Historic Commodity Sell off

Brandon Snow's picture

While we have stayed away from the materials space and recently been more negative on oil, we did not expect the carnage in the commodity space we saw Monday. With our bottom-up approach, we tend to shy away from capital-intensive price-taking businesses and the market movements Monday put on display what can happen to a stock when the number one determining factor for its value is out of the company's control -- in this situation, the commodity price.

I have spoken to many people in the industry to get an idea why this is happening now, but there is no clear answer. What is clear is that it is difficult to value non-industrial commodities because they earn nothing. While we are taking advantage of the overall declines in the market to add to some names we have been waiting for (equipment, transportation, natural gas), we are not stepping into the gold/silver space.

This probably is some sort of near-term bottom and we will likely see a bounce from here (if we did own, we probably wouldn't be selling), but we would just be speculating on a trade if we put money to work. The toughest thing about investing like this is you have to be right twice in a row: on the buy and on the sell! We aren't that smart, so we will continue to focus on fundamentally driven stories in companies where we can get great comfort in the downside risk we assume.

Comments

Submitted by Gary Robertson on

I have heard from expert sources that we can expect to possibly test the 2008-09 lows for WTI later this year.

Brandon Snow's picture
Submitted by Brandon Snow on

We agree WTI has downside from here, but a prediction that it will hit the 2008 lows is very aggressive! Thanks for the comment.

Submitted by arpadCANADA on

Your call on oil's decline was certainly well timed. Would you be able to comment on your most recent cash positions in Cambridge Canadian Equity and Cambridge Canadian Growth Companies? I have your March 31 data, so I was wondering if you have more recent figures.

Brandon Snow's picture
Submitted by Brandon Snow on

Cash levels have increased since the end of March, but peaked in the first week of April at around 23-25% before declining, as a number of stocks hit our buy targets.

Thanks for the comment.

 

 

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