Monthly Letter November 2014

Being able to invest with the bene t of hindsight would improve performance for most of us. Masters of the universe quite o en sound as if they knew what was going to happen and that nothing is ever a surprise to them. Maybe they are telling the truth, but we wonder humbly why their performance isn’t be er if that were true. At Madrague we wrestle with problems in the real world and in October we were frustrated by not being able to explain movements in the market even a er they occurred. The ECB assessment of the nancial strength of the major European banks (the asset quality review, AQR) and a major sell-o in the global equity markets were the main talking points at our o ce. Let’s deal with them one at a me:

– The sell-o . If we s ck to Europe we can see why we had a correc on in the market given the limited earnings growth and slightly worse economic data. We have, however, been through those types of data-patches previously without even a blip in the markets. Nothing strange about that. Markets react di erently to the same sort of news depending on where you start. What was most surprising to us though was the extremely quick recovery. The month nished more or less at. So if you can argue that the sell-o was fundamentally correct you have a harder me explaining the full reversal (vice versa is true as well). We are not technical analysts, but we do look at charts and the October chart on EuroSTOXX50 looks like a hanging ice tap to us.

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