Days of our Lies
This year is proving to be quite interesting as the days go by. As an investor, I find myself continually having to dig through growing piles of hard-to-believe news stories, economic data, earnings reports and macroeconomic trends just get a little smidgen of the truth.
What I have found without doubt is that the level of obfuscation and subterfuge currently going on through the Mainstream Media as well as Central Bank heads and company CEOs is at an all-time high. As a result, my strategy thus far has evolved into one of cautious optimism and a newfound respect for Value Investing. Without further ado, here is what I believe in:
1. The US – It’s an election year and the Fed can intervene in the markets any time. Don’t bet against the Fed but target volatile sectors like consumer cyclicals. There will not be an almighty correction but poor performing stocks and weak business models will be shaken off the tree. Stick to fundamentally strong companies with wide moats and solid management. Avoid companies with dubious management practices – CHK and GRPN come to mind.
2. Europe – Mired in debt, unemployment and a growing socialist movement spells a recession in progress. We have not seen the bottom yet and no matter what Merkel and Largarde say, the streets will continue to be filled with angry citizens. Keep an eye on strong companies like ASML and pick up positions on major dips. Avoid Spain in the near term.
3. China – Slowing growth and productivity and the impact of a European recession means that either the Central Bank gets into Bernanke-style easing or we see a sharp left turn in the medium term.
4. Japan – speaks for itself. The Central Bank is against a wall and the stock market is showing signs of wear and tear. Also largely export-driven.
5. Latin America – still a growth region but bound to slow down due to dependency on basic material exports more so in the case of Brazil. Risk premiums still high even in countries like Argentina which has begun seizing foreign assets, you don’t want to be caught napping.
6. Tech sector – Still strong with a few key players with lots of cash on their balance sheets (GOOG, AAPL, IBM, ORCL, MSFT). However, not immune to flight to safety. Bet on historically prudent management and market dominance. Try not to stack bets by e.g. investing in both FB and ZNGA.
Still trying to not believe the hype. Let me know what you are thinking!