Edward Misrahi, manager of Ronit Capital, ex-partner at Goldman Sachs and Eton Park, recently stated in an interview with Businessinsider.com that his number 1 choice to hedge a portfolio against a generalised fall in the markets would be Deutsche Bank shares. He warns that any European bank has a very uncertain outlook, whether it is Portuguese, Italian or British, affected by Brexit. But his preferred insurance policy in the event of a tail-risk would be to sell the shares of this German bank, for which he predicts a forthcoming nationalisation as the only way out to avoid a general banking collapse.
Misrahi believes it is incredible that, even today, one can still buy out-of-the-money put options, when it is abundantly clear that the German banking giant is teetering. He says he finds them extraordinarily cheap – a ridiculous price given the dire state of DB’s finances and balance sheet. He predicts that these prices will not last for long, and that the banking earthquake could spread like wildfire. Nor is he any more optimistic when asked about the situation in the Italian banking sector, which he describes as «utter nonsense».
Misrahi is an investment manager whose view of the markets and the world of investment could be summarised as follows: Investing is a science. It is not simply a matter of reading more books and drawing up spreadsheets. The problem with a good investor is that there is no substitute for them, as experience is personal and non-transferable; and they must think independently and therefore remain largely unaffected by third parties. Over time, investors must develop their own way of doing things that works, which is also difficult to pass on to others.
Misrahi says, and I quote: «The essence of the principles of investing remains the same: buy low and sell high. That’s all. The rest is just overcomplication. If something isn’t working, stop doing it. Don’t get tied down by techniques or philosophies; find what works for you.»