A Puzzle For The Opportunity Manager
The final ii posts were essentially almost picking a value-stock portfolio in addition to managing the risk. And they were lessons that I idea I could implement.
This is materials I notice harder. So I am looking for your input.
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This is the portfolio of a fairly good known value investor inwards March 2008. I guide maintain taken the mention off precisely because it doesn't assistance but in that place was roughly $4 billion invested this way.
To set it mildly this portfolio was very difficult over the adjacent twelve months.
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The PE ratios generally looked reasonable in addition to all of these positions could travel establish inwards quantity inwards the portfolios of other practiced investors. Its precisely the combination turned out to a greater extent than hard than average.
Your undertaking nevertheless is to risk-assess the portfolio.
Even amongst the considerable do goodness of hindsight how would yous analyse this portfolio?
What would yous tell every bit risk director that made the portfolio director aware of what risks he was taking?
What would yous tell if yous were a tertiary political party analyst trying to assess this manager?
What is the tell?
Remember the portfolio director hither has a actually practiced tape in addition to the "aura" unopen to them. They are smarter than you.
And yet amongst the restrospectascope upward in that place is materials that is truly bad.
They had iv European banks making upward a quarter of the value of the portfolio. Most European banks went through the crisis wound but non permanently crippled. Permanently crippled came subsequently amongst the Euro crisis.
This is materials I notice harder. So I am looking for your input.
--
This is the portfolio of a fairly good known value investor inwards March 2008. I guide maintain taken the mention off precisely because it doesn't assistance but in that place was roughly $4 billion invested this way.
To set it mildly this portfolio was very difficult over the adjacent twelve months.
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| Sector allocation | Positions | ||
| Banks - Europe | 24% | Fortis, ING, Lloyds, RBS | |
| Banks - Japan | 14% | Millea, MUFJ, Mizuho, Nomura | |
| Banks - USA | 8% | Bank of America, JP Morgan | |
| Technology - PC & Software | 18% | Linear Technology, Maxim Integrated products, Oracle | |
| Semiconductor equipment | 14% | Applied Materials, KLA Tenecor, Novellus Systems | |
| Beer | 20% | Asahi, Budweiser, Group Mondelo, Heinekin, InBev | |
| Media | 15% | Comcast, News Corp, Nippon Television | |
| Other | 14% | eBay, Home Depot, Lifetime Fitness, William Hill | |
| Net effective exposure | 127% | ||
| Shorts | -16% | ||
| Net exposure | 111% | ||
| Cash | -11% |
The PE ratios generally looked reasonable in addition to all of these positions could travel establish inwards quantity inwards the portfolios of other practiced investors. Its precisely the combination turned out to a greater extent than hard than average.
Your undertaking nevertheless is to risk-assess the portfolio.
Even amongst the considerable do goodness of hindsight how would yous analyse this portfolio?
What would yous tell every bit risk director that made the portfolio director aware of what risks he was taking?
What would yous tell if yous were a tertiary political party analyst trying to assess this manager?
What is the tell?
Remember the portfolio director hither has a actually practiced tape in addition to the "aura" unopen to them. They are smarter than you.
And yet amongst the restrospectascope upward in that place is materials that is truly bad.
They had iv European banks making upward a quarter of the value of the portfolio. Most European banks went through the crisis wound but non permanently crippled. Permanently crippled came subsequently amongst the Euro crisis.
The iv European banks hither (Lloyds, RBS, Fortis, ING) nevertheless received upper-case alphabetic quality injections therefore large that they were effectively nationalised. If yous had thrown darts at European banks it mightiness guide maintain taken hundreds of rounds to selection iv that bad... They could non guide maintain been picked this bad past times risk - they had to guide maintain systematic errors here.
There is something actually wonky almost this portfolio - in addition to it is non past times risk - therefore in that place was something faulty almost the agency the portfolio was constructed.
John
PS. It is fair to tell some of the portfolio (News Corp for example) was awful inwards the crisis in addition to came dorsum stronger than ever. And some that I would guide maintain idea ex-ante high risk (such every bit the semi-conductor upper-case alphabetic quality equipment makers) turned out okay - having "ordinary" depict downs inwards the crisis in addition to recovering them since.
PPS. I kept the document this came from because at the time I idea the portfolio was absurd in addition to would goal inwards tears. But some of my thoughts in addition to then were incorrect also - peculiarly re the semiconductor upper-case alphabetic quality equipment stocks.
John
PS. It is fair to tell some of the portfolio (News Corp for example) was awful inwards the crisis in addition to came dorsum stronger than ever. And some that I would guide maintain idea ex-ante high risk (such every bit the semi-conductor upper-case alphabetic quality equipment makers) turned out okay - having "ordinary" depict downs inwards the crisis in addition to recovering them since.
PPS. I kept the document this came from because at the time I idea the portfolio was absurd in addition to would goal inwards tears. But some of my thoughts in addition to then were incorrect also - peculiarly re the semiconductor upper-case alphabetic quality equipment stocks.
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