In markets there are certain truths which are learnt (and often forgotten).
'The market can remain irrational longer than you can remain solvent’; it is very rarely ‘different this time’; and ‘don’t fight the Fed’ are three which are appropriate at the moment.
The US Federal Reserve (the ‘Fed’) and other central banks have now flooded financial markets with money and have vowed to do ‘whatever it takes’ to support valuations. Combined with this, interest rates around the world have been slashed, the effect of this, as we have seen before, is to force money into equity markets.
This is also what happened in the last major stock market crash and the effect was to inflate asset prices and to begin the longest bull market in history. Whilst many sat on the sidelines, those who owned financial assets did very well. There may or may not be a further correction but the amount of stimulus in the system should not be underestimated.
This asset price inflation will have the dual effect of creating more tax revenue for governments whilst also inflating away the value of debt in real terms. This will benefit indebted governments and those who own financial assets but will, unfortunately, further disadvantage those who do not and will create an ever widening gap between the haves and the have-nots.
From tiny acorns…
One of our competitive advantages is the ability to invest in smaller companies with huge growth potential, rather than be constrained to investing in already large companies. As the picture above shows, even Amazon was a small company once (picture of Jeff Bezos in 1999).
Working out who the survivors will be, who the disruptors will be and who might disrupt the disruptors, is important. The rewards of getting those predictions right are noteworthy and unlikely to be found within the scatter gun approach of index investing.
What does this mean for our portfolios?
May has been a good month for our portfolios. Whilst the headlines have focused on the resurgence the tech stocks which drove the early recovery, the focus has now started to extend to other geographies and sectors. It is in these areas where we now see the most opportunity. We do, however, remain cautious that a sell off in the now seemingly overpriced tech giants, along with civil unrest in the US, could cause further short term volatility. We have therefore maintained a large defensive gold position.
Stay safe, go well.
Featherstone Steady Growth + 4.34%
Featherstone Sensible Growth + 5.35%
Featherstone Serious Growth + 7.49%