Our mission is for people to be extremely efficient but not outperform machine learning/AI systems in financial markets. The approach is to exploit the flaws and users of statistical or mathematical models (e.g. Fermat and Pascal, Bayes), and instead to use decision trees, as well as developing our own collection of driven fundamental predictive systems through the entries. More broadly, we aim to preserve and add competitive advantages throughout the investment process – from analysis, stock selection, sizing, execution, to risk management.

All of this is used to generate investment returns aimed at being significantly higher than those derived from traditional equity strategies. Regarding our performance target, we believe we have a lot of competition but no peers. We are not in the business of educating but in that of managing the capital of those who have chosen us and monitoring the evolution of the value of their assets.

At a time when most organizations are built with exits in mind, thus squeezing or sweeping as many customers as possible before ejecting, we admire organizations that have survived for more than three generations and operate the same way. in that we are happily stuck with this business for the long haul with no ability to sell. We manage a single equity strategy.

GROSS RETURNS ON INVESTMENT

1. The fiscal year runs from July 1 to June 30 in Australia.
2. Since inception on March 27, 2018 in the reference account in AUD
3. Investment returns are before fees, expenses and taxes

PORTFOLIO CHARACTERISTICS AND ANALYSIS

1. Sharpe and Sortino ratios assume that the Australian cash rate is the applicable risk-free rate
2. Net asset values ​​are provided by Interactive Brokers. Performance figures are before fees, expenses and taxes

WALLET

We struggle with many top-down or macro issues. The list of problems is longer than usual for market participants, namely: the war in Ukraine, inflation expectations, economic and capital sanctions against Russia and possibly other countries, growth problems economy, a pandemic that has not gone away and a growing number of emerging countries that have, are or are about to implode.

The portfolio is not optimistic about these issues. If these issues were all there was, and where decision-making was measured and unemotional, this would be a conducive investment environment.

However, decision-making by market players has deteriorated considerably. Warren Buffett mentioned at a recent event that while difficult to quantify or measure, his perception is that investor or human behavior has become more tribal.

There are the classic swings, for example, negative oil prices at near-peak oil prices, negative interest rates at the current rate/inflation view, and pandemic-related cash giveaways to austerity (if the masses think about exactly what they are asking for).

In an attempt to perhaps shine a different light and momentarily change his way of thinking, I had written down a dozen questions. However, I deleted them. (A wise and intelligent person once said that you can’t really change people’s opinions. Perhaps the only way is to non-publicly ask a series of questions in the form of a quiz. Even in this case, the effort is probably wasted.)

Basically, and to use an analogy, the whole world is on a bus where all the windows on the right side of the bus are covered. Only bus drivers, who in this analogy are central bankers, can see through their front windshields that there is a steep and fatal cliff to the right. They cannot communicate this for various reasons, at least not explicitly.

However, everyone on the bus criticizes the bus driver. They shout: “Three months ago you told us you were going to turn right and take path A, and now you are taking path B”, “you planned and told us that it would rain, this n is not the case! “, “Joe on the bus said it will rain and the road will be bumpy, so you must be wrong, and he must be right”, “You have no more credibility. I feel better and more in control criticizing you and listening to Joe or those who specifically called for rain or bumpy roads.

It’s basically how the world behaves in relation to inflation and monetary policy decisions. The similarities with March 2020 are striking.

Most still don’t know how close we came to a 50-60 year devastation in March 2020. Today, most don’t realize that there is a steep, deadly cliff to the right of the bus.

Most have underestimated the impact of the offsetting actions taken by central banks to steer us away from this 50-60 year devastation in March 2020. And today, most are focused on direct central bank actions ( and whether the resulting outcome is a hard or soft landing) but fail to recognize that avoiding falling off a cliff will have a much greater impact on asset price performance.

Maybe that’s (I don’t know) why some people like Warren Buffett called Jerome Powell a “hero” in 2020, and maybe why Berkshire Hathaway seems to be draining his cash balance to buy shares currently.

There is no doubt that the situation between Russia and Ukraine is serious, and the transition from a globalized world to a decoupled world with partial or semi-global globalization will have profound implications for supply chains, cost competitiveness, trade barriers, financial capital flows, human capital movements, write-downs on tangible/material assets, government subsidies, etc. But the most important piece of the top-down, not bottom-up, puzzle for asset class direction and performance is not to misweigh or underestimate the central bank (again).

It is obvious that this point of view is not fashionable and is shared by only a very small minority.

However, we have been alone in the markets countless times before. And we’ve been through some bad times before. This is an encouraging sign that second-order thoughts seem utterly irrelevant and non-existent, while first-order thinking is everywhere.

I’m confident that our portfolios will ultimately benefit as we’ve yielded far more stones than most. I really appreciate you sticking with Andaz through this volatility.

PORTFOLIO POSITIONING

At the end of the month, the portfolio held 11 stocks – 10 listed in the US and 1 in HK.

At the end of the month, the portfolio had a gross exposure of 94.9%, composed of 94.9% long and 0% short; as well as 5.1% in cash.

In terms of liquidity, the weighted average market capitalization is A$154 billion and the stock with the smallest market capitalization is around A$3 billion.

CUMULATIVE GROSS RETURNS OF INVESTMENTS

GROWTH OF A HYPOTHETICAL INVESTMENT OF $500,000 IN THE REFERENCE ACCOUNT

THANK YOU AND IN CONTACT

Thank you for reading this Andaz note/update. If you would like to write to us, please contact us using the contact form on our Andaz® website.

Cordially,

Yizhong Chan

Original post

Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.