I started in the industry at a Fund manager best known for its contrarian, value and long term investment philosophy. I was lucky because mentally, I was built in the same style. Although since coming to Asia I've embraced more growth and momentum as a necessary adaptation to this market, I've always been most comfortable with the unloved, deep value type plays which are typically cyclicals or distressed companies.
My PA equity investments have performed poorly over the past year and even more within the last month. Although my allocation to equities is low (still only ~15%), I have pursued aggressive weightings towards my higher conviction ideas. One of these, and the source of ~2/3 of my current losses has been my offshore oil driller investments: Transocean, Ensco, Diamond Offshore Drilling. I initiated this position in late March 2018 at 5% and added to the position as the stock prices rose to their peak ~October 2018 (10% position including ~25% of gains). Since then their prices have collapsed >60% and I have continued to add in both the absolute size and weighting of this position. The data I was seeing was improving - rig utilisation was increasing, the reserve replacement levels were too low, oil majors were increasing their capex, the oil drillers had extended their debt profile considerably. Unfortunately offshore rigs are now teens % of my equity investment and with losses close to 50%...
There's a lesson to be learned here. While I still believe in these names I think I could have profited (or at least curbed my losses) by merging my fundamental views a cautious eye on the charts. At the very least I shouldn't have been so quick or aggressive in adding after the October peak (I believe this and other cyclical plays are supply stories and less demand dependent so I had discounted the macro weakness).
I think the key is not being too confident on the path of price action and chasing value deeper. Its better to see the price stabilise. While we did not do that a decade before in the REITs, I think this is wiser with a nimble personal portfolio where I can put in and pull out capital swiftly. If I was to do it again I would probably cut the position from 10% to 5% after the stock price moved >10% against me and/or breached similar % resistance levels. I would maintain it at 5% and top up only aggressively on sharp price movements (lacking fundamental news). Assuming my conviction was the same, I would probably increase the % allocation after X period of time (e.g. 1yr) and with significantly better fundamental news. Also I would increase the position quickly based on a trend reversal in the charts.
Having said all this I still believe that buying the oil rig companies at 9--25% of P/TNAV will provide a handsome payoff in the end with limited risk of absolute loss.
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