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Long cycle the false prophet

You cannot invest the long cycle!   The market will always beat you.   The proper valuation for assets cannot always resolve itself in the short term, and as an investor, you cannot afford to wait out the market.   These are simple truths drilled into every single portfolio manager.   

The one market where this contrarian view of the world did not hold was the hedge fund market, and we now know that either luck, insider trading or even subtle pushes were how they made their money, plus massive leverage.  But hedge funds are of no interest to me.

When Nixon began opening to China, no one could predict the long-term impact on capital allocation and how profits in Western companies would explode from using cheap Chinese (or Asian) labour.   These trends were transitory, the China play is long over.   Wages are high and the only reason to remain in China is the invested physical plant, plus the still massive labour force.

As a strategist, my job was to see the medium-term trends.   I started working near the end of the 1990s internet bubble when valuations were based on clicks.  Even Google, which is a great product, had no massive core income, Adsense was in its infancy, and only took off a year after the IPO.   It is hardly mentioned in the IPO documents.   So people who tell you they knew Google would be great are lying. 

Strategies for the 21st century are as complicated as in the past because you have little idea of what will be important.   Nearshoring is massive, but Northern Mexico is done, American companies that want to expand manufacturing operations have to look south (near Mexico City) which presents a whole other set of challenges.

The baby boomers, the biggest generation around, are about half retired and are shifting their investment strategy away from growth to preservation and income.   So that means more secure bonds and dividend-paying stocks and not the high fliers of 10 years ago.   The goal is to find businesses that meet these requirements, and as usual is difficult and hard work.   More difficult yet, the shift is not in a straight line, some imponderables have to be addressed.   Britain has many challenges, and like virtually all Britons I am mostly invested in UK instruments and companies.   

Personally, I am a big believer in the value-added business.   My past life as a strategist was for others, now it's for our family.  Our portfolio shift is largely based on my bias, and my views are tempered by my excellent broker.   Our focus has moved from blue-chip British companies to mid-size ones that present this stronger value-added aspect.   

As for the crazy valuation we have seen in the press over the past few weeks... my all-time favourite was a company called the Grill Cheese Truck Inc, as its name implied it was involved in grill cheese, it owned 7 food trucks and leased two more.   Total revenues were $1 million, yet it had a market value of $100 million.   There is always stupid out there.

Anyway, now that I have Jennifer on board, I have more time to focus on our portfolio.   I would argue that I spend a day a week on the subject,   which is my conclusion,  Investing is hard work, there are no magic formulas. 


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