Our trader's insight on volatility

Brandon Snow's picture

Given the abnormally low amounts of volatility of late, we thought it would be appropriate to have our trader, Tyler Hildebrand, provide some insight:

Many people fear volatility, but at Cambridge we believe it presents openings, or as we call them dislocations. A dislocation happens when a market, political or other event causes a separation between the underlying value of a company and the price the market is willing to pay for a stock.

Lately, a big topic of discussion in financial circles has been the lack of volatility in the market coupled with the lack of volume, with one exception this summer – Brexit. As the team’s trader, I wanted to provide some insight into how Cambridge navigated Brexit and took advantage of the market dislocation, all the while keeping in mind our mission to protect and preserve capital.

Looking back, June was our most active month this year due to the “Brexit” vote (June 24 was the first trading day after the vote). We took advantage of the market dislocation and ended up doing nearly half of our trading in the month between June 24 - 30 (keep in mind June 25 and 26 were a weekend.) Particularly on June 24 after arriving for work at 1 a.m., we were able to pick up a significant number shares in quality companies at what has turned out to be opportunistic prices. This illustrated to me a combination of the team’s bottom-up due diligence and a willingness to step in with conviction at a time of elevated macroeconomic noise and panic. As volumes have dissipated since June, so has our trading activity. As I sit in the middle of it all, I see the PMs and analysts constantly working away, finding investible companies and following the research process (something we all refer to as the “Cambridge Machine”). They’re active at all times, but this only translates into trading activity if/when opportunities present themselves.

As a big NFL fan, I know that one of the key traits of a smart quarterback is knowing when to throw the ball away. Forcing throws is how you get into big trouble with turnovers and the dreaded pick-6 interception. Conversely, when a quarterback sees a defense he believes he can exploit, he calls an audible and takes a shot at a hole in the opponent's set up. Trading isn’t dissimilar and it’s one of the ways that we at Cambridge try to add (or not destroy) value.

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