All serious Investor You need to pause at least once a year to admit their mistakes. We usually learn more from failure than success. So, although painful, this reflection should help you refine your approach and identify if you need to change it.
This year, I’m struggling to keep in mind what happened just because things were so strange. Global equities have risen 21% in pound sterling so far. This is after 13% growth last year (there is a big wobble in the spring). This is an 84% increase over five years, a 238% increase from the February 2009 lows. Everyone will think we enjoyed the economic boom.
At college, I read a classic text by American economist Paul Samuelson. Basics of economic analysis.. He taught that rising inflation indicates that bond yields continue in parallel. In the US, CPI Rising inflation From 1.2% in October last year to 6.2% in October this year. The US 10-year conventional bond yield was 0.8% a year ago. Currently it is 1.4%. According to Samuelson, they should have risen 5 percentage points instead of 0.6. This is not normal and I hesitate to call it the new normal.
The stock market also behaves strangely. My biggest mistake this year was not buying strange stocks. Some have risen significantly.Taken Tesla, This year is up 44%. It’s not surprising that it will generate just under $ 10 billion in revenue in 2022, but it’s more than 100 times more valuable and is valued at $ 1.09 trillion. That’s a strange rating.
I admire Tesla’s development, but I suspect the competition is getting fiercer. Not everyone can afford an entry price of £ 43,000. Long-established rivals are rapidly expanding the range of electric vehicles, and competition from an unusual direction is imminent.For example, in China Great Wall Motor Next year, the Ora Cat 5-door hatchback will be available for around £ 25,000.
In our view, Tesla is a perfectly wise company to invest — not this rating.But it can’t be compared with strange bets Rivian Automotive, Its IPO was recently backed by Amazon and Ford. It’s currently worth nearly $ 100 billion more than Ford and General Motors. We just started delivering the first truck in October. Revenue is zero.
In the olden days, such companies were privately held and entered the stock market only when they were successful.
Hunter S. Thompson, an American journalist and writer, once said: Some investors who have helped such bizarre stocks have decided to offer their services as long-term savings managers because they “get it”, and so on. Some people are not. What could go wrong?
Is it time to change your tactics?
My fund has surpassed the MSCI Global Index most of the year, but struggled in 2021 and is about 1% behind. So am I too old for this game? Should young people who claim to get it obey?
Perhaps, however, the scream of experience that it is a mistake to start buying strange stocks now. It is better to continue our efforts to reduce the number of old-fashioned investments we are wrong. This year’s disappointment in this regard includes some surprises.
Our worst investment was in automated stocks, which dominate the Japanese portion of our portfolio. They were doing well in 2020, and purchase orders were generally doing well in 2021.
Unfortunately, due to supply chain problems and the slowdown in the Chinese economy, these orders could not be linked to sales and profits. However, if further progress is made towards normal trading conditions in 2022, the demand for automation is expected to increase.In addition to the core, we took the opportunity to add investments such as Cognex, a US sensor specialist. Keyence Holding.
ØrstedThe Danish energy group is probably the most ironic disappointment.While world leaders are gathering in Glasgow COP26 Summit, Sold the last stake in a wind farm specialist. As is often the case, when governments prioritize areas such as renewable energy, cheap government-provided loans allow all visitors to compete. Some did not need incentives. I saw major oil companies pile up in the offshore wind industry and reposition themselves as the climate change cherubs kept me caught between laughter and crying.
Renewable energy capacity will increase, which is great, but all these new players will depress shareholder interests. Samuelson spends a few pages on this phenomenon known as “crowding out.”
2022 rate hike challenges stock valuation
Investors have been successful over the last decade simply by buying a company that sells well. Inflation rarely occurred, so there were rarely cost issues to challenge profitability. Evaluation discipline often gets in the way of good stories.
This may not continue. Lack of many supply chain and labor market areas has led to higher prices. Many companies will see profits squeezed — they and market analysts are out of the habit of predicting.
Higher environmental standards also cause inflation — for years to come. Wind power is still more expensive than burning coal in many parts of the world. Especially if the fossil fuel infrastructure is already in place and the cost of a new plant for green energy needs to be taken into account.
China’s large share of global coal combustion shows that China’s exports are effectively subsidized by pollution. This is unacceptable and high tariffs on steel etc. are inevitable. US President Joe Biden could end up with a similar Chinese policy as Trump for different reasons. This affects the price of the traded goods. Meanwhile, Chinese ports have raised tariffs by more than 10%. It is difficult to know when and where inflation peaks.
Interest rates are kept low, perhaps based on the assumption that the current inflationary trend is temporary. However, central banks are in a difficult position.German Retirees Primarily Saving Bonds — Significant Yields Today nichts — Will not tolerate 6% inflation for a long time.
Therefore, in 2022, we see the possibility of a much higher rate hike than recently expected. This goes against the background of economic recovery, New Covid variant.. Probably not in the United States, but I think it may be enough to bring about a recession in Europe in 2022.
A more positive scenario is for the central bank to gradually raise yields towards inflation levels. If this happens, growing companies should be able to outweigh their downward pressure on equity valuations unless they are trading at suspicious valuations in the first place.
So what lesson did you learn? Putting the biggest losers and winners in my portfolio on one side, I have to realize how much I’ve benefited from a long list of reliable and highly profitable companies that seem to be making steady progress year after year. I don’t get it. Microsoft, Google, Thermo Fisher, Louis Vuitton When master Card.. A good company makes good profits and invests for the future. No matter how good you think it is, it is often better than you expected.
Simon Edelsten is a co-manager of the Artemis Global Select Fund and MidWynd International Investment Trust.
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