Edge: Post From The Trail

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After a 4 day 55 km hike over snow covered mountains and through raging glacial melt rivers, I arrive exhausted, beat up, smelling worse than a New York City back alley radioactive sewer rat when I stumble across a German couple animatedly shouting and amidst my weary ears a thick German accented word that sounds an awful like “Brexit”.

I stopped in my tracks, and asked “did you say Brexit?” What followed was an American jumping for joy in front of two Germans who had not realized that their European Union was past its peak.

Anecdotes aside, I had a lot of free time after my daily hike and decided to write my next blog post on the trail. What follows is a brief overview of my investment edge that allows me to compete with the big boys.

What is my Edge? What do I do better than anyone? What do I do that no one else does or is willing to do? After all, I’m just one man against an army of hedge funds, family offices, endowments and central banks, filled with algorithms, models, high frequency trading machines and people with more experience and intelligence than I possess.

I must be crazier than the central banks I constantly ridicule to believe that I have an edge. Maybe I am crazy, or maybe just maybe I can take advantage of opportunities that they can’t.

I’m one man, managing a small fund which makes me agile and quick. I can change my opinion and perhaps more importantly my positions faster than anyone else can. But my real edge lies in something less obvious.

Everyone knows central banks have flooded the world with liquidity that has  pumped into virtually every asset class known to man. But that’s not entirely true. The flood gates have been open for years, but the liquidity hasn’t gone everywhere. There are nooks, crannies and other hard to reach places that have been ignored.

This isn’t surprising. After all, the biggest beneficiaries of QE are the big guys. It’s hard to convince a firm with billions of dollars to put a few hundred thousand dollars which equate to less than 0.1% of their fund into a micro-cap graphite or lithium mining company. This means these companies are untouched by the Midas touch of central banking liquidity and leads me to believe there’s still opportunities for deep value in micro-cap illiquid stocks (IF you can find it).

Just like Peyton Manning, I’m playing where my opponents can’t touch me because they aren’t even on the same field as me. If I played their game on their terms on their field I would lose, 100% guaranteed. I’d rather make money on the side field than lose it on the big stage.

Most importantly, the fact that no one plays on my field means the assets on it are neglected, ignored and above all incredibly cheap. This allows me to find a uranium company one week from publishing a massive find that has been ignored by the market. Or how the entire uranium mining space can be down 90% from its highs yet have some of the best fundamentals on earth with a total market cap of less than $6B. Better yet, I can find a graphite company with assets that make it incredibly well positioned for the coming battery boom.

So don’t tell me there’s no value out there. Because there is. It’s just not where everyone is looking and arguably has never been harder to find. But then again, if there’s no value going long something, there’s probably value taking the opposite side. Hence I hedge and have been net short equities through puts and shorts on the largest and most liquid stock indexes and companies that have seen the largest benefits of misguided central banking policies.

If I’m wrong about the state of the global economy and we enter a new technological renaissance then my micro-cap stocks (if I did my research right) should more than make up for my short and defensive positions. If I’m right, and the global economy is headed for big trouble (will talk about Brexit in next post) then my puts/shorts and US treasury bonds should do quite well and hopefully allow me to double down on some of these companies, which I think will do really well long term. And if I’m really wrong about everything, then that’s why  god invented gold, so idiots like me can be right some of the time.

In the end, I feel like I’ve created the all weather portfolio that fits my style, portfolio size, and experience level. I can’t tell you whether Facebook will outperform Apple in Q3 of 2016 and I don’t really care. That’s not my game. Let the hedge funds run momentum fading circles around each other while I pick up extremely under priced stuff they’d never dream of touching.

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