Brexit happened on the 23/06/2016.
If one had the vision to predict Brexit, something that by itself is very difficult to do with a high level of conviction, how do you think the person would position his long term investments in view of Brexit?
(I’m sure many people would claim to have predicted Brexit, but how many could have such a high level of conviction as to position the portfolio with Brexit in mind?)
The genius who predicted Brexit, would’ve been one of the rare few to have done so. And if he’d tried to capitalize on it with a long term view, currently, he’d be staring at huge losses and wondering how one can get things so right, yet lose so badly.
Since Brexit occurred, the markets underwent a short, sharp correction, and an equally short and even sharper recovery. All this in a matter of a few weeks.
Brexit is a momentous event, a point in history which affects an entire countries population, not just the current population but several more generations to come. It affects inter country relations, trade, economics, politics, travel etc.
Yet the markets treat it no differently from say, perhaps a rumor of an unexpected Fed rate hike.
It just doesn’t make sense to me.
Yet this is a reminder to me that investing is so hard, precisely because of this unpredictable nature. As I alluded to in earlier posts, the difficulty lies in the successful execution.
As a matter of fact, how does one invest successfully?
Is it a matter of being smarter than everyone else? Being right when everyone else is wrong? Buying companies that have strong financials?
This is something that I’ve considered a long time ago.
In reality, my own definition of investing successfully, is taking up a DIFFERENT position/opinion from everyone else (the markets), and then having everyone else come around to your opinion.
I don’t think you’d find this definition anywhere else cos it’s something that I came up with.
It sounds simple, yet the implications are profound. For example, this means that you can actually take up a WRONG position/opinion that is DIFFERENT initially. After having done so, if everyone else somehow erroneously converts from the “RIGHT” position to “be on your side”, you’d be highly successful.
Of course, this is very difficult to execute in reality as how does one deliberately take up a wrong position that is contrarian, and hope that everyone else becomes wrong? I am sure there are unique situations where people do capitalize on it in this way, but I have no such experience.
Still, it means that to be highly successful in investing, 3 things must happen:
- Your position must be contrarian
- After the contrarian position has been established, the markets must then come around to your view such that your view is no longer the contrarian one. The faster this happens, the better.
- You must then exit the position
Imagine that. All 3 must happen, and they must happen in sequence. On top of that, if a long period of time lapses between 1. and 2., the investment becomes much less successful.
To be consistently successful in investing would thus mean that all 3 points must occur, in sequence, with minimal time between 1. and 2., and this whole thing must happen repeatedly in every investment one makes.
That’s how hard it is. Bearing in mind that I’m talking about getting spectacular results via a deep value, contrarian approach here.
The markets can always stay irrational longer than one can stay solvent.
This brings me to the global macro investors. George Soros is arguably one of the most famous (or infamous) global macro investor. Locally, our very own Danny Yong of Dymon Asia Capital also made headlines for achieving world beating results.
I’m not sure about his longer term results, but I’m sure it wont be too shabby.
Personally, I also know a retired global macro hedge fund manager, who in his heyday, did so well that he was ranked in the top 5 in his asset class, GLOBALLY.
If investing is an Olympic sport, these guys would be winning Olympians.
I can’t figure out how global macro investors do what they do though. Too many moving parts, too many considerations, and too much unpredictability. Black swan events don’t seem like black swans in the field of global macro.
At least when I do a thorough analysis of a company, the financials give me a basis to form an opinion. Sure, a terrorist bomb (black swan event) can upset my company’s performance, but in the longer term, true value always shine through.
In the past few weeks since I mentioned about starting to build a short position on SPY (My Thoughts On My Current Portfolio – July 2016), S&P 500 was at 217.32 then and it has since fallen slightly to 216.08 (as I typed this)
I’ve managed to pick up yet more put options on S&P 500, and still have perhaps another 20% of my intended capital to deploy in this.
The way I see it, the sole reason why the markets have rallied, is the anticipation of yet more stimulus from, well, just about everyone who can provide stimulus.
I’ve made a tiny bit of profit thus far on shorting, I’ve had some luck both the last time (S&P 500 Option Shorts) as well as currently (thus far) shorting the index.
I mentioned “luck” because I am no global macroist. I have no idea how long it’d take for the markets to realize this rally is as ridiculous as it gets. Still, a rally this large, this fast, is just too juicy to pass up. It’s just common sense.
Not to mention the volume has been dwindling the past week from 100mil+ to 50mil+ every day. In my experience, the volume, coupled together with the price movement, is fairly telling of the general market sentiment to come.
I’m not going to cover with this tiny profit this time. I’m expecting a much larger correction (on the downside of course) within the next 2 mths or so. Since my options run to Jan 2017, I’ve some time to wait.
As July winds down, August is promising to be very exciting indeed. I can’t wait for my babies to show stellar corporate performance next month. Valeant particularly, provided a lot of pain for me in 2015. (As mentioned earlier, some stop-loss plan here would’ve been great) Would be great if it starts showing increase in scrips and the turnaround Joe Papa promised.
BBR has started moving up rather substantially in recent weeks. I have no idea why. I’m not complaining with a 21% gain since my last call (BBR Holdings Investing Thesis), but I think the key litmus test is whether the Malaysian projects show up any more losses in the next quarter.
With a deep value, contrarian style though, I think such extreme volatility is to be expected.
I’m still relatively cash rich, having divested Hock Lian Seng earlier. Thus far, I’ve only deployed capital into Valeant and SPY short options. I’ve made some foray into Forex with a small amount of success, but that really is pretty insignificant.
I’m in the midst of updating my thoughts on Metro Holdings (juicy 7 cent dividend is ex-div sometime next week I think). I also got diverted for a couple of days to update my analysis on the property market in SG. Oh. And I’m seriously behind in my reading.
When I’m done with all that, I’ll focus more on finding my next diamond in the rough.
“Never give up searching for the diamond in the rough, you never know when it shows up”