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Are you worried about inflation? There are few better ways to beat inflation than real estate, but even real estate isn’t all sunshine and rainbows. Learn about the red flags from PassiveInvesting.com.

DIVE DEEPER: IS THE ENERGY AND FOOD CRISIS ALMOST OVER?

Last week, we poured over some research from Goldman Sachs on the matter, so today, we want to discuss the ongoing global crises for energy and food supplies, driven in part by disruptions from the Russian invasion of Ukraine.

Breakdown

Following the war’s first few days, commodity prices globally surged in response to the unprecedented uncertainty stemming from sanctions against one of the largest commodity-producing countries in the world.

As you may know, Europe is hugely dependent on Russian oil and gas, making them particularly vulnerable to rising energy costs amidst their efforts to pressure and sanction Russia.

Because Russia and Ukraine are also among the largest potash producers in the world, which is a necessary ingredient for the fertilizers used in cultivating much of the world’s food supplies, there have been genuine concerns about a dire global food crisis.

And this has been made worse by a perfect storm of poor growing seasons and poor weather conditions in other important areas.

As energy and commodity prices have dramatically cooled in the past few weeks, many investors have rightly questioned whether this means we’ve avoided the worst of these crises.

Supercycle

Goldman Sachs’ head of Commodities, Jeff Currie, has a stern warning for the optimists among us, saying, “In October 2020, we started arguing that we were entering a commodity supercycle similar to what we saw in the 1970s and in the 2000s driven by structural underinvestment.”

Currie has attributed this underinvestment, in part, to the boom-bust nature of these commodity-producer businesses, where large capital investments are made during the boom phase in response to rapid economic growth, which creates a supply glut that crashes prices and spooks investors out of the space for years.

Another factor that he believes will make this cycle particularly painful has been the ESG movement, which has constrained capital inflows into key, yet carbon-heavy industries over the past few years.

Oil companies, metals miners, and others in these spaces have seen the environmental writing on the wall, and broadly not re-invested in new projects.

But this comes at the expense of our intermediate-term production capacity, just at an inflection point in the cycle, as alternative energy sources cannot close the gap in energy supply needs.

Pushing back

Not everyone agrees with Currie’s supercycle view though, which states that prices will be structurally higher for commodities and energy over much of the next decade.

Economist Gary Shilling says, “If you look at commodities, (using the CRB index as a proxy) it has, corrected for inflation, declined 83% since the mid-1800s…so I think human ingenuity beats shortages any days.”

In other words, Gary believes commodities are historically a poor investment over time.

This is largely because we have continuously devised new technologies to more effectively produce commodities or to simply bypass the need for resources in tight supply.

Others say that we’re experiencing the culmination of both a climate and geopolitical crisis, on top of the lagging effects from a pandemic. It’s a tough spot to be in.

This means that even if the war in Ukraine ended tomorrow, said one expert in the report, we would still face existential issues surrounding food production and our energy transition away from fossil fuels.

Takeaway

The reality is that we are still deeply reliant on fossil fuels, and as the global population swells alongside a burgeoning middle-class in developing countries hoping to consume more, our ability to meet this demand has been called into question in a story that will play out over decades.

And as we remake the global energy system, the transition is sure to not be smooth.

Harvard Professor Meghan O’Sullivan had this to say, “the emerging new energy order will have significant geopolitical implications…the historically close connection between energy and geopolitics is in for a new—and tumultuous—chapter.”

This is not a chapter we’re excited about.

While we’re leaning towards team supercycle, and we don’t expect the current cool down in energy and commodity prices to be lasting, this could change if we hit a harsh recession.

Regardless though, such a decline in demand would only be a temporary pause in facing huge global challenges.

For more on this topic, check out Trey Lockerbie’s recent interview with oil expert Josh Young.

HOW TO USE 13F FILINGS TO MIMIC GREAT INVESTORS

By most estimates, approximately 630,000 companies are now traded publicly worldwide. No individual investor has the time or resources to evaluate such a huge number of potential investments.

One solution is to use the Security and Exchange Commission’s EDGAR database and retrieve the latest 13F filings from the world’s biggest investors.

Using the 13F, you can have a peak into the world’s top investors’ portfolios and know what they are buying and at what price, and when they have exited a position.

What’s a 13F filing?

SEC Form 13F is a quarterly report that is required to be filed by institutional investment managers with at least $100 million in equity assets under management. The report discloses only their U.S. holdings and can provide insights into what the “smart money” is doing.

The report must be filed 45 days after the quarter ends and is just a snapshot of their holdings, but it gives an accurate view of what the top fund managers are buying and selling in the U.S. Short and cash positions are not required to be disclosed though.

So what?

These superinvestors spend millions of dollars on research and are armed with analysts who spend their days analyzing companies.

Using the 13F filings, you can let them do the hard work for you and narrow your potential investment opportunities to a more manageable number. Even greats like Seth Klarman, David Tepper, and Daniel Loeb scrutinize 13F filings.

One of our friends at TIP is Mohnish Pabrai, who also recommends studying the reports and using them to be a shameless cloner.

He has even created his Free Lunch Portfolio, a “set it and forget it portfolio” of 15 great compounding companies. Five of these businesses are shamelessly cloned using the 13F filings, and the 2021 portfolio was up 25% versus 28% for the S&P 500.

Criticisms

One risk for both professional and retail investors is the tendency to borrow investment ideas from others. This can lead to herd behavior resulting in crowded trades and overvalued stocks.

Another frequent criticism is that fund managers are only required to file the report 45 days after the end of the quarter.

Most managers report as late as possible, because they don’t want to tip off rivals about what they are doing. By the time retail investors get their hands on the filings, they are looking at potentially stale information.

Takeaway

Although the above are valid criticisms, we feel studying the 13Fs is a great tool to utilize to narrow down the possibilities of potential investments and cut down your research time.

Fortunately, we aggregate 13F filing data into one place for you using our TIP Finance tool.

It’s free to sign up, and you can easily see the latest holdings of our favorite legend investors 💰