Personal Assets Share Discussion Threads

[essentialinvestor] 11/3/2015 13:10

Jim, fair point, however hopefully you also appreciate my take.

The latest Q report references their equity book being valued
at probably the highest PE in PNL history.

ZIRP has not just boosted asset prices equally, it's also ensured
defensives now being valued at levels I have never seen previously.
So defensives may offer little protection in the next down cycle.

There are few places to hide atm, and yes it's gold and cash optionality
that will have to work very hard for them, that will also require a
very high degree of skill IMV.

[jimbo55] 11/3/2015 12:07

Cash gives you optionality - not to be sneezed at when prices are falling. Sure beats being locked into a lobster pot.

I'm in the camp that sees Gold substantially outperforming everything else at some point, but I don't personally believe it will be until our American cousins are forced into another round of QE to weaken an overly strong Dollar. However, if they try this any time soon they will lose credibility in the eyes of some of the many market participants who still perceive them to have some. For this reason, they may end up trying to talk it down but given the divergence of perceived tighter FED monetary policy with their counterparts who are now overtly loosening, I expect the USD to become stronger in the short term, with the DXY breaching 100 at some point before the middle of the year (maybe even this week if things keep going the way they have in the last 7 days). I just wonder if/when the $7 - $9 trillion USD carry trade the BIS estimates to be loose in the World begins to reverse. Anyway, this will be a headwind for Gold in USD-terms, but I am far more interested in how Gold and the miners behave in other currencies - particularly Australia who have seen the AUD sledgehammered against the USD over the last 5 months. Right now, ASX-listed mid-large cap miners have still not suffered any major sell-offs off the back of the recent Gold falls in USD terms, and the chart moving averages remain constructive.

Short term, I expect the strengthening USD to assist the valuation of PNL in Sterling terms, and their TIPS holding won't have done them major harm in the present sell-off. Again, the USD-component will be assisting right now.

I would have no objection to PNL attempting to use index puts to provide some cushioning of the share portfolio, but these will not be as cheap right now as they would have been a few weeks ago. If they haven't already taken advantage of this, it's too late to do so in the present sell-off. This is what I like about RICA and RCP. Both these trusts have used index put options in the past with some success. I would also expect RCP's hedge-fund component to offer some protection if markets start to trend downwards. I'd love to know which funds in particular they have exposure to though...

Elmfield, have you ever looked at BHMG? It's an investment trust wrapper that sits on top of the Brevan Howard Master Fund - a hedge fund that seems to do well when markets get volatile. Unsurprisingly, this trust didn't do much in 2013 - Q3 2014 but has perked up since the final quarter of last year. Comes with a not insignificant performance charge as hedge funds typically do, but I keep a holding as a defensive hedge against rocky markets. It's not done me any harm recently. Would be wary of staying in if we get any kind of derivatives blow-up in the World at large, but think of this fund as a good volatility play.

[essentialinvestor] 11/3/2015 12:02

NAV under £345 now.

The last couple of days of falls in NAV makes the point for me,
unless gold outperforms with a 40% equity holding, where is
the significant outperformance going to come from in the next bear market.

[elmfield] 10/3/2015 20:20

To be honest I have not a clue what to do,
All I know is sitting in cash is a ndisableder for me, tried it and
market went on up so moved
to managers that say in their reports what I think!

[essentialinvestor] 10/3/2015 19:47

elmfield,

From memory in Ian Rushbrook's time he utilised FTSE futures contracts
to enhance returns in bear markets.

However this does not appear to be part of the strategy going forward,
I think there was a comment in one of the Q reports that it may be considered,
it appeared very non committal on my reading.

So if you look at the market action today, many defensive stocks were hammered,
BATS their single largest equity holding down over 2.5% as an example.
Defensives look very highly priced with large downside in any bear market to me.

If they are going to maintain their equity position at around 40%,
I do not see where great outperformance is going to come from - unless gold
significantly outperforms.

So that leads me to think they may go more aggressively to cash,
with the equity % perhaps falling nearer 30% just imv.

Or maybe I'm missing something in my view ? - which is more than likely )

[elmfield] 10/3/2015 13:49

Well the thing is, old chestnut I know,
But:
Should we just sit in cash?
Tried to do that but after about a week the nerve
Cracks and back in one goes,
I have put a third of the 'supposed cash 'reserve in each of the three, I know you know which!
In the old days you would have just shoved it into conventional gilts,
Not these days though, better let someone else decide!!

[essentialinvestor] 10/3/2015 13:42

elmfield,

PNL are pretty much top of my watch list atm, so I have been thinking aloud
here on my last few posts, I'm trying to convince myself to buy.

My gut instinct(FWIW) tells me their time has almost come, however gold still
looks in a vicious bear market.

My other concern is that having largely missed an opportunity to increase exposure
to equities in late 2011, will they this time spot the opportunity when it
presents itself?.

They are my main two concerns, you are essentially relying on SL's judgement
call.

It's good to hear differing views and I appreciate that others have taken the
time to post, I really wanted some other opinions as it's such a quiet board.

[elmfield] 10/3/2015 13:30

I sing from the same sheet.
Can Rcp though cope as well with a crisis as pnl probably will?
Should weightings be changed?

[tacheman] 10/3/2015 13:25

Great post Jimbo

[jimbo55] 10/3/2015 11:43

Taken from the January Factsheet for the Troy Trojan Fund managed by Sebastian Lyon:

We remain nervous of the risks in holding paper currency amidst a race to debase. Our 13% weighting in gold and gold equities is in place for this reason

The factsheet can be found here: hxxp://www.taml.co.uk/archive-reports/fact-sheets

I think it wise to not lose sight of the fact that we are caught up in the greatest monetary policy experiment the World has ever seen and that it seems to be degenerating into all out currency war. I put last week's Gold price falls down to the strengthening US Dollar, and it is important to consider the main reason for this strengthening is Central Bank monetary policy divergence. The FED is now perceived to be in a tightening phase while the ECB, BoJ, the RBA etc are moving to loosen monetary policy. This is hardly the sign of a healthy financial system.

Personally, I have kept significant US Dollar exposure since around this time last year due to anticipating the end of the latest round of QE could cause something like this to happen. However, I am mindful that going forward, the USD could end up becoming toxic - particularly if the FED end up moving to a NIRP (Negative Interest Rate Policy) from ZIRP. All this to prolong a credit bubble that should have been allowed to deflate in 2008. In a NIRP environment, Gold would actually offer relative yield, and I think it really important to not lose sight of this.

My own personal strategy is to play currencies on a 3 - 9 month view and stay out of stocks in any meaningful manner. I have some exposure to 10 year US Treasuries - purely because in the mad World of NIRP we seem to be heading towards, now could be a good time to buy some while they're still yielding something. I'm also exploring various ways to move a portion of my personal liquidity outside of the global financial system, because given an estimated $57 trillion of debt has been added since 2009, I think systemic risk and fragility has only increased since the last near-collapse. Money I have that remains invested is in a handful of funds and investment trusts where I trust the management and where, in some cases, they can take full advantage of being able to short stocks when the time comes to do so.

I think I've outlined a number of the reasons why I like the conservatively run PNL anyway, and forgive them their lack of a perfect crystal ball.

Gold was in a bubble in 2011 (wouldn't personally describe it as huge, but that's subjective) but PNL bought their holding some time before this. I'd have to go back through several years of annual reports to identify when exactly, but I remember reading this to be the case. It's not like they went diving in feet first in July 2011...

[essentialinvestor] 10/3/2015 08:16

elmfield, I would agree with the ultra caution at this stage of the cycle.

What is more of a challenge to accept is the reading on gold.

It was gold in a massive bubble 2/3 years ago IMV, not dividend paying
stocks.

[elmfield] 09/3/2015 19:15

Ps,
Just read the latest quarterly report,
That is quite a strong statement, they have
Certainly stuck to their guns, I like that as I
at least know what I am buying into.
However I think holding the dividend is not required,
will write and tell them, why bother going to that length?

[elmfield] 09/3/2015 18:56

Ruffer asset value looked a little rough,
Down 4p in a week, div paid out, maybe, even so
Rcp pick of the bunch,
Spread it out spread it out.

[essentialinvestor] 09/3/2015 15:28

Reading through the latest Q report they appear to view their recent
equity % reduction as a first step, unless I am misreading that.

The possibility of increasing their Gold holding is also mentioned.

The price action in gold since the November low looks like a bear market
rally to me, which unfortunately has suckered some in.

[essentialinvestor] 07/3/2015 13:51

elmfield, I think some of their decisions merit at least
some constructive discussion.

However ultimately yes, if you don't like it the don't buy it.

Let's see how NAV held up at Friday's close on a major risk off day.

[elmfield] 07/3/2015 07:29

All part of balance,
If you don't want it don't buy it!
At the moment glad it is not to big a part though, have to admit that.
Happy to hold despite its underperformance in these troubled times!

[jimbo55] 07/3/2015 00:50

Nobody has a crystal ball. Given they sold at a time of the PE being in the high twenties, I'd hardly begrudge them that.

With a forward PE and PEG forecast to be almost 22 and 2.65 respectively, along with a forward Dividend Yield forecast to be just over 2% (figures from Stock0pedia), Greggs don't exactly appear a screaming value investment at the present time. According to the latest numbers, the dividend is only just covered. The only thing looking good right now is a PEG of 0.77, but can they maintain the current growth going forward given how saturated the UK market already is with Greggs?

It looks to me like they sold out at a time of full valuation, and I'm not going to begrudge them the fact that the valuation has become even fuller since then. These guys invest defensively, so again, they've stuck to their knitting and done what they always have by selling a holding they considered to be fully valued.

I see this over-valuation phenomenon across many stocks I track via Stock0pedia, so perceive the market to be very fully valued right now. Happy to hold PNL because given their defensive positioning, they will offer some protection from what I consider to be imminent market falls on the horizon. Worth mentioning that today's jump in the USD will have done no harm to the NAV and will probably have counter-balanced today's fall in Gold.

[essentialinvestor] 06/3/2015 17:58

GRG is Up approximately 40% since PNL exited last year -
that is worth repeating, Up approx. 40%.


Too many incorrect calls?.

[jimbo55] 06/3/2015 15:06

I recall PNL did okay in 2011 whilst almost everything else was tanking.

Fair point, re. Berkshire Hathaway, but I'm happier they added to their holding in this particular share in 2014 than if they'd suddenly suffered a bout of collective insanity and gone diving into the S&P500 willy nilly.

I'm aware of RCP's change of investment manager, but I don't put all their recent performance purely down to this; despite the equity-related investments doing well. At the end of the day, we're kidding ourselves if we think Jacob Rothschild still doesn't have meaningful influence over the day to day running of the trust. Also, when it comes to assets such as unlisted investments/private equity, then RCP seems to be doing pretty much what they've always done.

In terms of PNLs Gold Exposure, I am extremely happy with this and glad to see it remain there. The strong US Dollar is currently a major headwind for Gold (but not so much for PNL who have substantial TIPS investments), and I'm actually pleasantly surprised it's held up so well. However, if you take a look at Gold in terms of other currencies, the charts present a different picture:

hxxp://www.xe.com/currencycharts/?from=XAU&to=AUD&view=10Y
hxxp://www.xe.com/currencycharts/?from=XAU&to=EUR&view=10Y
hxxp://www.xe.com/currencycharts/?from=XAU&to=JPY&view=10Y
hxxp://www.xe.com/currencycharts/?from=XAU&to=CAD&view=10Y
hxxp://www.xe.com/currencycharts/?from=XAU&to=GBP&view=10Y

Looks like a stealth bull market in Gold could be in the early stages of starting to get underway to me. Take a look at this particular AUD-denominated Gold ETF:



The moving averages are firmly in positive territory that they've not been in since late 2012. Also, have a look at these large - mid-cap Australian-listed Gold Miners:







Again, those charts are constructive - especially Newcrest's. The EMAs have not been set up this positively for Newcrest since July 2011. Granted, if the USD-denominated price deteriorates further then we could see another leg down, but when I start to see the charts of some of the more significant miners behaving like those above, I think it's worth taking notice.

Personally, I think that before the current grand global monetary policy experiment has played its way out, we'll be very glad of that Gold holding. The current USD strength is a sign of weakness in the system, not strength. It's main cause is, I believe, Central Bank Monetary Policy Divergence. The FED are now in tightening mode (verbally anyway) whilst Europe and Japan are powering on/up QE with gusto. There's also scope for a USD-denominated global carry trade to unwind. BIS estimates put this somewhere in the order of $7 - $9 trillion in size.

So in a nutshell, I'm anticipating global currency chaos going forward, so glad to see the Gold holding here - even if the USD-denominated price falls further this year.

[essentialinvestor] 06/3/2015 14:01

Jim, plenty of volatility in 2011.

BRK.A available at $100,000, but they look to have added to their holding
in 2014.

RCP changed the investment manager, as you are probably aware.

[jimbo55] 06/3/2015 13:45

To try to not skirt around it, it's good enough for me given where they've invested and their reasons for doing so. Sebastian Lyon has made comments on a number of occasions about waiting for the volatility they need to get them the prices they desire to deploy capital into what they consider to be good value investments. Given the death of volatility over the last few years due to the combined actions of central banks (and its gradual return due to growing divergence in the policies of different central banks - namely the FED but recently the SNB), I'd anticipate a bout of extreme volatility in the not so distant future that will scare the pants off retail investors who've only been in the market since 2012/2013. This trust will then get the opportunity they've been so patiently waiting for.

I don't blame them for not having a crystal ball, being patient and sticking to their knitting. RCP (in which I also hold shares) were being slated for underperformance in 2013, yet look at them go now...

[essentialinvestor] 06/3/2015 13:35

Skirting around my point Jim imv.


They looked to have increased their equity holding % through 2014,
if I am reading it correctly.

PNL also appear to have recently upped their Gold %.

Great timing?.

[jimbo55] 06/3/2015 13:11

They would be insane to add to their equity holdings now. This trust outperforms when markets go into bear phases. Just requires patience. Personally I value return OF capital over return on capital. ;)

[essentialinvestor] 05/3/2015 19:59

Is this NAV performance good enough? - it's a question which I can
answer easily, just wondered what others thought.

As per my earlier posts RCP looked the better bet trading on a discount to NAV,
the RCP discount to NAV closed even more quickly than I thought.

[elmfield] 22/11/2014 10:15

EI,
You are of course right!
However,
this is really just part of a spread of safer investments,
May one day prove wise, but yes you can make more other places
but I won't take on to much risk when I think things are toppy!
Usually I can find stuff that offers real value but it is
becoming very hard!