The BoLe Chronicle | March 2021
Know thy neighbour
Let me start with something provocative. Why pay 2% of management fee and 20% of performance fee for managers that claim to be investing based on fundamentals? Isn't knowing the fundamentals and their related catalysts a given to earn your keep as a professional and really not an edge itself? It is never about longing the cheap and shorting the expensive. It is about longing something that will go UP and shorting something that will go DOWN, at the right moment for the right period of time, and one does it time and again with consistency. This is what we call alpha, this is what we call an edge.
Know what you are paying for
It is indeed the holy grail isn't it. The EDGE! Spare you from the jargons and being wishy-washy, it is actually as simple as how well the managers know their neighbors. Collective decisions of different market players with different motives and limitations dictate the resulting supply and demand dynamics at any point in time. To exploit the so-called inefficiencies in the market, performing managers have to know what motivates the others that they dance with, day in and day out.
It is an art
Yes again, we think this is more an art than science. Granted, local insights, cultural understanding, investment horizons and restrictions all play a part, yet it is the subtle interplay of all these complex factors that makes the whole thing challenging, and rewarding at the same time.
The investment world is indeed getting complex. As we lament the long term underperformance of classic factors like 'values' for years, few actually had the guts to challenge some of these classic beliefs that we have been relying on as an industry for decades. Would there be a new normal now brewing with the so-called 'value' strategy? How should one integrate all these much hyped 'ESG' factors into their entire investment decision making process these days. Is the 'GME saga' a good glimpse of what is lying ahead when the financial 'bottom line' is no longer necessarily the number one priority when making an investment decision for most?
Market micro analysis
My brief stint as a university lecturer had taught me it is actually not that simple to explain how market dynamics could take precedence over fundamentals. Indeed while the market has long been talking about 'alpha', few wanna admit, in today's world of information overload, that getting a better grip on the fundamentals versus the rest of the field is probably no longer possible. From strategies like 'front running' the Aussie Supers, the Australian pension fund which comprehension of flows and approach allows hedge funds to position themselves a step ahead, to arbitraging onshore CBs in China, to even the so-called 'AI enhanced' intra-day or hi-frequency strategies that are all the rave these days, it is actually all about understanding the 'motives' behind your fellow market participants and trying to stay just a tiny step ahead of them that is going to make the difference these days. Some call these 'behavioral' factors, others merely label it as a 'time-arbitrage'.
As we come to the end of the first quarter, 2021 is already sending out all the signals that it is not going to be a walk in the park for market participants. While you are still digesting the fundamental 'reasonings' that your managers are giving to explain the headwinds they are facing these days, maybe it is time to make more rooms for those that come in with an honest explanation of how they analyze the field currently and try to crack it just a bit earlier than the others.
Here at Tripod BoLe we pride ourselves in trying to spot those managers that have some of those raw skills to offer. The skills to understand the others well, so in turn they can understand themselves better and make best use of their own skills. This is the so called 'Edge', this is the Holy Grail!
At the end of the day, it is always about who can bring in the most consistent returns over time. The rest are just story-telling.
About the Tripod BoLe Platform
Empowering Asian emerging investment talents and making them accessible to dedicated global allocators. In conjunction with the Pharus Group in Europe and OPIM in Asia, we aspire to become the modern day's bridge between the East and West, to align the interests of all, and to facilitate efficient investment flows for the betterment of financial markets and the global economy.
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