Page 45 - DIY Investor Magazine | Issue 34

‘A MISTAKE IN JUDGEMENT SHOULD NOT BE FATAL, BUT TOO MUCH ANXIETY ABOUT JUDGEMENT IS’ (PAULINE KAEL): THOUGHTS OF DOUGLAS
Professionals that ‘know’ tell us, amateur investors, that when stock-markets collapse, we should just sit out the fall and not seek the safety of cash; markets will eventually recover.
This week The Times reported these same people, fund managers, have reduced their investments and are holding more cash than ever previously recorded. Strange that! For
my own satisfaction and your confusion, assume a £1,000 investment and a market drop of 40%, and a 40% recovery over time. £1,000 less 40% equals £600. A 40% recovery results in a value of £840; that is not a full pound note recovery.
If you miss the top and bottom of the market by 10% and go entirely into and then out of cash, it gets a bit more complicated ...
Start with 1,000 units at £1, the total value is £1,000; lose 10% and sell and you have £900. Price falls to 60p (40% down on start), but you buy back at + 10% - 66p. Invest the full £900 and get 1363.63 units; price then goes to 84p (40% above
its low), and your investment is worth £1,145 - compared with £840 if you had done nothing. I know which route I would prefer.
A great amount of money has been poured into ESG funds in the belief that the accompanying developing sciences, will give mankind a better chance of long-term survival. To be achieved by reducing the use of fossil fuels and introducing new energy generating technologies, it also has to be accompanied by lifestyle changes in the West.
Unfortunately, these aspirations have become delayed by the ‘three horsemen’ of the pandemic, Putin’s War and Sanctions imposed on Russia by the West.
Not forgetting the appalling loss of life in the Ukraine, many economies have been damaged, and ESG hopes dampened. Fossil fuel production has been ramped up and ESG funds have taken a hit. For those that have held JPM and BlackRock commodity funds and Schroder and TB Guinness Global Energy funds over the period, gains have topped 30% with TBNIA up 50%+, although they appear to be slowing down.
What to do next is my conundrum; I now only hold these funds and cash, gold bullion, plus a little bit of Hydrogen. There
is likely to be increased demand and profit for energy and commodities businesses, but my decision for the moment is to stay put.
No other sectors show up consistently in the Saltydog numbers. Japan comes and goes; Latin America with raw materials from rocks to food may have more staying power and I intend to make a small investment.
I have little hope in the UK resolving it’s political and media mess anytime soon. I am no fan, but Boris’ powers of survival are positively occult, but that is not enough to take the country forward. Conservative MP must also take some of the blame; choosing not to act is to choose a side.
We face many problems along with political mayhem. Pay anomalies and labour shortages will take time to resolve, but when corrected, low stock market p/e valuations should make it worth investing in the UK in the future, especially if Sterling strengthens against the dollar.
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.
www.saltydoginvestor.com
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DIY Investor Magazine · July 2022