Another day, the same question.
Employment data is trending down in the states, worse in Canada. Tariff impacts are to come, inflation is starting to pick up.
Yet stocks fly and investors are piling in. By many measures, we have a new bubble. This time, however, many of the new titans are profitable. AI is backed by governments, with new real-world applications coming out daily.
A dot-com style collapse is unlikely, a steep correction in stock values is not. Even the prophets of AI can read between the lines.
How do you sleep at night and invest in a time like this?
It’s an interesting question, and the answer is ever evolving, but in the end I always comeback to legendary investor Howard Marks when posed with a similar dilemma.
The most conservative companies in America are the life insurance companies.
How can they insure peoples lives when they know they’re all going to die?
#1 Life Insurance companies take a risk they’re aware of.
– They’re not shocked when somebody dies, that’s the way it goes
#2 They take a risk they can analyze.
- When I got my first insurance policy, I had to do a medical to see if I was healthy.
#3 They take a risk that can be diversified.
- No life insurance company insures just smokers, or just sky divers. Just young people or just old people… they have a mix – a diversified portfolio.
Insurance companies figure out the probability of what they’ have to pay based on actuarial assumptions, and they allow some excess for the uncertainty.
We do the same with portfolios.
We take market risk that were aware of, we analyze it.
We take a risk we can diversify, and we have a number of holdings which respond to different factors.
Bottom line, I believe risk is kept under control in superior portfolios. That’s one of the things superior investors do.
Highly skilled investors assemble portfolios that produce good returns if things go as expected, and resist declines if they don’t.
This asymmetry is the cornerstone of superior investing.
Notables
PPI Increased by +0.9% in July (markets expected +0.2%)
- Whoever published the report must be thinking they’ll be fired, and the white house will soon be publishing the number they want.
- All jokes aside, this appears to be an early sign of tariffs impacting the economy…time will tell if companies raise prices or lower margins
AI Infrastructure needs billions to catch up with China
- Surging AI demand and a fragile power grid forms a bottleneck, meanwhile it’s considered a solved problem in China
- We continue to favour the picks and shovels of AI over which applications will dominate.
H&R REIT – an idea for attractive risk/reward
- The tea leaves suggest H&R REIT is prepping for a buyout.
- The Reward: shares trade at $11.87 as of Friday’s close. Mgmt. reports NAV at $18.86.
- Looking at a similar deal this year, Interrent went for a 17% discount to Nav this year
- This would put H&R around $14-15
- The Risk – we own a REIT yielding a 5% dividend yield in a sector that’s greatly lagged the broader market.
Gold Miners outpacing Gold bullion – time to switch?
- Back in November, we highlighted the performance gap between gold miners and gold bullion, noting the miners always lag the price of gold. So far it’s been an excellent trade.
- Over the last three months, Miners have rallied ~25% while the price of gold has held flat.
- We still like the miners as they are printing cash and eliminating debt, but considering to trim our profits and reallocate to gold bullion.
As always, If you have any questions or comments – let me know!
Much love to you and yours,
Lucas