What a gift to have had another year on this planet.

Happy and Prosperous New Year to everyone!

So, as we head into another new year, resolve to get your trading logic down to watching prices and reacting routinely to them using whatever you decide constitutes your own strategy of how you buy and sell. Clear your trading mind of predictions end execute. Maybe you’ll more easily enjoy the ride in 2024!

A compelling risk-reward profile.

The aggressive young oil and gas company recently acquired a 37,000+-acre plot of land in the heart of the DJ Basin, where majors like Chevron, Civitas, EOG, and Samson operate.

The best part? It snatched up that land out from under Chevron's nose … and was rewarded with possible reserves up to 285.3 million barrels of oil equivalent, according to a recent, independent, third-party assessment.

Oh, and because Prairie is only just now hitting the NASDAQ, it's still under $70 million market cap … despite its potential reserves.

You Belong In Your Dreams

Merry Christmas

"The American Tourist and the Mexican Fisherman."

An American tourist was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked.

Inside the small boat were several large yellowfin tuna. The tourist complimented the Mexican on the quality of his fish and asked how long it took to catch them.

The Mexican replied, “Only a little while.”

The tourist then asked, “Why didn’t you stay out longer and catch more fish?”

The Mexican said, “With this I have more than enough to support my family’s needs.”

The tourist then asked, “But what do you do with the rest of your time?”

The Mexican fisherman said, “I sleep late, fish a little, play with my children, take siesta with my wife, Maria, stroll into the village each evening where I sip wine and play guitar with my amigos, I have a full and busy life.”

The tourist scoffed, ” I can help you. You should spend more time fishing; and with the proceeds, buy a bigger boat: With the proceeds from the bigger boat you could buy several boats. Eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to the processor; eventually opening your own cannery. You would control the product, processing and distribution. You could leave this small coastal fishing village and move to Mexico City, then Los Angeles and eventually New York where you could run your ever-expanding enterprise.”

The Mexican fisherman asked, “But, how long will this all take?”

The tourist replied, “15 to 20 years.”

“But what then?” asked the Mexican.

The tourist laughed and said, “That’s the best part. When the time is right you would sell your company stock to the public and become very rich, you would make millions.”

“Millions?…Then what?”

The American said, “Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos.”

Think about your Goals and what will you Become, Do, and Have when you achieve them. Enjoy the ride!

"Doing the Unsexy but Important Stuff"

In trading, numerous practices fall into the realm of being uninteresting, dull, or unappealing. Reviewing your performance and actions is one such practice. I'm not referring to a quick analysis of the day but rather delving deeply into self-examination—scrutinising yourself, your behaviour, your thoughts, and your actions and reactions. This is a fundamental aspect of 'being a student of yourself,' not solely 'a student of the markets.' Being a 'Student of Your Self' constitutes one of the hallmarks of the very best performers.

 In this matrix, there are four squares. The square at the top left is designated for all your activities that are 'urgent and important.' This is where people allocate most of their time and energy, although quite often they end up engaging in numerous tasks that belong to the bottom-left square—urgent but not important. Consider the time spent inanely 'watching every tick' or dedicated to meaningless hours on social media."

It is however the top right square which, where time spent and devoted to, is what leads to great performance. This is the square where the stuff that is ‘important but not urgent, nor exciting’ or sexy, is done. This is where growth and elite performance capabilities spring from. This is where Kobe Bryant lived!

The Unsexy but Important Stuff of Trading

Journaling, reviewing, self analysis, planning, developing, working with mentors and coaches. Also doing the equivalent of training, such as going on courses, working with a performance coach to become better, learning new techniques or skills which may benefit you. Also attending events where you can learn from others. Spending time reading about and developing areas you are weak on. Reading books, whilst also taking notes on what you are reading where it matters. The same goes for listening to podcasts.

There are also activities which are more self-state focused; doing things that remove you from the noise and help you refresh and recover to become stronger mentally. Physical activities such as going to the gym, running, swimming, yoga, meditation, mindfulness, or just recuperating breaks.

The covey matrix is a matrix for life, if you don’t do the stuff on top right, or you keep putting the stuff in that space off, you are ‘selling yourself short’. You may not see it on a daily basis, but in the future if you aren’t achieving what you dream of, you'll one day look back and say, I should have done more of that stuff, I just could not be bothered at the time.

"Win or Lose, Everybody Gets What They Want out of the Market."

Interest rates will come down. Whether by will or if a recession or war forces them first, rates will come down.

Enjoy the ride!

"Don't play all the time."

"The trend is your friend, don't fight the tape."

"When the time comes to change the calendar to October the bears won't want to."

"Where should I invest?"

Minimize the risk of having too much exposure to a single government by diversifying your assets, businesses and lifestyle to various jurisdictions.

"Where should I invest?"

Two days ago we reviewed different investment philosophies. The 100% cash portfolio highlighted the considerable carry we can get from cash, the 100% stock portfolio reminded us that it is important to maintain a high level of risk, and the risk parity portfolio pointed out the benefits of bond-equity diversification.

Then yesterday we made a list of the key candidate components in our portfolio: cash, treasuries, value and momentum stocks, crypto, commodities and real estate.

Today we bring it all together. Our guiding principles will be: (1) be ready for a mid-cycle slowdown, (2) maintain carry, (3) maintain equity upside, because the market could continue to rally, (4) keep some dry powder to buy markets lower.

Step 1, we will divide our allocation in 2 buckets, risky assets and safe assets, and use the traditional 60-40 split. We can certainly be more sophisticated than that, but this is ok for now.

40% Risky Assets

60% Safe Assets

Step 2, we allocate to our safe assets. We probably want to keep 20% of our portfolio in cash to see if we can buy equities a bit lower than 20 P/E. The rest can go to Treasuries.

• 40% 10y US Treasury, 4.1% yield

• 20% Cash, 5.4% carry

Step 3, we allocate to our risky assets. Our standard play could be a half-half split between momentum and value, but we want to make space for real estate and oil. Given the extraordinary momentum of the Magnificent Seven, we don’t want to limit them too much as value still needs to demonstrate it works.

• 20% Magnificent Seven, 0.1% dividend yield

• 10% Value Stocks, 3-4% dividend yield

• 5% Oil, 8% carry

•  5% Crypto, 3.3% carry

In conclusion, 

40% Risky Assets

•  20% Magnificent Seven

•  5% Value Stocks

•  5% Real estate

•  5% Oil

•  5% Crypto

60% Safe Assets

• 40% 10y US Treasury

• 20% Cash

If the market rises, our risky assets will go up and our safe assets will give us 4.5% carry. If the market falls, the appreciation in our safe assets will make up for our largest losses and allow us to tilt back into risk assets at lower valuations. Or at least, that’s the theory.

In practice, professionals will use past history and monte carlo simulations to assess the max drawdown you will likely experience - and tune your portfolio accordingly. But the result won’t be massively different from what you see above.

"Where should I invest?"

Yesterday we discussed 6 “paragon” portfolios, including extremes across the risk spectrum like being 100% in cash or 100% in stocks.

Today, we list 7 building blocks for your portfolio, with strong tailwinds at their back in this market phase. This is in preparation for part 3 tomorrow, where we’ll assemble them into a model portfolio for Q4’23 and onwards.

Cash offers mouth-watering interest. With a remarkable 5.4% yield, cash is all of a sudden fashionable. We keep cash in our allocations as dry powder, to buy something later at lower valuations. 

This is the right moment for Treasuries. Mid-cycle is a good moment to load on Treasuries, especially when the Central Bank stops hiking.

Play the AI revolution with the ‘Magnificent Seven’ stocks. 7 stocks have led the market higher in the last 12 months: Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla. One might be wary of buying stocks at the nadir, but momentum can last deep into the mid-cycle - especially at the onset of new technology.

The market is full of Value stocks. Do you reckon the market is expensive? Think again! Rock-bottom bargains abound, from ALB to EMN to VZ the market is full of forlorn stocks with value levels last seen in 2008.

Oil is rich in carry and momentum. How would you like 8% carry and strong tailwinds as trade recovers at the end of the inflationary bout?

Crypto is the bull market nobody talks about. Once upon a time, there was a bull market in crypto and people were enthused by NFTs. Then AI came, and we moved on. But Crypto has not disappeared, and smart contracts will once again come to the fore in the future. Load on those ETHs.

Real estate will benefit from the return to the office. Real estate comes from a brutal battering: higher rates and work-from-home policies were a perfect storm to crash prices lower. But we’re past all that, and REITs of all colors might be getting ready to shine again.

Tomorrow we’ll take these 7 lego blocks and try to assemble them in a coherent portfolio ready for the next phase of the cycle!

"Where should I invest?"

Asset allocation pieces have a grand and long-standing tradition in big banks.

They pop up at the beginning of each quarter and remind us about the most important investment decision we must make: portfolio allocation.

So here’s 6 profiles of portfolio allocation - each one with its own merits:

Cash is king: 100% in cash. T-Bills give you 5.4% yield. With inflation falling fast, that’s not a bad place to be.

Treasury Bug: 100% in 10Y Treasuries. The end of the hiking cycle is in sight AND it’s entirely possible we see rate cuts next year. Long bonds do well in this scenario, and give you 4% carry in the meantime. Treasury bugs will hold on to their USTs until they can buy the market at a much cheaper P/E.

Risk Parity: [60% in Treasuries] + [40% in your favourite stocks]. Risk Parity’s century-old track record is stellar, and long-term investors do well to trust it with their savings. In terms of what stocks to add, we’ll discuss it tomorrow but the whole market is your menu, from strong momentum in tech to deep value in other sectors.

To the Moon: [30% cash] + [70% of your favourite stocks]. Who said the bull market is over? Cassandras have been complaining about expensive stocks for months and yet here we are at SPX 4,500. Just keep some cash to buy the dips.

Going Nova: [80% in your favourite stocks] + [20% in crypto]. The way to long-term returns is long-term risk-taking. “No pain, no gain”, that’s the philosophy. You got to keep the pedal to the metal all.the.time. if you want oversized returns. 

The ‘Warren Buffet’: 200% in your low beta stocks. Buffet is not a value investor, he’s a low beta investor. He buys low-vol stocks on leverage, trusting the best US companies not to go bust. Worked well for him for a long time.

Platinum.

 Today is a second entry buy day. 

Platinum.

 

• The silverish-white metal is often used in “catalytic converters” that reduce harmful emissions from fossil fuel vehicles.

• The global platinum market is expected to rack up its largest deficit since the 1970s as the world’s largest producer, South Africa, battles with power outages.

• South Africa accounts for 70% of global platinum output, and its annual production amounted to about 140 metric tons amid shortages in 2022.

• According to The World Platinum Investment Council (WPIC), global platinum demand should surge 28% this year to 8.2 million ounces as more automakers replace expensive paladium with platinum in car catalytic converters.

• Metals Focus added, "With power outages in South Africa limiting supply, the global deficit could increase to 953,000 ounces from 53,000 ounces in 2024.”

There is now an alternative, there is simply no reason to chase performance... (bearish) investors can park their cash in money markets, receive an annualised yield of 4/5% and wait for the recession to arrive in the data.

"Palantir Technologies CEO Alex Karp announced that they anticipate turning a profit every quarter in 2023, fueled by the overwhelming interest in its new artificial intelligence platform. The result? Palantir stock (PLTR) soared over 20% in extended trading.

The Palantir Artificial Intelligence Platform (AIP) integrates AI into military decision-making, allowing military operators to utilize AI in their operations. The company is known for its contracts with the U.S. Central Intelligence Agency.

Karp commented, “The demand I've seen for our AIP platform is like NOTHING I've seen in the past 20 years." The rise of ChatGPT and LLMs has, without a doubt, been good for Palantir’s business."

What recession?

New ATH

Iris Energy

Ranges are more common than breakouts. Aproximately 60 % of time markets go nowhere.

"Silver"

Silver is the alt-coin of precious metals. The market structure is extremely bullish with: -Commercials with historically small short book -Hedge funds are on sidelines with buying power -SI has taken leadership among PMs -Open interest is extremely small (public is not in yet)

"Where is the money?"

 The US military-industrial complex is making massive gains as a result of the war in Ukraine and other global conflicts, with weapons manufacturers enjoying soaring profits.

Data released by the State Department shows that US weapons sales to other countries rose from $103.4 billion in 2021 to $153.7 billion in 2022.

 

Accept that price is unpredictable. Don't fall into the trap of thinking you can predict the market. Instead, focus on managing risk and dealing in probabilities.

Uprise, by asking yourself "Why?"

Someone once described it this way: Sometimes you can be too focused on climbing the tree, and not focused enough on whether you're climbing the right tree in the first place!

It's funny how many books and courses and videos there are to help you become a better investor, but very few of them help you figure out the "why".  And that's arguably the most important question of all.

I hope you can spend some time this week thinking about the why.  We can do all sorts of things to help improve your decision making, help manage your portfolio risk, help minimize the impact of behavioral biases, help improve your investment returns.

But first, you need to think about the Why.

"Trend trading strategy"

 

"survivors"

 

"Many traders seem to use data on the economy, interest rate curves, volume or other things to decide where prices in their markets will go. I just look at the price and let all that other data be what it is. It may or may not influence prices, but if I just concentrate on prices, I’m tying my actions to the one thing that either makes a profit or loss in my portfolio. There’s less likelihood of being out of step with whatever the market is currently doing."

The real skill is not in making money. The real skill is in keeping it.

 

Now we'll see if this holds or folds.

 

leson #1 - "All large losses begin as small losses."

The Trend Rider: Trade like a Cheetah: Trade like a Cheetah   The cheetah. An endangered species who has survived against the odds. It has survived by using a simple set of two ...