Comus Investment, LLC

*First of April^st – December 31st^st2016

The compound performance figures represent all realized and unrealized losses and gains in the firm’s brokerage account after commissions and on a currency-adjusted basis over the specified period, as recorded by InteractiveBrokers. Index returns represent total return, including dividends.

Dear Partners,

In the second quarter of 2022, our investments had a total return of -7.93% before fees and -8.56% after fees, compared to -16.10% for the S&P 500 Index. At this point, you will have received reports with details of your InteractiveBrokers balance, fees, holdings and performance for the last quarter.

Almost all of the quarter’s loss came from the continued weakening of the Japanese yen, which fell another 10% against the USD to a 24-year low. The growing disparity in interest rates between the two countries is the main factor behind this decision, as Japanese bonds at historically low interest rates become less attractive by the day, while the US Fed continues to aggressively increase rates to fight inflation. There should eventually be a balance, hopefully at a more favorable yen exchange rate, driven by potentially weaker demand for US equities and, more importantly, in the long run, by the significantly lower price of goods, Japanese services, labor and real estate in USD. terms, which could provide foreign investment in the region if the weak currency persists. Hopefully this will bring us a tailwind in the future.

Some of our battered manufacturers and retailers are beginning to show signs of life after the years-long trade war and pandemic, during which many generated their first recorded and sustained operating losses. Restrictions in our regions are beginning to ease, long after those in much of the West were lifted. Hong Kong’s nightmarish first-quarter shutdowns and travel restrictions are ending, and Japan is only now beginning to allow some tourists in for the first time since the pandemic began. Conditions have been hellish for the type of business we own, and most industries have seen a sharp increase in commodity costs due to supply chain issues, as well as the severe demand shock. Many have faced these unprecedented challenges with resilience, while often maintaining employee numbers. Public prices for these companies are often near pandemic lows, while uncertainty and risk have subsided, providing better opportunities. We remain highly exposed to a full reopening and a normalization of demand and supply conditions.

A peculiarity of investing compared to other industries is that there are no experts. No person or entity can know the best course of action, and there is no common knowledge of current circumstances that can be agreed upon or acted upon with certainty. Whether they want to realize it or not, every investor is surrounded by unchanging uncertainty. While reasonable investors attempt to reduce uncertainty whenever possible, the common practice of placing heavy bets on a small group of possible outcomes, with the certainty in mind that those specific outcomes will occur at a much faster pace. higher than the alternatives, is in my opinion a popular recipe for overpayments and losses.

Although we all have our (potentially) informed opinions, we should try to accept rather than eradicate uncertainty. The fog can never be eliminated despite our best beliefs and intentions, so we must acknowledge its existence and operate within it. A person’s opinion of the probability of an outcome occurring rarely coincides with its actual probability. Instead of sorting through our best ideas and opting for those in which we report the greatest confidence and the greatest amount of research behind an estimate of intrinsic value, we should accept that we will frequently be incorrect, regardless of levels. of confidence ; and on the other hand, we will often experience favorable results where we least expect them to occur and where they might be unpredictable to us. To make a profit, we must demand a substantial potential reward from a group of potential investments/outcomes, given their unpredictability and the likelihood that we cannot determine with certainty which is the best, and the possibility that our predicted powers are not better than average.

Potential returns often come from biased pricing rather than better predictive abilities. There are computers that can predict the outcomes of repeated events with some accuracy in controlled settings such as horse racing or sports, but it’s more complex when the variables that affect the outcomes are constantly changing. We have substantial asset support in almost all cases, but earnings are often the driver of asset prices, and there is always cyclicality and unpredictable changes, which is why we bet on financial gravity. .

What people consider unlikely is often quite likely, given a certain environment and set of factors, although it can be unpredictable for us humans. This state of mind is not appealing to many as it looks like complete chaos, but that is just the reality. Using this logic, we are typically exposed to outcomes that most markets view as distant, such as our retail stocks generating the profitability they had before covid again, for example. Generally, we benefit from periods of rapid and unexpected change.

This reasoning helps explain the current slump in stocks. Needless to talk about cryptocurrency, being the greatest game of musical chairs in history. Simply, with rising prices fueling beliefs, confidence that various businesses and industries are certain to succeed has also increased in the recent past. To their detriment, investors are generally informed by prices, however volatile they may be. As prices increase, the results companies must achieve also increase and the margin for error evaporates. This as the Fed reduces equity liquidity and raises yield requirements with higher interest rates. When there is no margin for error and current results contradict popular beliefs, prices must quickly change to reflect reality. Although many smaller stocks have fallen, the six largest remain and they will determine the future of US returns. If there is any cyclicality in their results, they will meet a similar fate.

As always, feel free to contact me anytime with questions, comments, or concerns. Better,

Aaron J. Saunders

Owner and Manager, Comus Investment, LLC.

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