Finding the Safe Havens

The portfolios are going well this year, and next week will mark the end of the quarter when I publish the review. If you have any questions you’d like covered in that report, now is a good time to ask. I am most pleased that both the Whisky and Soda Portfolios have had a good year without chasing the high-risk investments that are driving this market. Not only are the largest stocks very risky, but in the post-April rally, we have seen the return of the highly speculative stocks that don’t make any money. Fool's gold.

Goldman Sachs Non-Profit Technology Stocks

Markets have hit that point of excessive speculation, and the worst part of having an uncomfortably large amount of experience in financial markets is that you can be certain that things will go wrong, but you don’t know when. We also can’t be sure whether gold is caught up in the speculation or is genuinely a safe haven. In my opinion, gold serves as a safe haven right up to the point at which everyone else seems to agree.

As I wrote in the recent Atlas Pulse, gold is hot, but it isn’t red hot. Indeed, gold might not be in a bubble at all, but I have been watching markets for long enough to know that the crowds can be spectacularly wrong, not only in financial markets, but in life in general.

All bubbles differ in some way or other, and the root cause of this era is excessive government spending. We mustn’t forget that, and by implication, the antidote is government austerity. If that ever happened, the bond market would be a steal. So far, there are no signs of that, which means the value of money is headed south. The pound, the euro, the dollar, and the yen are being sacrificed to maintain order, and so long as this holds true, financial markets are rewarding investors handsomely.

But not all investors are enjoying this market. Bonds have been weak and will remain so until governments balance the books. US equities are up a mere 5% this year in GBP terms, which is modest. Even the Nasdaq is up a mere 9%, despite the hype; such is the impact of a weak currency.

High-quality stocks have also suffered, with the popular funds Fundsmith -1% and Lindsell Train Global Equity -1.5% this year. They focus on robust companies that have recently been beaten down. It means the most cautious investors, who invested in bonds and quality stocks, have been punished, while the risk-takers have been rewarded.

With the Whisky Portfolio up 29.8%, I would be embarrassed to be associated with the gung-ho risk-takers, as outside of the gold-related investments, the portfolios have been overwhelmed by value. In Soda, the 12.7% is also a very respectable result against the market, in a portfolio that takes less risk. Watch out for the quarterly review.