trading
Thursday 28 September 2023
Thursday 31 August 2023
"Where should I invest?"
Wednesday 16 August 2023
"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.
Tuesday 15 August 2023
"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!
Monday 14 August 2023
"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.
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.
Monday 10 July 2023
Wednesday 21 June 2023
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.”
Tuesday 13 June 2023
Saturday 13 May 2023
Tuesday 9 May 2023
"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." |
Friday 5 May 2023
Tuesday 11 April 2023
Monday 10 April 2023
Wednesday 22 March 2023
"Silver"
Tuesday 14 March 2023
"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.
Monday 13 March 2023
Thursday 9 March 2023
Monday 6 March 2023
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.