Before I get started with what to pay attention to in 2015, I would just like to say Happy New Year and take a look back at 2014.
In my January 2014 letter I stated that “While I am not convinced we have any major asset bubbles that are easy to identify, there are massive risks to global economics, some of which that are hidden in plain sight that concern me greatly.” Those risks have only grown over the past year.
If you have not looked over my report “The Two Most Important Trades You’ll Ever Make — Avoiding the Next Crash and Investing in the Next Boom” please do so soon (clients see your email, visitors please request by clicking the report link). The report will give you a greater understanding of the risks and opportunities out there today.
Despite the risks that slowly emerged during 2014, including a very weak Japan and Europe, as well as, a slowing China and an incoherent Russia, we as investors did well. Most investors around America should have made about 10% net of expenses on their equity portfolios. Click here to receive samples of my 2015 investment results net of fees. Please read the page describing the reports that show we more than doubled the market averages in 2014.
In my 4th quarter letter, I described how to handle volatility. Having a strategy for volatility paid off well for us. As you can see in the performance reports, we had some very large gains in the 4th quarter. One of the trades I made was to first sell some of our profitable energy positions in the summer after describing on MarketWatch how we should expect oil prices to plunge:
“I believe there is a high probability that we do move to the low end of the oil-price range later this year, thus I have sold my profits in both Whiting and Triangle…”
Ultimately I sold all of our Whiting (WLL) and Triangle (TPLM) before oil stocks collapsed. We have since bought back a little Whiting stock again.
The next part of the trade was to buy a call option on a security called the iPath S&P 500 VIX Short-term Futures Exchange Traded Note (VXX). I know that is a mouth full. In short, I took about 8% of our money and hedged against the market becoming more volatile after volatility had reached multi-year lows. Both trades paid off well. The first one between 20% and 40% for people in a space of about a month. The second trade worked out better, making those with appropriate accounts for this sort of trade 250–300% (I can document this and everything else I say for clients and those who are making serious inquiries about working with me).
This is not the sort of trading I like to do mind you — well, other than the end result. What I’d prefer is to own about 20 stocks and a few focused exchange traded funds, and hold them for years. A few examples of that would be Exact Sciences (EXAS), SunEdison (SUNE) and Apple (AAPL). All stocks we’ve held at least a year-and-a-half.
Exact Sciences, if you read me or are a client you know, is my favorite stock. The company is on the front edge of helping to eradicate colon cancer. Since I started buying the stock in 20007 in the $3 range and down into the $1s during the financial crisis, the stock has risen to a 2014 closing price of $27.44. I continue to be a buyer of the stock.
I have had position in SunEdison since mid-2012 when it was still called MEMC Electronics. In MarketWatch I described why to buy solar when the entire industry was priced for extinction, stating:
“In my opinion, smart investors are using the crash-level prices in solar investments to establish long-term positions that could be opportunities of a lifetime.”
A few months later I targeted MEMC, soon to become SunEdison, which went on to be the top performing mid-size company stock of 2013. I have traded options in SunEdison a bit and taken profits but it is still a core holding.
In spring of 2013, when everybody hated Apple stock, I wrote “That Apple’s Not Rotten, It’s Ripe” and started accumulating Apple near it’s multi-year low. We have about doubled our money on Apple stock in that time. We still own the stock as a core (pun intended) holding.
There are other winners for us as well. Some better than others. There’s also a few smaller losers which I have either sold or added to. In general, about half of our portfolio doesn’t change much. The other half does trade a bit to capture the opportunity inherent in stock market volatility.
To help me with that trading I have added a component to the portfolio management the past few years, using a tactical approach guided by mathematical analysis of asset price trends. In short, when something starts to fall in price and we can identify that it is likely to continue falling, we sell. Conversely, when we see an asset we like that is starting a likely to be sustained rally in price, we buy. Even shorter, I’ve gotten better at buy low and sell high since I opened my own firm in 2010 and no longer have a brokerage “suggesting” how I should invest.
Expect More Volatility in 2015
With the end of the Federal Reserve’s last quantitative easing (QE) program, the markets are almost certain to become more volatile as we get closer to a rise in interest rates. The old notion of “don’t fight the Fed” is equally applicable on the downside as the upside. We shouldn’t be surprised to see the market get more wild as the year goes on. It could turn out to be a lot like 2011.
Because Europe and Japan’s economies are slow, Russia is in dire straights and China is not as high growth as it once was, we can not expect the United States to be immune from an unstable global economic climate. That doesn’t mean expect a collapse though. There is massive intervention by central banks and governments. They could prop things up awhile.
Eventually, there will have to be a rebalancing of global debt that is much more constructive and destructive than what has gone on the past few years. There is really no way around it. The problems the globe faces are tied directly to demographics and debt. While time can mitigate some effects of again populations and the resulting slowing economies that can’t pay their bills, only some massive changes to the balance of finance in the world will ultimately correct the issues.
I have written extensively about what I see as wrong with the world and don’t want this letter to drag on to far, so I will again refer you to my report. Don’t take there being problems in the world as a reason to panic though.
Remember, for every trade and every investment there is a winner. We’ll try to win more than we lose, and more importantly, when we do lose, we will do everything possible to keep the losses small and temporary. Who knows, maybe there is a magic elixir to the world’s woes and the market goes up another 20% or 30% this year. Or maybe, the market just doesn’t care about the problems yet. Regardless of what goes on, we have a process for dealing with it.
Happy New Year, you earned it.
Your forward looking advisor
P.S. In 2013 I was named a 5 Star Wealth Manager. I have not used that “award” as an advertisement because it is a pay-to-play designation. I believe that firms which use that “recognition” are doing so knowing that it is meaningless. I question the integrity and ethics of those firms and believe you should too.
If you would like more information on the award I suggest doing a search and affix the word scam to it.
I was not selected to be a 5 Star Wealth Manager in 2014 after refusing to pay to buy reprints or other merchandise in 2013. I believe there was a connection to whether or not they selected me and whether or not I bought items from them. I do not expect to be selected in 2015 either.
I believe the public should be aware that virtually all of the “awards” and rankings in the industry are meaningless pay-to-play advertisement.
I will stand by my performance — which is easily ascertained by reading what I publish — and the knowledge that I have been able to help many people have the secure retirement they weren’t certain they could have.