Global Allocation commentary for the month ended March 2017.
2017 Hedge Fund Letters
This month I quitted smoking, but without fully giving it up. I say this because after discovering the new Philip Morris ´ electronic cigarettes (iQOS), I was able to change to this new and healthier drug modality without suffering at all. Very recommendable. In fact, after trying, I decided to look at the company´s numbers and I have finally incorporated it to our portfolio as a long-term investment. If this product works, and I witness it does, it could mean a little revolution within the sector. Since we bought it we have gained 5%, including the quarterly dividend that we received recently. Therefore, I am happy to do this free advertising as I am talking my book.
Deprival Super-Reaction Syndrome And Investing. Part four of a short series on Charlie Munger’s Human Misjudgment Revisited. Charlie Munger On Avoiding Anchoring Bias Charlie Munger On The Power Of Prices The Munger Series - Learning . . . SORRY! This content is exclusively for paying members. SIGN UP HERE If you are subscribed and having an Read More
Apart from this incorporation, we have been very active in our exposure to European equities, where we have gone from having a lot to almost nothing twice during this month. The main driver of this changes have been credit spreads and more concretely the spread between peripheral countries and Germany, including France this time around. About our position in Banco Popular, after the latest news we have completely cut the exposure. We leave this investment with our tail between our legs, this story looks uglier by the day.
French April/May elections could have great implications for the European Union´s future. Even though everything points to an almost negligible risk of a Marine Le Pen´s victory, we think this is not the time to risk, contrary to other occasions like Brexit or Trump. This time the implications could be very different, and we would not be facing a mere temporary volatility episode, but a Euro collapse.
Thus, we have look at the best way to protect ourselves and we have implemented two different trades. First we have bought a 15% position in gold and silver through ETF´s. Second, we have bought put options on the EUR vs USD. This way, for a little premium of 0,5% of NAV we have the option for three times the NAV until the month of June. We could profit a lot from this positions in a distressed market. This could give us the opportunity to assume more risk should equity markets cheapen a lot due to these circumstances. Direct hedges in the equity space are much more expensive. We also think that, provided initial distress if this risk materializes, if EUR depreciates strongly it could be positive for many European companies as it happened to many UK ones after Brexit. It could even be profitable for us, and the pain to be almost nonexistent. Just like smoking without smoking…
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