Au Naturel

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We’ve written before about our positions in natural resource sector companies. They were key to both our pain in 2015 and our pleasure in 2016.

Noted investor Jeremy Grantham of Grantham, Mayo & van Otterloo (GMO) recently published additional insights on this topic in a white paper. Three of his nine key points are worthy of special mention:

1. “Resource equities have not only protected against inflation historically, but have actually significantly increased purchasing power in most inflationary periods.” Regular readers know we believe that prospects for increasing inflation are under-appreciated in today’s markets. Although we have no guarantees that we are correct in this view, and past performance is no guarantee of future results, we may be very well-positioned for a rise in inflation.

2. “We believe the prices of many commodities will rise in the decades to come due to growing demand and the finite supply of cheap resources.” Low prices have curtailed future supplies; we know how this works.

3. “Despite all of this, investors generally don’t have much exposure to resource equities.” As eclectic contrarians, we are used to marching to a different drummer. This is certainly the case in 2016 with regard to our exposures in this sector. The unstated premise is that when the crowd decides to gain exposure, a lot of money may shift into the sector. Again, no guarantees.

We are watching economic, business and market trends closely to see how this all comes out. We enjoyed the analysis by Jeremy Grantham, even as we guard against the fallacy of believing he is a genius because he agrees with us. As always, please call or email if you would like to discuss your position.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.