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HOlmes Osborne

    Pandemic Investing

  We have thus far performed fairly well during the Coronavirus pandemic. Our accounts held up during the market lows of March. As the rebound continues, we have been buying shares of companies located throughout the world and have put up decent profits.

In this newsletter, we will discuss how the Federal Reserve has been pouring billions of dollars into our economy. It appears that this action has helped prop up the stock and real estate markets. The downside is that all of this extra money could lead to inflation.

When the markets collapsed in 2008/2009, inflation lead to higher asset prices. This time, it may be different. Inflation could appear in consumer products like it did in the 1970s.

Our American dollar has been weakening. This is probably due to the extra debt that we’ve added to our economy and money printing. It’s been great for our gold holdings. Unfortunately, what’s great for our investors isn’t always what’s great for our country.
   Interest Rates at Rock Bottom Lows

In almost every newsletter we publish, we note how low interest rates are and how difficult this is for fixed income investors. Now, rates are even lower. We still scour the bond markets, looking for bonds with nice yields. This task is difficult to achieve but we’ve still been able to accomplish this. Our bond portfolios withstood the market crash back in March pretty well.

The bottom fell out of the bond markets. If you held on, your accounts bounced back in value.
 Second Quarter Activity

We were extremely busy in the second quarter trying to partake in the market come-back. Part of the theme was to buy companies in industries and locations that were lagging the U.S. market’s rise. We bought stocks in Latin America, Australia, and the meat packing industry.

The first stock we purchased was Ambev. Ambev is the South American division of AnheuserBusch. We sold it at a loss for some accounts in March but then bought it back. We held Ambev for just a few weeks and made a 26% profit. Brazil, where Ambev is located, has been particularly hit hard by Covid.

The second stock is Mexico-based Cemex. Cemex is one of the largest cement manufacturers in the world. Cement is a great industry to be in because of the weight, builders must buy close to their projects.

Like Brazil, Mexico has been greatly affected by the coronavirus. We held the stock for just a few weeks and made about a 43% profit. Vale is one of the largest iron ore producers in the world. The Brazilian-based company has had many problems over the years. We held for about the same time and made a little over 30% in profit.

In early June, we purchased Southwest Airlines. We think the popular airline will do well when we return to normalcy. The challenge is the timing of the purchase and how long we are willing to hold the stock.

We decided to cut our losses in the Canadian uranium miner Cameco. We purchased Cameco in 2017 and thought it would do well if/when uranium prices rebounded. Uranium miners cut production which in turn drove uranium prices higher. We decided to end our holding and take a small loss.

We purchased South Africa based Imperial Platinum. We’ve held Imperial on numerous occasions, sometimes earning handsome profits. This time, we held for less than a month and sold for about a 6% loss. This was a mistake. Platinum has risen in price and the stock has responded.

We purchased Treasury Wine Estates back in March. The Australian wine producer has not rebounded with the rest of the markets. Treasury produces Pensfolds, Beringer, Sterling, and Lindeman’s. Treasury has several problems other than restaurant closures with Covid. Australia and China have been butting heads over various issues. The Chinese are big buyers of Treasury’s wines and have cut back on purchases. Our guess is that things will calm down in time. The stock is way off where it was at the beginning of the year.

We purchased meat packers JBS and Seaboard at the end of April. JBS is the largest beef packer in the world. Seaboard is one of the largest pork packers and owns a half interest in Butterball Turkey.

The meat packers have done terribly during the pandemic. This industry has witnessed many infections in their plants. We think that management will figure out ways to protect employees.

In June we purchased two Coca-Cola bottlers—Mexican Femsa and Australian Amatil. Amatil is the bottler for Australia, New Zealand, and other parts of Asia. Femsa is the bottler for Mexico, Central America, and parts of South America.

Coca-Cola of Atlanta, Georgia, is a major shareholder in both companies. We are betting on a rebound in these well-financed corporations.

In March, we weren’t sure if the markets were going to continue to collapse so we only made a few purchases. One was Japan-based Fanuc, the largest manufacturer of robots in the world. We plan on holding Fanuc for a long time. The second purchase was a gold mining fund with the ticker symbol GDX.

GDX is a fund that holds a portfolio of mining stocks. We’ve been purchasing this fund on and off for many years. A few clients who have tripled their profits. We made a few ill-timed purchases back in 2012 and are at a small loss for some accounts.

For a handful of accounts we purchased GDX in March and sold off half of the position in April. Gold was beginning to correct so we took about a 26% profit. Like platinum, gold subsequently continued to climb.

Some of our longer term holds have done quite well. Dollar General has performed well during the pandemic. We’ve held Dollar Tree for several years but the stock has not done so well for us. We think the continuation of store openings will drive the stock price. Other strong performers include: Royal Unibrew, Heinken Holdings, Ansell, Western Union, and Baush & Lomb. Our two Hong Kong picks, Jardine Matheson and Swire Pacific, have lagged with all of the turmoil in that region. All of these stocks pay nice dividends so we can afford to be patient.

So should we have bought more in March? Well, Warren Buffett was not buying We noticed that Berkshire Hathaway was very quiet during the worst of the market turmoil. Many investment managers thought Mr. Buffett would be making some major purchases but we had the opposite opinion. It was announced that Berkshire sold off its airline holdings. If it became public that Berkshire was selling its airline holdings (it has to make a filing) then we thought Berkshire would have to file for large purchases as well.

We were correct. Berkshire Hathaway did very little during the turmoil in March. When markets rebounded, Berkshire began to make some purchases and buy back its own stock. If Warren Buffett isn’t smart enough to pick the bottom, neither are we.

What’s going to happen for the rest of the year? We don’t know. If the Federal Reserve keeps pumping in money and mailing out free checks, maybe it will drive the economy a little while longer. If coronavirus deaths continue to climb, perhaps the markets will slide back.

Don’t waste your time trying to predict how the election will affect the markets. The markets will do what the markets are going to do.

Whatever happens, we’re going to be nimble. We’re willing to unload many of our stocks if the markets turn south. Most of our clients aren’t spring chickens (nor buyers of green bananas) and can’t afford losses.

Osborne Global is a registered investment advisor with the states of California and Missouri and may only transact business with residents of those states, or residents of other states where otherwise legally subject to exemption or exclusion from registration requirements. Registration with the Securities and Exchange Commission does not imply a certain level or skill or training.  

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