The past two months have flown by since the relaunch of The Fleet Street Letter in late January. At that time, stockmarkets were falling as negative interest rates were unsettling the banking sector and the Chinese slowdown was impacting commodity prices. It was looking like another sharp fall for the market, but never underestimate the impact of stimulus.
The Fleet Street Letter was first launched in 1938. There have been over a dozen editors, and I considered it to be a privilege to join their ranks. There has been no sense of continuum between the editors. Instead they have been bound by having an insight into financial markets. My plan was to make The Fleet Street Letter relevant to our times. Investors today have cheap access to the market via the internet, yet are confused by the excessive choices they face. In particular, I wanted to offer high-end portfolio advice, used by the super-rich, to a wider range of investors.
To achieve this, simply and effectively, my plan was to have two portfolios called “Whisky” and “Soda”. Soda is a blend of high quality assets whereas Whisky is comprised of equities. Whisky’s holdings would include various sector or country funds, in addition to direct UK stocks as just described. I would expect to hold six to ten UK stocks, two or three sector funds (ie, oil, technology and consumer) and two or three country funds – which are most useful for asset allocation. Whisky and Soda can be mixed according to your personal taste. The stronger it is, the riskier – and vice versa.
Given that it is comprised of high quality assets, I was keen to invest the Soda portfolio quickly as the holdings would be less sensitive to economic swings. They tend to fall much less during the bad times, yet more or less keep up during the good times. That means they can be bought at any time. There aren’t many things that can be described as high quality, and when you find one you should hold onto it.
The Whisky portfolio was to be invested more slowly since we must await opportunities. The first came in early February, when oil fell below $30 per barrel. I decided to buy and suggested to readers that they buy an energy fund. Oil was in oversupply, but it wasn’t going to stay that way forever. There was an opportunity and I took it.
Then in February, one of my gold models turned bullish. For the first time since the gold peak in 2011, the price was rallying in all major currencies at the same time. Recognising the importance of this, I added gold to the Soda portfolio. Gold is a high quality commodity, and in many peoples’ eyes it should be bought and held for the long term. I disagree with that as it doesn’t pay a yield. It only strives to match inflation rather than beat it and so is likely to lag behind equities over the long term. I believe gold should be owned when conditions are right and not always. It has behavioral traits that are predictable and responds well to rational analysis.
February also saw stockmarkets turn up in certain places. I was keen to avoid China, but I liked the Chinese government stimulus program. So instead of buying Chinese stocks, I selected a neighbouring country, which would enjoy the stimulus but have less risk, instead. One issue with China is the richly valued currency. Some of her neighbours had an advantage as they had already devalued their currencies. They would be right next door to the stimulus while being more competitive.
I chose another country closer to home that was outside the EU but would benefit from European Central Bank stimulus. It was slightly more controversial, but a good trade. Again it had low volatility, low valuations, earnings growth and widespread misunderstanding about the risk.
I also recommend single stocks for readers. I have identified roughly two dozen companies in the FTSE 350 (100 plus 250) that I deem to be exceptionally well-managed businesses. They generate high returns, pay dividends and all have something in common – that is a lasting competitive advantage. Once those companies have been identified, I patiently wait for the valuations to come to me. When they do, I’ll recommend them to my readers.
The first buy note for a British supermarket chain went out a month ago. I compared Tesco, J Sainsbury and WM Morrison. Distress in the bond market highlights how one of them is risky whereas the one I chose isn’t. It also has a growth strategy that doesn’t require opening new stores into an already saturated market. Which one is it?
Both portfolios are making money and I am delighted to have got off to a good start. I’m enjoying this new challenge because I have freedom to write what I believe – which for me, is important. It should be important for you too. All too often in the modern world, the things we hear are edited. That could be from censors, governments, corporations or your stockbroker. Spin is rife.
I plan to write The Fleet Street Letter for many years yet, and you can be certain of one thing. You’ll get an impeccable service, timely recommendations and an insight into financial markets.
Category: Economics