23 December 2009
Dear Fellow Investor
I hope this mail finds you enjoying well deserved rest after a year that was quite a roller-coaster ride.
In between all the all the friends, family and eating I have started thinking of next year.
I am not big on forecasts of any nature as there is s huge body of evidence that shows that forecasts are of no use whatsoever.
What I do however do is look at what my current thinking is and think of events what will surprise me.
This has allowed me to be prepared for things that are outside my current investment view.
I think its an exercise you will also find valuable….
Not just for investing but every aspect of your life, as it stops you from becoming too focused on what your current view on a subject is and forces you to expand it.
It is unlikely that things will develop exactly as we think they would. But, having considered more options allows us to assign probabilities to different outcomes and so better prepares us for what eventually takes place.
Here are a view ideas for you to consider.
Current View | Surprise |
Lag in world economic activity as stimulus spending declines | World economic recovery continuing uninterrupted as stimulus spending declines |
Earnings and margins stay low due to excess capacity and lower demand | Earnings and margins rebound to previous levels |
Country risk becomes a major theme with Japan and Greece like problems popping up all over | Country risk is a non-event |
Over-leveraged cyclical companies struggle with some not surviving | Cyclical companies recover along with the recovering world economy |
Banks worldwide manage to escape extensive regulation and breakup of ?too big to fail? entities due to lobbying and overstating their economic importance | Public disgust and political pressure force a split between bank lending and gambling activities as well as a break-up of ?too big to fail? banks |
The EU survives in its current form | The EU breaks up as it it unwilling to bail out one or more problem countries like Greece, Portugal, Spain, Ireland and maybe Italy |
Cracks appear in China‘s economic miracle due to over-stimulation of its economy, increased bank non- performing loans and sluggish exports | China continues to hollow out manufacturing around the world by keeping its currency artificially low |
Oil price stays around $70 per barrel | Oil over $100 |
The implosion of the commercial property market continues with banks and landlords papering over the cracks while hoping on a quick recovery | The commercial property market recovers helped by economic growth and increased demand for space raising rentals |
Due to world uncertainties the gold price remains at around $1000 | Huge drop in price because of global recovery |
As you can see I am still suspicious of the worldwide economic recovery. Especially after the huge recovery in just about all markets after the March lows.
Call me conservative, but I am more worried about return of capital than return on capital.
In spite of me not believing fully in the recovery, if you have followed my writing, buying undervalued, well capitalised and profitable companies that are not dependent on the capital markets you should be fine.
And…..
Hopefully, like me you still have ample liquidity to put to work should new opportunities arise.
At this point I do not know if I will be able to put together another newsletter for you before this year comes to an end so I would like to wish you…
A really merry Christmas
and a
Healthy and Prosperous 2010
I appreciate your continued support
Your counting his blessings analyst
Tim du Toit
PS If you have any questions about investment in general or if my subscription service would be right for you, feel free ask me through my contact us page, it goes right to my personal in-box.
I think you know by now that I’ll give you a straight answer. Your trust is worth infinitely more to me than a sale ever could be.
