Jekyll & Hyde

From ChatGPT:

“The premise of Strange Case of Dr Jekyll and Mr Hyde (1886) by Robert Louis Stevenson is a psychological and moral experiment taken to its catastrophic conclusion.

Dr. Henry Jekyll, a respected London physician, becomes obsessed with the idea that human beings are not unified personalities but composites of opposing forces — broadly, civilized virtue vs. primal impulse.

He develops a chemical serum designed to separate these elements, allowing each side to exist independently.

The experiment succeeds — but asymmetrically.

The moral, socially acceptable identity remains Jekyll. The uninhibited, amoral persona emerges as Edward Hyde.

Hyde is not merely less restrained; he is concentrated malevolence, physically smaller and vaguely deformed — a suggestion that evil is both regressive and evolutionarily primitive”.

Markets are Jekyll one day, Hyde the next.

The above introduction brings me neatly to today’s blog subject. The daily rapid gyrations of our investment portfolios that we are all currently experiencing. We manage somewhere between £106 million and £113 million, seemingly dependent on what day of the week it is. These daily extremes are un-typically poles apart – like Jekyll and Hyde. Two sides of the same coin. A battle unfolding not between good investors versus evil investors, but to a great extent those invested for long term steady reward, versus those who see the markets purely in the short term. Investors versus speculators. Those of us who pick and hold long term investment opportunities and themes, against those who gamble daily on a commodity or share price. Any commodity or share price. Rising or falling in the next day, hour, minute and even second. Typically your crypto-currency speculators. In then out quickly.

But oh-dear! Crypto currencies typified by bitcoin are only for the very, very brave indeed now. The crypto speculators old rules of thumb just aren’t working at the moment, gamblers are getting burnt. Time to gamble elsewhere.

We hold our gold, gold miners and silver miners for the long term, however speculators have arrived in each of these vehicles and taken our returns astronomically high. So far we have had to rebalance a couple of times to keep our Moderate and Cautious portfolios within their guard-rails. More prudent sales will be needed for as long as speculation drives valuations to extremes. To be clear, we believe that the current holdings still have a long term place in prudent portfolios, but the recent volatility they bring currently is difficult to handle. We have built our cash holdings to dampen down the daily swings, but until the gamblers move on, we will have to work ever harder to navigate the returns generated by these volatile, yet valuable portfolio growth assets.

Fear Portfolios

Our portfolios remain constructed around fear not greed. Have a quick re-read here

Fear of the purchasing power of sovereign currencies, Sterling in particular, being eroded by stubborn inflation over time. A.K.A “The pound in your pocket” – Harold Wilson. As the pound devalued by 14% against the dollar.
Government debts running at all time highs which cannot be re-paid, suggesting the cost of Government debt must go higher with the possibility of default. A.K.A “But for the kindness of strangers”. – Mark Carney.
Fear of increasing and expanding Soviet hostility across Europe.
Fear of an emergent and hostile China increasing influence across Asia, Africa, the UK University system and now directly within UK energy infrastructure, telecommunications and adjacent to the City of London.
Fear of China controlling 95% of the rare earth elements essential for manufacturing iPhones to hypersonic weapons.
Fear of the breakdown of NATO, and the UK already being sidelined outside the 5 eyes group. The UK population learned about the attempted end to Iranian nuclear missile production at the same time as Starmer and Lammy via X. Our cabinet cannot be trusted.
Fear of a UK government committed to net zero which will further increase the current uncompetitiveness of the UK for manufacturing and AI based businesses.
Fear of increasing UK corporate taxation and ad-hoc windfall taxes on UK based businesses. (This week Carnival announced it was leaving the London stock exchange. Shell and B.P. can’t be far behind).

Unfortunately it seems many investors have agreed with our take, also investing and driving our fear assets ever higher. This attracts the greedy, bringing short term speculation into our favoured assets. Our Fear portfolios are looking like they were constructed as Greed portfolios all of a sudden.

Fear and Greed

Dr Henry Jekyll and Mr Edward Hyde also unfortunately co-habit within every investors mind. Ours included. Fear of investment loss lives cheek by jowl with the hope of more than our fair share of investment gains. When markets climb we believe all is good and we want to be exposed to the maximum. We log into Transact every day. Bring it on – we want it all. When values fall, well, financial loss and ruin is breathing down our neck only just around the corner. Run away! We log into Transact less often. Both these states are narratives we’ve created based on the extremely short term including what happened just yesterday.

When in-doubt, zoom out

That’s how I learned it in Technical Analysis 101. (The study of charts). The short term is noise, not the place to base decisions on. Zoom out on a chart from daily to monthly views and look for trends that are set to continue for years. A day where markets fall 4% is often followed by a day where markets rise 4%. But just look at end of month values. Are they still in an up-trend, are they ranging (broadly flat) or is the trend going downward continuously? Trends are likely to continue – the trend is our friend. A ranging chart needs something to change that fellow investors see and act upon to commence the next trend. Hopefully up, but equally a trend can turn lower too.

Here’s two opposing Jekyll & Hyde short term views:

Hyde Investor: I’ve lost £20,000 in just two days. The sky is falling.

Jekyll Investor: My investment portfolio recently reached an all time high and remains within 3% of that all time high. Nothing to see here.

It’s framing from a reasonable investors view versus that Mr Edward Hyde investor who lives in all of us. Try to be more Dr. Jekyll.

Wise words

“The most important organ in your body in investing is the stomach, not the brain” – Legendary investor Peter Lynch

The Usual

Past performance is no predictor of the future.
The value of investments can fall as well as rise.