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In the 2008 comedy Forgetting Sarah Marshall, Peter Bretter (played by Jason Segel) takes a vacation to Hawaii in an attempt to get over his ex-girlfriend (played by Kristen Bell).

In one of my favorite movie scenes ever, he decides to take surfing lessons from Kunu (played by Paul Rudd).

Now, if you’ve never taken a beginner’s surfing lesson, it’s important to know that they start on the beach.  The instructor teaches the student how to actually stand up on the board, which is a not-so-trivial action.

“Don’t do anything,” Kunu says sagely.  “The less you do, the more you do.  Let’s see you pop it up.”

Peter jumps up on the board.

“That’s not it at all,” Kunu says disapprovingly. “Do less.  Get down.  Try less.  Do it again.”

Peter tries to get up much slower, but before he even gets off his stomach, Kunu says, “Nope, too slow.  Do less.”

Peter begrudgingly resets and tries again.  This time, he gets to his knees before Kunu chimes in. “You’re doing too much.  Do less.  Pop down.”

“Remember, don’t do anything,” Kunu instructs.  “Nothing.  Pop up.”

To which Peter finally does nothing.

“Well, you… no, you’ve got to do more than that.  Because you’re just lying… it looks like you’re boogie boarding.”

As trend followers, we can sympathize with Peter.  For the last decade, “You’re doing too much.  Do less,” has been the best course of action.  Until March, when it became: “Well, you … no, you’ve got to do more than that.”

Specifically, we have received many questions relating to our method of tranching in our trend-driven strategies. 

In most of our mandates, we specify a one-month tranching period, which means that if a trend signal turns off and stays off, the corresponding position will be reduced in size over the next month.

When faced with one of the fastest equity market declines in U.S. history, a month can feel like an eternity.  “Well, you… no, you’ve got to do more than that.”

This week, we review both the philosophical and empirical evidence behind tranching. (PDF)

⚡️Corey


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What We're Reading
THE MECHANICS OF PANICS: "But the dynamics favor first movers, which leads to participants leering at each other in a circle of mutual distrust, trying to discern if anybody else might jump–so that they might jump first. And as soon as somebody flinches, the run begins. This is an example of a prisoner’s dilemma,1 the classic example of this dynamic in game theory, where the very anticipation and fear of what others may do alters the optimal choices of each player individually. Anticipating the panic of others will often lead all players in a prisoner’s dilemma to panic themselves.Unwinds, Diversification, and Constraints: The Mechanics of Financial Panics

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