Topic: there is always a good opportunity to invest somewhere
Conclusion: I’m a perma bull, and you probably should be one too
“I felt like a one-eyed person, lacking depth of vision, stumbling around, missing half the picture, often being blind-sided and having to correct my inputs and bearings. It still beats everybody else though, in this land of the blind.”
There’s always something to be happy about
The grass is always greener where I am, or how does that saying go again?
I am what you would call a perma bull; I’m always happy about something, looking forward to things to come, enjoying planning for them, or simply relishing in whatever activity I’ve chosen for the moment.
The world of investments works in the same fashion; there is always a good opportunity to invest somewhere. At any one point there is a fixed amount of wealth (people, tools, machines and assets), even if the amount of debt and currency associated with that wealth varies. Over time, wealth usually rises (more people, more tools, more buildings, more dug up gold and gems). The receipts (e.g., dollar bills) on that wealth always need to go somewhere, bidding up the price for that particular piece of wealth – and that’s where you want to be exposed.
It’s never exactly clear where the dollars are going next, but sometimes it’s slightly less difficult than other times, to guess at a likely turn of events. In any case, there is always some asset being significantly underrated compared to other assets. Usually investors will find it sooner or later; first a few hesitant hands and later attracting the masses, thus with time making it overappreciated and promising low or even negative returns. By then, there are tremendous opportunities somewhere else.
Swedish Central Bank:
Our best estimate for a reasonable rate hike
50 000 basis points
Back in 1992, I had studied business administration, accounting, securities and derivatives valuation etc at Stockholm School of Economics for two years. From a macroeconomic perspective those were turbulent times: One of my professors actually suggested students change banks due to the risk of bankruptcy, and the Swedish central bank raised its policy rate by almost 50 000 basis points to 500 per cent.
Buying call options on banks heading for state receivership
Meanwhile I was trying to buy call options on all but defunct Swedish banks.
Yes, I was a perma bull with no regard to the downside.
The year after, in 1993, I started buying tech stocks in earnest. My “well diversified” portfolio consisted of two stocks: Ericsson (the “safe” bet) and Måldata (a small IT consultancy; “to add some upside volatility”).
In 1994, bears be damned, I became a finance pro: I took a job at a small brokerage, while the doomsday debt clock on the central square outside my window counted the steps toward default and ruin for the Swedish model.
Armed with DCF and CAPM models, straight out of my still warm textbooks, I promptly issued Buy recommendations on construction companies, medical technology firms, computer manufacturers and IT services and software companies. I even through in a few chemical industry companies in the perpetual Buy Everything mix back in 1994-1995.
A perma bull is hard to slow down apparently
In 1996 I took a new job as the head of IT research at Sweden’s largest bank. By then I had become bolder than ever (albeit quite fitting, considering the budding
tulip bubble IT boom), thinking others just lacked the right visionary capabilites that I had. My bullish research reports on mainly software companies knew no boundaries at the time, and soon I included so called internet consultancies and a Virtual Reality firm as well. Buy Buy Buy.
The LTCM and Asian currency crises in 1997-1998 didn’t deter me the slightest: “Temporary!” and “Buy the dip!”, were my mantras.
Toward the end of 1999, however, I finally realized things had gotten out of hand, and by February 2000 I threw in the towel regarding IT shares as well as my then employer, and moved to a hedgefund instead. With my sunny disposition there was always only upside (a start-up hedge fund in March 2000; what could possibly go wrong). For me, that is. For the market not so much.
And that recent LTCM hedge fundcrash in 1998? I couldn’t care less. I was joining a “completely different” hedge fund. With only upside! (actually that turned out to be true — or how does “European Hedge Fund Of The Decade 2000-2009” sound to you?
The three years that followed we (Futuris/Brummer) could do no wrong. E.g., there were always interesting new opportunities to sell short ridiculously valued and cash consuming IT companies. Despite personnel issues at our firm, perma-bull me saw only rainbows and gold all around and in the future. Sure, regarding the stock market, I thought many stocks would fall to just a tenth of their values, but every one of those were “special cases”, and I never predicted doom for the economy or the stock market or financial system as a whole. I definitely was a bull. For me that is, and for the firm, and for short positions on tech stocks.
At the time, and quite often today too, I felt like a one-eyed person, lacking depth of vision, stumbling around, missing half the picture, often being blind-sided and having to correct my inputs and bearings. Yes, I actually gradually became aware of my shortcomings. It still beat everybody else though, in this land of the blind called finance.
In 2004-2006 I focused more on banks, hotels, cruise ships and professional services rather than purely on software companies; and boy was I bullish on banks back then!
There were buybacks to the tune of 7 per cent a year, and dividends at a similar rate on top of that, while P/B ratios were between just 1 and one and a half. Growth was fast, returns were high and credit losses were non-existent. Perma-bull as I am I bought everything, including the recycling company Tomra (Wait, what? Software, Banks,… and Tomra?) which gave me a 100% return in less than a year. What can I say, if you’re bullish, you’re bullish.
In 2006, my bullishness toward stocks waned, but I still managed to find a handful of promising small cap companies and took outsized positions in them. Bad move. Blind bull move. When markets started turning downward in the run-up to the bursting of the housing bubble, and onset of the financial crisis, those smaller companies proved very hard to sell.
“Yes, I’m currently perma bullish on gold”
Stock market bullish-me took a harder hit than ususal in 2007-2008, since I was 1) hit hard on a few long positions right before, and 2) I was proven right* on my house bubble thesis, as well as 3) made a killing on bank shorts* throughout 2008. I imagine gambling addicts are hooked by similar principles*.
* there is nothing more detrimental for an investor than being right on a bearish call
Since then, I’m still a perma bull in every aspect that counts, but not quite so much regarding public stocks. When they are expensive relative to sales, profits and the price of commodities and precious metals, I’d rather stay away and project my inherent and eternal bullishness on other things.
The Buying Opportunity Of The Decade
Actually, in the fall of 2010, when my partners were leaning towards going short again, I wrote a couple of memos (e-mails), where I called the situation “the buying opportunity of the decade”, based on a lot of slack in the economy (exactly the opposite of the current situation).
Since 2015 I’ve regularly been called a “perma bear” (typically by people with less than 10 years of investing experience), and it’s true I’ve had a very negative view of the prospectice returns for the stock market as a whole for a few years. On the other hand I’ve invested heavily in start-ups and scale-ups, all probably depending on the economy staying strong. At the same time I’ve increased my exposure to gold manyfold. Yes, I’m currently perma bullish on gold too.
I’m writing this as I once again saw somebody caliing John Hussman a perma bear on Twitter. Actually, dr Hussman’s history is similar to mine; just longer, better and more objectively based on research. Still, being wrong-footed in just the latest up-cycle is enough to make people, with no understanding of the word, call out thoughtful and accomplished investors like him as “perma bears”.
How about you? Is the grass always grener where you are? Are you too a perma bull like me? What does your bull/bear story look like? And if you don’t have one, due to too little experience, I suggest you tread very carefully the coming years.
My most humble regards,
P.S. Check out my interview on Future Skills with Erik Townsend from MacroVoices. That guy has a lot of wisdom to share about skills, education, analysis and much more. You can find a direct link to the episode here