Simplicitree® Quick Plan
Ah yes, well, the chop continues even as we wind down 2015. Many may be surprised to note that we only have about 14.5 trading sessions left in 2015 – and then, it’s gone. In the dust bin – collecting ruffled edges on all the pages and pages of notes, assumptions and predictions.
As our very wise colleagues at Alan Steel Asset Management remind us, if you did not own 10 specific stocks in the S&P 500 this year, you are flat to down.
Globally, after lots of internal churn and roller-coaster moves, the median stock in the world is just under flat.
The ETF’s are even a little worse. Many of the very sharp fund managers I have grown up with have felt the pain as well.
Make no mistake – I feel the same as you do – lots of frustration.
There in lies the edge of opportunity. We are witnessing a rare event. A coiling process. The stage is set for surprises. Why do I suggest that even after a long 15 months of literally going nowhere?
Because of one theme I am hearing over and over again….things have once again, become “obvious.”
A Couple Lessons
I have written myself a few notes over the years:
“Mike, when all around you looks dark, there is sunlight somewhere – you just need to look with better eyes.”
“Mike, when you are so damn excited about a particular stock being the biggest winner you have ever seen and going straight to the moon, be ready to sell – as it never works that way.”
“Mike, whenever you keep hearing something is obvious, start watching – because it’s n ever obvious.”
Today, we focus on the last one.
“It’s Obvious”
Here is the definition:
Easily perceived or understood; clear, self-evident, or apparent: predictable and lacking in subtlety.
Now, if you have been around the investing and media world long enough, none of those words would be associated with much that is true in wealth building.
Indeed, it is almost the opposite.
So whenever I hear something that has become obvious, I have learned to take note just to see where the flaw might be.
The clear place we find this today is in the materials, energy and commodity sector of the world’s markets. Ah y es, we have seen this kind of “obvious” before:
It was obvious in 1999 that all you needed was tech
It was obvious in 2006 all you needed was real estate
It was obvious in March of 2009 the world was over
It was obvious on October 10, 1987 you were a fool to trust the market
It was obvious on December 31, 1999 that Y2K would crash the system
It was obvious in the early 90’s that the US was going bankrupt – the best-selling book for an entire year was “Bankruptcy 1995: The Coming Collapse of America and how to Stop It”
In the summer of 2008, it was obvious oil was going to $300 a barrel….uh, well, maybe not.
Today it is oil and anything related to same. It is poison.
The fact that it is now cheap is the new end of the world. We have somehow convinced a vast portion of the investing audience that cheap oil is the worst thing we could hope for – and its damage will be strewn far and wide.
Time for Contrary Thinking?
There are a lot of tough things about being contrary.
First, one’s mind plays tricks on you – convincing you it is foolish to think that way. It takes us all the way back to when we were kids – few wanted to be in the unpopular crowd, fewer still seen as out of step….or worse.
Today the constant drone of negative news makes that pressure feel even heavier and one’s mind wanders into something more “comfortable” or easier.
Here is my view…much of which has already been stated previously.
I do not think crude oil goes straight to zero. I also do not think it goes back to $100 – ever. (short of unseen nuclear circumstances of sorts).
I do not think that you will find the perfect day to make a contrary bet on the energy sector. There is only a perfect day in fantasy thoughts about investing.
I do think many energy stocks will need to be merged and restructured – the M&A guys are licking their chops and sharpening their blades – be assured of such.
And now for the not so obvious (which by the way is where you make your money):
I would suggest that we are witnessing a washing out of value – far behind what the worst damage will actually end up being. I suspect it will take another 1 to 4 quarters to round-trip all the bad numbers and write downs.
By the end of 2016 and into the first half of 2017, your YOY comps will be gin to look great. Words like “improving cash flows, lower losses, better margins and YOY mild increases” will begin to slowly sift into the mix.
In essence, the turn will form when everyone is so tired of hearing about the bad old energy sector that few will even care of notice.
It will be old news.
So What’s Contrary?
This thought: I suspect if one purchased a diversified portfolio of energy stocks, in equal installments as positions get built over the next 6 to 9 months, solid values would have been created.
Not yet mind you – but well into the future.
Throw in a Deere or a CAT just for good mix and pick a metals stock or two – copper of aluminum.
Once built you will be able to glance over that list and see nothing but, well, g.a.r.b.a.g.e. in today’s perception of things.
But, now that this is all obvious, we can be pretty confident it will be different 10 years from now.
The questions that come to mind are many but I list a few to ponder:
Can you stomach watching that small group of contrary plays do nothing for a few years but chop back and forth?
Can you stomach watching many of them go down even further as the obvious nature of things thickens?
Can you stomach watching one or two even go bust?
Can you put it all in your drawer, seeds planted for years to come – and forget about them all. Leave them be for 10 years – and then recall you own them .
IF you can, I suspect you will be surprised by what they have morphed into.
But all that takes time, patience and far more discipline than most have – and worst of all, it demands you permit your advisor or manager to have that type of viewpoint as well.
Because in the end, the patient, disciplined investor wins out over most – even when it takes a long time.
