2018: First Quarter Review

Portfolio Update  
The recent portfolio updates covered the portfolio changes in Q1, so OM won’t spent too much time on them: 

- International: Our Man continued to add to the International portfolio.   The continued positive economic information out of Greece, encouraged OM to increase his exposure (GREK).   OM took advantage of the pull back in the markets, to enter an initial position in Vietnam (VNM).

Performance and Review 
The first quarter saw the  portfolio fall -0.3%, which was broadly in-line with the S&P 500 Total Return (-0.7%) though ahead of the MSCI World (-2.2%).  The flat quarter disguised some substantial volatility within the quarter, with the portfolio rising 11.3% in the first 3 weeks of the year before giving almost all of that back within 2 weeks.  The portfolio continued to bounce around to a lesser degree throughout February and March.

Despite the volatility in equity markets, the Equities positions were the largest gainers led by Vipshop Holdings (VIPS, +147bps) and Texas Pacific Land Trust (TPL, +54bps).  After its Q4 announcement of a partnership with Tencent and JD.com, who both also took stakes in the company, VIPS announced strong Q4 results during February.  TPL also had strong results, with 2017 marking “the most successful year in the Trust’s 130-year history”, with the new “Water Service” business getting off to a strong start.  TPL also continues to slowly dissolve itself, buying back another 1.7% of the company in 2017.

The International book was all over the place; large contributions from Brazil (+196bps) were offset from just about everywhere else led by Argentina (-104bps), India (-60bps) and Greece (-30bps). 

The Uranium positions, in the Commodities book, continue to frustrate with both the Uranium ETF (URA, -160bps) and Nexgen Energy (NXE, -37bps) falling back.  The price action remains disappointing (at best) while the fundamentals are attractive – the impact of capacity reductions “should” be felt during the second quarter, especially if companies have to enter the spot market.  Unfortunately, one item of note is that the underlying index for the ETF was changed to reduce the exposure to small mining companies and introduce some nuclear component companies.  These smaller mining cos were part of the attraction to Our Man, thus URA’s leash has been shortened further.   

Portfolio (as at 03/31/18 - all delta and leverage adjusted, as appropriate)

49.4% - International (Brazil ~25%, Argentina ~11%, Greece ~5%, India and Vietnam)

27.7% - Technical (DDM, QLD and SSO)

17.9% - Equities (JD, VIPS, TPL, FNMA & IBB)

10.2% - Funds (CWS, GVAL, and CAPE)

8.0% - Commodities (Uranium through URA & NXE)

0.6% - Cash 

Disclaimer:  Nothing above represents a recommendation in any way, shape or form so please don’t even think of trying to take the above that way.  For added clarity, while Our Man is invested in all of the securities mentioned that’s a terrible reason for anyone else to do so.  Our Man also holds some cash and a few other securities (of negligible value).  You should not buy any of these securities because Our Man has mentioned them, but should do your own work and decide what’s best for you given your own circumstances/risk tolerance/etc. 

Things from my Newsblur; 2018 Part II

Our Man has been surprisingly competent at scheduling his time so far in 2018, creating a small sliver each week for reading and “thinking”.  A side product of this newfound competence is a more frequent “Things from my Newsblur”.  As usual, the more serious and the finance-orientated things are nearer the end. 

Jerry & Marge Go Large

As someone who spends far too much time thinking about investing, this story appealed to OM on multiple levels.  A couple, who were approaching retirement, noticed a small flaw in the lottery odds of a particular game.  They did what all good investors should do; realize that they have a legal edge, show great discipline in waiting for the opportunity to manifest itself, and then bet really really big to maximize it.  What did really really big entail?  A 25-person syndicate, hours (sometimes days) filling in many thousands of lottery tickets on each of the 55 occasions they played in 8 years, $27million in winnings and ~$8million in profits!  Like most investment edges, it disappeared (the state closed that particular lottery game down) and an attempt to replicate the strategy in a different market (Massachusetts lottery) met with too much competition alerting the press.   (Jason Fagone, Highline – Huffington Post)

Designing Smart Cities

With the rise of Uber, AirBnB, etc. the nature of cities is changing, and with it so must their design.  “Cities of the industrial age looked mechanical, cities of the information age can look like fractal networks — like nature.”  Can we build a city that’s truly modern and functional, but has the character of a medieval town?  (David Galbraith, Medium)

How the Sandwich Consumed Britain

With all the doom around Brexit, there is at least one industry where Britain is the unquestioned world leader; the $10bn+ sandwich industry!  The British sandwich industry transformed how you eat lunch, then did the same thing for breakfast.  Sandwiches for dinner next?  OM hopes not!  (Sam Knight, The Guardian)

The Uber Game

While not strictly a read, if you’ve ever wondered what the reality of being an Uber driver is, then this is an easy way to find out.  Spoiler alert: It doesn’t take long to discover it sucks!  (The Financial Times)

Inside Amazon's Artificial Intelligence Flywheel

Despite what you might read on this blog in the upcoming weeks, Amazon is one of OM’s favorite companies.  This article talks about the process that led to deep learning becoming a key driver that powers most of Amazon, especially Alexa and Amazon Web Services.  The process starts with an imagined, and often technologically impossible product, and then working backwards giving it the flexibility to include features that haven’t been invented yet.  (Steven Levy, Wired)

Jim Simons, The Numbers King

A profile of Jim Simons, an investing legend.  The former cryptographer built Renaissance Capital whose algorithms made him a billionaire.  Now he’s using some of that money to fund his Flatiron Institute, which is devoted to computational science and to developing and applying algorithms to help scientists analyze enormous caches of data.  While Universities and scientists have become skilled at collecting data (especially digital), they are not coders and so often struggle to fully benefit from it.  The institute hopes to help  by providing top researchers with bespoke algorithms to analyze their data.    (DT Max, The New Yorker)

Estonia, The Digital Republic

Anyone who’s spent more than a cursory amount of time looking at cryptocurrencies and the blockchain will have heard of Estonia.  The country is so eager to take on technological problems, and has had such foresight in its approach, that it is close to building the first entirely digital country.  What do I mean?  Imagine a world where your financial records, health records, employment history, and school grades were all on secure online system where you owned all your data and could control who sees it.   Yes, you…not Facebook or Equifax or Google, etc!  That’s the pathway that Estonia is trail blazing! (Nathan Heller, The New Yorker)

How Does Ethereum Work Anyway?

Cryptocurrencies have received a beating recently.  If you’re still interested in them and especially the underlying blockchain technology, then you should absolutely read this article.  Forewarning, it’s long and can be a bit technical/complicated in spots so you might need to re-read it a few times (OM did, and he’d still only claim to get the concepts rather than all of the details)…but it will be worth your time! (Preethi Kasireddy, via Medium)