Something in the bilges is smelling: Thoughts of Saltydog Investor

Last week was enough to give the devil the hot sweats!

After a couple of really volatile weeks, Friday saw many of the world’s stock markets closing down by more than 10% from their recent highs. This I understand is called a correction and not a collapse. So there it is, everything is fine and dandy, and it is not a life savings implosion.

Many financial commentators and fund managers have been writing over the weekend that this is simply the way of the investing world, just sit on your hands and the fall will produce buying opportunities in the future.

What arithmetical world do these people live in? Most investors have their pension pots or portfolios as a finite quantity.

‘Something in the bilges is smelling, and needs to be resolved!’

If it falls in value, where do they get the money from to take advantage of these buying opportunities in the future? They presumably have to sell some of their portfolio at the lower value to reinvest back in again at the lower value.

Now that makes no sense at all.

Surely it would have been much better to be moving into cash at the time of the impending ‘correction’ to have this money available later on to reinvest at the lower prices. Higher valued cash, buying lower valued funds.
O.K., the argument is that before the correction took place, how did we know if, and when it would occur, and when to be selling funds and moving back into cash? Well of course we did not know, but there have been sufficient warnings to suggest getting such action underway might be a sensible course of action.

• The American Bond yield starting to rise.
• Brexit.
• Chinese stock markets dropping by over 25%.
• Trump’s trade wars and America First policies.
• The Italian economy.
• Oil prices rising.
• Most major economies are carrying enormous debts which are still rising at an uncontrolled rate.

This is quite a list of grim reasons to say ‘that all is not well in the state of Denmark’. Something in the bilges is smelling, and needs to be resolved!

So if like the Saltydog portfolios you are sitting on around 50% cash, the question is what to do next? Will the markets continue to fall? Will they rise back up only to fall back again in what is fashionably called a ‘dead cat bounce’? Perhaps they will recover their mojo and ignore the points made above.

Who is to know the definitive answer to this question? Certainly not me, so for the moment I intend to sit on my hands and the cash, whilst nature and the markets take their course.

By taking this action I have halved the loss if the market falls further, and if it rises I will have missed some of the gain, but at the moment I think that the chances of the first occurring outweighs the chances of the second.

On a personal basis it has been painful, if not unexpected, to see the old technology funds take the largest knock, with one of my favourites Scottish Mortgage Trust falling by over 20% inside a week.

‘it has been painful, if not unexpected, to see the old technology funds take the largest knock’

The new technology, medical and pharmaceutical funds seem to have taken the strain a little better with an average decrease of 3% to 4%.

Perhaps one could read into this, that those funds heavily invested into the over-valued FAANG businesses have come off worse, and there may be more to come to bring their p.e.ratios down to more realistic levels.

In May I discussed the potential of being able to invest into the newly legalised marijuana industry via the ETF Horizon Marijuana Life Sciences Index.

This turned out not to be easy, and I struggled to find a UK platform prepared to carry this fund. Eventually I was able to purchase it through a company called Stocktrade (A division of Brewin Dolphin Ltd) and it sits inside my Standard Life SIPP.

‘in the future some people might be legally driving cars whilst high on wacky baccy!’

The end of month prices since the purchase are 1039, 1013, 929, 1288, and 1424. The recent increase would seem to be due to the passing of the bill to legalise marijuana for personal use throughout Canada, and in more and more states in America.

I have also heard that one of the major drinks companies is considering incorporating it into one of their products, as is a tobacco company. Should this come to pass it would not be unreasonable to expect further fund price increases. It would be interesting to hear from any of you that have found other funds that are boarding the marijuana train.

In the early sixties I spent the last twelve months of my Merchant Navy life as the navigator on the Jamaica Banana Producer where the crew was mostly of Caribbean extraction.

Their use of marijuana was endemic and this produced on occasions some very alarming actions, especially when they would consider challenging Newtons Laws of Gravity whilst working aloft.

As a result I struggle to come to terms with the thought that in the future some people might be legally driving cars whilst high on wacky baccy!

Douglas.