I know I have my own brand of fund management. It is perceived as aggressive, while in my mind it seems conservative, which I guess is just a matter of perspective. One thing I know for sure is that it is not working at the moment. Whenever something is not working for me, I go back to my intellectual foundations, and see if I can find something wrong. If I do find something is wrong in my analysis, then I ditch my trades, and if I can’t, I stick with them. Here is my attempt to go back to the foundations, and see if I can find any problems.
First of all, what exactly is my style of fund management? Well I believe that there is always a megatrend in markets, something that is driving all asset markets. Without understanding that megatrend, then you are just speculating, not investing. If you don’t understand the megatrend, you are better off in cash, and not investing at all. This is the conservative part of my investing strategy.
If you understand the megatrend, then my favourite thing to do is to sell winners and then short sell them as the trend is breaking. This is the aggressive part of my investing strategy, and the bit I love the most. Successful short selling is not only lucrative - its fun. The best work calls I have ever had is when an investor calls for an update and you tell them you have started shorting something you were long of for ten years. Nine times out of ten they will give you more money to manage.
For these reasons, all of my work is centred on finding new megatrends, and trying to call the end of existing mega trends. My themes of pro-labour and changes in fertility rates are all to support the idea that the mega trend of the bond bull market is over. I still think this theme is correct, but it is trading against me currently.
I also thought the theme of food inflation was a good one, with China becoming a food importer, and war in Europe disrupting supply, this seemed like a great megatrend to play. However, Chinese demand has weakened, and Russian and Ukrainian supplies of agricultural products has not been disrupted as I would have expected. This megatrend has not played out as I hoped.
My work on clearinghouses implied that this was a failed reform, and clearinghouses would be at the heart of the next financial crisis. While I think this has been proven to be true, regulators and governments have seemed happy enough to bail out markets and clearinghouses rather than make any changes. So the analysis was correct, but the politics not supportive.
My work on autocallables was that market volatility would have a tendency to spike higher from time to time. This seems to be coming through, but I have no strong view on how to monetise this idea.
The problem with my style is that there is a heavy mean reversion bias to my thinking. Winners become losers, and loser become winners. This thinking comes from my lived experience. I became interested in markets because of the Asian Financial Crisis in 1998, I joined UBS as a graduate at the top of the dot-com bull market in 2000, and I had my first fund in late 2006, just the as the US housing crisis and GFC were beginning to start. In other words, I saw a lot of fund managers fail in my first 10 years in the market. I also first went to Japan in 1991, and property prices are still well below peak levels that I saw back then. It seemed to me, that if you are going to be a fund manager, you need to find an idea that is so compelling, and so big that you can build a fund around it, and have the ability and faith to be able to add when the market moves against you. And that is what I have tried to do. The problem is that the most “winningest” market - the US - simply never loses anymore.
There is a line of thinking that we are in a bubble driven by passive investing. That is investors are taking enormous risk unknowingly. Charts like below are presented as evidence. What I really dislike about this argument, and not just this one, but any related to markets, is that is starting assumption is that market pricing is “wrong”. Also it assumes causation that asset flow is driving pricing, while it is perfectly reasonable to argue the opposite - as passive has done much better than active, investors are going to where the best returns. The passive versus active argument is a dead end in my view.
A far better place to start in my view is the share buybacks.
