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Pile's Picks for a Marathon, not a Sprint
03/24/2014 10:00 am EST
Nate Pile has earned the Number Two performance record over the past ten years; the editor of Nate's Notes highlights his strategy, a favorite long-term tech play and a trio of commodity-based ETFs.
Steve Halpern: We're here today with Nate Pile, editor of Nate's Notes. How are you doing, today?
Nate Pile: Fine, thanks.
Steve Halpern: Now, first off I want to congratulate you. According to the Hulbert Financial Digest, your Nate's Notes Newsletter is now ranked as the second-best performing newsletter in the country for both, the one-year returns, and for the ten-year returns. Great work on your part.
Nate Pile: Thanks.
Steve Halpern: In describing your investment strategy that you've used to achieve these significant records, you note that you view investing as a marathon, not a sprint. Could you expand on that and explain how that works in your overall portfolio strategy?
Nate Pile: Well, I got into the stock market about 25, 26 years ago and I've been publishing my newsletter for 19, and though, in the early days, I was excited about finding trading systems, and what not, and moving in and out of stocks.
As time went by, I noticed that the real returns for both me and other people I was watching came from finding great companies, buying them, and essentially holding them forever. I've always focused the newsletter on that approach and become even more ingrained in that philosophy as time has gone by.
The newsletter is published once a month and I intentionally only make trades once a month, so, essentially, we rebalance our portfolio once a year. We do that to avoid a lot of the volatility that's in the market.
We're constantly averaging in or averaging out, never doing everything all at once. It keeps people focused on the long-term so they don't have to worry about every little zig and zag that we see in the markets.
Steve Halpern: A really good example of your long-term approach is how you built positions in Apple (AAPL), not just focusing on the stock over the course of weeks or months, but having followed the company and built positions over many years. Could you share your thoughts on the company?
Nate Pile: The newsletter has had it in the portfolio since, I think it was March, or June of '98, sometime in mid-'98 we got into it. Obviously, it's a very different company now then it was back then.
My current thoughts on it, though, are that there's an awful lot of skepticism. Everyone has sort of been in shock since Steve died, and there's no way the company is ever going to continue innovating. I think there's actually a chance that they do have some rabbits to pull out of their hat in the coming year.
Of course, Tim Cook might be bluffing, but, I think at this point, there's a lot of skepticism built into the stock. You've got a cheap stock on a valuation basis and when I look at it at these prices, if they struggle to innovate you're probably looking at maybe losing $100 to $150 per share, we could go back down to $400 maybe.
But on the flip side, if there is something there, and they do have another trick for us, or maybe two tricks, we'll see, I think you could make $400 or $500, so you've got three to one upside versus downside.
I'd say that chance was 50/50, but given the company's track record and the fact that Johnny Ives is there, Tim Cook is a smart guy and a lot of the people working on products under Steve are still there working on it and want to prove—hey, we had a hand in this too—I think the odds are actually more like 75/25 that its going to work out in our favor. So you put those numbers together and I think it's a buy and not a sell at these prices.
Steve Halpern: I noticed in your newsletter you are recommending three commodity-based ETFs. The first is Power Shares DB Agriculture (DBA). What's the attraction with that position?
Nate Pile: In the old days, commodities weren't something that an individual investor could really—it's not a playground they could play in. You had to have a commodities account and what not. However, with the advent of ETFs, those are now available to investors, for better or worse.
Generally speaking, several years ago, when the whole financial crisis hit and the central banks around the world started printing money, I decided that commodities, at some point, were probably going to see a big round of inflation.|pagebreak|
It hasn't quite played out like that yet, but if we're in the DBA—the agriculture ETF—for two reasons, both for a general play on commodity prices, and also as the global economy picks up in some of these countries that used to be third-world start to move up and have something more like what we would consider a middle-class.
They are going to be able to, not only expect—but pay for—more food, so there's going to be more demand for food, in general, for that rising middle class, along with just the fact there's more and more people on the planet every day. We're in the agricultural commodities for those two reasons.
Steve Halpern: In addition to DBA, which focuses specifically on the agriculture sector, you are also recommending Power Shares DB Commodities (DBC), which is a broader fund. Could you tell us your thinking here?
Nate Pile: Sort of the same theme, that DBC has the same four commodities in it as DBA—corn, wheat, soybeans, and sugar, but it's also got a lot of the oil, gas, natural gas, some other industrial metals. I think there's silver, zinc, and aluminum in it, maybe, so it's partly a play on an expanding global economy.
But really, more that that, we're in for the simple reason that, with all the money printing that's been going on, at some point, I don't see how there cannot be inflation, and so, it's a way for our subscribers to be in it and sort of hedge our positions in the newsletter, which, generally speaking, focuses on long-term stock investing.
I think, since that tool is available, we've added it to our portfolio so we have a portion of our money in the commodities as a way to hedge our bet a little bit.
Steve Halpern: I assume the same logic applies to your final ETF position, which is the SPDR Gold Trust (GLD).
Nate Pile: Absolutely. That one is clearly, pretty much, a pure play on the idea that with all this money printing, there is going to be some inflation.
In addition, there's plenty of geopolitical hotspots around the world and if any of those flare-up or if some of the markets that have been on fire start to cool-off, they'll be a natural tendency for investors to look for safety.
On the one hand, I kind of agree with Warren Buffett when he talks about gold being a non-performing asset, and, in many ways, you are counting on a greater fool theory that someone down the road is going to be pay more for something you own today that really has no intrinsic value.
In the case of gold, however, I think it really is sort of a global currency and we have to look at it as that. What I've been telling my subscribers is that buying gold anytime between 2013 and 2016 is going to look really smart in 2022.
I can't tell you exactly when we're going to break out to new highs, but it looks like we may have bottomed. Skepticism is really high, with everyone pretty much calling for the price of gold to either fall or, at least, be dead money for several years, but back to the idea that investing is really a marathon not a sprint.
I'm having my subscribers, we nibble at it every couple of months, we'll add a few more shares of the gold trust and so, over time, we're establishing a nice position that I think will pay off for us five or six years down the road.
Steve Halpern: We really appreciate your insights. Thank you for joining us today.
Nate Pile: Thanks for having me.
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