‘The highest rates of return i’ve ever achieved’

Tuesday, 8 May 2018
Melbourne, Australia
By Bernd Struben

  • Targeting China’s tech boom
  • First Silicon Valley…Now Hollywood?
  • Corrections

‘I think I could make 50% a year on $1 million. No, I know I could. I guarantee that.

Warren Buffett

In yesterday’s Port Phillip Insider, you heard from small-cap analyst Harje Ronngard.

If you’ve been with us a while, you may remember Harje from his days working with Sam Volkering on Australian Small-Cap Investigator and Revolutionary Tech Investor.

More recently he teamed up with Matt Hibbard on Total Income and Options Trader.

Now he’s moved on. Not away from Port Phillip Publishing. But to spearhead his own small-cap advisory service. It’s called Wealth Eruption, and it launched last Tuesday.

Despite his passion for small-cap stocks, Harje counts blue chip investor Warren Buffett as one of his role models. He shared a few Buffett quotes with you yesterday.

This one caught my eye:

The highest rates of return I’ve ever achieved were in 1950s… It’s a huge structural advantage not to have a lot of money. I think I could make 50% a year on $1 million. No, I know I could. I guarantee that.

Now you probably have to be a billionaire to tout the huge advantages of not having a lot of money. But when someone with Buffett’s financial pedigree talks about the highest rates of return in his life, it pays to listen.

The key to high returns, according to Buffett, is to think small. Not small gains. But small companies.

Small-cap stocks have the potential to deliver far higher gains than big blue chip companies. If, of course, you manage to invest into the right ones. Don’t ever forget that the small-cap sector is also more volatile…and risky.

Finding the right small-caps, the ones set for big share price gains, is what Harje’s new service, Wealth Eruption, is all about. Now Harje knows better than to ‘guarantee’ 50% annual gains on any stock. We’ll leave that guarantee with Buffett.

While not every stock will deliver, Harje’s out for much higher gains…and much faster than one year. (We’ll get back to that below…or you can click here to find out how now.)

And he’s targeting stocks that most fund managers, let alone investment giants like Berkshire Hathaway, can’t touch.

You see, as the CEO of Berkshire Hathaway, Buffett is saddled with the onerous burden of investing billions of dollars at a time. (Rough, right?) That’s why he invested over US$28 billion into Apple.

But that kind of money precludes him from investing in companies that don’t have a market cap already well into the billions.

And this gives you, the little guy, a huge advantage.

More, after the markets…

Markets

Overnight the Dow Jones Industrial Average closed up 94.81 points, or 0.39%.

The S&P 500 rose 9.21 points, or 0.35%.

In Europe, the Euro Stoxx 50 index finished up 13.60 points, or 0.38%. Meanwhile, the FTSE 100 gained 0.86%, and Germany’s DAX rose 128.54 points for 1.00%.

In Asian markets, Japan’s Nikkei 225 is up 35.74 points, or 0.14%. China’s CSI 300 is up 1.37%.

In Australia, the S&P/ASX 200 is up 5.03 points, or 0.08%.

On the commodities markets, West Texas Intermediate crude oil is US$70.11 per barrel. Brent crude is US$75.65 per barrel.

Now I’ve been calling for oil to correct sharply lower this year. Which clearly hasn’t happened yet. But despite WTI breaking the US$70 mark for the first time since late 2014, I stand by that. Though it could take another month or two to play out.

In fact, it’s because of today’s high oil prices that we’ll almost certainly see US (and other) producers ramp up drilling…and drive the price back down below US$60 per barrel.

Over the past years, shale drillers have almost always increased their output when prices made it highly profitable to do so. At today’s US$70 per barrel, I don’t expect this time to be any different.

For a little confirmation bias, I’ll turn to Ashley Petersen, lead oil analyst at Stratas Advisors in New York. As quoted in a phone interview with Bloomberg:

It signals to drill. That’s for sure… It definitely signals to them, take advantage of prices while you can.

And then there’s this headline from The Australian Financial Review, ‘Permian output set to rise as new well technology extracts ever more oil’. The article goes on to note:

The Permian Basin’s stacked layers of oil-laden rock under the west Texas and New Mexico dirt are already so productive they’ve stymied efforts by the Organisation of Petroleum Exporting Countries to reduce supply…’

To date, OPEC’s members have remained remarkably compliant in maintaining their output cuts. But as time goes by, and US output continues to ramp up, the incentive for them to cheat is going to become ever harder to resist.

Regardless of what happens with Trump’s attempts to renegotiate Iran’s nuclear deal, I expect oil’s bull run is on its last legs.

Turning to gold, the yellow metal is trading for US$1,312.88 (AU$1,751.91) per troy ounce. Silver is US$16.50 (AU$22.02) per troy ounce.

One bitcoin is worth US$9,407.59.

The Aussie dollar is worth 74.94 US cents.

Targeting China’s tech boom

In his brand new service, Wealth Eruption, Harje brings together two of his favourite — and potentially most profitable — investment targets. Namely technology stocks and China.

And in the world of breaking tech, as this headline from Bloomberg notes, ‘China Is Quietly Setting Global Standards’. The article continues:

As China boosts overseas investment through its Belt and Road infrastructure program, it is increasingly dictating not just the terms of financing but also a broader set of technological applications. In doing so, it is altering the global competitive landscape by defining and exporting technical standards for everything from artificial intelligence to hydropower.’

The US, and to a lesser extent EU nations like Germany, have long held a monopoly on setting global technical standards. And Western companies — think the FAANG stocks — have been well rewarded for being first movers.

But there’s another ‘A’ company that deserves a place on that list. Namely Chinese billionaire Jack Ma’s Ant Financial, an affiliate company of the Alibaba Group.

Also from Bloomberg:

Thanks to clever mobile apps and a burgeoning Chinese middle class, Ant oversees the world’s biggest money-market fund and handles more than $2.4 trillion of mobile payments every three months. Many of the company’s 870 million customers rely on it for nearly every aspect of their financial lives.

With a market cap of US$483.3 billion, Alibaba Group Holding Ltd [NYSE:BABA] is about as far from a small-cap stock as you can get. But the company’s meteoric rise hasn’t been lost on Harje.

That’s why the small, ASX listed companies he just recommended all have a tremendous exposure to China’s booming tech industries.

And to assure you I’m not being hyperbolic, the chart below shows you what that booming growth looks like:



chart image

Source: walkthechat.com
Click to enlarge


Last year, the Chinese spent US$9.32 trillion (AU$12.43 trillion) on their smartphones.

Next year, China’s entire mobile payment market is expected to reach US$36 trillion. That’s 286% growth in only two years.

And that’s the explosive market growth the Aussie small-caps on Harje’s brand new buy list are targeting.

If you haven’t already, you can find out all about them here.

First Silicon Valley…Now Hollywood?

While we’re on the subject of China’s increasing global footprint, it’s not just Silicon Valley the Chinese have in their sights.

Hollywood is also on notice.

From BBC News on 28 April:

Chinese firm Dalian Wanda has invested $7.9bn into the Qingdao Movie Metropolis, which it hopes will attract foreign producers to the country.

The complex spans more than 400 acres and is said to include state-of-the-art production facilities.

Wanda chairman Wang Jianlin said it would “turn Qingdao into a global hub for film”.

“We will boost the Chinese movie industry development,” he said at the project’s official opening on Saturday.

“This is the largest investment the global film and television industry has ever seen.”

To date, Western film companies have not yet signed up to shoot in the new venue. While I have little doubt some will take that step eventually, China’s stifling level of censorship will surely put many off.

Personally, I’d like to approach Dalian Wanda with a proposal to shoot a no holds barred doco about the 1989 Tiananmen Square massacre. The new state of the art location sounds like the perfect setting.

Or perhaps a near future picture. One where Taiwan gains recognition from the mainland as an independent nation…and both countries flourish.

Or…well, I could go on.

Corrections

Yesterday’s Port Phillip Insider incorrectly stated that Donald Trump was in Beijing last week for trade talks.

In reality, Trump sent a high level delegation for the talks, including US trade representative Robert Lighthizer. Trump did not attend personally.

Yesterday’s guest article also incorrectly attributed the White House’s reference to China’s communist party as ‘Orwellian’, as relating to a possible failure in those trade talks.

The ‘Orwellian nonsense’ the White House was referring to in fact has to do with China’s censorship efforts surrounding the status of Taiwan.

As mentioned last week, China has sent letters to numerous foreign businesses, including Qantas and major US airlines, demanding they remove any reference of Taiwan as an independent country…although it obviously is.

Yesterday Julie Bishop sounded off on the issue, landing a blow for free speech. Bishop stated that, ‘The terms that private companies choose to list destinations are a matter for them.

China’s State Council Information Office (Can you get any more Orwellian than that?) disagree. They posted on Twitter, ‘What if Chinese #airline companies list one of America’s 50 states as a country?

Having spent more than 30 years in the US, I can assure China’s State Council Information Office that very few Americans would notice. And even fewer would care.

Most would assume the Chinese airlines had made a mistake. And my Texan in-laws, among others, would be delighted to have their state listed as a country.

As for the US government?

They have enough pots on the boil not to get their panties in a wad over how foreign airlines are labelling the 50 states. So long as those states are getting publicity and seeing more tourists flow in you’re unlikely to hear a peep from them.

Before signing off for today, the Port Phillip Insider mailbox has been a bit quiet of late. We always enjoy hearing from our readers.

To share your thoughts on small-cap stocks, Chinese censorship creeping Down Under, or anything else that’s on your mind, write to letters@portphillipinsider.com.au.

If we publish your letter we’ll only use your first name.

And finally, this from The Australian Tribune:

Corporate Tax Cuts Will Support Job Security

The sweeping corporate tax cuts passed earlier this year in the US are already paying dividends. And not just to shareholders.

Numerous US businesses have passed on part of the tax cuts by increasing benefits, wages, and one-off bonuses for their employees. And the Liberal government is convinced the same benefits can be achieved in Australia.

Not to mention Australia risks workers’ job security if…’

If you’re fed up with sanitised, politically correct dogma cut and pasted from one mainstream source to another then The Australian Tribune is for you.

And it’s absolutely free.

Sign up here to get The Australian Tribune delivered free to your inbox five days per week.

You can visit our website at https://www.theaustraliantribune.com.au/ to read the complete article above now.

Cheers,
Bernd