Value investors need to harness time and use it tactically.
“Time arbitrage just means exploiting the fact that most investors — institutional, individual, mutual funds or hedge funds — tend to have very short-term time horizons, have rapid turnover or are trying to exploit very short-term anomalies in the market. So the market looks extremely efficient in the short run. In an environment with massive short-term data over- load and with people concerned about minute-to-minute performance, the inefficiencies are likely to be looking out beyond, say, 12 months.” Bill Miller
In today’s modern society, speed and ease of use is thought to be of prime consideration in making an assessment on the quality of a service. If you take for example, on line banking or using a brokerage account with internet access, the ability to get transactions done quickly and securely, obtain accurate prices, and have lasting records, make a major difference in terms of how the service might be evaluated by its users. If a large bank offers these alternatives, and users cannot get access when and how they want it, they find somewhere else to go. One might think the quickness issue would spill over to investment decision making, especially with algorithmic trading and the now famous dark pool situation offered by investment banks using co-location placement. I would argue, and clearly, so does the famous Mr. Miller (only money manager to beat the S&P 500 fifteen years in a row), that the longer one goes out on your time horizon, the more you have a chance to find situations which you can eventually benefit from. Note the key term being, eventually. Still, one cannot ignore the issue of speed in the markets. In today’s world everybody knows everything immediately, no matter how small or trivial the information may seem. Given the level playing field with data, having a long term perspective can be an advantage, depending on the quality of the decisions you make. Naturally, you probably don’t want to make them, ahem, quickly.
It was a pretty lackluster week in the markets as far as earnings were concerned, with the season getting started yesterday with JP Morgan Chase, Wells Fargo, and Citigroup all posting billions in profits. Chase led the way, as usual, with over 8 billion in net income during the last quarter. Wells was knocked because of lower mortgage numbers, and Citi took it on the chin because of reduced credit card growth. Analysts also knocked JP Morgan for mentioning a more competitive environment globally. All made billions, and so you wonder what would ever satisfy the negative nabobs of negativity when it comes to bank earnings. Elsewhere, Brexit discussions brought a little spat politically, but a larger issue for the banks in the UK is not having Brexit apply to services versus goods in terms of integrating with the Euro zone. Stay tuned on that one. In Asia, analysts are making note of the increasing numbers and rhetoric regarding the tariff dispute between China and the US. In addition, some believe China will use a weaker Yuan as a competitive tool against the US. On the legal front, the nomination of Mr. Cavanaugh to become a Supreme Court Justice will be a huge battle, and if confirmed, would probably help the business community as he is a well known skeptic of the administrative state. Also in this domain, the Justice Department decided to appeal the ATT-Time Warner ruling, which probably bolsters Disney’s bid for the crown jewels of the Fox assets. Comcast upped their bid for Bskyb, and there is a good chance they wind up with those, but time will tell. The tariff dust up put a nice blast into the price of oil even though there was a big draw from oil inventories. In a cute little story, Build A Bear offered the kids a deal where whatever the age of the child, they could buy their favorite teddy bear at that price. The stores were mobbed with traffic, so much so they had to shut many down because of too much demand (they are offering the deal through August in some form). If ever there was an adored brand by the public, Build A Bear is it. For that, and other reasons you can imagine, the company will always have a fond place in our heart.
Next week, earnings season ramps up as Netflix, Goldman Sachs, Johnson & Johnson, Microsoft, and many more will give us the facts about their business. They will be reported quickly and dispersed widely, as is always the case. I am sure you will be looking to use that to your advantage, as will I.
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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 Chartered Financial Analyst in no way means or guarantee performance better than market indexes.