How to Time the Investment Cycles

Bernd Struben

  • Blue skies…or thunderstorms?
  • Another way to play falling oil prices
  • ‘“Grubbiest of Deals” — Labor Preferences Palmer’s UAP in Tasmania’

Be fearful when others are greedy and greedy only when others are fearful.’

Warren Buffett

I almost feel the need to apologise for today’s opening quote.

Buffett has to be the most over-quoted investor on Earth, after all.

But then he is worth a cool US$88 billion (AU$125 billion). And he does manage to come up with some memorable zingers.

Investopedia tells me Buffett first issued this sage advice in his 2004 Annual Shareholder letter.

But there was more to it than the well-worn snippet quoted above.

Buffett’s advice was only meant for investors and traders who ‘insist on trying to time their participation in equities’.

The Oracle of Omaha himself is a buy-and-hold value investor. Not a stock trader or speculative investor.

That’s all well and fine if you have a few billion dollars and 20 years to watch it grow. But if you’re looking to invest some of your wealth for big gains in a much shorter time frame, there’s no getting around trying to time the market.

Which leads us back to the question. Is now a time to be fearful…or greedy?

We’ll get back to that right after a look at the markets…

Markets

Overnight, the Dow Jones Industrial Average closed up 11.06 points, or 0.04%.

The S&P 500 closed up 3.15 points, or 0.11%.

In Europe, the Euro Stoxx 50 index finished up 1.53 points, or 0.04%. Meanwhile, the FTSE 100 gained 0.17%, and Germany’s DAX closed up 12.84 points, or 0.10%.

In Asian markets, Japan’s Nikkei 225 is closed for Bridge Holiday. China’s CSI 300 is up 0.16%.

In Australia, the S&P/ASX 200 is down 30.59 points, or 0.48%.

On the commodities markets, West Texas Intermediate crude oil is US$63.49 per barrel. Brent crude is US$71.75 per barrel.

Turning to gold, the yellow metal is trading for US$1,281.70 (AU$1,821.11) per troy ounce. Silver is US$14.95 (AU$21.24) per troy ounce.

One bitcoin is worth US$5,170.10.

The Aussie dollar is worth 70.38 US cents.

Blue skies…or thunderstorms?

You’ll find a few investment analysts debating the greed or fear question at any time in the market cycle.

But today the debate is heating up. And with some indicators pointing to a mighty crash ahead while others signal a continued rebound, you’ll hear a lot of conflicting advice.

Morgan Stanley, for example, is advising caution, and not to bet on any stock market melt up.

From The Australian Financial Review:

US stocks may have reached record highs to start the week, with the potential for further gains, however Morgan Stanley’s Mike Wilson is hedging his bets…

Mr Wilson, and three of his equity strategist colleagues, are opting for a “cautious rather than bullish” take on what’s happening…

Valuations are at the high end of “our fair value range and continued conviction that forward earnings estimates still need to be lowered”, they said.

Now the Morgan Stanley team is talking specifically about US stocks here. But I don’t have to tell you that if US markets implode Aussie stocks won’t be far behind.

Of course there may be no imminent implosion at all.

JPMorgan, for example, is countering Morgan Stanley’s fear message with one of moderated greed. As Bloomberg reports:

While U.S. stocks are hitting all-time highs, JPMorgan says now is not the time to bail on the market. The reason: investors who have missed the rally are ready to buy at signs of trouble.

“When talking to clients, we don’t find many truly convinced bears at this point, but rather investors who would like to add at ~5-10% lower levels and capture a return to new all-time highs,” strategists led by Marko Kolanovic wrote in a note. “This means that (all else equal) any potential pullback is likely to be shallow.”

JPMorgan is offering the classic ‘wall of money’ argument here. That’s where there’s a lot of cash sitting on the sidelines waiting for the right time to enter. Yes Warren, that’s cash held by investors who are insisting ‘on trying to time their participation in equities’.

And the wall of money here is an impressive one indeed. According to JPMorgan’s estimates, computer-driven funds alone are sitting on some US$250 billion they could still invest into stocks before maxing out.

Which brings us to one more question before moving on. After reading this far today, do you feel greedier or more fearful? Or have I left you even more in doubt?

There’s no right answer here. Not without a functional crystal ball, anyhow.

All you can do is try to take in the best information from the best sources before making any big new investment decisions.

And that’s the idea behind Port Phillip Publishing’s own great debate.

That takes place on Tuesday, 14 May at 4:00PM AEST. It will see two of the world’s great forecasting gurus — Phil Anderson and Harry Dent — work to convince you why their predictions for the markets are the one you should follow.

The outcome of the debate could well change your perspective from greedy to fearful. Or from fearful to greedy. It may also reinforce your own current beliefs and give you the confidence to stick to your guns if the markets temporarily move against you.

If nothing else I believe the unique insights from Phil Anderson and Harry Dent will make you a wiser, better investor.

As a paying subscriber to one of our investment services, you can tune into the debate on 14 May at no cost to you. But you will need to register your interest first.

To do so, simply click here.

Another way to play falling oil prices

The best thing that happens to us is when a great company gets into temporary trouble… We want to buy them when they’re on the operating table.’

Warren Buffett, from Bloomberg Businessweek, 1999

I know, I know.

Two Warren Buffett quotes in one article. Audacious!

But what the heck. In for a penny, in for a pound.

The quote came to mind when I was reading about the share price falls for Viva Energy Group Ltd [ASX:VEA].

You’re probably familiar with Viva Energy, Australia’s largest fuel refiner and retailer. The company, with a current market cap of $4.3 billion, owns some 1,255 petrol stations around the country.

Year-to-date the stock has done quite well, with the share price up 30.3%. But the impact of artificially inflated oil prices is taking its toll. Yesterday VEA closed down 3.4%. At time of writing it’s down another 3.3% in intraday trading today.

The Sydney Morning Herald explains why:

Viva Energy has recorded a $35 million hit to its earnings thanks to sharply rising global oil prices, and it expects more pain ahead.

Viva has recorded an improvement in its refining margins for the 2019 March quarter but volatile oil prices – which have jumped nearly 50 per cent since December – have stripped out its petrol station earnings.

“Challenging trading conditions in 2019, predominantly due to sharp increases in the oil price, have impacted fuel margins,” the company said in a statement to the ASX on Monday.’

Regular readers will know I expect a sharp turnaround in crude oil’s 2019 bull run before the end of June. That’s when I believe both the Saudis and Russians will agree to substantially open their oil taps at the behest of Donald Trump.

I won’t rehash all my reasoning here. I touched on some of that in yesterday’s issue. Suffice to say there is a far greater immediate supply of oil than any matching demand.

But investors dumping Viva Energy stock don’t appear to agree. Nor does ANZ, mentioned in the above SMH article:

ANZ expects the price pains to continue for Viva because of a rising oil price.

“We expect Brent crude to rise a further 7 per cent to reach $US79 a barrel by mid-2019,” ANZ analyst Irene Cheung said.

Irene could be right here.

But if instead of rising a further 7% crude tumbles by 20–30% as I expect, it could see a big bounce in Viva’s share price.

This isn’t an official recommendation. Just something for you to ponder on your own time…and research thoroughly if you’re thinking about investing in some shares.

Finally, here’s the latest in the preference deals saga from The Australian Tribune:

‘“Grubbiest of Deals” — Labor Preferences Palmer’s UAP in Tasmania’

‘“Oh what a tangled web we weave, when first we practice to deceive.”

Sir Walter Scott’s famous quote could apply to most political manoeuvrings. But Labor’s seemingly deliberate efforts at deception over preference deals with Clive Palmer go to the top of the list.

Despite labelling…

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