Given the dearth of posts over the last few weeks, it would certainly be fair for you to wonder where Our Man has been! Sadly, there are no tales of excitement (or woe) to break to you but nonetheless a simple explanation shall be offered.
Partially it is because Our Man returned to the world of the gainfully employed at the start of the year. While earning a wage and having some job-security are a long-term boon to this portfolio’s continued existence, some of the time that was devoted to writing has been lost. Separately, for those of you hoping that gainful employment would result in Our Man being more “in the know” - you will, I’m afraid, be sadly disappointed. However, with Our Man’s now allocating his time better (goodbye sleep, we enjoyed the best of times together!) work will be but a minor factor going forwards, and I will be here to offer you my unsolicited and unvarnished thoughts.
However, the primary reason for my silence is that not all that much has changed over recent months. It’s tempting for those of us involved in the markets to talk breathlessly of all the data releases, changes and market movements as though each one will be THE driver of the economy or market (or even our returns) over the coming periods. The truth is, that is rarely the case. However, we help justify our own existences by substituting real-time with its far flashier cousin, dramatic-time, where everything is vital and which only an expert could navigate through. While CNBC is the most extreme (or should that be comical) example of this in finance, it’s prevalent in some way in the dealings of almost every financial professional (and I suspect, an equivalent is prevalent outside finance too!). This is interesting but why does it matter, I hear you clamour. Well the reason is two-fold:
1. A large part of Our Man’s approach is to generate medium to long-term thematic premises. By their nature, these premises will take time to play out and require some element of patience and long-term resolve. In real-time things change slowly, and it is people’s perceptions of reality that change rapidly leading to 'dramatic-time'. As the legendary Bob Farrell used to say, “Fear and greed are stronger than long-term resolve”.
2. The biggest risks to Our Man’s premises are being early and wrong; and being too early is often the same as being wrong. This is where the portfolio management comes; it is important to balance having some exposure to the thesis with containing the losses when one is too early. As such, Our Man’s portfolio management relies on having exposure to the key theses that is akin to being Fabian** in nature. In essence, it is about finding a way to hang around without suffering major losses until a thesis starts to play out (or people’s perceptions to the underlying thesis change), and then looking to capitalize as the thesis plays out.
So why has Our Man been quiet? Well, not much has changed to either validate or invalidate the underlying theses, and a larger part of the portfolio is in its Fabian setup, and thus the returns are also not fluctuating wildly. While patience and long-term resolve may be investing virtues, they don’t always make for frequent updates or a permanently entertaining blog. However, the good news is that there are some posts on tap for the coming week or two; some things I’ve been pondering, checking in on the China thesis, and some further early thoughts on Japan.
** Now, those who’ve had the benefits of a classical education will know that the Fabian strategy was named after Quintus Fabius Maximus Verrucosus Cunctator (or Fabius Maximus, to you and me) and refers to his (unpopular but ultimately successful) military strategy to defeat Hannibal of Carthage (not to be confused with this Hannibal). On a random but unrelated note, Hannibal is one of Our Man’s favourite historical figures. Equally unrelated, another of Our Man’s favourite historical characters is Air Marshal Hugh “Stuffy” Dowding, who gets somewhat overlooked when people come to discuss the Second World War (much like Alan Turing, one of the fathers of the computer!) because his most vital role (the Battle of Britain) occurred far too early in the War (1938-1940) to get appropriate notice. While Our Man is tempted to take advantage of your unsuspecting state and fulfill his childhood ambition of offering some history lectures, Mrs. OM has wisely pointed out that this would likely be exceptionally long and only bore people further. So instead a mere run-down of Dowding’s major decisions in 1936-1940; approving the building of both the Hurricane (allegedly based on seeing the first one fly) and the Spitfire fighter planes, seeing the importance of radar in the late 30’s and integrating it centrally into the British defence system (which came to be known as the “Dowding System”), and refusing Prime Minister Churchill’s requests to send fighter planes to France and also to offer greater air support for the evacuation at Dunkirk (both rejected on the basis that they would reduce Fighter Command's strength for defending Britain). The point of all of this? Dowding in the summer of 1940 implemented a classic Fabian strategy to defeat the significantly larger and more experienced German Luftwaffe. Finally, for those of you who appreciate irony, both Dowding and Fabius were fired from their jobs as a result of their successful strategy. Let us hope Our Man suffers no similar fate...
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