The best time to invest is when you have money. We have 10% in cash and we are putting that to work, says the Partner at
Mobius Capital Partners.
How is economic activity in Europe? As an observer and as an investor what is your first take on that?
Of course, economic activity is down and I would say it is probably about half of what it would normally be. For example, I was recently in Portugal. I was in Lisbon and in Algarve and the hotels were about 50% to 70% full. Of course, Portugal is suffering because the tourist demand is down, but I would say that is the general trend. I was in Venice as well. There, things were a little slower, about 50% of what they normally would be. But there are a number of people that are travelling to these countries. So, it is not as bad as a complete shutdown, let us put it that way.
Last time when we spoke, you were cautiously bullish. But I am sure the market rally, the comeback in all asset classes especially equities at large must have pleasantly surprised you.
Not really because we knew that this avalanche of money that was being printed by central banks around the world was going to have an impact. That is the reason why I have been so bullish on gold and I have been generally bullish on stocks because money keeps on pouring into the markets and it has to go somewhere.
A lot of people are at home gaming the markets. Companies like Robinhood in the US have had a tremendous following and that pushes a lot of these stocks up quite dramatically. Some of the internet type stocks, some of the concept stocks are going up like crazy without any earnings as a sign of this situation.
When you look at the kind of frenzy we have seen in a stock like Tesla or the fact that Apple’s market cap at $2 trillion is more than the combined GDP of half the world, don’t you get worried?
Yes I get worried because valuations have gone out of the window. I mean price earnings ratio does not mean anything anymore. Of course this has been a situation for some time now and which is why the emphasis these days has been more on return on equity, return on capital employed, margins that sort of thing but when it gets to price earnings or some of the other traditional valuations, it is out of the window. With Tesla, it is pure speculation more than anything else and it is quite amazing when you think about it.
Of course, now some of these stocks have been split and that adds extra volatility with the smaller share price. More and more people can get involved and a self-feeding kind of a frenzy is taking place.
In early May you said you were deploying capital and putting money to work. From May till now, have you used the cash you have been sitting on or are you right now booking profits?
No we are using the cash. We are looking for new opportunities, new bargains. We have had more cash come into the funds and we are not going to rush in and just buy anything really nearly. We are very careful. Generally speaking, we have about 10% in cash and we are putting that to work.
The interesting thing about our portfolio is that India now has become the largest and a lot of that is not only due to buying but more importantly the Indian market has also performed so well that the stocks we have in India have done exceptionally well.
Did I hear you say that in your portfolio the money which you managed for your clients, your exposure to India is the largest in terms of a country specific allocation?
Yes it is, which by the way really surprised me as well because if you remember I think last time we talked India was third after China, Brazil and then it was India. Now India is first which speaks well for India and the tremendous performance we have had.
You had three stocks or investments in India, have you made it two or have you made it five?
It is still three but their prices have moved up very nicely and so we are still in that position.
So which are the three stocks you own I will take my chances with that?
I do not want to talk about individual stocks because I am afraid that the people will think that they should be buying them. I prefer not to but you can go to the internet and check Bloomberg what are the Indian stocks we hold on to. Let me say this they are focussed on the infrastructure area and also in the medical area. We are very interested in th medical sector. So those are the two areas that are very important for us.
A lot of parallels are being drawn that the current market what we have in US tech stocks or the FAANG stocks is quite similar to what we saw in 1999-2000. What is your view?
Definitely, when you look at Tesla and some of these other concept stocks, there is no question we are in that direction and in that kind of environment, maybe even more so because back in 2000, we had the dotcom boom. The amount of money available in the market was not as great as what we have now.
So there is no question that in many cases we are in that kind of an environment but then there are other investors like ourselves who are more grounded. We are more cautious about buying these kinds of concept stocks or other stocks without earnings.
You have a two-tier market now where we have the speculators going after Tesla and stocks like that. The others are more judicious investors and look at earnings and longer term trajectory for these companies.
If you feel there is froth in the market and that stocks like Tesla are simply running because of liquidity and not because of real fundamentals, should one approach the market with some caution? Is it time now to raise 10-15% cash in your portfolio?
I would say that the lesson that we have learned over the years is that the best time to invest is when you have money. By that we mean you really have to be as fully invested as possible, if you can find the bargains that you are looking for and not worry about having a lot of cash.
As I said, we have about 10% in cash mainly because we are very cautious about what we are buying and also because of the money coming into the funds. I would say it is probably bad advice to tell people you better raise cash and do some market timing because we know that market timing does not work over the long term.
However, what you should be doing is buying stocks that have good earnings, good dividends, a high return on capital employed, those are the kinds of stocks that you should be focussing on and of course most importantly stocks that have good corporate governance. And you can buy these stocks regardless of what the nature of the market is. The market can be shooting up, it could be coming down and that does not make any difference and over the long term, you should do very well.
So given the incredible amount of money that is sloshing around in these markets, it is probably not a good idea to stay away but to buy those good stocks and ride them up because there will be money coming into those fundamentally sound stocks.
Do you think there is some degree of complacency which has got built in purely because of the recent run up in financial markets?
There is no question there is a lot of complacency, particularly when stocks are being bought willy-nilly regardless of dividends or regardless of earnings. So yes, I would say there is some degree of complacency and because a lot of people expect this money printing to go on and on, eventually it will stop and when that happens then people are going to have to run for cover. But as I said, if you are sitting on sound stocks you should still do quite well despite what is happening with the money printing as we go forward.