Posts Tagged ‘Investment Strategy’
Monday, August 25th, 2008
Jason Zweig’s latest column at the WSJ (Psyching Yourself Up to Let Losers Go ) tackles a tough issue for most investors - when to sell. Selling can be difficult for a variety of reasons, but a big factor is psychology. We don’t like to let go and give up things we’ve bought. Zweig provides us with a telling statistic:
Individual and professional investors alike struggle with selling. Berkeley finance professor Terrance Odean has found that investors are at least 50% more likely to sell their winners than their losers. Among the money managers surveyed by Cabot Research, a Boston consulting firm, fewer than 30% base their sell decisions on “extensive research.” The rest concede they basically sell by the seat of their pants.
To defend our portfolios from our emotions, Zweig offers us six techniques.
1. Use stop-loss orders
I’ve never been a fan of using a stop-loss order on a company’s stock. I know that Investors Business Daily advocates the use of selling whenever a company falls 10% and I think it’s too trivial of a rule. Zweig says that he doesn’t advocate the use of stop losses but prefers “stop look” orders:
Whenever a stock drops, say, 25% below what you paid, automatically review your original top three reasons for buying to see whether they are still valid. That will prevent you from selling without thinking first.
This is a pretty good idea. I practice the same kind of exercise myself. I don’t have any alerts set to tell me when about a drop of 25%, but I do check my company’s prices regularly. An easy way to get notified of drops in your companies can be done with Yahoo Alerts, you can get an e-mail or text message based up requirements you set (price drop/rise or percent drop/rise). Two of my holdings, Air Transport Services Group (NASDAQ: ATSG) and Steak N Shake (NYSE: SNS) have fallen a bit from my initial buying points ($1.70 and $10.00).
In each of these cases, I re-analyzed my investment thesis, to see if anything changed. With ATSG, the fall from $1.70 to below $1.00 was triggered by almost no news. DHL severing business ties with ATSG was already part of my investment idea- so I didn’t see a reason to sell. With SNS, my thesis hinged on Sardar Biglari getting onto the board and gaining control so that he could make the right decisions for the company. I decided that I would not sell till that thesis was properly tested.
2. Don’t Go Far Afield
Here, Zweig recommends buying an industry index if the company you purchased ends up having poor results. I don’t quite agree with this advice. It all seems a little bit like decisions made by an investor who doesn’t know what they’re doing who is trying to catch a trend (and may be too late).
The only time I think that this is valid is when you’re investing in an industry with good economics but where the individual players might be too hard to pick. I’m thinking of Buffett’s investments in pharma with companies like Sanofi Aventis (NYSE: SNY), GlaxoSmithKline (NYSE: GSK), and Johnson & Johnson (NYSE: JNJ). The difference with Buffett’s investments in pharmaceutical companies is that he still was not buying an ETF, he bought just a few of the players in that industry. An ETF will usually have many more holdings and carry the risk of over diversification.
3. Shop Before You Drop
Zweig’s next technique is a bit better-
Ask yourself: Which stock or fund would I most like to own? Then view your losers as a source of funding to reduce the amount of cash you would otherwise need to raise
Sometimes I think that selling losers can be good, especially if you’re purchasing a better buy. Maybe a new opportunity has presented itself with a higher return or the margin of safety in your losing investment has narrowed.
4. Re-price it.
Here, the idea is to take your original purchase price and divide it by 10 and compare that price with its current price. A simpler method might be to look at the price you’re seeing right now and compare it to your conservative estimate for the company’s margin of safety(the spread between the current price and the company’s intrinsic value you in your eyes). If you’re buying companies at what you think are 50% discounts, you’ll see a wider margin of safety. It will then be up to you to decide if anything has changed.
If the margin of safety has narrowed to a point where maybe the capital could be better used elsewhere, then you should.
5. Follow your sales.
This is some of the best advice in the column.
Using an online portfolio tracker, monitor the returns of all the stocks you sell after you sell them. Studying the aftermath of your mistakes will enable you to learn which you sold too soon and which too late. You cannot improve what you do not measure.
I try to do the same. On my Google Finance page I keep all of my stocks, even after selling them. I like to see what they’re currently doing and learn from my mistakes and the company’s mistakes. By doing this, you expand your circle of competence. It makes me think of a quote from Edward Lampert in Fortune Magazine.
[The] idea of anticipation is key to investing and to business generally. You can’t wait for an opportunity to become obvious. You have to think, “Here’s what other people and companies have done under certain circumstances. Now, under these new circumstances, how is this management likely to behave?” The plays my father designed for me helped me learn to think ahead. Lots of days I asked him, “Why can’t we just invite kids over and play a game?” In order to do something well, he explained, you have to keep practicing and preparing.
And I think that’s one of the more important concepts to keep in mind when investing. You can often draw upon past experiences when making future decisions. The situation might not be entirely the same, but it’s incredibly useful to have that kind of knowledge filed away for future reference.
Courtesy: StreetCapitalist.com
People who read this post also read these:
Tags: Investment Strategy
Posted in Investment Strategy, Markets | No Comments »
Monday, July 7th, 2008
Fascinating discussion a few weeks ago in welling@weeden with Albert Edwards and James Montier of Societe Generale, reprinted with permission:
“In the cacophony that is global investment strategy research, Albert Edwards (that’s him, below left) and James Montier (on the right) stand out as clearly distinctive voices. And not merely because of their British accents or because they’ve tended to the decidedly bearish side of the scale over the last decade or so. Despite long tenure in the rarified top echelons of the investment banking world, for many years with Dresdner Kleinwort and more recently at Societe Generale(where they are co-heads of global cross asset strategy) both have managed to retain a natural plain-spoken bluntness. Also large dollops of common sense and strong streaks of reflexive independence, which they employ in conveying their often invaluable insights on investment strategy. In Albert’s case, those spring mostly from his long experience in the dismal science of economics and in James’, from his explorations of the equally mysterious realms of behavioral neuroscience.
They are, in a word, skeptics, and at this juncture most deeply skeptical of any and all notions that “the worst is over.” The recession, which has barely begun, is more likely to be deep than shallow, market valuations are hideously expensive and the flation policymakers should be worried about starts with de-, not in-.
For their reasons, keep reading, if you dare.”
Source:
Inflation Not The Problem
Kate Welling
welling@weeden, May 30, 2008
Download 053008_Welling_Edwards-Montier_REPRINT.pdf
People who read this post also read these:
Tags: Economics, Euro, inflation, Investment Strategy, James Montier, Recession, Societe Generale
Posted in Markets | No Comments »
Tuesday, May 13th, 2008
May 12, 2008 - GreenLightAdvisor.com recently interviewed [Part 2] Derek Webb, Portfolio Manager, Webb Asset Management. Here are some excerpts from Part II, in which Mr. Webb shares his strategy for earning superior investment income in volatile and range bound markets while minimizing downside risk. Here are some excerpts:On the investment income dilemma…
When you look at Canadians, they love their income; but where is the income coming from? Most funds are getting around this now by paying you back your own capital, so there it is. They offer 6-8%; the reality is nothing out there yields more than 5% and it costs 2% to run a fund plus an advisor gets 1%. The math just doesn’t add up. On top of that we have inflation. You don’t want that in a fund – where people are just paying you back your own money. To me it’s like investing in a utility where they have to sell a power plant each year to pay you your distribution. You would never invest in that company because long term the price of the stock is coming down.
How do we get around this? How do we do it? We spent a lot of time looking at this and the solution that we came up with is the following: Objective:
- Produce some decent high yields – we divided our strategy into 4 silos or buckets.
- Structure it so that it is tax efficient
Portfolio Strategy - For the full explanation, please read the complete interview:
Bucket #1 – Income Trusts
Income trusts have gotten a bad rap, but they are not bad especially if…
Bucket #2 – Earnings Driven Stock Buy Writes
We are buying the earnings driven stocks that we own in our hedge fund. How do we get income out of these stocks?
Bucket #3 – Value Stock Buy Writes
Bucket #3 is comprised of stocks that are not earnings related, but rather are washed out names, like banks. Let’s say banks trade sideways for the next 3 years…
Bucket #4 – Writing put options against short positions
Legally in Canada, we are allowed to be 20% short in a mutual fund and we are always 20% short because we have a very good short model. It’s very predictive, meaning simply,…
GLA: When you say [this strategy provides] lowered’ downside risk, lowered compared to what?
DW: It’s definitely lower than owning the stocks outright, and lower than a dividend fund.
Its lower risk than if you own a bank stock straight out vs. writing the call options on the same bank stock. Let’s say you own the bank at 100 and you write calls at 105…
GLA: Would you consider this suitable for a retired investor?
DW: Yes, certainly. Personally I think this is great for anybody, universally. It’s great for somebody who wants to grow capital, and it is great for somebody who wants a tax preferred income in retirement.
Download: Part II: Derek Webb Interview PDF File, May 2008, GreenLightAdvisor.com.
Visit Webb Asset Management for more information.
People who read this post also read these:
Tags: covered options, Derek Webb, Earnings Discipline, earnings driven, Investment Strategy, Markets, option premium, option yield, strike price, wamfunds.com, Webb Asset Management
Posted in Canadian Stocks, Commodities, Financials, Markets, US Stocks | No Comments »
Tuesday, May 13th, 2008
May 12, 2008 - GreenLightAdvisor.com recently interviewed [Part 1] Derek Webb, Portfolio Manager, Webb Asset Management. Here are some excerpts from Part 1, in which Mr. Webb shares his outlook and his thoughts about how he trades in volatile and range bound markets. Here are some excerpts:
Regarding the Fed’s recent moves…
Anytime the Fed puts this much liquidity in to the system it’s like blowing into a pipe; all that pressure has to go somewhere—When the Fed drops hay bails of money out of the helicopter, those hay bails of money are like molecules. They have to attach themselves to something.
When you look at the huge amount of money put into the system because of the Long Term Capital Meltdown and Russia—now that liquidity event created the internet bubble. This is no different.
All of this liquidity is going to find a home. I’ll tell you that I think it’s finding its home right now. Fundamentally I am very bullish because of all this liquidity.
On his investment focus…
Through our quantitative homework we found that the delta or change in earnings is the only thing that’s predictable in terms of determining the direction of a stock’s price. That’s all we focus on; that’s all our research focuses on. So, where is that delta accelerating right now—it’s in commodities. Agriculture is number one, Oil and gas are number two, some base metals number three, like copper—The shine has kind of come out of precious metals in the short run, but I don’t think that trade’s over, I think it’s more of a seasonal thing right now.
On when to sell:
[Firstly], If we saw one analyst lower EPS forecasts for Potash, for example, WE WOULD BE OUT. Analysts are out there doing site visits. They’re doing their homework – as long as they’re raising their numbers we’re going to be long. As soon as we would see them hold steady or lower their numbers we would be out.
Secondly, if the earnings themselves just start to de-accelerate, meaning we are looking at a smooth line of earnings, not to get complicated, but we look from 3 quarters ago out to the next quarter and if that rate of change de-accelerates were out.
Thirdly, one negative earnings surprise and we’re out.
And lastly, if the relative strength indicator of the stock de-accelerates were out.
We’re ruthless on all our positions.
And lastly, if the relative strength indicator of the stock de-accelerates were out.
PART 1: Derek Webb Interview, GreenLightAdvisor.com.
Visit Webb Asset Management for more information.
People who read this post also read these:
Tags: Agriculture, bifurcation, Derek Webb, Fed, Investment Strategy, liquidity, Markets, Metals, Monetary Policy, Oil and Gas, Webb Asset Management
Posted in Agriculture, Banks, Canadian Stocks, Commodities, Credit Markets, Crude Oil, Economy, Financials, Gold, Markets, Oil & Gas, inflation | No Comments »
Monday, May 5th, 2008
May 5, 2008 – Here we feature the recommendations of Don Coxe, BMO Capital’s Chief Investment Strategist. As usual, his paragraphs are eloquent and provide significant guidance.
Don Coxe’s Investment Recommendations, excerpted from Basic Points, The Hinge of History II, April 29, 2008
1. In long-only equity portfolios, continue to underweight Wall Street banks and others that have been reporting high exposure to perfumed products of indeterminable value, including those which last year revealed—under duress— high exposure to SIVs. Within the financials, emphasize those whose loan losses are of the traditional, cyclical variety—not in derivatives or in untraditional banking businesses. Good banks that have stuck to their knitting—and whose CEOs compensation has suffered along with their stock prices—should be retained.
2. In long/short portfolios, be long commodity stocks and short bank stocks that make headlines for untraditional losses. That trade hasn’t been working lately, but it remains an overall portfolio risk-reducer. The list of banks that have shown great skill and profitability by going heavily into new kinds of products and new kinds of accounting is roughly as long as the list of major copper, oil and gas producers that profited by selling heavily forward.
3. A financial-led bear market within a financial-led recession can be particularly perilous if central banks run out of ways to reflate the system—and surprisingly benign if the central banks’ rescues remain timely. To date, the central banks have been up to the job—if propping up a badly-behaving financial sector is a key component of their job descriptions. Result: the overall stock market has outperformed our expectations. We still don’t like the risk/reward ratio.
4. Dividends become more attractive as central banks cut rates. The problem for investors is that many of “The Great Dividend-Paying Stocks” are financials that have been reporting ghastly blunders. In many cases, their payout ratios have climbed far above the 50% threshold that has made these stocks better investments than bonds. Opportunities remain—and dividends may be the only positive return most US stocks will deliver this year.
5. Although North American consumers have yet to see the cost pass-through in major foodstuffs of $6 corn and $8 wheat, it will come sooner or later. Based on past periods of food inflation, one of the first consumer cutbacks is on eating out. Restaurant stocks are especially unappetizing when food costs soar out of control.
6. Gold has pulled back from its high because the dollar stopped falling and the bank bailouts seem to be working. Remain overweight gold as a clear-cut hedge against further bad news on both those fronts.
7. The Canadian dollar decoupled from the euro, failing to rally to new peaks—which makes little sense to us. US clients should continue to use Canadian government bonds and Canadian short-term investments as alternatives to Treasuries and US cash.
8. Within the commodity group, continue to accumulate the leading agricultural stocks. Given the spectacular performance of the fertilizer stocks, the best bargains currently on offer are in the farm machinery companies. The global food crisis will almost surely cripple the opposition to GM seeds, which means the seed stocks have great upside room.
9. Within debt portfolios, continue to emphasize inflation hedge bonds—preferably in strong currencies. Treasuries remain overvalued, despite the recent strong run-up in yields from barely-observable levels.
People who read this post also read these:
Tags: Agricultural commodities, Agriculture, Bank stocks, BMO Capital Markets, Commodities, Donald Coxe, Emerging Markets, energy, Financials, Grain prices, Investment Strategy, Markets
Posted in Agriculture, Banks, Commodities, Credit Markets, Crude Oil, Economy, Financials, Fixed Income, India, Markets, contango, energy, gold stocks, inflation | 1 Comment »
Thursday, May 1st, 2008
May 1, 2008 - Courtesy of Bespoke Investment Group - Below we highlight the historical ratio of the S&P 500 Oil and Gas group versus the price of oil over the last ten years. When the red line is rising, oil stocks are outperforming the commodity and vice versa when the line is declining. For the last year, the red line has been trending downward, meaning the commodity has been outperforming oil stocks. The ratio got down to 5 in mid-March, which was the lowest level seen since March 2003. At these levels, the ratio typically bounces and heads higher for awhile, meaning oil stocks would begin to outperform the price of oil. This could mean oil prices rise less than oil stocks or fall at a faster pace.
People who read this post also read these:
Tags: Commodities, energy, Investment Strategy, Markets, oil stocks
Posted in Markets, Oil & Gas | No Comments »
Sunday, March 30th, 2008
March 30, 2008 - On March 12, 2008, Jim Rogers appeared for a live interview on CNBC Europe. If you missed it, just click on the link below.
Just watched it… It is a must watch. In his usual candour, Mr. Rogers tells it like it is. If he woke up in Bernanke’s place, he would quit, and then abolish the Fed for providing t”socialism for the rich.”
His calls - Invest in agricutural commodities (in his opinion, this will be the most profitable trade for the next 2 to 5 years), long the Renminbi, short the investment banks.
http://www.cnbc.com/id/15840232?video=682734828&play=1
Even if you don’t like the guy, its a good interview with one seriously interesting and knowledgeable person.
Thank you Mr. Rogers.
People who read this post also read these:
Tags: Agriculture, Banks, Commodities, Currency, Investment Strategy, Markets
Posted in Markets | No Comments »
Thursday, March 27th, 2008
Mar. 27, 2008 - Bespoke Investment Group - Recently released short interest figures from both the NYSE and Nasdaq show that short interest as a percentage of float is currently at record levels. On the NYSE, the mid-month short interest report hit a level of 4.15%, which is record high. On the S&P 500, short interest is even higher. As of mid March, 5.4% of the float of S&P 500 listed companies were sold short. This represents an increase of 53% over the last year!
On a sector by sector basis, short interest also remains at elevated levels.
People who read this post also read these:
Tags: Investment Strategy, Markets, Technical Analysis
Posted in Markets | No Comments »
Friday, March 14th, 2008
Mar. 14, 2008 - There are few who can rival Donald Coxe, BMO Financial’s Chief Investment Strategist, when it comes to providing what has historically been an accurate macro outlook on financial markets. Below, are Mr. Coxe’s paragraphed recommendations from February’s edition of Basic Points (courtesy of J’s Global Analysis). In a time of great uncertainty, this kind of clarity and direction is invaluable.
1. Long-term investors should remain heavily overweight commodity stocks, including the base-metal stocks. As the bear market grinds on, use days of stock market weakness to add to commodity stock exposure. They not only remain the asset class with the best earnings outlook, but also the asset class that is least understood by conventional asset allocators, who still see them as cyclicals dependent on OECD growth.
2. In the near term, the golds will continue to outperform stock markets and to act as a form of hedge against two kinds of shocks – financial panics and inflation shocks.
3. Remain heavily underweight bank stocks, and financials tied to “Jurassic Park Avenue” excesses. Within the financial group, overweight high-quality fire and casualty companies, life insurers, and asset management organizations.
4 Retain above-average cash positions, preferably in strong currencies.
5. Where possible, borrow in dollars and invest in assets denominated in strong currencies.
6. The Canadian dollar remains the Western currency with the best fundamentals. Canada’s problems arise because the Great Lakes are an insufficient barrier to the flow of bad economic and financial trends from the South.
7. Within the commodity groups, continue to emphasize investment in companies with long-duration unhedged reserves in the ground in politically secure regions.
8. The growth of sovereign control of energy assets means that the supply-side response to record-high oil prices will probably be inadequate to meet relentlessly growing global demand. Too many Third World governments with rich oil reserves have too many other demands for cash to reinvest heavily for the long term in new production. Retain exposure to the shares of producing Alberta Oil Sands companies with reserves that could outlast this century.
9. Long-term-oriented investors should use any temporary pullback in base metal producers to build their portfolios for the Final Movement of the Sonata – which will be the longest and loveliest performance of metal music in history.
10. The Treasury yield curve is now in recession mode – low yielding and upward sloping. It is of investment merit only for those who expect a long, deep recession. The Ten-Year note, with a negative real yield of 50 basis points, should appeal only to those who believe the recession will be accompanied by deep deflation. Oddly enough, credit spreads, though they have widened from their record-low levels, do not discount any recession at all.
We think bond investors should go for short- and medium-term high-quality non-Treasury paper – preferably in currencies other than greenbacks.
11. Defence stocks remain attractive, even if Democrats win it all in November. The next president may well choose to speak more softly than the incumbent, but if he or she doesn’t carry a big stick, the jihadists won’t listen.
Also, click here for Donald’s most recent webcast, dealing with the case for commodities and resources stocks.
People who read this post also read these:
Tags: Agriculture, BRICs, Commodities, energy, Fixed Income, Investment Strategy, Investment Wisdom, Markets
Posted in Markets | 2 Comments »
Wednesday, February 20th, 2008
Feb. 20, 2008 - Stagflation is a threat that is best defended against with commodities and Treasury Inflation Protected Securities or TIPS as they are commonly referred to.
A recent article by John Wasik, Bloomberg describes a few ways that investors protect against stagflation:
Several investments come to mind: commodities and Treasury inflation-protected securities, or TIPS.
…One refuge in inflationary times has been gold. Held in huge quantities by large banks and the favorite commodity of inflation speculators, it has been in demand over the past year.
You are better off buffering the ravages of inflation on your portfolio.
That means finding investments that combine income and price appreciation, and rise with inflation expectations.
Two investments come to mind: commodities and Treasury inflation-protected securities, or TIPS. A deft combination of TIPS and commodities can be found in the PIMCO Commodity Real Return Strategy Fund. It returned 23 percent last year. This is my portfolio’s key inflation buffer.
Whatever stagflation strategy you adopt, remember that overconcentrating in any of the inflation-fighting vehicles will add unnecessary risk to your portfolio.
Inflation is an often-unpredictable ogre that creeps up slowly. You will need a number of weapons to do the job.
Canadian investors seeking to invest in inflation protected securities and commodities may look at any of a number of Real Return Bond and diversified commodity products. Some of these include:
ETFs
iShares Real Return Bond ETF (XRB)
Claymore Global Agriculture (COW)
Canadian Mutual Funds
TD Real Return Bond Fund A (TDB755)
Investors Real Return Bond Fund (IGI491)
Don Coxe’s January 2008 recommendations include this particular paragraph:
Bond investors face two risks: inflation and credit. Nominal Treasury bond yields are far too low, and quality corporates are too rare – with 71% of corporate debt junk-rated. Buy inflation-hedged sovereign bonds – preferably in major foreign currencies. Simplicity is good: avoid complex products that are subject to drastic rating writedowns.
George Soros discusses the circumstances under which the Fed might be rendered impotent at macroeconomic control:
Credit expansion must now be followed by a period of contraction, because some of the new credit instruments and practices are unsound and unsustainable. The ability of the financial authorities to stimulate the economy is constrained by the unwillingness of the rest of the world to accumulate additional dollar reserves. Until recently, investors were hoping that the US Federal Reserve would do whatever it takes to avoid a recession, because that is what it did on previous occasions. Now they will have to realise that the Fed may no longer be in a position to do so. With oil, food and other commodities firm, and the renminbi appreciating somewhat faster, the Fed also has to worry about inflation. If federal funds were lowered beyond a certain point, the dollar would come under renewed pressure and long-term bonds would actually go up in yield. Where that point is, is impossible to determine. When it is reached, the ability of the Fed to stimulate the economy comes to an end.
Caution: One thing to remember is that TIPS or Real Return Bonds in a mutual fund do not provide investors with the same degree of risk management where date-driven spending plans are concerned. The maturity date of any bond is a guarantee the face value will be paid at an exact time in the future. Bond mutual funds, unlike the underlying security, do not provide any fixed maturity date or guranteed sum. Ideally, if you can get your hands on the bonds, then do so.
…leaves you wondering just how far the Fed may or will have to go with rate cutting in order to get the economy going again, and in the process, provide enormous [inflationary] stimulus to the rest of the world. This is truly a mixed blessing.
People who read this post also read these:
Tags: Agriculture, Commodities, Credit Market, Investment Strategy, Markets
Posted in Markets | No Comments »
Sunday, February 3rd, 2008
Source: Bespoke Investment Group
The S&P 500 has had some wild swings since the Fed began its current easing cycle with its cut in the Discount Rate on August 17th. After rallying to new highs in October, the index has fallen 13.37%, but it is down just 3.93% since the close on 8/16. At right we highlight the performance of the ten sectors that make up the S&P 500 since the easing cycle began, as well as the performance of oil, gold, the dollar and the 10-Year.
Even though Financials and Consumer Discretionary have rallied of late, they are still the worst performing sectors since 8/16. Financials are down 14.73%, while the Consumer Discretionary sector is down 10.62%. The Materials sector is up the most at 10.14%, followed by Energy and Utilities. The real winners have been gold and oil. Since the current easing cycle began, gold is up a whopping 42% and oil is up 28%. The dollar is down 8% and the yield on the 10-Year Treasury Note is down to 3.60% from 4.66%.
With Financials and cyclical sectors down, the easing cycle has yet to have an impact on the things it is supposed to impact most. But where would things be without any intervention?
Below we highlight the best and worst performing stocks in the S&P 500 since 8/16. CNX is up the most at 94%, followed by MON (77%), HES (64%) and RRC (48%). ABK, MBI, ETFC and CFC are down the most.
People who read this post also read these:
Tags: Agriculture, Banks, Gold, Investment Strategy, Markets, Real Estate, US Stocks
Posted in Markets | No Comments »
Tuesday, January 29th, 2008
Jan. 29, 2008 - This is irresistible. During periods where there seems to be such confusion in the market, we could certainly all use a dose of clarity.
Byron Wien, Chief Global Strategist, Pequot Capital, and one of a few prolific market forecasters, shares his 5 ‘Sure Things’ for this turbulent market:
I’m getting older now, so I only invest in sure things. I don’t invest in things that only “might” work out. So let me give you five sure things.
-
Gold is going to $1,000 an ounce probably this year. I forecast that it would go to $800 an ounce last year.
-
Oil is going to probably $125 a barrel. I forecast that it would go to $80 last year. The dollar is going down for the reasons that I said because large holders of dollars are going to diversify into other assets and other currencies.
-
Cotton is going to be the commodity of choice because the world’s standard of living is increasing and the places where it’s increasing fastest are warm and they don’t wear wool, they wear cotton. Cotton is something nobody wants to grow. They want to grow corn instead. So, while the demand for cotton is increasing, the acreage devoted to it is decreasing and that’s all you have to know.
-
Finally, I think the Chinese are going to revalue the renminbi (yuan) even more than the seven percent that they did last year.
-
As far as stocks are concerned, I think that my investment ideas follow some of my thesis. Our portfolio is very heavily overseas, but we’re in the agricultural area with
Potash Corp (POT) and a lot of energy stocks.
-
Large caps such as
Schlumberger (SLB). Smaller caps such as
National Oilwell Varco (NOV) and Ultra Petroleum (UPL). In technology,
Qualcomm (QCOM). Finally, in adult education we think that a lot of people will be laid off and they’ll be trying to improve their skills so we would buy the
Apollo Group (APOL).
Prior to his current position as Chief Investment Strategist at Pequot Capital, Byron Wien was Chief Global Strategist at Morgan Stanley.
People who read this post also read these:
Tags: Agriculture, Canadian Stocks, Commodities, Currency, Economy, Emerging Markets, energy, Gold, India, Investment Strategy, Investment Wisdom, Russia, US Stocks
Posted in ETFs | No Comments »
Tuesday, January 29th, 2008
Jan. 29, 2008 - Short and UltraShort Funds provide investors with highly liquid inverse exposure to the markets as represented by widely held benchmark indices.
Check out these charts for a couple of good examples. Most investors have difficulty grasping the idea of taking ’short’ positions or bets against the very markets that they are investing in. These new ’short’ ETFs do not require a great deal of sophistication or a margin account for the average investor to get some portfolio insurance.
iShares FTSE Xinhua 25 (FXI) vs. ProShares UltraShort FTSE Xinhua 25 (FXP)
iShares MSCI Emerging Markets (EEM) vs. ProShares Short MSCI Emerging Markets (EUM)
ProShares Ultra Financials vs. Proshares UltraShort Financials (Dow Jones Financial Index(sm))
If you believe that there is more downside to come, then its still not too late to get some downside protection.
Don Coxe, in his recommendations from Basic Points, January 2008, warns:
The financial crisis is not centered in stock markets. Its primary locus is in financial derivatives, and in their impact on the stock prices of leading banks. Until the downward drift of bank stocks and the upward drift of derivative debt yields are reversed, the stock market will continue to slide. Keep overall equity exposure to minimums, and emphasize quality.
People who read this post also read these:
Tags: Investment Strategy, Technical Analysis
Posted in EEM, ETFs, EUM, FXI, FXP | No Comments »
Friday, January 25th, 2008
Jan. 25, 2008 - In his latest Basic Points (January 2008), Don Coxe, BMO Financial Chief Investment Strategist, whose track record remains among the most unequalled, makes his recommendations, given the prevailing conditions in the market.
These appear on page 34-35:
1. The financial crisis is not centered in stock markets. Its primary locus is in financial derivatives, and in their impact on the stock prices of leading banks. Until the downward drift of bank stocks and the upward drift of derivative debt yields are reversed, the stock market will continue to slide. Keep overall equity exposure to minimums, and emphasize quality.
2. Bond investors face two risks: inflation and credit. Nominal Treasury bond yields are far too low, and quality corporates are too rare – with 71% of corporate debt junk-rated. Buy inflation-hedged sovereign bonds – preferably in major foreign currencies. Simplicity is good: avoid complex products that are subject to drastic rating writedowns.
3. Commodity stocks are at risk to the extent that the financial frauds and foolishness are able to abort the global economic recovery. A US recession would be good news only for gold stocks. It would be bad news for base metal and steel stocks, and negative news for oil stocks. Agricultural stocks should not be hurt, except that major bear raids will likely spew blood broadly across stock markets.
4. Any panic-driven selloffs in commodity stocks are unlikely to take them off the top-performers lists for more than a few weeks. They are not just fair-weather friends. Not only are most of the majors very cheap on a forward-earnings basis, but mining and oil companies that ordinarily search for resources in remote regions will take advantage of selloffs to acquire reserves in politically safe regions at bargain cost. Coming out the other side of this slowdown, these stocks will experience big increases in their absolute and relative PEs. Someday a big Sovereign Wealth Fund is going to decide that bailing out banks isn’t as profitable as owning matchless reserves of minerals.
5. Food price inflation should strengthen through the year. It could be offset by broad price declines across the US economy as it struggles with recession, but it is becoming embedded in the global economy and will be a challenge for many years. It will produce a full-blown crisis when a major crop failure occurs.
6. The Canadian dollar trades right around parity. It might not climb sharply higher if a US recession is confirmed, because of the impact on the industrial sector and tourism. It remains a fundamentally strong currency, and the greenback remains a fundamentally weak currency. Canadian borrowers should borrow in greenbacks.
7. Gold’s move has been dramatic, but retail investors in North America and Europe have not yet shown signs of true gold fever. That means there is still substantial upside. Soaring silver and platinum prices confirm that this gold move is no mere spastic twitch. The expression “as good as gold” in reference to Treasuries and other US debt instruments should be restricted to use as a warm-up joke at investment policy meetings.
8. Defence stocks have solidly outperformed the S&P for most of the Bush presidency. Iraq and Afghanistan have run down a wide range of Pentagon inventories and a new generation of fighter jets cannot be postponed much longer. No matter who wins the presidency, these companies should continue to prosper.
9. Sovereign Wealth Funds have been buying US banks. Wall Street cites these purchases as evidence of great value in bank stocks. For nations that are overweight Treasuries in their holdings and underweight influence in American politics, swapping Treasuries for bank equities and convertibles makes sense. That does not necessarily mean that the stocks are great value for investors who cannot get other – unspecified – returns on their investments.
10. Use panic days to strengthen your equity portfolio, buying the agricultural, gold and oil stocks you will want to own after the bear retreats to his cave – and selling stocks that are too dependent on US consumers. Retain your quality base-metal stocks: they may well be taken out by other mining companies, or a Sovereign Wealth Fund.
11. The US small-cap bear market may be overshooting because investors haven’t analyzed the likely improved competitive positions of companies whose principal competitors were bought by Private Equity or are Canadian or European companies hurt by the weakening dollar.
12. Be like all wise cottage owners: Protect your possessions from Rats.
People who read this post also read these:
Tags: Canadian Stocks, China, Commodities, Gold, India, Information, Investment Strategy, Investment Wisdom, Miscellaneous
Posted in Markets | 3 Comments »
Tuesday, January 22nd, 2008
Jan. 22, 2008 - Here are some more clippings about the ‘carry-trade’ at the heart of global market volatility:
Jan. 21 (Bloomberg) — The Australian and New Zealand dollars fell against the yen as concern over a slowing U.S. and global economy spurred a reduction in holdings of higher- yielding assets bought with funds from Japan.
The New Zealand currency traded near the lowest in almost two months versus the yen as a slump in Asian stocks deterred investors from so-called carry trades. Australia’s dollar also declined against the U.S. currency after a government report showed producer prices rose by less than economists estimated, prompting traders to pare bets the central bank will raise interest rates from an 11-year high next month.
Inserted from <http://www.bloomberg.com/apps/news?pid=20601081&sid=ah9E711dlJh4&refer=australia>
Australia’s 11-year high benchmark rate of 6.75 percent and New Zealand’s record 8.25 percent rate drew investors in the past as part of the carry trade strategy. Those rates compare to 0.5 percent in Japan. The risk in the carry trade is that swings in exchange rates erode profits from interest-rate differentials.
The carry trade strategy involves borrowing in countries where interest rates are low, and investing where returns are higher.
Commodities, which make up about 60 percent of Australian exports and 70 percent of New Zealand’s, tumbled since the beginning of last week. Falling global economic growth may reduce demand for commodities these countries export, such as metals.
Inserted from <http://www.bloomberg.com/apps/news?pid=20601081&sid=a3dRGK0srjXo&refer=australia>
Another nervous week as the ‘carry trade’ unwinds. Many equity indices and Yen crosses are poised at key support levels: ‘necklines’ of ‘head-and-shoulders’ patterns or the lower edge of the big trading band of the last year or so. Leading the pack South are GBP/JPY and Sweden’s OMX Index, closely followed by the Dow Jones Industrial Average and FTSE 100. These have already seen weekly closes below these key levels and should, one by one, topple all the other ones over too. An unseemly scramble is likely if not next week then in February; at-the-money implied volatility could soar.
Energy products and most metals eased, many thinking if not talking recession, and Baltic Dry and Capesize Freight Indices have halved since their peak at the end of last year. Even the more pessimistic are saying contraction will be shallow and short and that by Q3 2008 things will be mended and economic growth will pick up. We feel this is way too simplistic and that the unravelling of all the mess in the financial system will probably take the whole of this year (and then some more).
A ‘flight to quality’ has resulted in Treasury yields moving lower, US ones leading the way to multi-month lows with yield curve steepening seeing two-year TNotes at a mere 2.39% (lowest yield since September 2004). Credit spreads against junk bunds are at July’s record highs. The US dollar has been contained in relatively small ranges around last week’s levels although the Swiss franc did dip very briefly to a new record low (1.0838) as did the Czech koruna (17.318). Sterling has regained some of its composure, EUR/GBP down from a record £0.7614, and the Yen had the best all round performance, dipping to 105.92 to the greenback.
Stock indices are all lower, the New Zealand bourse for a staggering twelve consecutive days while Jakarta and Mumbai are down nearly 8% this week alone. US and European indices lost roughly 5%, many now lower than they were at any point in 2007.
Inserted from <http://www.fxstreet.com/technical/market-view/weekly-market-commentary/2008-01-21.html>
The Japanese currency climbed against higher yielding currencies as investors looked for safe havens amid the turbulence in equity markets. The yen carry trade, where the low-yielding currency is sold to purchase riskier, high-yielding assets, proved a popular investment strategy in the first half of 2007 as stable equity market conditions ensured a healthy appetite for risk.
But the deepening financial market gloom since August has seen carry trades scaled back since the beginning of this year.
The real test of carry trade activity is the relationship between the yen and the New Zealand dollar. The yen fell 15 per cent against the Kiwi between January and August last year as the latter’s interest rate hit 8.25 per cent against Japan’s 0.5 per cent. But the Kiwi has since lost nearly all these gains, and was down 4 per cent this week to Y82.05 as the yen continued its rally.
Inserted from <http://www.ft.com/cms/s/0/0600819a-c634-11dc-8378-0000779fd2ac.html>
People who read this post also read these:
Tags: Carry Trade, Currency, Emerging Markets, Investment Strategy, Miscellaneous, Technical Analysis
Posted in Uncategorized | No Comments »
Tuesday, January 22nd, 2008
Jan. 22, 2008 - Phew! Finally some sense prevailed at the Fed with an astonishing cut of 75 bps and 25 bps from Bank of Canada. What a turn of events. There hasn’t been a rate cut like this since the eighties.
Well, here we are in the midst of a global panic, and the media has been all over it, doing its best to carry the news of the panic. That’s why its really important to keep a clear head here, and cut through the clutter.
Emerging markets and commodities are still the strongest bets globally. Emerging markets have been operating from a higher quantum of growth roughly 2-3 times that of industrialized economies. In fact, emerging markets have been dealing with inflationary pressures. A recession in the west relieves some of that pressure, and that is good news. Fact is, the BRIC will still be in need of the raw materials, metals, oil and food, and that demand growth is expected to continue well into the next two decades. S
