Trading Stocks During the Ongoing Russia-Ukraine Crisis (Episode 10)

Sure. So before we dive in into the philosophy, I would like to add that as investors, I feel there is no zero edge in trying to trade or position yourself for a geopolitical event. So when we construct a portfolio, we don't try to position, you know, trying to figure out what's, who's gonna be the winner or the loser in any conflict. And then, you know, buy the, the things that we think are gonna go up or the things that are gonna go down. Our investment process is, uh, fairly long term. We do portfolio construction and with risk management in mind. So we tend now to put all our eggs in one basket and in the current conflict, um, you know, we, when things were starting to kind of show signs of danger or concern, we took a deeper look in our portfolios and we tried, you know, when we could just remove the immediate impact or the immediate, I guess the primary companies that actually would have impact in Russia.

And then, you know, secondly, trying to figure out what else would be impacted and reduce our exposure to it. So in your question, on how our investment strategy or investment methodology works, we are fundamental advisors. We tend to think that valuation is one of the most important factors when it comes to investing. We have a, a process and a model that we use in order to evaluate companies. There's usually we, we have three pillars per se, when it comes to investing, one is just revenue. The other one is the competitive advantage. And the other one is a, a discount factor that we apply. And what I mean by this is we try to learn the company. Then we try to evaluate what are the growth prospects of the company. And within that comes, you know, learning the competitive advantages and learning the industry and trying to figure out in our assumptions, if something let's say would grow 5% for the next 10 years, what are the possible dangers or the possible opportunities for that to grow faster or grow, you know, uh, I guess at slower rate. And then, you know, once we do all that, we try to assess a level of danger or late level of risk in our assumptions. And that is done through a use of a discount factor in a way, what I'm describing is a discount cashflow model that it has been honed in and different iterations of it have been, you know, run through and, you know, tried to refine the model over and over again, actually Randy is our model expert, per se, if he wants to talk a little bit more about it.

Sure. So obviously we manage multiple strategies and this global economy, it's hard to isolate exposure on situations like what's going on right now, right? Like you take a company like Coca-Cola, it has subsidiaries that, you know, they do active business in Ukraine and in Russia and so on, so forth. So first of all, we went through other names that we, we could actually pinpoint what the exposure was. And we tried to lessen that exposure. Some of it was energy nature. So we know if you own a name, let's say like Royal Dutch shell or British petroleum, you would have some exposure within their investments in Russia. So we reduce some of the energy exposure that we can actually see that, Hey, you know, they actually have an active piece in that conflict. Also the same way that companies go up or I guess go down for, as Randy mentioned, you know, booking was one of the companies that, you know, you can connect the dots and say, well, if there's war in Europe, maybe people in Europe are not gonna travel as much.

So it actually got, um, heard through this first five days of the conflict you'll have other names that actually appreciated for the opposite reason. Some of them were actually, you know, aerospace and defense names or cybersecurity names. So we owned a name checkpoint, it's a cybersecurity software company. We saw unusual, I guess it wasn't unusual. You were expected, but we saw upside on the name for the past two, three days. And again, we tend to invest with the risk reward ratio. So in a name like checkpoints, they, you know, you can argue that they are going to get a bit of upside because of, you know, companies being interested more in cybersecurity now, as you can see with, uh, all the hacking that's going on. So we decided to lessen that exposure to that name mostly because, you know, we figured out that it was at this point was somewhat overvalued or the risk reward ratio was not as appealing as it was before. So this is, you know, again, you can, it works both ways. You know, you can buy things that you feel that are super cheap and at the same time, you can lessen your exposure to things that, you know, got upside because of the geopolitical risk that was manifesting at that point.

So I would like to add to this because, you know, I think it's important that we don't, we're not really dogmatic. We don't really think that the price target is the only factor that, you know, goes through the process. We have price targets, but it's more of a, um, I would say like a guideline. So, you know, we use it more as a, a way to estimate the risk reward ratio rather than anything else. So, and every day that we go in, we, we reevaluate our thesis. We reevaluate all our assumptions. And, you know, we say like, Hey, is this risk reward still positive or negative? Once let's say, there's a chance that we actually hit the price target. You know, we are go again. We are going to re and say, are we missing something? Is this the most the company can appreciate or not? So it's more of a, I guess, a way to kind of estimate the probability bit that we're actually, uh, taking when we buy stock versus like, oh, this is my absolute top, or this is what I'm expecting to get. And so on and so forth.