IndexUniverse had an article up yesterday about the rebalancing at Russell Investments that occurs every June and was just implemented for 2009. IU seemed most interested in the increasing presence of Chinese stocks.
The five largest stocks in the Russell Global Index (I'm not familiar with this one) in order are;
Petrochina (PTR)
ExxonMobil (XOM)
Industrial & Commercial Bank of China (IDCBY)
China Mobile (CHL) a client holding
Walmart (WMT)
We are all much more aware of China as an investment destination than we were seven years ago. I seem to remember that the first Chinese stock on the NYSE was Sinopec Shanghai Petrochemical (SHI), but I may have that wrong, and then it seemed like most people knew about Petrochina early in this decade when Warren Buffet first piped up about having a position.
Fast forward a few years and US based investors can now access Chinese solar stocks, water stocks, technology companies and even shampoo companies. We clearly had a mania in Chinese stocks for a while there, then the market imploded and now things are whipping up again but the Shanghai market is still down more than half from its high, the Hang Seng down about 40% from its high and the Hang Seng H Shares, or enterprise index, is down 45% from its high.
I've disclosed my involvement with China many times before. I sold my only position in May 2007 (the other Sinopec with ticker SNP) and bought back in with China Mobile in the summer of 2008. I was a little early on both getting out and getting back in.
If IPOs like BaWang can do well, the shampoo company mentioned above, then that is reason to be concerned about overheating despite being so far below the old highs. The long term fundamental case for China has been made many times in many places but the decline is a good reminder that the stocks will be cyclical and volatile even if the big picture story remains in tact.
The best way to avoid getting badly hurt from another implosion is simply to not own too much. I currently target a 2% weight and I could see getting as high as 5%. That's 5% and I absolutely love the theme. I loved the theme during the 14 months I had no exposure. As great as something might be you can still get it wrong. Being wrong is not as bad as what the consequence of being wrong might be.
Speaking of themes I love there was an interesting segment on Squawk Australia on Tuesday morning (Aussie time) with Steve Johnson from a firm called Intelligent Investor. The end of the conversation was about his opinions on Australian Infrastructure funds/stocks. He said he currently likes four or five out of the 20 that he covers. Twenty? Macquarie and Babcock & Brown each have quite a few funds listed in Australia and there are a couple of others.
Infrastructure is just as important a theme as China (obviously there is overlap). The money is going to be spent on infrastructure and despite how much some of the stocks and funds went down the money was never not going to be spent. The US is not quite at the investment saturation point that Australia might be (the US may have 20 funds out there to pick from but the Australian market is a tiny fraction of the US market) but with all the new sector talk and other hype out there you avoid getting really hurt by something unforeseen by not making a big bet.
I get questioned a lot on the don't make a big bet mantra but think about how many themes there could be out there and how many you might have an opinion on. Just the other day I mentioned a half dozen just in the industrial sector. Five or six themes at 5% each on top of the more plain vanilla things you may hold and you probably have a full plate.
Wikinvest Wire
12 comments:
Roger, my sense is that you use themes to help select positions within your sector benchmarks (maybe that's wrong or over-simplified.) I wonder what might happen if that were turned on its head? In other words, begin with your favorite 8-10 themes, and then fill in positions to the S&P sector weights that you're benchmarking. How different would your portfolio look?
Why do we settle for the plain vanilla investments that you mention (myself certainly included?) I guess because we're afraid of the volatility or maybe picking the wrong themes, but isn't that where the alpha comes from? Isn't that what most investors want in the end?
This whole notion of thematic investing is such a rich one to mine. Wait...mining??? Thanks for the thread.
Hello : Both Hussman and Mauldin somewhat disdainful of moving averages. Any thoughts?
http://www.hussmanfunds.com/wmc/wmc090629.htm
http://www.investorsinsight.com/blogs/john_mauldins_outside_the_box/archive/2009/06/29/a-20-year-bear-market.aspx
6:23 that obviously could work, i'm not at comfortable with that for myself.
7:19 Hussman talks about the track record for golden crosses being skewed because three or four exceptional times.
i did not read Mauldin.
there are plenty of people that do not think much of moving averages. I am one who does see utility and i have talked about why. weigh both and decide for yourself would be the best advice i could give.
What I have gathered from reading Roger's blogs, and that you have mentioned outright a fair number of times - is simply avoiding the "bad" is just as, if not more important than hitting the good. Taking small positions in great ideas is the way to execute this.... The old feathers in a tornado - some will hit the ground right away, others miles away - but you can't be sure when or where, but you know they will all hit the ground. FYI - that is an old Value G&D analogy, not mine....
Love your blog and linked it to my site. I hope that was okay. If not, please let me know.
Brian
Enough with the foxnews nonsense already. This is a place for portfolio ideas, not political idiocy. Please bring something relevant and interesting to the table or move along.
time to throw all the DEMS out, they are ruining the U.S. with their socialist policies
Then no doubt you are not familiar with this:
"Introducing the Russell-Jadwa Shariah Index
A global index reflecting the global market performance for Shariah compliant investors."
I know that I can Google this, to find out what Shariah means, but honestly.
"time to throw all the DEMS out, they are ruining the U.S. with their socialist policies"
The investment bankers have proved to be more adept at ruining not only the US but the ROW with their financial contraptions. I'd much rather suffer through inept socialist policies--they take long years to rob a populace. The investment bankers have honed it to a matter of months.
I've always thought that evaluating and controlling position size was one of the most critical skills in investing but I tend to think of the thematic approach to investing in two very different ways: (1) longer term trends rooted in real-world geography and demographics are an essential strategic consideration but (2) markets are rooted in fashion, in drivers of price, so there are also very tactical considerations that come into play (cf. Keynes "beauty contest" eg http://tinyurl.com/yu7cno).
Shorter version: I play most themes as part of building longer-term positions, reducing their cost-basis in the process, but a few of those themes turn out to be strictly trading and wind up liquidated. No surprise there, really, just a consequence of a unified conceptual framework.
PS: I'd ask if anyone can figure out what the Anonymous 2:37 PM or Anonymous 5:21 PM posters are referring to if I thought anyone actually cared but thought it might worth noting that Roger might want to consider enforcing an ID policy forbidding anonymity if only to save wasted seconds reading posts from digital droolers. JMO
@Leisa: You go girl.
RW great point. Price does matter much since it determines the % returns either gains or losses. Thanks for Keynes quote. I rather buy on pullbacks and many times have the patience to wait for a bottom low if the market risk is high or the equity is very risky due to debt load. However, RW, I find that studying the company becomes very useful even the history and culture. A thematic theme becomes hard for me and will try to put it into practice slowly because the moving parts are much more. However, I think that a greater theme has no national boundaries since what works in one country should work in another. I have given an example on Tom2.as and grmn. Garmin started out before tomtom with a high quality product, however tomtom has become a better strategic company due to the acquisition of tele atlas. However there is a history of tomtom, the founders created a digital device called psion, which was an address device with computer capabilities competing with texas instrument products. Psion was successful for a while and the same people started tomtom. So here history is very important, however tomtom group has gone further strategically than the psion venture since the acquisition of tele atlas. But when you pick a theme especially in foreign countries studying these considerations eat up lots of time. I am sure that what Roger does is very difficult and admire very much since from the top down he zooms in to the specific investment. Hopefully will develop such discipline and take up more and more long term positions.
Jeff from Milan, Italy
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