Theme Anchor
First we have investment themes. These can be long term business cycle movements, to structural supply and demand imbalances, to the destructive innovative technologies of the future.
Once developed against rigorous analysis and research, we use these themes as anchors to discover and test against shorter term investment ideas.
Investment Ideas
Investment is no equation based scientific problem, but can be better answered with more information. We do not actively seek investment ideas, rather we let the inspiration evolve between the lines of information we absorb on a daily basis, so as to avoid the confirmation bias.
We conduct critical thinking due diligence process to filter through investment ideas. In the likely scenario we do not have investment ideas, capital is preserved as cash for better future use.
Idea Expression
Just as a message can be conveyed through the wording, the tone, the body language to in an effort to deliver the perfect understanding, investment ideas can be expressed in multiple ways to obtain the best desired risk-return profile.
We utilize all asset instruments available to us to build the ideal executable trade (“IET”) for the idea, but also alter according to the portfolio for best overall risk factor exposure.
Exposure
Despite a professional understanding of quantitative methods for precise risk monitoring, it is our belief that through position sizing, we can ultimately control the monetary value of maximum shortfall.
The IET is evaluated on such basis before implementation, along with our confidence level of the trade and the understanding of future catalysts to triangulate desired monetary exposure.
Monitoring
Adverse developments against our positions will be monitored on a daily basis, exposure can be changed accordingly. In the event of a major setback against our initial prediction, whether a political event, macro data surprise, or idiosyncratic upset, the longer term effects to our exposure are our focus of the diagnosis.
Overall portfolio will also be under the microscope of extensive quantitative risk models, while the daily P&L is also our effective risk monitoring gauge. Just as Mr. Stanley Druckenmiller expressed in an interview, “I’d watch my P&L every day. And it would start acting in a strange manner relative to what I would expect out of a matrix. my antenna go up.”