Remember that patience is your most powerful weapon. (Warren Buffett)

The last few weeks has certainly been taxing my patience, which is not one of my strong suits. I am now sitting with 75% of my investment portfolio in cash and it is burning a hole in my pocket. The 25% balance is split between property, gold, healthcare/pharmaceutical and technology funds. The recent weeks have resulted in a balance between the rises of the property and gold, and the relative stability of the healthcare versus the losses of the technology funds.

The press seems to be full of speculation about which way the markets will move next. There are finance houses advocating being fully in the market because after this correction the next move is a “melt up”(a new expression to me). Maybe they really believe that, but more likely it is to put their own subscribers` and investors` minds at rest after their recent sizeable losses. I said in my last article that I feel there are many reasons for the market to move downwards, rather like a theatre slowly filling with smoke – how long before there is a rush for the exit?

At times like this I revert to the sayings of Jesse Livermore to endeavour to control my urge to reinvest before the time is right. The following are four of his many recorded sayings.

•    It was improper and unwise for me as a speculator to allow myself to be influenced by any consideration to act against my own judgement.
•    A man cannot be convinced against his own convictions, but he can be talked into a state of uncertainty and indecision, which is even worse.
•    The trend has been established before the news is published, and in bull markets bear items are ignored and bull news exaggerated, and vice versa.
•    One of the most helpful things that anybody can learn is to give up trying to catch the last eighth – or the first. These two are the most expensive eighths in the world.

With these maxims in mind I intend to stay with last month’s tactical retreat and will wait further until the time to reinvest becomes more obvious. The only exception will be if the markets do continue to correct, then I will build up my holding in gold funds as in these circumstances they can be expected to pick up.

Best wishes and good investing,

Douglas.

Last week was enough to give the devil the hot sweats.

After a couple of really volatile weeks, Friday saw many of the world’s stock markets closing down by more than 10% from their recent highs. This I understand is called a correction and not a collapse. So there it is, everything is fine and dandy, and it is not a life savings implosion.

Many financial commentators and fund managers have been writing over the weekend that this is simply the way of the investing world, just sit on your hands and the fall will produce buying opportunities in the future. What arithmetical world do these people live in? Most investors have their pension pots or portfolios as a finite quantity. If it falls in value, where do they get the money from to take advantage of these buying opportunities in the future? They presumably have to sell some of their portfolio at the lower value to reinvest back in again at the lower value. Now that makes no sense at all.

Surely it would have been much better to be moving into cash at the time of the impending “correction” to have this money available later on to reinvest at the lower prices. Higher valued cash, buying lower valued funds.

O.K., the argument is that before the correction took place, how did we know if, and when it would occur, and when to be selling funds and moving back into cash? Well of course we did not know, but there have been sufficient warnings to suggest getting such action underway might be a sensible course of action.

  • The American Bond yield starting to rise.#
  • Brexit.
  • Chinese stock markets dropping by over 25%.
  • Trump’s trade wars and America First policies.
  • The Italian economy.
  • Oil prices rising.
  •  Most major economies are carrying enormous debts which are still rising at an uncontrolled rate.

This is quite a list of grim reasons to say “that all is not well in the state of Denmark”. Something in the bilges is smelling, and needs to be resolved!

So if like the Saltydog portfolios you are sitting on around 50% cash, the question is what to do next? Will the markets continue to fall? Will they rise back up only to fall back again in what is fashionably called a “dead cat bounce”? Perhaps they will recover their mojo and ignore the points made above. Who is to know the definitive answer to this question? Certainly not me, so for the moment I intend to sit on my hands and the cash, whilst nature and the markets take their course.

By taking this action I have halved the loss if the market falls further, and if it rises I will have missed some of the gain, but at the moment I think that the chances of the first occurring outweighs the chances of the second.

On a personal basis it has been painful, if not unexpected, to see the old technology funds take the largest knock, with one of my favourites Scottish Mortgage Trust falling by over 20% inside a week. The new technology, medical and pharmaceutical funds seem to have taken the strain a little better with an average decrease of 3% to 4%. Perhaps one could read into this, that those funds heavily invested into the over-valued FAANG businesses have come off worse, and there may be more to come to bring their p.e.ratios down to more realistic levels.

In May I discussed the potential of being able to invest into the newly legalised marijuana industry via the ETF Horizon Marijuana Life Sciences Index. This turned out not to be easy, and I struggled to find a UK platform prepared to carry this fund. Eventually I was able to purchase it through a company called Stocktrade (A division of Brewin Dolphin Ltd) and it sits inside my Standard Life SIPP.  The end of month prices since the purchase are 1039, 1013, 929, 1288, and 1424. The recent increase would seem to be due to the passing of the bill to legalise marijuana for personal use throughout Canada, and in more and more states in America. I have also heard that one of the major drinks companies is considering incorporating it into one of their products, as is a tobacco company. Should this come to pass it would not be unreasonable to expect further fund price increases. It would be interesting to hear from any of you that have found other funds that are boarding the marijuana train.

In the early sixties I spent the last twelve months of my Merchant Navy life as the navigator on the Jamaica Banana Producer where the crew was mostly of Caribbean extraction. Their use of marijuana was endemic and this produced on occasions some very alarming actions, especially when they would consider challenging Newtons Laws of Gravity whilst working aloft. As a result I struggle to come to terms with the thought that in the future some people might be legally driving cars whilst high on wacky baccy!

Best wishes and good investing,

Douglas.

The early bird sometimes catches the worm, but the second mouse always gets the cheese.

In the last few weeks I have had the almost unbearable desire to bail out of Western Stock market sectors. A combination of the Brexit machinations, Mr Trump’s continuing unconstructive trade tariff utterances, the Developed World’s phenomenal debt, along with Mr Putin’s total disregard for International border niceties, in my mind all add up to an impending market disaster – the perfect storm!

Fortunately, as yet I have only taken partial action by halving my investments in Technology, Global, and dollar-based funds. I say fortunately because a glance at our Saltydog numbers still shows a slight lift in these sectors. Admittedly it does seem to be up one week and then down the next, and appears to have a direct correlation to the sterling/dollar relationship. I do not hold U.K. or European sectors or the sectors in our Slow Ahead group. As a result, for the moment my cash holdings are steadily becoming the largest part of my portfolio.

I am not unhappy with this situation, just unsettled. I still believe in technology as one of the investment places for my money in the future, but maybe not that much at the moment. Sciences are rushing forward at an uncontrolled rate and it is likely to produce some interesting moments in the next ten years. No one person can be an expert in everything: Artificial Intelligence, Robotics, Nanotechnology, Genetics etc-etc, and no one will be capable of connecting all the dots at the same time to see the developing big picture. This will definitely be out of the scope of the world`s politicians. The question then will be, who will be able to absorb all the latest scientific discoveries and be able to predict how the global economy will look and work in the future? Who will apply the brakes? Now that is a big job!

The above does not mean that there is not a potential investment opportunity lurking around the corner. I refer to the Asian economies.

China’s stock markets have taken an enormous hit over the last year falling by 20% to 25% and this has dragged down the Emerging Markets which rely on receiving work from China. Australia is in a similar position since its economy relies on selling vast volumes of commodities such as coal and iron to China. India’s market has also been on the back foot for different reasons as Prime Minister Modi endeavours to reduce the corruption in industry and streamline and increase tax receipts.

earlybird

China today still has annual growth rates of 6% that the West would love to experience. It also has a large well-educated young workforce and is slowly but surely arriving at the point that exporting to Europe and America becomes less essential as it becomes able to consume its own production. India already sits in this position with low levels of exports to the West. The rest of the Asean countries will just cling onto the coat tails of these two mighty economies when they take off again. At this point it will really be a mighty self-contained trading block, and surely a good place to have some of your pension money.

The big question for me, is when to put my toe back into these Asean waters? Whether to be the early bird or, what I would prefer as a momentum investor, be the second mouse. Wearing my rose-tinted glasses I think that the Saltydog numbers are starting to indicate a reduction in the rate of fall of the Chinese markets. The VinaCapital Vietnam Opportunities fund is a favourite of mine.  Before the Chinese fall it stood around 370p, then it fell to around 310p and is now back up at 345p. This perhaps is also a positive indicator of investment sentiment. Still, for the moment I think I need more good news on the Chinese markets themselves, before heading for the cheese.

Best wishes and good investing,

Douglas.