The Weekly Brief: Recent Episodes
Dominion Research
Weekly investment insights on financial markets from the research team at Dominion Asset Management.
Misguided energy policy raises the probability of short-term energy shortages. Any unforeseen event or interruption of supply can create shortages that are much worse because of the lack of flexibility in the global supply chain for energy to meet the unanticipated demands of the crisis in question.
We as investors are faced with seismic changes in markets and the industries we invest in via bond and equity markets. New technologies, demographic changes, climate change, these and many other sources of change often result in the old order changing, sometimes very rapidly.
This week we want to introduce another sector we think is exhibiting the characteristics of being at or close to cycle lows.
Understanding business cycles is critical to successful investing in many sectors of the economy. In the coming weeks, we’ll be giving examples of sectors where we see cyclical highs or lows, where investors should be considering reducing or increasing exposure.
The current situation facing investors is highly uncertain and very challenging. The question many of our investors, partners, and clients have been asking recently is: what’s going to happen and how do we invest?
We believe that growth and value strategies are not, necessarily, mutually exclusive. It is possible for a stock to exhibit the characteristics of both!
An increasingly common view is that the United States is in decline relative to China, the dollar is under threat and as such, US assets may not provide strong returns in future. We analyse this narrative and give our view. Hint: we are bullish America.
Managing an investment portfolio is a very complicated and challenging task to perform! We see many similarities between constructing a successful portfolio to the way a successful football manager, like Pep Guardiola at Manchester City, manages a successful Premier League winning team.
Climate change may seem scary to many, but to us as long-term investors, we are genuinely extremely excited about the investment opportunities on offer today in this mega-trend in the global economy.
As investors, it is the long-term that really matters. Despite the short-term uncertainty and risk of further bouts of market weakness, for the long-term minded investor there are some very attractively valued assets available today.
We are now well past the 12-month mark on this bear market cycle and so it makes sense to re-assess the stage of the cycle we’re in and how investors should be thinking about being positioned through the remainder of 2023.
Investors are right to be growing weary of the investment climate today. But despite the steady drum-beat of bad news, we must avoid focussing too much on the short-term and missing out on the long-term opportunity that lays before us.
The past week has seen high profile banks in the United States and Europe, most notably SVB and Credit Suisse, come under major selling pressure and require central bank bail-outs. Many other banks have seen considerable declines in share prices as questions have been raised about the strength of their balance sheets too. What's going on?
We are now well into this cycle of rising interest rates, which should tighten financial conditions enough to reduce inflation. But it is unclear when we will reach the level of tightening that will finally bring inflation under control and set us up for the next business cycle. The question for today's episode is, quite simply: are we there yet?
Change in any system creates risks and opportunities. Risks for those that were beneficiaries of the system before the change, opportunities for others. When it comes to modern technology investing, the risks and opportunities are magnified by the rapid rate of change and the scale of the market opportunity for the winners.
The latest iterations of artificial intelligence (AI) technologies are truly game-changing and will shape the future. Large technology companies and major governments are investing ever rising sums in an attempt to come out on top in AI tech. How should investors be thinking about this trend?
The outlook for many sectors in the economy is highly uncertain over the next 6-12 months. Similarly, making a call on the macro economy is tough, given the information we have. But there are some sectors where we can make more confident short-term predictions!
As investors who focus our energy on long-term structural trends, we spend a lot of time thinking about the future. Sometimes we find that important trends and developments are missed, often drowned out by the noise of the news cycle and short-term current affairs. This week, we’ll be discussing what we think is a widely misunderstood and underappreciated technology which could save humanity from catastrophic climate change: nuclear power.
Prices of financial assets discount the future, this means they look forward and are a guide to what markets think will happen in the future. Given the recent sharp moves in asset prices, what is the current implied vision of the future that markets are pricing in?
Nasdaq hit a new low for this bear market cycle last month in December, the S&P 500 index in October. Since then, we have seen a strong short-term rally in stock prices, S&P 500 is up +13%, Nasdaq Index +12.2% from recent lows. As with last August's short-term rally, this now again begs the question, is the recent rally in stocks the opening act of a new bull market recovery, or is this yet another bear market rally?
Earnings season is critically important even in the best of times, and especially so in periods like now where there is great uncertainty about the future trajectory of the economy and financial markets. So what should investors be looking out for this earnings season?
This year, we’ll be running a series of episodes on what we think are underappreciated narratives, ideas which should be mainstream in modern economic and investment thinking but which are rarely talked about. Underappreciated ideas can offer interesting long-term investment opportunities and so are important to think about.
Could 2023 end up being defined as having started with pessimistic market sentiment (reflected in lower asset valuations) which then met a reality that was better than expected... the polar opposite of 2022?
In our last episode of the year, we explain our investment outlook for 2023. We think next year will see continued volatility, potentially with further bouts of selling in markets. We could even see recession in some parts of the world. But, we also think 2023 could be a once in a decade opportunity for investors.
Avoiding certain risks is fundamental to successful long-term investing, just as much as investing in the right assets is core to investment success. What you don’t buy, is just as important as what you do buy. This year has taught that lesson in a harsh way to many fund managers and retail investors alike.
We’re now close to 12 months into this current bear market cycle, arguably longer if you count the start of this cycle as when technology stocks started to correct (remember that was all the way back in mid-2021). This is probably a good point to reflect on the current bear market cycle and try to put it into perspective.
This week we offer an update on our thoughts around market valuations, risks, and most importantly, areas of speculation in financial markets which we still think look like bubbles.
Human health and wellbeing is undoubtedly one of the most important of the investment trends we research at Dominion. There really is nothing more important than the health and happiness of our friends, family, and fellow humans around the world.
Understanding the supply chain into a major investment theme can open up a much broader set of investment opportunities to play the same theme but in a smarter way.
It’s important for long term investors to remember that you do not need an investment trend to necessarily be driven by a revolutionary new technology or, in the case of last week’s episode, literal change in the earth’s climate. Sometimes it can be the application of existing technologies in new and innovative ways that can create a significant enough change in the world to match our strict criteria for long-term investing.
Last week we introduced the idea that investors should be thinking about the long-term and investing accordingly. This translates into trying your best to ignore short-term noise in financial markets and to instead focus on investing in relatively predictable sources of growth. This week, we take this idea a step forward with an example, the biggest of them all, investing in climate change.
What will the world look like in 5, 10, or 20 years-time, this is what matters for investors, rather than the immediate news stories of the day. Over the coming weeks, we will be digging deeper into some of the biggest long-term trends that we are thinking about and which offer investors very appealing long-term investment opportunities.
Given the volatility and economic uncertainty investors have experienced this year, we think it makes sense to review the state of markets, expectations, the economy, and most importantly, take a constructive view of how investors should be positioned to navigate this.
The state of the economy is by far the most important factor for us to be thinking about as investors. It drives everything else. Our final 'bull market catalyst' is the economy, and the nuances of understanding the trajectory needed in 2022-2023 to bring about the next bull market in stocks.
The second in our series on likely catalysts for the next bull market in stocks, we look at inflation. Understanding the circumstances which would precipitate a sustained decline in inflation from here are important for investors looking to navigate the rest of this bear market cycle successfully.
Understanding the most likely catalysts for the next bull market in equities is important so that investors can be prepared to adjust allocations at the right time. Over the coming weeks we will explain what we think these catalysts are, whether we see evidence for them yet, and what to look out for as early indicators.
Last week’s inflation report triggered the biggest one day move down in stocks since 2020. This was a strange reaction and we believe tells us something about the stage of this current market cycle.
A now famous speech made in 2002, which has since come to be much criticised and even mocked, we think offers some important insights for investors. Knowledge is not just a function of knowing things, it's also the wisdom of knowing what you do not know. Applying this to investing should be fundamental to portfolio allocation decisions.
The recent declines in stock prices have been, to some extent, driven by some better than expected economic data. Good news for the economy is being interpreted as bad news by markets. Why?
However bad things might seem, they usually are not as bad as we think. That is especially true for investment markets. Optimism, when grounded in reality, is a friend to long-term investors.
Equity markets have seen a strong positive rally over the past 8 weeks. Is this rally likely to be sustained, or could we be close to another reversal as part of a continued bear market cycle?
Embracing uncertainty means knowing what we can know and knowing what we will never know. For investors it means focusing on what you can know, with some degree of confidence, and avoiding reactions and investments based on macro predictions.
What can we conclude from our discussion on false narratives? From the perspective of investors, these narratives drive major misallocations in financial markets, giving rise to bubbles, and anti-bubbles. Avoiding bubbles is important. Looking for anti-bubbles and investing in them can also produce considerable positive investment returns.
High inflation is plaguing the global economy, threatening living standards in industrialized nations, and risking lives in the developing world. Understanding the underlying causes of this inflation is very important. This issue was already a major problem months before the Ukraine War started, looking there for blame is misguided. The cause of this problem was much closer to home.
Predictions of the imminent demise of fossil fuels are not only premature, they are a major cause of the energy shortages blighting the world today and will make the fight against poverty much harder. There is, however, an opportunity here for investors to take a contrary view.
False narratives can be dangerous for investors and must be avoided. Parsing out the viable from the false narratives in markets today is critical to successful long-term investment returns. This week, we debunk what we think is the false narrative of 'de-globalisation'.
Over-reliance on backward looking economic data like GDP and unemployment often leaves investors behind the curve on market moves. Instead, forward looking data is where investors should be looking as a guide to portfolio allocations.
Recent market declines create opportunities and new risks for investors. Some are being tempted to buy the dip for the wrong reasons and in risky asset classes likely to continue falling.
Understanding the characteristics of this current bear market is critical to predicting how long it will last and when we can start thinking about the shape and timing of a recovery in asset prices.
With inflation at its highest levels in 40 years, interest rates rising, and major declines in prices of speculative assets, it’s clear we are in a new investment paradigm. But within this fast changing environment is a once in a decade opportunity for investors to shift strategies.