With the sell down over the past few weeks, the risk/reward payoffs offered by our existing names have become too compelling to resist. We've been continuously adding to positions and our invested position has risen from 70% to 90%.
Although I have and continue to remain concerned about the general overvaluation of markets and the impact of future rate rises, our competitive advantage lies in bottom up analysis - individual stock picking, and not in predicting macro outcomes. At these prices I think the risk of absolute loss over a 3year time horizon is very low and I'm greedy at the potential returns offered by select investments such as JD, BABA, CNOOC, CVR Energy, etc. Even Sands China which we'd been selling until now, has now dropped to levels where we are tentatively buying again. Are we too early and too eager in our buying? Probably, especially if half the fears on the spread of the delta variant of covid turn out to be true. But at the same time, I'm no longer sure that holding a bearish market view is the minority today. At the very least, it gives policy makers and politicians an excuse to extend the easy liquidity and enact fiscal stimulus measures. Also, my gut tells me market fears on China are overdone and I'm happy to put my chips on the other side.
A major disappointment has been the withdrawal of Perishing Square Tontine (PSTH)'s purchase of the Universal Music stake and subsequent restructure. We had already put high single digit % of the portfolio into what we thought was this Cash+ & Market Hedge at an average price of ~$21.8. At today's price of $20.6 (pre-market open), this position is down -5.5%. Not pleasant but these kind of setbacks are expected in investing. We will probably get most of our money back once markets calm down but this position no longer holds the same appeal it did a month ago.
Our fund will start in a little over a month's time: September 1, 2021. If markets crash it will be a nice starting point for our performance record. Having mental balance/resilience to ride through market waves is one of many traits needed to outperform in the investment game. And a strong stomach will be needed to navigate the many waves to come over the next few years.
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