MBCC Trading Highlights 28th December'22 - Holidays always tee up great trading opportunities as stuff diverges, what are we putting on into Jan'23?

After working for 20+ years in Investment Banking/Hedge Funds, one thing I’ve always found is that most analysts will keep pushing “value” and “buy” cases as Equities always tend to look cheap so they must be a buy. The entire community has only ever made money being long markets and long stocks, as “stocks always go up”. Can we blame them? Well the Fed didn’t do itself any favours as they promoted that logic stepping in each time the child (i.e. market) threw a tantrum. But as we know with parenting and tantrums, giving into it each time, often creates a monster in the long run, but then it takes a really strong parent to school their child, learning to say “no”. The children will be better partners and parents in the long term, but just like markets, we as humans often tend to focus on the short term solution than think about the long term vision. The fix is easier than holding onto the vision.

Coming back to markets, making a call on a stock being cheap is easy for analysts to publish reports, as they never run risk or actually manage money! When one watches their PnL tick down every day, the human emotion and psychology involved in holding onto your conviction is entirely different altogether. They could eventually be right over 2-5 years, but in the real world, can anyone hold onto 50-80% losses only “maybe” making it back over 5-10 years. Look at Tech bust in 2001 or Japan markets, the charts are shocking! One would need to make back 200% or 500% just to come back to even!! (not even accounting for the loss of value of money). That is how “math” works. So yes, the calls can be brilliant as anyone can be right over any one cycle, but timing is key! Preserving capital and managing risk is vital!

Most Fund Managers have made a lot of money just being LONG the market, some even underperforming the long only benchmarks (one wonders), but making money as they knew just to buy the dip, leverage it. Swing the bat, and it paid off as it was never their money to begin with.

Modelling is an art, and as you can see in the chart above Tesla, $TSLA, down 13% yesterday and is NOW down from $400 to $100 today, down 75%! At the end of the day it was all about terminal growth rates and the discounting factor, as is the case with Technology stocks. I went through many model assumptions over the past few years, but any one can massage a model by fixing a multiple that seems “fair”, but it is all about the cycle. We are entering higher for longer rates environment and a recession, that is when the skeletons of the unprofitable companies show up.

Our motto has always been “it is just ONE BIG MACRO TRADE”.

As we enter 2023, we list what is standing out and diverging as the year ends, what is consensus saying, and where the new opportunities are today!

We update our portfolio, only viewable by our members, sign up to find out what is the trade here?