We thought the attached article brilliant and worth sharing.  We agree with the views in their entirety, even Warren Buffett’s views on Gold.  You may find that at odds with our portfolio investing over the last 8 years or so, but we have always viewed the ownership of Gold as an insurance in volatile times with growth coming from Stocks (or Shares in the New Zealand parlance). As threats to the Global System have abated we have reduced our holding in gold considerably over the last 18 months.

One of the misnomers to New Zealand investors, analysts, researchers in general is many of them always assume if the capital price doesn’t fluctuate then the asset is less risky.  Well we all know that to be untrue – Finance Companies failures are proof they are very risky.  In the article it also points out the folly of believing bonds will do the trick in portfolio investing.  As many of you would have read in my most recent quarterly review letter and Diversified’s View the following quote backs this view:

“…there is no way a [Portfolio] can achieve its mandated return of 6% – 9% per year using 2-3% yielding 10-year Treasuries.  Manifestly, all we need is for [Investors] to realise this, and decide it’s time to reallocated money by switching out of fixed income and into equities, for the SPX to do better than most expect.  To be sure, that’s what we expect, which should cause professional money to chase stocks higher driven by performance anxiety.  Therefore, we continue to favor the strategy of buying ‘dips’. 
Jeffrey D. Saut, Investment Strategist @ Raymond James, Oct 31^st, 2011

CLICK HERE TO READ THE FULL ARTICLE

Enjoy the read.

Vicki

_____________________________

Vicki Watson AFA CFP^CM

MBA(Dist) GradDipBusStud (PFP)

Director

Diversified Investment Strategies Limited

Level 14, 36 Kitchener Street, PO Box 105142, Auckland 1143

T: 09 366 7380  or 0800 558811 M: 021 795989

www.diversified.co.nz

Skype: d.vicki.watson

Diversified attended the IFA (Institute of Financial Advisers) Annual Conference 13th – 15th June held in Wellington, which had the theme: “Back to Business.” Diversified was a sponsor of the conference and had an exhibition booth (pictured above).

Diversified’s booth had the theme “Happy people, happy clients for 17 years!”

Hamilton Field Days 2011

Diversified attended the Hamilton Field Days Wednesday 15th June 2011 – Saturday 18th June 2011 at Mystery Creek.

Despite brilliant and modern engineering, the devastation from Japan’s Great Quake & Tsunami of 11th March is unprecedented. There is no doubt the social impact is immense, and financial and economic ramifications will unfold for many months. This summary revisits the possible impact for Diversified’s operative model investment strategies, and some likely investment consequences. Loss of Output to the Japanese economy will be material – notably the halt in the Tsunami inundated area, and disruption to infrastructure. A deep technical recession is expected in the next Quarter. Reconstruction will kick in over the following Quarter pushing up the growth rate. The net effect is expected to take about 1% off Japan’s projected GDP expansion for the coming year (reducing it to perhaps +0.2%). i.e. Natural disasters rarely change an economy’s growth trajectory, over the medium term.

Outside the directly inundated area, Japan’s engineering was impressive at limiting damage from this Great Quake (8.9 on modified Richter scale). Japanese companies’ corporate earnings are unlikely to be significantly diminished by this natural disaster. Diversified gauges the troubled Fukuhama BWR reactors will avoid a reactor core ‘melt-down’ (i.e. a locally significant incident, but no major nuclear accident), but rendered inoperable. It is reported The Tokyo Electric Power Company (Tepco) has about 12 GW of Nuclear generation capacity and 31 GW of thermal capacity which had 40% unused capacity. i.e. Electricity supply should be restored as fast as the grid damage can be reconstructed.

The immediate impact on the Yen is a likely rise as funds are repatriated by Japanese insurance companies. Medium-term, the Bank of Japan is injecting huge money into the banking system and financial markets, and will not wish a strong Yen. It may interfere in currency markets to maintain a lower Yen. Patriotic Japanese are also likely to repatriate funds, abandoning carry-trade gains. Debtors like NZ, and high OCR providers like A$, may be deprecated. Do not hedge to NZ$. Japan’s trouble will have very minor impact on the world economy. Japan had only been contributing about 2% to global growth. Possible very marginal softening of global aggregate growth projections – perhaps in the order of 4.5%, instead of 4.7%, over the coming year.

Institutional funds globally were systemically underweight Japanese growth assets (by either of market capitalization or GDP weighted measure), going into this natural disaster. The sell-off since the Great Quake has suppressed Japanese share valuations to more extreme levels. Japanese corporate balance sheets are in good strength (about 32% of Mkt Cap) to withstand temporary adversity. Japanese shares may represent an investment opportunity now, or in coming months.

Conclusion:

Diversified’s thoughts go out to the Japanese people for their losses. Economically, we find no basis to adjust our strategies formulated with a one-year to 18-month tactical horizon. Possible specific opportunities in Japanese shares are delegated as the domain of the global generalists selected in our repertoire of mangers included in model strategies.
Norman W. Stacey,
Investment Analyst