March 2014 - Richard 'Jerry' Haworth: Lying in ambush like a Nile crocodile

We were reading through our previous monthly reports and this report resonated with a loud “deja vous” so we iterate it here again 9 years later.

May 2005
This month has been another pedestrian performance. The nature of this Fund will be long periods of relative calm with corresponding intense short periods of high returns. We must confess that this becalmed market has gone on longer that we predicted but often this is a precursor to a massive move in asset markets in one direction or the other.

 A useful analogy to describe this Fund would be to liken it to a Nile crocodile found in Tanzania in Africa. It can go for up to 5 months without food whilst waiting for the herd migrations to the Serengeti plains. If and when they arrive the crocodiles will gorge themselves on zebra and wildebeest in the few weeks in which the migration happens.

Here is the point
It may be an erratic feeding pattern but they remain the BIGGEST crocodiles known to man!! Why? They have the best energy to food captured ratio i.e. risk of expending energy uselessly to kill ratio a.k.a. risk / reward ratio. The only relevant question we have to ask is the same question as the crocodile: Are we positioned correctly?

Long cycle history normally correctly suggests to them where they should be but after 5 months of “no migration” this could well lead to disillusionment! Moral - Patience is a virtue.

Crocodiles ambush animals in water because that is where their best odds of success are. It would indeed be curious to see a crocodile chasing a zebra on the plains. This sort of behaviour is not unusual in the investment markets though!

Moral - Remain in your circle of competency and rely on your edge.

Unsuited investors chasing unrealistic return need to ask ‘can I get hurt engaging in this activity?’ With crocodiles it is more a question of ‘can I starve engaging in this activity?’ The answer is yes.

Preserve energy and wait for the right moment. With investment using options we preserve our capital and use the options to provide us with the leveraged returns should the right investment scenario emerge. Thus we wait, secure in the knowledge that we have picked the best place possible to lie in ambush for excess investment returns and have picked a hunting strategy that maximised our risk /return ratio allowing us over time to become the biggest predators in our territory.