Event-Driven Investing
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This is the weekly article and Pod/Video Show 43 discussing the market rally and the forthcoming deregulation with a Trump Presidency and deregulation and not just in the US, but in Argentina. I like to say that we’re the last of the Absolute Return investors and that’s how I came up in this business and that’s how we run portfolios; we look at anything and everything to deliver Absolute Returns and with a little hard work and luck on our side that’s what we aim to do.
This week we’re going to get into some ideas that are to come for 2025 and why the broad-market is not that big of a deal to me but why small caps, event-driven investing and Argentina will be a big deal in 2025, at least for what we do.
We’ll also talk about Portfolio volatility at the end which was really a question posed by a few DeltaOne members.
If you’re new here welcome, make sure to subscribe on YouTube and/or Spotify – you can get free daily market updates on LongVolReport.com
The market had a little slip up on the last day of the month this week which we’re going to talk about a bit more than we normally do here each week. Earnings this week was a lot to unpack – I’ve been reading through reports all week and have more to get into over the weekend.
We also had earrings on some of the names talked about on this show and in The Report:
New: Seminars/Webinars Listed
- Articles of Interest from This Week
- Broad Market Overview
- What may come from a Trump Presidency & Themes
- $GLD Tail Risk /EOG/WPM/TEO
- Education: Portfolio Volatility
If you are a new reader/watcher of this please do not be an NPC – this is NOT financial advice and I am not doing “stock picks” for you to track here, these are ideas that we’ve either invested in, may invest in or discussed in our weekly report. If you are looking for “free ideas” this is not the place but if you’re looking for perspective and to learn then this is what this is.
If you want to piggy-back ideas please use this product.
Quote of The Week
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The Market at Large
For those new here, we are not market-driven analysts/investors. What the SP500 and Nasdaq do has little to no bearing on our investments or tactical trades.
- There was a big move this week and $5750 was the inflection for the SP500 futures and as we get to $6100 area that becomes a spot of interest for risk-off.
- Possibly some tactical portfolio shorts in coming weeks
- A certainty that retail analysts on Twitter will call for doom and gloom and “Black Monday Tops” this will lead to zero P&L but surely will help with engagement.
This is from Ryan Detrick at Carson Investment Research – I thought this was interesting. This is post Trump election in 2016. The reason I care about this as we go forward is because of the Top Down Approach to analysis we run.
Where are there themes? What is the macro backdrop? From there you can dig into the stocks/sectors, that’s a proper Professional Approach to idea generation. Trump coming back into office is not just big for the broad market but really for some sectors/ideas that won’t be discussed by Dave Ramsey and your local advisor at Paine Webber.
- Event-driven strategy will be back more than ever. I expect M&A, spin-offs to really take off. That means a lot of potential 2 and 3 baggers (finally).
- Mid-Caps/Small caps are already moving and that comes with likely tax changes for business so there is work for me to start doing there for Q1
- Some* energy names will be in play as well…
Is the market overvalued on a price-to-sales ratio? We don’t think so, the dot-com bubble was a different time with companies with no real revenues. A little different this time.
Do we care where the SP500 and broad market goes? No, not really.
Wheaton Precious Metals
I introduced this name back in June on this show. It was part of the Top Down approach to idea generation so let me explain; our views were that inflation would continue to rise, especially with rate cuts, which we got in September and as such inflation linked names (like metals) would take off. We bought a basket of names for the sector but $WPM stood out as a single stock name.
The Company is run by a 42 person team with experience in mining, they had just sold off a mine for $140 million and they were increasing buybacks.
- Nowhere for it to go now, the trade is done so don’t try to piggyback on free ideas, either do the work or get the AST Alert Portfolio.
- This was a good position and it was closed out, we sat in on the earnings call today to review it and update the next move on it.
EOG Corp
EOG Corp was an energy name that has been traded into and out of all year. Various reasons for this but discussed in the report. A few weeks back, at the start of October we tried to make a go for all-time highs with the squeeze in energy but failed to do so with some bearish oil sentiment.
Earnings report yesterday and they were on track for what we were after.
- $1.5B in free cash flow
- Increased dividend by 7%
- $2.2B of buybacks so far and another $5B coming
Argentina
Last week I talked about Turnaround stocks, Argentina (and arguable the US here with Trump) is a “turnaround stock” – Milei acting as the CEO. His admin has been working on cost-cutting, deregulation and devaluing the peso by more than 50%. That includes slowly cutting rates, which they’ve cut six times since he took office.
This has had a lot of effects….
- The ARGT ETF is up dramatically
- Many single-stock names have doubled already
$TEO (a Telecom) is up nearly +55% since introduced in the report. Sadly, I wished I had sized it closer to our max portfolio risk position but we’ll take the gains.
I am focused here the next 8-24 months, especially with Trump coming into office.
These fit our firm Portfolio model where we can find companies where we can hold for 8-24 months and recently it’s been hard to find that in some US listed names given uncertainty on who the President was going to be as well as the interest rate cycle.
- These were two names we added to the report back in October. Readers are encourage to do their own research, meaning, digging into the idea to see if it fits what they are after.
Again, if you are going to piggy-back ideas then don’t be an NPC, punt into them, then displace the blame because you don’t do any work; I heard a term the other day called “nugget hunting” from someone and it makes sense. People wander looking for nuggets instead of mapping out where the gold is a la, an approach to generating investment ideas.
Gold
I hope that as a reader/listener of this show you gain perspective because one small itteration in your thinking or approach can make all the difference.
I am not someone that is a gold-buy, the store it and keep it, I have some, but we see the markets as trades and investments. It’s important to separate the bias so you can see ideas clearly.
Gold was (and is) extended by many counts and we decided to put a Tail Risk Trade on – that’s a part of construction an Absolute Return portfolio.
We put these on in DeltaOne/FOPT and they turned out to be nice (faster than expected) this week once the markets came off the highs violently.
Do I have a long-term view of gold? No, because I am not selling doom and gloom so you can buy my magic gold coins and two, price predictions are for the grifters and NPCs.
We trade and generate ideas.
Our views with Wheaton and Gold were bullish back in June and now we’ll watch to see what comes next, maybe another tail trade maybe not.
RISK MANAGEMENT: PORTFOLIO
There was one question (really two) from a few FOPT mentees about risk management as it relates to the overall portfolio volatility. To set the table, there are obviously different discussions on this that take place followed by generic sayings; “Manage your risk” or “Use a stop” – none of it really means anything.
Question: My portfolio swings 10% – is that okay?
The answer to all of this is subjective which is why you have different products (mutual funds/CDs/structured notes/annuities) so people can find what they like.
The way I view portfolio management is to embrace risk, and I don’t say that trying to be a “Chad” – if you want returns then risk is required. Swings, are required. Maybe not for ALL of your investment profile but maybe some of it, maybe it can be – again, this is a YOU discussion not an absolute statement.
But, how do you dampen the volatility in a portfolio?
- Portfolio Management: What we do. We spread risk out through some longs and shorts and don’t have just one or two positions – we want to try to be risk-adjusted. Most average retail “traders” don’t see risk like this, their views are per-trade risk (where is my risk etc) – we don’t we look at ideas and then structure the ideas based around that specific idea and then fit it into the portfolio. Most of you tend to carry too much beta (Apple/Amazon etc) which creates vol. Then there are some of you who manufacture your own vol by using too many spreads or sizing to big.
- You can use DITM options like we do in the AST Portfolio. That portfolio, has a framework and if you’re a retail investor you may miss that because you don’t see the world of portfolio management – you just see “risk” – that portfolio dampens the volatility because we use duration + intrinsic value to express the views.
- ETFS v. Single Stock Exposure: Usually single-stock exposure increases the risk (news will move that name more) v. buying a sector through ETFs. That’s another way to dampen vol.
Regardless, there are ways to create a portfolio with less volatility but then again, if you are hunting for aggressive returns, it’s just a reality that must be accepted.
That is our view on L/S portfolio management (which is a thing if you are a reader that is retail and used to head and shampoo patterns/back testing) – the portfolio volatility can be adjusted based on how you structure the ideas. To conclude, there is not right or wrong “volatility swing” just what you are alright with which is why deciding what you want and what you are after is really key to much of this because it is adjustable.
If you are a reader/watcher of this show and want to learn (if that’s the goal) then the FPT Mentee program is open for 2025.
Enjoy your weekend.
Final Word.
- Issue 45 Out Sunday
- A lot of work to do on earnings the last 2 weeks
- Exciting Q1 coming with Trump and policy changes
Next Lesson
Patience Pays and Stock Market Sentiment
GXO Logistics and Stock Market Sentiment
Ready for Take Off or Jet Lagged?
About the Author
Daniel Bustamante is the founder, managing partner, and CIO of Bustamante Capital Management L.L.C., a multi-strategy investment management firm based in San Juan, Puerto Rico. He has over 10 years of experience in the financial industry, specializing in equities, futures, and event-driven trading strategies.
He is also the founder of TheLongVol.com, a blog and newsletter that shares his insights on his investing process, travel, and other private investments. He has been featured in Bloomberg, Arizona Business Journal, Business Insider, Yahoo! Finance, Forbes, Seeking Alpha, and other publications over his career on Wall Street.
