The discovery of the new South African variant yesterday caused global markets to fall dramatically as this new black swan event captured our collective attention. Was this foreseeable? Probably. Virus mutations are happening all the time and with this many people infected it was just a matter of time before we saw another variant emerge. What was shocking was the huge number of new mutations (50), especially the mutations in the spike protein (which our vaccines target). The new variants' ability to evade our current vaccine defenses and the severity of infection remains to be seen. Although scientists are racing to find these answers I doubt the full picture will be clear until many more real world cases are studied - genetic mutations are easy to find but the resulting effect on interactions with hosts is extremely difficult to predict.
Normally viruses evolve to become better at transmission and less deadly with time due to natural selection - these strains are more successful at spreading to a larger population (the delta variant is the perfect example). However it's occurred to me that with superior global healthcare treatment the selection for lower 'deadliness' may be less important due to increased survival rates across all strains. Perhaps the new strains will just be better at transmission?
These are a lot of ifs. For investment markets, I'm sure by next week people will be wondering about the secondary impact on central banks and government budgets. At the same time, fear could easily take hold if the new virus is shown to be worse than the original. Will markets rise or fall? I have no idea and I doubt I could predict where markets will end up 3 months or even a year from now.
Our approach is studying stocks closely to understand the business at the most fundamental level. From this perspective, the portfolio is full of fantastic businesses trading at great prices. The payoff structures today are among the most attractive I've seen in my investment career and the portfolio has a great diversification of intrinsic risk exposures e.g. Chinese regulatory risks, Macau gaming regulations, hydrocarbon pricing, EPA ethanol blending requirements, etc. Despite our careful analysis of these companies and industries, their stock price direction are now in hands of extrinsic factors. We have reached the limits of individual stock analysis. The only thing that can be controlled at this point is the the risk one is willing to assume and the time one is willing to wait. Surviving the inevitable volatility must be balanced with the juicy return potential of many opportunities. Many princes (and/or paupers) will be created before this year is out.
Prior to this event, we had finished selling our Exxon, Occidental, Trip.com and Philip Morris positions. We've recycled our capital into two new Chinese internet/logistics companies which we're still buying to a full position. During Friday's sell-off we added to some of our existing positions and will increase our % invested to 125%. The Fund has been delayed by back-office and regulatory feet dragging. It probably won't be until Jan 2022 before the fund is fully funded and operating as it should.
Good luck and stay safe friends.
Yorumlar