The Danger Zone
Some thoughts on my exiting criteria and where the relative value is.
I’ve been pondering if it’s even worth flying near the danger zone, aka euphoria.
Re-reading my piece on exiting uranium, I see that it’s a strategy for exiting the sector on the way from optimism to euphoria (which can be years).
I plan to follow it, gradually scaling out of the sector as the signals are hit (uranium is now in pole position).
The most crucial section of my exit plan was relative value.
Rotating capital into superior risk rewards is the best way to exit.
That relative value gap between the likes of uranium, offshore oil services, ship builders and coal got too wide earlier in the year and I should have been actively rebalancing.
Having the majority of the portfolio in sectors still in pessimism helps provide a fatter margin of safety and dials down the volatility.
Take my basket of offshore oil service and ship builders, you can’t even spot where the Yen carry trade market smack down occurred, hell some even rallied during this period.
Or, to explain this with a meme, I want to be able to wander around in the carriage and pick my seat.
The main takeaway is that it’s not smart to have a big chunk of my portfolio riding into the “danger zone” when other great risk-reward setups are still in the pessimism stage.
I can rationalise to myself all day long how airtight the uranium thesis still is, yet ultimately, when stuff is really hated, you have a better risk-reward ratio, which is what this game boils down to over time.