2020 Mid-Year Update

To our Partners,

I hope this finds you healthy and safe.  We have had an interesting start to 2020 with the rapid spread of coronavirus and the beginning of an anti-racism movement.

As for HIT Capital’s performance, we experienced our worst month (-24%) followed by our best (14%).  The market swings, pandemic, riots, and government stimulus were all unforeseen only 6 months ago.  These events are each significant, but none influence our long-term strategies of Beta Slippage, Contango, Value and Momentum.



Year to date HIT Capital is down 14%, as is International 11%, S&P500 4% and the hedge fund index 3%.  This brings HIT Capital’s total return since inception to 96%.


Unconscious, Cognitive, and Behavioral Biases

2020 has been fertile ground for us to experience a few of the more than 300 behavioral biases that are the foundation of our Value and Momentum strategies.

COVID-19 or Coronavirus

Humans prefer to generate quick and easy responses over thoughtful and complex ones.  We naturally seek out patterns and create shortcuts, but in new, complex, and uncertain situations (coronavirus) the patterns we tend to rely on do not exist. Therefore, in times of uncertainty our behavioral biases play a larger role in our actions, thoughts and decisions.

So, now that we have experienced coronavirus for months we are thinking probabilistically and working towards complex but reasonable solutions, right?  Unfortunately the transition is not easy and our bias to think fast still typically wins out. For example, I continue to regularly hear the following responses regarding the virus:

  • The pandemic will be over by July (August) (September),
  • The economy should be open (closed),
  • Trump is right (wrong),
  • This is (is not) China’s fault,
  • State borders should be closed (open),
  • Schools should be closed, (open).

This is similar to other complex situations in which we do not know the outcome.  The tools and processes we use, like Decision Quality can help overcome our biases. We can plan, pivot and evolve as we learn, invent and overcome.

Inequality, Implicit Bias

We are experiencing a movement to eliminate racial inequality and prejudice, but what we tend to overlook is the role implicit bias plays in it all.  Implicit bias is an unforeseen back-seat driver that influences our perceptions and attitude.  Humans subconsciously create feelings and stereotypes based on broad-based characteristics such as race, ethnicity, age, gender, religion, and appearance, all of which can lead to a subconscious prejudice. While we may not act on these stereotypes knowingly or even consciously think about them, subconsciously they are there, and they could influence our decisions and actions*.

If you have an interest in learning about implicit bias, I recommend taking the Implicit Association Test.  The results can be harsh, so you may need a strong stomach, but it is free, takes a few minutes, and has a myriad of characteristics you can test yourself on.  (If you are comfortable sharing, I am interested in your pre vs post-test perspective.)


Value and Momentum

Building upon our behavioral bias research, we have been working to improve our value strategy.  The current process is to select top tier quantitative value and momentum funds, but as we have learned, the best funds grow.  When a fund grows too large, they stop investing in smaller companies which leads to a smaller pool of companies to choose from.

Therefore about 2 years ago I began the journey to learn and write code so we could develop our own quantitative value screener.  Over the past 6 months the database started to take shape and it now includes more than 4,000 companies.  This will grow our domestic stock universe by more than 200%.  The following chart displays value funds and the number of stocks in which it can choose from to invest.


The additional stocks in our database, not seen in the other funds, will primarily be smaller, lesser known companies (micro, small and some mid cap).


Now that we have expanded the universe of available stocks in which to invest, the next step is to clean our data. This will include removing reporting errors and data outliers.

Beta Slippage and Contango

We continue to capitalize on the Beta Slippage and Contango strategies while we await the TD Ameritrade acquisition by Schwab.  The results could be beneficial or detrimental depending on whose policies are adopted and what funds are available to short.



HIT Capital is fully vested and continues to allocate across all four strategies. Value is our strongest position (43%) followed by Value & Momentum (23%), Beta Slippage (14%), Contango (12%), and Momentum (8%).  At the end of March, we fully exited our only market short position and currently hold only long positions.



HIT Investments and HIT Capital are both still undergoing an audit by the Texas State Securities Board.  I suspect the coronavirus may be playing a role in not having received a response from their surprise visit in late 2019.



I continue to be excited about our future and the opportunities to create, learn, build, and optimize for years to come.

Thank you for investing alongside me and for your continued trust.   I hope your families stay healthy and happy.  Until next time have a safe, prosperous and joy filled 2020.

Warm Regards,

Stephen Read






Behavioral Bias – Coronavirus

Human biases and the SARS-CoV-2 pandemic – Elsevier Public Health Emergency

The problems with thinking Fast – HIT Investments

316 Cognitive and Behavioral Biases – HIT Investments


Implicit Bias

Implicit Association Test – Harvard

Implicit Association Test – Wikipedia

* Whitened Résumés: Race and Self-Presentation in the Labor Market Sonia Kanga , Katy DeCellesa , András Tilcsika , Sora Junb – Implicit Bias Study

Understanding Implicit Bias – Ohio State University

Understanding Implicit Bias – Thought Co

Implicit Bias Overview – Very Well Mind


Implicit Association Test Results

Stephen’s IAT results:

Everyone’s results: