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Time to Think Never Sell as Stocks Simmer

December 18, 2023

Warren Buffett has some stocks which he says he will never sell. An example would be Coca-Cola, where his master company, Berkshire Hathaway began buying around 1982.

Buffett has never seemed to be a chartist but in chart terms 1982 was a brilliant time to buy Coca-Cola stock. There was also a massive ‘something new’ happening because Coke was divesting itself of its physical assets (bottling plants, distribution etc.) and becoming an intellectual property company (similar to other successful businesses like Apple and McDonalds).

Coke has the secret formulae, the vision, and is responsible for global marketing and for the success of the brand. In short it has focused on all the exciting, high return stuff and outsourced the capital spending and the boring stuff to other businesses, who can make a decent crust but will never do as well as the master company.

Was ‘never sell’ a good idea for Coke? Ultimately I would say not since the shares have been somewhat dead money since 1998 but it was that ‘never sell’ mindset that kept Berkshire Hathaway holding the shares through that incredible run from 1982 to 1998. Over a 16 year period the shares rose over 50-fold.

Buffett is Wary of Technology Shares

Berkshire Hathaway doesn’t usually invest in technology and turned down the opportunity to invest in Intel before that company’s huge run in the 1980s and 1990s.

Intel is on my watch list since it is part of one of the world’s hottest sectors, semiconductors, and has the beginnings of a promising chart. In the 1980s and 1990s Microsoft and Intel boomed together and were known jointly as Wintel (Windows and Intel – software and semiconductors). Since then Microsoft, under Satya Nadella, has reinvented itself as a company at the forefront of the technology revolution.

You can see immediately that these two charts are not dissimilar except that the miraculous transformation wrought in Microsoft’s fortunes by Satya Nadella and its reinvention as a cloud/ AI business has not happened with Intel which is still stuck in a never-ending consolidation. Intel needs a massive ‘something new’ to trigger a second leg of advance. It may happen.

Strategy – Simmering Stock Market Poised for Major Advance

Stock markets can do anything and the future is hard to predict with any confidence. But we can see that there is a marked tendency for US shares to move higher. It takes quite a lot to make shares fall. In 2000 there was the Internet bubble (not shown on the chart) and subsequent crash, in 2008-09 there was the financial crisis when large chunks of the banking system went into negative equity and had to be rescued by governments and quantitative easing. In 2020 there was lockdown which set the scene for an explosive growth in money supply, a spike in inflation and the sharpest rise in interest rates and government bond yields ever experienced leading to a stock market meltdown in 2022.

These are temporary interruptions and it looks as though normal service (a rising trend) has already been resumed. There is a strong case for selling, going liquid, if one of these stock market meltdowns is happening but for the rest of the time buy and hold (a never sell mindset) can pay great dividends.

The Next Bull Market Could be a Monster!

What is exciting now is the possibility that the Nasdaq 100 Technology Sector index and other US indices are making a pattern known to chartists as a bull hook – huge rise, sharp fall and then off to the races all over again. Best case this is a mid-term pattern, like XLK (see below) and much higher levels lie ahead and just possibly a frenzied AI-driven bull market.

I mention this possibility because I think subscribers should position themselves, aggressively, to take advantage. Really crazy, Tulip-mania, boom/ bull markets don’t happen very often so if that is what is coming boy scouts and girl guides, it is time to BE PREPARED.

On Quentinvest we are building a portfolio based on shares in highly innovative companies – the Innovation Portfolio. Future alerts will add to this portfolio. I am unlikely to advise selling unless I see a difficult period ahead for the whole stock market.

I am also looking at building a portfolio of other shares so that QV is not all about technology. There are many exciting businesses, especially in the US, which has been my primary focus for many years now. However if you do want to concentrate on technology shares I think that is not at all a bad idea.

In the 1960s there was an incredible mining boom in Australia, so incredible it lured me out there to be part of it. Industrial shares were BORING and nobody had the slightest interest in them. It seems to me possible that this could happen to the US stock market with a frenetic boom in technology, innovation, intellectual property shares and not much interest in anything else.

I don’t expect exactly that because AI has the potential to be transformative across the board. It is also promises to make technology part of our lives in a way which even the most died-in-the-wool Luddites will be unable to resist.

Imagine a Philip K. Dick-style world where we can speak to everything, ask the fridge for ideas for what to have for dinner based on what is inside the fridge, tell Spotify – I am feeling sad, play me some music to lift my spirits, ring the garage, where you no longer need to park the car you no longer own, and tell the lawn mower to get out there and mow the lawn and message the nearest Tesla to come and collect you. This and much more is coming.

The world in which my grandchildren are going to become adults is going to become unrecogniseable from the world we live in today and this transformation is going to be driven by corporate America; that is where you need to invest your money and as the rest of the world understands how badly the mixed economy favoured in Europe is failing us there are going to be dramatic political repurcussions. I am already starting to call Kier Starmer, Kier Thatcher because of the signs that he recognises this new reality and if he has any sense he is going to do his best to live up to that nickname and let the crazies, both left and right, moan and scream as much as they like.

Time to Slash Taxes

If I was Rishi I would really slash taxes in the next budget. What has he got to lose – for starters scrap Inheritance tax, stop charging tourists VAT and cut corporation tax to 10pc and promise that the next taxes to go or at least be cut sharply if the Tories are re-elected will be those on income and capital.

Make the UK a tax haven and if Russian mafiosi come to live here so what. The Cubans kicked out the mafia and look who they ended up with; there is nobody worse than a bad guy who thinks he is a good guy. I am thinking of you, Oliver Cromwell , Lenin, Mao Tse-tung, Fidel Castro and the rest of your ghastly crew.

Remember Gladstone and let money fructify in the pockets of the people. The Victorian era was the greatest period of growth ever seen in Great Britain and that didn’t happen because of a bunch of bureaucrats. How I would love W. E. Gladstone to be our next prime minister.

As it happens his grandson, E. W. Gladstone was my headmaster when I was a prefect at Lancing College back in the dim and distant past and what a civilised guy he was. I learned from him what a wonderful drink port was.

XLK is an ETF which is all about technology. It had a lean period from 2000 (the peak of the Internet bubble) to 2009 (the trough of the banking crisis). Since then it has been in a strong uptrend with an incredible run from 2009 to 2021.

The interesting question is what is happening now. I think there is a good case for saying that the last two years, when technology shares especially were hit by the sharp rise in interest rates and bond yields, was a mid-term consolidation. If this is right the shares could be just at the beginning of another huge rise.

One could calculate a long term target for these shares of $1450, which would make them an exciting investment.

TECL v QQQ3

That is without leverage. TECL is an ETF which offers similar sector exposure but with three times leverage and daily rebalancing.

The performance of TECL is insane. Between 2009 and 2021 the shares rose a staggering 468 times. Talk about WOW!

One problem with TECL is that you cannot buy them on IG. As always in this situation I go back to my old faithful QQQ3. Between December 2012 (the launch date) and the 2021 peak QQQ3 rose 90 times. This is better than TECL over the same period so no problem – forget TECL and just buy QQQ3 as I keep recommending.

Share Recommendations

SPDR Select Sector Technology. XLK. Buy @ $191

Wisdomtree Nasdaq 100 3x Daily Leveraged. QQQ3. Buy @ $150

I am not recommending any of the other shares featured in this issue because Coca-Cola and Intel are not ready, Microsoft has been well covered in past alerts and TECL is not available for buying.

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