I hope you’re keeping well.
Lockdown is easing, which is pleasant although slightly unnerving too. You can meet up with a few friends for a barbecue – and to be honest, there’s nothing I’d rather be doing on these beautiful sunny weekends than that.
But the virus doesn’t ease. It infects groups of people at a pretty consistent rate depending on how much they interact.
The little animations which you can view for free (I believe) in this article show this perfectly.
So ironically, we would have been better off taking risks – seeing family, friends, playing sports and going on long trips in the last couple of months.
It’s like being a safe driver in Rome or Mumbai – what’s the point? It’s the local Formula 1 commuters that are the risk to your health – not you.
Because now, as others start to push way beyond the boundaries laid out by the government, the risk of each thing we choose to do is higher as a result.
This makes me uncomfortable, but overall I’m okay with it. We simply need to find the right balance for everyone. This will take time though, so for now just remember – the virus doesn’t change, only our behaviour does.
But anyway, it’s nice to feel a little calmer, to see infection rates falling and to be able to relax and go outside. The future can wait.
What’s more, our investments are looking sound and healthy for the most part.
Those who bought gold a month or two (or ten) ago are sitting pretty, as are those who jumped on the Beyond Oil bandwagon with James Allen – his recommendation from 7 May is already up over 200%. And this week he sold another stock for a gain just shy of 800%.
Well done you if you have been with James for this amazing run – and I tell you what, I’m working with him on a beautiful pipeline of companies which aim for the same kind of returns.
You probably thought it was boring when I was going on about the Beyond Oil summit, renewables and getting involved with James’ work – but that’s the reason. That’s why I wanted to encourage you to get in on the act. It’s one of the most compelling investment stories out there, with huge potential over the short, medium, and long term.
The Energy Transition is the place to be.
So, the sun is out, and our portfolios are roughly back on track, or at least moving in the right direction. Happy days…
But if any of you are like me – a part of you secretly remembers that promise you made in mid-March.
“Wow – everything has fallen so far so fast I didn’t even have a chance to think about selling before it was too late!
“I’m so stupid for not selling, I got too greedy…
“If I could just get back to where I was before all this, I would sell.”
I have been writing to you and asking myself the same question. Should I now be selling?
I am not a godly man. Indeed, if this was the year 876 AD, people would probably call me Kit the Godless (I’ve been watching The Last Kingdom).
As a child, sometimes if I really wanted something to happen – a Pietersen hundred vs Australia or my older brother to lose his most powerful Pokémon card – I would do this thing where I’d say something along the lines of “God, if you’re there, it would verily be a joyous occurrence if England were to win this here test match – it’s just such a biggie in the wider context of the Ashes, you see. If they do, I’ll believe in you.”
And then when England won, I’d think yes, well, quite, but they were probably going to win anyway – and I’d silently wriggle out of my once solemn bargain with the Infinite.
It feels a bit like that now.
I imagine I’m not alone in having whispered to myself that I’d sell it all, if I could just get back to where I was, and now I’ve shot right past my previous peak.
Losing money is after all, that much more painful than the joy of making it.
Now, I’m finding myself trying to mentally wriggle my way out of this one too.
As I myself have quoted, “when the time comes to sell, you won’t want to.”
After all, “Don’t fight the Fed…”
And it’s not that I have FOMO – it’s more like FOSO, fear of selling out.
Because in many ways, my portfolio is long term. The energy transition could be a five- or twenty-year play. As is gold, in its role as inflationary hedge and safe haven. And my beaten-down value plays were all bought at seriously good prices.
Some of the smaller oil and gas sector midstream plays had dividend yields above 25% even after cutting them in half because of the pandemic. Or they were trading on price-to-earnings ratios below three – very cheap indeed relative to history.
And there are reasonable cases being made that vehicles (public transport avoidance) may drive a resurgence in oil demand to levels above where we were in 2019, such that we will see a large undersupply to the market in 2022/23, a radical reversal of where we are now.
Unthinkable – you say? Wasn’t all this? the author retorts.
I’ve been wrestling this battle for a couple of weeks. Here’s what I’ve come up with.
In previous letters to you, I’ve advocated balance, and advocated small nudges to the balance between attack and defence.
Trimming is appropriate, as is rebalancing and re-evaluating some key considerations, but if it’s a portfolio you would be happy to hold for a few years if the markets closed tomorrow, then that should be good enough.
You need to think about these things now, and maybe make a few readjustments, so that if a grinding bear does develop (this remains my expectation, with a 60% confidence of being right), then as things slide, you can reassure yourself that when times were good you thought about this and prepared for it.
What are investments for anyway? Do you have specific targets, specific expenditures to meet, or more of a general growth strategy? It’s a good time to think about these things.
Can you afford to hold things for a number of years if a slower, deeper bear market develops?
We have learned this year that the time to think about developing vaccines and protecting our wealth against disaster is before disaster strikes.
Once it is here, it’s already too late.
I outlined in this note well over a month ago, that because investors had blamed the virus all the way down in the crash, they might keep it as a narrative all the way back up as it receded. Add in the turbo charger of government and central bank stimulus, and you’ve got a pretty powerful move.
I maintain my view that the violence of both the crash and the subsequent rally are driven not by the virus but by factors like valuations, central bank excess, exuberance, and short-memory syndrome.
See here, John Authers shared this chart which shows how this episode is unique in its speed on the way up, as well as on the way down. The last three major world-shaking bear markets and recessions have not been followed by bull markets of this strength.
The tech bubble bursting (red) had the strongest resurgence, but ended in a much worse position. 1987 (purple), most similar to the binary nature of this crash in many ways, fell 20% in a day and didn’t make any of it back 12 months on. In 2008 (white), things got a lot worse first, before getting better.
We live in extreme times, and would do well to remember it.
Certain stocks, sectors and indices in the US are back above all-time highs.
While the lockdown eases and our investments rise, now is the best time to make sure portfolios are in good shape for any trouble ahead.
Value seems to be making a comeback too. Will it be short-lived, or is this the turning of the tide? I’ll dive into that particular topic next week.
Until then, have another lovely, sunny weekend, and best wishes to you all.
Editor, UK Uncensored