Hedge fund administration
Includes short positions in the Canadian banks and Tesla Motors Inc.; long positions in gold mining companies and Smith & Wesson Holding Corp.
Before becoming an investor, Nigel D’Souza read widely on economic and financial topics. His favourite investment book is Hedge Fund Market Wizards by Jack Schwager.
Mr. D’Souza is a founding member of an investment club (Quadrant Skew Capital). He is also studying to become a chartered financial analyst.
How he invests
Mr. D’Souza prefers to have a mix of long and short positions in his equity portfolio. “It enables me to generate a return in bull and bear markets,” he says.
Avoiding big losses is important. “If you lose 50 per cent of your capital, you will have to generate a 100-per-cent return on your remaining capital just to get back to where you were.”
His short position on Canadian banks reflects a conviction that the Canadian housing market is a bubble about to burst. Prices have just run too far ahead of household incomes. The catalyst will likely come in the form of higher mortgage rates and/or a downturn in household incomes.
The Canadian financial system is not as safe as many think, Mr. D’Souza believes. “The Big Five Canadian banks have a higher amount of leverage … than the subprime mortgage lenders that went bust during the U.S. financial crisis.”
He’s not fazed by Bank of Canada measures to avoid a crash – such as cutting interest rates. “Some of the best trades were bets against … central bank policy.” For example, hedge-fund guru George Soros made $1-billion (U.S.) off the Bank of England’s defence of the pound in 1992.
Mr. D’Souza owns shares of firearm manufacturer Smith & Wesson. He bought when it “was undervalued relative to its peers and his discounted cash flow model showed that the company was undervalued by more than 20 per cent.”
“Buying shares of Apple when it was trading in the low 400s, prestock split.”
“Shorting Amazon … without realizing that the stock price was driven by the narrative of growing revenue … instead of traditional valuation metrics.”
“Understand how to manage risk before you start to manage money.”
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