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See the forest AND the trees.

Red Leaves

FOREST AND TREES

HOW WE SEE THE FOREST AND THE TREES

The typical investment strategy often misses the bigger picture. Our independent, in-depth research lets us see the trees. Our proprietary macroeconomic model, the “Canopy” that figuratively covers our portfolios, lets us see the forest.

SEE THE TREES: Individual Security Selection

Black Cypress’ investment approach is built on independent, in-depth research. We intimately know our holdings. Our initial research process for an investment idea generally takes several weeks and includes industry and competitor analysis, the methodical review of public filings, building valuation models, and developing and stressing an investment thesis. Other investment managers often perform minimal research of their own or may depend heavily on the research provided by others. While most of our ideas fail to meet our strict criteria, an investment will find its way into our portfolios if it trades with a suitable, risk-adjusted discount to our estimate of its worth and if it improves the expected return and overall diversification of our portfolio.

SEE THE FOREST: The Black Cypress “Canopy”

The economic cycle–the turning point from expansion to recession in particular–has caused the vast majority of negative market returns. Since the late 1960s, the S&P 500 has declined an average 30% in recession-driven bear markets. It is for this reason that Black Cypress developed a proprietary macroeconomic model that utilizes leading economic indicators (all publicly available and most of which are provided by government agencies) to attempt to gain advance warning to probable inflection points in the economy.

We believe our economic model has a fundamentally-sound basis and avoids the core pitfalls of back-testing through:

  • A foundation built on the research of experts in the field of leading economic indicators. Our model therefore has strong economic intuition (no data-mining)
  • Use of unrevised or lightly revised and therefore historically consistent data with no hindsight bias (also called look-ahead bias or survivorship bias)
  • Credible data sources
  • Large sample size encompassing nearly 12,000 trading days across the last 50 years (not susceptible to a short-term and therefore fleeting relationship)
  • Simple and robust methodology

 
We do not claim to have a fool-proof recession prediction model, only that we have worked to tilt economy-wide probabilities, in addition to company-specific ones, in our favor and continue to manage risk accordingly.

See our results.