Knowing the future isn't enough

Do we have an Iran deal?

As usual, the answer is maybe… maybe not.

What we do know for certain is that every time tensions escalate in the Middle East, investors turn to their favorite news sources. And their favorite news sources are more than happy to offer predictions about how:

Whatever they’re saying, the experts sound confident that their forecasts are precise. Yet, it’s all close to worthless.

Trust me. I know.

When I worked as a full-time due diligence officer for very large institutions, I attended many conferences featuring renowned speakers. I’m talking about former Federal Reserve officials, CEOs of major banks, and famous economists.

I remember one presentation from roughly a decade ago. For nearly an hour, the think tank representative shared his opinions on the world’s major geopolitical risks.

China would invade Taiwan by 2030. Russia would cut off all energy exports to Europe. Iran would soon attack its neighbors through proxy groups. North Korea would launch missiles into South Korea…

That expert had logical explanations for each projection. But when an attendee asked what we should then do with our portfolios, he had to admit the truth.

He had no clue.

As it turned out, he was also wrong about many of his predictions. The ones he was right about didn’t happen according to his exact timelines, and their consequences were vastly different than he expected.

You can apply that to 99.9% of people you see on the news.

Today, headlines are being updated every 15 minutes about Iran. Before that, it was Venezuela. And Russia and Ukraine got all the attention prior to that.

Soon, it will be something else.

Yet, the S&P 500 continues marching higher regardless. Keep that in mind as this latest drama plays out – however it may.

Investors tend to make a two-stage mistake when analyzing the news.

The first part comes from spending enormous amounts of time trying to predict events that are fundamentally unpredictable. The second is assuming we’d know how to profit from predicting the future even if we could.

Think about it this way: If I had told you back on February 27 that the U.S. would destroy most of Iran’s military and leadership, the busiest shipping route in the Middle East would shut down, and energy markets would become a central focus of global policymakers, what investment decisions would you have made?

You’d probably buy gold, defense stocks, and oil producers, and sell at least some of your overall market exposure. Right?

Most investors would have felt very confident in those answers. Maybe they would have bet their homes or even used options to supercharge the results.

Yet markets have a funny way of humbling us, as shown below.

Gold, the “sure bet,” is actually the biggest loser – and out of all major asset classes, not just what’s included in the chart above. Defense stocks have performed poorly as well. And while energy stocks did okay as a category, they’re not doing nearly as well as just owning the broader stock market.

Crude oil, meanwhile, did make a big move, up 27% since the conflict began. But it’s also down 26% from its highs. So you’d need to time everything perfectly – repeatedly – to make the most money.

Do you think you have it in you?

Instead of trying to predict the future, I suggest understanding the past and analyzing the present.

Because while most investors are focused on crude oil, countries throughout Europe and Asia are panicking over something else: securing reliable sources of liquefied natural gas (LNG).

Roughly one-fifth of global LNG trade normally moves through the Strait of Hormuz. And governments and utilities desperately need that resource to maintain their manufacturing and industrial facilities.

In some cases, they need it to keep the lights on. That’s how crucial this resource is.

Believe it or not though, the greatest beneficiary of that shift isn’t the Middle East or Russia. It’s the United States.

America possesses enormous natural gas resources and world-class export infrastructure. It also has the capital markets to fund whatever operations are necessary to satisfy global customers.

No other country has this combination.

As such, we don’t need to know how or when the Iranian conflict ends. I have no idea whether the war is finally over… what oil prices will be six months from now… or whether the Strait of Hormuz will be open by the time you read my next article.

Nobody does. Nor do we need to.

What’s important is that governments only bicker about the pricing of vital resources when there’s enough supply. Now that their normal LNG channels are under threat, European and Asian leaders will pay almost anything to keep that energy supply flowing.

As such, there are high-quality, U.S.-based companies exporting LNG that are capturing huge premiums compared to just a few months ago.

Venture Global (VG) is one of the fastest-growing examples of this reality, though it’s less mature as a business and therefore features more volatile shares. And NextDecade (NEXT), another “pure play” LNG exporter, is in a similar position.

Chevron (CVX) and Exxon Mobil (XOM), of course, are some of the largest LNG exporters in the world. However, they’re also well-diversified, so their earnings aren’t affected as dramatically.

Our most recent pick in Intelligent Options Advisor combines the best of both categories – concentrated LNG exposure for greater upside with an investment-grade balance sheet and steady cash flows.

You can click here to learn more about what we do and how we do it.

Do you know there are more companies to invest in than SpaceX?

Moreover, they’re well-priced with real profits and long histories of sustainability to boot. Those are qualities that, with all due respect to Elon Musk, SpaceX simply cannot claim.

Join Nick Ward and me in this week’s Wide Moat Show, where we explore the consumer discretionary sector instead – particularly seven stocks that are trading at stunningly low valuations.

Catch the full episode right here.