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Letter from a Portfolio Manager to his investors: The Black Swan of 2020 (Part I)


It is my pleasure to preface this first letter from Dan Benbunan, Portfolio Manager, to his investors, entitled “The black swan of 2020”.

In my opinion, 2020 has been the year of uncertainty, not only due to COVID-19 but also due to the trade war between the United States of America and China, doubts surrounding the Brexit negotiations, the North American presidential elections and tensions in the Middle East.

The uncertainty caused by COVID-19 has affected the entire year and in many aspects, from the initial surprise due to the rapid and serious expansion of the coronavirus, due to the lack of knowledge (even today) of the origin of the pandemic, due to the improvisation and lack of coordination of defensive measures at a global level (each country has acted independently without a coordinating role from the WHO), due to the difficult balance of priorities between health and economy, etc. 

On the other hand, in my opinion the average investor in financial markets suffers from bipolar disorder. Financial markets go from panic to euphoria and vice versa in very short periods of time.

image of an investor about the black swan theory

Thus, in April there was widespread panic due to the uncertainty caused by the coronavirus pandemic, and in the following months the financial markets They went into euphoria due to the announcement that vaccines were going to be available shortly, due to the measures of the central banks with unprecedented monetary stimuli such as massive injections of liquidity to avoid the general collapse of the market, asset purchase programs at record levels and interest rate drops at 0%. Furthermore, in December, the close North American presidential elections added volatility to the financial markets. 

Finally, I would like to introduce Dan Benbunan, author of this first letter to investors. Dan, in addition to working in Mergers and Acquisitions for a Spanish company, is Independent Portfolio Manager. As a portfolio manager he is excellent: young but mature, focused on the long term, he is managing to obtain an average annual return of 15% for his clients, thanks to his wise combination of the two schools of stock analysis: Analyzes, values and chooses the companies in which to invest by performing fundamental analysis, and relies on technical analysis to decide the most appropriate time to carry out operations. 

Alvaro Galceran

Professor, Finance, United International Business Schools (UIBS), Madrid.
Doctorate in Economics and Business, Universidad Pontificia de Comillas (ICADE), Madrid. Former CFO of the ServiRed Group (VISA, Mastercard, etc.)
Former Associate Chief Financial Officer, Competitive Intelligence Coordinator and EURO Project Leader, Procter & Gamble Europe, Brussels.  

A Black Swan in 2020

Dear investor, 

I would like to start this report by sharing with you my reflections on the past year 2020 before entering 2021. 

Without a doubt, 2020 has not been just another year. One of the worst pandemics in history, caused by Covid-19, hit our lives, leaving us with a deep wound on a health, emotional, social and of course economic level. 

If our daily life has undergone tremendous metamorphosis, it is obvious to think about its impact and manifestation in the financial markets. 

Making a brief summary: 

  • The stock indices They suffered the fastest fall in history between the months of February and March, a period in which fear and uncertainty were the protagonists, resulting in a greater loss of $20 trillion of wealth in less than a month. The S&P (American benchmark index) and the Eurostoxx 50 (European benchmark index) fell by 30% and 40% respectively, the price of raw materials and energy lost meaning (the future of crude oil came to have a negative price), and the same thing happened with currencies. 
  • The intervention of the Central Banks (both from the ECB and the Fed) flooding the money markets, managed to begin the fastest recovery in history at the end of March. 
  • In the month of November, when the American elections were being held, the American market was already in levels near their historical highs. 

Today, we can say with certainty that we have experienced a Black Swan, event or phenomenon that occurs unexpectedly and abruptly affects the world and, consequently, the financial markets. 

A Black Swan is characterized by being something unexpected and unpredictable, of extreme impact with disproportionate consequences and of retrospective predictability, that is, once it has happened it is demonstrated that it could have been avoided, at least partially. 

Examples of Black Swans are World War I and II, 9/11, the stock market crisis of 1987 (Dow Jones -23%) or the Great Depression in 1929. 

As we have seen, when a Black Swan occurs markets do not behave mathematically, rational or logical, but rather they are days-weeks-months in which human overreaction predominates, culminating in generalized panic that leads to violent falls. 

One of the big problems we encounter in modern societies is that economists always make their estimates or predictions based on the experience of what happened historically, without taking into account that thiss Black Swans They happen every so often. Although it has not been predicted, it does not mean that it will not happen, so it would be much more accurate if they included the possibility of this type of event in their sophisticated predictive models. 

Before these unexpected and disconcerting situations, it is necessary to accept, assume and face the new reality. As obvious as it may seem, our human nature leads us to just the opposite, to regret what we could have done to avoid it, when the reality is that these events by definition are practically impossible to predict. Faced with the inevitable, it is important to study, analyze and reflect, although this may not provide any advantage in facing the future. 

Throughout my experience as an investor, I have experienced very tense moments such as Brexit or Trump's surprise victory when it was seen as a global threat, but without any doubt, 2020 has been the most intense, complicated, exciting and unpredictable year of all. 

Today, I can firmly say that I am proud of the strategy and decisions made throughout the year. While most investors have lost indecent amounts of money by “giving away” their stocks in panic, we have gritted our teeth and remained rational, weathering the storm during the fastest decline in history.

In those moments, putting what is happening into perspective and trusting the strategy more than ever are the keys to success. We have even taken advantage of the moment to buy excellent businesses with depressed valuations, obtaining very high returns. Without a doubt, the effort and sacrifice has been worth it, and again, I want to reiterate my gratitude for your trust and patience. 

In the second and third parts of the letter we will analyze what to expect in 2021 onwards and sectors in which, without a doubt, we must be invested in the coming years. 


Dan Benbunan

Portfolio Manager

To learn how financial markets work, train yourself with Master in Financial Management, Accounting and Management Control will give you some in-depth knowledge about innovative techniques and concepts of finances.

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