Author: Chris Rees, TenStocks
Covestor model: TenStocks
We had a good January and February. The portfolio is up more than 30% year-to-date. We trimmed back our overweight positions in Hutchinson Technology (HTCH) and Chipmos Technologies (IMOS) after both made big moves and we increased our cash holdings. Bank of America (BAC) also contributed to the models positive performance so far this year. While artificially low interest rates encourage risk taking and punish prudent savers it should not be assumed investing in this bubble environment is risk free. It’s an artificial market. Those with recent portfolio gains who think the sky is the limit may well find their profits are artificial too.
We are always happy to err on the side of caution.
By accident we found ourselves watching an episode of CNBC’s American Greed on YouTube this week. It reinforced one of our long held investing maxims “‘never do business with anyone who drives a flashy red sports car.” ’. There is something about the character of anyone who owns one of these things that is not conducive to someone looking after another’s financial well-being. (In case you are wondering, (We drive a 1998 Toyota Camry which runs on propane gas. It was an upgrade from a 1988 Jeep Cherokee.)
Extravagance is not our strong point.
While we did reduce market exposure in February we also added YPF (YPF), an energy company based in Argentina and majority owned by Repsol the Spanish oil company. YPF’s stock price has been under pressure due to fears of nationalization by the government headed by Cristina Fernandez de Kirchner. YPF has plenty of assets. It recently announced $23 billion barrels of potentially recoverable oil and gas in the Vaca Muerta (dead cow) shale play in Argentina’s Neuquen province.
Development of these assets will require large amounts of willing foreign capital. And there’s the rub. If Cristina nationalizes YPF and seizes foreign owned assets without adequate compensation who in their right mind would then be willing to place their own capital at risk in the same environment?
Right now Argentina imports energy from Venezuela. Cristina says YPF are under investing and not producing enough local energy. Critics including eight former energy ministers say the government’s own price controls and regulations are to blame.
We don’t think the Argentinean people are dumb enough to shoot themselves in the foot by nationalizing YPF. Argentina is not Venezuela. Cristina Fernandez should not be Hugo Chavez. We think despite all the current rock throwing a workable deal will be reached.
