At equities.com, we’ve always been focused on building an active community among the leading voices within the world of finance. As with many other fields, in finance, we’ve noticed a significant shift away from traditional sources of financial news, tips and predictions, and toward a growing number of financial bloggers.
In this series, we profile some of the most distinct and noteworthy voices in the world of financial blogging. Here, you’ll find our recent interview with John Hunter, founder of the Curious Cat Investment and Economics blog. Read below to learn about Hunter’s preference for “boring” stocks, the inherent safety of investing in healthcare, and how to build a portfolio that can weather another economic meltdown.
EQ: How did you get your start in finance?
Hunter: My degree was in economics, and I have been an investor since before college (with very small balances but still, I really did a fair amount of research - largely with Value Line and annual reports).
As I started to build up an investment portfolio and see how friends managed money and read about the financial actions of most people, I realized more about the importance of personal finance and managing the investment portfolio. I find people tend to think investment performance is the largest factor in their wealth, but it seems to me, saving money is really the largest factor.
EQ: What differentiates Curious Cat from other financial blogs?
Hunter: Most of the financial blogs I read are focused on economics or personal finance or investment picks. My blog is a mix of investing thoughts, economic data, economics, some personal finance and some commentary related to the political economy.
I talk about individual stocks or investments occasionally (for example, Apple’s Impossibly Good Quarter), but not often. I write about what interests me – and that varies. I have been posting a fair amount about economic data and would like to do more of that (I just need to find the time). Occasionally, I’ll blog about investing principles, but they don't change, so there isn't the ready-made push for new posts, as there is with economic data.
EQ: What sort of benefit does Curious Cat provide for its readers?
Hunter: The blog provides insight into economic conditions that may lead investors to modify their portfolio focus. While I sometimes directly discuss portfolio allocation, a majority of the posts are about economic conditions that could be used to make decisions about portfolio allocation (but in which I don't discuss specific details).
I also have more commentary than most financial blogs I read, mainly about systemic weaknesses that lead to poor economic results for the economy overall, and thus society in general. I would imagine there are other blogs that cover the breadth of areas I touch on, but I haven't seen them.
EQ: What is your long-term goal?
Hunter: Basically, to build my current lifestyle into something self-sustaining. I quit my "real job” several years ago and moved to Malaysia to work on my own business - Curious Cat Ltd. The move to Malaysia was mainly for two reasons: first, to reduce my costs while I built up my own business, and second, to travel in SE Asia.
I haven't been traveling as much as I wanted, and so I have decided to try the "digital nomad" route and am traveling to various locations for a few weeks or months at a time. So far, things are working out very well. Partially due to me being naturally cheap, which allowed me to save up money while I worked, and to continue to live cheaply today.
Continuing to grow what has been working so far is my current plan. Building up income so that I can splurge more, when I wish, could be seen as a long term goal. That is secondary to enjoying my time now, but I would like to make that happen as well.
EQ: What stocks or investments do you find particularly interesting right now?
Hunter: One of the investment strategies I realized a decade or two into my investing career was that the "boring" investments I really liked had a tendency to do very well. I started investing very small amounts of money, so it hardly seemed worth investing and getting even 15% a year in return.
So, I learned to mainly go after stocks with more exciting potential (and to also use options and shorting - even while I had a tiny portfolio). My focus was mainly a fundamental investing strategy.
Over time, I noticed the investments I liked so much that I would suggest them to others did very well – including those that I skipped because, while they seemed great at the time, they didn't seem to have the potential for dramatic gains I desired. As I accumulated more money, I put more money into such staid, arguably dull investments, and they continued to do very well. I don't find them often, and sometimes I can't find any at all. That is basically where I am now.
Apple Inc. (AAPL) is very close to being one I really like though. And yes, you can see it doesn't seem to have much exciting potential today (how much can the most valuable company in the world by far really increase?). The truth is that was also the case 5 years ago – and it sure has done well.
Apple has been my largest holding for years, and I bought more in the past few years at various times. I would rather not have so much in Apple as I do presently, but I really see it as a very good investment today. Not quite as great an investment as it was 2 or 3 years ago, but still very good. It is my largest holding and I haven't sold any, and I’m not close to wanting to do so. I doubt I would, unless I found a very compelling alternative, or it soars quite a bit more (or possibly if they perform poorly enough to bring the value into line with the low prices we have now, but I doubt that will happen).
I have maintained a portfolio that I call the sleep well portfolio for 10 years (started April 2005). I hardly have any turnover (under 2% annually I think) and hold stocks I would be comfortable locking in a vault for 10 years. The largest holding there is Apple, followed by Google Inc. (GOOG) ; I also still really like Google as a long term investment. The stocks in the portfolio for the entire period are: Google, Amazon.com Inc. (AMZN) , Toyota Motor Corp. ($ADR), INTEL CORP. (INTC) , Pfizer (PFE) , PetroChina ($PTR), Templeton Emerging Market Fund ($EMF) and Cisco Systems, Inc. (CSCO) .
I decided against Apple at the beginning of that portfolio, which was obviously a mistake. I continued to consider it and kept wanting to get it at a cheaper price. Finally I gave in and started buying Apple. The most recent addition to the portfolio is AbbVie Inc. (ABBV) which I am also very high on (I added to my personal holdings recently). I also recently bought, in my personal holdings, Gilead Sciences, Inc. (GILD) .
EQ: What is your strategy when choosing stocks and investments?
Hunter: I look for good individual investments, but I also weigh my guesses about long term macroeconomic conditions in making investment commitments. I think there is much more risk to the drastic measures central banks have been making for the past few years than the market is factoring in. I think the poor job regulating risk in the financial system is also very risky at the macroeconomic level.
I don't have any real idea of what the chance of massive economic failure is, but I am much more worried today than I have been. Pretty much, my worry has remained the same over the last few years. We did avoid an immediate meltdown, though we still had plenty of economic pain. Yet, in my opinion, the risk has remained very high for the last few years, but people seem to think central banks can continue this extraordinary behavior without consequences; I see a great deal of risk in the economy.
EQ: Where do you think this high potential for risk is coming from?
Hunter: We got out of the “Too Big to Fail” crisis, but have not addressed the core problems – and likely have made them much worse. We didn't take the opportunity to address the financial system risks created by the actions of “Too Big to Fail” banks. And it seems to me we have left the central banks in a very vulnerable position. They have already played strategies that previously seemed impossible due to the position they were placed in, and if it happens again, what are they going to be able to do? I think the risk of massive economic failure is large enough to consider in an investment portfolio.
EQ: How would you suggest an investor guard against the potential for a massive economic disaster?
Hunter: My main thoughts on that are to greatly value companies that are likely to weather economic calamity greater than any since the great depression. Having tons of cash obviously helps (Apple, Google...). Having a business model that puts a company in a position to make money (even if it is a lot less than they are making today) if the economy does extremely poorly, is also good (Apple, Google, AbbVie...).
It is possible for the economy to be hit so hard Apple, Google, etc. lose money. But if that happens, I believe huge numbers of other companies are going to be out of business, and the economy will be in shambles. It is possible one company could mess up so badly they create massive problems for themselves without economic calamity, but I think that is very unlikely for Google and Apple, but I do understand it is possible. But if the reason they are losing money is macro-economic, that would mean the economy as a whole is in a real depression, or we are much closer to that than we have ever been since the 1930's.
If companies like Apple and Google were priced so richly by the market that they were not good investments based on tame economic conditions, I wouldn't hold them merely for the ability to withstand very bad scenarios. But when those companies are good investments if things go well for the global economy and also have very good prospects (compared to other investments) for a bad and very bad global economy, I see them as a very good place to put money. They are likely to prosper even if we experience severe regional economic problems.
EQ: Aside from prominent tech stocks like Apple and Google, are there other segments of the economy that you think have potential for significant growth? For instance, what healthcare stocks do you like?
Hunter: Three macro-economic factors make healthcare an appealing investment. First, the aging population should provide a booming market. Second, the huge increase in rich people globally that can afford very expensive medicine again provides an ever-growing market. Third, the broken healthcare system in the USA results in exceedingly high-priced medical care in a very large and rich market.
It is very bad economic policy to continue the policies in the USA that have resulted in the extremely expensive but not more effective healthcare in the USA compared to other countries for the last three decades. Yet, I don't see the current political parties having any interest in addressing the problems. To some extent they are making minor adjustments, but overall, the massively overpriced USA healthcare market is likely to continue. As a citizen, I find this very sad. As an investor, it provides a guide to the prospects for healthcare companies continuing to make huge profits due to the bad policies in place in the USA.
So, long-term, macro-economic conditions are favorable for healthcare. In addition to that, as an investor thinking about it from a personal finance perspective, healthcare is a huge potential financial risk. If the USA fixed the healthcare system, those future costs for me would be reduced, which would be great. But looking at my future needs, relying on the political parties to reverse decades of policy to address the problems is a foolish strategy. Therefore, investments in healthcare have the added personal financial benefit of paying off in conditions where I will need more money. And if healthcare costs were to be addressed politically, it would hurt my investments (but my costs would also decrease).
EQ: So the nature of the healthcare industry serves as its own hedge, in a way.
Hunter: Right, and on top of that, the profit margin and cash flow on many healthcare stocks is very good. Now, they are also often priced fairly richly, so that adds risk. And the boom and bust nature of drug companies in particular (but also to some extent medical device companies, etc.) also adds risk. It could well be wiser for most people who accept the last few paragraphs to buy healthcare funds and get the benefits without the risks of a particular company, but I’ve found some companies I like, so I’m investing in them. If I didn't find those health companies, I would likely go with a fund. I also like Pfizer, though a bit less than the others. Basically, I don't see it providing me huge gains, but I see it as a safe way to diversify a bit and get a good dividend.
I also buy a bit in more speculative healthcare stocks, but that is more speculation than investing. I do think exposure to more than the giant healthcare companies is wise, but I would think it is sensible for most people to use a fund. I tend to stick with them for a very long time, though I do a bit of trading with some.
For example, I have owned Depomed Inc. (DEPO) for over 15 years. As with Buffett, my preferred holding period is forever.
EQ: Wow, so you must have a lot of faith in Deomed’s potential. What makes the company so attractive?
Hunter: I have maintained a core long-term position in Depomed and also traded smaller positions over the years, and used some of the profits to add to the core position. They passed a market cap of $1 billion in the last few weeks, and last week, announced a purchase of the USA rights to the Nucynta franchise for $1.05 billion from Johnson and Johnson (JNJ) . I think they are still attractive, but I have sold some of my core positions, as I believe the stock price reflects a fair amount of the expected gains that Depomed should make going forward. The large gains over the last few years have also inflated the value of that position in my portfolio. So I took some of my gains and bought Gilead and AbbVie, and will likely sell more soon to use for more speculative healthcare investments.
It is certainly true plenty of others are currently attracted to healthcare, and the prices of stocks are fairly rich in my opinion. Considering this, Gilead seemed very attractive. I can understand people being worried that the projections for their very expensive drugs are at risk, but it seems to me the prospects are good that they will make as much as people are projecting. Even if they don't, it isn't richly priced, so it would be a good investment if they earned less than the projected earnings (obviously, at some point the amount of decline (30%?) would call that assessment into question).
I think the odds are as good for a positive surprise, (mainly due to higher numbers of sales - my guess is pricing may well be somewhat weaker than anticipated) as a negative one (which, given the discounted valuation today, would leave even more room for gains). Also, management seems fairly good, and likely to make good use of the piles of cash they are getting today – which will likely keep piling up.
It is a bit scary to invest in healthcare today, given the high stock valuations (especially for small companies developing drugs without any approved drugs yet or priced largely on the prospects of a drug still not out of Phase II trials, even if they do have some approved drugs). On the macro-economic perspective, I am also still very positive on the developing markets over the long term, but they will remain volatile.
EQ: Recent market trends have had many investors regretting their holdings in emerging markets. What is your strategy in investing in these often volatile stocks?
Hunter: My main strategy is to have a holding period of forever and no worry much about all the volatility. Buy based on my long term macroeconomic thoughts and hold. I will tweak that a little bit to buy when I think they have been clobbered and lighted up a bit when they have soared but overall just buy and hold.
I have owned Templeton Emerging Market Fund for over 20 years and have also purchased the Vanguard Emerging Markets ETF (VWO) in recent years. The Templeton fund does charge high fees, which I normally avoid, but I bought more this month (using dividends paid by the fund). I have done well investing with Templeton in overseas markets, and it seems sensible to continue – though I admit it’s possible I’m being swayed by sentimental reasons.
I also have been concerned that the macroeconomic gains could well go significantly to huge global companies so buying only emerging market companies is not the best approach to capture the benefits of economic growth in emerging markets.
Also, many huge USA-based companies will likely make great deals of money in emerging markets. Companies like Google, Apple, Intel, etc., continue to make large profits based on those growing markets. While direct investments can be sensible (I own Ctrip.com International Ltd. ($GDR) - Chinese ADRs for example), a significant portion of the profit gains for companies like those listed above will come from China, Brazil, Indonesia and Africa.
EQ: Aside from individual stocks and funds, do you hold any other investments?
Hunter: I have been very positive on real estate investments, and continue to be. I think the best investment option is purchasing rental houses in low vacancy areas with strong rental demands, if you are local and can effectively manage the financial demands of the properties. Otherwise, you have to pay onerous fees for property management. REITs are an acceptable way to reduce the hassle, but fees, and their ability to manage the holdings sensibly, and their use of debt is an issue.
Owning properties yourself does involve extra hassle, but the financial benefits make it a good investment (especially in this market where investing options are not great). You do need a substantial fund (or a line of credit) to cover expenses, or a period of vacancy where expenses (mortgage, taxes, etc.) must still be paid. I also would seek investments that are initially cash flow positive, though if that isn't possible, getting as close as possible to cash flow positive would be my aim. I would aim to put 25% down for rentals. I bought my initial house with the plan of renting it out when I moved (so it was picked with that in mind). That has worked very well for me, though I admit, since I moved away, the annoyance with excessive property management fees and less-than-good service is a bother.
EQ: If there was one piece of advice you’d like to impart to your readers, what would it be?
Hunter: I can't pick one, but I can pick a few short pieces of advice:
Save 15%, or more, of your income and invest it wisely. If you want to buy more, then earn more, or save extra until you can pay for it with the extra savings.
Minimize costs on investments, use Vanguard or similar low fee funds. Buying individual stocks reduces even the costs of Vanguard. There are tradeoffs to diversity of your portfolio when buying individual stocks.
Pay attention to the overall risk of the portfolio, and even beyond that, your entire financial picture. For example, in the USA we have extra healthcare expense risk that is outside our portfolio risk, but is part of our entire financial picture. Building your portfolio with extra-portfolio risks in mind is wise. Don't get fooled into thinking about the risks of investments taken individually, even though that is what you will continually be bombarded with.
EQ: Have you found that the financial blogging landscape has changed in the years since you began?
Hunter: Yes – mainly because I started in 2005, and it was nearly non-existent. There are many blogs that provide great information. Anyone today that wishes to learn has many great choices.
The biggest problem is that if you don't yet have much financial literacy, picking out the people worth listening to may be difficult.
EQ: Is there anything else you’d like to share with us?
Hunter: Here are some examples of posts on my blog to give an idea of the variety of topics I discuss:
- Chart of Global Stock Market Capitalization by Country from 2000 to 2012
- The Time to Payback the Investment in a College Education in the USA Today is Nearly as
- Low as Ever – Surprisingly
- Manufacturing Output as Percent of GDP from 1980 to 2010 by Country
- Save What You Can, Increase Savings as You Can Do So
- Which Currency is the Least Bad?
For more of John's insights on investing, economics and various related topics, visit his blog Curious Cat.
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