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'Reliability is the Precondition for Trust.' Wolfgang Schauble
Mar 01, 2025
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Y H & C Investments- Can You Rely on Your Positions?
(Return figures come from the February 28, 2025, edition of the Wall St. Journal. Y H & C Investments may have positions in companies mentioned in this newsletter. Nothing in the newsletter should be taken as an offer to buy or sell individual securities. It is the responsibility of each investor to research the investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
Growing up as a young boy in Las Vegas, I entertained myself by listening to Los Angeles Dodger baseball games on the radio. The legendary announcer Vin Sculley would start nearly every game the same way. “The opening line up for the Dodgers, ‘Garvey, Lopes, Russell and Cey.’ “Day after day, year after year, it was the same infield. Garvey, Lopes, Russell, and Cey. The Dodgers wound up winning a world championship with that infield and went to several other World Series where they lost to the A’s or Yankees. Consider the Dallas Cowboys with Roger Staubach, the Pittsburgh Steelers with Terry Bradshaw, the New England Patriots with Tom Brady and Bill Belichick, and now Patrick Mahomes and Travis Kelce with the Kansas City Chiefs. In basketball, it was Magic Johnson and Kareem with the Lakers, Michael and Scotty with the Bulls, and Larry Bird, Dennis Johnson, and Kevin McHale with the Celtics. These teams produced consistent performance and execution year after year. The opposing teams knew the strengths of these teams, but it did not matter because the players and their execution were superior. At the highest levels of sports, politics, and business, consistent winners have longevity and dependability. How does this relate to investing?
Capital markets are constantly fluctuating, and often these moves are extreme. In order to navigate these roller coaster type swings, understanding what you own and why you own it is critical. One of my criteria is the question: Can you depend on this company? Other important questions are:
What is it’s track record of operational performance? What is the history of the management? What long term advantages do they have which make the business performance sustainable for more than one or two years? How do they compare to other industry participants? How much opportunity is behind them, or in front of them? Have investors benefited from owning this company? If so, for how long and why? These are not difficult questions, but the answers are critical. Some industries don’t lend themselves well to these questions. Clearly, anything season related, or fad oriented, or relying on a temporary source of funding, well, uh, not for me. Anything which on a percentage basis has a low chance of succeeding, like a biotech company, guess what? Not for me. Each investor has to find an approach which best fits them. Personally, my preference is for people who tell me what they are going to try to do, and then they do exactly what they say. Even if they don’t execute perfectly but they follow the game plan, this is what I want. Now, the game plan better be something I believe in as well, and that is why investment research is critical. When you put together a portfolio of 15-20 companies which you know you can depend on as high-quality businesses or are in the process of working to get there, it makes handling market volatility much easier.
Spanning the Globe: Powell on Hold While the Rest of the World Cuts and Stews About Tariffs
Well, you have to hand it to the Donald, he knows how to attract attention. In this case, it is not from his friends on the other side of the political aisle, the Democratic Party. No, it is global leaders who are more than a little miffed that the Donald is instituting reciprocal tax policy. Whatever you tax us, we will tax you. Seems reasonable right? Well, not so much for the folks who have long thought favorable means three for me, one for you. In this case, global countries can tax what US exports to their country at much higher rates and the US maintains a dramatically lower tax for them. President Trump is intent on fixing this, as global leaders are finding out.
Across the world, some areas are cutting interest rates while the US is on hold. Interestingly, most of the globe is growing GDP at reduced levels relative to the US. As examples, the ECB is cutting to 2.7% when their GDP is only growing 1.5%. The UK is lowering (to 4.5%) as their projected growth is .75%. China is reducing to 3.1% while their growth is projected at 4.6% for 2025. Japan is raising to .5% with growth thought to come in at 2.8%. Each of the interest rate and growth rate numbers are highly related to inflation, so isolating one variable probably is not meaningful in terms of understanding the broader implications for the economic picture. Got that?
One interesting thing I noticed was the first slip up by Mr. Millet in Argentina. His endorsement of a cryptocurrency (called Libre by the way), which subsequently crashed and cost investors millions, was not a good look for the Libertarian leader. Stick to the further work on the Vaca Muerte and IMF funding, sir. The second one is the revoking of Chevron’s license to Venezuela by President Trump. Taking away the oil revenues of Mr. Modero and the joy that leads Iran is always a good move, so well done Donald. Looking at the weakening dollar, recent macroeconomic data is starting to show a more strained consumer. Last, I would note the continuing fluctuation of the polls in Canada. Canada will hold an election in a few months. Given what has transpired there over the last few years, you will make up your own mind as to which leader they should choose. You can probably guess where I stand.
Y H & C Investments in February- Activists Step in to Help the Cause
One of the high-profile figures in the investing media is Jim Cramer. He has an interesting quote which applies to down and out holdings, “From the House of Pain to the House of Pleasure.” Companies which own great assets and have track records of creating wealth for shareholders are focused on their stock price. Management teams in public markets know the stock is the report card. When companies have their stock price languish for a long time, the board of directors understands the current situation needs to change. While this may be the case, astute investors can build positions where they start to agitate for action different from the status quo. If an investor files a 13D, it means they have accumulated over 5% of the stock and may be looking to make changes in corporate governance and strategic direction.
I bring this up because over the last month, a few holdings benefited from this type of situation. Both were in the energy sector, and one is a strong competitor (top 5 in the world). The second is a very big enterprise with substantial strength in North America. A large CPG company saw their CEO unexpectedly get replaced by the board. Elsewhere in the portfolio, many of our financial holdings are performing exceptionally well. They range across the size spectrum, but the larger financial entities have been particularly strong. Other areas which have held up nicely include real estate and the luxury goods area.
In the next few weeks, quite a few of our smaller companies will report their results. The micro and small cap area has languished for a long time as compared to the largest companies. Since the beginning of the year, market participation has broadened out, some of which may be related to the idea the economy is suffering from a growth scare. The ten-year treasury rate has retreated to below 4.5%, and financials and the real estate segment have benefited. One dominant theme in the current market is momentum. If something starts to work, it may continue to do well for a long time. So, we will see, but what always helps is excellent operational execution. Later this month I will head to Canada for an annual meeting. If you have any investment questions, please reach out to me at information@y-hc.com. I hope you have a great March and thank you for reading the update.
Y H & C Investments may have positions in companies mentioned in this newsletter. Nothing in the newsletter should be taken as an offer to buy or sell individual securities. It is the responsibility of each investor to research the investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
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