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Y H & C Investments BLog

The blog is a personal commentary by Yale Bock on the specific events which may have occurred in the investment or political world. Specific stocks are mentioned, and many readers find this a good way to gain another perspective on the investment world.

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Recent blog posts

 

 

Leadership, Strong Dollar Affect Earnings, and Draghi Unleashes QE European Style!

 

'In the short run, the market is a voting machine, but in the long run, it is a weighing machine.' (Ben Graham) Over the last week, investors were treated to a slew of quarterly earnings reports by a variety of companies across the business landscape. One of the common themes during the last week was how the strength of the dollar is impacting profit figures when revenues outside the country are then converted to dollars. Each case is unique, and typically, the greater the percentage of revenues which come from outside the United States, the more a strong dollar will cause actual results to be different than what was previously expected ('forecasted'in some cases, guessed at in others). Still, if you were paying close attention, profit shortfalls were blamed on the strong greenback in a few high profile companies. However, what also became very evident was how the leadership of a business will often determine the kind of results the lucky shareholders will get, or, not.

 

The reason why 'Mr. Market' is pertinent is because over time, good leadership can transform a struggling enterprise into a much better business. Conversely, average management can take a fine entity and turn it sour, like good liquor going to waste (no, I have zero experience with the latter). In the case of the former, the best managers know how to reinvest profits into making their existing entities even more profitable, or acquire another business which will enhance the current one, or better yet, find a far superior business opportunity. As each quarter, and year pass, the dramatic differences come out in the financial performances of the companies you own. Consequently, quarterly earnings reports matter a great deal as they reveal what is truly happening in these entities.

 

One three month period is too short to evaluate any leadership, and probably even a year is too soon. As you get into three and five year time frames, it becomes evident what you have, or don't. In the current world we live in, information is so readily available and the cost of buying and selling of securities is nearly non-existent, so most people wonder why bother thinking about owning something for years? If you see poor results, get rid of it.

 

This thinking is far too simplistic because businesses take time to fix. Furthermore, once an enterprise is changed and profits start to consistently emerge, the capital which then gets allocated needs additional time to bring even better news. As one quarter's success is built on with spending policies which yield more profits, consistent cash flow and profit growth becomes the norm and not the exception. As a shareholder, when you have many years of solid execution and meeting the anticipation of Wall Street's notoriously fickle investors, you will benefit a great deal. The trick is finding these companies and leaders who can reward your hard earned dollars. I know, I know, it ain't easy as there are plenty of cubic zirconium’s pretending to be diamonds. Still, you have to believe it is well worth your time to keep looking, otherwise the .0000005% returns of the bank beckon.

 

In the capital markets this week, the ECB finally announced it's long anticipated quantitative easing plan. They will be buying about $70 billion a month of a variety of fixed income securities, typically sovereign debt, quasi- sovereigns, and asset backed bonds. The program is supposed to last well into 2016 and investors responded by buying equity markets all across Europe and here as well. Elsewhere, the Canadian Central Bank also dropped interest rates in response to slowing growth. Add in Denmark to the list of countries which are engaged in the central bank version of the race to the bottom as the Danes also dropped their borrowing rate. Upon receiving the news, the Euro fell to 10 year lows against the dollar. With the Federal Reserve eying lift off in the next six months, the major question which has to be now asked is will Yellen back off because of deflationary pressures? Some things are too difficult for my feeble mind, so I'll revisit the issue in the next few weeks.

 

In specific company news, Netflix reported adding over 4 million subscribers and the stock jumped a great deal. Reed Hastings is a CEO who repeatedly has proven his worth every single time investors have questioned the prospects of his company. You can argue about the valuation, but with nearly 60 million users, Netflix has become a global power. Boy, did I miss this one. Verizon was hurt by competition and a bit higher churn but still showed nice subscriber growth. Both Johnson and Johnson and GE were bit by a stronger dollar with GE also taking it in the chin because of exposure to the oil industry.

 

McDonald's stunk the joint up again as they missed expectations by more than they ever have. It would not be surprising to see activists start lovin' it, if you know what I mean. In the IPO market, Box at long last went public so the CEO could announce he needed to take a nap. Not what I would call someone who inspires confidence, although I know Jim Cramer thinks highly of their prospects. Speaking of Mr. Cramer, I have to give him credit for inviting a CEO who started a biotech company to cure a terrible disease of his daughter, who he brought on the show. Guys like him are what real leadership is about and you can say what you want about Jimbo, but his heart is in the right place. I hope you have a great weekend and if you have any questions regarding the column, market, or about Y H & C Investments, please email me at This email address is being protected from spambots. You need JavaScript enabled to view it.

 

 Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.

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