Mellon on the Markets

Inside the mind of the Master Investor: influential British investor, Jim Mellon, reveals his latest thoughts on the markets.

It’s day three of the Camino de Santiago walk from the Portuguese end up to Santiago (Saint James, in English). Talking of saints, this closely followed the canonisation of John Henry Newman, in the Vatican, which I attended with my sister Trish, who has spent years toiling in Catholic service.

I am going to do more of these walks; I listen to podcasts and take in the scenery, and apart from blisters and dreadful food, I thoroughly recommend being away from the hurly burly for a bit. One of the great podcasts I have listened to is In Our Time with Melvyn (too many interruptions) Bragg. I was also impressed by The Knowledge Project, where I listened to Jim Collins, a US management guru, who you may know from his book Good to Great and his thoughts on the “hedgehog concept”.

I always assumed that Jim and his ilk would turn me off; too earnest, too prescriptive, too American. But he’s sold 10 million books, so I suppose he knows his market, and he’s certainly comfortably off.

However, when I listened to this podcast, I was mesmerised. He is, first of all, seemingly humble, and an excellent articulator and explainer of the success and failures of companies. His explanation of why Microsoft succeeded, and IBM failed, despite having more or less identical software is instructive.

His eschewing of starting a fund based on his insights is such an elegant explanation of why we have to be our own “hedgehogs”, sticking to what we know, and it rang a bell with me. Too often, I have strayed beyond any competency I have, with either disastrous or below-average effects. I am now going to stick rigidly to the little I know.

Jim Collins talks about the really great companies being compounders at steady, achievable rates, exploiting technology, but not trying to ‘leapfrog the world’. He also talks about great ‘Level 5 leaders’ being individuals who think beyond short-term profit, and who never deviate from core values, which always take first place over short-term profit.

I recommend this, and I’ve embedded the link here. It really was an important moment for me; I have been working too hard recently, being in the US, the Middle East, Australia and Hong Kong all in one short month. Am I working smart? Am I enjoying it? Probably not.

I think all of us – and this is obvious, but true – need to step back and ‘smell the roses’ sometimes. Although I believe that hard work is necessary for both personal fulfilment and financial success, it’s not everything. I am going to re-evaluate a lot in the near future, and the Camino is a perfect place to start.


Back to ‘Grub Street’ and the exigency of keeping the lights on in the real world, as opposed to the lights in our heads.

This last month was an exceptionally good one for us, and I hope it was for you too.

The pound performed to plan. Likewise, UK dividend shares have been outstanding, and we also (see last issue) scored a hit with our Texan friends at Reata (NASDAQ:RETA) (big recommendation), who announced a successful drug for genetic disease Friedreich‘s ataxia. Lots of negative yielding bonds turned to modestly positive rate bonds. Gold bounced around, but watch for the big breakout. It’s coming.

Because I am on a pilgrimage, Mellon on the Markets is going to be relatively short this month.

So, here are my recommendations for Master Investor readers.

1. Stick with gold, silver and platinum. Everything suggests to me that, despite option traders trying to keep gold below $1,500 an ounce, it is going to surge soon. Buy Anglo Gold (JSE:ANG) and Condor (LON:CNR).
2. Keep shorting negative yielding bonds. And as for Greek bonds, sell them hard and often.
3. Stick with UK shares, even though they have had a run. I would hold BP (LON:BP.), Shell (LON:RDSA), British Land (LON:BLND), Doric Nimrod (LON:DMA), Prudential (LON:PRU)(M&G and Prudential as a package), Marston’s (LON:MARS), GSK (LON:GSK), Avation (LON:AVAP) and Tesco (LON:TSCO). Oh, and Lloyd’s (LON:LLOY) and HSBC (LON:HSBA).
4. In Europe, look at Carrefour (CA:FP), Henkel (ETR:HEN3) and Société Générale (EPA:GLE).
5. In the US, remain very cautious, particularly in tech, but consider a drug company like Gilead (NASDAQ:GILD). And whatever you do, short Boeing (NYSE:BA). Forty-two new MAX planes a month, no one buying and cash out the door. It’s over. Down 30% more?
6. Keep buying sterling; my target is 1.35 against the US dollar. Brexit is being sorted and is a blip, as I have consistently said.

I have never seen so much opportunity in my investment career.Seriously. I recommend that those that are interested book their place at the Master Investor event next year – and quickly. Bookings are selling so far ahead of the numbers this time last year as to be outrageous.

Remember, stick to meta themes, like longevity or ‘clean’ meat, for the long term, buy high-quality dividend shares for income, and be careful on currency dispositions. I like sterling, the yen and the Aussie dollar.

Nice result on the rugby, by the way!

Happy hunting!

Jim Mellon