A few days ago, I received an email from a valued member of ours. He said that our call on Ford (F) was wrong because we removed shares from the Best Ideas portfolio too early. Another member mentioned a couple months ago that we removed Baidu (BIDU) from the Best Ideas portfolio too early, and he was extremely disappointed for this reason. One of our most valued financial advisor clients, whom said that our call on a certain industry had saved him millions in client assets, decided to cancel his subscription due to a structural shift in his business to ETFs.
The puzzling part of all of this, however, is that our call on Ford reaped a ~35% gain, the call on Baidu was nearly a double, and shares are still hovering around the price at which we removed it from the portfolio. In the financial advisor’s case, even though he credited our firm with saving his practice millions (we can’t take credit for anyone’s performance), he felt that sticking with us would be throwing away money, as his business would now be focusing on ETFs. However, individual security analysis will always be a key component of ETF analysis (after all, stocks are included in ETFs), and in the financial industry, relationships are everything. Why end it with us?
The reason why I offer these examples is that I think there is a subset of members that may not be thinking correctly about some of the calls in the newsletter portfolios (the only calls we make are in the newsletter portfolios), or the broad service that we offer and its widespread applications. If we make a fantastic call on Ford or Baidu, for example, and take profits in the newsletter portfolio to reduce risk, this is great. If we save investors millions as in our call on the mortgage REITs such as American Capital Agency (AGNC) because of a comprehensive article or in the case of SeaDrill (SDRL) due to the near-flawless track record of the Dividend Cushion, this is fantastic. These are good things.
To me, it looks like, to use an analogy, some members are playing Monday morning quarterback on games that their favorite team wins 40-0, just finding something to be disappointed about. I do love the conversations, but instead of being happy with a 40-0 victory, members are demanding to run up the score and win by 60, 70, or 100 points. This is certainly not a healthy perspective for long-term investing, and sometimes by trying to win too much, one takes on too much risk. In other cases, perhaps the classic “penny wise, pound foolish” saying prevails. Some investors take someone’s free analysis on the web and lose thousands, but shy away from paying just a little for the opposite result. It’s their choice.
With that said, I wanted to touch on a few developments in the China market. According to Bloomberg, the country announced that it would “curb the expansion of opaque local-government debt,” a move that has sent the Shanghai Composite sharply lower. Though not a complete, liquidity squeeze, the move will likely raise borrowing costs and reduce demand for lower-rated corporate bonds, all the while China’s economic growth decelerates. In the context of an overheated real estate market and plummeting iron ore prices, tightening credit is not something the economy may take in stride. We’ll be monitoring developments in China closely, but the move has the markets (SPY) a bit jittery as of late. We’re evaluating put protection in the newsletter portfolios again. Stay tuned.
Related Firms: Alibaba (BABA)
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