Investing in undervalued securities worldwide

Weekly Update 11 July 2022

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Stocks rose 2% last week, led by the Nasdaq ($NSDQ100).

There are two scenarios for the stock market over the next 12 months, depending on what happens to the economy.

(1) ???? ???????

In this scenario, the economy slows significantly this year and next, but avoids recession.

This scenario was recently analysed by KKR, who believe the US economy will grow 2.4% in 2022 and 1.3% in 2023, while inflation will drop from 8% to 4%.

Under these assumptions, KKR believes the $SPX500 could finish 2022 at 4200 and increase to 4350 next year. That means about 10% potential upside over the next 18 months.

The upside is limited because higher interest rates and higher inflation both act to compress equity valuations. Last year, when the 10-year Treasury yield was at 1%, investors were happy to pay 20x earnings for stocks. Since then, the 10-year interest rate has increased to 3%, and as a result, the fair multiple for stocks has decreased to 17x.

(2) ?????????

In this scenario, the economy enters a shallow but prolonged recession.

Earnings collapse, especially in the cyclical sectors.

This is not yet in the price, although the $NSDQ100 is getting close.

In this scenario, targets for the $SPX500 in the 2900-3150 range are reasonable.

The conclusion we draw is that in the soft landing scenario, the upside for stocks is relatively limited, while in the recession scenario significant downside risk remains.

Historically, when central banks were increasing interest rates and global credit growth was slowing (the current situation), the best investment was USD cash.

Therefore, we mostly hold USD cash – not EUR, GBP or anything else – and wait for central banks to become more accommodative, at which point much more money can, we expect, be made.

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@triangulacapital -4.3%
$SWDA.L -18.6%

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The share of cash in the portfolio was increased to 75%.

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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. 76% 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.

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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.