Q3 2022 Situation Review & Model Portfolio Update
End of Quarter Review & Portfolio Repositioning
Disclaimer
Value Situations is NOT investment advice and the author is not an investment advisor.
All content on this website and in the newsletter, and all other communication and correspondence from its author, is for informational and educational purposes only and should not in any circumstances, whether express or implied, be considered to be advice of an investment, legal or any other nature. Please carry out your own research and due diligence.
“When the facts change, I change my mind. What do you do, sir?”
Unknown (often attributed to John Maynard Keynes).
"It’s going to be the shrinkage of liquidity that triggers this thing... this is the most disruptive economic period in history. There’s hardly any bankruptcies. So whatever that Buffett line about swimming naked with the tide... there’s probably so many zombies swimming out there and there’s going to be some level of liquidity that triggers it."
Stanley Druckenmiller.
What a quarter. Continued high inflation, further pain from interest rate hikes with no let-up in sight, the ongoing energy crisis and Europe’s “Lehman moment,” the war in Ukraine and weaponisation of energy, a looming food crisis, economic damage from China’s zero-COVID policy and the country’s real estate market collapse, rising corporate credit market stress, US dollar strength as a “wrecking ball” to the global economy, the near collapse of the UK pensions system, a “volatility vortex” in US treasury bonds, and growing fears of market stress as a result of these various factors.
Following the events of Q3, my view of the market has become quite bearish and I believe we are likely approaching a stagflationary recession. As a result I believe it is appropriate to now reposition the Model Portfolio to protect against the myriad risks that threaten a severe drawdown in equity markets in Q4 and into 2023.
In this quarterly review, I outline my updated thinking of each of the names in the Portfolio and my changes to positions in light of my view of market risk.
Q3 Situations Review
As I’ve emphasised in previous quarterly reviews I don’t place much store in such a short-term metric as quarterly performance - I’m looking to take advantage of market short-termism rather than be a practitioner of it. However, the practice of quarterly reviews is a useful exercise, in that it forces me sense-check previous analysis and conclusions and consider whether the facts and fundamentals underpinning my Portfolio names have changed, and indeed whether I’ve been proven wrong in my previous analysis.