Advice from Hedge Fund Manager - Edward Misrahi (part 2)

Advice from Hedge Fund Manager – Edward Misrahi (part 2)

I had a chance to check in with Edward Misrahi this week, to see what he was thinking about markets now. As a reminder, Edward runs the London based Ronit Capital, which is a value oriented EM fund. Before this Edward was a partner at Eton Park, and prior to that a partner at Goldman Sachs. 

 

I last spoke to him in March 2016 (you can read that here), when he was bullish on Emerging Markets, particularly Brazil. A view that has been rewarding for him.

We discussed his views on Emerging Markets today, what’s learnt recently, and advice he has for us to be smarter, richer and happier.

His views on Emerging Markets:
It’s all about Interest Rates in his opinion, but that doesn’t mean he has any views on the FED.
In his opinion, the biggest tailwind for risk assets are interest rates, and Emerging Markets are the only place where rates are ‘normal’ and high. This is how he sees the EM playbook:
1. First EM FX moves – that’s what we have seen in 2016
2. Then as Rates continue to tighten, bonds go up.
3. As Rates go tighter, the discount rate for risk assets such as equities go much lower, and this causes equities to rally.
4. This is on top of better EM valuations and positioning
 
Of course the thesis could be de-railed in a number of ways, but the ones he worries about most are:
 
1. China going into a recession again
2. A US Monetary Shock – where the FED feels its behind the curve and hikes much quicker than the the market expects.

As for markets more broadly, he thinks the FED is trying to remove the Yellen put, or at least lower the strike.

He also doesn’t think fiscal stimulus will actually show up. Its too hard to execute, not just legislatively, but also the sheer spending into the economy.

 

On Investing:

On Investing, Mr Misrahi’s advice is to make sure the price is right, but once you have a view, don’t look at the data or the market everyday. There is too much data, and too much noise in that data.

Instead he uses a system of threshold levels. Have an idea for what you need to see to change your mind. If the incoming data doesn’t come close to the threshold levels, then you don’t need to bother.

For example, some current threshold levels are around: US Election Results, Commodity Prices, Interest Rates.

I asked Edward to give us some advice on how to be Smarter, Richer, Happier.

 

Smarter and Happier:

Edward thinks a simple trick to get smarter is to use less social media and read books.
Social Media just leads to envy and greed. We just want what others have.
Try one day a week of not using social media.
What books? Two he read this summer and wanted to recommend:

Sapiens and Homo Deus both by Yuval Noah Hariri.

I’ve read both and can recommend them highly.

 

Richer:

As for getting Richer, Edward has more conviction than ever that if you build the next hot app, thats not really progress, most of its been done.

Instead focus on something big – something inevitable.

Imagine knowing about Smartphones before everyone had them – what would you have done.

This is where he thinks renewables are. The entire energy ecosystem is changing. We will have more prevalent renewable energy, this will show up in energy production (your own electricity grid), energy usage (think electric vehicles).

Renewables are where Smartphones were a decade ago. The inflection point is here.

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The other big place where he thinks you can get Richer is: Healthier Eating and Sugar-Free Foods.

Thank you Mr Misrahi for your time and views.

Other interviews you might enjoy:

 

Go ahead, see what you’ve been missing. 

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