Once upon a time there was a country where investing into local equities seemed like a stupid idea

This is an extract edited by Gabor Balint, originally published in Hungarian on privatbanakar.hu.

According to László Szabó there are good fundamental and technical analysts as well but your best bet is to use common sense.

How did you decide the name of the fund would be „Platina Pí”?
László Szabó (L.Sz.): The Hungarian government decided in the middle of 2006 that it would implement capital gains tax next September. We established a number of funds. Π is a mystic, interesting number in mathematics.

What is the investment philosophy of the fund?
L.Sz. Well, the internal name of this fund used to be „Szabó hedge fund” since in the beginning most of the investors were people who knew me well. It was very important that I be able to place long and short trades as well.

Profile

 László Szabó started working at Concorde Asset Management 17 years ago at the corporate finance department, then as a leading analyst, then as an asset manager. Founder of Concorde Asset Management, he has many years of experience as an asset manager.

Something happened in 2011. You let the number of investors grow.
L. Sz. Well, yes, that is correct. By then we specified the investment guidelines. It was a fundamental, global, long-short fund, using a top-down approach. I believe that the global sentiment drives stocks. On the other hand you have to be aware of the specific stories. I buy when the markets are going down.

Technical analysts would say that once the news is out, they are priced in.
L. Sz. It might happen at times. The market is imperfect. Technical analysis has many believers. My point is that there is a number of people that are good at either technical or fundamental analysis but there are way more that do not excel at any of them. It is obviously more convenient to analyze charts then reading 200 page riports. On the other hand I acknowledge there really are good technical analysts.

Tell me about the asset allocation of the fund.
L. Sz. Well, basically, the fund can invest in anything. At times I look for discrepancies in the market. Many times what you see is that investors are extremely optimistic regarding a country’s bond market and very pessimistic regarding its equity market. What you do in such scenarios is you go short where prices are up and long where prices are down.

An example?
L. Sz. Well, we had an Italian-French spread trade this year. Italian government bonds were trading at a high yield (and low price), French government bonds were trading at a low yield (at a high price). We figured if the Italian were to go broke, the French would also go broke. So, we were long Italian bonds and short French bonds.

Talk to me about risk management.
L. Sz. We manage risks by position sizing. The portfolio is well diversified.

The return of the fund was 2-3 times its benchmark return in many years since its inception… with the exception of the year 2008. What happened in 2008?
L. Sz. Well, 2008 was a very interesting year. It taught us how sophisticated the market was. In 2007 I figured huge problems were ahead and informed my friends. I went short in the summer that year and the market started going down after that. Unfortunately we had a Santa Claus rally and I started losing money on all of my positions. Soon after that Bear Stearns went under in March. I was short Volkswagen which turned out to be a losing trade.

…Yes, but that story still goes on
L. Sz. I believe they committed a crime. They have been investigating the case for two years now. My mistake was that I entered a club which exit was way too narrow.

What’s your take on the Hungarian market, local currency?
L. Sz. Well, I am not a broker; I usually do not give investment recommendations. I may recommend buying our fund becasue investing is complicated. We have been doing this for the past twenty years, on a daily basis.
You can easily make lots of mistakes should you know very little about the companies. There is a difference between „playing” with ten percent of your savings and gambling with all of the family’s money.
Things can change very quickly in this environment. I may give you my take on something and the evening news might completely change that.

Okay, can you talk about the Hungarian market?
L. Sz. I do invest in the Hungarian market as well. It is all a matter of discounts and prices. I prefer to invest in companies that offer huge discounts in the Hungarian market.

What’s your view on the future of the Hungarian market?
L. Sz. I expect the market to consolidate. Most of the asset management firms have seen their AUM drop 30-40%-60% but we have not seen many exits.