VALUE: After Hours (S08 E15): The HEAT Investment Framework

During their recent episode, Taylor, Carlisle, and Matthew Tuttle discussed The HEAT Investment Framework. Here’s an excerpt from the episode:

[Matt] Yeah, so that is my investment philosophy. As much as possible, we try to launch ETFs around that. We write about that in our daily newsletter.

And that’s how we manage portfolios at Tuttle Wealth Partners, our wealth management firm. So it stands for H is for hedges. And our philosophy, as I said, is you always need to be hedged.

And bonds are not a hedge. For something to count as a hedge, it’s got to work every time. And, you know, Wall Street’s traditionally pitched bonds as the hedge.

But if you look at this Iran war sell-off, Liberation Day, 2022, not only did bonds not protect you, they hurt you. E is for edges. Whenever possible, be the casino, not the gambler.

And, you know, there are edges that are out there that are exploitable, that don’t get arbitraged away. You want to take advantage of those. A is for asymmetry.

Limit your downside, not your upside. You know, what we talk about, there is no right answer when it comes to investing. You interview a lot of top money managers.

I do as well. Everyone’s got a different way of doing it. But the key thing everyone has in common is when they’re right, they make a lot of money.

And when they’re wrong, they don’t lose a lot. That’s the key. And then T is for themes.

You want to always be invested in today and, more importantly, tomorrow’s top themes. We teach people to look at kind of a thematic investment hierarchy. Identify the theme.

Who are the obvious winners? Who are the suppliers to the winners? And then what are the asymmetrical players?

You know, the names that could 20x, 30x, that are going to be more risky. And you want to have a mix of all of that. And again, one of the ways we identify that is when we want to look at where the bottlenecks are.

But you also want to cut through, you know, the noise. Like, you know, the EUAD example, you know, again, what is the obvious Trump trade? You know he hates NATO.

And, you know, think about things from a thematic standpoint. And that’s the HEAT formula. You know, beyond that, there are multiple ways you can use it.

You know, we’ve got a portfolio approach to it, which, you know, takes from the old permanent portfolio and modernises it. But, you know, if all you do is take away the H for hedges, you know, I’ve made your life a little bit better. Or if all you do is think about asymmetry, I’ve made your life a little bit better.

You know, thematic investing, you know, great. So it’s not like a 60-40 portfolio where, boom, here’s exactly what you invest in. But it is concepts.

In a perfect world, you’re using all four. But if you just use one or two, you’re better off. Take us through.

[Jake] If someone wanted to push back and say, like, where does valuation fit into this?

[Matt] Valuation can fit into it, you know, on the thematic side. And I’m not as concerned about valuation, you know, because you have, like, some of these moves that, you know, don’t make any sense. Now, again, when I want to buy into these themes, I want to buy into them when they dip.

So, you know, I’m not chasing a lot of this crazy stuff. But then, you know, I do want to add in, you know, and I don’t think of it like value. So, like, one of the themes that I love is called HALO, heavy asset, low obsolescence.

So one of the issues I have with value investing in a time of AI is, is a company undervalued because people just don’t appreciate it? Or is it undervalued because AI is going to eat their lunch? So what I want to find is the companies that AI cannot put out of business.

So AI is not going to put a railroad out of business. AI might make a railroad operate more efficiently. AI isn’t going to put a copper mine out of business, but they may help them run more efficiently.

And then, you know, AI not only isn’t going to put, like, a utility out of business, it’s going to need that utility to pump power in. So what that ends up doing is it ends up getting me, quote, unquote, value stocks in my portfolio by comparison. And then I would argue diversifies me, you know, against, like, if I go into the memory and the photonics, which if you look at them from a value perspective, you’re like, no effing way I’m going to buy those companies.

You know, they’re trading at a gazillion PE, you know, whatever value metric you put on SanDisk, I mean, it’s not going to work. But, you know, we mix it with, like, a Freeport, McMoran or an Alcoa, you know, in a railroad, then, you know, there you go. There’s your stock portfolio.

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VALUE: After Hours (S08 E15): The HEAT Investment Framework

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