Small and mid-caps, outrageous predictions, dividends and checklists - the best investing blogs and podcasts from the past week
It’s that time of year again when market commentators turn their attention to what we might be in for next year. This year the annual frenzy of forecasts is producing a mixed bag of opinions.
I couldn’t help looking back at a few of the outlooks published this time last year. (If you want to indulge, you could try this, this or this). Back then Covid was still front of mind and inflation was enough of a nuisance to feature as a mild concern in 2022.
But the real thrust was about recovery from lockdowns. Easing supply chain bottlenecks and cash-rich consumers made for a bright economic outlook. It was all very much more of the same upbeat market action of recent years. Don’t forget that 2021 had been very strong for shares.
This is all slightly unfair, of course, because no-one I’ve seen was predicting that Russia would invade Ukraine - or what the impact would be. Quite apart from the human misery, the war caused an energy shock and supply chain spasms all over the place. This piled on even more inflationary pressure, caused a rapid policy shift from central banks and left us at the end of 2022 wondering how bad an almost inevitable recession might be.
With the exception of the FTSE 100, which is flat, stock markets have tumbled everywhere this year. Rising rates and the threat of stagflation are hardly welcome, but grudgingly, they have had a corrective influence in places. Nowhere more so than in US tech, where a decade long bubble that expanded rapidly after Covid, has, if not popped, deflated a great deal.
So here we are in mid-December and the question most common in the 2023 previews, is whether inflation has peaked. And if it has, how quickly will it return to more reasonable levels (and will rates be brought down with it)?
Some seem to think this will happen quickly. But it’s hard to believe - indeed, it would be almost unprecedented - for something like that to happen at speed. Surely more likely is that there will be a long and slightly messy road to travel when it comes to inflation.
As for recession, again there are mixed views. Some now think we’ll get off much more lightly than it seemed we would earlier this year.
So far, it seems that stock markets are yet to be wholly convinced that things are looking up. Small and mid-caps - or smids - in particular, have been frustratingly unresponsive. But it’s actually this part of the market where there seems to be some positive consensus from analysts about what might lie in store.
On both sides of the Atlantic there’s a view that smid valuations are attractive, that much of the bad news is priced-in and that, if history is anything to go by, they could be poised to perform well.
This Schroders note includes commentary from fund managers Sue Noffke and Andy Brough, and it’s well worth a read if you’re pondering the prospects for smaller shares next year: Outlook 2023, UK equities: mispriced opportunities abound
For a US perspective on this subject, this note from AllianceBernstein is worth a look: Are Small-Cap Stocks Further Along the Road to Recovery
Highlights from the past week
Merryn Talks Money podcast - Saxo’s ‘Outrageous’ Prediction? Gold Will Top $3,000 in 2023
First it was John Stepek that left MoneyWeek magazine to join Bloomberg, and then last month editor-in-chief Merryn Somerset Webb joined him. This new podcast is really a continuation of what went before. Billed as Merryn’s own show, John still turns up. This episode is really all about forecasts for the year ahead. John’s view is that Britain’s going to do better next year than everyone expects. Beyond that Steen Jakobsen, Saxo Bank’s Chief Investment Officer, is on to talk about the bank’s annual ‘outrageous’ predictions (that aren’t really all that outrageous it seems).
It’s actually a really excellent conversation. It’s light on investing, but there are some interesting talking points, from energy and gold and the muddle that we’re in at the moment. It then shifts to some of the reasons to be cheerful. Jakobsen’s view is that Russia has in some ways done us a favour in terms of forcing a shift in the discussion about energy policy, and that the next five years could see significant stimulation in productivity and a better social balance. I felt a bit more optimistic after listening to this.
You can catch up with Saxo’s predictions for 2023 here:
Saxo’s 2023 Outrageous Predictions: The War Economy
David Stevenson, The Adventurous Investor - Investment Ideas - In conversation on dividends and UK equities, performance update on ideas, a useful income funds list and time to buy into precious metals?
This is a great conversation for anyone interested in A) Mid and large-caps, and B) an investing/ trading strategy that shoots for fast growth and dividends.
David Stevenson (The Adventurous Investor) is a well known investment journalist and this is him in conversation with Mark Mahaffey, who’s behind the Hindesight newsletter. Mark focuses on £1bn+ FTSE 350 shares and has built a model for relatively short-term investing, where he’s looking for big returns (including dividends) within nine months.
Their discussion explores how he does that as well as his views on gold (Mark used to run a gold fund), equities (US is still overvalued and UK is cheaper but still risky), currencies and energy. Asked about risks ahead in 2023, Mark’s view is that with returns now positive across different asset classes (including bonds, cash and equities), blended asset exposure could be a good way of mitigating whatever turbulence lies ahead.
Twin Petes Investing #Podcast 90 w/ special guest: Quality compounders winning checklist
In this week’s episode, special guest Simon Cooper (@BrilliantLeader) stepped in for @wheeliedealer. Simon is a private investor focused on small and mid-caps, so his experiences this year probably reflect what a lot of people have gone through. His view, which rings true, is that UK markets have been through a capitulation, and while we might yet still see a recession, shares are more investable now than they were. He’s certainly been a big buyer through the autumn.
Among the highlights - and Simon is really excellent on this - include his investing journey (from 19.30), which starts back in the dotcom bubble. From 30.00 he talks about his quality compounding strategy, including an impressive checklist (covering among other things ROCE and ROE, CROIC, margins, gearing, yield, EV/EBITDA and the Jim Slater-inspired PEG).
I liked the discussion about the PEG (price/earning-growth rate) from 41.00. PEGs can be a bit precarious in bearish markets, especially when you wonder whether some EPS forecasts need adjusting down, so I found myself agreeing with his take-it-or-leave-it approach to them at the moment.
Have a great weekend,
Ben
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