The below sticks out. It is something many UK investors have long ago had to become accustomed to.
“We believe that the strong returns and alpha from the long book came from a successful adaptation of our style. We have become even more disciplined about price and emphasize investments where we get paid by the issuers, as opposed to relying on other investors to revalue the security. Payment can come to us in the form of buybacks, dividends, interest, or in some cases, a take-out from a buyer. With the decimation of the active fund management industry, we don’t believe we can reasonably expect securities to be re-rated by investors who are actively trying to figure out what they are truly worth.“
“There seems to be an unwritten rule on Wall Street: If you don’t understand it, then put your life savings into it.” Lynch.
“If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century, you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get.” Munger.
“When you want to test the depths of the stream, don’t use both feet.” Chinese proverb.
Useful read for both systematic and fundamental investors.
“Ilmanen et al. (2021) examine the out-of-sample performance of the main factors we focus on—value, momentum, carry, and defensive—using a century of data across multiple markets and asset classes.“
“Exhibit 2 highlights the results from their study, which shows that these factors work uniformly across all markets and asset classes and their performance is stable over the periods before and after the original sample period, with little degradation from the original sample period.“
This deck has been doing the rounds the past few weeks.
It is actually a good description of market downturns and how they work.
Especially recommend looking from page 10 onwards – to understand the various stages (P/E reset, earnings revision) and slide 23 – what capitulation looks like.
Based on this feels we are still not there yet.
Interestingly they are also raising a structured equity fund.
Many have heard of George Soros’ idea of reflexivity.
This idea is important especially as we look at the current market situation.
To understand it more deeply it is worth reading Soros’ own writing on the subject – especially this piece from the Journal of Economic Methodology (2014).
Here Soros lays out his full framework which is actually based on two propositions – reflexivity but also human fallibility – together the siamese twins that form “the human uncertainty principle”.
“My conceptual framework deserves attention not because it constitutes a new discovery, but because something as commonsensical as reflexivity has been so studiously ignored by economists.”
“What’s the point of making lots of money if not having the joy of giving of service, meaning, and purpose? I still stick to the original goal: Do well for investors and encourage philanthropy through example.”
The fund is having a tough start to 2022, but as he says himself.
“The analogy I use is that of the Tour de France, no cyclist has won every stage and they never will. You can’t be a sprinter and win the time trial, they require different physiques. Several times the overall race has been won by someone who didn’t win any of the individual stages. You need to be the best overall, and that’s what we are trying to achieve.“
A belated snippet of this outstanding profile of legendary investor Dan Loeb (I posted his letters several times) – founder of Third Point Capital, a $20bn hedge fund, that compounded over +15% pa for 25 years and pioneered activist investing.
Third point is named after his favourite surf break in Malibu.
In the early days of the fund – Loeb posted on forums as “Mr Pink”. Interesting to see further confirmation of media-first investors.
The story of Renaissance Technologies and Jim Simons is worth reading in full.
But this post does a great job pulling out the key extracts.
One consistent feature of their success relates to this – “What you’re really modeling is human behavior. Humans are most predictable in times of high stress — they act instinctively and panic. Our entire premise was that human actors will react the way humans did in the past…we learned to take advantage.”
A really great and rare podcast with the legendary investor.
His points on how to frame buy and sell decisions are particularly good.
As is his view of the UK needing capital to unlock the world-class IP historically generated there and give people ambition to build global platforms instead of solving individual problems.
Finally, his advice to young people about enthusiasm really rings true.
This was a good summary of other points by a former colleague, but the full thing is absolutely worth your time.
He makes an interesting point that since the financial crisis (2009) certain industries have faced very high costs of equity (low valuations), and shareholder demands to return capital and limit or stop fully capacity expansion.
This is still the case, but against high current and pent up demand (savings, though there are mitigating factors here and here), under investment will lead to higher pricing and profits.
He gives examples of housing, air freight, copper, Titanium dioxide, cement, thermal coal/natural gas, and paperboard.
The latter is perhaps the only one that has ESG credentials in this list.
