Hello Again,
During November 2019, our portfolio increased by 5.87% (see our score board); and over the past 3
months we had a gain of 14.51%. That was with a diverse portfolio where Schlumberger is at a loss of
41% and Ford is at a minor loss. Over the past 3 months, the Dow Jones Index gained 6%. In this
market only a handful of money managers have beating the DJ index. Now where are we going
from here in this very old bull market? Is 2020 going to be good to investors as 2019? Right now
the biggest question is what is going to happen with the trade war. Most people say that as this hurts
China more than the US (China is having the lowest economic growth rate in 40 years –at 6%),
China will be willing to agree to the phase one of the agreement in December. I have my doubts.
Trump has an election in 2020 so Trump could try to have an initial agreement with China. In China,
We have a dictator who just appointed himself as President for life. China is upset about US support
for the Hong Kong protesters and they have threatened to take action to show their displeasure. If
China escalate the trade war, then we could see a significant drop in the market but that would be a
good buying opportunity. Also in a couple of weeks The Brits will have a parliamentary election and
that might change the global picture. Now we are heading for year end and 2019 was good for the
market. Between now and 12/31/19,big money managers will do a lot of window dressing. They
will sell the stocks that were down for the year and even if they did not experience the big gains in
the stocks that did well, they will buy in to those stocks so that others will think that they bought
them long time ago to get the 2019 gains. Perception is reality.
I want to share something that is important to all investors. This is something I learned from my
past-over and over again. In the future, if the investment advisors that you respect tell you that a
certain stock or an industry will do very well in the future but the short term outlook is not good,
start putting in a little bit of money in to those stocks (“start nibbling”). It is important not to put
too much or you will get caught to the “opportunity cost” (the cost of not putting your money
elsewhere). I have paid the price for accepting their advice and waiting to see better results. Recently
I was thinking of medical marijuana stocks. One day when the US Federal Government makes it
legal, many mainstream multi-billion dollar companies could get in to this field by buying out
existing companies which will send their stock process skyrocketing. I was thinking of buying in
to these stocks when they all dropped significantly. The cause was over supply and the demand was
far less than expected. Then the analysts I respect most stated that in a couple of years it would be
good to buy but not now. At that time I thought of buying at least one share per stock and watch it as
it declines and buy more with time to have a low cost average. I waited too long, a couple of weeks
later, one of those companies reported very good earnings and all the stocks in this category, shot up
sharply-some went up as much as 50% in 2 days. The main cause for the amazing rise was ‘short
covering”; since most were pessimistic about this whole sector, many people were short selling all
these stocks. “short covering” is like getting caught with your shorts down! These people had to rush
to buy these stocks so their losses would not be astronomical. After that I bought one share each of the
following good stocks in the industry (ticker symbols): CANOPY, CRONOS, TLRY and
GW PHARMA. Even after I bought these, all of these kept rising-some over 10% in a week. When Facebook first came to the market there was so much hype I waited till it went down to $18 to buy but at $25 or so I sold as all the pundits were saying that Facebook will take years to monetize and till then
the risk outweigh the gains as they could go the same way as “My Space”. Then out of the blue,
Facebook announced that they have found ways to monetize and the stock skyrocketed and never
looked back. Today Facebook (FB) is at $201!
Recently I saw a report on the domestic oil industry, especially the fracking industry. Prior to 2015,
on a monthly basis I used to do a deep dive in the US fracking industry and I was amazed at their
debt level. The industry was counting on high energy prices forever, interest rates around zero
forever and the demand being always good for oil. Very soon Saudi Oil company will be having an
initial public offering- first in Saudi Arabia and then in other countries. Their market cap is larger
than all of US based oil companies put together. All US oil fracking companies are drowning in a
sea of debt. Oil wells are going down significantly. Most of their debt is in junk bonds and billions
will mature in the next few years and there is no way they can reissue new bonds to take of these
maturing bonds. We are heading towards a disaster. Due to this change big oil servicing companies
such as Schlimberger and Haliburton have been in big bear market for a long time with no end in
sight. In our own portfolio Schlumberger is at a loss of 41%. Tread carefully!
Let us hope we will have a great santa clauss rally as some technicians have predicted!
Have a great month!
Fernando