I had a great time interviewing Chris who runs a contrarian investing hedge fund. I’ve been a subscriber of his Capitalist Exploits newsletter for two years and was happy to have him on as a review.
He’s been around the block. We discussed:
- Some of the biggest mistakes investors make
- Why he owns absolutely 0 bonds
- Why he is long energy and various sub-segments within energy
- The importance of differentiating between narrative and reality.
Chris is giving a $1000 discount to my subscribers who watched this review of Capitalist Exploits newsletter
Chris also runs a contrarian investment newsletter, in which he shows his portfolio, and which gives access to a lively investment focused Slack channel. Essentially, he translates contrarian thinking into concrete stock ideas on a weekly basis.
I’ve personally subscribed for the past 2 years (I did not get the $1000 off). I use it as a source of information for my research and thinking. Do I agree with everything? Of course not. But that’s not the point. The point is that he brings a different perspective to the table which helps me form my views and theses for my investments.
To a World of Opportunities,
The Wandering Investor
If you want to discuss your internationalization and diversification plans, book a consulting session* or send me an email.
Full transcript of “Review of Capitalist Exploits Newsletter”
LADISLAS MAURICE: Hello, everyone. Ladislas Maurice from thewanderinginvestor.com. So today, I’m very happy to be speaking with Chris MacIntosh, the CIO of Glenorchy Capital and Capitalist Exploits. Chris, how are you?
CHRIS: I’m very well, thank you.
LADISLAS MAURICE: Good. So we’ll be discussing a few interesting topics today, including which sectors Chris is most interested in. We’ll be discussing about bonds as well. But first, we’ll start off with a very important question, because often we learn more from mistakes than from wins, is, Chris, what do you feel is a big mistake that a lot of long-term investors make in the capital markets?
CHRIS: Okay. Well, before I get into that, in this world that we live in, we have a lot of what I call point issues, which are these regulatory agencies and, as a consequence, I need to just mention on this that we are registered ACC firm. As a professional asset manager, I’m required to let everybody know that nothing that I say on this podcast or anything else should be construed as investment advice. And you are all big boys, and so you can put on your big boy pants and figure things out for yourselves. Okay. So with that all said and done–
LADISLAS MAURICE: Same like me, when, back in February, I was buying Russian stocks. Obviously, that was not investment advice.
The biggest mistakes investors make
CHRIS: Which we did, too. So, going into the Russian sanctions, we had a 10% exposure to Russian equities. Anyway, we can talk about that as a separate issue. But to answer your question, my thoughts on this are quite simple. If you go back to the 1960s, the average hold time for an equity was 14 years. The average hold time for an equity now is under three months. And that’s not just happened, it’s been a continuous, somewhat nonlinear but, over that progressive time, a fairly linear process. And what we’ve gotten ourselves into is a situation where we have much more speculation than you have as you have investment. There is no ability, typically, for a company’s fortunes to change within a three months’ timeframe. So something that you buy today, the idea that it’s completely totally different in three months’ time, and hence you would sell it, is just myopically stupid.
And so I think what, actually, the greatest risk that we have is the lack of patience, or lack of discipline. We certainly, in the western world, have an incredibly undisciplined society. And so it’s not a surprise to me to see that investment strategies are reflective of society. If you go back, and I’ve said this a lot to clients both in our subscription service as well as in the asset management business, I did a study on myself back in the previous bull market in commodities, which ran through to sort of 2012, 2013 for roughly a decade. It was a very profitable time, but here’s what was interesting. During that whole process, I bought, and I sold, and I bought, and I sold, and I, like, you know, bobbed and weaved all my way through that.
And I got to the end, and I went back and I looked at every single trade that I had made. And I then looked at what would have been the situation if I just bought when I’d identified this was what it was, the beginnings of a cyclical, very obvious bull market, what would have been the situation if I just bought and then pissed off to the beach, and done nothing. And I would have made 22%, I don’t know whether it was 22% or 23% more than I did. And I did very well. And the reason behind that is that you–
LADISLAS MAURICE: With a lot less stress.
CHRIS: I literally could have done nothing. So, a big part of our methodology that we utilize now is measure twice, cut once, and also have that ability to be disciplined and to understand that short-term price movements in any sector, in any company, in any market are, typically, just noise, and have that ability to, you’re going to look at them and go, okay, has something changed? I woke up this morning, I was just on with Brad, top trader. And we’re sitting there, we’re going, okay, some of these shipping stocks got smashed overnight. What the hell’s going on? And so has anything fundamentally changed? Has there suddenly been an ability to bring on additional supply in the shipping market that we didn’t know about? No.
So you kind of go through all the fundamentals as to the reasons why you bought something, which is why it’s important to understand why you bought something. If you don’t know why you bought it, you’re not going to– how do you possibly know how you’re going to sell it, or why you should sell it? You’ll end up simply becoming a victim to volatility and a victim to narratives that happen to– you’ve seen this on headline, you go, “Oh, shit. That’s it. I’m going to sell, I’m going to buy,” or, you’re just–
LADISLAS MAURICE: Especially in an increasingly volatile world and in a world increasingly driven by narratives, it’s even more dangerous to be playing this game.
CHRIS: 100%. And the alpha sits in the difference between narrative and reality. And you need to be very, very focused on what the reality is, while being cognizant that you’re not always going to have the right answers. So there’s nothing wrong with continuously second-checking to see whether reality fits the existing narrative or perception. And where it doesn’t is where your opportunity lies. But you’ve got to have that ability to ride that storm. So where there is inevitable volatility, and you can have all sorts of narrative shifts coming in, you’ve got to be able to sit there and go, Okay, has anything changed? There’s a number of ways that one can do that. We always suggest, big part of that is position sizing, so that you mentally have the ability to just go, “I’m cool.”
And I say position sizing, because if you’ve got, say, a 20%, 30% weighting in a particular, say, sector, or company, or whatever it is, something, okay. And that 20%, 30% is under huge volatility, like, you’re naturally going to wake up at two o’clock in the morning and go, “Fuck. What’s happening?” You’re going to be much more susceptible to your own psychology. So how do you mitigate that? Well, you just don’t have a position size that is that large. And I don’t know what that answer is. It depends on everybody. I have friends that have got balls of steel and the ability to take big position sizing and weather volatility like that, and others don’t. That is, I think, probably both the greatest opportunity that exists today. People are literally driven by fuckin’ TikTok memes, and threads on Twitter, and whatever, or what the Fed’s minutes have just come out. Like, honestly, 90% of the time, that stuff is just noise. So that’s what I think the biggest threat is.
And then people do very stupid things, because they haven’t understood why they bought something. And so they don’t really understand why they sell it, and they’re driven by emotion, and then they just flog it at the worst possible times, or they buy at the worst possible times. And they’re emotionally-driven creatures, herded around by narrative pushers. And that’s an incredibly weak position to be in. Your ability to make money in a market that is increasingly volatile is significantly diminished. The last 40 odd years, we’ve had a fairly long bull market as a consequence of, and we were going to come to this in a minute, bonds, falling yields, and rising bond prices, which is allowed for a booming stock real estate market. And that’s come to an end.
And so we’re now in a transition phase. And those transition phases bring incredible volatility, and people not really knowing whether it’s going to go up, or down, or what. It’s very, very important to understand what you’re buying, why you bought it, what’s your timeframe. If you’re a trader and you’re ducking and diving, cool. It’s not my gig. Go and talk to someone else. But if you’re trying to maintain wealth, and build it throughout a period of chaos, which is, I think, the next 5, 10 years, then it’s very, very important you understand what you’ve bought, why you bought it, what the dynamics of that particular sector happen to be, so that you can keep an eye on it, because you might get things wrong, and then that’s fine. And you go, “Fine, I messed up. This is why.” And then you can adjust your portfolio accordingly.
But most of the time, if you’re paying attention, you’re probably not going to be doing that much. You’re not going to be selling and buying all that much if you do it right. So I think that’s probably the biggest risk, and often, people feel the need to be doing something. And when they go about doing something, they think about taking an action. And my response, always, to that is, when you want to do something, you’re doing something should be sitting down and reading, and reassessing, and analyzing logically. And in many instances, you’ll come away and go, “Huh, okay. I’m cool. There’s nothing to do.” Sit back–
LADISLAS MAURICE: Doing nothing is a decision, just like having cash is a position. And to your point, people need to make the decision as to whether they are investors, or whether they are traders, because a successful trader is often not necessarily a successful investor and vice versa. They’re very different personality traits to be successful in the two. Personally, I know I’m a terrible trader. Whenever I try to play the markets for one or two days, it never worked in my favor. I prefer the longer term horizon, that works out very well for me. But I have friends of mine, they are very good day traders. And I see the skill set that they have, and the way they manage their emotions and all of that. I don’t have it. So I just stay clear of it and focus on my core strengths. So I think this is very good advice. Though it’s not advice, as per your disclaimer, but it’s very good insight that you just shared here.
A Review of why Capitalist Exploits Newsletter is not into bonds for now
So can we move on to bonds, because I see, within some of my own family, boomers, I look at their portfolios, and they are very heavy bonds, very, very heavy sovereign bonds, European bonds, American bonds. Personally, I find that a little worrying. So again, we’re not talking here about a trade over a few months. Bonds might do fantastic over the next year, next few months, like I don’t know, I’m not here to discuss this. But long term, personally, for my retirement, or anyone’s retirement, I would be very worried about having too many bonds. And what are your thoughts on the matter?
CHRIS: Think of what a bond is. A bond is a promise. Okay, so it’s a promise to pay a set amount of money over a period of time with a coupon. And in an environment where– and forgetting about the price of bonds, just think conceptually about what that is. It’s a promise. And we’re, clearly, in a world where we’re moving very rapidly towards a loss of faith in multiple things. Just over the course of the last three years, consider whether people have a greater faith in these things, medical industry, legal industry, border control. And at the top of it, which is part and parcel of the same thing, governments. It’s very difficult to make the case that people have a greater level of respect and trust in any of those institutions. Education is another one. Right?
So this is part of an entire cyclical process. You have multiple cycles within markets. Most people are fairly familiar with the business cycle, which is your sort of 7 to 10-year timeframe. Okay? Then you have a bond, or you have a credit cycle at roughly 30 years. And ultimately, we have a long-term debt cycle, which runs 80 to 100 years. And you can go back and you can look at just tons of history, and you can see these cycles just keep repeating. Just like the business cycle, it’s the one that people are familiar with. Why? Because it keeps repeating, and you keep seeing it. And people have often made tons of money just trading the business cycle.
So part of that whole process has been one whereby for the last roughly 100 years, we’ve had an increasingly globalized world, right? There’s been more and more participants coming into one economic system that’s been financed by the hegemon, which is the United States. And the capital that keeps flowing back into the US. So you bring in more countries, more participants into an economic system. China got brought in, India, most of Southeast Asia, a lot of these countries got brought into the system when they produced more and more goods. So that was deflationary. Right? You just think about this pen, this phone, all this sort of shit that we– these goods and services have been produced at lower costs, so it’s very deflationary. And it’s all been financed by the hegemon.
That entire system is now, you could argue whether it’s breaking apart or whether it’s being systematically broken apart, it doesn’t really matter, the point is that it’s changed substantially. We’re now into a situation where we are rapidly de-globalizing. Supply chains have been shut down, entire alliances, economic alliances, are being restructured and rebuilt. And we’re seeing that with the BRICS, we’re seeing that with the dissolution of relationships between Russia and Europe, with the dissolution of relationships between China and the West, and multiple other things. So basically, this globalization, which fostered and worked in tandem with an expansionary credit system, is all come to a grinding halt right at a timeframe where we’re bang on, 80 to 100-year timeframe.
So that’s basic structure of that large economic system of government, the Western government, which is financed, trade and everything else, with expanding their debt levels. And then you go, Okay, well, how’s that priced? Well, the price of bonds have just skyrocketed for the last 40, 50 years. And the cost of capital has fallen and fallen and fallen, which has allowed for more margin expansion in equities. So you can borrow less, borrow money at a cheaper rate, you can go and like buy real estate, you can buy stocks, you can buy whatever it is. And so that’s now flipping. That’s very important, because it’s not something that happens in a– it’s not a six-month type thing, it’s not a 12-month type thing. This is something that traditionally takes like a decade to completely wash out. And we move back into a situation– and there’s a number of factors that are contributing to why this is now taking place. A big part is inflation.
Nobody wants to, in an inflation environment, you won’t be holding a piece of paper that is going to be worth less tomorrow than it is today. That doesn’t make sense. And so you demand a higher rate of return in order to compensate you for holding that paper based on inflationary risk. And so that’s now punching through at a rapid pace. A big part of that equation is, as a consequence of energy, cost of energy, which we’re very bullish on, have been bullish on for three years now. And energy is the foundational, fundamental underlying commodity to literally everything. You can’t produce food–
LADISLAS MAURICE: Energy is life.
CHRIS: Energy is life. And so it’s you can’t have increasing energy prices and, at the same time, deflationary costs of the products that come out as a consequence of that, whether it be food, transportation, whatever. So that’s an important kind of broad context to think of with respect to bonds. We’ve been extraordinarily bearish on bonds for three-plus years. We remain bearish on bonds. We will, at some point, probably start levering out of our existing positions and buying something like bonds. But I don’t think that it’s going to– It’s years away, years away. And it’ll be at a point where we’ve had multiple bankruptcies in the Western world, we’ve probably had regime changes, governments have changed hands. Like there’ll have been extraordinary economic and political pain to the point where we’re on a more sound basis.
It makes absolutely no sense in the world to me why anybody would lend governments money at this point in time when their tax revenues are collapsing, because they’re all attacking the sun, or, you know, climate change, or some nonsense in order to bring about various measures which, themselves, destroy– well, they destroy business and, ultimately, as a consequence, they destroy their tax base. So you’ve got their tax revenues are falling at the same time that the inflation is punching through, causing them to be required to pay a higher coupon, which they won’t be able to do. So they’re just going to keep raising taxes, which then constricts businesses more, and brings in even less tax revenue. So the entire thing is in the process of imploding now. The idea of holding those promised pieces of paper, to me, is just a shockingly bad idea.
LADISLAS MAURICE: So bonds, good for traders, not for investors.
CHRIS: Sure. I mean, look, we’re going to have counter rallies all the way through this. As I wake up this morning, bonds are bid. It’s fine. But it’s noise. Again, understand what you’ve bought, or sold, and why, and be patient with those things playing out.
A review of why Capitalist Exploits Newsletter likes Energy for now
LADISLAS MAURICE: Yeah. And to your point about inflation, the West decoupling away from the East from a manufacturing point of view, etc., is extremely inflationary. China was essentially exporting deflation to the rest of the world. And now Western companies are moving production back home or to other countries, they’re a lot less efficient. So that’s extremely inflationary. People just don’t talk about this enough. Great. So negative bond. So what are your preferred sectors for now? So you mentioned energy.
LADISLAS MAURICE: Any other ones?
CHRIS: So we’ve been long energy– Okay. It kind of begins with energy, because energy, as you very correctly mentioned, is life. And the energy spectrum is broad. So you’ve got coal, you’ve got natural gas, you have oil, you have uranium, you can put in wind and solar, but wind and solar are important in that you need to understand what it takes to bring that wind and solar, right? People go, “Are you investing in renewable energy?” I go, “Yeah, I am.” And they go, if they looked at my portfolio, be like, “Where?” I’m like, “Over here, we have copper.” Right?
LADISLAS MAURICE: [laughs]
CHRIS: And they’re like, “No, no. Where’s Tesla? Where’s some renewable companies?” Like those are all bullshit. Well, I’m not making a broad statement, but essentially, the asymmetry within “renewables”, which are neither renewable and nor are they going to solve the problems that they are purported to solve. But nevertheless, there’ll still be money thrown at them. The dynamic there is that there’s insufficient supply of the underlying commodities that are required to bring these things into fruition, and that’s where the greatest asymmetry lies. It doesn’t lie in investing in a particular marketing, essentially marketing company that goes out and builds wind farms or something like that. So that’s the greatest asymmetry within the renewable space. But all of those encompass the energy space.
LADISLAS MAURICE: And it’s so visible, because the same people that are constantly promoting green energy are the very same people that are constantly attacking mining. So how you build solar panels, and wind turbines, and all that without minerals, without building mines just doesn’t make sense at all. It’s just, right there, it’s mathematical.
CHRIS: You know, a wind turbine takes steel and tons of concrete, neither of which can be made without fossil fuels. Steel cannot be made without coking coal. So like that beautiful, wonderful windmill that you think is so wonderful, that just chops birds up, you need coal to make it, literally. And then when the wind doesn’t blow, it doesn’t bloody work, and then you have to turn on your diesel generator. So I mean, the answer is nuclear, but that’s another question. So in that space, we’re very bullish on energy across the spectrum. And there’s many, many sub sectors within that, too, which are really, really interesting and super sexy. I mean, you can go down into the offshore drillers, you could take it all the way into like things like seismic ocean mapping companies, right. And these things can absolutely print money in a bull market in the energy space when there is an insufficient supply of oil and gas, and they have to go out there and try and find some more in deep, deep water and things of that nature. So there’s entire sub sectors within the energy space.
But then, you’ve got things like shipping, we just discussed very briefly before. If you look at, take Europe, okay, so you’re originally from Europe. And they basically decided they’re going to shut off the energy supply from Russia, bombed the pipelines, the Nord Stream pipelines. How are you going to get energy in? Well, you need to now bring it in with ships. And it’s going to be, you’re going to bring in LPG, or oil, or coal, or all three. And all of those have to come in on ships. And they weren’t previously coming in on ships. And if you go and you look at the shipping sector, this is a sector that’s been very, very, it’s been decimated from the highs back in the 2000s. There is insufficient shipping capacity, especially in tanker ships. The ability to finance these things is very difficult because spineless, woke Western institutions, financial institutions, don’t want to finance these companies. So the cost of capital is very high.
If you and I wanted to go out there and bring some tanker ships on, these are 100-million-dollar plus ships. So it’s not like we’re going to go and equity-finance it, it’s always debt-financed. The ability to get that capital is very constrained. Secondly, a lot of the shipyards shut down in the mid to late 2000s. So the actual, even if we could get the capital, the ability to actually go and build these things, again, is constrained. And now we have this demand where we need to transport energy into Europe, because the pipelines that were built, that were transporting the energy, don’t exist anymore. So–
LADISLAS MAURICE: If I may, I feel like a lot of people don’t fully appreciate how bearish Europe, this whole situation is. So not only because– there’s a reason Europe used Russian energy, because it was plentiful and cheap. And now Europeans are having to import energy from the Middle East, from the US, which is a lot more expensive. Right now Europe is–
CHRIS: Four times more expensive.
LADISLAS MAURICE: And right now, Europe is pretty lucky because it’s warm this winter. But the reality is the whole cost structure of everything produced in Europe is going up massively. And as long as the situation does not get resolved, it’ll remain that way. And at the same time, and this people don’t discuss, the other parts of the world, China, India, Southeast Asia, etc., they’re buying the same Russian oil and gas that Europe was supposed to get at a discount. So not only are Europeans becoming a lot more expensive, they’re doing so at the same time as East Asians, and South Asians, and Southeast Asians are becoming a lot more competitive because they’re getting big discounts on their energy imports. So, structurally, this is, I’m not going to say fatal, but if Europeans don’t resolve this, they’re going to have a major, major problem.
CHRIS: They’re not. There’s absolutely no measures being taken right now that are actually addressing this problem. None. And so, you’re right, it’s 100-meter race and Europe has got a brick tied to its ankle, while the East has just been given steroids. I mean, that’s basically the situation. You’re right. I mean, it’s a deindustrialization of Europe. And this comes into things like currencies, because Germany’s being deindustrialized at speed. BASF, one of the largest companies, is moving their operations to China. You can’t make this shit up. And so a deindustrialized Germany means the Euro’s toast. That’s the reality.
So, again, there’s opportunities that lie within this space. And it’s both sectors, and it’s also it’s important to understand the geographies and the various new alliances that have are being built around new trade routes. Because they shut down all these trade routes, they shut down the entire supply chains, and those are being reconfigured as we speak. And that’s important to understand. And for many Westerners, they have no idea because the mainstream media, propaganda I would call it, not only doesn’t mention it, but where there is maybe some mention that comes along with it, it’s always chastised and ridiculed, or put forward in a fashion which is maybe nationalistic or something of that description, and basically it puts people off. And it’s dangerous.
And, unfortunately, this is just part of what is transpiring, but individuals don’t need to be that myopic and they don’t need to be beholden to media lies. You just go and look at actually what’s taking place and why are people doing what they’re doing? Why are countries building alliances? Why are they doing what they’re doing? Understand those capital flows, and then invest accordingly.
On the importance of reading various sources of information
LADISLAS MAURICE: Right. I think you bring a very valid point in terms of sources of information. So I subscribe to your newsletter, and I have for two years. I really enjoy it. Do I agree with everything? No. But it brings me a completely different perspective. And, at the same time, I read a lot of mainstream media. So I’ve been reading The Economist, since the age of 15, from cover till the end. Do I agree with what they write? A lot of it, no. But it helps me to understand the mainstream narrative, really, to understand it deeply. And looking at the two sides, it helps me look at these arbitrage opportunities between, like you were saying earlier, what we are being told and what the reality is. Because, often, that’s where money is made, it’s in the tension between narrative and reality. And if you read only one side of the story, you’re not going to quite get it.
So even people that just spend their time reading contrarian newspapers and newsletters, etc., they fall into a rabbit hole, and they don’t quite realize what’s quite happening out there in the real world, what people actually think, and then they miss out on opportunities, or just go too deep somewhere. So it’s very important to read both. And your newsletter is very good at finding that, the tension between the two.
CHRIS: Yeah. No, you’ve got to read all sides of the argument. And in my job and what I get a kick out of is looking at– like numbers don’t lie, right? Capital flows don’t lie. So you can look at the narrative from a particular source that can be very leaning one particular way and another source that’s very much leaning in a different way, and then you can look at the underlying, what’s actually transpiring at the ground level, whether it would be companies doing things, or capital flows, whatever it is, and the difference in those narratives allows you to understand– And it’s not about being right, or who’s right or who’s wrong. It’s just like this is what it is, and so as an asset manager, we have to trade reality. We don’t want to get caught in an information vacuum, where you’re wanting things to be a certain way, and then you’re investing accordingly. That’s dangerous.
LADISLAS MAURICE: It’s very important for people to read people, or newspapers, or sources of information that they disagree with. It’s very, very important. It’s crucial to have a balanced view of the world and notice the tensions. Fantastic. Chris, I’m not going to take too much of your time, so thank you very much for your time today. So everyone, if you’re interested in finding out more about Capitalist Exploits newsletter, there is a link below. So Chris, thank you and have a lovely day.
CHRIS: Thank you very much. It’s been a pleasure. Take care.