In today’s Exponential Investor

  • Invest for years, not months
  • Spend time preparing, so you can take a break
  • Look for the multi-trend years forming
  • Supply is fragile

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As markets dip and dive — and there’s more red on my screen than a Game of Thrones episode — I admitted recently to the top brass here at Southbank Investment Research that I hadn’t opened my own stock portfolio in at least two days.

That conversation was a week ago. And I still haven’t logged into my account to see how my stocks are doing.  

Why? Look, I know it won’t be good news. Day after day, stocks are heading south. The news isn’t much better, either. Headlines unhelpfully tell me daily of the “value” that’s been wiped from the market.

None of the news, nor endless stock watching, is useful. More to the point, I understand my own investing psychology. Many years of mistakes have taught me that I get twitchy when stocks plunge for days on end, and might cash out of a great company too soon.

Given that this is an investing newsletter, that’s probably the last information you need (never mind telling you that I’ve personally disengaged from my portfolio, which might earn me another, less friendly chat with the boss).

Normally, I would say ignoring your portfolio is actually the worst kind of information you could ever receive. But here I am doing just that. Yet there is a method in the madness…

Think long term

Given my love of all things rocks, it will come as no surprise to know that the majority of my investments are in commodities – natural resources, to be specific.

Don’t get me wrong, there’s the odd tech stock in there, and a consumer staple or two. Thanks to my love of shopping, a consumer retail stock will find its way in there every now and then. For the rest, I stick to my area of expertise.  

Which means that, like yours, my investments are getting hammered, with some two years of paper gains wiped out. Last time I checked, the paper profits for a bunch of them were gone. Another handful more are significantly under water…

But when stocks started to tank a couple of months ago – and I had a hunch that things were going to get worse – I took steps to prepare to disengage from the markets. I’d already jumped out of almost everything that wasn’t mining related a few months earlier, which made the process easier.

I spent a whole weekend reviewing all my remaining stocks… What were my initial reasons for investing in them? Am I happy with the progress my mining stocks have made? Do the fundamentals for the commodity they are related to still stack up? Am I still happy to have my money tied up in this company even though it’s worth less than I paid for it?

After that, I made sure I was subscribed to receive investor updates directly from each company… and then, stopped compelling myself to check my positions five or six times a day. Or ten.

Like biting my nails and giving up the ciggies, it’s been a tough habit to break.

I still haven’t broken the habit, so to speak. But my day isn’t dependant on checking how my stocks are doing and getting anxious because they are racing the Titanic to the bottom.  

Instead, what I reminded myself when I reviewed my holdings is that all the positions I have are multi-year investments.

Don’t think local, think global

It wasn’t that long ago that I said I’m over lithium. Given that its spot price has increased sixfold in a little over a year, and demand for this metal is surging, I may end up with egg on my face.

My problem is that there’s no actual shortage of lithium. We have plenty of it in the ground. So much, in fact, that until a few years ago it was considered a waste product, and no one wanted it. The difference is that not many of these lithium deposits are mine-ready.

More to the point, I can’t help but wonder if lithium was caught up in a “hype cycle”. The price may climb higher from here, but I’m not convinced another sextupling of its price is possible. Lithium may very well be a short-term investment rather than a long one.

Which brings me to my point.

There is a much stronger case for investing in base metals, such as copper, over sexier metals like lithium, cobalt, or molybdenum. Don’t get me wrong, the latter three are important to today’s tech, but copper is the absolute backbone of the electrification trend.

Copper is extremely ductile, highly conductive, and resistant to corrosion. The only metal that can do what copper does better is silver, but silver is too expensive per kilo for mass industrial applications.

Furthermore, we aren’t just decking out our cars and homes with devices that talk to us and to each other. Major countries like China or large continents like Africa are working towards bring electricity to their people.

These people don’t want a smart home or a Tesla. Rather, they’re getting the basics – and something far more consumption intensive – electricity running to their homes. Hundreds of millions of people will be shifted out of shanty housing and connected to a major electrical grid.

Not enough, hard to get and vulnerable to disruptions

All this electrification of the world sounds exciting, and it will be for the people able to turn a light on with the flick of a switch for the first time. Yet it’s based on old, decaying copper mines.

Depressed commodity prices for the past decade deterred major investments in this reddish brown metal. At the risk of singing the same tune, yet again we find a much-needed commodity facing a deficit in just eight years, assuming there’s no major disruption between now and then.

It can take years for a copper mine to come online. Odds are the mine is in a hard-to-reach location with little access to water. Locals are smarter about the impact mining has on the environment, so they’ll push for more stringent mining practices. And ore body grades are going to be lower, which means less copper in the rocks will cost more to mine it.

To boot, the supply of copper is dominated by five countries. More than 65% of the world’s copper comes from Chile, Australia, Peru, Mexico and the United States. Yet China has almost 50% of the world’s copper smelters.

As the events of March 2020 continue to remind us, our supply chains are fragile. If a miner flaps his hi-vis in South America the wind ripples are felt all throughout the entire chain.

The most basic – and one of people’s oldest – metals is more precious than any precious metal or other curiosity caught up in the headlines.

Knowing all of this is how I’ve managed to sleep at night. Have my investments taken a hit? Absolutely. But when I re-analysed them all a few months ago, I was reassured that I’ve chosen companies that are part of something much bigger than the bear market.

Until next time,

Shae Russell
Co-editor, Exponential Investor