Crisis report - self help rules to stay sane

Things are moving so fast these days, including commodities, and I find the market exhausting because I start thinking about paradigm changes and what I should do. The terrible developments in Ukraine are depressing as well.

The small movements I recently did were marginal to rebuild an exposure to Oil and Gas after Putin destroyed mine in the process of destroying Ukraine.

For that I sold Singapore O&G (O&G means obstetrics and Gynecology not Oil and Gas), it is a kind of cheap medical stock that disappointed on years end results. The stock went private a few weeks later with a buyout, so I suspect that the management sandbagged or delayed sales to get a cheaper buyout after a bad earnings report. This is small cap investing for you!

I also owned a super cheap HK stock but not very resilient to inflation shocks and I bought one Singapore stock exposed to Oil partially, Boustead Singapore. It may not be the best compounder but it has downside protection, and it is very hard to find cheaply valued and FCF positive oil services stocks!!

The stocks I wrote about in my substack generally are still convictions and still cheap and I still hold them. This includes my articles on First Pacific, CK Hutchison, Indofoods, Poulaillon and others. Have a look if you are a new subscriber.

In these conditions, it is hard to find the motivation for stock write ups, especially that with the quick value approach, many stocks corrected fast and are at very attractive valuations. Also, I suspect that in this very volatile market, you are not short of stock ideas. Half of our watchlists are cheap, the Faangs start to get cheap, the Chinese Faangs as well, and many dividend growth companies. This moves very fast and we need some time to identify opportunities.

Because I am often struggling psychologically in periods of crazy volatility, I have today decided to write down my rules for acting or not acting in the markets, and to revisit my old rules.

Here were my safety rules:

Losses in Emerging markets and Safety Rules

Here is what I wrote:

1. Diversify companies: if you get hit with a bad development it will not be detrimental to your performance too much nor quick you out of the investing game.

2. Diversify countries. You must be careful to make a macro bet or a macro risk bet by concentrating the portfolio in one or a few EM countries

3. To concentrate heavily in EM stocks you need perfect understanding of the risks, and this is difficult.

4. No SPACS: spacs investors and management do not have the patience to hold businesses during the cycle and will screw you over when it is out of favor. while the manager at the Spac who "loves Africa/Asia" will be back into Developed market stocks after 2 years if he does not make it big.

5. Especially UK spacs and some UK companies, very dodgy and pro cyclical.

6. Favour companies listed inside emerging markets, skin in the game is key, as well as time in the game, These companies are dedicated to these countries forever,

7. India is risky.

Rule 2 definitively protected me when Russia blew up, i lost on two names, but it was not significant to the portfolio.

Hey me, are my rules to stay wise when times are volatile.

1. Recognize when times are irrational: Last year I kept adding to British American Tobacco, the price kept going down to P/E 6, same with AB inbev when the results were decent. At some point I even said it to my investing friends that the market made no sense anymore. What happened? From the 1st of January the stocks with a cheap valuation that made no sense ripped higher. I saw that happening in the 2010s with Fiat Chrysler that was so cheap and kept going down at times. Today we are back into this, due to war and panic in many segments of the market (China tech, Large Europe stocks, some Latam stocks). Hey me, you saw that a few times already, get used to it. Valuation always bounces back when this phenomenon happens.

2. When times are irrational, focus on monthly adding to my positions. Be in grind more, not in performance check mode. The problem is the twitter feed, the discords full of panic and also memes that makes you think about daily prices.

3. I will stick to my strategy, which is investing in good businesses and to be diversified. It is tempting to do some trading, to buy some dips, to rebalance heavily, buy wheat, oil. It is not my game. If I want to trade, I can keep a trading account with 1000 or so Euros and maintain this activity separate.

4. The most important is to avoid blowing up. China tech should be a 2 baggers and I could rebalance many stocks into this segment, go 50% or 30% China tech. But what if there is a black swan and I blow up on this? This isn’t my clients portfolio, and if they blow up, “too bad, get new clients”, it is my savings and my kids portfolio.

5. No big macro bets: I lost some alpha by not going crazy in oil in march 2020, or maybe in China tech now, or maybe Ukraine agro. But this is making macro and political bets and I do not know. I want to have a little bit of everything to cover different scenarios and muddle along rather than rollercoaster my way up and down.

6. Stop stressing about your small positions that will suffer: I spent sometime looking at a now 1.5% position and how wheat prices will probably destroy its margins in 2022. Then I realized that I have at least >10% positions that will benefit from wheat or palm oil price increases. But I spent more time thinking about the position suffering that on the ones benefiting. If you have >30 positions you will always have beneficiaries and losers of the current macro climate.

I should be more like Buffett and Munger, and not like Wall street bets. They do not always go up 20% a year, but they don’t worry at all. They keep reinvesting dividends and earnings with total peace of mind. I still have work to do to have that mindset.

3 Quick ideas from the web

Chile Beer company now very very cheap

Copper. copper. copper. We cannot have an energy transition without Chile at the moment. CCU is second derivate beneficiary, but also it won’t get hit as much as the Copper companies by future regulation.

Singapore hold co with value oriented management

I think that this website is very good. For Boustead I will add that the Russia War is a Game changer for Oil and Gas capex, because countries now want multiple supply routes, and because of underinvestment for years. Also, the real estate branch is investing in Vietnam which is super interesting.

Excellent Baidu Analysis . Reddit can have quality too.

You have to be a bit of a techie to understand the AI stuff that Baidu is doing, its mind blowing. They basically give tools so that clients can use AI lego bricks. Also, they come up with industry specific more ready to use solutions. Lastly, what is missing from the article is their smart city business, which is related to autonomous driving, but focused on organizing and monitoring traffic.

That is all for now. I think I will be back presenting unique ideas when it all calms down a bit.

Please share, comment, discuss your crisis copping mechanisms.