The brilliant creative core of capitalism ... is the story the entrepreneurs and capital investors tell themselves about the future. How they intend to alter it, what they expect to gain in return, where they will raise the capital to accomplish their vision. Many of their stories turn out to be flawed or mistaken, of course, but the capacity to envision a set of future events and then act to fulfill them is a central source of capitalism's strength and its dominance of society.
WILLIAM GREIDER, The Soul of Capitalism
Karl Marx is rolling over in his grave. All over the country this weekend, high profile events are taking place which will rake in millions of dollars for the creative, courageous , and risk taking entities which have the gumption to stage these fabulous get-togethers. In fact, you could make a legitimate argument that currrent capital market activity very much resembles some of these popular parties. Let us begin with what is taking place tonight in my well lit home town, Las Vegas, NV. There is a long awaited (15 years?) boxing bout between two aging champions, undefeated Floyd Mayweather and Phillippine star Manny Pacquiao. The face value of the cheapest ticket is $1,500 smackers, but the current market price is around 6K, which has dropped substantially. It hovered at nearly 13K for quite some time. For the fight, the pay per view audience is estimated to generate nearly $300 million. The fighters will probably each earn over $100 million for their participation.
The closest comparison to this fight in the equity markets has to be the valuation of the entire market itself. Many believe the bull market is old and tired, similar to the fighters, and just as important, considerably overpriced. As buyers discover only after purchasing an inflated asset, your return on capital is negligable in these unfortunate cases. I suspect ticket owners might feel that way later this evening, but hope springs eternal.
In Louisville, Kentucky, the annual running of the roses also is scheduled for this afternoon. Over 100 thousand mint julip drinking, lovely hat wearing folks will observe the race, and probably wager a few shekels on the outcome as well. With a field of over 20 horses, several of them are undefeated and many have long prices in the event they are fortunate enough to finish first. The most apt analogy in the equity market is the internet and social networking space. In that segment this week, high profile companies Linked In, Yelp, and Twitter all got hammered by investors who were disappointed with their earnings reports. All are promising, yet have equity valuations which are, shall we say, more than a tad excessive. Those wagering on the young longshots this afternoon will, at the very least, be entertained by the most exciting two minutes in sports. The end result in gambling, however, is always a zero sum game. At least by investing in young, exciting companies, one has the possibility of growing into the valuation.
Last, but not least, the 50th annual Berkshire Hathaway annual meeting is being held today in Omaha, Nebraska. It is expected over 40,000 people will be in attendance to listen to Warren Buffett and Charlie Munger wax poetic. Interesting enough, these oracles started with a whopping eight individuals at their first love fest. Having attended one of these incredible spectacles, it is amazing to see what Buffett has created. Owning over 70 companies, Berkshire hawks everything from underwear and insurance to Dilly Bar's and diamond rings during the weekend. The most appropriate comparison in the current stock market would be those investors who invest based on what actions high profile investors take. Still, many in the crowd have long been Berkshire investors, and they have reaped the benefits of the greatest investor in history. With not many appearances by Warren and Charlie left, it is best to enjoy, honor, and appreciate the time they spend with us today.
A ton of companies reported earnings this week and many left investors unfulfilled. As a result, the investors subsequently exited those stocks. Consider Wynn Resorts, one of the most high profile instances where a chief executive is honest about what lies ahead, and shareholders respond by fleeing for the exits. Steve Wynn said business was awful in Macau, which everyone knew, and not good in Vegas, which people did not. He also dramatically cut the dividend in order to be prudent. Apparently, Mr. Wynn was not notified of the Mayweather-Pacquiao ticket prices and how much the attendees will help his bottom line.
A few major oil companies also reported results this week, and while upstream results suffered, they were bolstered by trading and refining profits. Some believe a sector shift is taking place as people want more exposure to commodities like copper, gold, and oil to benefit from a suddenly weaker dollar. After listening to the chiefs of the oil majors, I would respectfully disagree. The market also got whiff of a rumor Salesforce.com received an offer for $45 billion as an acquisition target. Oracle and Microsoft are the most likely candidates of the bid.
Next week earnings reports will come in fast and furious, but the parade ends on Friday. On that day is the much anticipated jobs report, where a far better number is expected than what we got in March (126K). Regardless of the outcome, capitalists all over the globe will continue their efforts to generate income, and as a fellow participant, we applaud their endeavors. Thanks for reading the blog this week, and if you have any comments, questions, or thoughts about investing, please email me at
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.