2021…Wow, Another Crazy (Good) Year!

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Alphabet, annual review, balance sheet, bubble thesis, crypto, Donegal Investment Group, inflation, KR1, KR1 plc, multi-bagger, owner-operators, portfolio allocation, portfolio performance, Record plc, Saga Furs, Tetragon Financial Group, VinaCapital Vietnam Opportunity Fund

At this point, maybe you’re done with 2021 – right?!

But face it, we gotta look back to figure out how we arrived…in this mess today! And hopefully recall & reinforce any lessons learned. ‘Cos sure, there’s plenty of good & bad luck involved, but outcomes for both nations & investors are ultimately a result of our (cumulative) decisions & actions, often stretching back years. And last year, as the pandemic dragged on, our drinking problem got a wee bit out of control & we enjoyed that punchbowl just a little too long. And now it feels like the inevitable hangover’s finally starting to kick in.

Well, except for those who started early…God love ’em, how many punters have been trapped in a savage bear market for almost a year now?!

But for the rest of us, last year’s market was the pandemic silver lining. As always, the US led the way with a 26.9% gain in the S&P 500. [The Nasdaq still clocked up a magnificent 21.4% gain, despite some sectors being deep in bear market territory]. Europe was nearly as magnificent, with the Bloomberg Euro 500 clocking a 19.7% gain. And Ireland & the UK brought up the rear, but still delivered higher than average returns, with a 14.5% gain for the ISEQ & a 14.3% gain for the FTSE 100. [On both sides of the Atlantic, the FTSE 250 & the Russell 2000 enjoyed similar 14% gains, whereas a risk-off/stonk bear market reduced the AIM All-Share to a mere 5.2% gain]. Notably, despite H2 price reversals & increasing volatility, all major indices – with the exception of the ISEQ – climbed steadily & closed out the year near annual/all-time highs.

My FY-2021 Benchmark Return remains* a simple average of the four main indices which best represent my portfolio…overall, they produced a benchmark 18.8% gain:

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H1-2021 Wexboy Portfolio Performance…Yeah, It’s a Biggie!

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Alphabet, annual review, bubble thesis, crypto, financial repression, inflation, KR1, KR1 plc, multi-bagger, pandemic, portfolio performance, Record plc, Saga Furs, VinaCapital Vietnam Opportunity Fund

Time to celebrate – we made it through the #pandemic!

Well, almost…

Vaccine roll-outs continue, some fast some slow, but crossing the actual finish line remains maddeningly elusive here. Unfortunately, as so often proves the case, the loudest & craziest perspectives tend to control the narrative. On one side, we have the #antivaxx nutters & their ever-expanding conspiracy theory complex to debate – you may as well wrestle a pig (you both get dirty & the pig likes it!), so the sooner we abandon them to herd immunity & their Darwinian fate the better. And on the other side, we’ve got the #Delta nutters who apparently don’t believe in vaccines either – like them, they’d prefer we all stay masked up & locked down forever, despite being vaccinated. [Seriously, imagine being told two years ago most people would be walking ’round in masks in 2021…after being vaccinated!?] And since the latter are still imposing their will on all of us – to a greater or lesser degree – arguably, they win the crazy selfish stakes. As Upton Sinclair might have said:

‘It is difficult to get a man to understand vaccine efficacy, when his cushy new working-from-home white-collar career depends on his not understanding it.’

But hey, touch wood, we’re still almost home free! And while it may be hard to believe right now, history’s proven it time & again…we’re gonna move on just as quickly, with little reason to presume this specific pandemic leaves any radical permanent change in its wake. But clearly, as I’ve argued from the start, it has & will continue to accelerate certain existing trends – both positive & negative – including America’s heroic fiscal & monetary stimulus, and its disproportionate impact on the S&P 500. How many investors have forgotten (or never even noticed) its +16.3% gain last year was actually a total outlier – my 2020 index benchmark, for example, was still flat regardless:

2021 has been far more democratic though, with most indices chalking up at least a good year’s worth of gains (albeit led by the S&P, as always!) in H1 – no real surprise, as investors applaud successful vaccine roll-out programmes & the still breaking tsunami of #YOLO re-opening spending. [And maybe even a New Roaring Twenties to come?!] As usual, my H1-2021 Benchmark Return (a +11.7% gain) is a simple average of the four main indices which best represent my portfolio:

Welcome to the Floating World…

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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].

EIIB…Ex-Bank – Love It!

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Arab Spring, asset managers, AUM, banks, de-leveraging, DiamondCorp, EIIB, European Islamic Investment Bank, frontier markets, GCC countries, HBG Holdings, inflation, Islamic finance, John Burbank, MENA, NAV discount, oil, Rasmala Holdings, real assets, Saudi Arabia, Sharia'a, TBTF, Zak Hydari

I have a long-standing aversion to banks. To me, they represent the perfect collision of two really bad ideas:

i) Regular investment in bonds & loans – a strategy offering little prospect of capital gain, but which will (quite often) attempt to wipe out your capital. And the paltry yield you earn offers little compensation. I’ve never understood how people ever find this ridiculously biased risk/reward proposition attractive.

ii) The answer lies in leverage, I guess… Another terrible idea, but this is the incredible solution people usually seize upon to juice low returns. And it usually works just long enough for everybody to forget how savagely leverage can impact liquidity & solvency, when things take an inevitable turn for the worse.

Banks, of course, take this bad marriage to its ultimate & ludicrous extremity. [And require even more leverage to overcome the drag of their cost:income ratios]. But consider the private & public incentives – why wouldn’t they?! When times are good, leverage multiplies profits…which multiplies bonuses! And leverage makes it far easier to reach that ideal bank status: TBTF, where the taxpayer’s forced to pay for your mistakes (& bonuses).

Hitting The Century (VIII – Agriculture)

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agri-business, agriculture, Aqua Bounty Technologies, aquaculture, Asian Citrus Holdings, Avangardco, Black Earth Farming, Cal-Maine Foods, Canada, chickens, Cresud, eggs, ETFs, farmland, fish, forestry, free cash flow, inflation, livestock, plantations, portfolio allocation, real assets, Russia, timber, Ukraine

Continued from here. This series fell by the wayside since September, as I focused on a flurry of posts covering performance, a little shareholder activism, and some pretty exciting new stock buys/write-ups. Oh, and some bubble bursting..! 😉 As a reminder: i) Asset allocation plays a far greater role in returns than perhaps we like to think – in this series I thought I’d try illuminate some of the logic behind my own portfolio allocation & stock selection, rather than individual stock picks, and ii) this portfolio allocation pie-chart might prove handy:

The prior Century post & Inflation post are v relevant too: They highlight why I believe inflation won’t prove an issue in the near/medium term, and how to prioritize the choice of real assets (property, natural resources, agri) as inflation pure plays. My expectation of delayed inflation, despite QE Infinity, has choked back my real asset allocation. Also, I consider many of my real asset holdings more special situations, than inflation plays.

Agriculture ETFs – Can You Smell ‘Em?

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agri-business, annual reports, Archer Daniels, bank debt, BRF-Brasil Foods, contango, correlation, Deere & Co, emerging markets, ETFs, ETNs, ETPs, farmland, fertilizer stocks, food wastage, frauds, frontier markets, Gain on Biological Assets, inflation, JP Morgan, livestock, Market Vectors Agribusiness ETF, Monsanto, MOO, picks & shovels, plantations, soft commodities, Syngenta, United States Oil Fund, Wilmar, Yara

I don’t believe there’s any need to rush into Agri stocks as an inflation play right now. First, I suspect inflation will take far longer (than many currently seem to expect) to overcome the current wave of de-leveraging. And second, the primary real asset conduit for inflation, via the banks, is always Property – which eventually spills over into Natural Resources, and finally into Agri stocks (inc. soft commodities). Regardless, I still think Agri’s always an attractive asset class, and I’d be perfectly happy to increase my exposure if the right opportunities come along. Let’s recap the attractions of Agri:

– Steadily increasing demand due to global population growth (but isn’t everything..?!)

– Higher demand also (via increased consumption & waste*) due to rising global per capita incomes – basically this is an emerging/frontier markets growth story

– Rising incomes also prompt people to trade up to, and increase demand for, protein (specifically, meat), which requires far greater agricultural resources to produce

– It’s pretty insensitive to the economy: Food’s a high priority in emerging/frontier markets, and developed market food spending (as a % of income) has declined dramatically in the past 30 years. And remember, people avoid reducing calorie intake in downturns, they just make substitutions

– Obviously it requires capex & operating expense investment, but biological growth provides a wonderful (& uncorrelated) investing wind at one’s back

– Finally, of course, it offers a great (later stage) inflation play

2012 Baker’s Dozen – More Pie!

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Argo Group, Baker's Dozen, binary outcomes, catalyst, Foo Fighters, FTSE 100, FTSE Eurotop 100, Granville, Hamlet, hedge funds, inflation, ISEQ, junior resource stocks, Livermore Investments, performance appraisal, Petroneft Resources, portfolio allocation, portfolio performance, Richland Resources, risk management, S&P 500

Righto, another quarter’s done, time to check in on performance again. First, my Q1 and H1 performance reviews will provide you with some handy background & context. Second, it’s always fun to pose some questions before hitting the stats:

– Of the US/Europe/UK/Ireland, which do you think has had the worst year to date?

– And the best?

– So, did you predict your best stock winner year to date?

– Ever notice how much easier it is to predict your worst stock loser?

– Is there any lesson, or story, attached to your losses?

– Why has the average hedge fund under-performed so badly this year?

Well, hopefully I cover some/all of those questions here..!

Hitting The Century (VII – Natural Resources)

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agri-business, BP, bubbles, correlation, garbage stocks, gold, Howard Marks, idiots, inflation, junior resource stocks, miners, natural resource stocks, oil, Petroneft Resources, QE, quantitative easing, Richland Resources, silver, Statoil, Total

In my recent Inflation post, I elaborated on my conclusion that, contrary to widespread (and my prior) opinion, inflation was likely to prove a fairly distant threat. Despite the smoke rising from the bloody printing presses… And despite the Fed since confirming their long-expected QE III – or should I say: QE Forever, QE Infinity, QE God Fucking Save Us… Take your pick! You know, the mind boggles – how/why on earth does the Fed confidently expect Agency MBS purchases to smoothly flow through into improved labour conditions?!

No real need to revisit my post, just read Howard Marks’ latest instead, which came out a few days later. In his memo, he covers much of the same ground – probably in a far better & more relentless manner… [And apologies if I ramble on: Remember, with this series, my intention isn’t to necessarily write about specific stocks here, old or new. Rather it’s to give you some deeper insight into the thoughts, logic and pros & cons underlying each of my allocations].

Hitting The Century (VI – Real Assets)

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agri-business, balance sheet, bank lending, churning, commercial property, de-leveraging, deflation, ECB, Fed, gold, inflation, natural resource stocks, portfolio allocation, residential property

Oh well, back to the grind..! Continued from here, and I guess here: I actually started writing this post the other day, but quickly got side-tracked into a different post – after all, one can’t really talk about real assets without first taking on inflation! For reference, here’s a reprint of my investment allocation pie-chart:

So, Where’s The Bloody Inflation..?!

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baby boomers, banks, Bernanke, budget deficit, capital ratios, de-leveraging, debt monetization, Debt/GDP Ratio, ECB, Europe, European sovereign debt crisis, Fed, financial crisis, fiscal deficits, Flub-Med, GDP growth, Hunt brothers, income/dividend bubble, inflation, Japan, multiplier effect, Occupy Wall Street, politicians, quantitative easing, real assets, risk aversion, savings rate, stagflation, US, Volcker

I was beginning a new post in my recent Hitting the Century series (and here), and realized my next 3 investment allocations were to real assets – Natural Resources, Agri & Property. This v quickly got me thinking about inflation, enough to devote myself to this post instead:

Along the way, dear reader, you may have noticed my pronounced distaste for fiscal & monetary policy in the developed world. Particularly in the US... That’s not intended to be a US slap-down…and certainly not praise for Europe either! It’s simply a pretty inescapable conclusion if you compare the US & (the hard-core of) Europe over the past 4 decades. Jesus, I struggle to think of somebody with any real power in the US who truly gives a flying f**k about their accelerating debt burden, debt monetization, or the long-term external value of the dollar. In contrast, the ECB & certain Eurozone countries still actually exhibit a painful reluctance to take that road to monetary & fiscal oblivion – even in the face of a European sovereign debt crisis!