A mistake in judgement should not be fatal, but too much anxiety about judgement is. (Pauline Kael)

In one breath the professionals that “know” are telling us, amateur investors, that in times of stock-market sector collapses, we should just sit out the fall and not run for the safety of cash.

After all, they say, the markets will eventually recover.  Then this week I have read in “The Times” that these same people, the Fund Managers, have reduced their investments within the set limits of their operational sectors and are now holding more cash than ever previously recorded. Strange that!

For my own satisfaction and your confusion, I am going to set out the arithmetic for the following situation. Assume a £1,000 investment and a market drop of 40%, and then over time a 40% recovery. £1,000 less 40% equals £600. Then a 40% recovery results in a value of £840. It is not as some would like you to believe, i.e. a full pound note recovery.

Now it is not reasonable to expect to pick the top and bottom of the market to make your moves, so let’s assume that you react 10% from the top and 10% from the bottom, and go entirely into and then out of cash. This is where it gets a bit more complicated …

If you start with 1,000 units worth £1 each, then the total value is £1,000. Price drops by 10% to 90p and you sell, giving you £900. Price then falls all the way down to 60p (40% down on where it started). It then goes up by 10% to 66p and you by back. You invest the full £900 and get 1363.63 units. Price then goes up to 84p (40% above its lowest point), at which point your investment is worth £1,145. This compares with £840 if you had done nothing.

Like Saltydog, I know which route I would prefer. This is just one example, and other numbers can obviously be used. If this has made sense to you, then I suspect that you must have misunderstood something!

During the last few years, a great amount of money has been poured into the E.S.G. (Environmental, Social & Governance) funds in the belief that this approach, and the accompanying developing sciences, will give mankind and all other types of life a better chance of long-term survival. This would be partially achieved by reducing the use of carbon-based fossil fuels and products, and then introducing new energy generating technologies. To succeed, this also has to be accompanied by changes in the lifestyles of many people in the West.

Unfortunately, these admirable aspirations have become delayed by the “three horsemen”, consisting of the Covid pandemic, Putin’s War and the Sanctions imposed on Russia by the West. Not forgetting the appalling loss of life in the Ukraine, put simply, this has had a detrimental effect on many of the world’s economies, and put a delay and dampener on these E.S.G hopes. To keep the lights burning for the next few years it has been necessary to revitalise the sourcing, use and extraction of fossil fuels. All of this has adversely affected the value of E.S.G. funds.

This brings me to the subject of the energy and commodity funds (JPM and BlackRock commodity, Schroder and TB Guinness Global Energy) which I have discussed ad nauseam over the past six months. For those that have held these four funds throughout this period, the gains have been in excess of 30% with TB Guinness Global Energy leading the field with a gain of 50%+. These have shown in the last few weeks to be slowing down, so the next month is going to be interesting. What to do next is my conundrum as I now only hold these funds and the rest for the moment is in cash, gold bullion, plus a little bit of Hydrogen. The present world economic and political situation is likely to mean increased demand and profit for the businesses involved in the two areas of energy and commodities, but by how much?  So, my decision for the moment is to stay put.

There are no other sectors showing up with any sort of consistency in the Saltydog numbers. Latin America and Japan sectors come and go. Personally, I would have thought that Latin America with all of its raw materials from rocks to food would have had more staying power. Perhaps this time around with the supply difficulties discussed above, it will be different. These funds are again appearing in the Saltydog weekly numbers and I intend to make a small investment.

I am waiting with bated breath but have little hope in the UK resolving its political and media mess anytime soon. I am no fan of Boris, and I find that his powers of survival are positively occult. Although this may be good for Boris, it may not be enough to take the country forward. The Conservative Members of Parliament must also take some of the blame, and should remember that choosing not to act is to choose a side. It’s either action or silence.

There are many problems facing the UK today along with the political mayhem. Pay anomalies in the workplace and our inability to fill vacancies in many critical industries will take time to resolve.  When this is corrected, the UK with its present low stock market p/e valuations should definitely be a place worth investing money, especially if there is a strengthening of the Sterling valuation against the dollar.  I believe and hope that the rest of the commercial world has long-term faith in the UK and sees it as a place to cultivate for the future, in which case I would like to have some money invested into the UK sectors.

I know that what I have written will not tie in with many of the readers’ political views, and there are many of you with a far better knowledge and understanding of these situations than I. So please forgive my rather simplistic approach.

Now that I am driving again, the roles have been reversed –  it is now my wife who is as anxious as a knife thrower’s assistant at a circus!

Best wishes and good luck with your investments.

Douglas.


Founder & Chairman

saltydoginvestor