Yesterday I had an exchange with someone who I respect. I don’t know quite who they are or what their background is but I suspect that they are likely a retired hedge fund manager in their 50s or 60s that don’t need to work anymore but invest for their own account for the love of the game. This person is a shrewd distressed and special situations investor. They seem to avoid trouble, find good risk / reward, and play their own game.
Essentially this person said one of my holdings is in fact highly interest rate sensitive (in a bad way) when I posted a quote from management saying that they would welcome higher rates. The basis of this was they indicated that the trading prices responded negatively to interest rate hike news starting in Q4-21. It sort of rattled me. Was I completely missing something?
After taking some time to think about it I concluded a couple things. First, his conclusion was purely based on trading action versus fundamentals. It’s not to say that this person is wrong, just that sometimes we don’t know exactly why prices move one direction or another, and often times the market can get it wrong. Second, I have some data points to the contrary. For example, rates have moved from 2% -> 10%+ in Brazil and similar companies continue to see positive inflows. Additionally, these firms have flourished in a moderately higher rate environment successfully in the early part of the prior decade. Last, this person just isn’t close to the business models nor have a view of how they are evolving going forward. Again, not to say that they are wrong, but just that based on the game they play, it’s nothing close to what they would be interested in.
To conclude, it helped me reinforce that I should always take feedback from others seriously and help it evolve my thinking, but also always play my own game.