Roses are red, violets are blue, investors love large caps, how about you? “One of the best bits of advice ever given to me was: don’t fall in love with stocks in your portfolio” a veteran wealth manager told Spy during a lively dinner at Din Tai Fung this week. “When you are in love, you ignore your lover’s flaws, their foibles, their quirks and irritating habits. That is not a bad thing in romance but one should never be so forgiving for equities. That nasty habit of missing earnings forecasts, or skipping a dividend, buying corporate jets for the CEO or monogrammed carpets for head office are red flags that should not be overlooked. Be ruthless, part ways and move on.” Not the most romantic advice on Valentine’s Day, but sage, nonetheless.
Spy loves innovation, he loves quirkiness, he loves amusing investment ideas but even his open mindedness was tested with a new strategy from Tuttle Capital. The firm has filed with the SEC for the Tuttle Capital UFO Disclosure AI Powered ETF. If approved, it will have the ticker, UFOD. The filing states that the actively managed UFOD ETF will invest at least 80% of its assets in companies considered to be engaged in advanced or potentially classified technologies linked to UFO research. This includes aerospace and defence contractors speculated to be involved in groundbreaking innovations, possibly influenced by government disclosures on unidentified flying objects. Spy wonders if the good folks at Tuttle have had a weekend on the mushrooms.
Hat tip to Redwheel, who point out that “2025 is a rare year. It’s a perfect square (45²), the sum of cubes from 13 through 9, the first perfect square year since 1936 and the next one won’t arrive until 2116.” The inner-geek in Spy loves these mathematical peculiarities. But more importantly, the manager also states, “2025 is also a year of rare market conditions that have only been seen a few times in history.” What are these rare conditions? Concentrations. “Concentrations are also extreme. US stocks now make up over 75% of the of the MSCI World Index and the top 10 S&P 500 stocks now account for nearly 40% of total market capitalisation, comparable only to periods like 1929, the Nifty Fifty bubble of 1973, and the Dotcom boom of 2000.” If that does not make investors pause a little, nothing will.
Spy has always had a soft spot for active equity managers, those researchers, hunters and investigators that try and seek out unusual companies that might dominate a market in the future. Spy was intrigued to read about a Swiss firm named INFICON, in a piece by asset manager GAM. Spy had never heard of it and is sure 99.9% of his readers have not either. What does the company actually do? Since you ask, “INFICON specialises in sensors for measuring vacuum purity.” And that, folks, is rather useful if you want to manufacture semiconductors. It is a niche, high value and highly profitable field.
Friday quiz: what percentage of global manufactured good exports did China have in 1995? It was 3%. By 2020? It was a whopping 20%? Why is this important? Well, as PineBridge points out: “These companies have gained market share over the years through cost-cutting and improvements in product quality to compete with global peers.” If Trump does go ahead with implementing sky high tariffs, many of the firms are already “multinational companies in their own right and will likely develop bases overseas and continue to grow.” Trump may think tariffs are an easy win, reckons Spy, but his targets are unlikely to stand still, and this bodes well for Chinese manufacturing stocks, many of which are valued rather lowly.
Stanley Druckenmiller once wrote, “Markets that go up for five years without a meaningful correction, usually aren’t healthy.” Spy has read the C word with alarming regularity of late and perhaps the Cassandra’s may be right. The exuberance in US equity markets, in particular, seems to be out of whack. According to Eastspring, “US equities and the US dollar are expensive…meanwhile, the relatively low valuations of emerging market equities present a stark contrast to the high prices” of their US counterparts. They add, “historically, buying undervalued assets has proven more beneficial in the long run.” Indeed.
When Spy considers the success of tech and media companies during the past forty years or so, it is remarkable what we now take utterly for granted. Any of us, can explore a world map and, with a finger tap, instantly zoom in to street level. We can stream any song, book, film, TV show, or podcast ever created. (Admittedly, we might need a few subscriptions to achieve that). We can now ask any question and receive an immediate, intelligent answer that is useable. Almost everyone has access to a camera and video camera allowing billions of moments to be captured, stored and shared – allowing infinite silly cat and dog videos. We can video call anyone, at any time, regardless of their or our location. We can follow sports teams across the world and watch them compete from the comfort of our own sofa. We can publish instantly to millions, if not billions, of people. No matter how many articles one reads on digital detoxing – it is simply not going to happen.
Until next week…
