Weekend Reading – Is technology and oil the New Barbell Strategy?

Weekend Reading – Is technology and oil the New Barbell Strategy?

Well Hello!

Welcome to a new Weekend Reading edition: wondering if investing in technology and oil is the new barbell investing strategy?

More on that in a bit…

I hope 2024 is off to a good investing start for you. So far, so good here. BlackRock (BLK) just increased their dividend by 2% (my first raise of the year) and I expect more growth over time as well as from this booming infrastructure giant.  

Then and Now – BlackRock

That said, like any indexing fan, BLK only makes up a small portion of our portfolio and is naturally included in any low-cost S&P 500 index fund anyhow. Beyond some individual stocks, I/we own some low-cost ETFs for extra equity diversification. I’ll share more on that in a future post including 2024 investing plans and transactions…

Even just recently, I highlighted how our hybrid investing approach has been a path to financial independence here – in this recent monthly dividend income update.

December 2023 Dividend Income Update

Beyond any individual stock, I shared the great returns you could earn by firing your money manager and owning a simple low-cost ETF instead in your portfolio – avoiding some individual stock risk that I take on.

Returns for a few all-in-one equity products were in the double-digits last year!

ETF20232022
VEQT (100% equity)16.95%-10.92%
XEQT (100% equity)17.05%-10.93%
ZEQT (100% equity)16.75%-5.25%
HEQT (100% equity22.64%-19.20%
XAW (100% equity ex-Canada)18.16%-11.77%

Is technology and oil the New Barbell Strategy?

I think it could be.

Weekend Reading - Is technology and oil the New Barbell Strategy

Image thanks to Leon Ardho.

Historically, the Barbell Strategy includes the following:

  • Keeping your investments in a mix of high-risk and low-risk assets – basically opposite ends of the investing risk-spectrum.
  • As it relates to fixed income investing, this approach uses some short-term bonds and some long-bonds, that are impacted differently related to interest rates.

This strategy enabled Nassim Nicholas Taleb, a statistician, writer, and derivatives trader himself at the time, to succeed through the economic slump between 2007 and 2008, while many of his colleagues Wall Streeters struggled.

The fundamental idea behind the barbell strategy was articulated by Taleb as follows:

“If you understand that you are susceptible to forecast errors and are willing to acknowledge that the majority of measures are imperfect, then your tactic is to be as hyper-conservative and hyper-aggressive as you possibly can, rather than being mildly confrontational or conservative.” – Nassim Nicholas Taleb. The Black Swan: Second Edition.

As DIY investors well know, you need to develop your investment portfolio shaped by your goals, first and foremost, then around your tolerance for risk. Successful investors tend to only take on enough risk to meet and maintain their goals anyhow. 

This means a conservative investor would choose to invest in low-risk assets that are unlikely to lose too much money but on the upside, they may be giving up larger investment returns over time by avoiding equities. A more aggressive investor would tend to choose to own more equity assets, those have the potential at least to deliver higher returns. The barbell concept helps investors by investing at both risk-based ends: high-risk and lower-risk. All investing decisions have some risk!

The rise and growth of the Magnificent 7 U.S. tech stocks and the defensive position that is oil (and gas) stocks got me thinking this week that the sum of tech + oil could be the New Barbell Strategy for equity-focused investors.

As an example, and a very good one, I look no further than this portfolio and what the greatest investor of our time is doing – he owns tech (lots of it in just one concentrated stock mind you!) and he is growing his position in oil stocks (specifically OXY) even though he has recently sold some CVX.
 
Technology and Oil - New Barbell Strategy
 
With thanks to Dataroma: https://www.dataroma.com/
 
Again, I’m a fan of moaty-stocks for sure but I certainly could never put 50% of our portfolio into one company and accept that selection risk. Buffett knows things we ordinary people don’t. But I do believe there could be an important theme here moving ahead: the rewards associated with owning some major tech stocks could be huge long-term boost to your portfolio and when in doubt, about any investing future, own some defensive stocks including those from the oil and gas sector that could be a hedge from tech risks…
 
Where do you sit on the theme of owning tech stocks and/or the oil and gas sector?

Have you owned any of the Magnificent 7 like I have via a low-cost ETF? Do you own tech stocks directly, including CSU in Canada? What about the oil and gas sector in your portfolio?

I welcome your thoughts and comments, as always!

More Weekend Reading…

Over at Cashflows & Portfolios, we have a giveaway running. Learn about what we liked and what we think of Die With Zero. Enter to win a copy of this book to start your new year off better by understanding your cashflow and portfolio needs now, sooner, rather than later!

Planning ahead for 2024, here are some interesting reads:

10 Predictions for 2024, written and published by Michael Batnick of Ritholtz Wealth Management LLC.

Here are 24 Rules for 2024,written and published by Jonathan Clements of HumbleDollar.

Rob Carrick shared a new concept amongst a younger generation of savers and investors – ‘Loud Budgeting’. Maybe I’m getting older but this simply sounds like as a GenXer: “I can’t afford it”.  

On Cut The Crap Investing, Dale wrote about Beating the TSX.

From Visual Capitalist, some great information and themes here I intend to unpack for myself in an upcoming post:

Top 10 Retirement Mistakes

Now that you’re done reading this edition, you can do this. 

Have a great weekend,

Mark

See ya next week.

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

20 Responses to "Weekend Reading – Is technology and oil the New Barbell Strategy?"

  1. Timely post on energy as there was an interesting announcement from CPX and Ontario Power Generation today about how they will collaborate to advance the use of ‘SMR’s (small scale modular reactors) to improve clean and reliable energy.

    This happens to be the sector I work in (more in the local distribution company side) and one of my clients spoke in the last 12 months mentioning that they were considering small scale nuclear (think the size that powers a nuclear submarine) as a potential alternative to local power generation – this is a 100-150k size local distribution utility in the U.S.

    I think this is the kind of innovation that we’re going to need to support the inevitable expansion of EV’s, heat pumps and other devices that primarily use electricity, but tackling generation is only part of the problem. How local utilities solve the necessary upgrades to their distribution systems is going to be the next big challenge they need to start working on.

    Reply
    1. Nice, James.

      Very good initiative it seems…re: CPX. Fully support the shift to renewables with time of course!

      “How local utilities solve the necessary upgrades to their distribution systems is going to be the next big challenge they need to start working on.”

      Yes, what do you see as the biggest obstalces? Timing? This will take many decades I suspect to shift.
      Mark

      Reply
  2. Timely article on energy and tech, Mark.

    I like a lot about the tech industry, especially, the magnificent 7. I have increased my positions in individual tech stocks like Amazon, Microsoft, etc as I believe they can provide higher returns. I have reduced my energy holdings and replaced them with nuclear and lithium stocks as I believe they have a bright future in the renewable and clean power industries.

    Good luck to all.

    Reply
    1. You might be right on the nuclear and lithium stocks for sure…hard to know?! I do believe tech will thrive long-term. The recent run could be just the beginning! More cashflow for them means more potential for innovation.

      Good luck to all indeed!
      Have a great weekend Ken.
      Mark

      Reply
      1. The upgrades for EVs can be significant. First, there’s the household updates that are needed – some homes might need an upgrade to a 200 amp service. Then there’s the distribution transformer (think of the green boxes every 7-15 homes on a residential street. They might need upgrading. They get fed from a municipal sub-station – it might need upgrading.

        It’s a time and money equation, and at least in Ontario, local utilities can recover 100% of their costs towards needed upgrades through rate increases (this is reflected in the distribution charge on your bill – not the commodity rates you pay for time of use kWh).

        Distribution rates will need to go up to support the increased usage of electricity. Of course, there remains a lot that homeowners can do to reduce their usage. There’s still lots of incandescent and halogen bulbs out there as well as less efficient appliances. However, spending $2,000 on a fridge to save $200 / year on electricity isn’t the best ROI (just an example, with made up numbers, but you get the idea).

        With the government EV sales targets there’s still a decent runway for our local utilities to start investing at a moderate pace so that by 2045 (ish) we can be ready for, what I suspect will be 80-90% EV ownership at the residential level.

        I’m so curious about all the gas stations – will they figure out a way to slowly migrate to refuel electric cells? Will we be left with derelict gasoline stations on virtually every major intersection? (it feels that way, where I live).

        Interesting times ahead for sure!

        Reply
        1. OH! I should have added – I recently watched a seminar on the EV challenges for apartments and condominiums. The vast wiring upgrade that many of the older buildings will need to support charging services for residents can be quite significant.

          Who pays for that – condo owners for sure – but rental units in rental purpose apartments? This is a huge challenge and expense that the l local utilities are not responsible to solve.

          Reply
        2. Great to get your subject matter expertise on this stuff, James. 🙂

          Totally agree with the infrastructure…takes time.

          Our condo parking spot, already has a charger. Installed. Ready to go. We are thinking about a PHEV or EV but likely a 5-year lease due to pending technology shifts. Thoughts?

          Very much a time and money equation for infrastructure. We are not going to lose natural gas in the coming 50 years…only more of it I suspect…but there will be shift in how we use electricity from the grid and reduce oil consumption in the coming generations. It’s not a quick fix IMO.

          We also anticipate distribution rates to rise to accommodate larger capital expenditures to put infrastructure in place. I could see >50% adoption of EVs in the coming 25 years or so, as ICE new sales are phased out. Not sure we’ll make 2035 commitments but we’ll see on that!

          Mark

          Reply
          1. I have no advice to give as to what to buy, in terms of “non-ice”.

            My 2016 CX-5 got a new engine under warranty three years ago, so I’m hoping to make it stretch to 2028 and then I’ll figure out what to do. My wife’s 2019 Qashqai only has 28,000 kms on it so it ought to last quite a while yet also!

            I do hope, for both of us, that the next vehicles we purchase will be all electric, but I definitely want a vehicle that can do a 500km round trip, without recharging, while towing my light weight fishing kayak trailer – doesn’t really exist today, but maybe by then!

            Reply
            1. Ya, newish cars. No need to replace for you for at least another 5+ years at worst. That will help your savings rate!!

              We have one (1) 2012 KIA. In decent shape but some work to do to maintain now.

              I think PHEV might be for us, potentially a lease, try it all out. We’ll see.

              Reply
  3. Our total combined portfolios (taxable and registered combined for two people) has for some time been overweight in energy and technology, with the financial sector ranked third. Your new idea on barbell strategy struck a chord. All are owned directly through equity positions. I have a couple of covered call and leveraged ETF’s for income in RRIF accounts (TXF and USCL). We had an overall portfolio gain of 24% in 2023 and that included just over 60,000 in dividend income (a mix of Canadian and USA companies). I like to balance the dividend growth companies with higher risk growth companies, balancing conservative and higher risk. We are both octogenarians, but currently drawing very little from investment accounts, except for unexpected expenses that may crop up. — generally reinvesting.

    Reply
    1. Maureen, excellent!

      re: “We had an overall portfolio gain of 24% in 2023 and that included just over 60,000 in dividend income (a mix of Canadian and USA companies).”

      I too, like to balance some dividend growth stocks with slightly higher risk, but also higher returns, so I own QQQ. It has done well for me over the last 5+ years.
      https://www.myownadvisor.ca/then-and-now-qqq/

      Continued success to you in 2024.
      Mark

      Reply
  4. Hello Mark: Thank you for your post. Regarding technology stocks; earlier in the spring of 2023 with some dominant , strong, technology stocks trading at several year lows, we purchased shares in AMZN and GOOG to go with a long term holding in APPL. We recently sold AMZN with the strong run up in price.In the past, we purchased technology stocks at the “edges” of our core dividend portfolio, then let go of them on significant price gains.( in a US dollar account) In retrospect, we have let go of some what would have been wonderful long term holdings.At this point , I am looking at the ETF ZVO to be in that sector on a longer term basis. I also consider companies that benefit from the uses of technology. like ADP. Mike

    Reply
    1. Great stuff, Mike.

      I don’t any tech stocks directly but I do own QQQ to own the Magnificent 7 and more tech stocks. I figure that’s a low-cost, lazy way to own that sector. Who knows where these all end up in the coming decades but returns should be generous over time, that’s my hunch.

      I don’t know too much about ZVO ETF…do you mean ZVU from BMO?
      Mark

      Reply
  5. Hi Mark,

    I don’t have any technology in our taxable account. XDG in our TFSA’s holds near a 7% weight, and of course once you factor in ZBAL in the RRIF’s, well not much technology there either. I went through the fiasco with Nortel, JDS Uniphase and Research In Motion in the early 2000’s and I swore never again, and I’ve kept my promise. Since then, I’ve gone back to my contrarian roots.

    As for the Energy Sector we own shares in four Canadian pipelines with a total allocation of just over 15%. That’s good enough for now.

    Reply
    1. Ya, I remember those days too: Nortel, JDS Uniphase, RIM, etc.

      I think you’ve done very well, so no need to take on more investing risk than needed. 🙂

      Yes, as you know, pipelines are a nice proxy for oil and gas pure plays to avoid that sector risk. I can’t imagine not needing pipelines in North Amercia for a few generations to come – they will only be more important with time. We have enough Nat. Gas in Canada to last 200+ years. Thoughts on that?
      Mark

      Reply
      1. Yes, Mark. I figure the Canadian pipelines will be up and running for a few years yet. So does Buffett evidently. He’s been buying into Dominion Energy down in the U.S. for the last few years

        Cheers.

        Reply
  6. I’m owning the Magnificent 7 by having ZUQ US High Quality ETF. I’ve owned it four 4 years and other than 2022, it’s consistently beat the S&P 500 by 1%. It’s been a 5 star Morningstar rated ETF for the last 5 years and it compromises 67% of my portfolio and 33% in 4 Canadian dividend stocks. To me, ZUQ is a long term keeper.

    Reply
    1. Excellent work. I think the tech trend is evident. Now it becomes a question for most investors is to decide: how much?
      Onwards and upwards to you in 2024!
      Mark

      Reply

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