Weekly Paid Newsletter 01/23/2022
Reflection on what the last 18 months have been like and where we are headed.
The past 18 months have been hostile territory for Contrarian strategies, such as ours. It is often challenging to justify not following the masses when the printing machine is endless.
It's not easy when there are people who criticize what you do. Some people say you have predicted 10 of the last three recessions. However, we have stuck to our guns and our style throughout this time.
Our performance, on the contrary, has been formidable, and you know why? Because we were not guided by the siren songs of triple-digit returns in high-growth companies. All those who jumped on the bandwagon late and badly, as in all bubbles, have seen their portfolio fall by 45% over the last year, while the SPY has grown by 22%.
This has allowed our strategy and investment style to remain intact and has helped us gain credibility and feel that our strategy has been reinforced.
Our insistence on creating an asymmetric portfolio comprised of uncorrelated assets has paid off, and we believe it can suffer extraordinary gains in the market conditions we are currently in:
- Unprecedented monetary and fiscal policy.
- Inflation at levels not seen since the last 30 years.
- Unprecedented money printing.
- Indices with +30 P/E valuations.
- P/S at 2000 levels.
- Buffett indicator at all-time highs.
This week we have already seen markets start to wobble. Last week, we already headlined that the indices are near ATH while breaking down inside.
Today, it takes one piece of bad news with any of the companies that underpin the indices for them to crumble by at least 20%. We might even say that a contraction of this magnitude could be healthy for share prices.
How are we going to deal with this market? As follows: