Execution Memo No. 12

It is cheap to panic early.

For those new here, this is where I track my trading and document my investing. This one is very brief, but major changes are taking place inside my portfolio.

Sold almost everything

It is cheap to panic early.

Right now the setup feels wildly unbalanced. We have a war with real potential to tip the world into recession, while most investors seem fixated on what tech stocks are doing. The war in Iran that started less than a week ago shows no clear signs of resolution; most signals point to further escalation.

At the same time, markets are sitting at all time highs and almost no one seems to care.

So here is what I am doing.

First, I sold basically everything except Haypp; Haypp is defensive enough for me to keep. Then I added a small basket of chemical and fertilizer exposure, mostly via options. I bought Braskem shares, plus options in several US fertilizer and chemical companies that have protected feedstock and should benefit if the situation worsens.

These names are already trading at depressed levels. With options, they can offer explosive upside over the coming weeks. I view these positions as hedges: fairly cheap; if we get peace I should not lose much. But if we suddenly end up in a scenario where Gulf production shuts down and Brent and feedstock chaos starts sending shockwaves through the system, these positions can move violently in a very short time.

Summary

In summary, I am out of most of my positions for the coming weeks because the risk feels extremely asymmetrical. What is left is Haypp and a small set of chemical and fertilizer hedges, like LyondellBasell and Dow. On top of that, I have a tiny short in Citibank in case things get really ugly.

The setup feels a bit like early Covid. No one cared, until everyone did. The coming week is make or break for this call; it will quickly tell me whether this drastic shift was smart or unnecessary.

Not financial advice.