Volatility gone for now..

Asset Allocation

I have been stopped out on the more defensive positioning of the portfolio when the DOW rose above 17,500. So my cash equivalents are around 31%. For clarification, I call them cash equivalents as some of this may not be strictly cash, rather could be wind up or takeover arbitrage situations that I consider extremely low beta to stock markets and that usually have a more defined date that they will convert to cash.

As a guide typically maybe half of the cash equivalents percentage may fit into this bucket. So far my defensive posture on the basis of the markets having a good probability of entering in a bear market has been relatively unnecessary. I have more or less been quite cautious holding a little more cash than normal since the start of 2014. I wrote a length post in January about whether to expect a bear market or correction. What is interesting is that if we take the MSCI world index we have already seen a bear market. So I can’t be overly fixated about wanting to see the S&P 500 down over 25% for me to go bargain hunting, the market doesn’t always grant us what we want. I still think we are in for a tough year, but perhaps the problem was when I was sounding a little cautious I got the feeling too many others were similarly cautious, hence the markets rallied. I will stay away from short term indices trades for the time being and perhaps only possibly look to reduce equites exposure late April. Seasonally this has often been prudent and the hard stats back this up over decades. If my cautious stance remains to be proven unwarranted in the year ahead I believe the leadership for another market surge may still be gold, energy, agriculture related at the forefront where I am overweight. Market strength seems to be based more on central banks keeping most of the world’s government yield curve at next to nothing or negative! My positions to commodities were slight boosted again via Woodside as mentioned later below. This could be boosted further as with Gold easing off a little closing in on 1,200 and silver also correcting, I am close to pulling the trigger on buying CEF:US as I have previously written about.


After starting the year, a bit bearish on AUD/USD at 73 I am probably lucky through a little profit taking in January and opportunistic trading that this actually hasn’t really hurt me as we even moved close to 77 recently. Currency markets perplex many in the industry but for a longer term investor I’d have to say that simple valuation models can be your friend and many economists and the RBA always publish them. It stood out that the AUD was way undervalued in 2001 and eventually we had a surge. In more recent times when the AUD went above parity every model had it extremely overvalued and we saw a plunge to 68. In January most models were saying fair value at 70 cents and recently we have seen it climb to 76. However, because of the big bounces in most commodities the fair value seems to be showing a similar jump in range in that time. Last blog update I said I would likely look for more offshore exposure if we went to 80 cents quickly. It probably still applies but I will monitor the movements in key commodities from now and then if we do near that level first. I’d first want to see most estimates of fair value still below 75 to warrant some shorts on AUD on the premise we will see RBA jawboning and that the rally is maybe overbought in the short term nearer 80 cents. Guy Debelle seemed to have a little attempt at 75 so I suspect nearer 80 RBA voices could get louder. I have at least read some data on large capitulation of USD longs which is encouraging for that. However, the USD does not look overly promising either as the Fed has the most room to manipulate their currency and yields lower from this point. But rather some emerging market currencies may look attractive versus the AUD instead. So I may be more inclined to implement this via some of the emerging market “dog” performers in the last couple of years that I have recently discussed, depending on how they are trading at the time.

Individual Stock Decisions

WPL – a well-known large cap most need no introduction of in the energy sector. I noticed recently that this was trading not far off the lows despite the oil price having a huge bounce of its low. Obviously one would expect this as their strong balance sheet shielded them from the declines of their peers. However I felt that this can play catch up, and just got left out within the excitement of larger gains from more leveraged players. I feel the company hasn’t been as poorly managed as say BHP and RIO in the past, and is a lower risk way for me to get more of a foot in the door in a stock that can participate if indeed we have seen the lows in the oil price. My entry level was 26.78.

Individual Stock News

YOMA:SP – this Singapore listed stock is the only real way for investors currently to get exposure to Myanmar’s economy, one of the world’s strongest growing, albeit with some risks as it is considered a “frontier” market. They are very diverse with their business and so far have been adequate in their corporate governance with the Singapore exchange. Price wise they appealed to me late last year at 35 cents, near their book value. The book value may be a little understand with their vast property interests could be marker higher arguably. The political turmoil the country has experienced is the risk but also opportunity. When issues with refugees late last year started to get worldwide attention the stock suffered. In these frontier markets one must be contrarian. Since October last year we have seen an election there and more recently in the last fortnight confirmation of a few companies to commence a stock exchange there. Both should not have really been of surprise yet seem to have been a catalyst for it moving from 35 cents to 57 cents this week. Whilst stop losses have not formed much of my strategy in the past I feel for such an opportunity with potential vast upside that will be the way from here. As I try to stay with this as it remains above its 200 MDA. It hit 88 cents in 2013, one must look a long way out for the valuation to get substantiated with earnings growth but they are placed in an economy with enormous upside and without a lot of commercial competition to them.

AIK – this small company holding of mine is experienced a lot of growth lately and they provided a business update release to the market a couple of weeks back. The announcement seemed extremely positive although the share price has not climbed by a lot, but has been a little firmer. I wanted to flag this company announcement on the blog here as I will watch with interest how the stock trades as we get to May/June this year. The structure of the company is such they report an NTA like a lot of investment companies do. Currently the stock trades at 11 cents with an NTA of 13.2. From this company announcement and from other investors who own this stock and comment on it, it looks certain there will be a significant NTA uplift in May/June. The valuation now in part uses a discount rate of 21%., however they are now obtaining some much more efficient financing sources than in the past. Let’s see if an uplift occurs in the valuation in a couple of months’ time and how the stock trades then and shall comment on it again.


  • Would probably ideally be happy with some more short term strength in the indices, that may finally frustrate other investors playing too defensively and then need to cover shorts. If so strength in April historically comes into a seasonally weak 6 months that statistics back up over a long time. That may present an opportunistic time to reduce some equities exposure.
  • If the stock market continues its uptrend I suspect gold may have a breather, in that scenario silver is an interesting play. Also the oil sector may pause giving me gradual chances to slowly look at some new positions.
  • If stock markets gap down be patient with buying until US indices are at least in bear market territory.
  • In regards to the above I may not be looking for a bear market in the US that runs too deep, i.e. 30% plus. One should note that a small number of stocks are making the US stock markets appear better than it seems. So a 20% pullback in their indices would probably mean the average stock is down 30% plus anyway. Some emerging markets that I have discussed previously may be the better option to buy as they have already experienced a bear market the last couple of years in many cases.
  • If the currency markets further frustrate many who have been long USD recently it may have finally cleaned out those “weak hands” in this market. Long USD speculative positions have already recently shown some cleansing out. On AUD/USD 77-80 range I would certainly consider essentially reversing some of the profit taking trades I made when I benefited from AUDUSD falling to 69 cents. For example, getting back into WIA:US and GVF may be worthwhile if they show reasonable discounts to NTA at the time. CEF:US it is possible I may buy sooner and effectively own more USD denominated exposure as this has plenty of Silver exposure which I like if Gold corrects to around 1,200. Silver looks cheap versus Gold.


This information should by NO means be taken as financial advice. It does not represent general advice or specific advice, particularly as I am unaware of the personal financial circumstances of readers. It is written purely for the purpose of an investment diary, to look back on, self-reflect and try and improve my own accountability for the investment decisions I make. It is for fun, and I am not a financial advisor. I try to be as accurate as possible but cannot guarantee I avoid mistakes. If making decisions with your own money, please do your own research and seek personal/professional financial advice.

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