You may not want to be a Formula 1 investor. You may like to be a pootle along investor or something in-between. Not me; I belong to the school that if fast is good, faster is better and it is not necessarily as risky as you might think.
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Exciting shares, leverage and aggressive portfolio rotation
There are three elements to being a F1 investor.
First is stock selection. We need to choose exciting shares. Most shares are boring and the exciting ones tend to stand out; those are the ones we need to go for.
Second is leverage. Obviously this is optional. Many people shy away at just the mention of the word. Investing with leverage seems much akin to many people to jumping out of a plane without a parachute. I have invested all my life with leverage. I have never invested without it so it is as natural to me as breathing.
Yes, it makes it painful to hold a share which is declining but why would you want to hold such a share even without leverage.
Third is stock rotation. Now here is the third and the trickiest bit but it is the bit which gives the most astounding oomph to my investing. Like QQQ3 I am endlessly rotating my portfolio from losers to winners. It is a non-stop process. Part of the reason why I do this is because I have no choice. I am always leveraged to the max (which means five times on my CFD and spread betting portfolios).
As soon as the market starts to slide I get margin calls. Much of the time I pay no attention but if I get an urgent margin call, which usually relates to the speed at which the deficit on my margin account is rising, I react.
My usual reaction is to sell everything in the red. Bang, bang, bang, I close them all and that typically means I am now cashed up ready to reinvest when the stock market picks up but I don’t reinvest in the ones I sold unless I like the way they are behaving.
Very often I double up on the ones I didn’t sell so that I start to get significantly higher exposure to the ones that are performing best. Like any investment strategy this can come unstuck but it also helps me become heavily invested in some big winners.
I go on doing this for ever. it’s exciting, it can also be expensive but I can sometimes have the most incredible winning streaks and this is what makes this strategy less risky than you might expect. The returns can be so amazing, like 1,000pc plus in a year that you can commit a relatively modest amount and still win big.
The ideal way to win really big is to commit heavily to a stock which is having what I call its ‘day in the sun’. This is the period when investors realise that a company is amazing and a growing crowd of buyers is attracted.
This can happen over many years like yesterday’s alerted stock, Novo Nordisk, which is what I call a ‘climb aboard’ stock. It doesn’t matter when you buy because the shares are in a multi year, even multi decade uptrend. It is astonishing how many such stocks there are in the USA though as it happens Novo Nordisk is a Danish company.
Hermes is always timely to buy
Hermes is a contender for the world’s greatest luxury goods share. Everything they make is mouth-wateringly aspirational and synonymous with a jet-set lifestyle. It is like a Rolex watch (another great luxury goods company but privately owned) just wearing an Hermes scarf or tie or carrying an Hermes bag tells the world everything they need to know about you.
Superficial I know but to a certain kind of person, a group to which sadly, I belong, so much fun. Not that my wife has an Hermes bag but scarves, ties and Rolex watches, yes, been there, done that and I love it all.
I asked my chum, ChatGPT, how many millionaires there are in the world and the answer came back, 56.1m according to the 2022 Global Wealth report published by, of all people, Credit Suisse bank (now, sadly no longer with us). 56m millionaires is a lot of dosh but I think it is a massive underestimate. For starters practically everybody who lives in west London is a millionaire as are probably half the population of California.
I expect you think I am exaggerating but not necessarily. The average GDP per capita in California in 2020 was $80,000. If you were buying an income of $80,000 a year you would expect to pay $1m for that but then you would have to work so it is not strictly comparable. Even so a person who was offered a job paying $80,000 and rising a year for $1m up front might think that a reasonable trade.
The comparable figure for London is $64,000 a year.
Then we can look at property values. The average price of a property in London is US$650,000. In California it is $728,000 so well on the way to that $1m figure and we still have Florida, Texas, New York, Chicago, Seattle, Washington and in Europe Paris, Berlin, Munich, Vienna, Rome, Brussels, Amsterdam and on and on. It is obvious that the idea of 56m millionaires in the world is a ludicrous underestimate and whatever the number is it is growing fast, by nearly six per cent in 2022 which was not a great year for asset prices. You begin to see why luxury goods companies are booming and I haven’t even mentioned the Middle East or the Far East and China and Japan represent a huge chunk of global luxury goods demand.
Just for fun I asked ChatGPT the average price of property in Monaco. The answer was $56,000 per square metre in 2021, which is currently the cut-off point for ChatGPT. This means if it was in Monaco my London flat would be worth over $12m and people think prices are high here..
The average price of a property in Hong Kong was $1.4m. The fact is that globally millionaires are 10 a penny. It is simply no big deal to be a millionaire any more but this is the spending power that is out there. Forbes said that at the end of 2021 there were 2,755 billionaires in the world with a net worth of over $13 trillion.
The fact is that if you pump prime the global economy with plenty of paper money as has been happening in recent years you are going to create loads of millionaires and billionaires, which is a fantastic following wind for the handful of companies who dominate the world’s luxury goods market. It is no accident that Bernard Arnault, chairman and creator of the luxury goods behemoth that is LVMH, is the world’s richest man with a staggering fortune of $240bn.
So let’s have a look at a chart for another luxury goods company.
Ferrari is racing ahead
Ferrari has a fabulous chart and fits nicely in a story about Formula 1 investing. Latest news from the company is of a soaring order book.
Ferrari RACE has a record order book for its models spanning into next year, Chairman John Elkann told the sports car maker’s shareholders on Friday.
Elkann said the Italian company’s two latest models, the 296 GTS plug-in hybrid car and the Purosangue four-seater had boosted its product portfolio, “delivering a record number of orders well into 2024”.
Ferrari has promised a total of 15 new models between 2023 and 2026, including its first full-electric car, which Elkann reiterated on Friday is expected in 2025.
The company has said that, while pursuing electrification, internal combustion engine (ICE) cars will still be part of its range for some years.
Reuters 14 April 2023
How do you turn these shares into Formula 1 investments. Very easy. You buy them in a spread betting account (my preference) or in a CFD account. If you are not a crazy, mad, reckless gambler like me and prefer pootle along investing you can buy them in a share account. It’s your choice, horse for courses and I am always mindful of the story of the tortoise and the hare.
I am influenced in my aggressive strategy by my belief that we are early days in a potentially massive bull market. I don’t know that this is going to happen. It is just my hunch, based on my indicators and common sense and before they happen people never expect yet another massive bull market.
After the 1980s boom nobody thought that could happen again but the 1900s were incredible. The 2000s were tough but then the 2010s were spectacular and now, who knows, but the world is (a) an exciting place and (b) awash with money and that’s the fuel for big bull markets.
Why leverage can be less risky than people think
The great thing about using leverage is that you can stick to solid, high growth shares with great profit margins and strong balance sheets and still makes loadsa money. You don’t have to buy wildly risky shares to get above average returns, which is what people often suppose is necessary. Best of all you can start living most dangerously when you are doing it with profits which is like money that you have created out of thin air.
Strategy
You can combine portfolio investing with a Formula I approach. Indeed this is very likely what I shall do as and when this bull market gets under way in earnest. I love owning lots of exciting shares and seeing them all doing well and in a race with each other.
My portfolio is small at the moment but when I start seeing exciting shares with great charts and ‘something new and important’ happening I want to own them and that leads inexorably to large portfolios. They are a bull market phenomenon for me and if things are going really well I may not even have to do much rotation.
So far this is a two steps forward, one step backwards bull market but at some point we will get a charge and that is when you need to maximise your returns. We could be close. Many shares are building what look like important base patterns and as time progresses we will also get powerful breakouts into new high ground and indeed new names of shares having their first bull market, their first day in the sun. All this and more is still to come.
LVMH has a powerhouse chart
I thought I should show you the chart for LVMH, which is a classic powerhouse chart for a powerhouse business.
Share recommendations
Hermes RMS Buy @ Euro1948
Ferrari. RACE. Buy @ $279.50
LVMH. MC. Buy @ Euro875
