OM’s Philosophy: How Today’s Portfolio Fits

As a follow-up to OM’s last piece on his investment philosophy and strategy, this one looks at how the current portfolio fits within that framework.

Dislocations – 35.4% NAV, as of end of June 2018 
OM seeks to take advantage of dislocations – areas of the market where performance has been abysmal and investors have lost hope.  In addition to cheap valuations and fundamentals that are turning around, these investments require a narrative to help encourage investors to reexamine the opportunity.

Brazil (20.3% NAV) 
The longer-version of the thesis can be found here.  The shorter version is that Brazilian equities lost 80% (in USD-terms) between 2011 and 2016, and investor sentiment reached a nadir in early 2016 as the Carwash Scandal enveloped Brazil’s elite culminating in the successful impeachment of President Rousseff.  With sentiment at a trough, there were positive signs; new President Temer was viewed as competent and a short-term fix, and the length-and-depth of the recession meant that politicians were open to reform (especially pension) and companies had spent 5-years cutting costs to survive (i.e. created operating leverage to any pick-up in demand).  This was supplemented by the macro environment picking up (Brazil exited recession in 2017) and stock prices rising.

However, the big current question is whether the narrative peaked in December 2017, when Brazilian stocks continued to rise even as the planned pension reforms were shelved.  If so, this position should be vastly smaller especially considering the uncertainty of the upcoming election.

Uranium (9.5% NAV) 
Uranium remains the most frustrating position in the portfolio, which is a sign that it should probably be a smaller one.  Nothing has changed in the thesis;
- The primary demand is nuclear power plants which are slowly coming back online (post Fukushima) and being built (mainly in China and India).  These plants have long-term contracts (2-10yrs) and the majority of existing contracts come due in the 2018-2020 time frame.
- The supply-side is now rational.  A multi-year price war saw suppliers seek to build/retain market share, but the continued falling price meant there was no investment and most mines currently operate at a loss.  Two suppliers (Cameco and Kazakhstan) now control over 50% of the market, and have both been disciplined and aggressive in shutting down capacity.  Our Man hoped that these public demonstrations of supply-side discipline, especially the major cuts coming into 2018, would help start to drive the narrative and price but despite strong rallies on the shut-downs, there’s been little price follow-through.

Greece (5.6% NAV) 
Greece suffered through the Great Depression (and more) and everyone’s still annoyed/frustrated with them, with investors having been burned more than once.  However, Greece exited its third (and final?) adjustment program a couple of weeks ago and the IMF/EU came to a French-brokered understanding re. its future debt path earlier in the year.  While there is much reform that still needs to happen, it’s also too easy for outsiders to discount what’s already been done (e.g. reforms making it easier to fire workers, new laws to work out NPLs, etc.).

OM has limited the position size since while all the ingredients are in place there is no compelling narrative to force people to look at Greece again.  As such, OM is waiting to see (i) Greece come to market with another debt issue, and especially (ii) elections.  OM suspects that the latter will prove a strong driver of the narrative, especially if Kyriakos Mtzitokis’ New Democracy look like winning.  They represent a much more palatable partner to investors/the EU/the ‘media’/etc. than current Greek PM Alex Tsipras and his Syriza party.

Thematic – 28.8% NAV, as of June-end 2018 
This represents OM’s exposure to long-term secular themes.  The themes likely won’t change much over time though the underlying components and position sizes may do.

The 3^rd/4^th Industrial Revolutions (14.2% NAV) 
The Digital Revolution (3^rd Industrial Revolution) was the shift from mechanical/analogue technology to digital electronics; at the simplest level think sending mail to email.  It began with the invention of the transistor (1947) which led the advent of digital computers, and it continues through today cellphones and the Internet.  The Fourth Industrial Revolution is building upon and extending the Digital Revolution, and seems likely to transform society in the coming years/decades.  So far, it has been characterized by breakthroughs in fields such as robotics, artificial intelligence, machine learning, autonomous vehicles, genome science, and cryptography.  Most will have at least heard of some/most of these fields, but they are all still emerging and their impacts and relative importance isn’t yet known.

Our Man has long-held various technology and biotech names in the old Equities book; while the companies have their own attractive traits, these “Industrial Revolutions” are the overarching theme that binds them together.  OM suspects that by classing all the positions that are predominantly driven by this theme together, it will help from a sizing and risk management perspective.

If you’d like to read a simple primer on the 4^th Industrial revolution, here’s a good one from World Economic Forum.

Argentina (8.0% NAV) 
Argentina started in the dislocation book; Kirchnerism from 03-15 resulted in a poorly managed and distorted economy, with no access to global capital markets.  However, political change was imminent; President Cristina Fernandez de Kirchner couldn’t run in the 2015 elections, and any of the 3 candidates would be more market friendly.  She was replaced at the end of 2015 by President Macri, the most market friendly of the candidates.  President Macri began an impressive liberalization of the economy including removal of currency controls, inflation targeting independent central bank, settling with the bond hold-outs allowing Argentina to access capital markets, etc.  

The thematic bet is long-term that Macri-ism succeeds and Argentina becomes a ‘normal’ country and market economy, with single digit inflation and normalized interest rates.  This allows the development of a broader credit market (both corporate and personal) and businesses have greater ability to plan/invest for the future.  Think of the US in the early 1980s, following Volker’s raising rates to tame inflation, as a good but vastly simpler historical rhyme.

India (4.9% NAV) 
The long-term bull case for India is widely known, and OM doesn’t have much special insight.  The thematic case starts with the 2^nd largest country in the world, which also has great demographics and is (relatively) technologically advanced.  These natural advantages are supplemented by some self-help.  While there is much to criticize the Modi government over, it has made some structural shifts (taxation changes, bankruptcy code and financial reform, etc.) and the push to digitize the economy, highlighted by the introduction of Aadhar (a unique individual ID number based on biometric information), is potentially world-leading.

Vietnam (3.1% NAV) 
The cliff notes for the Vietnam is that it looks like China/Thailand 15-25 years ago and is treading down the same path.  The longer form can be found here; expect Vietnam to be in the portfolio for a long time though the position size will vary depending on the pace of reforms, the strength of the economy and the proximity and likelihood of any MSCI upgrade (to Emerging Market status, from Frontier).


Idiosyncratic – 18.2% NAV, as of June-end 2018 
The idiosyncratic book is made up of two things; a small number of attractive individual stocks and some Funds.  These Funds take advantage of some structural inefficiency be it through active stock picking/time horizon or using a combination of (valuation) factors to systematically allocate capital. 

Texas Pacific Land Trust (TPL, 6.7% NAV) – if there could be a poster-child for the type of individual stock in the idiosyncratic book, it would be TPL.  It’s attractively priced, not covered by any Wall Street analysts (of note), not in any ETFs, and its business (oil royalties, land leases, and water rights) has no real peers to benchmark it against.  Throw in the uniqueness of its structure – it was created in 1988 as a result of the Texas Pacific Railway co going into receivership, and all it does is manage/sell land and use the proceeds to buy back shares – and nobody really knows or cares about it.   

Fannie Mae (FNMA, 0.3% NAV) – Either the government should not be sweeping all of FNMA’s profits to the Treasury and it’s worth multiples of the current price, or they should and it’s worth almost nothing.  For a resolution, it requires political decisions to be made on a topic nobody wants to make-them on (government’s role in the mortgage market) and with no immediate need for a decision.  Think of it as a glorified option with lots of unknowns and very attractive risk/reward payoff.  Also, it has no time decay but also no strike date…it could be here forever and worth the same, or worth multiples next quarter/year.

As previously noted, the Funds (11.3% NAV) are within the idiosyncratic book.
- GVAL and CAPE are both based on applications of Shiller’s PE Ratio (aka Cyclically Adjusted Price Earnings, CAPE).  GVAL applies it to International stocks (finding the cheapest stocks in the cheapest countries), and CAPE applies it to US sectors.  To Our Man’s mind Shiller’s PE Ratio/CAPE is a tool that is poorly applied in finance with too many trying to use it as a timing mechanism or reason for a short-term decision, whereas it’s real value is as a very long-term measure of relative value.  The intent of both ETFs is to buy things that are cheap on a relative basis (compared to other countries/sectors) and Our Man’s wager is that over the long-term this will prove to be more profitable than the market.
- CWS:  Our Man has read the Crossing Wall Street blog for most of the last decade, and this ETF is based off that blog.  CWS publishes an annual “Buy List” of ~25 stocks at the start of each year, which are equally weighted and then no changes can be made during the year.  Each year only 5 stocks from the Buy List have been replaced, with the others carried forward (with any additions) onto the new Buy List.  This longer-term focus (typically, 4-5 years on the Buy List) leads to a bias towards quality and value and if the process can remain disciplined this can lead to out-performance over time.


Technical - 32.9% NAV, as of June-end 2018 
The Technical book was added back in 2014, to help compensate for OM’s natural skepticism by formulaically take long positions (in the levered ETFs for the S&P 500, Dow Jones and Nasdaq 100) to capture long-term trends in these markets.  The position-sizing of these positions is also rules-based, and more information on the genesis and rules for the Technical book can be found here.


Hedges/Shorts 
None currently.

OM's Investment Philosophy and Strategy

The biggest thing that OM has learned during his career in finance is that investing is a very personal endeavour.  When it is done well the investment philosophy reflects the beliefs, skill set and personality of the practitioner.  Furthermore, the best investors understand themselves and their strategy; they can clearly articulate their strategy, and explain why it suits them. 

So, what is OM’s strategy? 
Our Man believes that the markets offer three distinct ways to make outsized returns; (i) by investing in idiosyncratic opportunities especially where there are structural inefficiencies, (ii) by participating in long-term themes, particularly secular trends, and (iii) by taking advantage of sizable dislocations in markets.   The natural consequences of these beliefs are that the portfolio will be concentrated and will likely see mark-to-market volatility, and thus a long time-horizon is a prerequisite.

Long-time readers (commiserations y’all!) have seen the evolution of Our Man’s portfolio over the years.  The changes reflect a variety of things most notably the constraints of OM’s then employment and his maturation as an investor, which over time has led to a more defined investment approach.  In particular, the 2009-2011 period (when OM worked for an equity focused hedge fund) saw a portfolio that was more macro driven while the 2011-2014 period (when OM returned to allocating capital to others) saw a more stock-specific portfolio.   From 2015 onwards, the portfolio’s strategy has been largely unchanged, though the way the investments were broken down was less clearly defined.

So, dear readers, expect the portfolio to be broken down more clearly along the following lines in the future.
- Thematic 
This will likely be the biggest component of OM’s investments, as it reflects how OM thinks about the world.  He believes that many seemingly independent stock-specific positions have a common driver, or theme.  The themes are likely to be secular in nature, so they should be in the portfolio for a multiyear period unless OM is wrong/early.  Expect an articulation of the theme early on, including some flags on the risks, that OM will build on over time.  These descriptions should help keep OM honest and limit thesis drift, as well as making it easier to identify any commonality of risks across the portfolio.  Themes are likely to be largely be expressed using ETFs, though single names may be used where that makes more sense (and yes, OM should be able to explain why it makes more sense!).

- Dislocations 
OM believes that public markets reward contrarianism, so expect him to hunt around in sectors or regions that show dislocations.  The best time to invest in these is when it looks the worst and others have given up hope; they are fatigued with the situation and have a visceral reaction to it.  On first read, these ideas will look ugly.  Hopefully, your initial reaction will be “WTF???  Are you insane!” but will slowly trend towards “that’s weird, but kinda interesting!” over time.  They key will be to invest when valuation/fundamentals and narrative are aligned; the first two provide some ‘margin of safety’ while the latter is what will draw other investors in.  OM has seen some good research that the average/median for a dislocation to move from its trough to a peak is 18-24mos (e.g. Brazil 92-94, Greece/Spain 11/12-14, Argentina 15-17, etc.).  Thus expect a dislocation position to be in the portfolio for 1-3yrs.  In some minority of cases, if the dislocation leads to a significant long-term change, a dislocation idea could eventually move to become a thematic one.  If this happens, expect an update to explain the move and a change in the position size!

- Idiosyncratic 
This bucket contains 2 things; (i) individual stocks and (ii) the Funds book.  The individual stocks are likely to be very limited in number since OM’s day-job, and skill-set, isn’t sitting around taking advantage of structural inefficiencies to pick stocks.  However, OM does see a LOT of things and he has two big structural advantages over most professional investors; small size and a longer time horizon.   Thus expect OM’s idiosyncratic names to have some combination of limited sell-side/investor coverage and a longer time horizon.  OM’s putting the Funds book here since it seems like the best fit; the Funds take advantage of some structural inefficiency be it through active stock picking or using a combination of (valuation) factors to systematically allocate capital.

- Technical Book 
OM is retaining this as its own separate item.   One of his many life-flaws is that OM is naturally cynical; investment-wise, this means he has a propensity to be under-invested and the Technical book was developed to be a systematic hedge to this.  More on the rationale behind and construction of the technical book can be found here.

- Shorts/Hedges 
Finally, Our Man intends to keep shorts in a separate book to help track how they do.  However, they will be generated in the same way as the strategies above, with most likely to be themes or perhaps predicted dislocations.  The positions are likely to be executed through Short-ETFs or by buying puts.  For the vast majority of time, this book will be empty.   

Finally, OM also is hoping to start a semi-regular feature called “Half-Baked Ideas”.  The main reasons are that OM has many more ideas than ever make the portfolio and he doesn’t do a great job of tracking/sorting them or returning to revisit those ideas.  Hopefully, this should help resolve that and impose some discipline on OM re. tracking and following up on his ideas.


Next Up: Breaking the existing portfolio down into this structure.

Portfolio Update: Everything is Awesome (for now) - Valuation & Psychology Edition...

(Apologies to all who are getting this for a second time, there was a small issue with the blog which corrupted the original post).

As regular readers know, the market-wide valuation measure that OM pays the most attention to is Professor Shiller’s Cyclically Adjusted Price to Earnings (“CAPE”) ratio.  Like all measures of valuation it unquestionably has flaws – as some kind folks point out here, here and here – so bear that in mind as you read on! 

Source: multpl.com

First off, the headline CAPE numbers are pretty scary; valuations were only higher during the 1999/2000 Technology bubble, eek!  Wait, but OM’s just spent some blog posts telling you he owns a bunch of risky distressed and/or emerging markets stuff like Brazil, Argentina, Uranium and Greece, and that everything’s awesome – this makes no sense!  Worry not kind reader, OM has not taken (complete) leave of his senses; yes, this chart does look horrific.  But…it is a data point, not a fait accompli, and like many good data points the value is in the context and nuance.

OM is a fan of CAPE, but he accepts it for what it is; a fine measure of long-term value that’s a good guide to long-term (10-year) returns.  Crazy, I know, that a measure that uses 10-years of adjusted data is best used at predicting things over a similar long-term span.  What CAPE is not, and the same holds true for every other valuation measure, is a good indicator if markets are about to crash (or rally).   So the next time you read an article saying “CAPE = X therefore Markets = Y”, or your favorite pundit is filling his 60 second slot on TV with “CAPE didn’t predict (or peaked after) X or Y, and is thus flawed” then for your own sake ignore them.  Sadly, we’re in age where common sense requires data to be believed so OM won’t just ask you to trust him on this.  Fortunately, we’re also in an age where the answers are available if you’re willing to look.  In this case, Vanguard comes to OM’s data-rescue with this most helpful chart from 2012 that shows CAPE is a pretty good guide on long-term returns and everything sucks at predicting next year's.

Source: Vanguard

So, onto the nuance.  It’s January 2018, so (the most updated) CAPE calculations are based upon data from Q4-2007 through Q3-2017.  As Q4-2017 earnings are announced in the coming weeks, they will replace the inflation-adjusted Q4-2007 numbers and as 2018 progresses the 2008 numbers will drop out of the 10-year look back.  Well, pre-crisis earnings peaked in Q2-2007 and during the Great Financial Crisis they fell 90% to trough in Q1-2009.  As the data from the Financial Crisis drops out and is replaced by today’s earnings, the Earnings part of the CAPE is going to look a whole lot stronger.  Folks have tried to model/show the specifics but what matters is that CAPE is going to fall over 2018 (and into 2019) unless either (i) the stock market is up a lot (the P in CAPE), or (ii) something happens to decimate Earnings immediately (i.e. think more nuclear attack, rather an economic recession which needs time to impact things). 

What intrigues OM is the potential change in sentiment (dare he say narrative) from a “CAPE is crazy high” to a “CAPE is high but falling” world.  While fundamentals (and value) provide underpinnings for great returns, it is sentiment and especially sharp changes in sentiment that create the necessary conditions for those returns.  Distressed situations – including Brazil, Argentina Greece, and Uranium – are plays on people’s fear, and it is the depressed valuations coupled with the shift from “this is abysmal” to “there’s challenges, but this is not too bad” that creates the returns.  Today, for the broader markets that are fairly (to expensively valued) it’s the move from “things are pretty good” to “everything’s awesome” as investors’ greed sees them extrapolate out all the trends and find ‘good’ reasons to ignore the warning signs.  While we are still some way from speculative excess, OM thinks he has started to see increasing signs of people wanting and starting to believe…Here are some signs that have piqued OM’s interest.

• Global Economic Growth:  As the first post noted, it’s the first time in a LONG time that everything’s looking pretty rosy globally.  Don’t underestimate what not hearing about economic strife does to people’s risk appetites.  The longer it continues, the more likely people are to extrapolate and expect the good times to roll.
• Length of the recovery:  This has been a long recovery, and a key argument against it has been that it has been very uneven with metropolitan areas doing well, while the rest of the country failing to keep up.  The sheer length of the economic rebound coupled with the demographic trends (people leaving the NE/Midwest for the South and West) means this will naturally change.  Conor Sen wrote a timely piece on this, and it plays neatly into the next point.
• President Trump: Whatever one’s opinion of the President, I think we can all agree that (i) he likes to be flattered, and (ii) that he enjoys taking credit for anything that goes well.  Hence, good economic facts and rises in the stock market are worth Twitter victory laps.  Under President Trump, EVERYTHING IS AWESOME and if it’s not its (pick a group)’s fault and only he can fix it.  It doesn’t matter whether it’s true, if the data keeps rolling in then he will keep saying it.  If you say it long enough, then people might even start to believe it – the signs are that they already do!
• 2008 (and especially 2000) fades from memory:  The further we get from 2000/2008, the easier is to forget the lessons and attribute the events to foolish other people or our naive younger selves.  There’s a reason why there’s a popular misquote about history rhyming.
• Corporate Margins & Tax Cuts:  Corporate margins are near all-time highs, and Congress has just passed a healthy tax cut designed to benefit corporations yet more.  This will be good for corporate earnings, and Our Man suspects that (in the short-term at least) a little of it might even find its way into wages.  Not too much, of course – since wage rises are regarded as bad for corporations and by the Federal Reserve – but enough to make the wage earners feel a little happier and more optimistic.
• Deals: We’ve started to see mega-mergers and IPOs reappearing, the bigger and more publicized these get the nearer we’ll be to the end of the road.
• Big Tech:  In Things From My Newsreader, Our Man mentioned the pushback that bit tech was starting to get.  These firms continue to receive every increasing amounts of media coverage (both positive and negative), and while the companies are starting to get some pushback, the stocks (and those of international peers, e.g. Tencent) continue to rise inexorably.  If Our Man is right, these trends will continue so expect to hear a lot more about Amazon, Apple, Google, Facebook, Netflix, Tesla, etc and how they’re going to change the world, how they’re ruining the world, and how much their stocks keep rising.
• Cryptocurrencies:  Our Man suspects that we’ll look back at cryptocurrencies as the tinder that helped fully unleash the animal spirits.  The blockchain is a great concept but early in its lifecycle (like the Internet in the late 90s) and much is still to be proven and determined.  Thus at this stage it’s a better narrative than product/tool and like all good ideas, it’s ripe to be extrapolated to beyond its current limits.  While the claims of grandeur may come true, it’s already at the stage where it has true believers insisting that it will change the world (Everything will be AWESOME!).  The world we inhabit means their $ profits validate these opinions, and just in the last couple of months we’ve seen a broadening out as people’s greed and FOMO see them join the party.  After all, Coinbase now has more accounts that Charles Schwab.

Final Thoughts

So in summation, get ready!!   OM’s working theory* is that if 2017 was the slow and steady chug to top of the rollercoaster, 2018 (into perhaps 2019) is going to be the insane part, with much more volatility and the possibility of much much higher prices.  It goes without saying, that Sod’s Law dictated that while OM put-off completing this piece over the holidays, someone far smarter and more productive came out with a better (and more aggressive) version of it.   Read value investor and bubble historian Jeremy Grantham’s piece – it’s great and OM hopes he’s right.

* As a ‘sensei’ of OM would say; have a working theory you believe in and then project, monitor and adjust.  In that vein, expect a future post with a list of things that OM is going to be keeping his eye on to help him work out if he’s wrong.

Investing Thoughts: Part I

OM changed jobs this summer and the process helped hone his view of what’s important investing and makes for a good investor.   Rather than discuss all of the thoughts in this post, OM is going to touch on a couple of items and hopefully tie it to himself and this portfolio.  For long-time readers, it will hopefully offer a deeper explanation as to the evolution of this portfolio (especially over the last 24-30 months), and some hints at how it might continue to evolve going forwards.

Successful investing is about the marriage of skillset and personality 
To those folks that know OM well, the following should all be quite familiar – (i) OM is a very skeptical fellow, (ii) if you ask OM about any idea (not just financial) and expect an immediate answer, it will be “No” (Mrs. OM heartily attests to this one), and (iii) OM knows lots of random crap and loves a good analogy.  What does that mean investment-wise?  Well, OM tends to start his investment thinking at “No” and work his way towards “Yes”.  He is pretty good at putting together disparate pieces of information (data, anecdotal points, history, liquidity and/or chart information, etc), and combining them with some heuristics to get to an investment theme.  This means that you should see that the majority of ‘positions’ in the book are thematic, with the non-thematic positions* largely residing in the Equity book.

Personality-wise, the most important trait is that Our Man is very comfortable being miserable, especially if he thinks he’s going to be correct AND get rewarded for being right!  This ties-in with the thematic approach, since hopefully the reader’s first reaction to a new thesis will range from “Really?” to “Ugh”.  OM thinks that investing, despite rising belief to the contrary ironically from both ‘value’ investors and quantitative investors, is a mix of analyzing data and understanding psychology; knowing when (and how strongly) to apply each is vital.  Themes are likely to seem largely psychological initially, but should require confirmatory data (both ‘fundamental’ and price) as they progress and hopefully grow in the portfolio.

This also leads to a couple of things that OM hopes you won’t see in the portfolio going forwards (and long-time readers will certainly recognize them, unfortunately).  
- The best way to play a theme, especially on the short-side, is often through the second or third derivative due to the convexity or better risk/reward.  So, while OM may astutely and correctly recognize that Australian swaptions was a great way to play on a China slowdown back in 2010, he has no ability to trade Australian swaptions in this portfolio.  Furthermore, trying to put on an inefficient bastardised version of the trade (EWA puts, in that case) negated all that was great about the original idea (such beautiful risk/reward) and turned a ~10x return into a small loss!  Thus, while you might hear from OM about weird and exciting ways to play an idea (I’m looking at you L Michigan/Detroit CDS for those that want to short Autos), a poor man’s version will not appear in the portfolio.  If you see one, don’t hesitate to let OM know!!!!
- For OM’s style, it’s vital to determine between something is out of favor (or where OM early) versus just being wrong.  Those who’ve read this blog over the years will know that OM has increasingly used technical analysis to help with this.  Too many of the positions where OM has lost money had technical signals suggesting it was a bad idea (or certainly wasn’t a good idea), be it Greece (version 1) or OM’s willingness to stick with his US Dollar bull thesis through 2017 (let alone foolishly adding to it).   The performance of the currency book this year indicates it’s clearly a work in progress, but expect it to continue becoming a more prevalent piece of the decision-making. 

* But what of the Technical and Funds books I hear you cry!  And you have a valid point; both books both exist to help counter OM’s skepticism, an unfortunate side-effect of which is under-investment.  As OM has noted, the hope is that the books will outperform the market over the long-run with the base case being that they should provide long-term quasi-market exposure for a part of the portfolio which otherwise would be held in cash.

Position sizing is the most under-appreciated skill in investing 
The older OM gets, the more he finds himself agreeing with Stan Drunkenmiller that “the only way to make long-term returns...that are superior is by being a pig.”  The key is to understand both when you have an idea that truly excites you and when to bet big on it. 

For OM this means accepting that every investment position has a beginning, a middle and an end, and being patient enough to wait until the middle to size a position up and ruthless enough to start cutting it back and exiting as we get towards the end.   Thus for OM the risks are being too big too early (i.e. in the beginning phase, leaving you only bad choices going forwards), not being big enough in the middle period, and having too big a position for too long when an investment is coming towards its natural conclusion.   The bullish US Dollar trades during 2017 were a conspicuous failure to be ruthless enough on cutting back a position that was in its end-game – a bull market that’s in its 6 year (historically it’s about how long USD bull markets have lasted) with a technical picture that was deteriorating.

OM suspects this will be the primary ongoing battle for the rest of his investment life.  However, to try to help matters and force himself towards the best decision, he’ll hopefully be clearer in stating where he thinks investments are in their lifecycles.  Initially, the assumption will typically be that OM is early to the investment and they’re all in the beginning.  Increasingly confirmatory data (both fundamental and price) is likely to signal a move towards the middle and should be reflected in an increased position size.  Finally, as we get to the end the theme will hopefully be very well worn (and things like this will appear in and on the cover of the Economist) the bar for adding to a position should be significantly higher (perhaps impossibly so) as OM should be exiting stage left.

Hopefully, this post will serve as a nice appetizer to hopefully add some context to the main course of the coming portfolio update.