Investing in undervalued securities worldwide

Weekly Update 21 March 2022

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Stocks rallied last week as progress was reported in negotiations between Russia and Ukraine.

Moody’s analysts recently lowered their 2022 global GDP growth estimate from 4.3% to 3.6%, due to war-related higher commodity prices, financial and business disruption, and lower sentiment.

Some analysts believe there is a 35-40% chance of a recession over the next 12 months.

Stocks have been relatively resilient this year despite the deteriorating economic backdrop. This may be because:

1. There is no bubble in the stock market.

2. With interest rates still low, there are few alternatives to stocks.

3. Stocks have historically produced positive real returns even in high-inflation years (see the Article of the week below).

4. Sentiment became quite negative earlier this month,
leaving the markets vulnerable to a squeeze higher on any good news about the war.

Though the war continues to dominate headlines, if there is any resolution to the conflict, the markets will probably return to focus on inflation.

Inflation is still running hot in the US. To combat it, the Federal Reserve is planning to increase interest rates several times this year. Rates are expected to increase to 1.9% in 2022 and 2.8% in 2023.

Increasing rates have historically led to mediocre returns in the stock market (see Article of the week), so we expect 2022 will be a tepid year for stocks even if the war ends.

We are positioning for a weak, but perhaps not recessionary, economy by investing in undervalued companies in sectors that have historically performed well in stagflationary environments (Healthcare, Real Estate) or whose prices already discount an economic slowdown (certain Industrials). We are avoiding risky leveraged companies (Financials) for the time being, until an end to the war is confirmed.

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@triangulacapital +0.5%
$SWDA.L -6.5%

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$OCI.NV (OCI NV) was replaced by $AIR.PA (AIRBUS GROUP) to adjust the risk level of the portfolio slightly higher.

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“Credit Suisse Global Investment Returns Yearbook 2022”

– The yearbook shows why it’s worth investing in stocks. “Over the last 122 years, global equities have provided an annualized real USD return of 5.3% versus 2.0% for bonds and 0.7% for bills.” Over 100 years, a 5.3% annual return turns $10,000 into $1,750,000.
– Stock returns were positive in most inflation regimes, though low inflation was best. Only if inflation was extremely high (>18% p.a.) did stock returns turn negative.
– Stocks returned +9-10% p.a. when interest rates were being cut, but only +1-3% when interest rates were being increased. Because interest rates are currently being increased, investors need to set their expectations lower than in the recent past.

Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.

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eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFD assets.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 51% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

eToro (Europe) Ltd., a Financial Services Company authorised and regulated by the Cyprus Securities Exchange Commission (CySEC) under the license # 109/10.

eToro (UK) Ltd. is authorised and regulated by the Financial Conduct Authority (FCA) under the license FRN 583263.

Your capital is at risk. Other fees may apply. For more information, visit

Pietari Laurila is not a registered investment advisor and does not offer investment advisory, fund management or wealth management services.

Triangula Capital is a brand name, not an incorporated entity.

This page is provided for information purposes only. It is not a recommendation to copy the Triangula Capital strategy or to invest in any fund or security.

2009-2020 performance figures are from Pietari’s personal Interactive Brokers account. They are time-weighted returns calculated in accordance with the Global Investment Performance Standards (GIPS).

From 2021, performance is calculated by eToro.

Past performance is not indicative of future results.

Track Record

It is often said that past performance is not a guarantee of future performance.

That is true. But there is also some evidence indicating that portfolios that performed better in the past, do perform better in the future.

“[…] top-decile prior-alpha funds produce annual future alphas of about 150 bps, net of fees” Source

Risk warning: That is only one study. In general, past performance is not indicative of future results.

Aligned Incentives

Pietari invests the majority of his net worth in the strategy. This ensures that his interests are aligned with investors who copy the strategy.

“Funds with high-incentive contracts deliver higher risk-adjusted return, and the superior performance remains persistent. The top incentive quintile of funds outperforms the bottom quintile by 2.70% per year” Source

Risk warning: Pietari holds accounts with multiple brokers and may therefore have a conflict of interest when deciding which accounts he should trade in first.

Unconstrained Investments

The strategy has fewer constraints on its investments than traditional mutual funds.

The strategy portfolio can be invested in stocks, bonds or cash and these allocations can vary over time.

Compared to traditional mutual funds, the strategy also:

  • holds fewer securities
  • trades more
  • avoids following the index

Each of these points has been shown to be an important predictor of portfolio performance.

“We […] find that portfolio concentration is directly related to risk-adjusted returns for institutional investors worldwide” Source

“A one-standard-deviation increase in turnover is associated with a 0.65% per year increase in performance for the typical fund” Source

“We find that truly active funds significantly outperform closet indexers. Further, we find that the truly active funds are able to outperform their benchmarks on average by 1.04% per year” Source

Risk warning: Concentrated portfolios with few positions can suffer large losses if bad news arrives about any of the companies in the portfolio.

Cheap Stocks in Cheap Sectors

The strategy invests in geographies and sectors where values have collapsed due to macroeconomic problems.

Within these geographies and sectors, the strategy overweights stocks that trade at low valuations on measures such as price-to-earnings or price-to-net asset value.

Every stock in the strategy portfolio must also be a good company, with no obvious red flags or long-term threats to its business model.

The aim of the strategy is to maximize returns, even if this means taking more risks than usual.

Risk warning: The strategy portfolio tends to be concentrated in risky stocks, which means that its losses in any market downturn will likely exceed those of the market index.