What Hamilton Has to Teach Us About Todays Market


November 2018

Recent weeks have seen yet another uptick in one of the most overused expressions in investing: October’s technology-led sell-off was the inevitable result of the “crowded trade” in the FAANG stocks. Certain trends in the quant space have echoes of the “crowded trade” that led to the Quant Wreck of 2007.

But as QMA explains in their newest white paper most of the time when people say that something is, or was, a crowded trade, they have no idea what they are talking about.

Using the phenomenally successful Broadway musical as an allegory, Maggie Stumpp teases apart exactly what is – and is not – a crowded trade, and why it matters for investors hoping to insulate portfolios from the types of disruptions we could face in the months and years ahead.

A key part of the distinction, it turns out, has to do with market liquidity and the need for immediacy. The FAANGs may be popular and therefore potentially at higher risk for disappointment. But when it comes to the risk of a crowd overwhelming the exits, the risk is probably greater in some more under-the-radar segments and vehicles. Good to know if one has a vested interest in not getting run over at the door.  


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