Monthly asset allocation update available here.
Comment
We note that the general negative trend that began long ago with Swiss and then European equities is now also extending to emerging countries, due to the troublemaker Trump. Gold is also bearing the brunt. Across the portfolio as a whole, more and more positions are having to be converted to cash or significantly reduced, which tells me that this time we may really be on the cusp of a major downtrend. In this context, there aren't many places that are still more or less safe, apart from perhaps the very cheap Japanese equities, which are still following a positive trend (but also losing speed), and Canadian equities, which are also progressing, but are rather expensive.
If you want to play with fire, you can also look to US equities, whose trend is still strongly positive, certainly thanks to the other guy's protectionism, but this comes at the expense of valuations that are totally dissuasive and out of touch with reality. On the other hand, emerging countries, the scapegoats of the blonde wick, are very cheap, but have been in freefall for the past month.
As for Swiss equities, if you haven't already done so, it's time to clean up your act, because they're not only expensive, they're already in the middle of a downtrend.
As far as long Swiss bonds are concerned, there's no change from last month. They may be following a slightly positive trend, but they are really too expensive given the low interest rates.
Gold remains cheap, but is also entering a downtrend, so I prefer to go for cash as well.
Swiss real estate is my only permanent allocation line, so I took the opportunity to strengthen the position a little following the recent downturn.
Finally, as far as alternative strategies are concerned, I've decided to stop using the long/short approach, which required a lot of work and produced few results. The 5% that were devoted to it will now be devoted to equities (as long as there is something worthwhile, otherwise it will be cash). As for the leverage strategy, it is still awaiting a market correction, which may come soon...
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As far as Swiss equities are concerned, it's true that they're still rather expensive overall. It's also possible that a big drop is on the way, but nobody really knows...
In any case, I wouldn't say that we need to clean up our act and throw the baby out with the bathwater. On the contrary, the upheavals of the first 6 months of the year have made some stocks affordable again, such as Swiss Re, Inficon and Schweiter.
Yes, if you look hard enough, you can still find a few decent titles in every region, even in Switzerland, but more and more indicators are turning red all over the place. So get yourselves covered!
And there are currently a number of British stocks (NB: dividends are not taxed in Switzerland) whose valuations and distributions are highly delectable, such as British American Tobacco, Imperial Brands, Reckitt Benckiser, Standard Life and WPP.
BAT is a particularly interesting opportunity to seize, with a 2018 PER estimated at 13 and a yield of 5.1%, very attractive values in historical comparison!!!!
For once brother, I don't quite agree with you on BAT. I sold it last February and the price has fallen even further since then.
There were several things I didn't like:
- a price/sales ratio greater than three, which is a sell signal
- poor liquidity ratios (current ratio, quick ratio)
- a high level of long-term debt in relation to FCF
- shares outstanding increase
- a reduction in the ordinary dividend
On the other hand, it's true that there are some interesting things at BAT and I think it's the Buffet-style "franchise" that appeals to you:
- high gross and net margins
- low overheads
- increase in goodwill
- low capital expenditure
These ratios therefore put the poor liquidity ratios mentioned above into perspective.
It's hard to draw any obvious conclusions. I'd say it's certainly a fine company, but not all is rosy at the moment. Keep an eye on it.
I'm going back to an old post about tobacco because the market has fallen off lately for almost all companies. And you weren't wrong about BAT!
For my part, I'm now thinking of positioning myself in the cancer sector with Imperial Brands (yield of 9%), which has fallen heavily.
Do you think the market will recover for the industry as a whole? (I'm talking long-term, like 5-10 years).
Oh yes, I can see that! This makes valuations even more attractive, but beware of what's behind it all.
I'm no soothsayer, so it's hard to predict what's going to happen to a company over such a long period of time, and even harder to predict what's going to happen to the industry as a whole. I think that vice will always have a future, but that it will have to reinvent itself regularly because of government restrictions.
What I do know is that right now, companies like BAT, Imperial Brands, PM or MO have less than stellar fundamentals.
In the end, I decided to be patient. I have the impression that this market is set to go even lower.
I'm going to position myself in a much more stable market, but the most damaging for the planet: oil (RDS). Thanks to dividinde for the idea... It'll be a long-term investment.
I sometimes laugh at people who are against buying shares in oil companies (or other polluting companies), but consume much more gasoline (or other pollutants) than many investors! How ironic! I'm going to invest in one of the most polluting companies on the planet, but without using a drop of petrol. Does that make me a bigger polluter than someone who claims to have "principles" but drives to work every day?
I'll come back to the market situation in ten days' time, when I make my next asset allocation. The market is unstable because of the tall blond man with yellow hair. And also, of course, because his stocks are overpriced. I recently read an article that said the FANGs (Facebook, Amazon, Netflix, Google) were solely responsible for the positive stock market returns in developed markets worldwide in 2018 !
Reading this makes it clear why most investors lost money in 2018 (and continue to lose money in 2019). To make money, they would have had to play who's crazier by investing in these companies.
This has got me thinking, and I'm thinking of making a slight change in my approach to emerging markets in my asset allocation. I find them too unstable and subject to political manipulation. As for the other markets, I still think you should avoid the USA, of course, but also Switzerland. Europe and the UK are okay, but nothing more. On the other hand, I'm still a big fan of Japan, where it's incredible how many fine companies are paying juicy, solid dividends.
Oil is a sector in which I've been quite involved in the past. I had very good results with CVX and Exxon in particular. I'll have to reanalyze them from time to time.
Don't worry, brother, I understand your numerical arguments, and it has to be said that everyone has been predicting the death of tobacco stocks for over 50 years... and just as many years that they've been leaving the market far behind them. What Peter Lynch wrote about Altria (formerly Philip Morris) in the 90s is still just as valid today.
The end of advertising, unappealable medical studies, new health standards, fines, taxes, unmarked cigarette packs and skyrocketing cigarette prices. The tobacco industry has weathered the worst storms imaginable, and always risen stronger.
Addictive effect, high customer loyalty, low production costs, franchising, price elasticity, huge margins and, above all, substantial cash flow: Tobacco still has some wonderful years ahead of it, especially as companies in the sector are preparing intensively for the post-tobacco era.
BAT has invested billions in R&D and acquisitions in recent years. New-generation products (electronic cigarettes, heated rather than burnt tobacco, snus, etc.) should more than offset the decline in conventional cigarettes.
BAT has lost over 30% since its high. Historically, such declines have ALWAYS been excellent buying opportunities. Bad news is built into the share price, and it's exactly in these bad times that you should dare to invest. I wouldn't be surprised to see share prices and dividends double by 2025. BAT is a phoenix that will once again rise from its ashes.
PS: BAT's dividend has not decreased this year, on the contrary it has increased by 15%. But as BAT decided at the same time to switch to quarterly dividends, most sites have not yet incorporated this information and therefore give truncated figures:
http://www.bat.com/group/sites/UK__9D9KCY.nsf/vwPagesWebLive/DOALSC3V
100% in line with you. For many, many years I owned Lorillard, Reynolds and BAT. As they all ended up under the BAT umbrella, I ended up with a large position in British American Tobacco. The profitability of these positions over the long term has indeed been more than satisfactory, and I'm also of the opinion that over the long term tobacco, for the reasons you mention, still has excellent prospects.
Having said that, even if I take into account your pertinent remark about the dividend, there are still the other points I mentioned that bother me in the shorter term. With age, one becomes tedious 🙂
You're not a pain, you just keep a critical mind, which for me is a quality in the investment world and in life in general 😉
PS: I made a mistake in my previous post when talking about Peter Lynch, I meant to refer to Jeremy Siegel and his "Stocks for the long run".
Thank you, brother.
Siegel, a good one too!
I'm very surprised by the poor performance of the Japanese part of my portfolio. What about you, Jérôme?
Yes, the Japanese market, like all the other indices, is losing momentum. This also explains why I had to activate stop orders on several of my Japanese stocks.
European and Swiss indices have been on a downward trend for over a year, and US and Japanese indices since last autumn.
Nevertheless, for the time being, Japanese indices remain in a positive long-term trend, and above all they are still cheap, unlike the others.
Keep an eye on it, because if the downtrend continues, the Japanese market will also enter a bearish phase.
The risk is that the global equity market will collapse, taking Japanese stocks with it, even if they've already sold off.
In such cases, the best thing to do is to get out of the worst positions from a fundamental point of view, activate trailing stop loss orders 20%, and get back into the market when trends turn bullish again.