Introduction

One of the common routes to finding ideas is to invest thematically. We shall return to this in more detail in Module D of the course when we try to apply some of the learnings but we introduce the topic here. Themes come in many different shapes but we think of these as tactical and structural.

A tactical theme is a temporary opportunity because of some shorter term aberration – the Fukushima nuclear accident meant that a lot more LNG had to be imported, that Japan Tobacco decided to raise its inventories, and so on. A tactical theme may last 6 months or 2 years but usually not that much longer, and I group these ideas in this way, because

1. I derive them in the same way - thinking about the implications of an event
2. If the theme turns out to be less durable than previously assumed, all the positions may need to be closed at the same time, so grouping them is helpful, and makes sure you don’t miss one of the positions
3. It helps highlight how much of the portfolio is being staked on this event

A structural theme is more durable – it may for example be a demographic change such as a growing population or an ageing population. There is usually less opportunity in this area for fast gains, and often the share price will reflect a large part of the opportunity. Here I am looking for mis-priced growth, where the market has not overlooked the growth but under-estimated it.

Reading

Attached is one of Crescat’s letters explaining their themes and talking about which contributed in the quarter – the letter is more about the macro than the themes so we have reproduced the table in the chart – no need to read the whole letter, unless you are interested.