Some shuffling

The markets have been pretty volatile recently, and the year-to-date has been one of my longest periods of underperformance vs. the market for a couple of years. I use the term ‘underperformance’ loosely – it’s more or less in line with the All-Share percentage wise, which isn’t particularly worrying nor worthy of note. It is interesting, though, if you’re a story person. We all are to some degree; whenever the market twists and turns people start talking about the ‘fear’ biting into the bull run, or conjure up images of that great unwieldy behemoth – market sentiment – swinging round at last. In that vein, one thing I can say I am very interested in is how my portfolio performs in different scenarios. An element of counter-cyclicality and relatively smaller losses when the market is tanking appeals to me as an investor, because I’m trained to believe that protecting downside risk is paramount, and that probabilities in the minds of market participants tend to be skewed to unduly penalise ‘boring’ shares.

Does my portfolio fit that nice, broad aim? Unsurprisingly, I don’t think it’s really possible to say. I’d like to think I have 3 years of data – I have been running the portfolio for nearly 3 years, now, but that’s not really true. I would have 3 years of data if my strategy had stayed the same, and if I had not evolved as an investor; but there are companies I like the look of now that I never would have considered 3 years ago, and vice versa. Sure, there are broad similarities – so one can draw broad conclusions – but markets are noisy.

Really, I’m just saying what I always say, here – people aren’t conditioned to understand the nature of results in an extremely high volatility environment like the market. The same was true when I played poker, another extremely high variance game. Solid, winning players could be down money over tens of thousands of hands – even though they made the correct decision in every scenario. Terrible players sometimes enjoyed the opposite effect. Naturally, the good player is left questioning himself, and the bad player thinks he’s the next Phil Ivey.

That’s why it’s always process and not results – better ways of valuing shares, more intuitive ways of thinking about things. If you believe that eventually market value will reconcile with intrinsic value, the key factor is always going to be just how well you can identify that intrinsic value. Where the meandering of the markets takes that share price in the meantime is just exploitable noise.


I’m wont to pontificate when things are unimpressive and I don’t have much to do – hence my ramblings above – but I do have one change in the portfolio. I’ve bought some Empresaria at 45p. I ran through the company about a month ago here, and since then we’ve had their annual report, which was pretty positive. More importantly, the price is down over 10%.

I prefer holding it to cash, anyway – particularly given the significant cash pile the portfolio has been sitting on recently, and one which may continue to rise given that I’m not filled with conviction for my portfolio on the whole. In actuality, I find myself spending more time looking at companies and thinking they’d make good shorts – poor returns on capital, large multiples of book value and rising competitive pressures.

That just means I need to turn over more stones!

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