Market Begins With A Bang, Sells off On Iran News!
‘Baseball is the only field of endeavor where a man can succeed three times out of ten and be considered a good performer.’
If you are a red blooded male or female, you probably are at least somewhat familiar with the game of baseball. It’s simplicity is quite striking. Batters try and hit the ball, thrown by a pitcher, three strikes and you are out. Play nine innings, and the team with the most runs wins. At it’s core, much of baseball is predicated on the struggle for success between the batter and the pitcher. Most baseball fans know that it has long been known that good pitching usually prevails over good hitting. The best hitter in baseball history is widely regarded as Ted Williams, the star of the Boston Red Sox during the 1940’s and 1950’s. Williams is the last player to hit .400 in the major leagues. He hit .406 in 1941. I bring up Ted Williams because his philosophy of hitting was to wait for a pitch in only those zones that he wanted. He broke the strike zone down into 7 baseballs by 11 baseballs, or a total area of 77 baseballs. However, he only wanted to swing at pitches at 24 of those 77 locations, less than out of three places in the strike zone (.312 to be exact). Clearly, terrific Ted could have been more accurately named Selective Sam. In baseball, adjusting to the pitcher and trying to anticipate what pitch he might throw is also important. If you know that the pitcher cannot get his curve ball over, you wait for a fastball. If you wait for a fastball in your specific area, now you might have a chance to really connect. Of course, those pitches are coming in at nearly 100 miles per hour or more, so the task is not easy. Clearly, it is an adaptive exercise that requires adjusting to what is taking place, but also having a plan about what you are doing. Why do I bring this up, you might ask?
Investing is very similar to hitting baseballs, but the difference is you don’t have to swing at anything, instead think of swinging as spending your money to buy an asset. You only have so much money, so you are trying to make the most of what you have. I often get asked about specific holdings or situations in the market. What do you think of Tesla? How about Netflix? Have you considered GE? Maybe it’s X, maybe it’s Y, maybe it’s Z. The standard answer is to look at it, but pass. I know what I am looking for and want, and most situations don’t qualify. There are multiple reasons I have that approach, but a big one among them is I want to be comfortable with what I own. When markets correct or have a tough period, which does happen, I want to know that the businesses I own will not just survive, but the management teams will be able to take advantage of tough economic times. Not every company is able to do that. So, I am selective about what I choose to buy, as Mr. Williams was selective about what pitches he chose to swing at. Another fan of Ted Williams is Warren Buffett. Mr. Buffett is currently being criticized because he has not made a big acquisition in a few years. Some money managers have sold Berkshire Hathaway’s stock on the thesis that he has missed too many opportunities over the last few years by not doing anything with the accumulating cash. Buffett now sits on a pile of nearly $130 billion, that is with a b. He has been buying some JP Morgan Chase shares, however (click here for more information on why). There is very little chance you or I has over 100 billion of cash lying around to buy a company, but we certainly could adopt the idea being very patient with our hard earned capital and choose those special assets we want to purchase at prices we want to purchase them at.
In the markets this week, President Trump celebrated the turning of the new year into a new decade. Decisive Donald gave our country a nice present, that being a missile strike on the head of the Revolutionary Guard of Iran’s military, Qassem Soleimani. Soleimani was the lynch pin of Iran’s strategy to spread violence and murder across the middle east. He has been involved with killings with groups like Hezbollah, Haas, and the Southi rebels. His latest efforts were in Iraq, most notably around the US embassy and efforts to destabilize that important location. I would note the previous administrations effort to not only stand by and watch Mr. Soleimani try and kill US citizens and military personnel, but funding the effort to the tune of nearly 2 billion dollars (a fact, not conjecture). The strike had a major effect on the price of oil, which jumped over 3% on Friday. Energy stocks have been languishing for over a decade, and at the very least, the strike draws attention to the strategic importance of oil. In addition, it also should have market participants considering the heightened risk that exists in markets around global energy. The risk should start to get priced into assets over time, especially as the confrontation between Iran and the United States evolves.
Democrats argue Mr. Trump made an error killing Soleimani and the one off move is not accompanied by any long term strategy regarding Iran or the Middle East. The idea the United States should continue to let Iran do whatever it pleases while it foments terror anywhere it can is not a policy, its an abstention. You have to believe Iran will retaliate, especially in Iraq and probably towards Israel, and this is what makes global politics and strategy so important. I think the Democrats logic is not only erroneous, but hogwash, as some of the Democratic Representatives in the House display every time they open their mouths. Their approach makes as much sense as swinging at every pitch during your time at bat.
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