It is impossible to live without failing at something, unless you live so cautiously that you might as well not have lived at all- in which case, you fail by default.
The world is a wonderful place and a big contributor of what makes it so fabulous are acts of courage and bravery where individuals risk their lives to help others who face potential life ending circumstances. Members of the military, police, fireman, or private citizens are routinely involved, but those acts are far from ordinary. With those acts, we see what is important. Conversely, when you find out about protesters of all kinds, risking their lives to go out to a dangerous location like the middle of the ocean, you learn about people who have very different thinking about what is important. Personally, over time, subjects like sports teams, political affiliations/results, and celebrity mean less and less. My family and friends, health, business, and those we are involved with have the highest priority. As part of this, time is a major factor because all of us only have twenty four hours in a day. Extending this thought, each of us only have so much time on the planet. So, each person decides the things that are important to them and uses their time accordingly. With this idea in mind, let’s apply it to the capital markets.
In the investment world, we often read about how company X has a new product. Company Y announces a fantastic partnership where Y will begin selling in market Z. You often see this with joint ventures, or the creation of a separate entity with two companies each owning fifty percent of a the new business. Another extension might be the spinning off of an existing division. New products, new companies, a different advertising approach, a fresh IPO, a nascent market, an original concept, a refreshed name, a changed or refurbished organization are all of the same ilk. These seem like events which would move a stock price. Think again. Yes, maybe they could move the price for all of an hour or two, or a day, possibly a week or two. If you are a trader, that might be all you are looking for. However, these events don’t move the needle in terms of a permanent stock move. Over a long period of time, a company’s financial results, quarter after quarter, year after year, are the primary determination of what happens with a stock price. The vast majority of businesses are going to be dependent on how efficiently the management team deploys capital . Just as each person,makes choices about what is personally important, the same holds true for companies. If the decision makers evaluate their possibilities well and choose wisely about how they spend capital, long term results follow. If you doubt that is the case, look at Mr. Bezos, Mr. Page, Mr. Nadella, or Mr. Zuckerberg. As an investor, if you make good choices evaluating how management teams, and by extension the company, deploy capital, the stock market can be a wonderful place.
In the markets this week, hundreds of examples of such companies were on display as earnings season came in full force. The most high profile names in technology, Facebook, Amazon, and Google, showed their immense scale in terms of earning power. Consider the size of these entities. Facebook earns 2.6 billion bucks. in one quarter, and that includes a 5 billion dollar penalty from the government. Google earns nearly 10 billion on forty billion of revenue and announces a 25 billion dollar buyback. Amazon misses the quarter, earns 2.6 billion on 63 billion of revenue, but grew 20% year over year. The scale, profitability, and ability to grow of these companies is just so large that their earnings power justifies the market valuation. Other companies that reported this week included SNAP, which showed nice improvement, and Comcast, which has long been a dominant cable provider. In the political realm, Boris Johnson became the UK Prime Minister and faces the prospect of facing Jeremy Corbyn, who may be more radical than AOC. Robert Mueller went to the hill to face his friends (the Democrats) and his foes (the Republicans). It seems evident Mueller’s actions are subjectively evaluated based on the personal perspective and affiliation of each member. Like many events for individuals and specific companies, the Mueller report is a temporary event. The more substantive and determinative matter, as we are all aware, is the 2020 election. On that lovely note, I hope you are enjoying your summer.
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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.