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Ratcheting risk back - defensive posture.. [REDUX]


A quick bit on the following note, this remains my tack - with a few tweaks.. As the year progressed and biotech got bombed out I've been able to diversify, within the sector, somewhat (currently at thirty-four bios).. Even adding some neuro/cns names (maybe my confidence is running too high)..

As of this moment Pfizer and Roche still drive the bus and it's roughly an 80/20 split between them and the biotechs.. On deck are Sanofi and Novartis, though the path forward at Novartis seems a bit cloudier at this moment both strike me as intriguing - more on them another day..

We're through Pfizer's earnings and once Roche is out with their Alzheimer's data (any day now) - the plan is to roll some of each into Sanofi and Novartis.. GSK tempts me with their valuation yet beyond that (and wanting some GBP at these levels) it's just too difficult to get excited unless you *really* like Shingrix..

We're into that year-end window where I do suspect the bias is sideways to upwards (once tax loss selling is done); it's been rough for (asset class) diversified portfolios and I believe we need to keep that in mind.. If you owned a, globally, well diversified basket of stocks, bonds, and cash (etc.) it has been a horrible year for you..

To me that sets up a rally through January with a hangover into the Spring.. but that's just my hunch - at any rate that timing is what I'm working with to get more 'normal' in my strategy..

There is still that *overt* risk the central bankers 'break' something/(s), so yeah.. Also, the possibility that you need to imagine the tightening cycle as starting just now - as that "transitory" phase did sort of delay things.. Probability of another year like this seems low - maybe that's just hope..

In the interim it's hard to imagine the markets (across asset classes) not ebbing and flowing dramatically with various data releases; this is set against flows and positioning seeing people basically shorten duration (lower risk).. Opportunity?? /shrug As Art says, "stay nimble" whatever you do..

br. -john

p.s. will work on posting that 'Evergreen' portfolio, which hasn't changed all that much over the past year - reach out if you're curious and can't wait..


Ratcheting risk back - defensive posture..

The more distant future, no doubt, is a prosperous one; we’ll have managed through this (seemingly never ending) pandemic and likely other ostensibly insurmountable challenges.. I’m an optimist and history says that you ought to be as well.

Best though, as an investor, to take a more realistic lens to the near term; while I can’t tell you what is coming I am certain there will be surprises and ensuing volatility.. Take a hat and pluck something out, how does one manage for what comes out?

I’ve been whittling back my position count, as I’ve always done when things are going well; concentrating into my best ideas – which aren’t the same as the last time I got to this point..

Out are some recent entries, companies with ‘optionality’, entities with perhaps more business risk inherent in their models, etc.. Some of them I’d consider to be my ‘darlings’, companies that I’ve long championed and that I yearn to own – but for now I won’t.. I’ve tried to remove entities with obvious air pockets should they disappoint expectations, which is to say entities where too much future potential is already baked in by my estimation.

The last two years have been great for the portfolio and horrible for humanity; I fully expect this globally shared experience to ripple onwards in, as yet, unanticipated ways.

Targeted risk taking, i.e., back to biotechs

One of the truly inefficient corners of the market is healthcare and one degree further yet are biotechs.. This industry is riddled with asymmetric opportunity if you do your homework, maintain rigor, and keep your ego in check.

The most brilliant get it incorrect daily but here in there is greatness; investing here see’s capital put (generally speaking) towards the furthering of the human experiment.. you aren’t burning cash to acquire customers.

The sector has been on a roller coaster during this pandemic, though that isn’t so far off from historical ebbs.. Capital rushes in and the market is flooded with exciting ideas, some are actual businesses others mere science experiments.

In this space everything should sound rather exciting to you; new ideas abound and are endless – you need some sort of strategy.

Mine, of late, has been a couple core large biopharma positions around which I try to build out a mix of biotechs which are complementary to their assets or hedge against future shifts that seem likely.. It isn’t flashy but it has worked.

I’ve also hewed closer to the harder science side or at least that is how I think about say oncology versus neuro/CNS where things (endpoints, efficacy, etc.) can be a bit ‘softer’.

There are times where I’ll be running broad baskets within general disease areas (oncology, rare disease, etc.) but right now is not that time.. A lot of money has come in and the paper, the entities, are endless.. It has been hard to keep track of it all and to be honest hasn’t seemed worth it, so I really have been mailing it in on *a lot* of it.

2022, for me, is going to be the year where I dig back into the space, and I’ve got a goal to take most of my overt risk on this front.

While I’d like to get the core portfolio back up to twenty positions from the current ten, I’m not going to push it.. Dropping AMD, Iridium, and Cloudflare was tough, and I look forward to having those positions back on the books someday.

That all said, I’d happily own everything on the following page if I were to ever step back from things.. Like if I wanted to take a year or two off I’d just equal weight things, taking care at the sector levels, etc.

Happy holidays and season’s greetings!!!


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