Pinebrookcap's Substack

Pinebrookcap's Substack

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Pinebrookcap's Substack
Pinebrookcap's Substack
Portfolio Repositioning

Portfolio Repositioning

Reversion Mission Accomplished

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David Cervantes
Jul 30, 2025
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Pinebrookcap's Substack
Pinebrookcap's Substack
Portfolio Repositioning
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After taking profits on 50% of the core long USA/short RoW position on July 15th, the final 50% was taken off the table on July 22nd.

Mean reversion has been fulfilled.

  • Except for emerging markets, the spread between U.S. assets and various international ones has returned to their historical averages going back 10-years.

  • Pinebrook remains short emerging markets, ex-China, pending additional mean reversion.

Below is the 100-day chart showing the reversion.

This here is the longer-term chart for the S&P500 versus RoW assets. Slowly then suddenly.

As in the case of U.S. asset dislocation from international peers, having an eye for historical mean relative returns allows for the spotting of actionable trade ideas.

The basic idea is that capital flows through equity markets in fairly predicable patterns. From time to time, investors get too optimistic or pessimistic on a theme, go overboard to the extreme, and the last ones to the party are left holding odorous bags of lousy positions.

Arithmetic mean reversion is no panacea. Markets can stay irrational longer than one can stay solvent. Markets can go from oversold to more oversold, and vice versa. The move from a 2-sigma to a 4 or 5-sigma dislocation is the pain trade for those on the wrong side or with time/balance sheet limitations. Shoulder taps and career risk are a thing.

At the extremes, narratives outweigh market or price fundamentals. Thus, in addition to spotting a price dislocation, investors must be able to spot a narrative dislocation that is on the precipice of being reversed.

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