Equities Rally on Inflation Reading and Omicron Sigh!

We live in a culture full of hairs; but the tortoise always wins.’ Dave Ramsey

When you grow up as a child, you get introduced to the fable about the tortoise and the hair. Most kids don’t pay attention to stories other than to be entertained. Adults are even less concerned with the words of people who don’t live in their generation. However, there are many timeless beliefs which hold a great deal of wisdom. Don’t judge a book by it’s cover. Measure twice, cut once. Fool me once, shame on you, fool me twice, shame on me.  Penny wise, pound foolish. Interestingly, a great deal of this wisdom can be applied to investing.

As an example, consider the world of technology investing. The domain where non fungible tokens, crypto currencies, cloud computing, mobile gaming, the meta sphere, and web 3.0. reside. Investors are always looking for higher growth and with interest rates so low, nothing below 40% will do. Many investors have earned exceptional returns by focusing on high growth areas. With interest rates on the verge of reaching a floor and potentially heading significantly higher, money flows for different kinds of companies may be the where better returns are found. Some of these situations are considered value type companies, other are in real estate or hard assets, and some in off the run type situations (non-standard). All may be using technology to become more efficient, but wouldn’t be considered technology investments. There is another piece of data to consider when thinking about the tortoise versus the hair and it is related to returns.

On many occasions, holding a specific security is as exciting as watching, well, a turtle. Nothing happens for long periods of time. The stock goes up twenty cents, then down forty cents, then up twenty cents. Over and over again, for a year, two years, three years, five years. Just like a turtle. Underneath the surface, however, the business results are improving in all the right areas. Low and behold, in one month, other investors realize how good the business is (usually after an exceptional earnings report), and the stock doubles or triples. Tortoise and the hair, indeed.

In the market last week, the November CPI reading came in pretty much as expected and the investment world reacted with relief. With preliminary indications that the new Covid variant may not be as severe as previous versions, the combination resulted in a good week for equities. On the earnings front, the headline result came from Oracle, and the stock is one of the leading performers this year. Consistent with our theme this week, Oracle spent the last few years buying back a ton of stock, making its usual boatload of acquisitions, and as has been the case for decades, generating plenty of profits.

In an area I find interesting, the Supreme Court took up a case involving the retirement plan at Northwestern University. With the retirement plan area rife with plenty of inefficiency, thousands of participants serve as a huge target for trial lawyers always in search of a big profit pool. Clearly, the retirement plan area has plenty of areas which, uh, need improvement. I have included a few links for those who are curious. (here and here)

Looking ahead to next week, the big market event will be the Federal Reserve announcement on the rate of tapering. Many believe the Fed is way behind the curve regarding where interest rates should be, including Bill Ackman and Professor Jeremy Siegel. With the year almost over, tax loss selling and bargain hunting are significant factors as well. On that note, thanks for reading the blog this week.

Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog,  Investing in securities involves risk and the potential loss of ones principal.  Past performance is no guarantee of future results.  All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one’s overall financial situation.  The fact that Yale Bock has earned the right to use the CFA designation does not mean Y H & C Investments will outperform broad market indexes.

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