There is a saying in yoga, stay on your own mat, which means don't worry about how well some else does with the positions, don't worry about how you do with the positions relative to anyone else, just focus on do what you are doing.This blog shares process. It has been a look over my shoulder for anyone who cares to look. It follows themes I latch onto, the decisions I make on behalf of clients and the things I learn along the way.
Readers share their observations and opinions in the comments which enhances the utility of the site for me and hopefully for readers as well. If you favor a certain approach or whatever and want to make the case for it, cool. However telling me or someone else you should give up on your thing because of whatever is not cool. It would be like me coming into your house and telling you how to raise your kids. As far as telling someone else what they should do here; stay on your own mat.
One thing on my mat that I do not talk about enough is certain types of themes that take years to play out. One theme, for me anyway, in this discussion would be China. As a quick recap I got in a few years ago, out a few months early in June 2007, back in about a month early in late 2008 and am considering adding a little more exposure from here.
I believe China is on a path to being an economic super power (if you think they already are then I am saying more of an economic super power). This ascendancy, both of the country on the world stage and of the quality of life for an emerging middle class, will be slow in coming and be a bumpy ride prone to big cycles (I've been saying the same thing for a while).
There are many ways in to China. I not a big fan of the ETFs because they are heavy in financials (FXI 42% and GXC 32%) and now that the honeymoon might be over for the theme I don't want the risks associated with owning the banks. I prefer non-financial and I'd rather not overly rely on exports out of China which leads me to telecom (I own China Mobile for many clients), maybe utilities (read the Barrons piece about power companies in China) or other things that play more on the ascending middle class.
A better example of a theme that could take years, if it even happens, is higher interest rates in the US. Typically deteriorating economic fundamentals leads to higher interest rates. The fundamentals of the US have been deteriorating for a while and obviously rates have not gone up. I am convinced rates will go up, I have been wrong about the timing for a couple of years now but how could they not go up is my thinking.
In terms of portfolio decisions this has meant not buying low yielding treasuries and having more cash than I'd like. That I think the bond market is a mess, and that I don't want to load up on riskier paper is a subject for another post. If rates ever do go back up then I'll add treasuries in and maybe do so for a longer time. The way I view things treasuries are expensive and have been expensive for a while. A long term theme sometimes means having to wait a long time.
Shortly after I sold out of China in 2007 I figured there would be a big drop and I would wait until then before getting back in. Well that is pretty open ended. Then as China finally did start to decline it seemed to me that cutting in half might be justified, so then an overshoot to down 60% from the peak was likely (so I got back in a little early with this thinking). That happened in the fall of 2008. It could have happened anytime or not at all but I was prepared to wait. Maybe a year and half seems like a long time to you but I've been waiting on US treasuries for longer than that.
The picture is from Hawaii, notice the turtles.
21 comments:
I look forward to your thoughts on bonds at some point. As I read Barron's this week, they agree with you 100% on Treasuries, but think opportunities abound in nearly every other sector, including high risk.
Good comments this morning on some broad equity themes. I find myself in agreement with you. I, too, would like some more discussion on the bond side. Credit markets are huge and in some ways even more important to the economy than the stock market. Many retirees I know have a tilt toward bonds and these are difficult times trying to balance yield with reasonable risk. Personally, I am very attracted to high grade short term Corporates and especially AA short-intermediate Muni bonds at this time. Again, this is a personal judgement, but I find it hard to believe that the upcoming administration would allow widespread Muni defaults given the economic chaos that would bring. I also favor purchasing individual issues and holding to maturity rather than dealing with the black box of a fund.....again, just my preference but hopefully will spur some discussion. I have found Fidelity offers fairly transparent and easy purchase of individual bonds.
I second retiredinprescott.
As for the 'yoga' part of the post, i don't recall seeing comments like you mentioned, but then i don't read every line of every post/comment. Another blog i post to frequently also has some 'challenging' comments posted occasionally, sometimes directed at me; imo these are the folks that make for a lively blog.
Anyway, it's your blog; i find myself looking forward to the weekly video - this nicely ties together the weeks posts; any thought to adding a midweek video ?
Regarding China, would HAO (Claymore/AlphaShares China Small Cap Index ETF) be a better mouse trap - it is only 7.71% Finacials although correlation to FXI is quite high?
CA
good question about HAO. I forgot about that as i wrote the post and don't think i have ever studied that one.
As far as the correlation being high, up to this point there has not really been an outsized consequence to heavy financial exposure in China so a high correlation makes sense to me, they are all down a lot--the financials don't stock out now and may never but going forward i woudl rather not have financial exposure.
I've been looking at China too and don't really have a game plan together yet. I looked at HAO, but what stopped me is the (lack of) volume. My problem with some of these specialized ETFs is the ridiculous spreads ... some are several percent wide. Anything less than 100K daily average volume is removed from my screen.
Hi Roger,
I read this recent article by Murray Coleman regarding john Serrapere's top down investment strategy and new alternative index investing venture and thought of you..... You may find interesting.
Rob from WI
http://www.indexuniverse.com/sections/features/5144-serrapere-no-silver-bullet-in-investing.html
I have been considering shorting 20 year treasuries, attached is an article advocating the same. Thoughts on TLT anyone?
http://seekingalpha.com/article/113006-time-to-short-treasuries
Would you consider water management a macro theme? I'd invested in PHO, sold last yr, & will buy again soon.
As a retiree with 25% in a Treas. bond ladder and sitting on 10% unrealized gains, I've tried to anticipate their downdraft ruckus to come. Spring '08 I started adding individual investment grade corporates instead of Treasuries & equity, too early to get the gigantic discounts of last fall. (At the time I had known Treasuries were over-priced, but I didn't conclude how messed up the capital markets really were, different from Roger. But I'm trying to learn.)
I'm a sucker for a "bargain". I did start incrementally buying LSBRX, a corporate fund run by Dan Fuss of Loomis; I won't exceed 2% with my purchases. I figured he could get access to issues I cannot on my Scottrade platform, and I confess I assumed he knew more than I. (We'll see how my reliance on an expert fares & whether I was bargain hunting or just stupid.) It was at discount & I was drawn to its 1/3 allocation to currencies as possible return kicker.(By contrast, I'd felt the guru funds from PIMCO were over owned, & I didn't want to be with a herd of hot $ --again like Treasuries--that might desert if or when equities started to perform.) This is atypical for me; heretofore, I've avoided mutual funds like the cliche plague because of the fee structure.
I agree in general with "Prescott" about munis. I've not found the General Obligation bonds I wanted at price I was willing to pay on Scottrade. Different from him, I've left the $ in un-levered Nuveen CEFs (NXP,NXQ), though I did halve my allocation.
I was one of the early gullible on the short Treas. ETFs, TBT & PST. Though in at less than 2%, it's not catastrophic.
I even added some dividend ETFs in November (SDY, IDV) because I'm under-invested in equities, but am drawn to dividends. Duh. (Family circumstances keep me heavier than normal in cash, as I anticipate 2 family members, probably soon bankrupt from Florida investments, will make good on their longterm reservation of my guest bedroom.)
Mostly I'm glad that I live small & saved a bunch, unlike family. If I weren't disabled, I'd also have that part-time job you encourage. Your readers seem pretty sensible in our different investment paths &/or we want to learn. Such are the times. It's to your credit, Roger, that you're willing to share your thinking & help us along.
There seem to be more than a few who remember stagflation & WIN buttons and who worry for those who've never lived through those type times. Just my two cents.
(Retired) Anna in NC
I think of water as a theme, I've owned PHO personally and for most clients since a a few days after the listing.
I would view any inverse bond funds bought in moderation as a hedge what was not needed or not needed yet.
As i am concerned about munis i should also add the the chance of failures is slim but we have had a healthy helping of slim lately.
That Loomis bond fund was down a lot but really the space they invest in was down a lot. from the top down it isvery difficult to be up in a space that gets crushed
Roger
My own personal goto guy on China is http://mpettis.com/
He seems to have tremendous insight into whats going on over there (Hes a prof at Peking Uni). Worth a read if you're not already familiar. He's quite pessimistic about the near term due to China's reliance on exports and its inability to get internal demand going to meet the fall in exports.
One theme of his is that China is in the same place as US was after the 29 crash.. ie a major exporter with a huge surplus. After the crash and into the depression of the 30s, there was a 'beggar thy neighbour' policy from everyone in an effort to raise each individual country's exports. Because of this the US suffered most (as THE major exporter) We can see the beginnings of this protectionism now in some places and his thesis is that if that continues, China has the most to lose.
Worth a read.
Brian
Roger, I'm very interested in the China theme, and just about get whiplash from reading back-and-forth bullish/bearish arguments about their economic situation. My best guess is that their use of reserves for infrastructure stimulus could just about balance out the damage from falling exports, so they look a bit oversold now.
But I'm staying away from large caps FXI and CHL: too much "hot money" for the big boyz (as well as Beijing) to manipulate. I like small-cap specialist CHN, infrastructure companies such as KHD, and local agriculture such as HQS.
And add me to the list of people interested in bonds. Bond CEFs with sprinklings of risk have been incredibly cheap; but which risks to get greedy with, and which to fear, is a constant enigma.
a chinese fihsery? nice. actually I don't know KHD or HQS, is KHD really trading below its cash per share?
I had to read the comments section that your referred to. Money and strongly held opinions go hand and hand (not referring to you Roger). I'd offer another 'saying" for investing: "one goal, many paths". There is no one way. It's every investors job to educate his/herself so they can evaluate the quality of the advice they give. No one can cede full responsibility for their money to another. Those that do run the risk of ruin.
I hold much of what passes for market research to be junk. I say that as a firm believer in that you can always mine data to support your opinion. I do not subscribe to buy and hold. A simple look at F, GM, GE and C since the 1990's ought to lend some credence that smart selling ought to be part of every investor's strategy. Beating indices is never part of my strategy. Preserving capital COUPLED with mindfulness of the risk and reward environment makes a lot of sense to me and works for me. I lost right along with the indices the 2001 bear market. I've not lost a nickel in this one, and in fact my accounts are ahead for the year. But I also spent a good bit of time educating myself, and I had the luxury of time to do that.
My current theme is that we are experiencing a trans-generational move which means the experience of most folks is thrown out the door. I also agree with the China stuff...China was good to be last year, and I've re entered a few names recently (WH, CNTF, BEST). But they all scare me! The worst thing that could happen to the US is that emerging markets cultivate internal demand to offset the US consumer. If that happens, (and it will take time) then we are likely to see some troubles with our interest rates. As folks will not need to recycle US dollars.
understanding that people have the ability to make data say whatever they want is crucial to understand
Sorry, but I am a little confused. Did I get on someone else's mat or did they get on mine?
How do you have lively discussions without some disagreement?
Not to be rude, but how about you change the rule to not pissing on some one else's mat?
Roger, thanks for the blog.
I don't recall anyone saying anything negative about what you do, but I may have missed it.
You are one of the most diversified-investors/advisors there is.
The positions are always small and often times low-correlated (eg DBA, China, PHO).
Thanks again for what you have written and will hopefully continue to write. And may the new clients appear or at least they will have a constant awareness of your thoughts - which is a lot more than most investors can say.
"why do you buy and hold, you should give up buy and hold and be a swing trader because I think it is the best way to invest"
that type of comment is what i mean.
you want to argue an opinion that is fine, disagree with my opinion, that is fine, something like the above which gets left every now and then is not fine.
Roger, you often look back at purchases/sales and say you were a little late or early. What's wrong with dollar cost averaging? Surely with the amounts you're trading you can blend the smaller peaks and troughs?
Great article, and Asia is looking like it's at a key juncture right now with protectionism the most likely outcome.
Great call on China Mobil. I bought it late November with a target of 54.8. Getting close so looking for a pause. Long term target for me is 81.5. We shall see. Great blog Roger.
DCA in that context, I like a stock so I will buy some now and then buy some later will either work or it won't. if it works this time it won't the next or maybe the time after.
when you buy a stock it will either go up or down and you don't know which so DCA in that context is a guess, IMO, not a plan. the one thing you do know is that you will incur more than one commission if you buy some now and then buy some later.
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