10. October 2017 - IDH Capital · market volume, the bullishness or bearishness of the financial...
2
IDH Capital, Cameron Dewey In der Hinterzelg 2, 8700 Küsnacht, Switzerland www.idh-capital.com Tel (+41 44)586 1577 [email protected] ; October 25 th , 2017 Performance In September, the IDH Capital reference portfolio returned 3.0%, bringing the total return year to date in Swiss Francs to 20.8% and to 78.8% since inception. IDH Capital Reference Portfolio since inception in Swiss Francs Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD Total 2012 -0.6 % 0.8% -1.6% -0.6% 3.7% 0.8% 2.0% 1.5% 1.5% 1.9% 9.6% 9.6% 2013 3.8% -0.2% 1.0% 1.6% 3.4% -5.4% 6.7% 0.6% 3.9% 3.4% 0.8% 1.8% 23.1% 34.1% 2014 -2.4% 1.3% 1.0% -1.0% 1.3% -1.5% -0.4% 2.0% -0.4% 0.3% 5.3% 1.2% 6.7% 43.9% 2015 -8.7% 10.3% -1.2% -1.0% 1.4% -3.1% 4.9% -7.4% -0.9% 9.3% 3.8% -4.1% 1.5% 46.0% 2016 -5.4% -3.8% 2.7% -2.0% 6.5% -6.4% 6.0% 2.5% 0.4% -1.6% -1.4% 4.9% 1.3% 47.9% 2017 0.1% 3.8% 2.7% 3.4% 2.9% -1.3% 4.3% 0.3% 3.0% 20.8% 78.8% Performance in CHF, unaudited, after taxes and transaction costs. The reference portfolio is not subject to management or performance fees. Risky Business As an investor, risk is never far from our thoughts, even more so as a manager of other people’s hard earned savings. To sift through the noise of today’s hyper-connected world and identify real concerns is one of the greatest challenges of our time. The battle of twenty- four-hour news channels, business networks, brokerage firms and social media for our attention is well documented. Inevitably, the explosion of “news” space to fill has led to shorter “news” cycles and ever more radical headlines. The Dow Jones does not drift off by 0.6%, it gets “PUMMELLED!”, or “SLAMMED!”. “If it bleeds, it leads” is an old newspaperman’s expression, but the situation has gotten out of hand. To make matters worse, the world today is highly risk-averse. Investor savings were all but wiped out twice in an eight-year period with the dotcom and financial crises. Add to that the pain of austerity, the unknowns of quantitative easing, and the return of bitter identity politics, and it is no wonder the populace is feeling jumpy. And oh, this bull market is the longest in history, the 1987 crash was 30 years ago this month, and of course, the biggest bogyman of them all, the crash of 1929, is never far away. At the end of the day though, as equity investors, we must find a way to live with an acceptable level of risk and have therefore established a series of guidelines. First, there will, inevitably, be another big market correction. Very few people will see it coming, but most will claim after the fact that they read the writing on the wall a mile away. Some of the risks that keep us up at night are the massive size of derivative based ETF’s on ever more illiquid underlying assets, the excessive valuations in private equity (unicorns), a disorderly unwind of the overbought bond market, and the possibility of an artificial-intelligence based algorithmic trading strategy gone haywire. We can also say with a high degree of certainty that the root cause of the next market jolt will be none of the above. Second, geopolitics is mostly noise that is best ignored. There are few geopolitical events that provide a massive, instantaneous economic shock. In developed countries, a new government may enhance or devalue a nation’s status in the world or to attempt change the economic course by a few degrees, but ultimately any kind of radical shift, economic or
Transcript of 10. October 2017 - IDH Capital · market volume, the bullishness or bearishness of the financial...
IDH Capital, Cameron Dewey In der Hinterzelg 2, 8700 Küsnacht, Switzerland www.idh-capital.com Tel (+41 44)586 1577 [email protected]
;
October 25th, 2017 Performance In September, the IDH Capital reference portfolio returned 3.0%, bringing the total return year to date in Swiss Francs to 20.8% and to 78.8% since inception.
IDH Capital Reference Portfolio since inception in Swiss Francs Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD Total
2012 -0.6 % 0.8% -1.6% -0.6% 3.7% 0.8% 2.0% 1.5% 1.5% 1.9% 9.6% 9.6% 2013 3.8% -0.2% 1.0% 1.6% 3.4% -5.4% 6.7% 0.6% 3.9% 3.4% 0.8% 1.8% 23.1% 34.1% 2014 -2.4% 1.3% 1.0% -1.0% 1.3% -1.5% -0.4% 2.0% -0.4% 0.3% 5.3% 1.2% 6.7% 43.9% 2015 -8.7% 10.3% -1.2% -1.0% 1.4% -3.1% 4.9% -7.4% -0.9% 9.3% 3.8% -4.1% 1.5% 46.0% 2016 -5.4% -3.8% 2.7% -2.0% 6.5% -6.4% 6.0% 2.5% 0.4% -1.6% -1.4% 4.9% 1.3% 47.9% 2017 0.1% 3.8% 2.7% 3.4% 2.9% -1.3% 4.3% 0.3% 3.0% 20.8% 78.8% Performance in CHF, unaudited, after taxes and transaction costs. The reference portfolio is not subject to management or performance fees.
Risky Business As an investor, risk is never far from our thoughts, even more so as a manager of other people’s hard earned savings. To sift through the noise of today’s hyper-connected world and identify real concerns is one of the greatest challenges of our time. The battle of twenty-four-hour news channels, business networks, brokerage firms and social media for our attention is well documented. Inevitably, the explosion of “news” space to fill has led to shorter “news” cycles and ever more radical headlines. The Dow Jones does not drift off by 0.6%, it gets “PUMMELLED!”, or “SLAMMED!”. “If it bleeds, it leads” is an old newspaperman’s expression, but the situation has gotten out of hand. To make matters worse, the world today is highly risk-averse. Investor savings were all but wiped out twice in an eight-year period with the dotcom and financial crises. Add to that the pain of austerity, the unknowns of quantitative easing, and the return of bitter identity politics, and it is no wonder the populace is feeling jumpy. And oh, this bull market is the longest in history, the 1987 crash was 30 years ago this month, and of course, the biggest bogyman of them all, the crash of 1929, is never far away. At the end of the day though, as equity investors, we must find a way to live with an acceptable level of risk and have therefore established a series of guidelines. First, there will, inevitably, be another big market correction. Very few people will see it coming, but most will claim after the fact that they read the writing on the wall a mile away. Some of the risks that keep us up at night are the massive size of derivative based ETF’s on ever more illiquid underlying assets, the excessive valuations in private equity (unicorns), a disorderly unwind of the overbought bond market, and the possibility of an artificial-intelligence based algorithmic trading strategy gone haywire. We can also say with a high degree of certainty that the root cause of the next market jolt will be none of the above. Second, geopolitics is mostly noise that is best ignored. There are few geopolitical events that provide a massive, instantaneous economic shock. In developed countries, a new government may enhance or devalue a nation’s status in the world or to attempt change the economic course by a few degrees, but ultimately any kind of radical shift, economic or
IDH Capital, Cameron Dewey In der Hinterzelg 2, 8700 Küsnacht, Switzerland www.idh-capital.com Tel (+41 44)586 1577 [email protected]
social, takes a long time to legislate and implement, let alone deliver results. Great reform expectations hang over French President Macron and U.S. President Trump, but neither have made much headway despite large legislative majorities. Last year’s Brexit referendum is as close as we are likely to get to a vote for economic upheaval, yet one year on and the UK economy still manages to keep its head above water, if only just. Third, we track a series of market data points. Every day since formulating our investment process in 2011 we have put a score, ranging from a bullish +2 to bearish -2 on the same 14 indicators. Ten of these indicators are objective, such as the movement of the VIX index, market volume, the bullishness or bearishness of the financial media (a great counter indicator!), and the spread between the two and ten year U.S. Treasury Bill. The other four are subjective and reflect our personal view on the market. For example, are we looking to buy or sell, or is the pain trade up or down. None of our 14 data points on its own predicts the market’s direction, but their combined score over time has proven a valuable confidence indicator. Finally, there is company risk, and this is where we believe the market often gets it wrong by exaggerating or underestimating earnings growth potential. The ever-increasing short-term time horizon of investors exasperates the extremes and creates more violent moves, up and down. While at times unnerving, these bouts of sudden volatility offer attractive buying opportunities for the patient investor. As an absolute last resort, we have a stop-loss of -25% on our investments. While some investors do not believe in stop-losses, and we admit that on a few occasions we have been “stopped-out” at the bottom, we view a strict stop-loss as a necessary safety net for our clients’, and our, peace of mind. Undeniably, risk tolerance and risk management are highly individual. Overestimate your risk appetite, and you literally pay the price. Over-manage your risk, and you suffocate your portfolio and squash returns. No system will be perfect, but establishing a firm set of principles that help you sleep at night is invaluable. Sincerely, Cameron Dewey Disclaimer: All performance calculations are not independently audited and are reported before fees but after taxes and commissions. Client portfolio returns will vary from that of the reference portfolio depending on when the account was initiated, asset flows, and fees. All views expressed in this report are solely those of IDH Capital and are not a recommendation to buy or sell any of the securities mentioned. This letter is intended as an informational update for clients of IDH Capital and is not a solicitation of business.
