Ira Sohn Conference
Last year we decided to submit an entry into the Ira Sohn Contest. We felt like it would be good exposure if we won and got to present to that audience. Unfortunately we were not selected, not even as a runner up, but we figured it was a good time to review how we did versus that illustrious group.
We used two articles to piece together the trade ideas, this one from zerohedge and this one from seeking alpha.
We have attached what we sent out as a “best idea” on the morning of May 3rd. It was a natural follow up on our Roadmap to IG 30 from March 10th.
It was simple strategy of selling CDX IG19 and using 15 times leverage, but you can read the full report for catalysts, etc. (the Sohn contest submission was slightly different to fit the format required, but the idea and layout was similar).
Some Surprising Results
It might be surprising that at this stage, 10 months since the conference, TFMA would have been the fifth best performer out of 13.
We looked at the Sohn submissions by pick (so every pick was equally weighted) and by presenter (where longs were averaged, and shorts were averaged).
We included dividends (but didn’t reinvest them). Half of the Sohn picks had any dividends during the course of the year, including some that were short.
The most noticeable aspect of the performance was how helpful it would have been to know what the picks were going to be in advance.
The Sohn picks were up 4% from May 1st, going into the conference on the 8th. That was a small outperformance of the market as a whole, though some individual picks moved much more. TFMA sent out our research piece to clients on the morning of the 3rd, so ours was about as public as it gets ahead of the conference.
On the day of the conference, the picks did well (I didn’t check the timing to see whether it was before or after presented) but a 2.9% performance relative to a pretty calm day in the S&P is interesting.
What is interesting is that in spite of the run-up ahead of the conference, the nice performance the day of the conference, there was still time to buy the names.
You could have gotten 5% by putting on the trades at the close of May the 8th and taking them off on the 17th. The S&P was only up 2.1% and CDS was actually down.
You did not want to hold the positions for a long time. If you bought on the 9th and still held them today, you would have -5.5% instead of +16.9% from the S&P 500 or 15.8% from TFMA’s idea.
It is even worse if you didn’t buy execute until the 17th.
The shorts have been the biggest problem with the Sohn returns, but even some of the longs have struggled.
Not only were the returns worse than the S&P 500 (or TFMA) but the volatility was much higher. Even 15 times leveraged CDS had far less volatility than these picks.
The maximum drawdown can be a bit misleading since I ran that as the average of each pick rather than looking at it as a portfolio worst drawdown – so probably overstates it a little) for Sohn.
The CDS got hit hard in the “taper” sell-off of June.
The 4 returns that beat us (and the S&P 500) from the 17th were in the range of 21% to 34%. The losing trades were down as much as 68%.
The Moral of the Story is…
- Try and guess in advance which name investors will present and buy them or short them ahead of the presentation
- Have you finger on the buy button to execute the second a long idea is announced (and sell button for shorts)
- You have time to let the picks filter their way from the conference into the broad market
- After a week be very careful as many of the picks are designed, it would appear, to make a splash and swing for the fences, so when they don’t work, they seem to have a propensity to fail epically
- Stop ignoring CDS as an asset class (okay, that is a personal pet peeve and not necessarily a direct lesson, but the potential for returns in both directions remains there).
IMPORTANT DISCLOSURES
This writing discusses general market activity, industry or sector trends or other broad-based economic, market or political conditions and is provided for general information purposes, education purposes and entertainment purposes only. Nothing contained herein should be relied upon for any other purpose, including making investment decisions. It is not, and is not intended to be, a research report, a recommendation or investment advice, as it does not constitute a substantive research or analysis, nor an offer to sell or the solicitation of offers to buy any product or service in any jurisdiction. It does not take into the account the particular investment objectives, restrictions, tax and financial situations or other needs of any specific client or potential client. In addition, the information is not intended to provide a sufficient basis on which to make an investment decision. Any investment decision about buying securities or other assets should only be made after consulting appropriate tax, legal, financial and any other relevant advisors. This writing is for institutional investors only and is not for retail investors. The information and opinions herein are current only as of the date appearing on the cover or on the date upon which the writing was originally sent or posted on the website. Economic, financial and market assumptions and forecasts are subject to high levels of uncertainty that may affect actual performance and may change instantaneously and materially as market, financial, economic, political, regulatory or other conditions change. Any past performance is not indicative of future performance or results which may vary significantly. The value of any investment can decrease in price as well as go up in price and future returns are, in no way, guaranteed nor assumed. All information herein, including statements of fact, opinion and forecasts, do not provide any assurance or guarantee as to returns that may be realized from investment in any securities or other assets. This writing is the opinion of the author and TF Market Advisors, LLC, and does not provide or purport to contain all of the information that an interested party may desire and provides only a limited view of a particular market. TF Market Advisors, LLC, depends upon third parties such as Bloomberg LP to provide data and information which we believe to be reliable. TF Market Advisors, LLC, is not a broker-dealer nor investment advisor and does not sell securities nor advise individual clients based on specialized needs. TF Market Advisors, LLC, does not advise on the suitability of any trade or investment and provides no legal, tax or other type of advice.
