Portfolio Divergence From Benchmarks – Thanks Trump!
- Original Post from SG THUMBATACK INVESTOR

The 1 major headline in the past few days has certainly been all about the US-China trade negotiations and Trump’s threat to hike tariffs 2 days from now.


In the midst of all the uncertainty, the global markets have been roiled and US markets have taken a tumble this week.



Whilst I have not predicted this, and neither do I try to, my US portfolio has benefited and continued it’s relentless upward march, even while the world burns and the indices FINALLY start turning down:



Finally.


Everything starts turning red for once. Everything except TTI’s portfolio.


Hitting a new high of 41.62% ROI YTD, and especially since it’s coming at a time where there aren’t many stuff that’s not red… is very satisfying.


US portfolio NAV hit a new high too, but I’d just judge it again at the end of May. It’s also a double boost, since in the midst of the market volatility, USD has strengthened considerably against SGD. I’ve taken the chance to swap out some USD into SGD.


Even my SG portfolio is pretty green: I attribute it to the fact that it was pretty red previously, and the impossibly low valuations mean that there’s next to zero downside…


Well, how did my US portfolio buck the trend?


I always think it’s actually easier to outperform the market when everything’s green…. than to try to remain green while everything’s red.


Cos that requires you to take up really contrarian positions, and not just that, but to hold on to these positions despite the pain, unpopularity, and seeming stupidity in doing so.


Here are the specific reasons for my current divergence from market indices:


Contrarian positions.


1 of my core positions continued performing well. Wirecard announced new (and improved) guidance for 2019 following the Q1 results release. FCF continued climbing, and is up by 37% yoy. In fact, every metric shows continued rapid growth across the board.



Having a concentrated position in a contrarian play certainly allows you to buck the trend, but beware, it could jolly well be in the wrong direction if you get it wrong!


Shorts.


Now, I don’t short for the sake of shoring, but market were just roaring non stop since the start of the year. As I mentioned in earlier posts, it’s >16% returns since the start of the year for S&P, so the downturn now is a relief.


It’s a relief because I’ve shorted some companies earlier, in the belief that they are either over valued, or are unlikely to show significant improvements in their financials anytime soon.


Most of these shorts have been very much uncomfortable in the past month, being a dead weight to drag around while my portfolio tries to open up the gap against the indices. Fortunately, I managed to use options to keep the costs of shorting in check. Still, it hasn’t been fun since they’ve been in the red practically from the second I shorted. (until now, of course)


In looking for candidates to short, I try to look for guys with negative FCF, and/or companies that are unlikely to suddenly hit rapid earnings growth. Or stuff with potential road bumps that are pretty obvious (to me). Perhaps an acquisition that the markets are cheering, but the integration remains uncertain?


Prior to this bout of market weakness, I was short GDS, EB, MU, TSLA, JD, NKE and SPY itself (S&P index)


I wouldn’t go into specific details as to why I shorted those names, but just very briefly, I think EB’s integration would show more hiccups than they are letting on, and it’s proven in the last ER. Think I discussed about this somewhere in IN at that time.


TSLA was an obvious short to me, and actually, still kinda is. Sorry Elon, I’m on Einhorn’s side now.


GDS is another short that has given me lotsa heartburn, but as of this week, it’s finally payback time. I don’t know what Temasek sees in GDS.


I also now learnt that I should NOT structure my S&P shorts by selling SPY calls, esp naked ones.


S&P can move upwards really relentlessly. It’s almost logic defying. Also, the IV is low, and premiums are kinda pathetic for the level of exposure each option contract requires.


Of course, in times like now, thank god for my shorts!


Still, my impatience got the better of me. In just 2 days of the market turmoil, I’ve covered most of the shorts, taking almost everything off the table. Perhaps it’s cos a part of me is just relieved and happy that the shorts have worked out. Having to constant struggle against a relentlessly upward market is not fun.


Yet, as of now, that’s looking like a dumb move cos Trump does look serious in raising tariffs on Friday, and it definitely doesn’t look like something concrete will get finalized by then.


In short, I think we should expect more volatility, and I probably left way too much on the table.


Should’ve gone to bed early instead of tinkering around.


Speaking of volatility, that leads me to the 3rd reason:


Volatility.


Having built up a position in VXX, the current volatility and redness in the market has been a godsent.


For example, VXX shot up 16% yesterday (Tuesday) alone!


Yes, in a single day!


That’s the nature of VXX and actually, most volatility derivatives. When times are good, the rollover just simply kills any VXX longs, but right when the times are at its darkest……. the upwards movement is scary.


So that’s it for this short post.


It’s just to explore the reasons for my portfolio divergence against the current market weakness, and how I structured certain contrarian positions.


I’m sure everybody has their own ways to do so.


My next post would be an investing thesis, and a highly contrarian one too. Credits to a reader who brought this to my attention, but since he declined to be named or identified, so I’d just leave it as such.


It should be fun to read.


If you understand it, that is.

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