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].

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Portfolio Allocation (XIV – Emerging & Frontier Markets)

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agri-business, correlation, corruption, developed markets, Donegal Creameries, emerging markets, Europe, financial crisis, frontier markets, German property, Japan, portfolio allocation, portfolio performance, QE, US, volatility

Continued from here. Wow, it’s been a leisurely journey – spanning a full year – is this really my last post of the series?! Hmmm, we’ll see… Here’s my portfolio allocation pie chart one more time:

[NB: This is from Jun-2012, but since then the only major changes (funded mostly from my Hedge Fund allocation) are: a) an increase in Property from 10% to 13%, as I continue to scale up my German property exposure (see Parts I to V – also here), and b) a large jump in Agri from 5% to 11%, due to my purchase of Donegal Creameries (DCP:ID) & its subsequent hefty appreciation. Note I don’t classify DCP as an Irish stock – after all, the company feeds people (potatoes, mushrooms & yogurt) and animals, what could offer a more ideal uncorrelated exposure?!]

My Dirty Little Dividend Secret…

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Alternative Asset Opportunities, Anton Bilton, commercial property, credit risk, distressed investing, Event Driven, fixed income, high dividend yield, income/dividend bubble, Leverage, Net LTV, priority claims, QE, Raven Mount, Raven Russia, RUSP, Russia, Tetragon Financial Group

I’ve made no secret of my disdain for dividends, or that category of dividend/income investors who seem to be just plain mental..! Especially the US variety of the breed, it must be said. 😉 I was even moved to write a dividend series: ‘Chasing Some Dividend Tail..?’, Parts I, II & III. I recall some of you enjoying it – and believe me, it was just as much fun writing it! But as with all moral arbiters, there eventually comes a mea culpa – ‘I have sinned, oh Lord…but I was seduced in a moment of weakness!’ And here’s mine, replete with tears:

Oh Lord, I couldn’t resist – I fell for a stock flaunting a (near) 13% dividend…the damn hussy!

Let me introduce you to:   Raven Russia Limited (RUSP:LN)

Note I don’t mean their ordinary shares (RUS:LN) – I invested in their preference shares (RUSP:LN). I bought them in late 2009, so my purpose here isn’t to produce a new write-up – but rather to offer what might hopefully be a useful primer for analyzing & buying similar instruments. [Well, at some point – in the current climate, good credit opportunities are becoming increasingly rare. But see this Tetragon Financial (TFG:NA) write-up – though TFG sports a v different level of risk]. Of course, that’s really only useful if I can reproduce my original analysis & perspective – with the help of the financials & my notes from that period, I think I can do just that (hopefully eliminating the benefit of hindsight as much as possible).

Catalysts – A Summary (Part I of II)

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Alternative Asset Opportunities, asset allocation, catalyst, correlation, dividend tax treatment, Event Driven, Expected Value, fighting the Fed, Investegate, IRR, Liquidations, Margin of Safety, offer premium, portfolio allocation, QE, Recommended Cash Offer, Risk Arbitrage, risk-on risk-off, takeover offers, Takeover Panel, VIX, volatility, wind-down

My 10-part series on catalysts last year (stretching from Jan to Dec!) was well received, judging by the readership & links. I vaguely promised a summary to wrap up the series – as we’re well into the new year (already?!), it now seems appropriate to deliver that post (& hopefully it proves useful).

By the end of last summer, I concluded there’s little point fighting the Fed… A fortunate decision, as the market’s been decidedly risk-on since then! Though I must say, the power of central bank liquidity still surprises me. If you recall, last summer, we appeared to face a pretty bleak outlook both sides of the Atlantic: The fiscal cliff in the US & the sovereign debt crisis in Europe. [Hmmph, different stories…same destination!] Personally, I considered the cliff to be just like those periodic kerfuffles over the US debt ceiling – no genuine threat, but divisive political rhetoric could certainly roil the markets (& perhaps prompt a rating-agency response). On the other hand, the European crisis…er, what happened, where the hell did that go..?!

This risk-on attitude’s left my portfolio light on investments with shorter-term/lower-risk catalysts (i.e. event-driven investments). However, I still strive to pick new investments which (ideally) possess at least one longer-term/higher-risk catalyst. That type of catalyst doesn’t necessarily mean you avoid downside risk, but hopefully it stacks the deck in your favour vs. what the average value investment (complete with margin of safety) might offer. It may also accelerate the time-line for a stock’s realization of its intrinsic value/upside potential. Anyway, much of my event-driven exposure was ultimately re-invested in Alternative Asset Opportunities (TLI:LN) – so I simply exchanged a low return/relatively uncorrelated risk for a cheap/high return/totally uncorrelated risk! Go on, you might want to give it a try..! 🙂

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].

From Russia With Love (Part II)

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Aurora Russia, Baring Emerging Europe, closed-end funds, emerging markets, frontier markets, infrastructure, JPMorgan Russian Securities, Mongolia, Origo Partners, Prosperity Voskhod Fund, QE, Renaissance Russia Infrastructure Equities, Russia, Templeton Russia & East European Fund, Vietnam Infrastructure, Vietnam Opportunity Fund

Continued from here:     So why the interest in Russia? Well, for me, pretty much any emerging/frontier market’s preferable to those in the developed world these days! Everywhere I look, I see better growth, better demographics, better government finances, lower debt and no currency debasement… And all this for stock market valuations that are similar to/cheaper than Western markets. There are a number of markets I feel are particularly attractive – for example, I’ve highlighted Vinacapital Vietnam Opportunity Fund (VOF:LN) before as a good stock pick for exposure to Vietnam. With my continuing bullish view on oil and other commodities (and the inflation risks posed by global QE), Russia presents a compelling market opportunity.

So how does Russia actually stack up these days? Well, first one needs to realize how far it’s come. In the past 10 years GDP has more than quintupled, Russia’s now a Top 10 global economy, and average GDP per capita (in nominal terms) is around $16,700. This last stat’s v interesting – $17 K goes pretty far in what’s still an emerging market, and it explains the booming Russian middle class, something many investors have under-estimated.