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A scratch book of investment ideas, photography and much more.

What's my investment strategy?

Foreword

As you probably know this blog is not about intraday strategies or doubtful golden rules. I am sure you can easily find swindlers out there that promise you stellar returns simply by clicking on their effing link.

I don't believe in a market that is predictable and bounded to the past. But I do believe in inefficiencies. And as soon as humans remain involved in the market those inefficiencies will persist. For this reason, an investor shall be active and prepared to take advantage from them. But what do I mean by inefficiencies?

Let's assume that after running your own due diligence you decide to buy a stock that is trading at 20% discount from your target price. For some days since you purchased the stock price has been dropping by 10% - and it did not pay any dividend. Your assumptions however are still valid; nothing really changed significantly. If your assumptions are frank there are at least two conclusions you can draw: some market participants do not share your same idea or the market made a blunder. If you strongly believe in the latter you have then a nice opportunity to fool the ones who are selling that stock - careful, don't be too arrogant.

The explanation above may seems unsophisticated and to some degree it is. But the message I want to pass is: "do not let the market says what a stock is really worth". Or using Ben Graham's words: "Mr. Market’s job is to provide you with prices; your job is to decide whether it is to your advantage to act on them. You do not have to trade with him just because he constantly begs you to."

My process

Said so, let's jump to my investment strategy which is composed by 4 steps.

1) stock selection
2) monthly cash-in
3) hedging activity
4) repeat

My stock picking process starts from a quite detailed fundamental analysis of the company. I like to model the business of the company that I am analyzing because it allows me to understand the key variables that drive the stock price. On the other side, I dislike complex businesses because they amplify the margin of error of your forecasts making your target price too unreliable. After forecasting the free cash flows, I go through a series of calculations to end up with the target price. For some companies I use the dividend discount model. I always pair the fundamental analysis with a multiple valuation aka relative valuation. I tend not to include too many companies in my portfolio - five to ten stocks depending on the market conditions. Remember these wise words: “Diversification is protection against ignorance. It makes little sense if you know what you are doing.” - Warren Buffett.

Every month I deposit part of my salary in the broker account and increase the position in the stocks which are under-performing or are having a negative total return. In this way I can take advantage of the divergence in prices to lower my average cost and increase my upside potential.

I do hedge from time to time selling futures of the indexes that give clues of an upcoming correction and for which I have an exposure. I find it more practical and cheaper than selling all my positions in bulk. By doing so I keep a neutral position on the market by limiting the systematic risk. If I get it right I use the proceedings to increase the position in the company that witness a stronger correction. If I don't get it right I get acquainted with the price of hedging, like in an insurance contract in which we pay a premium but we don't receive any compensation.

I repeat this process over and over again trying not to lose the big picture. "Wax on, wax off".

Additional info

Until now I never felt the need to re-balanced the positions because the majority of my stocks have been moving together. I do keep some liquidity aside to make some "swing trading" or to "buy-the-dip".

Conclusions

This is in short the strategy I adopt to invest my money. In the next days and weeks I will expand many concepts that in this post have been only touched upon for the sake of clarity and conciseness. Feel free to reach me out on Twitter or on the Guestbook to share your comments or just to say hi!

Why do I actively invest?

As first blog post of the main series, I am going to present my reasons for being so devoted to investing. Since I believe that framing is the key to lay solid foundations for a sound investment strategy, so let's start from "why?". It will come to aid in hard times when the market goes against you testing your nerves.

Once you answered this question you can pass to the other ones concerning your investment horizon, risk adversity, ethic, etc...

So why do I actively invest in the stock market?

Short answer: to retire early. Therefore investing is for me an absolute must.

I am not talking about trading in and out at crazy speed with unlikely results. For me investing means accumulating wealth in my broker account little by little as ants gather crumbs in summer in the wake of the winter. As a consequence 1) I tend to save a major part of my salary in order to pile up wealth, 2) I regularly increase or add positions in stocks that have recently drop still preserving their structural integrity.

Experiencing the markets everyday as part of my job is a precious edge since I can leverage my knowledge gathered along my professional life and assimilate the daily news flow. Differently from many other people who are engaging and endorsing the FIRE movement, I am yet not completely bought into the idea of passively investing in index funds even if all the studies about this topic bring valuable arguments to the table. And also I need to justify to myself the meaning of my everyday job! All kidding aside, as far as the markets are unpredictable, a careful and continuous assessment of the macroeconomic environment may offer you precious hints about a prudent equity exposure and sector allocation.

Another compelling side of investing and more particularly of the financial markets is the zero-sum game on which is based on. Warren Buffet once said: "The stock market is a device for transferring money from the impatient to the patient". Most of the active managers and retailers are very demanding from the stock they buy. They often make the irrational decision to close their investment in the worst moment ignoring the basic rule buy low sell high. Taking advantage from these individuals thrills me (I know it sounds perverse).

04.2021 Macro View

Equity

Euro Stoxx 50 looks overbought, small correction expected. 100% of my exposure to European equity has been hedged.

Nasdaq 100 is back to its maximums and approaching the overbought area. The slightly higher than expected inflation rate is going to sustain the US market for a little longer, but I do expect a correction soon. I stay cautious and away from "long duration" stocks which are the ones expected to suffer the most the moment the market's focus comes back to the treasury yield.

SPX continues to record highs everyday. I don't want to be too pessimistic but a correction is required to cool down investor's optimism and might coincide with a possible under performing earning season.

Forex

EURUSD pulled back on 1.19. It might be a second opportunity to take a long position in USD.

Fixed Income

10yr US treasury yield pulled back on 1.67, but it seems that its march to 2% is starting over. It might suggest a good month for financial companies. Also, its a good opportunity to sell futures on US treasuries.

Oil

BRENT is yet ranging at 63$/bbl but I believe that by the end of the month can start over its upward trend and come back to 70$. Overall positive thoughts over oil companies.

Other economic indicators

USA

The US PMI continues to support an overall bullish view. The employment is a more controversial matter. From one side we have a rising Nonfarm payrolls number, from the other one we have a rising jobless claims. I struggle to find an unambiguous meaning.

Europe

The Euro Zone PMI is still supporting the European markets, while the unemployment rate registered a slight rise but yet nothing alarming. I personally prefer to stay market neutral until I don't see things clearly.

Introduction (part 2)

How will I organize my blogging activity?

Since blogging is for me a new thing I have a lot to learn about it, but at the same time I want to stay authentic and share thoughts as soon as they come to my mind. In other words, I'll try to publish in an organized way leaving room to some spontaneous extra-contents every now and then.

Firstly, at the beginning of each month I'm going to publish my impressions about the macro environment and the indicators that I use to support my decisions. Most of my analysis take into account both technical indicators, statistics and other economic measures. My intent is to get rid of all the noise and shed a light on what I consider really relevant.

Secondly, every couple of days I am going to publish some posts regarding investment ideas and strategies in which I am directly involved. They represent the bulk of the blog's contents. I'm not anticipating much about it, you will understand my approach gradually as I begin publishing content.

Thirdly, twice a month I am going to share some personal interests that can range from photography, organizational software/workflow, and much more!

Lastly, I take the liberty of transgress the schedule above, therefore in order to not miss any content please consider to subscribe! I can ensure you that you will not receive any spam! You will not regret it!

Introduction

Welcome

Hello dear passer-by, welcome to my blog, a scratch book of investment ideas, photography and much more.
Please do not take any content of this blog as a financial advise, in fact it represent exclusively an open personal notebook where I regularly jot down my thoughts in an organized way.

Who am I?

I work as an assistant portfolio manager in an asset management company based in Luxembourg. I am directly involved in trading stocks and derivatives for an investment fund and other individual clients. Job aside, I am also a photographer with a keen interest in documentary and street photography. Take a look at some of my works.

Why?

I created this blog for two main reasons. 1. It helps me journal my takeaways from the macro environment and financial markets. 2. (pretentious) Create a sincere like minded community leaving gurus and wizards out.