Don’t Invest Like This

May 20, 2024No Comments


I am calling today’s show, “Don’t Invest Like This”, and I hope that you’ll find it interesting. I’ve been in this business for literally 34 years now, and in [00:00:30] a ‘people business’ you meet lots of people. And in meeting those people, you have a lot of stories to tell. I’ve lived through many, many markets even before I got into this business. I was licensed in 1990, so we’ll call it from 1990, but before that I invested on my own, just like I’m sure most of you are doing. Most watching or reading this are not professionals. And I was one of you [00:01:00] for many, many years investing on my own, and then I started in the process to eventually become a Portfolio Manager, which I am today.

But over the years, I’ve met an awful lot of people and I’ve got some stories of wonderful people that I’ve met. Some have come and gone, but I’ve met some great friends and literally been through much of their lifecycle. Some of my good clients and friends have succumbed to illnesses, and [00:01:30] others have lived on through their families who continue to deal with me. I’ve got a number of third generation clients working with me. Which is really neat because I started off with parents that had kids and those kids ended up dealing with me, have grown up and now the kids of those kids have been introduced to ValueTrend. It’s a great business where you meet people that you really do appreciate. [00:02:00] Now, one of the other things you come across are some real ‘interesting people’ let’s just put it that way.

Don’t Invest like this guy

I do have a couple of stories related to the year 2000 or ‘Y2K’. I don’t have charts to talk this through, but some of you might remember the year 2000 was supposed to be when all the planes were going to fall out of the sky, computers [00:02:30] were going to shut down, and we were all going to lose our bank accounts. At least a lot of people thought this because the computers had been set for the 1900’s and really didn’t know how to deal with the number 2 at the start of the year rather than the number one. There were all these predictions: don’t be travelling at midnight in error, or you could lose all your money. I had a number of people of course express concern, but I would talk them off the ledge because obviously when we know of [00:03:00] an existing problem in advance, we can fix it.

It’s really the ‘Black Swans’ that catch us by surprise. So, for example, the terrorist act of 9-11-2001. Nobody predicted that planes would be crashing into buildings, or that this would be the start of a new generation of worldwide terrorism. That kind of stuff you can’t predict. But if you know the clocks are going to change and Y2K is coming, then you can do something about it. So, I used to tell [00:03:30] people that, but of course some were just beside themselves. I had somebody literally pull their entire portfolio out and go into GICs. And here we are – 24 years later – and I think the market’s gone up something like 800% in that period of time, and they missed it all. They just invested in GICs because they were so scared, and they never went back because of course there’s always something new to worry about.

And….Don’t Invest like this guy

The better story though, is I had a client who withdrew [00:04:00] a whole bunch of money to the point where I wouldn’t deal with them anymore because we have certain limits that we will invest for clients. This was again – just before Y2K, and along with withdrawing a whole bunch of money, he built – and I’m not kidding you – a bomb shelter because he believed that Y2K would not only cause airplanes to fall out of the sky, but he also believed that this would invoke World War III because nuclear bombs would be sailing through the air. [00:04:30] So, those are two of the non-chart-orientated stories I can tell you. I have a couple of other stories, but my hope is these two stories really help you understand that you’ve got to avoid ‘crowd-think’, and avoid the herd. [00:04:48]

Don’t invest like this – following the herd

Next, I’m going to share screen and pull up the Oil chart. [00:05:00] The reason I’m showing you this chart is because it goes back to 2004, on the left-hand side of the page. Back in 2000, and around the summer of ’08, Oil had risen absolutely exponentially. Now, I started getting technical signals that it was super overbought. So right around, [00:05:30] I believe it was between July and September of 2007, I began to sell out of Oil. And, of course the market moved up after I sold. So, I would’ve been selling somewhere here [00:05:53]. I was selling around September of ’07 and I made some pretty good returns.

I’d bought Oil [00:06:00] a number of years before as low as $12 a barrel because there was a point not shown in this chart that Oil had crashed. I was buying it between $12 and $15, and by this point I had ridden it up to $80 at the time. Right around where it is right now. I felt that move was pretty parabolic and I had technical indicators illustrating this. Using some of my early sentiment work, I also recognized a crowded trade. [00:06:30] I was not quite as sophisticated as I am today when it comes to sentiment, but I was using options ratios and stuff like that, and was lagging Oil stocks out of our portfolio. I had a client at the time, late-2007, early-2008, and the market had, as you can see, risen further after I sold.

A lack of trust – don’t invest like this

Now, remember we sold at a pretty sweet profit, but, you know, he saw [00:07:00] it go up some more and he calls me to say he was transferring out.

And just to let you know, 34 years in the business and I rarely lose clients because ValueTrend delivers what we promise. We tend to tell you right up front how we’re going to do things, that we’re not “trying to beat the market” in parabolic periods. We try to beat it by not losing. Win by not losing – and we do that very, very well. We have beaten the market over time, but we’ve actually done most of our outperformance by not losing during the down periods. [00:07:30] So, that’s an aside. I’m pretty surprised because I don’t usually lose a client. So, the reason he was transferring out is “because you missed the boat,” or “you’re missing the boat”. I think those were his words.

And, it was because Oil was still going up. I don’t remember his name, but let’s call him Fred. I replied, “Look, Fred, I think the market is overbought on Oil and we’ve made a lot of profits, so I really think there’s [00:08:00] a lot of danger in owning it from here.” Now these days I do use trend following stuff a little bit more than just relying on the sentiment work. These days, I would probably have bought it on the trip down, but might have actually sold it pretty close to the same price – because now I wait for a trend to break after I get a sentiment signal. Whatever the case, we’re talking about probably just a few dollars difference. I [00:08:30] told him, “There’s a lot of danger on this trade, it’s going totally parabolic.” He replied that he was transferring out because he was going to an advisor and was going to buy Oil.

And, you know, you can just picture it was around here [00:08:46] that he was going to the advisor who would load his portfolio up with Oil. Alright? So, that’s an interesting story only because it illustrates how herd behavior works. And, [00:09:00] I’ve seen this in the FANGS in 2006-07, and I saw this in the AI stocks, which there were some repeats of the FANGS, adding a few like Nvidia and a few others. But the idea is, that everybody jumps on the boat, okay, and you’ve got to really be cautious. Again, there’s 2017-18 and you saw what happened there. And there’s the recent AI move. Okay? Parabolic – and you can see now, [00:09:30] I’m sorry this is Oil, but you know the S&P chart had recently spiked and is beginning to round over. Oil, same thing. And I really shouldn’t compare Oil to the FANGS and tech stocks, but the patterns are similar in that things get overbought.

Don’t invest like this – COVID fears

Let’s take a look at another story. Just after the 2020 COVID crash, we started loading up on Oil. Some of you might [00:10:00] remember that Oil contracts for a very brief moment – and this is that moment – went to a negative price and that was because everybody felt that there wouldn’t be any flying or travelling or use of Oil in industry as the world shut down and therefore the cost of holding Oil in the storage tanks was going to exceed the cost of what they might get for selling the stuff. It was a real panic. They had too much oil on reserves, so Oil went negative. It was costing Oil producers more [00:10:30] money to store it because they couldn’t sell it. Well, that of course was going to change. I mean COVID was an event just like 9-11 was an event, and these things eventually change.

So, we started buying Oil, we saw it rise, we didn’t know it was going to, or when it was going to rise, but we saw it settle out, breakout, and we started buying it right in here just coming into ’21. [00:10:52] Anybody that’s been following my blog, or clients that have been with me for the 20-30 years will probably remember me selling the Oil back in that [00:11:00] 2007 period. They’ll also remember that in 2021, I started talking about how inflation was not going to be transitional. Do you remember that? I’ve only repeated it a million times since then, and I’ve also talked about Oil and Materials.

Jumping on the bandwagon – don’t’ invest like this

So, [00:11:30] we were jumping on Oil when it was dirt cheap. I was blogging about it, recommending it to you guys on my videos and blogs and here we are. So, it was a good opportunity. We’ve traded it and sold out of it, and we’ve been buying back into it and now we think it’s going to go sideways for the summer, but that’s not what I’m here to talk about right now. I want to talk another client that called me to say he was transferring out. And again, I think I get one transfer [00:12:00] out of a client every 5 to 10 years. These guys stick out in my mind because we’re very careful to explain how we do things. We don’t jump on the bandwagon, but we do sell when there’s danger. So, this person was more of a believer in what you would call ESG, and that was a big fad.

You might remember it started 2-3 years ago, and it [00:12:30] was really kind of propagated by BlackRock, but others have done it and it circled around that you’ve got to buy companies that have good environmental ethics and low environmental impact. You’ve got to buy companies that have good social ethics that kind of circulate around the ‘woke’ thing. And, you know, I did a video on the ‘woke problem’ a while ago and how it hurt companies by following that.

[00:13:00] The last letter is G, and that’s for ‘governance’. And actually, it’s the only part of the ESG thing that I really think actually is a good thing to look at. And that is – you know – don’t become a Nortel and cook your books. So, that’s a good thing. But the other two, I mean really what are ‘ethical social policies’? I mean, is it really ‘ethical’ to have a limited number of people that you can hire that aren’t of a certain race or gender or whatever? Like, you should hire by [00:13:30] aptitude, not skin color or anything else.

Yet, a lot of these social policies these companies invoke are really quite almost like reverse prejudice. So, it’s not necessarily good for their bottom line. And we’ve talked about that in the woke thing. Same with the environment. Some of this stuff is unrealistic. So, this client said he didn’t want anything with Oil in particular in his portfolio because it’s “evil”. And he also only wanted ESG. Well, there’s where [00:14:00] he was telling me that we were loading up on Oil and he didn’t like the fact that I was loading up on Oil – so, he transferred out. There’s oil since then. Now you guys might be aware or maybe not, but I’m going to bring you back to another page. So, I’m going to go back to share screen and I’m going to pull up this. So, this is an example of a Global Impact Mutual [00:14:30] Fund, okay, and I’ve highlighted a couple things. Just don’t invest like this!

Now, this is just one, and I’ll show you a chart in a minute of other stuff that would fit into the ESG thing, but this is an ESG Fund. There are tons of them out there, but this is a good example because it highlights how they have done. It’s a Canadian fund, so, you know, you can buy it in Canada. Their idea is that they want to align their investments with their values and the areas of energy and [00:15:00] environment, health and wealth being all in an environment of inclusive growth. I remember Justin Trudeau saying inclusive and then becoming the least inclusive Prime Minister in history, the most segregating Prime Minister. And that’s really sort of inclusive. What does that really mean? You know, especially when it comes to being a stock picker? Because if I were to write a process statement for my clients and ValueTrend Wealth Management’s Equity Platform – which by the way we have statements – our bottom line is [00:15:30] maximum return with as little risk as we can get with an eye on risk impacted returns first and foremost. We have no interest in following a theme. All we want to do is make good returns for our clients without high amounts of risk. That’s our goal. Okay? That’s what I would want to read if I was an investor. But some people follow this theme and they have to have ‘impact first’ as it fits their screening process, [00:16:00] or its impact on the environment.

Well, that’s interesting because, this is a thematic investment fund and there are tons of them. So, I’m not just picking on these guys, but the thematic exposure, energy and environment, are they being environmentally friendly (69%) health and wellbeing (maybe of their employees and whoever 10%). And then inclusive growth (10%). Inclusive growth – to me – that’s the worst one. So, they go [00:16:30] in and they actually have a process where they question companies on these factors vs prioritizing whether they are actually going to make money.

They say they’re going to try to also seek companies that make money, but you know what the market’s done over the past two years. This is the Q1 report for these guys in 2024. The market’s gone up a lot – and they’ve lost 11%. So, I’m not picking on these guys by the way, [00:17:00] but I want to point out that some of these policies don’t help you as an investor. I’m going to give you another sort of reality check. And that is on a lot of the CSD stuff and on environmental impact. I’ve talked about this in other videos, but a lot of people aren’t aware that beyond the fact that it may not actually make you any money as a stock investor – and that’s the main purpose of you being here – but it also may not even be environmentally friendly. [00:17:31]

And this is a good example. This is a lithium battery by RYOBI, or whatever, very popular battery used in blowers and hedge clippers and that kind of thing. We have one of these, we have electric one, we have gas one, and we have a plugin one, and this is the lithium battery. So, you can see it says lithium battery, okay? And guess [00:18:00] what? Other companies make lithium batteries. Well, a couple things about lithium batteries. I’ve written about this so I won’t go into great detail here, but the impact of recycling. And a lot of people just take the little batteries, say the watch batteries and stuff and throw them out. They don’t go to the recycling bin and they wear out. And there’s an awful lot of EVs – it’s all over [00:18:30] the news right now – that the batteries have run out.

They bought them maybe 5-6 years ago, and it’s so expensive that they’re just literally either dumping them off at a used car dealer and they’re getting next to nothing for them, or they’re going right to junk because people don’t want them. And the other thing is almost 85% of lithium batteries (I did note this on a recent either blog or video) are made in China. And China is notoriously, in fact, the vast majority of their factory power to make these lithium batteries are driven by – drumroll please — coal.

So, there’s the whole process of mining this stuff, and China making it using coal-powered energy, and then recycling [00:19:30] if not disposing of this stuff (which happens constantly), the longevity of it. So, I didn’t mean to get into this too much, but I’m just talking about how thematic investing does not make sense because you really need to think in terms of what’s going to make you money. I’ve talked about there is a move towards environmentalism right now. I’m in favor of it, of course, I live in the country and I have a cottage and all that stuff. I don’t want the environment [00:20:00] ruined, but I’m also a realist. And the reality behind this is that we actually cannot bridge the gap to the point of where we are carbon neutral without using fossil fuels. And the way that North American more ‘woke-orientated’ governments are shutting this stuff down is absolutely senseless.

Don’t’ invest like this – Without using common sense

I have blogged on this before, but I’m going to write a big piece on this because I just read a very interesting piece in Larry McDonald’s book called ‘How [00:20:30] to Listen When Markets Speak’. I highly recommend that book. He interviewed a number of Oil and Gas experts and Analysts outside of that industry, and they were basically just saying that we’re so far away from the carbon neutral thing and fossil fuels are here to stay. So, instead of getting all wound up about it in thematic and ruining your portfolio, I suggest that you look at the actual profitability [00:21:00] in the next few years, not 20 years from now, and make decisions based on that. Because if you don’t, I’m going to have to support you through my taxes in your old age, and I don’t want to do that.

So, my proposal to you is that consider your investment portfolio as a profit making and investment return making vehicle first and foremost before you follow any theme. [00:21:28] No matter what that theme may be. You’re here to make money – you’re not here to make a statement. You want to make a statement, go to Parliament Hill, buy yourself a cardboard sign and march up and down. But if you’re going to invest, your job is to make money. Full stop.

Anyways, those are my stories. A couple of people that made interesting phone calls and interesting decisions at exactly the wrong time, as well as a couple of people that built bomb shelters and thought planes were going to fall out of the sky years ago. So, let’s not get caught in the crowd and let’s [00:22:00] not invest thematically.

I do hope this ‘Don’t Invest Like This’ video was of some interest and some enlightenment to you in your investing future.

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