Macro Minute: Week of September 8, 2025

Last week, I compared compelling arguments to be bearish and bullish on the current stock market. I also highlighted how there are always reasons to be bullish and bearish. Today, I want to highlight the best way to circumvent our emotions and stay invested through time even given heightened uncertainty. 

To do this, I want to highlight one of my research providers, Andy Constan. Andy runs Damped Spring Advisors. In a recent report he wrote this, “Always own beta. That is the synthesis. Down a level, own a diversified portfolio balanced to a full range of potential future outcomes. Mostly, stay at your risk target with your savings but consider the evolving world.”  

 Let me dissect what Andy is saying here. To begin, we must know what he is meaning when he says beta. What is it, and how do you own it?  You can simplistically think about beta as being market returns. If looking at the U.S. stock market, you could use the S&P 500 as the beta for large cap stocks. If looking at the bond market, you could use the Bloomberg US Aggregate Bond Index as bond market beta. Essentially, beta is what the different asset markets give you. You should not pay very much for beta strategies.  

The next part of what Andy is saying is to make sure that you are owning different betas that allow you to have positive expected returns even if a single beta has a negative return. In finance we call this correlation. You want to hold betas that are uncorrelated to one another. I have talked before on here about how most assets prices change based upon changes in economic growth and changes in inflation. For example, if economic growth slows and inflation falls, you could expect equity beta to decrease and bond beta to increase. Also, because the future is unknowable, it is important to have different exposures to different potential outcomes. 

The last thing Andy covers is risk and being aware of the changing world. With risk, everyone has a different risk tolerance and risk capacity. It is easy to forget about these when times are good or bad. When markets are calm and going up, it is easy to add in too much risk. The same thing is true when things get scary in markets, we tend to want to take no risk. The best thing to do is have a target of risk you want to achieve over time and stick to that plan. Don’t let emotions influence your decisions. Lastly, Andy warns that you need to be aware of the changing world. There are times when foundationally beta exposures need to be examined because situations change. For example, I have talked extensively about the imbalances that have built up over the last few decades and this has caused global investors to invest too much in U.S. assets. Because of that, it sets the stage for a prolonged period of the rest of the world to have the potential for higher returns going forward, especially in local currency terms. These are the type examples Andy means when he says to be aware of the changing world. You must be paying attention to be able to shift your beta exposures to the opportunities that the world gives you. Just know that these are rare because betas are usually consistent through time.  

Let me end by saying this, beta is the only free lunch in finance. It allows you as an investor to go along for the ride without paying the fare. It is a way to patiently compound wealth over a long period of time. The trick is to stay patient, not take on too much or too little risk, and not get bored with the process. 

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