It’s our pleasure to share with our readers an interview that we have conducted with one of eToro’s most popular investors Theo Sanders. Theo is a Singapore-based investor, entrepreneur, and consultant who has been investing since 2003. We hope you will enjoy reading and learning from Theo’s investment strategy. The link to his profile is available at the end of the article, you can choose to copy automatically his trades via eToro.
I start with big macroeconomic, geopolitical, or social shifts. I maintain a list of about 20 to 30 “big ideas” of things I believe will be true in the future, and then whittle that down to my 4 or 5 best ideas to build out into investment hypotheses.
The time-consuming part then becomes working out how to best structure each investment. I do my homework by digging deep into financial statements and potential catalysts.
My final step is risk management – keeping my exposure to each big idea within a predefined range. For example, I aim for 20-25% portfolio exposure to China’s GDP growth. To balance my main positions, I reserve a quarter of the portfolio for risk management, looking for hedges that are highly uncorrelated to my big ideas.
Currently, my key hedging themes are a possible future hike in interest rates, reflation, and a sharp rise in commodity prices. But that changes over time.
I manage my portfolio for the long-term, but my individual holdings vary. Some are permanent fixtures, while for others I tend to go into the positions looking for catalysts a few months down the road, and with an exit strategy already in mind.
I believe the most important aspect is analyzing what’s driving any significant drop. In recent weeks, my feeling is that the market is overreacting to possible economic recovery scenarios which might include higher rates, inflation, or changes to US fiscal policy. So I’ve decided to remain fully invested. Because this pullback was foreseeable, I had started increasing my hedging positions a week or two before it started. That helped soften the blow. I’m just planning to ride this one out.
But in 2008, I saw something structurally more dangerous. When markets started crashing and we heard whispers of huge bailouts coming, I sold – at big losses – all the financial services stocks I held at the time. I re-deployed that cash into yield instruments like REITs at the time. In hindsight, I would’ve been better off betting on growth stocks and tech. But I still hold many of those REIT and high-yield stocks I bought in 2008 to this day. On some, I’m now getting a 30% yield-on-cost, so I can’t complain!
I only focus on risk-adjusted returns. I think for a CopyTrader, articulating your objectives, and the risks you’re willing to take to try and achieve them, should be mandatory. Too bad it isn’t.
I aim for a +5% annualised beat of the SP500 on any rolling 5-year time frame. So clearly I need to be further up on the risk curve from ETF’s. However, my feeling is that with good stock picking, that should be achievable with annual volatility under 20%, so that’s the goal I set for myself.
There’s nothing wrong with investment strategies that are much more (or less) aggressive than my own. And there’s some fantastic Popular Investors on eToro catering to both those needs.
Three weeks ago, I would’ve said Sanderson Farms ($SAFM), but some of the catalysts I saw in that stock have in fact happened – and the price has rallied even through the recent market drawdowns.
Today, I’d say it’s my China portfolio. Due to liquidity fears, there is an ever-growing gap between China’s rapid economic growth and its beat-up equity valuations. That pricing mismatch is not going to survive the next few quarters I believe, and I view a Chinese market rally within 6 months as a high-probability event.
Unfortunately, when it comes to “old economy” stocks in China, reporting rules and corporate governance are much weaker than in the West. So I prefer to buy my exposure through ETFs and Indices rather than stock picking.
Around 2010, I was doing lots of research into global trade in the Pearl River area of China. I was confident that Hutchison Port Holdings (HPH) was the best-positioned operator to capitalise on that boom.
They were first-movers in Hong Kong on key trends in shipping like containerization and preparing for CapeMax size ships. They were also far ahead of the curve on implementing technology compared to other operators in the Pearl Delta region.
I took a huge position, and it was a disaster. I think it’s only been recently that I finally broke even on the trade, after reinvesting my dividends for more than a decade.
Just because something is true – doesn’t mean it’s a good investment. Basically, every institutional investor in Asia had come to the same conclusion as me and piled into the trade. HPH’s management understood they were riding a temporary high, and took advantage of it to raise huge amounts of cash through private placements by diluting shareholders. It hurt.
So today, when I look at other things I believe to be true – like the move to electric cars, or renewable energy, I pay much more attention to what extent that future is already priced in. I see so many red flags in valuations of both EV’s and Renewables today, that I wish I had spotted in HPH.
#1 – Investing is a long-term game. You need to remind yourself of that when markets are down.
#2 – Never stop learning, or assume you know everything. I’ve been doing this for 18 years and still make mistakes. Though thankfully far less often than in my early years!
#3 – Start small and go slowly. There’s nothing wrong with using your Virtual Portfolio for a year first. Or maybe buying small positions in a few companies you like and just holding on to them.
Any University-level corporate finance textbook. It’s a drab topic, and there’s a steep learning curve, but once it intuitively “clicks” – being able to do your own financial analysis (or understand other people’s analysis) is so helpful.
Probably Charlie Munger. From the perspective of First Principles thinking about potential investments, and understanding what things you know nothing about. I’ve been tempted dozens of times over the years to invest in pharmaceuticals, and have to remind myself each time I truly don’t understand how to analyze that industry.
The two things that appeal to me most are being able to learn from the people who are Copying me. It’s making me a better investor. And sharing the things I do know with others as best I can.
You can copy my trades automatically on eToro: https://etoro.tw/2PNifwh
If you have questions, feel free to join the Copier Discord community at: discord.gg/rUVxuqQwkY