John Hempton: What We Did Wrong In Q1

John Hempton, Founder and CIO at Bronte Capital recently released his Q1 2020 shareholder letter in which he includes an interesting section titled – What We Did Wrong. Hempton says that they missed a great opportunity to generate outsized returns by being too conservative and not taking full advantage when they had an clear edge over the market. Here’s an excerpt from the letter:

When your returns are so (relatively) good it seems churlish to talk about the things we did wrong. But we should because you pay us to get it right.

In mid-February we really had an edge on the market. We were reading the New England Journal of Medicine, The Lancet and the like and we had a better hold on the situation than many, if not most, market participants.

We did enough hedging to protect you – to make sure you did not lose much money – but we should have pushed it. One does not get an edge often – and we should be more prepared to lose money when we really think we have an edge. We were cowards who doubted our own judgement and it cost you outsized returns this month. We purchased enough cover to (approximately) protect the funds but not enough that outsized profits were likely.

This is a repeated issue. We made exactly the same complaint about our trading in 2011 when we also had some outsized edges and did not fully exploit them. A trade like this comes a couple of times a decade if we work really hard to find them. We thumb-sucked.

You can find the entire letter here:

Bronte Capital Q1 2020 Shareholder Letter.