Resources & Investment Updates From Komara Capital Partners

We are frequently asked whether we are optimistic or pessimistic about the markets, the economy, the state of the U.S. in general, etc. These are reasonable questions, but they miss the essence of our approach. At Komara Capital Partners, our investing process, which is predicated on trend following, doesn’t hinge on whether we view the market with optimism or pessimism. Instead, it is rooted in discipline and consistency.

In fact, we believe an emotional attachment to markets — whether via optimism, pessimism, predictions, or any other judgments — is counterproductive and can lead to subjective, ego-driven decisions. Trend following is not about making bold predictions or riding the waves of market sentiment. It’s about having a clear, adaptable plan that can be applied regardless of market conditions. This systematic approach allows us to manage both the highs and the lows without being swayed by emotional impulses.

In June, for example, we saw the persistence of certain outliers that could cause an investor to make rash decisions if they don’t follow a systematic plan: 

• The S&P 500 and artificial intelligence stocks reached new highs
• The Japanese Yen hit 30-year lows
• Large cap versus small cap divergences were pronounced

Despite various forecasts and sentiments, by following price, a trend following approach inherently ignores the emotional charges of these movements.

Trend following is not about predicting outcomes but about maintaining a disciplined process. By adhering to a disciplined strategy, we can take decisive action without second-guessing ourselves or trying to parse someone else’s motivations or judgments. Yes, it can be boring, and we don’t always have a keep-you-on-the-edge-of-your-seats “story.” We’re focused far more on consistency and repeatability than narrative.

In this month’s Note, we discuss in greater detail the active outliers occurring in today’s market environment. We compare a traditional portfolio management approach to our systematic trend following strategy in terms of capturing these outliers. As part of our comparison, we talk about how, to catch the big waves, you sometimes have to paddle for the smaller ones that look promising but don’t always swell up.

But first, here’s a summary of the global asset classes utilized in our portfolios and their exposures for July.

We believe a significant advantage of trend following is its ability to help investors manage emotions and behaviors by providing a clear, adaptable plan for any market scenario.

This systematic investing strategy aims to generate alpha through investment returns, but also to maintain discipline and consistency in the face of market fluctuations. In our view, trend following excels at managing market outliers — those rare, unpredictable events that can significantly impact performance. For example, NVIDA’s market cap has reached $2.6 trillion, $890 billion higher than all the companies in the S&P 500 Energy sector combined. Such unprecedented events underscore the need for a robust plan for navigating these exceptional occurrences.

Last month we discussed the tendency of markets to experience downturns and how trend following often takes a wait-and-see approach during small declines. Like we discussed could happen, April’s U.S. equity market declines were erased in May, as the market bounced back and set new all-time highs. This illustrates that trend following is less about predicting outcomes and more about maintaining a disciplined process. This investing approach enables decisive action without second-guessing, which we think is a significant advantage.

In this month’s Investment Update, we discuss our continued wait-and-see approach in fixed income, which has been significantly affected by what’s been happening — or not happening — with interest rates. Despite predictions of cuts in 2024, higher rates have persisted. Trend followers like Komara Capital Partners have navigated this uncertainty by adhering to our rules, which has allowed us to benefit from the high yields of short-duration instruments.

But first, here’s a summary of the global asset classes utilized in our portfolios and their exposures for June.