Trading Diary

Trading Diary – 19 May 2020

Markets in Australia and around the world have begun to stabilise after an incredibly turbulent period beginning in late February. The VIX volatility index rose in March to levels not seen since March 2009 during the GFC. Over the last eight weeks, volatility has slowly declined and is now closer to more normal levels (although it remains elevated)

The Federal Reserve in the US acted with unprecedented size and speed to backstop the liquidity crisis created by the panic. The fed flows are unparalleled in both their sheer size and their ability to buy bonds and bond market ETFs at the lower end of the quality spectrum. 

This action caused a waterfall effect of liquidity that has ultimately found its way into the equity markets. The stock market appears to have bottomed in late March. The sudden bottom and subsequent rally resulted from both the fed action and the realisation that the public health crisis might begin to recede faster than initially thought. 

Low-interest rates that will stay low for longer have put a floor under valuation. Central bank funding has ensured that markets remain open and orderly. The market appears to be looking through the health crisis and acting to discount its effect over the next 12-24 months. The market should serve as a long-term discounting machine, so this is precisely rational. 

My initial expectation was that the Pandemic would result in better valuation opportunities than those that have occurred. The stock market remains elevated from a valuation perspective. However, it appears that the panic is now over, and we’ve returned to an environment where the best companies will be able to outperform over time. 

Energy, Financials and Industrials have been the sectors hardest hit year-to-date by the Pandemic. While Health Care, Technology and Staples have performed best. This dispersion of sector performance is very close to what we would expect during the onset of a weaker economic climate – defensive performing well relative to cyclical. It’s interesting how the market has recast the Technology sector as defensive during this cycle.

As a result, we are beginning to increase our exposure to equities again. We plan to do this at a slow and measured pace as opportunities present themselves. My investing mantra at this time is to proceed, but with caution. 

We won’t know the true extent of the damage done to the economy by the Pandemic for some time. Nor will we know how long it will take for a full recovery to take place. With that in mind, I intend to build the portfolio around structural growth opportunities, to begin with. I’ll add cyclical exposures only if opportunities present themselves opportunistically. 


  1. Xero (XRO)
  2. Appen (APX)
  3. Domino’s Pizza (DMP)
  4. Medical Developments (MVP)
  5. Polynova (PNV)

By Danny Sandler

Founder of Ocean Asset Management.