Charles Marleau was born into the investment world. His father, a prominent capital markets pioneer, groomed him to be a financial whiz kid. When he was 25, Charles started the Palos Management hedge fund with his father. Since its inception in 2001, the Palos Income Fund has beaten the TSX benchmark 11.51% versus 7.69%. In 2014, it was a second-place winner in three categories of the 2014 Canadian Hedge Fund Awards: Best One-Year Return, Best Five-Year Return, and Best Five-Year Sharpe Ratio. The fund’s objective is to deliver trading-enhanced returns, in order to outperform the TSX, but with less risk. It achieves this objective through investing in a core portfolio of select Canadian high-grade and undervalued dividend-paying stocks, preferred stocks, bonds, and convertible bonds. Charles seeks to enhance the returns in his fund by opportunistically engaging in merger arbitrage, pair trades, statistical pair trades, and selling covered calls.
I must have caught Charles in the middle of an important trade, as he hurried our telephone conversation. His advice, therefore, was short but sweet.
Cash Flow: the amount of cash generated by a company’s business operations.
Correction: a short-term 10% decline in the markets (not as severe a drop as a bust, bubble, or bear market).
Correlation: when two things move in a similar fashion. For example, the price of oil and the Canadian dollar are correlated, such that when the oil price goes up, the Canadian dollar usually also goes up.
De-leverage: when a company or person starts to pay down their debt in a motivated fashion.
Index: a particular set of stocks that are chosen to represent a particular market or a portion of it. The Dow Jones Industrial Average is an example. An index is usually used as a benchmark to measure one’s performance.
Mean Reversion: when market asset prices, which fluctuate around an intrinsic value or price, come back to that intrinsic value.
Pair Trading: when investors take both a long position and a short position in a pair of highly correlated assets that are usually in the same peer or industry group.
Volatility: the degree of variation in asset prices over a period of time.