Investing in undervalued securities worldwide

Weekly Update 4 July 2022

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2022 has started unusually poorly for stocks.
www.cnbc.com/2022/07/01/sp-500-had-worst-half-in-50-years-but-the-60/40-portfolio-isnt-dead.html

Adjusting for inflation, the first half of the year was the worst for $SPX500 in 150 years.
www.marketwatch.com/story/forget-the-1970s-this-market-is-drawing-comparisons-to-the-1870s-11656678898

In the past, weak first halves were always followed by strong second halves.
www.marketwatch.com/story/whats-next-for-the-stock-market-after-the-worst-1st-half-since-1970-heres-the-history-11656503671

The sample size is small, however (1932, 1939, 1940, 1962, 1970), and this time, the reversal may not happen.

The reason for this is that central banksโ€™ interest rates hikes will keep slowing the economy into 2023.
twitter.com/MichaelKantro/status/1543946802243723264

And the markets rarely bottom before the economy.
twitter.com/MichaelKantro/status/1542900252969209857

In the second half of 2022, investors will have to contend with interest rate increases, persistently high inflation, falling earnings estimates, and geopolitical risks. GDP is already falling in the US,
www.atlantafed.org/cqer/research/gdpnow

and it was recently reported that if Russia were to cut oil output, oil prices might shoot up to $380, which would cause a severe global recession.
dailytrust.com/jp-morgan-warns-that-oil-prices-could-hit-380-per-barrel

Overall, we see the balance of risks to the economy as the worst since 2008 and therefore hold a large allocation to cash. The average recession sees stocks fall 40%; we are not there yet.

We would like to hold stocks – they are the place to be in the long run – but will only buy aggressively when the macro momentum turns.
๐Ÿฎ๐Ÿฌ๐Ÿฎ๐Ÿฎ ๐—ฝ๐—ฒ๐—ฟ๐—ณ๐—ผ๐—ฟ๐—บ๐—ฎ๐—ป๐—ฐ๐—ฒ ๐—ฌ๐—ง๐——
@triangulacapital -4.0%
$SWDA.L -20.0%

๐—ฃ๐—ผ๐—ฟ๐˜๐—ณ๐—ผ๐—น๐—ถ๐—ผ ๐—ฐ๐—ต๐—ฎ๐—ป๐—ด๐—ฒ๐˜€
The share of cash in the portfolio was increased to 60%.

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Disclosures

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.ย 67% 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, visitย etoro.com/trading/fees.

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”ย 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.

Higher Risks for Higher Returns

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

The strategy invests in countries 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.

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.