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Happy New Year to one and all.
Stock markets around the world ended 2006 on a high note. The FTSE 100 managed to beat analysts consensus by over 100 points (almost 11%). We compare our achievement with the All-Share, but again we had a disappointing year and could not touch the index which managed to appreciate by 13%. After the market faltered in May the club remained largely in cash until we adopted a new strategy.
Readers of this column will know that during 2006 our new mechanical portfolios, (Systematic and Semi-Systematic) designed by Mourad have shown encouraging signs of being successful. We have however, had the benefit of timing in what seems to be a steadily appreciating market in which to invest. Our choices have been undervalued stocks with good growth prospects. Of course it wasn’t all plain sailing and one of our choices was Betonsports which collapsed spectacularly into suspension when the US clamped down on internet betting sites. Hopefully, we will not have too many experiences like that. Meanwhile the paper profit on the rest of the portfolio list will have to cover the loss. It is early stages in the adventure and too soon to count chickens, but if we can turn some of these paper profits into cash we shall have made considerable progress in our attempts to become profitable investors. More than half our assets are still in cash allowing us to develop our new strategy much further in future if we wish.
We suffered another set back (November) in our conventional portfolio when Debtmatters slid quickly down and through it’s stop loss, forcing a sale. We managed to sell at the bottom!! The SP has since risen again towards the buy price but too late to prevent a substantial £853 loss. Somehow the club members have to find a S/L formula which prevents us from crystallising such crippling losses. Experience suggests that a strategy using no stop loss at all might well have been more profitable for the club, particularly in the recent past.
World outlook is bemusing at present. Some markets, particularly the US, appear undervalued, with company profitability continuing in a strong vein. However growth in China is slowing slightly as US demand is slackening. House prices in the US and the UK are thought to be considerably overvalued. When they return to normality we might see a longish period of stagnation. At the moment though, local factors are still boosting house prices and it may take further turns of the interest rate screw before the credit bubble and mortgage market steadies sufficiently. Pundits in the press have opined that anytime after the middle of 2007 could see problems develop for new householders tempted to stretch their budget beyond sensible limits. Interest rates may continue rising into 2008. However that is well into the future and the central banks will be walking a tightrope before then, in an attempt to avoid creating a recession as far as possible. Merger and Acquisition (M&A) activity has kept the markets buoyant for a year or more so another possible trigger for hiatus might turn out to be a stopping of the tap and at present that does not seem imminent. Several sources, however, have hinted that they think liquidity may dry up sooner rather than later.
As we move into 2007, commodities are still in vogue. Inventories of some metals such as nickel are still low while in copper they are at their highest for 15 months, surely indicating that supply is catching up with demand. Soft commodities such as wheat, soya and coffee beans are moving up in price strongly as the smart money looks ahead. Which reminds me. I need to nip out and buy 3 or 4 kilos of my favourite coffee as I think I may be paying enough already.
Mobius held it’s AGM in December and officers were re-elected. The chairman Martin wished to resign but members scotched his plan by nominating and electing him again.
Whatever happens in 2007, I believe Mobius Club is better placed than ever to profit from a new strategy combined with a healthy cash balance. I wish everyone a prosperous New Year and I am confident that by the end of the next year we will be keeping pace with the All-Share index or indeed beating it by a few percent which would satisfy at least one of our ambitions.
ML - Acknowledgements to Daily Telegraph and FT.