My main passion and focus as an investor is developing a process for maximising the chances I hold the best ASX-listed stocks for the long term. I don’t consider myself a fund manager, because I’m a stock picker (and I do better than most fund managers anyway). But the key to doing better than fund managers is having more flexibility.
In the long term, nothing beats having large positions in the best stocks, and in order to do that, you need to be a stock picker, not a fund manager. It is not the job of a stock picker to ensure that your wealth is appropriately split between asset types.
However, I thought it was worth noting that I have been selling illiquid private company investments, and (to a lesser extent) my (low conviction) international stocks.
I expect to raise cash worth somewhere between 30% and 50% of the entire value of my ASX portfolio. These are super long-term investments that, luckily, just so happen to be saleable right when I need cash.
Therefore, I just wanted to let you know I have been cashing up, because I think that the chaos being unleashed on Australia by the closing of the Strait of Hormuz may well create extremely attractive opportunities in listed stocks.
If I didn’t have these private sources of cash, then I would probably be selling down my non-core holdings more aggressively than I already am.
Why I Think Cash Is Important Right Now
As you would be aware, for reasons that I won’t bother getting into, the USA has attacked Iran, which has closed the Strait of Hormuz to most shipping. For whatever reason, the president seems more reticent to “chicken out” this time, compared to in the past. As always, it is hard to predict what he will do next, given his flagrant disregard for the norms that previously governed US projection of power on the world stage.
I’ve been getting concerned about this since we published our warning that an attack may be imminent about a month ago. However, I’ve been surprised at how weak the US and Israel attack has been. As unfathomable as it is, it does seem like the US underestimated the task here.
And it seems the protestors we saw previously are no longer in a position to rise up. Amidst the fog of war, it is difficult to predict whether the resentment towards the Iranian government will boil over again.
At this point it seems unlikely that the USA will triumph in the short term without resorting to war crimes such as destroying power plants and desalination plants. Today, Trump has threatened to do the former, and the unspoken elephant in the room is that the USA could potentially create a humanitarian crisis in Iran by destroying its extremely delicate water infrastructure.
While that would obviously be an extremely brutal war crime, it would also quite likely lead to the collapse of the regime.
For now, however, the USA is coming across as weak and pathetic, having initiated a huge conflict without having any viable path to victory. Israel has lost the goodwill of many, arguably sowing the seeds of its own demise in the future. Things are getting really ugly.
Edit at 10:18pm: the latest is that Trump says he has had “productive talks” with Iran, but no word on the Straight of Hormuz opening.
In the long term, even in the worst-case scenario, the world should be able to adjust to this disaster. Economies will reposition themselves away from such dependence on oil and gas. They will invest more in solar and electric vehicles. And, we hope, the conflict will not spread.
However, Australia in particular is primed for a severe economic shock. We have only ourselves to blame for electing successive governments of fools, who have proved only that they can climb the bureaucratic systems of the Labor and Liberal parties, and who have sold out our country by stockpiling fuel in the USA, rather than on our own shores.
We are a nation led by imbeciles, no matter the political stripe. Due to this unfortunate situation, no developed nation has less fuel available than we do. The chart below from the AFR tells a story of gross incompetence.
Meanwhile, The Guardian reports, “Energy analysts have warned that major producers in Asia, such as Malaysia and South Korea, could cut exports to Australia to prioritise domestic fuel needs.”
Luckily, Australia is not without energy. We have abundant gas and, if our politicians decide to tax that gas more heavily in order to subsidise petrol, we could certainly minimise the impact of higher oil prices.
In a situation where our fuel suppliers in Japan and South Korea cut supplies, we could retaliate by cutting the supply of gas to them. With luck, even the threat of such a move will keep the two-way flow of energy going. But without luck, we could find ourselves losing (some of) our export income and (some of) our petrol.
In any event, because we have less petrol, aviation fuel, and diesel than many other countries, we will be among the most badly hurt by the current spike in fuel prices, and that means Australia is at a particularly high risk of falling into a recession.
And if we fall into a recession, then many investors, especially overseas investors, will likely reduce their exposure to the Australian stock market quite severely, sending share prices lower across the board.
Now, I have no plan to interrupt the compounding of my core, long-term holdings, being Pro Medicus and the Official Recommendations, because one way or another, I believe the world will adapt to the current situation, or the situation will resolve.
However, I do think now is a good time for investors to ensure that they do have ready access to cash, because if the US and Israel can’t find a way to de-escalate, or win, the war they started, then Australia will be hit hard.
And if that happens, I want to be ready to buy when things get really ugly.
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