When AI Meets Politics: Darwin and the TACO Trade

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Markets Expected to Drop – So Did Darwin

In May 2025, Darwin's UMAi portfolios responded to tariff threats by reducing exposure to high-risk assets. As designed, the models prioritized risk control — and underperformed the surging market.

Instead of correcting, the market rallied. Why?

Enter the TACO Trade — short for “Trump Always Chickens Out.” It was coined by Financial Times columnist Robert Armstrong. Just a light-hearted note here — the term is meant to describe a recognizable market pattern and isn’t a political statement. We don't take political sides, and our tacos are always served without bias. 

This pattern sees sharp rhetoric spooking markets, only to be followed by walk-backs that reverse losses. And this time, the relief rally left Darwin looking cautious and under-performing for the month. 

But that’s not a mistake. That’s by design.

Visualizing Fear, Greed, and Discipline

Let’s explore this with a scatter plot showing UMAi Growth portfolios' performance vs. the benchmark (S&P 500):


Each dot represents a month. Red dots — like May 2025 — show market gains with portfolio underperformance. While they can sting, they are the necessary price for the green dots — where Darwin holds up or outperforms during drawdowns.

The red dots represent “chickening out” — the model pulling back in the face of elevated risk. It’s the same instinct that leads to green dots: resilience during chaos.

This is the heart of risk management. You don’t just try to win. You avoid losing badly.

Timeline View: Why Smooth Returns Require Tradeoffs

Now look at the long-term view:


The top chart shows UMAi Growths' relative monthly performance — green bars for outperformance, orange for underperformance. The bottom chart shows the theoretical cumulative returns since inception — UMAi Growth (blue) vs. SPY (black).

Notice the lower drawdowns? That’s Darwin “chickening out” in riskier months. And here’s the core insight:

You can’t ride a roller coaster that only goes up.
A smoother ride mathematically requires underperformance during euphoric runs.

This tradeoff allows Darwin to sidestep large losses, resulting in steadier long-term growth — without the emotional whiplash of the broader market.

The Psychology of Investing Under Pressure

Behavioral finance gives us the real story:

  • Investors panic during drawdowns (fear),

  • Chase rallies (greed),

  • And blame models for underperformance (self-serving bias).

Darwin sidesteps these traps by managing risk, not emotion. That discipline means sometimes missing a rally — but also means avoiding disaster.

May 2025 was a test of nerves. And Darwin passed, even if it didn’t “win” the month.

Final Takeaway

Darwin’s investment philosophy is simple:

  • Win by not losing.

  • Accept the red dots as the price of earning the green ones.

  • Focus on consistency, not drama.

Because over time, success doesn’t come from reacting faster. It comes from falling less, climbing steadily, and finishing stronger.

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