Lithium

That’s a Drug, Right?

Yes, But It’s Also the Next Investment Idea

Everybody has probably heard of Lithium as a drug. It helps those who suffer from bipolar disorder. But not everyone has heard about Lithium as the next big thing for investors.

Up 26% in Five Days

Take Lithium Americas (LAC) as just one example of the next big thing. In the past five days, its stock has jumped 26.75%.[1] Over the past year, it’s up 143.83%.[2]

And what accounts for this rocket-like performance?

Lithium. It’s the lightest metal and lightest solid element in the universe.[3] It’s also scarce. And in very high demand. So LAC soared when the company announced that it was making progress toward production at its Lithium-mining project in Argentina, which is “on track to achieve first production by mid-2022.”[4]

That project “has an annual production capacity of 40,000 tons lithium carbonate equivalent over a projected mine life of 40 years.[5]

So Who Wants Lithium?

Elon Musk, among many others.

Lithium, after all, is used in high-storage batteries, the kind used in EVs—electric vehicles like Tesla, Ford, Chevy, VW, Mercedes …. Virtually every car company has introduced some form of EV. We counted 45 models of electric cars, SUVs, and trucks in Motor Trend’s latest review.[6]

And almost all of them run on batteries containing Lithium.

Lithium Research Begins

The oil crisis in the 1970s prompted scientists around the world to begin the search for “a new battery—one that could recharge on its own in a short amount of time and perhaps lead to fossil-free energy one day.”[7] In three different labs, M. Stanley Whittingham, John B. Goodenough, and Akira Yoshino began to use Lithium as electrodes in batteries.

In England, Whittingham—working for Exxon—used titanium disulfide and lithium metal as the electrodes. Short circuiting and the danger of fires, however, caused him to stop the experiment.[8] But the word was out: Lithium has properties needed in high-storage batteries.

In the 1980s, Goodenough shifted the research and used “lithium cobalt oxide as the cathode instead of titanium disulfide, which paid off—the battery doubled its energy potential.”[9]

Then, five years later,  Yoshino dropped the use of Lithium metal and used Lithium ions instead. His research “led to a revolutionary finding: not only was the new battery significantly safer without lithium metal, the battery performance was more stable, thus producing the first prototype of the lithium-ion battery.”[10]

Lithium and the Nobel Prize

In 2019, the Nobel Committee recognized these trail-blazing research efforts and awarded the Nobel Prize in Chemistry to the three scientists. When presenting the award, the Nobel Committee said:

“[T]his lightweight, rechargeable and powerful battery is now used in everything from mobile phones to laptops and electric vehicles. It can also store significant amounts of energy from solar and wind power, making possible a fossil fuel-free society.”[11]

Demand Heats Up

​Anyone capable of reading or watching TV can conclude that the demand for Lithium will spiral. President Joe Biden, on August 5 of this year, issued an Executive Order “aimed at making half of all new vehicles sold in 2030 electric.”[12]

According to the Institute of Electrical and Electronics Engineers, the world’s largest technical professional organization:

A carbon-free future will require many millions of batteries, both to drive electric vehicles and to store wind and solar power on the grid. Today’s battery chemistries mostly rely on lithium—a metal that could soon face a global supply crunch. Some analysts warn that as EV production soars, lithium producers won’t be able to keep up with demand.[13]

Our Lithium Position

We won’t be left behind.

When the financial pages light up with the latest hot stock, we don’t race to our computers and hit the buy button. Instead, we subject all of our positions to rigorous technical analysis that involves comparing “moving averages,” studying “relative strength,” and perusing a host of charts.

We pulled up some charts of the top Lithium companies and saw extremely solid “technicals.” Because we don’t invest in individual stocks, we then sought out the top Exchange Traded Funds investing in Lithium companies.

Our search and technical analysis landed on LIT, a fund investing in 37 companies in the Lithium industry. So on July 14, we took our initial position in LIT for our Aggressive Growth Model. On July 22, we took a second position. These positions are already up nearly 8%.

According to GlobalX, the fund manager:

The Global X Lithium & Battery Tech ETF (LIT) invests in the full lithium cycle, from mining and refining the metal, through battery production.[14]

Remember Lithium Americas? The stock that soared 143% over the past year? It appears as one of the holdings in LIT.

For our Aggressive Growth Plus Model (which can hold individual stocks), our research turned up Standard Lithium (SLI). This company has a patent-pending process that extracts Lithium from brine, copiously found in Arkansas, where SLI has a new processing facility.

After studying the technicals of SLI, we added it to our Aggressive Growth Plus Model.

We Aren’t Chemists

The technology of ion-Lithium batteries gets quite complex. So we can’t pretend to understand what makes them work. But we can understand the exploding demand for them, and when you see more EVs on the road, you’ll know that the demand for Lithium continues to rise.

You’ve got your position to go along for the ride.

Call Us

We are always happy to answer any questions you have. If they involve the chemical ins and outs of Lithium batteries, perhaps we can locate a knowledgeable professor.

[1] https://www.marketwatch.com/investing/stock/lac 
[2] https://www.marketwatch.com/investing/stock/lac 
[3] https://en.wikipedia.org/wiki/Lithium 
[4] https://www.fool.com/investing/2021/08/10/why-lithium-americas-stock-just-jumped-10/?source=djc&utm_source=djc&utm_medium=feed&utm_campaign=article&mod=mw_quote_news
[5] https://www.mining.com/lithium-americas-ganfeng-planning-stage-2-expansion-at-cauchari-olaroz/ 
[6] https://www.motortrend.com/style/electric/ 
[7] https://www.thermofisher.com/blog/microscopy/the-history-of-the-lithium-ion-battery/ 
[8] https://www.thermofisher.com/blog/microscopy/the-history-of-the-lithium-ion-battery/ 
[9] https://www.thermofisher.com/blog/microscopy/the-history-of-the-lithium-ion-battery/ 
[10] https://www.thermofisher.com/blog/microscopy/the-history-of-the-lithium-ion-battery/ 
[11] https://www.thermofisher.com/blog/microscopy/the-history-of-the-lithium-ion-battery/ 
[12] https://www.reuters.com/business/autos-transportation/biden-set-target-50-evs-by-2030-industry-backs-goal-2021-08-05/ 
[13] https://spectrum.ieee.org/evs-to-drive-a-lithium-supply-crunch 
[14] https://www.globalxetfs.com/funds/lit/

​ 

Father’s Day Tribute

June is the month for Father’s Day — but it’s also the month for family vacations and road trips! 

Whenever I plan a vacation with my family, I think back to all the trips I took as a kid. When I do, the first things to come to mind aren’t how magnificent the Grand Canyon looked, or the awesome power of Old Faithful, or even the rides at Disney World.

My memories are of all the little things. My memories are of my dad. 

Now that I’m older, I know just how many “little things” my dad did for each and every family vacation, year after year after year. First, he would save up his hard-earned money throughout the year, so we could tour a far-off national park, visit some golden beach, ride the newest megacoaster, or learn more about our nation’s history. Then, he would obsessively plan every route we took, scrutinizing maps and atlases – this was in the days before GPS – so we would always take the shortest route, or the most scenic one. Next, he would teach us all how to pack the family car the right way, so we could fit in the most luggage. 

Then the work really began. 

When we were twenty minutes into our trip, and one of us called out, “Dad, I forgot my , he would turn around so we could retrieve it. Sometimes grudgingly, sometimes in good humor…but he would always turn. 

He would stop for every bathroom break we needed to take, even if the last one was ten minutes earlier.  He would tell dad jokes and sing funny songs all throughout the drive, just to keep our spirits up.

• ​He would drive all through the long night while the rest of us slept.

• ​He would wake up two or three hours earlier than everyone else, all to stand alone in the line for tickets to a guided tour or popular ride. 

• ​He would teach us the names of the trees and animals we saw or point out distant wonders we would otherwise have walked right on by.

• ​He would carry us on his shoulders when we got tired.

• ​He would buy us that one thing in the gift shop we just had to have.

• ​When one of us said, “Look at me, Dad!” for the umpteenth time, he would always look.

• ​When we asked, for the millionth time, “Dad, when will we get there?” he would always answer – and then distract us with a comment like, “Hey, look at that funny cloud!”

• ​When we asked, for the billionth time, “Dad, what kind of bird/tree/rock is that?” he would quickly look up the answer as soon as we weren’t looking.

• ​​When we would ask, for the gazillionth time, “Dad, how many stars are there in the sky?” he would answer, “A million billion gazillion.” 

These are the things I remember from our family vacations. Not the grand sights or spinetingling thrills. I remember all the little things my dad used to do to make sure each and every one of us had a great time. 

I remember my dad. 

So, as another Father’s Day approaches, and another season of family vacations begins, we want to say, 

Thanks, dad. 
Thanks for all the little things. 
All million billion gazillion of them. 

And from everyone here at Research Financial Strategies, we wish all fathers everywhere a

Very Happy Father’s Day!  ​

John Dough’s Investment Strategy

Buy and Hold

Back in the late 1990s, John Dough had it all figured out.

He had worked for the same government agency for more than 30 years, he made a nice salary, he would get a solid pension upon retirement, he was careful with his money, and he followed the tried-and-true investment strategy of none other than Warren Buffet:

“Buy a few good stocks and hold them forever.”

John Dough stayed away from the Dot Com stocks of the late 1990s. Instead, he had invested his portfolio in the ETF called SPY. This Exchange Traded Fund basically owns the stocks in the S&P 500 Index. And John knew that the S&P had yielded about an 8% annual return since 1957.^[1]

His buy-and-hold strategy would enable him to sell 6% of his portfolio each year. With the historical record of the S&P, the amount of his estate would at least stay the same and perhaps even grow a few percent.

^​John hoped to sell his house in Arlington, VA, move to a smaller house in the country, and then buy a condo at the beach.

Oops … The Dot Com Crash of 2000

In the spring of 2000, everything fell apart.

Over the next two years, the NASDAQ tumbled 76.81%.^[2] But John felt safe: his tried-and-true, buy-and-hold position in the S&P would surely protect him over time.

The S&P stood at 1494.50 on September 8, 2000.^[3] But it then dropped to the 800s in February 2003.^[4] John’s SPY investment got back to even briefly in 2007. Then it crashed again.

Finally, in the year 2013, John’s SPY buy-and-hold strategy got back to even.^[5]

John had to work another 10 years. His wife had to get a job as well.

Beach condo? Not.

Buy and Hold If You Plan to Live Another 100 Years

John—and millions like him—fail to realize a key truth: yes, buy and hold if you plan to live to be 100 and you’re now 25. If you’re a pension fund that’ll be around forever, then perhaps a buy-and-hold strategy is right for you, too.

And if you’re Warren Buffet? Well, if you’ve got 50 billion stashed away for retirement, a 50% haircut won’t hurt. You’ve got 25 billion left over. You can afford to wait for the market to recover and for Mr. Bull to continue his journey.

But if you’ve got $400,000 stashed away, a 50% haircut can destroy your life.

Instead, Manage Risk Through Active Portfolio Management

If John had followed a different route in 2000, his life would be different. And a whole lot better. Instead of buying and holding the S&P, John should have sought to manage risk. He should have been in a position where he could get out in the spring of 2000 and take on some defensive positions.

What Is Risk Management?

Risk management analyzes the ebb and flow of the market. Using a variety of skills known as “technical analysis,” our financial advisors at Research Financial Advisors carefully monitor various moving averages to spot upcoming trouble in the market. If we get certain signals, we might decrease the holdings in a portfolio. If a serious signal waves the red flag, we might very well take on a “leveraged” position that goes up as the market goes down.

A COVID Example

When the virus struck in the spring of 2020, we started to play defense. We knew that a buy-and-hold strategy could wreck the retirement accounts of many of our clients. Instead, in February we started to exit our long positions, at one point going to 100% cash. We then began to purchase some leveraged “market short” positions—these are ETFs that go up in price when the market goes down. As the crash accelerated, these defensive positions prevented catastrophic losses.

As we watched our technical indicators (we watch a host of them every single day … all day), we began to see a slight shift in market temperament. Perhaps a bottom was approaching. So we began to take on some long positions that we thought might even thrive in this new, COVID economy. We bought some ETFs in the aerospace and defense sectors, in the home-gaming sector, and in the robotics sector, and we bought a significant position in SPY when we thought the bottom was either in or very close.

Using technical analysis to manage our clients’ accounts, our 100% equity model ended 2020 with a 32% gain (net of fees). Meanwhile, the S&P advanced 15.76% in 2020. Even our 100% fixed income model clocked a gain of 8.5% (net of fees).

2020 Was Strange

Think about it. Millions of people out of work. Small businesses destroyed. Streets and sidewalks empty. No airplanes in the sky.

And the stock market goes up.

It could have crashed and turned into a 1930s nightmare.

Here Comes the Fed

In 2020, the Federal Reserve went on a bond-buying binge. Here’s what ordinarily happens when a bond is bought and sold. Suppose you have a $1,000 bond and you sell it to Susan. You give the bond to Susan, and she writes you a check for $1,000. Your account goes up $1,000. Susan’s goes down $1,000. The net effect on the money supply? Zero.

Now suppose the Federal Reserve buys your $1,000 bond. What happens then? Your account goes up $1,000. But nobody’s account goes down $1,000. The net effect on the money supply?

The money supply goes up $1,000 (with that increase in your account and no decrease in anyone else’s account).

Multiply that one thousand by one million and you get one billion. Multiply that one billion  by one thousand and you get one trillion.

The Fed has increased the supply of dollars circulating throughout the globe by trillions. In fact, … are you sitting down …. as of last September nearly 25% of all dollars in existence were created in the past year.^[6]

That Money Has to Do Something

That extra money needs a home. So it goes into housing. It goes into art work (a piece of crypto art recently sold for $69 million^[7]). It goes into the stock market. That injection of cash saved us from a 1930s depression.

But what will the ultimate effect be? Inflation. Not just in homes and stocks and art. But also in bacon and eggs.

Risk Management Is the Best Approach

Buy and hold? Sure, if you’ve got a very long time horizon. But the buy-and-hold strategy of John Dough spelled trouble. Big trouble. The S&P began a long decline in the fall of 2000. John’s SPY holdings began to decline. Ultimately, his account took a 50% haircut. John had to wait 13 years before he was back to even.

Risk management would have saved his retirement.

Risk management. That’s what we do here with your account.

Give Us a Call

I invite you to call me 301-294-7500. I’m always happy to answer your questions about our approach.

We hope you’ll forward this email to your family, friends, and colleagues.

Sincerely,

Jack

[1] https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp

[2] https://www.investopedia.com/terms/d/dotcom-bubble.asp

[3] https://www.google.com/search?q=s%26p+chart+history&rlz=1C1CHBF_enUS918US918&oq
=S%26P+chart&aqs=chrome.1.0i433j0l2j0i131i433j0l6.10630j1j4&sourceid=chrome&ie=UTF-8

[4] https://www.google.com/search?q=s%26p+chart+history&rlz=1C1CHBF_enUS918US918&oq
=S%26P+chart&aqs=chrome.1.0i433j0l2j0i131i433j0l6.10630j1j4&sourceid=chrome&ie=UTF-8

[5] https://www.google.com/search?q=s%26p+chart+history&rlz=1C1CHBF_enUS918US918&oq
=S%26P+chart&aqs=chrome.1.0i433j0l2j0i131i433j0l6.10630j1j4&sourceid=chrome&ie=UTF-8

[6] https://mishtalk.com/economics/23-6-of-all-us-dollars-were-created-in-the-last-year

[7] https://www.nbcnews.com/business/business-news/digital-artwork-sells-record-60-million-christie-s-first-nft-n1260544

Memorial Day Thoughts

Whereas the bodies of our war dead lie buried in hallowed plots throughout the land, and it has long been our custom to decorate their graves on Memorial Day in token of our respect for them as beloved friends and kinsmen and of our aspiration that war may be removed from the earth forever; and Whereas it is fitting that, while remembering the sacrifices of our countrymen, we join in united prayers to Almighty God for peace on earth; and Whereas the Congress, in a joint resolution approved May 11, 1950, provided that Memorial Day should thenceforth be set aside nationally as a day of prayer for permanent peace and requested that the President issue a proclamation calling upon the people of the United States to observe each Memorial Day in that manner: Now, Therefore, I, Dwight D. Eisenhower, President of the United States of America, do hereby proclaim Memorial Day, Saturday, May 30, 1953, as a day of prayer for permanent peace, and I designate the hour beginning at eleven o’clock in the morning of that day, Eastern Daylight Saving Time, as a period in which all the people of the Nation, each according to his religious faith, may unite in solemn prayer. Let us make that day one of twofold dedication. Let us reverently honor those who have fallen in war, and rededicate ourselves to the cause of peace, to the end that the day may come when we shall never have another war—never another Unknown Soldier.

Let us make that day one of twofold dedication. Let us reverently honor those who have fallen in war, and rededicate ourselves to the cause of peace, to the end that the day may come when we shall never have another war—never another Unknown Soldier.