CAPITAL MANAGEMENT Seven Capital Behind the scene Seven Capital Management - Seven Capital Behind the scene Page 1 of 8 Regulated by the French Market Authority A.M.F : N° GP 06000045 & the CSSF Member of the NFA
Johann Nouveau : “And here we have an example in real time: for example, here we have the S& P, the Nasdaq intraday, and in fact, there is a turning point, it struggles to rise, and then we see a sharp fall. And in fact, we compensate for that, by which I mean that we are long in that market, so we will take a position; but in terms of the Seven Absolute Return, Seven Diversified and Seven Black Snake, in fact we have very long bond positions. And so, what happens to bonds, if we take the US 10-year as an example? The trend is for them to increase in value. So in the end, if we manage to increase o ur US bond position, even if we are long in US indices, we will make money all the same. So it’s really a case of balancing the two.” Johann Schwimann : “In fact, the basic process is based on a unique kind of analysis. What we’re interested in is pr icing and price changes. Why are we interested in price changes? Because the price is the definitive gauge of the value of a financial asset. Everything is reflected in the price. And what is reflected in the price and determines the price? Three main categories of factors. One: fundamental analysis. That means macro, micro, whether a company is strong, whether it’s in a growth sector, whether changes in the major macroeconomic equilibrium will make the markets rise or fall... That’s fundamental analysis. S econdly: forecasts. The very existence of a financial market depends on forecasts. What I mean by that is that today you might buy a security for EUR 100 because you think, based on your analysis, that the security will go up to EUR 120 or EUR 150. So it’s all about forecasts. The third point is psychology. In terms of psychology, when we trade on markets that are completely crazy and starting to trend lower, all logic goes out of the window. Personally, I’ve seen companies that, at the start of 2009, were valued on paper based on their stock market valuations at 10 billion. The company treasurer I was speaking with said, ‘I have 9 billion in cash, so that means that my global group – the goodwill of my global group – is valued at 1 billion!’ It’s nonsense.” Except that the company had a stock market valuation of 10 billion. Cash of 9 billion and 1 billion of goodwill – it makes no sense. It just shows that you can’t put a price on psychology. But coming back to these three categories, everyone has their own stance when it comes to macro analysis. I hear people who think the dollar will rise, others who think it will fall; some think markets will rise and others think they will fall – in the end, there is no definitive answer. Secondly, the same goes for forecasts: everyone reaches their own conclusion. And it’s completely impossible to put a price on psychology. But if you take these three fundamentals that shape pricing, put them in a test tube and extract the essence, the definitive gauge of the price of the asset is its share price. Because the share price is the price at which you can buy and sell. The share can be traded at that price. So this makes it the truth in an absolute sense. Instead of trying to understand what shapes pricing, what we do, in fact, is try to understand price evolution: is the price movement more bullish or more bearish? And so it’s all about analysing the momentum, based on prices or based on risk data. That’s exactly what we do; it’s at the heart of our technology: analysing moment um through prices. If an asset increases in value, our algorithms will say, ‘The market is rising, or that share is rising, or that specific market is rising,’ so we’ll take a long position. Or otherwise, the momentum is negative, so we’ll either take a sh ort position (if we can take a short position in Seven Absolute Return, for example, which is a long- short UCITS) or we’ll take a position that is purely long or flat. That means that we will benefit if the market rises, and if the market falls or collapses, the fund is not committed on that market so we are able, in terms of traditional management and the fundamental requirements of our core portfolio, to ensure the fund’s flexibility. The key word is flexibility. This means whether or not the fund manager is able to be in or out of a market – in when the market rises and out of the market when it is collapsing.” Johann Nouveau : “It’s true of any transaction, in fact. Be it a financial transaction, or buying an apartment – any level of transaction. Transactions have four possible outcomes: either you make a large loss or a small loss, or you make a small gain or a large gain. That’s the reality. What we want to avoid is large losses. What do we do to avoid large losses? We limit ourselves to small losses. What do we do to limit ourselves to small losses? If we take a position and the market is not on our side, we acknowledge that we may be wrong. We don’t fight the market. We don’t say, ‘Hang on, the market is doing this, but we’re smarter, the market is wrong.’ No. We cut our losses, we say ‘OK, we were wrong,’ we close our position and there are no large losses. It’s over. So the options left to us are: small loss, small gain, large gain. On the other hand, if we take profits too quickly, we miss out on large gains. We make small losses and small gains – after a bit of friction in terms of execution and brokerage, our losses are zero. How do we secure large gains? What we do is, when the market is on our side, we hold on to our position. And we will protect ourselves, meaning that we will raise our level of protection or hedging to stay in step with the market. Then, if the market changes tack, we take profits and we will have made our large gain. So that’s the difference. Often, in fact, people tend to focus on the point of entry. The point of entry is one element among a whole host of necessary elements. What is important is the entry point, the exit point if Seven Capital Management - Seven Capital Behind the scene Page 2 of 8 Regulated by the French Market Authority A.M.F : N° GP 06000045 & the CSSF Member of the NFA
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