Embracing Volatility

I have written several times about expecting real roller coaster rides with some long term themes. This is very important to think about for the parts of your portfolio that you do think about as being five year ideas, assuming you think that way at all.

This is a year to date chart of the ICEX-15 ETF I own personally. For new readers, I wrote several pieces about investing in Iceland over the last year and half. For now access is very limited. One way in is to open an account at Kaupthing Bank, the largest bank in Iceland, and wire money into the account for investment.

The long term thesis, as I see it, is that Iceland will become much more important in the world economic order in the coming years. There has been and will be a lot of growth, some inflation, deficit issues and I think I saw first hand a very adaptable economy and society. This is my perception not an attempt to sway you to buy something. Given that this is what see I have a small investment account that I will add to in small amounts maybe once a year.

I labeled my entry point on the chart. It has been quite a ride so far. The worst of the news maybe behind the Icelandic market but the volatility could persist for a while still.

While this may require training on your part, if you have invested in something that you really think is a five year, or longer, theme it is very important to really embrace the fact that short term moves, up or down, are not what’s important. There is no guarantee I will be right about Iceland but there is no way I can be right or wrong in just eight months.

7 Comments

  1. I’m just curious about the thesis behind this: “Iceland will become much more important in the world economic order in the coming years.”

    Why? Outsourcing? Offshore banking? Kind of an Ireland like scenario? A Switzerland in the North Atlantic?

    Reply
  2. Roger,
    I have a simple question that has a very complicated answer. How do you develope a theme that is worth putting your money into? What got me thinking about this is the energy situation here in Indiana. IN has enough electric power right now. But just enough. We are operating at about 92% of total capacity today versus 70% in the 1980’s. We are using 1% (500MW) more electicity each year. We are sitting on a 400 year supply of coal even projecting out future growth. Vectren and Duke have joined up to build a power generating plant that will come on line in 8 years and will generate 600MW. Some of the additional power needs will be found in conservation, some in innovation with more efficient manufacturing, some in alternative energy sources and some in building ‘clean coal’ generating plants. This is a regional theme but not unique to Indiana. IMO all of us will have these types of choices to make. Soon. Utilities are kind of boring. Construction companies seem obvious, but who builds power plants? Power companies sell power across grids all the time but who makes money doing that? So help me find a theme here. I am more interested in how your process works than in specific stock recomendations. Tom in Indy

    Reply
  3. They produce geothermal heat. This is a very cheap energy source. They have already drawn in Alcan. Alcan has what seems like a mile long plant on the way in from the airport. There will be more manufucturing coming, IMO.

    The economy has adapted to current events very quickly. They could have stuck with fishing and stagnated but have not. The population is young, well educated and wants to work, my observations from visiting.

    The banking sector is bustling. The big banks have a lot of capital and are diversifying in Europe and creating a larger global footprint.

    The currency has a very high yield. while this has its pluses and minuses the yield has and will create investment demand.

    The landscape is littered with cranes, meaning there is building and investment happening. GDP growth has been very high, but likely to slow in 2007.

    I perceive a sense of caretaking on the part of the politcal and economic leaders that is different than what we are used that i think comes from their sense of culture and how small the country is.

    These are just my opinions, there is plenty out there to read and as I cautioned from the beginning of exploring this idea a year and a half ago….there will be big bumps along the way.

    Reply
  4. i’ll answer the theme building question in a subsequent post

    Reply
  5. BMET is going to be bought out at $44? sure looks like it.

    Roger, buy that instead of those crappy Iceland stocks.

    Reply
  6. i take the stock tout as 100% spam.

    fair enough though if Iceland is crappy.

    Reply
  7. Roger when I think of your theme application, this is what comes to mind as a supra template:
    Go where the money is rising= go where the middle class is risng= where more professionals are working. Change is the key and I think this will work in developed and less developed countries. Ireland is a classic. Very poor company that decided to invest in tech support industry produced great results. What do you think? If this resonates with you, where would go to get the metrics on employment?

    Reply

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