H1-2020 Wexboy Portfolio Performance

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Alphabet, Applegreen, Asia, bubble thesis, coronavirus, COVID, crypto, financial strength, floating world, KR1 plc, owner-operators, portfolio allocation, portfolio performance, property, QEInfinity, Saga Furs

So yeah…quite the bloody year, eh?!

I hope you & yours have kept safe & well during this #COVIDcrisis – even if you’re not exactly sheltering-in-place anymore, I presume you’re still a conscientious mask-wearer (as needed) in public? All else being equal, it’s disappointing the weather (apparently) isn’t a sure-fire virus-killer – remember when we all assumed, at worst, the summer would offer a welcome & effective respite? You know, meeting people, I used to joke investing was simply the ‘job’ I invented to keep me off the mean streets…I never imagined it would literally turn out like this!?

Anyway, let’s survey the carnage…

As usual, my H1-2020 Benchmark Return is a simple average of the four main indices which best represent the majority of my portfolio:

A (13.2)% benchmark loss is grim…though apologies to my puzzled American readers, who are wondering what carnage? [Apparently 100% of US investors now practice 0% global diversification!?]. If you didn’t know better – i.e. had avoided the media’s water-boarding over the last six months – you’d surely think a (4.0)% loss in the S&P was nothing more than some random market oscillation. Nothing to see here…

But in reality, lots of (US) investors now lean into technology stocks…and the Nasdaq didn’t disappoint, delivering a spectacular COVID-driven +12.1% gain! [C’mon, I tweeted ‘Nasdaq 10,000’ enough in the last year!] Of course, there’s a flip-side, with travel & hospitality being the most obvious sectors to experience devastating (& sustained) share price declines. We see a far more realistic ex-technology US performance in the Russell 2000, which recorded a (13.6)% loss in H1.

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H1-2019 Wexboy Portfolio Performance

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#GenerationWar, #WallofWorry, Alphabet, benchmarking, bubbles, crypto, Donegal Investment Group, floating world, KR1 plc, negative yields, portfolio performance, quantitative easing, Saga Furs

And once more…into battle!

Before the month is out, it’s time I look back & share a H1 portfolio update. Of course, in the wake of last year’s Q4 carnage, it wasn’t all that surprising to see markets chalking up a near-perfect YTD performance across the board. Equally unsurprising was the US market’s continued leadership…which seems like an inevitability these days, to the chagrin of long-suffering European & value investors. [Um, aren’t they synonymous?!] So here’s the scoreboard – as usual, my H1-2019 Benchmark Return is a simple average of the four main indices which represent the majority of my portfolio:

On average, a 13.4% benchmark gain…led by the S&P with a 17.3% gain (bested by the Nasdaq, which boasted a 20.7% gain). More surprising was the robust performance of the FTSE 100…despite a tsunami of Brexit nonsense, it still managed to deliver a 10.4% gain. [Not an index-related fluke – the more domestic FTSE 250 & the AIM All-Share (despite a glut of profit warnings) clocked up (on average) similar gains of 11.2% & 7.1%, respectively]. As for the ISEQ & Bloomberg Euro 500, they did themselves proud too, recording respective gains of 12.3% & 13.6%.

Overall, this is a reversal of the 13.5% benchmark loss I reported last year. Which, noting the S&P’s consistent out-performance, is an unwelcome reminder European markets are still actually lower/no better off than end-2017 levels! And really, I’m just cherry-picking here – my European benchmarks have pretty much gone nowhere for the last four years. And again, that’s another flattering perspective…believe it or not, Euro indices have mostly traded sideways for close to two decades now! [Read ’em & weep: FTSE 100, ISEQ, STOXX Europe 600]*. Sure, you still earned a dividend yield…but this savages the comforting notion that equities will always make you decent money/are the superior asset class in the medium & long-term. Though maybe, just maybe, there’s a silver lining to that bag you’re holding:

The Inherent Contradictions of My Portfolio (or Who’s The Greater Fool..?) (Part III)

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asset allocation, bar-bell strategy, bubbles, bullish, floating world, GARP investing, macro investment thesis, Nifty Fifty, stock picking, wall of money, wall of worry

Continued from (Part I) & (Part II).

For a moment there – yeah, go on, admit it – you really did think I’d lost my mind & mutated into some kind of wild-eyed snorting pawing charging bull!? One who’d sold off his entire portfolio, plus the family silver, and blown his entire wad on a titillating smorgasbord of the past year’s hottest large cap stocks & sectors instead?

But only for a moment, I hope, mes frères?!

OK, I may be a charging (?) bull – yup, my negligible cash holdings don’t lie… And I may well believe the market ultimately loses touch with the real world (& enters the floating world). But c’mon, did you really conclude I’d lost touch with reality?

Er, no… Or should I say, hopefully not..?

Obviously, having some kind of (global) macro investment thesis is essential for all investors. Well, it should be obvious – someone who foolishly pontificates it’s all (& only) about the micro (i.e. stock picking) could be, for example, missing out on a potentially lethal big picture. But an investor who focuses exclusively on the macro is being just as foolish. Because, of course, the micro’s where you’re likely to find the best long term multi-bagger opportunities. Don’t even fight it, macro & micro are both equally important…

[OK, I’ve gotta confess, that’s pretty much a bald-faced lie – any number of studies prove asset allocation (i.e. macro) is the dominant contributor to portfolio returns. But I’ll save you from reading ’em – instead, just ask yourself whether stock picking saved your ass in the last bear market?! Er… But hey, what can you do, at least stock picking keeps me off the mean streets! 😉 ]

And the stronger your investment thesis, the greater the discipline, the conviction, and the ultimate success of your investment portfolio & returns. But an investment thesis, whether it’s macro or micro, is not a winning lottery ticket you simply collect on, it’s not a belief or principle you defend to the death, and it’s certainly not some map that’s etched in stone. It’s about making your own luck, where preparation meets opportunity…so never grow too attached to a pet thesis. Instead, consider it an evolving premise that needs to be constantly challenged & updated. Far better to aggressively ask yourself (& the world) each day why your premise might actually be wrong – rather than devoting all your efforts to constructing some tottering edifice of proof to memorialise what might be, in the end, a long-dead thesis.

I’ve been developing this market bubble thesis for a couple of years now. To date, it stands up well to scrutiny & keeps getting stronger…but I’m also very aware it’s a thesis which will continue to evolve & be tested. And I certainly don’t think we’re anywhere close to bubble territory yet – leaving aside some obvious exceptions, investors aren’t exhibiting any of the usual symptoms: Yes, I’m sure you know ’em…a twisted market/valuation logic, a blatant disregard for risk/leverage, and/or a messianic over-confidence in future growth & returns.

The Inherent Contradictions of My Portfolio (or Who’s The Greater Fool..?) (Part II)

Tags

blue chips, bubbles, bullish, China, don't fight the Fed, Europe, floating world, Greece, Japan, Nifty Fifty, quantitative easing, US

OK, I posted Part I a month ago (and here’s its prequel, Welcome to the Floating World…), so you may want to skim those posts again. [Especially as the world’s changed so much since then…what with the bond markets going crazy, Greece staying crazy, etc. 😉 ] To briefly summarise:

The central banks ‘control the price of money, and everything else is a function of the price of money‘, and post-crisis they embarked upon the greatest price-fixing experiment ever – an echo/amplification of the entire era leading up to the late ’60s/early ’70s. Consequently, sustained near-zero rates has meant there’s a wall of money that’s slowly but surely being forced into the equity market. And just like the early ’70s, investors have & will continue to exhibit a distinct preference for Nifty Fifty stocks, i.e. large cap/blue chip companies which guarantee (or at least offer the illusion of) predictable quality & growth in an uncertain economic & fiscal environment. Small & mid cap stocks may be neglected accordingly, but will probably end up getting dragged higher regardless.

As for liquidity, central banks will basically find it impossible to reverse the explosion in their respective balance sheets…Pandora’s Box is now open. And GDP growth may prove irrelevant – since positive/accelerating growth is likely to underpin/encourage market sentiment & valuations, whereas weak/negative growth will simply elicit fresh expectations of central bank stimulus. Most of all, regardless of potential rate increases (or bond market volatility), the absolute level of yields means stocks will arguably remain cheap at any price…

But I really don’t have to make the argument: If/when this bull market keeps marching higher, I have no doubt we’ll be spoon-fed all the erudite & compelling arguments we need to justify it, ’til investors can no longer help themselves & inevitably turn the market into a self-reinforcing bubble. I’m not saying this is necessarily a logical process (what bubble is?!) – but I am saying it could easily happen, plus I’m also saying it could well turn out to be unprecedented…

 [Again, it’s worth remembering two recent & very relevant quotes:

Buffett – ‘Everything is a function of interest rates. Interest rates are like gravity.’

Tepper – ‘Don’t fight four Feds!’]

So, what are the implications for my portfolio?

The Inherent Contradictions of My Portfolio (or Who’s The Greater Fool..?)

Tags

blue chips, bubbles, bullish, diversification, floating world, growth vs. value, negative yields, Nifty Fifty, price of money, quantitative easing

My last post (‘Welcome to the Floating World…’) talked about some of my habitual concerns regarding the markets & my portfolio…and consequently, I couldn’t help but highlight an inherent contradiction of my portfolio:

If I worry so much, how come my entire portfolio’s invested in stocks..?!

The answer’s simple: I have been & continue to be resoundingly bullish on the markets. Except it’s really not that simple…because this immediately highlights another obvious contradiction of my portfolio:

If I’m so bullish, how come my portfolio’s invested so defensively..?!

To illustrate, let’s revisit my Top Tips for 2015 post – which actually listed my Top 10 portfolio holdings (as of year-end 2014). Here they are:

I’d classify eight of these holdings into three (overlapping) categories: Deep value, special situations & (mostly) uncorrelated stocks (vs. the economy, or even the market). Which leaves just two holdings that can be described as growth (or high beta) stocks/funds: Fortress Investment Group (FIG:US) & VinaCapital Vietnam Opportunity Fund (VOF:LN). Granted, a defensive portfolio mix helps me sleep at night, as I’ve boasted before – but in light of my bullish market view, I have to ask if this is really an unnecessary luxury…or maybe even a bloody hindrance?

And in reality, my market view shouldn’t necessarily be that relevant anyway – return to my recent Stock Picking…Art, or Science?! series (esp. Part IV), and we’re reminded that consistent portfolio diversification isn’t just about geographical & asset allocation. Take another look at my Top 10 holdings table – again we see an inherent contradiction of my portfolio:

If I’m so concerned about diversification, how come my portfolio’s so lacking in large cap/growth stocks..?!

[Interestingly, the two growth stocks/funds I identified are actually my largest market cap holdings. My other holdings’ average market cap is just $84 million.]

Welcome to the Floating World…

Tags

bubbles, bullish, cash allocation, coin clipping, fear and greed, floating world, inflation, negative yields, QE, quantitative easing, stock valuation

I regularly write about fear & greed here. And I often worry about the tentative & fragile recovery we’re hoping for/seeing in the developed economies (led obviously by the US), and whether it’s built on a foundation of sand…or, more correctly, of printed money. I also worry about markets’ headline valuation ratios, which keep marching higher, and question if they’re priced to reflect a growth renaissance, or simply fool’s gold. And sometimes I talk just as much about preserving wealth, as I do about increasing wealth. Most of all, I incessantly interrogate the diversity & robustness of my portfolio, and cling to the comfort its deep value & special situation stocks offer – I demand they help me sleep soundly each night…

Lots of investors deal with this kind of free-floating market anxiety by keeping a healthy slug of cash in their portfolios – but my current cash allocation is actually minimal (& this isn’t a new phenomenon). Which starkly highlights an inherent contradiction of my portfolio:

If I worry so much, how come my entire portfolio’s invested in stocks..?!

Now, I could offer a prior argument – as I usually don’t consider cash a necessary component of a portfolio, with (low risk) event-driven investments generally serving as an acceptable & more attractive substitute. But that would just be a red herring, as I haven’t actually maintained a big allocation to such a cash alternative either. In reality, the answer’s much simpler…as I’ve often said (about management):

Watch what they do, not what they say!

Which is obviously an exhortation that can just as usefully be applied self-critically… OK yeah, I worry, so I obviously rationalise & anaesthetise these anxieties accordingly – but in reality, my fully-invested portfolio is a resounding confirmation of my past, present & continuing bullish stance on the markets. Hopefully, this doesn’t come as a surprise to you – despite the concerns I express regularly, I believe this bullishness has been a predominant & underlying theme of the blog all along.

[This Jul-2014 post is perhaps the best & most recent expression of my underlying bullishness – it just might be worth a read in its entirety].