Today we have a special report from Scott Campbell - Managing
Director and Chief Investment Officer of MitonOptimal.
Marc Faber, the famed editor of The Doom, Boom and Gloom Report to which we
subscribe, was apparently moderating at an investment forum in Moscow recently
where he asked his fellow panelists, “If tomorrow you were supposed to go to
jail for 10 years and were allowed to make only one investment, which you would
not be able to touch for this period, what would you choose?” Considering his
panelists included Nouriel Roubini, Nassim Taleb, Hugh Hendry and Russell
Napier, the answers were pretty enlightening.
In addition, this week on fullermoney.com a subscriber asked the question of
what one should do when leaving a portfolio to a spouse upon death who has had
no involvement or interest over the past 40 years.
These answers make for interesting reading.
The answers to Faber’s question were: a basket of western
multi-national stocks which benefit from emerging markets (Roubini), land in
Lebanon! (Taleb), large high-return emerging market stocks (PIMCO EM fund
manager), basket of Asian currencies (Napier), tobacco stocks (Hendry) and gold
(Faber himself).
We devised the charts on this page from Bloomberg to look at the past 2 ten year
periods and clearly picking the large under-performer of the previous period
would have rewarded handsomely. Gold and EM equity massively underperformed in
the 1990’s and Developed Equities (S&P500) in the 2000’s. We picked gold and EM
over the past ten years but now we agree with Roubin that a basket of western
multi-national high dividend stocks which will benefit from the emerging world
boom would be the place to be after a dismal past ten years.
The next question is more behavioural and subjective. “I know
my way around the investment world, but my wife has no interest. What happens
upon my death? Should I leave her with a portfolio of unmanaged stocks, mutual
funds or a money manager? All of these might be ok, but things change. The
obvious similarity with the above debate is that what may have worked for the
past 10 years may not work for the next 10. Also, as people get older their
investment objectives change.” Two important points came out the discussion for
me:
1. Succession planning to minimize tax implications is important but ensuring
that all family members sit down and understand the actual investment portfolio
and how it is to be managed is more important.
2. 30 years ago, income objectives were easily met by building a portfolio of
long dated western government bonds as runaway inflation peaked.
Today, those same investments are a massive avoid at the end of a long bull
market as deflation has worked its way through the system and the reflation
season begins again.
An income yield portfolio must incorporate commercial property and high yield
equities (which are more volatile) but will provide a growing income yield in
the face inflation over the next 30 years. This time period could be important
if American congressman Ron Paul is to believed, “We have so much unemployment,
it is so undercounted. The free market economists report that there is probably
22% of unemployment. They [the Fed] pumped in $4 trillion, they should have
added a lot of jobs, but how much did it cost us, and that of course is the
price inflation that will come. We are moving into another 30 year period where
we are going to see a reversal of interest rates, and we are going to see a
crashing of the bonds like we saw 30 years ago and it’s going to last a long,
long time. The Fed deserves the blame for the inflation, and for the
unemployment.”
Looking forward is vital. Jesse Livermore was one of the most outstandingly
successful traders of the early 20th Century, immortalised in Edwin Lef่vre’s
“Reminiscences of a Stock Operator”. On the few occasions when he lost money, it
was invariably because he chose to override his own rules. He said many
insightful things about the psychology of successful investing, but perhaps his
most pertinent observation was the following: “After spending many years in Wall
Street and after making and losing millions of dollars I want to tell you this:
it never was my thinking that made the big money for me. It always was my
sitting. The big money is made by the sittin’ and the waitin’, not the
thinking.” He did not plan things differently when he decided to end his life,
“I seem to remember that Jesse Livermore, despite being an extremely active
trader, chose to put together a portfolio of high yielding rail and utility
shares for his wife before his suicide. I guess he knew that he would be trading
less actively in future.” Fullermoney.com
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The above data and research was compiled from sources
believed to be reliable. However, neither MBMG International Ltd nor its
officers can accept any liability for any errors or omissions in the above
article nor bear any responsibility for any losses achieved as a result of any
actions taken or not taken as a consequence of reading the above article. For
more information please contact Graham Macdonald on [email protected]
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