay, College’ signs to raise high. More often than not, we will be asked to raise them in service of market-distorting policies which will make our problems worse.

You don’t hate education, innovation, progress, equality and merit-based reward systems…do you?

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Notes from the Diamond #7: Hittin ‘Em Where They Ain’t (Part 2)

By David Salem | April 25, 2019 | 20 Comments

ET contributor David Salem is back with five core tenets for achieving 5+% real returns over the next few decades.

It’s all a must-read, but I’m gonna highlight #4: “Favor equity investments in companies employing or serving primarily people with abundance as distinct from scarcity mindsets.”

This is the foundation for behavioral economics on a macro scale.

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This is Water

By Ben Hunt | April 17, 2019 | 16 Comments

Time to add a fourth shift in the Zeitgeist: capitalist productivity, now 200+ years old, is becoming capitalist financialization.

Wall Street gets something to sell, management gets stock-based comp, the Fed gets a (very) grateful Wall Street, and the White House gets re-election.

What do YOU get out of financialization? You get to hold up a card that says “Yay, capitalism!”.

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The Epsilon Strategy

By Ben Hunt | March 25, 2019 | 11 Comments

We can be better investors. Not by playing the cards we’re dealt any harder. But by playing the other players at the table a lot smarter.

It’s a new technology applied to an old investment strategy. It’s a new way to think about money flows and investor behaviors.

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Pricing Power (pt. 3) – Government Collaboration

By Ben Hunt | February 24, 2019 | 11 Comments

What killing active investment management? It’s not some monster hiding behind the rabbit. No, it IS the little white bunny. It’s the Zeitgeist of capital markets transformed into a political utility, innocuous on the surface … but with killer teeth.

How do you defeat the Zeitgeist? You don’t. The smart move, in fact, is to help the killer rabbit.

But there IS another way.

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Notes from the Diamond #6: Hittin’ ‘Em Where They Ain’t (Part 1)

By David Salem | February 14, 2019 | 0 Comments

In baseball and in investing, how do we distinguish truly great practitioners from merely good ones? Let’s start by looking at two greats who revolutionized how the game is played – Branch Rickey in baseball and David Swensen in investing.

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The Road to Tannu Tuva, Pt. 2

By Rusty Guinn | January 29, 2019 | 0 Comments

The next stops in our discovery of the process of discovery? A town of 1,282 people and the mind of a German physicist named Arnold Sommerfeld.

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You Are Here

By Ben Hunt | January 11, 2019 | 27 Comments

The greatest risk to your portfolio is a change in the zeitgeist. A change from deflation to inflation. A change from cooperative international games to competitive games. A change from capital markets to political utilities.

I think it’s all happening.

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The Road to Tannu Tuva, Pt. 1

By Rusty Guinn | December 19, 2018 | 5 Comments

When our processes of inquiry lack challenge, doubt and obsession with falsifying our best ideas, the result is inevitable. Our conclusions cease to be science and become something else entirely. That something else is a thing sensitive to narrative, vulnerable to priors and bias. That something else is scientism.

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Even When I Lie

By Rusty Guinn | November 28, 2018 | 28 Comments

The way I see it, there are three reasons a person becomes a liar: he believes that he must, he believes that he may, or he believes it serves a Greater Truth.

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Things Fall Apart (Part 3) – Politics

By Ben Hunt | November 19, 2018 | 15 Comments

Take back your vote.
Take back your distance.
Take back your data.

How to make our way as citizens in a fallen world, with Clear Eyes and Full Hearts to make it better.

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Notes from the Diamond #4: Less Is More

By David Salem | November 10, 2018 | 2 Comments

Peer group comparisons are the primary measuring stick of both baseball GMs and investment PMs. Here’s how they are used and (more often) abused.

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Draft Day

By Rusty Guinn | November 7, 2018 | 9 Comments

We are wired to associate outcomes with the biggest single visible variance. This is a process-breaking flaw for general managers and portfolio managers alike.

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In the Trenches: A False Sense of Stability

By Peter Cecchini | November 2, 2018 | 0 Comments

In the first note from new Epsilon Theory contributor Peter Cecchini of Cantor Fitzgerald, Peter gives us a window into what a false sense of stability may mean for investors heading into the end of 2018.

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Notes from the Diamond #3: Everything Has Its Price

By David Salem | October 26, 2018 | 7 Comments

Allocators and investors can learn a lot from professional baseball about how to structure incentives and compensation for portfolio managers. And how NOT to do it.

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Things Fall Apart (Part 3) – Markets

By Ben Hunt | October 24, 2018 | 22 Comments

The Fed, China and Italy are the Three Horsemen of the Investment Semi-Apocalypse. They’re major market risks, but you’ll survive.

There’s a Fourth Horseman. And it will change EVERYTHING about investing.

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By Rusty Guinn | October 23, 2018 | 5 Comments

In Part 4 of the Three-Body Alpha series, we explore how narrative may shape the tendencies of certain trend-following strategies – and how investors should respond. We also talk Tesla, if you’re into that sort of thing.

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Notes from the Diamond #2: Until the Truth Comes Out

By David Salem | October 11, 2018 | 2 Comments

Part 2 of a multi-part series that seeks to enhance readers’ deployment of both human and financial capital through the exploration of parallels between money management and professional baseball.

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Clear Eyes, Full Hearts, Can’t Lose

By Ben Hunt | October 2, 2018 | 18 Comments

What to DO when Things Fall Apart. How to make your way in a fallen world, where the electorate is polarized, the market is monolithic, and everyone seems to have lost their damn minds.

It’s not an Answer. It’s a Process.

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