GVI Investor March 2022 Video Call

Hi, everyone. I want to give you my monthly update and what I'm seeing, and I guess this month, it's more important than ever.

The reason that that picture you can see on the screen is also to say to you, as you can rightly imagine I am reaching out and speaking even more frequently to all the sources that I have, both in government, in economics, in finance and from all of the ones around the world. So I get a proper mosaic and more of a finger on the pulse than I would need if the markets were just benign and just going up and up and up and up. And I will share as much of that as I can to you now in this monthly update and going forward as well. It's one of the benefits of being part of my GVI Investor. And it really helps when you do have lots of connections to get a better view of what the take is, and what's really happening beyond the headlines.

So this is something that I've shown you before. And this is well before Ukraine crisis and the invasion and the war caused by the Russians. And there was talk about a 50% drop. And I pointed out that actually 39% drops had been common in the past. And, of course, we're nowhere near that 50% drop at the moment, but I do still think the downside is obviously more probable than the upside, let's take over the next month, at the very least. And that's not just to do with Russia, Ukraine or oil prices. It's almost as if we've forgotten about interest rates and the like, it is just the direction of momentum. People are taking money off the table. They might be selling their profitable trades. They might be selling their loss making investments in a self-fulfilling prophecy, or they might just be wanting to have less exposure to the markets because of the volatility. That means stock picking is that much more important.

It also means that there'll be a few opportunities. There won't be all over the place, but there'll be a few opportunities because of what's happened. And there'll be good opportunities as well, not least because we've seen the NASDAQ now 20% from its highs. And, again, that's not necessarily an indicator to get in just because of that number and not an indicator to get into a leveraged position on NASDAQ. I'm still waiting. There will be a time to do that. Consider this, that if I had two times leveraged on say NASDAQ futures, then were it to go back to its all time highs I'd make 50%, pretty much give or take, because they're 20% off their highs. So if they go back to their highs, that'd be a 25% rise. It's maths or math. And if you've got two times leverage, then that's 50% return and you might say, Well, wait a minute, when might that happen?" Well, it might take a year, it might take two.

But I'm not looking at that at the moment. So that's to give you a broader indication that I'm not actually, even at the moment, looking at taking the longs or buying the dips per se. I'm looking at specific bottom up opportunities as I've always done. You stick to your strategy because your strategy was built for all seasons. The things you might change are tactics within your strategy. So the strategy continues to be value, growth, income, dividends, momentum, cash flow, consistent outperformance of the market. Tactically, you might add on to other things you're looking for, for instance, lower volatility, lower valuations, even lower valuations, so the most undervalued companies of your strategic picks. You might tactically add in energy, you might say commodity related stocks, tactically within that, which fit that strategic framework. So just so you know how the thinking's going at the moment.

This is something which I've shown you once before I believe, but just to reiterate the point and I think it's useful and I keep coming back to it, because I found it incredibly useful and you can see where I've written option C, falls back more sharply, example, Russia goes into Ukraine. So this was written before that. And I put that at a probability of C, we're not even at B yet. Because, obviously, markets don't crash very often and they've not crashed at the moment. I don't think they'll crash. I think what we're going to see is we'll probably reach point B there. I thought we'd actually get to point C if the Russians moved in, but we're not. The markets are incredibly resilient and they're insulated, obviously, from Russia because whilst it's the 11th largest economy, it's a fairly closed economy. Thankfully because of the size of the place, they trade with a each other and thankfully perversely to communism.

They never really fully ever got round to opening up in the last 30 years. They've only been out of communism for 30 years and they've spent most of their existence since the second world war in communism. So the mindsets and the living memories and everything else are still very insular and closed, which has protected us in the west in terms of economic shocks. Of course, there are a few economic shocks, which we're inflicting on them, which are being, to some extent, inflicted on us. But I'm sure you'll agree, it's better to take an economic shock than to have soldiers losing their lives. Going back therefore to the market, that's more downward pressure on the market. I mean, do you want to get in at such a significant time of uncertainty other than in very specific stocks, which meet all our criteria and tactically make sense in this environment.

And I really want to reiterate this point. What we're also seeing is a pullback to a slower rate of growth for many stocks. So the likes of a visa, and this is why the picks that I give are ones which are intended to be outside of that slower rate of growth. They're now moving downwards and will be growing, but growing more slowly. Is the market undervalued? Well, there's a lot to be said for the fact that at a 15.6 PE ratio, price to earnings ratio, on the US market, that's relatively undervalued. Now that might well stay like that for a while as it has done in the past, but it's a buffer. And in this environment you can see now why something would remain undervalued for a while because of uncertainty and fears that it could go lower.

Where's the money going? Well in terms of currencies, this is very telling I've marked in red the main currencies that the money's been flowing into. Obviously the US dollar, Sterling, Euro, Swiss Franc, surprisingly not the Japanese Yen, but into Bitcoin and Monero and Z Cash. So a couple of the cryptos, not all of them, but a couple of the cryptos have broken through as something of a safe haven. And, of course, the money's come out of Eastern Europe, Russia, Russia's ally Belarus. Think of Belarus as Italy in second world war, playing second fiddle to Germany in the second world war. And so, obviously, that's where we are with those currencies. And just to reinforce that point on cash, I mean, somebody like Berkshire Hathaway and Warren Buffet, their cash pile is pretty much at a peak. Now he's always famously said he won't be harried or rushed into investments. And we've got a great advantage over him. We can invest in anything on the stock market.

He can't because he'd end up buying certain companies outright because he has so much capital. So whilst he's holding cash, because there's very few deals for him, there'll be more for us. And my team are working, I'd almost say 24/7 because they're in different parts of the world. So they are working collectively as a team 24/7 researching this seven days a week. And it definitely is seven days a week to find some of the best equities for us and what to look for. Now here's something that I gave from a talk in London recently. Let's look at the stocks which did well last year. And now let's look at the ones which are doing well so far this year. Because you might say to yourself, wait a minute, last year was very different to of this year. And if they did well last year and they're doing well this year, then that might give us some indication of companies which are hugely resilient and suited to the current environment.

Absolutely right. It's a good starting point. It's a good starting point, but we don't just want to chase momentum alone. We would dig deeper than that. But some of the things that my team do when we're starting out on our research process is is we don't just blindly stick to a strategy without challenging it. We will say, for instance, they'll say to me, "Here's a thesis, companies doing well year and did well last year. Let's look at those and then we'll build up on that." And then we'll say, "Well, wait a minute. Which of those also coincide with our value, growth, income, cashflow, momentum, criteria, what meets all of those?", And the reason we do that is because it allows us then to delve more deeply tick more boxes, do more due diligence. And it's a very scientific approach in the sense that there's a theory and then we test it.

And then we do it again and again and again. And we come up with these theories all the time to test our strategies and see if within the strategies we can adopt some tactics within that. So that again is to give you a good understanding. I had an email from somebody who said to me, he said, "So how do you do X, Y, Z?" And I said, "Look, I can go around explaining it to you, but it'll probably require the better part of me sending you, first of all, a book on macroeconomics, then a book on technical analysis, a book on accounting so you can and understand fundamentals and so on and so forth. And you might not really want to reverse engineer what we do. You might just want to know in broad terms how we do it and then look at it that way."

Over the past year, how have things fared? Well, there's been a lot of green. There still is a lot of green despite the market pullbacks so far. And you can see some of the sectors which have done well, obviously energy, real estate, basic materials, utilities, and so on. You can read it for yourself, and some of the ones which haven't done so well. Now the thesis or theory arises, should we continue in the ones which have done well or should we go into the ones which are lagging? And we don't do either. And the reason is we pick bottom up based on the quality of the company. Then as I've said, and I keep repeating myself, but I think it's an important point worth repeating, then we might say value, growth, income, cash flow, and tactically we might say, which are the sectors that they're in?

And to be honest, if they're in the leading sector from last year, fine, if they're in a lagging one, fine because it's lagging, it might catch up. Really we're very much bottom up is what I'm saying rather than top down of looking at sectors and then trying to find individual stocks. But I just wanted to share that with you. There's still a lot of green out there. Of course, consumer cyclicals have taken a battering and that won't be helped by worries of over interest rates. Let's look at this. Forward looking. This is from Bloomberg. Bear markets in stocks tended to foreshadow recessions. Now what they've done there in that, it's a bit difficult to read, but you see the S and P 500 index. You see the fed funds target rate, and that doesn't really matter so much, the interest rates.

What matters is what the S&P's done. And the idea, the notion or the worry is that if we get a bear market and they're marked on the screen, they're in pink, if we get a bear market, whenever we get a bear market, you will find there's a recession coming. And those are marked on there as well. The periods of recession have been marked on there as well. So there is something to be concerned about on that front, were we to get a bear market. It usually is cause and effect, and it's almost circular. I'm hearing the R word more often now, but I don't think it's something which I'm worried about right now. In any event, the kinds of companies that I have are cash rich. They're more the flight to quality type companies. So I'm less worried about it as a result. But as I said, it's going to get a narrow, narrow group of companies when you're in a recession that you could be looking to pick from and more in depth research and stop picking becomes harder and essential, harder and essential.

Inflation. Wow this is crazy. I mean, nevermind that, look at the price of nickel, Brent crude and European gas prices, absolutely soaring. There'll be a time to short oil. It's not right now I don't think, but there will be a time. I should also say that some of these inflation pressures didn't come just from the Russian invasion of Ukraine. If you look at some of these price rise moves, and you look at coal for a start. 2016 and 2021 and 2017, 31% up, it's had some ridiculously strong years. 2021, partly because perversely just as a cop 26, the governments of the world said, "We need to wean ourselves off coal and set deadlines", that actually led to an acceleration of planned coal excavation and boosted the price of coal.

Whereas if they said, "We're going to take a long time over it", which would've been perhaps the economically sensible thing to do, because if you start extracting lots of coal because you've got a deadline and you know time's running out, you are more likely to choke the planet by forcing more carbon dioxide through the system than if you'd spread it out over a prolonged period of time, which allowed nature to absorb it. Bit like filling water in a filter. Anyway, that's the theory, I think, of how human decisions can have one consequence or one intention, but the exact opposite consequence, time and again, such are we as a species?

You might raise the question. Well, is this all new? Have we been through this before? Let's just hope that we don't go through the period from 1959 to 2010. That is from before I was born, where look at that General Electric, price appreciation 65 to 80, zero. IBM from 61 to 79, market value dropped 65%. 1973 high price for P and G not exceeded until 1985. And these are household names, Polaroid, forget about it. That's vanished now. Coca-Cola 1973 price peaks at $75, dropped 60% over nine years to below $30 in 1982, 9 years and it's just going in one direction. Who else have we got on there, which is still around. Well we've heard of Microsoft haven't we? Incredible growth in the nineties from Jan, 2000 to October, 2010 returned a dismal minus 5%. So it's about stop picking and why we look at 12 month periods at a time Pfizer, the largest research based pharmaceutical company, but for the 12 years ending 2010, they've averaged a negative return.

So let's hope we don't go back to that era and we don't want to be complacent. I'm never complacent. Part of what I'm looking at doing here, and the research that I provide you is to make sure that what we actually do is find companies to avoid having these kind of problems. And it's not just a question of going for big names as people sometimes, "Oh, just by Coca Cola or whatever." The reason I'm showing you Netflix is, again, make that point about slower growth. Now, when the analysts say to you, "Oh, Netflix is now getting slower subscriber growth." What that means in share price, is slower share price growth as well. I've marked with the number one, the faster growth rate and I'm marking with number two, the slower growth rate. And you can see they're both, to some extent, trendline support and resistances on the company, and companies, as you know, can have multiple supports and resistances.

And it is 0.2, which is the slower rate of growth, which I believe will continue on. And a lot of other stocks that I've said are in that phase. This was an interesting story from Bloomberg. And the reason I want to show you this is I don't want you to feel too bad that the markets aren't going to make you rich in 12 months. What it is is, yes it's getting harder. Hedge funds are pulling cash out and that slows down share price, upwards swings, a whole host of things, which mean that we've got headwinds. They're de-risking. That's all fine. What we're going to do, and the advantage we have as private investors is we can pick and choose our investments very selectively, and that's what we're going to do. And we can do it and look at it and research it and understand it, and then make a considered decision as opposed to being handcuffed by someone else.

Now, speaking of headwinds, of course, our portfolio picks to date have faced some headwinds. Of course they have, but I thought I'd take you through some of the picks. A10 networks is roughly at its price that we got in which isn't bad given that the NASDAQs in their territory. So was there anything in the news which worried me or concerned me in particular about this one? Well, no, in February they reported 13% organic growth, for the fourth quarter of 2021 driving double digit annual growth. Pretty good. Revenues were up 13% to $17,000,000 and earnings and revenues top their estimates. But in this environment, this what's going on in the rest of the world, it's not the stock, it's the market. And when it's not the stock and it's the market, then you've got a good reason not to be too concerned. Skylines up somewhat, a little bit since we picked it.

And it's attractive financial prospects, there are obviously a key reason for that, as well as it's surpassing quarter three earnings and revenue estimates back in February. So net sales had increased, wait for it, 41%. 41% up on net sales. So no wonder it had been in a good place back then and now. Molina Healthcare is a little bit up on when we got it. And that one, the key headlines here is that they've got a great balance sheet, still nothing has changed over there. They've had contract wins, they've had earnings that beat estimates, Wall Street estimates in February. So look, there's nothing, which again, makes me think there's something stock specific, it's more market specific. William Sonoma, we are down from our initial buy price, which I'm really disappointed and surprised about in terms of the stock. But now look at the market. And I think I look or wonder that it is because of the headwinds and that's just the headwinds.

It's continues to have a lot of hedge fund interest in the company. And I don't see any red flags as such. There's always some negative news here or there, but there's not something which I'm seeing, which is a big red flag. Excellus Technologies, again, slightly down because of the market headwinds from its buy price, but they announced a share repurchase program in March, which is always good for stocks. And I think it continues being an incredible growth stock and the prospects are all in place for that. So, again, not a major one that I'm particularly worried about. Victory Capital is down slightly on the purchase price. Victory Capital reports record fourth quarter 2021 financial results in February. There you go. You can exceed expectations. You can earnings top estimates was one headline in February. You can have all of these factors and it's still going to fall because people are just selling across the board very often, and then they calm down and then they get back in.

Buy price for Lowe's, and the current price are pretty much within spitting distance of each other. So it's fairly flat in terms of, again, any red flags that might pop up, nope, nope, nope. I certainly can't see them. There might be some tiny tittle tattle, but nothing major. And I haven't seen the title tattle. McKesson Corporation is up since recommended and it's had good earnings reports. I think they're good. And the market clearly thinks they're good as well. So there you go. One of the ones to have done well. Baxter International, pretty much roughly still at the same price. And, again, it's not one which I can see any red flags. Valero Energy, roughly at the same price. And, again, nothing that I can see, which makes me think, oh, something's changed at some... Accounting fraud, for instance, or something significant.

So I just wanted to share some of those names that we've recommended, which are in there. With these kind of market headwinds takes time. But I'm glad to see several of the stocks are up since the buy price, despite the broader market falling and in many cases and gives a matter falling what 25, 30%. PayPal down 60%. When you consider that the giants are down so much, it's fantastic to see that some of the other smaller companies are holding their own and holding up to it all. Anyway I'll continue doing the research alongside my team and we'll be working, well when the markets are like this, we're working harder than normal. And the reason for that is, you want more research, more due diligence because there's more volatility and uncertainty. So you've got fewer companies to pick from. In an arising market, everything looks easy, but in a sideways to falling one, you really need that research. And also because it's worth your while, because there'll be some great opportunities.

And that's what I'm going to focus on as well, going forward in any disjoints in the market, which have led to any special situations and good opportunities as a result of which. So keep your eyes peeled and your ears. And thank you very much for listening and send me through any questions you got. Thank you very much.