Argentina Update

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It is said that Argentina has an economic crisis roughly every decade, and it seems to last for approximately ten years…

In a previous posting, I noted that the upcoming Presidential election could upset that tradition. Both Milei and Bullrich represented very different and uniquely positive paths for Argentina. As a result, I was long a basket of US listed Argentine equities with the view that one of those two candidates would potentially be the next President of Argentina.

Unfortunately, during the first round of the Presidential elections, Massa, the Peronist candidate did surprisingly well. For those not following Argentina closely, just remember that everything a Peronist touches turns to shit. While there remains a good chance that Milei will ultimately be the President, as he consolidates Bullrich voters in the second election round, I’ve thrown in the towel on my Argentine positions.

In my mind, if you want to enact the sort of change that a place like Argentina requires, you need a real mandate from voters. Otherwise, Argentina is simply too screwed up to be fixed. A Milei victory where he beats Massa by a few percent, yet doesn’t control either the Congress or Senate, is the set-up for a lame-duck Presidency where he makes some cosmetic changes yet cannot really fix the underlying problems in Argentina. While this is a sad outcome for the Argentine people, it does ensure that for another four years, it’s the cheapest civilized place on earth for quality Malbec and good steak…

Returning to the narrative at hand here, I’m an inflection investor. I’ve long-ago learned that when the strength of the trend changes, I need to get out. I don’t try and justify things, or argue about the valuation, I simply exit my positions, as rapidly as I can—especially when I’m invested in a place that’s as screwed up as Argentina. Discipline in this regard is critical for avoiding losses.

Successful inflection investing is based on the principle that when I get it correct, I’m going to make multiples on my investment, and when I get it wrong, hopefully I experience roughly a scratch outcome. What’s a scratch outcome?? That’s when I either make or lose a few percent, and don’t suffer any serious losses. As I’m highly focused on valuation and overall investor perceptions, I’ve learned that if I buy into situations where investors have minimal expectations and the valuation is low, it’s likely that I’ll get out with my capital.

In the case of Argentina, after dividends, I actually had a small gain during my holding period. Of course, at one point I had somewhat substantial gains, which have now vaporized, but I never let those facts change how I execute my strategy. When the tailwind dies, I get out—immediately.

As you can imagine, I’m a bit frustrated, by the outcome here, but I’m also quite content. The strategy worked as it’s supposed to, and I didn’t lose any capital. That’s my true focus. Hence, my only loss was opportunity cost, and that’s going to be a constant in any investment opportunity.

As for Argentina, a good friend puts it best, “If they were dinosaurs, they’d vote for the meteor!!”

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