🚨 Trade Alert 14: Exiting One Position And Opening One New Position

Closing a low conviction position, and rolling proceeds to a new position with higher conviction and secular tailwinds.

If you went back to March, what happened this month would look pretty improbable given the war, macro pessimism, etc.—our portfolio reclaimed all-time highs.

We are now up 60% in the last twelve months, against just 33% of the S&P 500.

How have we achieved this? Well, looking back, I think there are three factors:

• We let the winners run.

• We timely opened new positions trading at deeply undervalued prices.

• We waited patiently for our existing undervalued positions to play out.

Before the year started, we had closed three groups of positions:

• Those that went too high above their intrinsic value.

• Those whose fundamentals were deteriorating.

• Those that were too small to make a difference.

We rolled a portion of the proceeds from these exits over to new undervalued positions that could create alpha as they were starting from a lower base, and kept the rest to create a bigger cash pile as the market was obviously overvalued.

But we kept the exceptional companies we owned, even if they appreciated as their fundamentals were improving fast, and we didn’t see a safe selling price. In these positions, we would rather ride the downside volatility than give away the optionality.

Then, within this year, we have only opened three new positions. One of them is up by 30%, and the other two are largely flat. The good thing with other positions is that they tested their lows a few times since we bought them, and bounced back. They have now broken the downtrend and are ready to go up if favorable market conditions continue.

Another driver of alpha was the recovery in one of our most undervalued and biggest positions. We heavily increased our allocation in this name last year after it got heavily undervalued and it finally started to play out, creating alpha while the market has been largely flat YTD.

We had finished all these positional arrangements before the Iran War started. So, at the outset of the war, we didn’t have any “egregiously overvalued” position that could stress us during the downturn. Thus, we managed to do exactly “nothing” while everybody was panicking.

For me, this is the gold standard of positioning.

If you can afford doing nothing during downturns and it looks like the only logical thing is buying more if you are to do something, then the positioning was right.

That’s exactly how it was during the downturn. We didn’t have any position to stress us, and we could only consider buying more if the prices came down to our “no-brainer” zones. In the end, most positions didn’t come down enough for us to buy, given our ~20% cash position, and we ended up doing nothing.

Now, the market has recovered and recorded a new all-time high, and valuations have swung from “somewhat attractive” to “unattractive” again.

Indeed, the market is now trading at around 21 times earnings, only 200bps below where it was in late 2025:

And the credit spread is still below 3%, meaning the money is still abundant, and optimism dominates the capital allocation decisions.

This is not an environment where you find one fat pitch after another.

In this kind of environment, the best opportunities come when the qualitative conditions that led to the discounting of particular stocks start changing, and the discount looks increasingly unjustified. The market is sometimes slow to recognize these changes and to bump up those stocks to their full expected value.

I think we have one such opportunity, and it’ll be an obvious one in hindsight.

Yet I still want to keep my guard up, as the market's valuation makes me nervous, and I don’t want to reduce my cash position. This is why I will fund that position by closing a position that is probably the lowest conviction for me in the current portfolio set-up. It’s in the money, but I think the upside scenario is getting weaker.

So today, I’ll be making two transactions:

• Close one position.

• Open one new position.

This way, we’ll be able to get exposure to an additional optionality while eliminating a potential weak link in the portfolio in terms of market power.

You’ll also find the link to the portfolio spreadsheet at the end of the write-up. I’ll be updating it after I execute the trades.

Let’s get started.

Here are the exact trades I am making:

Let’s start with the exit, as always.