Title: Fiera Capital Diary of an Investment Risk Manager
1Fiera Capital Diary of an Investment / Risk
Manager
December 2nd, 2008
2Experience
- Life Insurance and Annuities at Metlife (95-99)
- Segregated Funds and Marketing at Desjardins
(99-02) - Quantitative Portfolio Management at Elantis
(02-03) - Judgemental Portfolio Management at Fiera (03-now)
3Current Responsibilities
- Tactical Asset Allocation (more than 6 B of
assets) - Global Macro Fund
- Assistant CIO (Asset Allocation and Fixed Income)
4Current Investment Beliefs
- Aim for Harmony with Markets
- Too early or too late does not work
- Markets are Right, not Efficient
- Price clears at the end of every day
- Probability assessment is where edge can be
gained - Good Money Management System is Key
- System that reduces probability of ruin
- Losses reduce size of positions
5Evolution to the Current Market Environment
- Securitization
- Leverage
- Fall in Real Estate Prices
- No Risky Asset Increasing in Price
- Deleveraging
- Credit Freeze
- Economic Recession
6Diary
- Over the last 6 months
- We have been in general harmony with the markets
- We were wrong on many aspects
- We have learned more about financial markets than
over the last 10 years - We feel time has compressed (1 day 1 month)
7Matrix of Expected ReturnMay 2008
- Views
- Economic slowdown is coming
- Rest of World will not decouple
- Oil is behaving weird
- Positions
- Short of risk assets (equities, carry trade)
- Long short-term bonds
- End Results
- Stopped out of positions all month, stopped out
of strategy at end of month - -2.4 for month, 4.1 year-to-date
8May Thoughts
- Avoiding short term underperformance is key to
long term outperformance (May 12) - Contango heats up inflation expectations (May 13)
- Be humble about your ignorance (May 14)
- Good investors do not react emotionally (May 16)
- Needs realization go from safety, love, esteem
and finally actualization (May 21) - When the cost of financing is greater than
expected returns, naked players get disrobed (May
22) - Pride should not enter into investment decisions
(May 23) - Tipping point has 3 characteristics, the law of
the few, the stickiness factor and the power of
context (May 26) - Enter the vicious cycle of uncertainty and
foolishness about random events (May 27) - Persistency remains a hallmark of financial
variables (May 28) - Life is like a box of chocolate, you never know
what youre going to get (May 29) - Overwhelming fact knowledge with cause and effect
relationship builder Underwhelming humility and
absence of non-linear relationship understanding
(May 30)
9Matrix of Expected ReturnJune 2008
- Views
- Economic slowdown is coming, no decoupling
- Credit crisis will morph into credit cycle
- Emerging market inflation is strong
- Oil entered a bubble on June 6
- Positions
- Short risk assets (short equities)
- Short decoupling (short EUR)
- Long oil (long CAD)
- End Results
- Added to positions during the month
- 3.94 for month, 8.04 year-to-date
10June Thoughts
- New month has arrived, lets celebrate with
action (June 2) - When in tune, go for the moon (June 3)
- In a bubble, you can be long at your own risk, on
the sidelines or long with risk reversals in
place (June 9) - It is a beautiful day (June 10)
- Getting into a good trade that does not work is
much better than getting into a bad trade that
works (June 17) - Le savant sait quil ne connaît rien, linnocent
croit quil connaît tout. (June 30)
11Matrix of Expected ReturnJuly 2008
- Views
- Economic slowdown is coming
- Increasing inflation in emerging markets
- Commodity markets should be very volatile
- Positions
- Short risk assets (short equities)
- Yield steepener (long short part of curve, short
the long part) - End Results
- 2.65 in month, 10.97 year-to-date
12July Thoughts
- The 2 most powerful warriors are patience and
time (July 14) - Helicopter Ben, Bazooka Hank think they are the
Winston Wolfe (Pulp Fiction - I solve problems)
of finance (July 20)
13Matrix of Expected ReturnAugust 2008
- Views
- Economy is slowing faster, decoupling is dying
- Commodity pass-through is accelerating but
commodity prices are falling - Government is ready to intervene
- Positions
- Short decoupling (long USD)
- Short risk assets (short equities)
- End Results
- Our US dollar position really worked during the
month - 3.75 during month, 15.13 year-to-date
14August Thoughts
- Market prices do not deviate from a theoretical
equilibrium level in a random manner, fear and
greed drive the process (August 1) - Perception is reality and reality affects
perception, virtuous cycles are followed by
vicious cycles (August 6) - Expect the unexpected (August 8)
- Right about probability, wrong about timing can
hurt you (August 12) - For infinite periods, the Martingale man is
guaranteed to be bankrupt (August 14)
15Matrix of Expected ReturnSeptember 2008
- Views
- Economy is slowing faster, decoupling is dying
and deleveraging is gathering pace - Geopolitical risk is underestimated
- Credit is deteriorating
- Positions
- Short risk assets
- Yield steepener (long short part of curve, short
the long part) - End Results
- Really good month, our risk envelope increased
quickly but we did not add to our risk ending the
month with no position - 7.56 for the month, 23.83 year-to-date
16Matrix of Expected ReturnOctober 2008
- Views
- Credit is key and has not unclogged yet
- Volatility and deleveraging will continue
- Positions
- Short risk assets, cover on government
intervention - Long short-term bonds
- End Results
- Very difficult month where our views were right
but we were not able to benefit from them.
Extreme volatility has reduced the size of
positions by a factor of 6 - 0.3 for the month, 24.21 year-to-date
17October Thoughts
- Size of positions matter, do not pile on risk
when volatility rises (October 2) - Framing affects even well-warned individuals
(October 6) - Frequency matters but severity matters more
(October 9) - The perception of invincibility can give rise to
the realization of stupidity (October 10) - Risk reward is much easier to analyze with simple
bets and binary results (October 14) - Events that transform societies are generally
swift and large (October 16) - In a dynamic environment, changes occur much
faster than we can imagine (October 23)
18Matrix of Expected ReturnNovember 2008
- Views
- Recession is a certainty
- Recovery is uncertain
- Governments are taking over the banking system
- Positions
- Short risk assets
- Long bonds
- End Results
- Very active month with trading in and out of
position and position size very small - 1 estimate for the month, 25 year to date
19November Thoughts
- Dont be a big swinging dick (November 25)
- Do not overestimate your edge (November 26)
- The law of small samples, it never happened, it
will never happen, just does not work (November
28)
20Matrix of Expected ReturnDecember 2008
- Views
- Recession is a certainty
- Stimulus of massive proportion not working yet
- Trust in the government is key, quantitative
easing needs to be monitored
- Positions
- Short risk assets
- Long bonds
- Look to short USD on quant easing
21Keys to Future (Confidence in Government)
22Keys to Future (Confidence in Government)
23Keys to Future (Consumer Behaviour)
24Keys to Future (Jobs)
25Conclusion
- Humility
- Ability to change your mind
- No bias
- Survival