Buying Straw Hats in Winter

On September 30th, 2020, I wrote a couple posts about the unloved and contrarian investment ideas which were U.K.’s FTSE 100 and Spain’s IBEX equity indices.

Back then, the FTSE 100 was trading at 5,897 and I was expecting a 2-4% decline before initiating a position. A 4% decline meant a 5,661 level. Over the next month, it traded down 6% to the 5,525 mark.

In the past 3 weeks, it has risen 12% to 6,385.

On the other hand, Spain’s IBEX has soared 19% up to 8,000 points.

In this note, I was figuring on a 45% advance spanning the next 2 or 3 years for the IBEX, yet the strength of the current rally, has produced nearly half of that return in just 7 weeks.

Although there is ‘air’ between today’s IBEX price and my 10,000 price target, but when an index (or asset);

a) capitalises 18 months worth of earnings in less than a quarter of a year,

b) produces a historically average 2 year return in under 2 months,

c) and trades to 3 standard deviations above its weekly mean,

………it’s prudent to manage and tweak the investment.

November 19, 2020

November 19, 2020
by Rob Zdravevski
rob@karriasset.com.au