Fundamentals Based Long-Term Investment in Global Equities

LDH Group's fundamental investment philosophy is rooted in the classic value investment principles presented by Benjamin Graham and pioneered by Warren Buffett.

However, we don't obsess with finding extreme value, but focus on finding great companies with strong fundamentals and growth prospects at great prices.

We also believe strongly in the strength of the U.S. economy and its future. Given this view, one of our all-time favorite asset is the S&P 500 Index, which is essentially a basket of the 500 best U.S. companies at any particular time.

We believe in staying invested in strong stocks and indices like the S&P 500 over the long-term, with occasional adjustments to portfolio positioning in response to shifts in the stages of market cycle.

Some of what we consider in making a stock investment decision:

• Market Cap - We invest mostly in large-cap industry leading companies.
• Current Price - We like a company whose stock price has fallen sharply or had been trading at a persisted low price range for quite a while, but a closer analysis of the company's fundamentals, management, industry prospects, growth outlook, etc. points to the company's solidity and/or the transient nature of its current problems, so that the current stock price is a significant "value" for buying a part ownership of such a solid company.
• Going-Concern - Even if a company is a large-cap industry leading player currently trading at a historically low price range, if the future outlook of the company or its entire industry does not seem promising, investing in such a company cannot be considered value investing. We look for companies that are likely to continue to grow, continue to generate solid income, and most of all do business in big industries with potential for continued expansion.
• Management We like to invest in a company whose management is passionate, gets things done, possesses good insights, and has the ambition to continuously grow the company and heighten its industrial status, all the while emphasizing good risk management.

Active Long-Short Macro Trading

Since long-term investment in equities may not provide sufficient investment return in the short term, LDH Group also engages in active long-short trading of various global macro assets to take advantage of market volatility arising from global occurrences and generate immediate investment return.

We do not set a firm time frame for these short-term long-short investments, but a typical investment usually ranges from as little as a single day to several months.

We seek aggressive returns by taking use of leverage in these short-term alpha generating strategies, while strenuously analyzing and monitoring risk through real-time exposure calculation model.

While long-only investments in stocks can generate good returns only in risk-on market environments, long-short investments in the global macro market provide almost limitless potential for profits in any market environment, whether risk-on or risk-off. In other words, there are profit opportunities 365 days a year.

Our flexibility to take either long or short positions in any asset and the availability of numerous asset classes in the macro market - either risk or safe-haven - also provide wonderful means of indirect hedging.

Example Case

Short USDCNH futures

• Underlying market environment - August 2019. In an on-going U.S.-China trade war environment, tensions have recently intensified, the PBoC has let USDCNY drift above 7.0000 by setting the reference rate above that level, further intensifying the global risk-off mood, and the exchange rate has continued skyrocketing to near 7.2000 level.
• Analysis - The recent mood escalation seems one of the most extreme in the past couple years in which the trade conflict had been going on, presenting a good potential for at least some alleviation in the risk mood vs. now. The 7.0000 level for the USDCNY had been considered the upper limit where the Chinese government will start to intervene to guide the rate lower, but the current level has shot up far above that to near 7.2000, presenting an oversold yuan and thus a potential for at least some winding down. The U.S. president has been clear in his intention to have a weaker dollar, especially against the yuan, and China probably doesn't want the yuan to continue to weaken so much either, considering its ambition for world power. China's economy has been greatly impacted to the downside due to the on-going trade conflict, and the U.S. president faces an upcoming election in a year - reasons both countries may want to stop the trade conflict from further intensifying, at least in the short term. Also a short USDCNY position currently provides a sizable carry profit, presenting a friendly environment for taking the position for an even longer investment time frame, providing greater allowance for when to take profit.
• Decision - The current dollar-yuan level seems to be at a high enough level, and the underlying environment and outlook point to a pretty good potential for the alleviation of the general risk tone and thus a likely fall in the dollar-yuan rate from current level.
• Trade - Short USDCNH Dec. 2019 futures - which currently has roughly 300 pips of embedded carry profit vs. Sep. 2019 futures - at the current level around 7.1700.
• Take Profit - September ~ October 2019. The analysis & the trade have come to fruition. USDCNY peaked at the near 7.2000 level and started falling back at a fast pace. Successive profit taking yielded an average take-profit (long USDCNH) level of around 7.0600 in just over a month - a 1.5% return on the underlying asset and a higher actual return with added leverage.

Importance of Market Cycles

Although the stock market tends to rise in the long term, protecting portfolio from occasional market collapses is paramount to long-term investment success.

With our strong understanding and sense of the market cycle, we continuously assess where in the current cycle we may be to adjust portfolio positioning accordingly.

Our goal is to protect our portfolio from occasional market collapses by reducing market exposure in times of extreme market euphoria and to aggressively load up great assets at bargains in times of extreme market panic.

For a detailed overview of how LDH Group utilizes market cycles in investing, refer to the following article: Importance of Market Cycles in Investing by Peter D. Lee, CFA | Medium