I find it amazing how so many people can look at the same data and come to completely different conclusions. Well perhaps amazing is a stretch, but certainly amusing. Take a simple support line on a chart. Different technical analysts draw different support and resistance lines on the same chart because they focus on different things. While there is usually more than one right way to do something, there is often a better way. I wanted to say best, but that’s to black and white for me. Sticking with those support lines for a minute, I wonder why so many people draw them starting from the left, the furtherest point away in time. Surely the closest inflection point to now, the right most, should be given the most weight, with lines drawn backwards in time from there. But that’s really a discussion for another day, I simply wanted to set the scene by illustrating if market participants can’t agree on something as simple as a line on a chart, how the heck are they ever going to agree on whether the market is expensive or not! In short, of course there not agreement and that disagreement is what makes auction markets.

However, just as with support lines, there are better ways to assess whether the market is expensive and not such good ways. First off, looking at any one number in isolation is fool hardy. I’m talking about anyone quoting the point in time market P/E as a basis for whether the market is cheap or not. The ‘P’ is what it is, but the all important ‘E’ is a moving beast and is best looked at as average over time. Multpl.com kindly provides a S&P 500 P/E 10 chart based on Robert Shiller’s data which they update daily.  Today’s chart is below, showing the PE 10 sitting a 23.8.

Benjamin Graham introduced the idea of viewing slices of time rather than points in time, well actually it was probably some Greek philosopher, but Graham bought it to the investing public.

While the current P/E10 is historically high it is still only one metric, is backwards looking and includes a couple bad years that will soon fall off the end, yeah those stinkers of 2001 and 2002 really were around ten years ago. However the P/E 10 is what it is and at 23.8 it’s high, so we may as well have a look at what Robert Shiller’s Cyclically Adjusted Price Earnings Ratio P/E10 or CAPE for short shows the historic forward returns to be based on various P/E 10 levels. Hey do we even need to look? No we don’t, the answer is obvious, but we may as well take a look now that I’ve bought it up. As the average CAPE was just over 16 I examined the data in buckets of under and over 16, over 20 for those who like round numbers and over 23 to reflect the current level. First up is a scatter chart shows the higher the CAPE the lower returns and the fewer extremely good returns.

Scatter charts can be a bit overwhelming so I’ve also summarised  the data by average returns.

It seems pretty clear that if you want good returns you should be looking to invest when the P/E 10 is under 16, but hey at least on average the current reading of over 23 gets you better one and two years returns than CAPE’s over 16 and over 20. Without digging into the data I’m prepared to guess that simply shows the parabolic nature of market peaks. Yes the current reading is a real downer for anyone with a 3-5 year time horizon, but cheer up you’re likely to get a positive annual .25% return for the next 10 years.

It’s late and I haven’t even got to the starting point of this post, which was this great post by Vitaliy Katsenelson. VK used the following great chart to highlight that the E in earnings is as I’ve been saying  a complex beast, although it is based on simple concepts like profitability. He highlights that the current profit margin, like the current P/E 10 is at an unsustainable level and does a wonderful job of refuting many of reasons cheap market theorists currently put forward for margins won’t revert. Why is that the same people who use simplistic snap shots in time like the current P/E ratio often sit in the it’s different this time camp? Could it be that there brains are wired to fool them? Or perhaps they’re simply looking at a shorter time horizon which makes the market look cheap and from their perspective it may well be.

Putting it all together I think the above shows what is pretty obvious anyway. The US in an economic recovery, a cyclical bull market, with peak margins due to cost cutting, an abundance of near free money and current rebounding revenue making the market appear cheap when viewed through the simplistic moment in time P/E filter. While a cursory scratch at the surface highlights that forward returns may be good for a year or two, the market is priced too high for strong multi-year returns. Yes great stocks will outperform and yes  great value and growth stories exist in all markets. If you’ve got a track record of picking them and outperforming in all market conditions then keep up the great investing. Other investors should be paying attention to the in-flight safety demonstration and checking where their nearest exist is.

If the US market appears cheap when viewed through your moment in time P/E filter, then perhaps it’s time to change your filter.

I had the great pleasure of meeting Tom Gardner, the CEO and co-founder of The Motley Fool, and several other wonderful Fools a few weeks back. Great ideas flowed freely that evening, as did the excellent boutique beer.  Tom’s comment that he learnt something new every time he re-read Peter Lynch inspired me to re-read Lynch’s Beating The Street.  What I love about Lynch is his open minded disposition, as the first two words in this timely piece of advice illustrates, though saying that, it is the advice rather than his open mind that is worth focusing on.

Whatever method you use to picks stocks or stock mutual funds, your ultimate success or failure will depend on your ability to ignore the worries long enough to allow your investments to succeed. It isn’t the head but the stomach that determines the fate of the stockpicker. The skittish investor, no matter how intelligent, is always susceptible to getting flushed out of the market by the brush beaters of doom.

Peter’s Principles

Peter’s Principle #3: Never invest in any idea you can’t illustrate with a crayon.

#4: You can’t see the future through a rearview mirror.

#7 The extravagance of any corporate office is directly proportional to management’s reluctance to reward the shareholders.

#11 The best stock to buy may be the one you already own.

# 14 If you like the store, chances are you’ll love the stock.

The St. Agnes Chorus

Lynch maxims through a seventh-grade filter, once again highlight Lynch’s open mind.

• Never fall in love with a stock; always have an open mind.
• Just because a stock goes down doesn’t mean it can’t go lower.
• You should not buy a stock because it’s cheap but because you know a lot about it.

Scattered Quotes

My diaries are full of such missed opportunities, but the stock market is merciful – it always gives the nincopoop a second chance.

So much wisdom in one sentence. It’s a great idea to keep an investing diary. Jot down all your notes in it and be sure to write why you buy and sell companies. Over time it will become a great resource and will protect you from the enemy of continuous improvement, self deception. Don’t sweat your missed opportunities, there will be many more.

Flexibility was the key [to Magellan's success]. There were always undervalued companies to be found somewhere.

By abandoning these great companies for lesser issues, I became a victim of the all-too-common practice of “pulling out the flowers and watering the weeds”

This is one of the keys to successful investing: focus on companies, not on the stocks.

Bargains are the holy grail of the true stockpicker. the fact that 10-30 percent of our net worth is lost in a market sell-off is of little consequence. We see the latest correction not as a disaster but as an opportunity to acquire more shares at low prices. This is how great fortunes are made over time.

The alert shopper has a chance to get the message about retailers earlier than Wall Street does, and to make back all the money he or she ever spends on the merchandise – by buying undervalued stocks.

It was huge gains in a few positions that led to Magellan’s superior results.

In stocks as in romance, ease of divorce is not a sound basis for commitment. If you’ve chosen widely to begin with, you won;t want a divorce. And if you haven’t you;re in a mess no matter what.

There were hundreds of losers in Magellan’s portfolio… Fortunately, they weren’t my biggest positions. This is an important aspect of portfolio management – containing your losses.

There’s no shame in losing money on a stock. Everybody does it. What is shameful is to hold on to a stock, or , worse, to buy more of it, when the fundamentals are deteriorating.

Since bonds come before stocks in the lineup of claimants on the company’s assets, you can be sure that when bonds sell for next to nothing, the stock will be worth even less… before you invest in a low-priced stock in a shaky company, look at what’s been happening to the price of the bonds.

Stockpicking is both an art and a science, but too much of either is a dangerous thing.

The smallest investor can follow the Rule of Five and limit the portfolio to five issues. If just one of those is a 10-bagger and the other four combined go nowhere, you’ve still tripled your money.

That last quotes succinctly conveys what I tried to in this post, Gain required to Make you Whole.

Getting involved with a manageable number of companies and confining your buying ans selling to these is not a bad strategy. Once you’ve bought a stock, presumably you’ve learnt something about the industry and the companies place within it… The more common practice of buying, selling, and forgetting a long string of companies is not likely to succeed.

There are many common themes in the quotes; buy what you know, buy companies not stocks, and water the flowers to name a few. I hope you’ve enjoyed these Lynchisms and perhaps learnt or at least was reminded of something as well. Please take a minute to share your favourite Lynch quote(s).

If that is enough Lynch for one sitting then check out Peter Lynch’s 20 Golden Rules.

The Age published this David Potts article on Listed Investment Companies today. I started writing the following article a month ago, but didn’t finish my research and with my plate now full I won’t in the near future. So here in its incomplete glory is my short take on Listed Investment Companies LICs. In summary it doesn’t look hard to find a good LIC which consistently beats the market and trades and a discount to NAV (net asset value). At the very least LICs are a good source of investment ideas for further research.

the higher the fees, the higher the discount you should demand. So the lowest cost machines, such as AFIC and Argo, should trade at the highest price relative to their underlying asset value…. A rule of thumb you might employ is to ‘capitalise’ the ongoing costs (including the management fee) at, say, 10%. So if a fund’s ongoing costs total 1.5% per year, then you’d divide this by 0.1 (or multiply by 10), and apply a discount of 15% to NTA.  You might then apply an additional discount if a performance fee is present; perhaps deducting another 5% to 10% depending upon the arrangement ii

Westwind asked for a review of the MyClime Service. The best advice I can give is give their free trail a go, as that is certainly worth way more than it costs . While doing so make sure you check out; John Abernethy’s thoughts, What Value Today, Company Valuation Dashboard, the forum and the training webinars. MyClime is not a newsletter it’s an excellent investing tool suitable for people wanting to do their own valuations based on Clime’s sound valuation methodology. George Whitehouse, John Abernethy and many other intelligent investors post on the forum.

Promo over. Westwind was also interested in some of their investment ideas. Clime group stocks by their required return (rr) into three levels, very low to high. They then rank those by Value/Price Margin.  The likes of Woolworths and JB Hi Fi currently feature near the top of very low required returns (safer) and Reverse Corp and Jumbuck Entertainment  are near the top of high rr (speculative).

The middle group is low required returns and at the top of that list is, interestingly, Clime Capital Limited (CAM), Clime’s listed investment company. For LICs MyClime uses NTA.

Here is the current NTA and top holding for Clime Capital.

CAM is not the only LICs amoung the low RR companies; the ASX publishes a monthly list of LIC Premium/Discounts to NTA.

Other LICs catching my eye are BEL, WIC, HHV, WAM and WAX.

Here are their current NTA and portfolios, a good source of investment ideas.

WAM

CAM’s expenses (see below) explain a large part of discount. Upside comes if Abernethy and grew can continue their out-performance. CAM’s share price should then get the double boost of the out-performance  and the discount narrowing.

Of course Argo still trades at a premium, due to their long term out-performance and very low management fee. Milton Corp is the only company of interest in their largest holding. MLT, unsemgingbelievable, it to is a LIC, though selling at slight premium to after tax NTA, probably deservingly so. MLT has a brave 31.5% banking allocation. Low 0.17% operating fees net management fees which as always need to be checked. 2010 AR

No related posts.

Everyone knows Buffett’s rules number one and two, never loss money and don’t forget rule number one. They’re great rules and if we could apply more patience in our investing and weave in as many complementary rules like capital is scarce opportunities are plentiful then maybe we wouldn’t suffer many losses. My reality is that I incur losses and the same is probably true for you.

So how much profit does it take to recover from a loss? The following chart highlights conventional wisdom. The greater the loss the ever greater the gain required to make you whole again. For example a 10% loss only requires an 11%, a 50% loss requires a 100% gain and a 90% loss requires a massive 900% to make you whole again.

Scary stuff isn’t it? 10 baggers don’t come along very often.

As I said that is the conventional wisdom and one that is often used to promulgate stop losses and small position sizing opinions. I say the conventional wisdom is bollocks. It takes exactly the same percentage gain to make up for a loss. If you loss 10% it takes a 10% gain to make you whole. If you loss 90% it takes a 90% gain to make you whole.

Why conventional wisdom is wrong

Conventional wisdom is based on serial betting an entire stake. If you make serial bets (one after the other) of your entire stake then it does indeed take a 100% gain to make up for a 50% loss. Do you make serial bets of your entire stake? I doubt it. If like me you have a portfolio of stocks then you’re making parallel investments. If one investment losses 10% you are made whole by another similar sized investment gaining 10%. You never invest your entire stake in one stock, you spread your investment over many stocks.

Pull the weeds and water the flowers. Peter Lynch’s phrase was so good that Warren Buffett asked if he could use it in his annual report. While you may make a 100% loss on an initial investment, I know I have a few times, hopefully you’ll have headed Lynch’s advice and added to your winners. So your wins are magnified as they have more capital invested in them.

I’m not trying to encourage you forsake patience or forget the all important rule of never loss money, just realise that when viewed from the perspective of a portfolio some conventional wisdom is not so wise after all. Mental stop losses also make a lot sense in some cases and are almost essential for traders.

Long term investors, especially those investing in special situations, growth stocks or any other companies where major losses are a possibility should view their investments within the framework of a portfolio and cut their losers and let their winers run.

I’ll conclude with one of Peter Lynch’s 20 Golden Rules:

If you invest $1,000 in a stock, all you can lose is $1,000, but you stand to gain $10,000 or even $50,000 over the time you’re patient. You need to find few good stocks to make a lifetime of investing worthwhile.

If you want to read more then this post on position sizing is in a similar vein.

My favourite quotes of the week come from GMO, with James Montier pipping Jeremy Grantham.

From the perspective of mean reversion, fat tails help to create some of the best opportunities. That is to say, fat tails often create fat pitches.

That is a fantastic reason for understanding skew, I alluded to it in my discussion on skewness, but failed to give deserved emphasis to the fat pitches in those fat tails.

Montier also provided the pick of my summer reading. His 2009 book, Value Investing, Tools and Techniques for Intelligent Investment, is a collection of his articles from Mind Matters written during his years at Société Générale. You could probably find all the articles on the web, but this really is a collection that deserves to be appreciated in hardcover. $26.50 at Amazon.

Montier’s Value Investing is broken up into six parts; why everything you learned in business school is wrong, the behavioural foundations of value investing, the philosophy of value investing, the empirical evidence, the dark side of value investing: short selling and real time value investing. Within those six parts are 36 articles, woven into a coherent and excellent whole.  For me, Montier comes from the lineage of great thinkers; empirical, open minded, layered with the ability to look from difference perspectives (reverse engineer DCF for example) and reduce complex ideas to their key simple form.

Here is one of the chapters to get you started; The tao of investing: the ten tenets of my investment creed.

I wonder if Montier’s views on commodity super cycles have changed since he moved to GMO and within Grantham’s sphere of influence.

My favourite quote from Grantham is immediate rather than timeless like Montiers, but it is a recurring theme and one the master of bubbles knows a lot about.

Be prepared for a strong market and continued outperformance of everything risky.
 But be aware that you are living on borrowed time as a bull; on our data, the market is worth about 910 on the S&P 500, substantially less than current levels, and most risky components are even more overpriced.
 The speed with which you should pull back from the market as it advances into dangerously overpriced territory this year

That’s not really a quote is it, more like confirmation bias in full effect. Grantham sees the possibility of this rallying carrying on past the end of QE2 until October.

Part 2 of Grantham’s Letter is one long quote, fantastic stuff. I’ll quote Grantham quoting himself.

“I’ve also been pretty irritated by Graham-and-Doddites because they have managed to deduce from a great book of 75 years ago, Security Analysis, that somehow bubbles and busts can be ignored. You don’t have to deal with that kind of thing, they argue, you just keep your nose to the grindstone of stock picking. They feel there is something faintly speculative and undesirable about recognizing bubbles. It is this idea, in particular, that I want to attack today, because I am at the other end of the spectrum: I believe the only things that really matter in investing are the bubbles and the busts. And here or there, in some country or in some asset class, there is usually something interesting going on in the bubble business.”

Grantham goes on to discuss career risk, extrapolation, bubbles and as the following graph highlights, P/E ratios and margins.

Grantham explains why the correlation between P/E ratios should be -1, while the correlation at the peaks in +.32.

Disclosure: Long the ideas of Grantham and Montier.

Mike was kind enough to tell me why he thought I went wrong with Neptune. His points were valid and I look forward to his post on Neptune. Here is my reply.

Thanks for your comment. You’re right, cash flow or more correctly owners earnings (shortcut by operating plus investing cash flows, CFO+CFI) showed the big shortfall that the shareholders funded. Cash flashed warning signs as I said on my watch list page and here on this post. “Neptune is not self funding, but they are creating value. It is not an appropriate investment for a defensive shareholder, but enterprising investors may consider it. Buying Neptune requires investors to buy into a growth by acquisition story” and “While I prefer to invest in companies that are both self funding and creating value from a Hewitt Heiserman’s It’s Earnings That Count perspective, I occasionally forsake my better judgment and dip my toe into unabashed growth stories like Neptune.”

As I come from a business background I look at companies as businesses with opportunities and risks and try to understand why their solvency, liquidity, profitability, valuation and activity ratios are as they are. To do that you need the story.

Owner’s earning is good, but you’ll seldom find it in high growth or acquisitive companies. Growth consumes cash in working capital and fixed assets, unless the company has Dell or Blue Nile like negative working capital. Cash flow, ROE, P/E and the plow back ratio are all handy ratios to have in your toolkit and sustainable growth is a great investing criteria.

If I come across a free copy of Value.Able I’ll read it. Roger is a good writer, but I prefer Damodaran, Heiserman, Greenwald, Klarman, Shiller, Fabozzi, Lynch, Tharp, Fisher, Greenblatt, Schwager, Neff, Pabrai, Montier, Grantham, CFA Level 1 Study Sessions, which Investopedia has good notes for, and more.  Ratios are good as filters and for a quick glance, but it’s good to go beyond them to know the business and current story. If you want a really good book to read then check out Hewitt Heiserman’s It’s Earnings That Count.

Mike or others please correct me if I’m wrong, but isn’t Montgomery’s formula simply another version of the dividend growth model, which Damodaran has a good page on. I know Roger uses a multiplier like most valuation models have since Graham published his earnings growth multiplier model. I do like Roger’s A1 style methodology and wonder if he got the idea from time management, as that’s where I first encountered the effectively of two criteria decision rules.  A1 rules work.

• Forward P/E equals payout ratio /cost of equity and growth rate.
• Payout ratio equals 1 – Dividend Growth Rate(g)/ROE or if you prefer g = Retention rate (rr)* ROE, you only need to know one of these as deriving the other is simple.
• From memory Clime do something similar. I’ll refresh my memory tomorrow when I attend two sessions of their’s at Melbourne seminars.
• Is Roger’s equity * payout ratio * multiplier + equity * plow back ratio * another multiplier?

Yes intrinsic value matters, yes you need to be able to work it out. Though keep in mind Buffett does it in his head, it’s not hard to get a close enough number. Writing off book value limits your stock universe as price/book is a great quick screen for value among insurers. I wrote about the power of book to market and how it has delivered Buffett like returns.

As Neptune was risky I only dipped my toe in with a 4% investment. While I should have sold when it was up 60% in two months or anytime on the way down I didn’t. That’s the hidden cost in exchange for a H1 average in my Masters and sitting the CFA Level 1 exams in the same year.

Mike’s post was timely as now that I’m on summer break I have a lot of catching up to do.

Neptune is currently suspended, Christian has gone, his roll-up strategy over extended the company and transferred wealth from investors to rolled-up company owners. Here’s the Chairman’s recap speech at the AGM. I should have limited risk to a 1.5% loss of the portfolio’s value, then it would have only been .75% annual drag. As it is even if Neptune fails it will only be a 1.5% annual drag for the last two years. That downside compares to the opportunity of 15-20% portfolio upside that a well executed roll-up can enjoy. Take a look at Middleby Corp for the type of returns that investors can get if it works well. MIDD is also a great example of why some acquisitive strategies work better than others. The human capital roll-up of buying out small entrepreneurial companies, like Christian pursued at Neptune, seldom works out and at most deserve a small investment kept on short lease. I got it right, except for the short lease.

It’s not over yet, I still own a call option on the new management team returning Neptune to profitability. With Gorgon coming in 2012 and a new experienced CEO I’d haven’t written off Neptune yet. Look for extreme bargain prices for a really cheap call on the turnaround, or keep it on your watch-list and watch the announcements, metrics and news flow closely.

Wikipedia quotes Buffett’s version of owner’s earnings as representing

reported earnings plus (b) depreciation, depletion, amortization, and certain other non-cash charges…less (c) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume….Our owner-earnings equation does not yield the deceptively precise figures provided by GAAP, since (c) must be a guess – and one sometimes very difficult to make. Despite this problem, we consider the owner earnings figure, not the GAAP figure, to be the relevant item for valuation purposes…All of this points up the absurdity of the ‘cash flow’ numbers that are often set forth in Wall Street reports. These numbers routinely include (a) plus (b) – but do not subtract (c)

Here is what I said just after my Neptune investment.

I still don’t feel comfortable investing in NMS and am breaking a personal rule by investing when I have doubts. One of my favourite quotes is capital is scarce and investment opportunities are plentiful. Warren Buffett expressed the same sentiment when he compared investing to baseball without strikes. He said you can wait for the right pitch all day and there is no penalty other than lost opportunity. So, when the fielders are asleep, step up and hit the pitch.

NMS is not in my hitting zone, it’s a fast curve ball with the potential to strike me out.

Disclosure: Long Neptune Marine. Mistakes were made, lessons reinforced. Amazon affiliate payments on book links.

UPDATE:

Via trading markets Neptune Marine Services plans to raise $A80 million to improve its poor financial position. A share placement will raise $A28.3 million, with $A51.7 million from a renounceable rights issue. The capital raising will be priced at $A0.08 a share, while the stock last traded at $A0.205.

A recently read post by David Merkel made me take stock of my wheelhouse. Here’s the industry breakdown for the SMSF I manage.

Sectors

I’m trying to lighten up on Financials as that weighting is high for us and two stocks are past our target, but I haven’t seen signs of a top yet so see no need to rush.  Though the ominous shorts on the NDX should be noted.  Financials weighting is high due to bargain buying around the banks’ SPP offers last year. I’m  91% invested in this account and will be a net seller of equities on price advances from here.

I sat a three hour Mergers and Value Enhancing Strategies exam yesterday. Despite having plenty of time I didn’t catch my ingrained mistake of answering Earned Value Analysis instead of Economic Value Added. Those years advising on project management are hard to shake.  That lost point won’t be the the only one I dropped. I did well on the quantitative section, but dropped marks on the qualitative side. That’s 2/3rds of my Masters completed, a whole bundle of new knowledge and one semester to go.

I rewarded myself by having the afternoon off to work and think in the garden, before diving headlong into the CFA Level 1 material for my exam on Dec 5th.

Predictions unleashed

I don’t and few can predict short term movements; empirical evidence doesn’t shine brightly on short term predictions. I’m more of a long term wave/cycle guy with demand & supply and mean reversion biases.

Equities are most likely in  a secular bear market, currently enjoying a final bull hurrah. So no broad escape from the coming inflation via the stock market. Stock pickers will do better than indexing. If the market advances into 2011 it will definitely be time to swap into late stage stocks with quality recession proof earnings and good yields. I’ll be going predominately to cash and looking to profit through shorts. I’d love 1500 on the S&P 500 and would be substantially in cash if that eventuates within a year.

Property in Australia can at best enjoy stagnation over the  coming decade. I’ll patiently wait for the stagnation to be entrenched and property to be within spitting distance of it’s long term afford-ability trend before diversifying the superannuation fund into residential property. The Australian market is structurally stronger than many others due to high demand and no oversupply, so stagnation is more likely than a 40+%  correction. The excellent unconventional economist articulates the bear case.

Property in the US. My current best idea. Buying strong USD cash flow properties with the inflating AUD and funding the balance with a low rate USD debt has multiple likely good payoffs over the long term. It’s a a double play, buying weak with strong, it’s buying low sell high.

[Update: In short, I think this is a low risk high reward investment with several good options for free, including, calls on USD and interest rates plus the option to expand. You can get all that in a cash flow positive package for around the price of a decent car.]

Can anyone can tell me how to easily invest directly in residential property in the US. Best places with highest Sharpe ratio, excess return to risk? Ease of doing so through an Australian discretionary trust which can finance out of US trading account? How to get a US bank account if online share investment accounts won’t suffice? Alternative structures I may want to consider? A trusted property manager in an area with high rental returns?

If anyone else is interested in buying historically cheap US property with inflating AUD or NZD then let me know. I think an exploratory trip in the New Year could work well.

Australian dollar may see another 20% up, but we’re heading quickly to the peak. We’re fully exposed to the USD in our investment fund to prices above parity, after hedging up to the mid nineties. Parity has only been breached, not conquered. CEO of Orica said they believe predicting currency is extremely difficult. Yes in the short term it is, so removing variability in company earnings is difficult to achieve through hedging, but investors with a long term perspective can more readily profit from long wave currency movements. When the risk play ends the AUD could fall fast. I’ll get very excited if AUD hits $1.20 and look to profit from reversion.

Gold, if this is a bubble and it certainly has numerous hallmarks of an early stage bubble then gold could go above $3000. The final year of a bubble often sees  prices double, but jack best be nimble. If the bubble is missed then shorting the downside will be another opportunity.

Bonds, I’m about to sell out of our small bond allocation. The position has worked well over the last few years and is less likely to over the next few years.

Inflation will increase. How can I best invest with rising inflation as a theme?

Sometimes it is different.