Philosophy ?>

Philosophy

Why active portfolio management?

Mainly because two reasons. The first one is that I firmly believe that is possible to beat a benchmark like the SP500. And the second one is that I want to work for a hedge fund and I think that managing my savings like if it was a hedge fund is going to make me gain some knowledge that you are only able to gain by practicing.

Why global macro?

Because I think that opportunities are everywhere and that strategy is the one that allows you to exploit better.

I also think that is better to predict how prices are going to fluctuate by understanding the whole picture, and to do that, you need a global macro perspective as today markets are global.

As markets are global, they are driven by, sometimes, the same forces and by each other. So, understanding the whole global situation allows you to see those forces and links.

My market view

Theory says that markets tend to the equilibrium in the long run, where all assets reach its fair price. But despite that, in the short run, there exists irregularities that makes markets go up&down without taking care of earnings, expected return, etc. Well, I don’t think so.

In my opinion, markets are drive by some different forces, being the two most important earnings and a ‘subjective force’. Earnings can be quantified in a present time and we also have a past record, what usually allows us to predict earnings and then set a fair price for an asset (we must remember that an assets is worth the money that’s to make you earn discounted to bring it to the present). But can we exactly predict something by looking at past data? Absolutely no. We’ll be able to reach an estimation, but not an exact number.

Every decision has a strong subjective force, that’s nothing else than our mind affecting our thoughts. At the end of the day, we don’t see reality how it really is, we see it how we think it is, and sometimes, how we want to see it.

For me, the long run perfect equilibrium is not true due to this subjectivity that affects our way to see things, and also because people doesn’t have a perfect knowledge of anything sometimes because we can’t have access to all the data we need and sometimes because our subjectivity makes us interpret data wrong).

So, there will exist times when markets will be in equilibrium but not for so long. Individuals run the market with their decisions and that distorted will make prices fluctuate from that equilibrium. I mean,  market prices will follow an approximate price to the equilibrium, but that perfect equilibrium will be hold for a short time. So, an investor work is to identify when that distortion has reached a ‘so high’ point that it would be untenable and that will make it reverse to the fair value.