Grow Your Portfolio the Intelligent Way

Will the Bellicose Surprise Hurt Our Money?

By Jim Woods
  • Will the Bellicose Surprise Hurt Our Money?
  • ETF Talk: Investing in Local, U.S.-Made Oil & Gas
  • Bringing Excitement to the Dismal Science
  • Resolutions Are Wishes, Take Action Instead
  • On Peace Through Strength

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Will the Bellicose Surprise Hurt Our Money?

During my days in the U.S. Army, one of my commanding officers used to say, “Poke the bear, get eaten.”

That phrase came to mind last week when I heard the news that that Iran’s Maj. Gen. Qassim Suleimani, leader of the powerful Quds Force of the Islamic Revolutionary Guard Corps, was killed by missiles fired from an American MQ-9 Reaper drone.

I say that, because after more than a year of aggressive military acts without any significant American response (attacking U.S. drones, interfering with oil tankers in the Strait of Hormuz, orchestrating the attack on the Saudi Aramco facility and the attack on the U.S. embassy in Iraq), Iran and Suleimani finally got eaten by the bear.

It was also fitting because Suleimani was the architect of nearly every significant operation by Iranian intelligence and military forces over the past two decades. And his death was, in my view, a major victory for rational humankind. It also represents a significant (although by no means devastating) blow to Iran’s terror machine.

Of course, financial markets reacted swiftly to the news. I checked the futures market late Thursday night when the news broke, and predictably, Dow futures had plunged some 400 points. That risk-off move also included a surge in oil prices and a flight-to-safety move in gold. Yet for equities, the market’s response turned out to be fantastically muted, as stocks were down modestly (just 0.70% in the S&P 500) by the time that Friday’s closing bell sounded.

Of course, the situation heated up late Tuesday night, as Iran retaliated by launching more than a dozen missiles at military bases in Northern Iraq that housed U.S. soldiers. But apparently, there were no casualties due to the missile attack.

Still, the Iranian move represents an obvious escalation of the situation. When I checked the futures late last night, global equity markets had dropped in response while gold and oil rallied accordingly.

This morning, however, things took a much-less-heated turn as President Trump addressed the nation, saying, “Iran appears to be standing down, which is a good thing for all parties concerned and a very good thing for the world.” The president also clearly signaled that there would be no further U.S. military strikes against Iran (at least for now).

The result was a very nice move higher in stocks immediately following President Trump’s remarks, so it appears that Wall Street just let out a bullish sigh of relief at the apparent de-escalation of tensions in the region.

Now, as I told subscribers of my Intelligence Report and Successful Investing newsletters on Friday, the worst-case scenario for markets that we need to watch for would be a regional war between Iran and the United States and its key allies in the region: Saudi Arabia and Israel. While this would be a big negative for the world and for markets, it is a realistic worst-case scenario that could come from this Suleimani action.

Fortunately, the tensions now appear to be subsiding. However, I am not going to take this latest flare up in bellicose geopolitical tensions off my list of concerns that can hurt our money in 2020.

The reason why is because even though this market is certainly in outstanding condition right now, it also is priced near perfection. What that means is that any material negative development, and especially a surprise negative such as a full-blown regional war with Iran, could cause a sharp “risk-off” move by traders that could send stocks sharply lower.

Having said that, I want you to keep in mind that markets entered 2020 in very good condition when compared to where they were in January 2019. Recall that back then, the Federal Reserve was hiking interest rates, the trade war between the United States and China was getting very hot and hordes of pundits were predicting a recession.

Today, we are coming off a fantastic year of all-time highs for the major indices, with the benchmark S&P 500 logging a gain of some 29% in 2019. Moreover, the Fed cut rates three times in 2019, and Fed Chairman Jerome Powell has made it clear that the central bank isn’t planning on hiking rates again in 2020.

Finally, we have a “phase one” trade deal in place between the United States and China, and even though I am skeptical about the actual details of the deal (we haven’t even seen them yet), I think the mere fact that we have an agreement between the two sides has taken a lot of that risk premium off the table for investors.

As we enter 2020, there are far more positive tailwinds at our backs than headwinds in our face — and that likely means more upside ahead for the major indices and the stocks and exchange-traded funds (ETFs) that my subscribers are profiting from in Intelligence Report and Successful Investing.

So, as the year unfolds, I suspect we’ll continue watching our money grow.

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ETF Talk: Investing in Local, U.S.-Made Oil & Gas

The iShares U.S. Oil & Gas Exploration & Production (IEO) ETF tracks a market-cap weighted index of companies in the U.S. oil and gas exploration and production space according to the Dow Jones.

IEO is the most representative exchange-traded fund (ETF) in the oil and gas exploration and production segment. Its cap-weighting scheme makes the fund extremely top-heavy, with its top 10 holdings comprising most of its overall portfolio.

It is a highly liquid fund, trading actively with narrow spreads and excellent underlying liquidity. IEO’s relatively steep expense ratio of 0.42% may be a bit daunting, but it is still a well-managed fund. Furthermore, its securities lending program has caused it to recover most of its fee of late.

U.S. News evaluated 25 Equity Energy ETFs and has ranked IEO #3, giving it ratings for Costs: Good; Tracking Error: Excellent; Bid/Ask Ratio: Excellent; and Holdings Diversity: Typical.

The fund’s top five holdings include ConocoPhillips, 15.38%; EOG Resources, Inc., 10.55%; Phillips 66, 10.28%; Valero Energy Corp, 7.13; and Pioneer Natural Resources, 4.68%. IEO is 100% invested in the United States and its two main sectors are Oil & Gas Exploration, 57.73%, and Oil & Gas Refining, 35.7%, with Oil & Gas Transportation, 5.8%, third and less than 1% in Integrated Oil & Gas, Coal and Oil & Drilling.

 

Chart courtesy of StockCharts.com

The fund was created on May 1, 2006. It has $241 million in assets under management, 57 holdings and an average spread of 0.04%. Over the trailing 12 months, the stock has traded between $46.12 and $63.22. Its current share price is around $55 has left it with a yield of 1.85%.

To sum up, this iShares equity seeks to track the investment results of the Dow Jones U.S. Select Oil Exploration & Production Index composed of U.S. equities in the oil and gas exploration and production sector. While this fund does present investors with the prime opportunity to gain exposure to this sector, please conduct your own due diligence in deciding whether IEO fits your individual portfolio’s goals.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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Bringing Excitement and Passion to the Dismal Science

When asked to think about the prototype professor of economics, most people are likely to conjure up the image of a staid gentleman in a bowtie buried in statistics.

Well, those people haven’t met Sean Flynn.

In the 2020 inaugural episode of the Way of the Renaissance Man podcast, you’ll hear my fascinating, fun and humorous discussion with the eminently vibrant Scripps College economics professor.

Sean is the author of the best-selling book, “Economics for Dummies,” and he’s the co-author of the world’s best-selling economics textbook.

Topics covered in this discussion include Sean’s personal history as an economist, how he was chosen to write “Economics for Dummies,” our mutual love of martial arts and his groundbreaking work in the field of free-market health care reform.

Plus, you’ll learn all about Sean’s new book, “The Cure That Works,” which advocates for enhanced price transparency in health care, consistent pricing for every consumer, an insurance system designed so that individuals can actually pay their deductibles and real competition among health care providers.

After listening to this episode, I suspect you’ll have a much different view of an economics professor.

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In case you missed it…

Resolutions Are Wishes, Take Action Instead

“Do. Or do not. There is no try.”

— Yoda

It’s New Year’s Day, and around the world people are resolving to be better.

This is a laudable pursuit, as planning to be better can be the first step in becoming better. Unfortunately, most people who resolve to accomplish a goal in the upcoming year fail miserably at sustaining the effort needed to see that goal through.

According to one analysis, about 80% of New Year’s resolutions fail by the second week of February. Now, if you had an 80% failure rate at your profession, or in your relationships, or in anything else you do, people would call you a loser — and they’d be right.

The fact is that New Year’s resolutions are usually just off-the-cuff proclamations (I call them wishes) of what people want the world to be. And one reason why I think people fail to achieve their New Year’s resolutions is because wishing for something doesn’t make it so.

Reality just doesn’t work that way. If you want to bring real change into existence, you have to do something that is damn tough — you have to actually change.

Yet actually changing isn’t easy. That’s why eight out of 10 people fail to do what they set out to do every Jan. 1. So, how do you actually change?

For me, the first step in achieving actual change is to accept all responsibility for that change. It’s a tactic that former Navy SEAL officers Jocko Willink and Leif Babin call “Extreme Ownership.” What this means is you need to stop blaming the universe for your shortcomings.

Here’s a little newsflash I figured out long ago — the universe doesn’t care about me.

Once I accepted this, it was easy to come to terms with the fact that I was on my own, with my mind as my only tool of survival.

So, my first recommendation to help achieve actual change is to stop blaming everyone else for your lot in life. The corollary principle here is that you then need to look from within for the source of your flaws and the source of your powers.

One thing I do on a regular basis is to physically look myself in the mirror with rapier-like logic. This technique helps me identify my negatives (both physical and mental), so that I can psychologically carve out the negative and leave intact the positives that I must rely on to get me through the toughness of change.

Another tactic I’ve found that helps me affect actual change is to do a postmortem analysis of my failures and victories from the previous year.

This tactic can be a bit disconcerting, especially if there are far more failures than there were victories. Yet in order to bring about actual change, you need to learn from those defeats. You need to determine what went wrong, why it went wrong and why you failed — not why something outside of your control caused you to fail.

Take extreme ownership for your role in the failure. It’s both humbling and liberating, and it gives you the power of the force of change.

Next, take responsibility for your role in the victories you enjoyed. Here again, don’t blame luck, or fate, or any other force of the universe for your hand in the victory. Take extreme ownership of what you did right and do more of that in the new year.

One good way of approaching a postmortem analysis of your year is to do what best-selling author and lifestyle guru Tim Ferris does, and that’s to conduct a past year review, or PYR.

According to Ferris, the process takes about 30-60 minutes, and it involves getting out a notepad and writing down the year’s experiences in two columns: POSITIVE and NEGATIVE. Ferris then recommends looking at your notepad list and then asking yourself: “What 20% of each column produced the most reliable or powerful peaks?”

Based on your answers, Ferris recommends taking your “positive” leaders and scheduling more of them in the new year. “Get them on the calendar now!” writes Ferris, as concentrating on these victories, or peak experiences, is essential to cultivating actual change.

Then, Ferris suggests taking your “negative” leaders and put them at the top of your, “NOT-TO-DO LIST.” These are the people and things you know make you miserable, so don’t put them on your calendar out of obligation, guilt or any other destructive emotion or nonsense reason. This too, in my view, is part of the mindset needed to affect actual change.

Finally, one little meme that comes in handy when you want to bring real change to your life is to remember the wisdom of Master Yoda.

So, on this New Year’s Day (and every day of your life), either do, or do not — there is no try.

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On Peace Through Strength

“I have never advocated war except as a means of peace.”

–Ulysses S. Grant

The 18th President of the United States knew quite a bit about war, having led the Union Army in the bloodiest conflict in American history, the Civil War. And though General Grant was as an expert war fighter, he always knew that the endgame for any war was a return to the absence of armed conflict. Let’s hope Grant’s wisdom prevails in 2020.

Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.

In the name of the best within us,

Jim Woods

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