I have been recommending investment in India for many years. It is a country that has some obvious similarities with China – a large young population, urbanisation and a rapidly growing middle class.
May Watching Brief now published
This is the regular market commentary that I have always intended to publish. I have altered the format completely, so it now feels much like the presentation I would have made verbally to clients if I had been reviewing their portfolios as part of their service contract when I was their IFA. That would have fed through to any necessary fund switches, sales or additions.
This change is the result of feedback received, so I hope it useful. I have not restricted it to Member Only this month, so non-members can see if it might be helpful and justify signing up! Here is a link.
Of course, this cannot be the same as a full review with an IFA, because that would conclude with personal recommendations, which I do not offer. But if you have an IFA, this will give you something to take to the review meeting, or even to prompt an extra phone call. If you are making all your own decisions and you are a subscriber, feel free to contact me if you want to disagree, or want to see any more evidence!
What is diversity and how can you get it?
I have been asked to write on this subject by a site reader and it is indeed a ‘hot topic’ in the trade press for investment advisers. That is because the ways in which investment advisers and managers diversified portfolios traditionally are not likely to work in the current financial market climate. I started with a blog post, but the subject deserves more than that, so I have added a “How to” article. Here is a link.
Mary, Mary quite contrary
Readers may have heard the phrase ‘contrarian’ with reference to a certain fund manager or investment style. Generally this implies taking decisions that are at odds with the perceived thinking of the majority.
NotHarry has a T shirt with a quote from Mark Twain that goes something like this: ‘if you find you are one of the majority, it is time to stop and think again’. That would suggest merit in challenging the accepted wisdom. On the other hand the gurus of behavioural psychology point out that the ‘non thinking’ or at least not conscious thinking part of the human brain drives far more of what we do than the analytical, logical part, which makes a case for investing on what is usually called a ‘momentum’ basis, or following the herd.
The question then arises: is it good to be a contrarian in the long run? Absolutely! But….
The way a contrarian is able to increase the odds of success in investing is to keep the analytic part of their thinking process switched on at all times. Investing with the momentum makes sense if you get in at or near the start, like a surfer spotting the next big roller some way off the beach. But you need to know how long to stay on the peak and when to safely get off. Better to exit gracefully than crash out and get caught in the undertow.
A good contrarian investor is not someone who just buys cheap out of fashion assets, although that can be part of the process. The contrarian assumes the majority view is wrong until they have proved to themselves that it is not, or even that it is wrong but will push share prices up for a while! Above all the contrarian (maybe without actually knowing as much) understands that behavioural biases influence investment markets and clichés and simplistic rules of thumb are not an intelligent way of building a portfolio.
I will finish with an example. It is widely believed that electric vehicles are the future and indeed there is concrete evidence of reduced sales of diesel cars. A simple view might be to invest in Tesla or another car manufacturer with a stated specific total commitment to electric cars, and so sell or even ‘short’ holdings in businesses like Volkswagen, Nissan or BMW. A contrarian would perhaps argue that with the most advanced production facilities in the world, these latter companies could switch to making electric cars much faster and at lower unit cost than a new player who will have to purchase vast amounts of capital equipment and learn the process. So the contrarian would take advantage of bad news about diesel car sales resulting in lower share prices for a well run ‘traditional’ car company to build a stock position, especially if they can see from thorough research that plans for a major switch of production are already well under way.
In my view being ‘contrarian’ is simply a matter of fighting the human tendency to be one of the pack and keep your intelligence turned on all the time. If you can do that, you will have a lovely show of investment blue bells and cockle shells.
Funds – a couple now written up (m)
I know that fund research is what will interest many readers so I am now progressing to adding fund commentaries. I will try and make them variable in terms of potential interest, so I have started with two very different offerings.
Blue Whale – or minnow?
A relatively newcomer to the retail investment market is Blue Whale Capital, a business backed by Peter Hargreaves who made his fortune with the Hargreaves Lansdown direct to the consumer trading platform, now one of the largest business in the UK.
The Blue Whale investment management team is young and has apparently quite wide experience. The assets they are looking after at the moment are not massive and likely mostly money from the Hargreaves family, based on what they say in their publicity material. The fund on offer is a global unconstrained growth fund with very high concentration.
From the available data, the fund positioning at the moment is strikingly biased in favour of US tech businesses. Now I have been telling people for a couple of years that big tech companies with high free cash flow (so Apple or Amazon, not Tesla or Netflix) are the new defensive stocks, taking over I think from the tobacco and pharmaceutical companies. But I am not sure that buying only such stocks at current prices with new money is prudent.
This question is addressed by the managers in the fact sheet material on their web site, but I am unconvinced at the moment. Intuitively, I like new funds run by younger talented managers. But the extremely narrow focus of this new offering makes me slightly nervous as well. I will be keeping an eye on it!