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Villi Grdovich
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Villi Grdovich is a professional investor with a strong interest in fundamental and quantitative financial analysis. An engineer by training, he has 25 years experience in finance, firstly in project finance with an Australian bank, and then as an analyst and portfolio manager with a major fund... More
  • Beta, Beta, My Kingdom For Beta! 0 comments
    Jul 31, 2012 12:24 AM

    King Richard has been dismounted in battle, he needs his/a horse to escape and utters a famous line "a horse, a horse, my kingdom for a horse". I feel that our current situation mirrors his.

    Firstly, the TLT/SPY indicator is still firmly negative, which suggests that equities are unlikely to outperform for the moment. TLT hit around $130 in the last week which is an all time high and suggests significant risk aversion.

    I have been using CAT as a stalking horse. Earnings were higher than expected, outlook neutral, so we are all in the same outlook boat. What is interesting is that day by day, the trend is TLT up, CAT down and vice versa. Despite an earnings beat, there is no sustained upwards move. I feel that my analysis is vindicated. Financial risk is a the major the price driver at the moment.

    There is some commentary about "alpha" being hard to find, and "beta" being the investing strategy of the day. CAT is a prime example of this trend. CAT is a high "beta" story. If TLT starts a credible and consistent decline, then stocks such as CAT will do quite well. What might be worrying is that without QE style stimulus, "beta" may now be going missing.

    In the meantime, the idea of sticking with low volatility and dividends appears sound. It is the area where I feel most comfortable at the moment.

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