The wholesale slaughter of commodity investors is nothing short of a market genocide.
I have watched in morbid fascination over the last few years as investors in shares like Anglo’s, Kumba, Sasol and Anglo Platinum have been decimated.
If you are walking down a railway track and you see a train speeding towards you, what do you do? Well you simply step to the side. And do you pat yourself on the back and say : “What a clever chap”? Of course not. Doing that is not even mildly intelligent.
But many investors in Anglos for, example, have held this share on their portfolios from circa @ R600 to where it is now trading at +- R60. What is their problem? Are they mesmerized? Is it simply because they are advised that you should never sell Anglo’s.
For years now I have warned that the world is in a deflationary spiral and going ex-growth. Commodity shares are not the place to be in this environment.
Commodity shares rise and fall in pretty predictable and regular fashion. Contrast this with investment in growth stocks. These are not affected by the cyclical trend in commodity prices.
One possible reason why investors lose so heavily on their commodity investments is that they confuse these household names with other blue chip investments like Johnson and Johnson. Failing to clearly understand the nature and characteristics of your investments is a common reason for failure. If you don’t understand the characteristics of your investment how can you overlay these decisions against the current economic climate?
So where are we in 2016? What must investors do?
Sadly the world now has a low potential for growth. The main reasons for this is a very high level of poisonous debt, aging populations, bloated bureaucracy, severe wealth inequality, anaemic growth in Europe and a growth recession in China.
The trick for investors this year will be to scratch out areas of growth. It is easier now. Growth areas are more visible.
The most scary and biggest problem is the cancer of debt – debt and unfunded and uncommunicated government obligations – obligations that devastated taxpayers don’t even realise they are going to pay for!
What to do?
There is only one antidote to debt and the antidote is cash – and a careful blend of growth stocks!