By Christine Song of Small Investing Insights
“It was the best of times, it was the worst of times….” If Charles Dickens were an investor, you’d think he was writing about the market performance in June. For the first half of the month, the market sold off with the Russell 2500 benchmark index down almost 8% by mid-month. The second half of the month the market rallied and though the Russell 2500 ended the month down 2.20%, it had clawed its way out of a deep hole in just fifteen days.
Where else could all this drama be coming from but from Greece? Its government’s ability to make/not make interest payments on the debt owned by foreign investors had the market on edge. During straight up and down market moves, money managers will often talk about how they’ve reassessed/repositioned their portfolio, how they scooped up stocks at fire-sale prices or sold stocks at the top at rich valuations. But when the market’s making such big moves especially in a downward direction, knowing who’s in the portfolio can be as important as knowing what’s in the portfolio.
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The first two months of the third quarter were the best months for D1 Capital Partners' public portfolio since inception, that's according to a copy of the firm's August update, which ValueWalk has been able to review. Q2 2020 hedge fund letters, conferences and more According to the update, D1's public portfolio returned 20.1% gross Read More
Does the portfolio manager eat her own cooking? Does she have skin in the game? These are a couple common investment-speak phrases to describe if your money manager is in the portfolio with you. Unlike the unfortunate Enron situation in which employees with no executive power were required to own a good chunk of Enron stock in their 401K, a portfolio manager calls the shots. She decides which stocks to own based on her homework. You want to know how much of the manager’s net worth is invested in the same portfolio of stocks she’s buying for you.
No one cares as much about your money than you, so it’s all about aligning self-interest. When the markets are down, is the manager making sure the portfolio is positioned to rebound and when the markets are up, is she keeping an eye on when to sell and not round trip the stock?
High conviction investing isn’t just about owning big positions in a concentrated portfolio of stocks. It’s also about having a money manager who’s got as much, if not more, invested in the same portfolio of stocks as her clients. The market performance in June may have been a tale of two halves, but a money manager’s portfolio versus her client’s shouldn’t be a tale of two different returns.