The 🔥H.E.A.T.🔥 Formula

AI Driven Insights to Spark Your Portfolio

February 28, 2025

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I’m going to be on the Schwab Network at 8:40AM EST talking about TSLA and/or SMCI

The H.E.A.T. Formula is a radically different way to look at investing your portfolio.

‍H- Hedges, you should always have hedges and be agnostic as to being long or short. Bonds are not a hedge

‍E-Edges, you should always look for edges. Preferably these are edges with some sort of psychological underpinning, structural edges, or some sort of barrier to entry.

‍A-Asymmetric. Everything you do, be it trades or your overall portfolio, should be designed so that heads you win a lot, tails you lose a little.

‍T-Themes. You should always be invested in the top themes. Most everything else is just noise.

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Rebel Finance Podcast-Episode 2 is Out

Market Recap

The market tried to rally on NVDA earnings but Trump announcing more tariffs put an end to that.

SPY continues to look like a short….

We are sitting right at the election gap, 10 points away from the Jan 13 low. So there’s some support here before the 200 day moving average. QQQs are 10 points away from the 200 day…..

Bitcoin is now below the 200 day…..

I continue to think the headwinds to this are too strong and we will see 100k again, the question is when. My sense is that Bitcoin is a lot like China, you want to buy it when nobody else wants to, probably not quite there yet.

Jefferies had a note out last night that I think summarizes the situation really well….

Last few days have been painful to a number of investors. In my view, bulk of the move has been driven by unwind of positions rather than a necessary change in fundamentals. Early last week, market was short rates and long equities, particularly Tech. The rates move started with Bessent comments around not terming out of debt, which was effectively reinforcing the view that he wants to keep long end yields under control. News story around Microsoft closing a few data centers led the market to question whether the valuations in tech and energy as well as the capex expectations are justified. Macro data has been on the soft side adding to the markets concerns over valuations and economy.

And they are echoing the European defense theme we have been talking about for a while (EUAD)….

We have also been shifting towards a bullish view on European stocks, in particular defense. We continue to believe that Europe has no choice but to significantly increase its defense spending. Hence, Europe should outperform US in the coming weeks.

Now the hard part. Markets looking to try to bounce again this morning, and at some point we bottom, but I don’t think this is it. The markets are scared about tariffs and people are starting to ask the uncomfortable questions about AI spending. I’d continue to use rallies to add to hedges, keep long positions small, and buy TLT on dips. No point in trying to call a bottom, there will be plenty of time to hop on the move when it comes.

Anytime I see anything quantum related it piques my interest. Quantum has the potential to be a game changer, even more than AI potentially, but nobody really knows how far away it is. I had Grok 3 take a stab at this development….

Recommendation

Amazon’s "Ocelot" chip is a compelling development, particularly its cost-reduction potential, but it doesn’t yet translate into immediate "must-buy" opportunities in publicly traded quantum computing stocks. Here’s my guidance:

  1. No "Must-Buys" Now: The timeline and risks outweigh near-term certainty. Neither $AMZN nor pure-play stocks like $IONQ, $RGTI, or $QBTS meet the threshold for an urgent buy.

  2. Strategic Watchlist:

    1. $IONQ and $RGTI: Consider small positions (e.g., 1-2% of a tech portfolio) for high-risk/high-reward exposure if further technical validation emerges.

    2. $AMZN, $MSFT, $GOOGL: Maintain or increase holdings for diversified tech exposure, with quantum as a bonus.

  3. Action Plan: Monitor "Ocelot’s" progress (e.g., third-party validation of cost claims, scalability demos) and competitor responses over the next 12-18 months. If Amazon solidifies a lead, revisit pure-play stocks for momentum plays.

I’d advise patience. Quantum computing is a marathon, not a sprint. Let’s wait for clearer signals before deploying significant capital, ensuring we balance your firm’s risk tolerance with the sector’s speculative nature.

Here’s GPTs take….

🚀 Buy SoundHound ($SOUN) Cautiously, But Not a Full Conviction Play

  • Strong revenue growth (+101% YoY) makes it an intriguing AI small-cap.

  • Dominates restaurant voice AI, but faces big competition from tech giants.

  • Needs to prove it can become profitable without burning excessive cash.

📌 Investment Rating: 7.5/10 – Good Growth Story, But Not Without Risks.

I think this is an issue with a lot of these smaller AI names, they could make a dent or the big guys could crush them. So with all the AI sub sectors you have the must owns and then the speculative plays. I have a small position in SOUN (used to be bigger) and think it’s buyable down here as a speculative play, as long as the 200 day holds.

Before you go: Here are ways I can help

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  1. ETFs: We offer innovative ETFs that cover all aspects of The H.E.A.T. Formula, Hedges, Edges, and Themes.

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