Whimsical 2015
Pfäffikon SZ, Switzerland – Currency fluctuations are always a surefire recipe for unrest in the financial markets. The crash in the oil price does the rest. In my last column I warned that your nerves will repeatedly be put to the test this year – which is exactly what’s happening. The S&P suffered its worst start in more than 60 years. Does this recent pull back mean that 2015 will be a bad investment year? There’s an old saying that the first five days of the market are a sign of what’s to come. It is advisable to practice restraint this year.
Margin
The landscape for investors has been thoroughly shaken up. Moreover the current bull market in the US is starting to come of age, which doesn’t necessarily mean it will now abruptly come to an end. No one knows when the party is over, but there are definitely doubts to be had. The margin requirements on the NYSE have risen to their highest levels ever. This has happened twice in recent history, once in 2000 during the dot com bubble and again in 2008 just before the outbreak of the big recession. Illustrious investors such as Buffett and Soros are hoarding mountains of cash or hedging their portfolio – something they’re not doing without reason.
Japan
Another point of interest are the developments in Japan. About one year ago I noted that the buying of assets in Japan would be the no-brainer of 2014. The tide, however, has turned after the extraordinarily loose monetary policy of Japanese president Shinzo Abe – a policy which has drawn growing skepticism from foreign investors. The short positions on the Tokyo market are currently the highest they’ve been since 2008. “Shock and awe” according to many, will not do the job in Japan this year. It goes without saying that we have been avoiding Japan for years, even though some investments in this region have consistently performed well.
Never Sell Shell
Fellow columnist Hans de Geus destroyed the Royal Dutch Shell stocks in his column last week. Shell is seen by many as the cornerstone of a portfolio. Now that the oil price has dropped it is the first level thinkers that see in Shell stocks an opportunity. For years I ran a portfolio which only revolved solely around Shell stocks. In those years I was able to familiarize myself with the subject. My conclusion is that De Geus has a point. Under the surface Shell isn’t performing well and in my view it is a ticking time bomb – a message no one obviously wants to hear. Large numbers after all always impress. Borrowing money to pay out dividends and thereby misleading shareholders is not a sustainable policy. There is a different reason, however, why we’ll never invest in Shell. I hold the opinion that the business Shell is, in general, too competitive. This goes for companies such as Chevron and ConocoPhilips as well. The question is if these oil companies will ever see a return on their enormous investments.
Solar
Investors that are looking for a windfall in light of the drop in oil price it might be an idea to do some research on the solar industry. A lot of solar stocks taken a hit from the market, but often without good reason. More so even when the underlying value of some solar companies and the advances in technology are taken into account. As value investor I love these types of situations and have therefore dusted off my watchlist in this sector.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above shares and has no intention of doing so in the next 72 hours.
