‘Don’t judge each day by the harvest you reap but by the seeds you plant.’ Robert Louis Stevenson
The formation of much of civilization began with farming. At it’s inception, clearing massive fields to plant crops which will yield something to eat months later was tough. It still isn’t easy, and it certainly requires faith and patience. Of course, modern farming has changed a great deal over time, and much of the industry has consolidated as you need scale to effectively compete. Agritech is an emerging field which offers quite a bit of promise as the various different elements of farming offer plenty of opportunity to become more efficient. The use of big data to make more effective use of land, water, seeds, machinery, and people is an area to investigate. It certainly is Amazon proof, so it has that going for it. An interesting aspect of farming is applicable to investing. There is a season for planting, and there is a time for harvesting. Each is related and dependent on the other season. A good planting results in a fine harvest, which leads to more capital that can be deployed (more land, workers, crops, etc). In thinking about the current situation in the investment world, I am of the opinion now is a time to concentrate on your planting, especially if you have had any recent success which allowed for plentiful harvests.
The market environment is currently is quite unique. The divergence between the performance of growth stocks and the lack of appreciation of value entities has probably never been wider. If you look at the multiples of growth type investments (Tesla, Amazon, Shopify, Zoom, Wix, Apple, Microsoft, Facebook, Adobe, Salesforce, Okta, Servicenow), they value businesses at levels where many years of future growth is assumed. Companies which have not performed for quite some time are valued in a way where they are believed to have no future growth, or possibly worse, that the business should be liquidated. Those who prefer the growth entities are making the assumption that the next ten years will be similar to the last ten. Investors who prefer the cheaper companies are potentially buying something which may shrink or are in obsolete industries. One of the long held principles of finance is reversion to the mean, where history shows that extreme results eventually move towards their usual, or average, outcome. Outperformance for a long time eventually reverts towards the average, which would mean years of future lacklaster returns. The opposite holds true as well. In the middle of the current Covid pandemic, it is clearly a different time. I see the next six months as being a time to carefully evaluate what you want to own, and why you want to own it. Businesses and assets you can count on, in areas you want exposure to. You are a farmer planting seeds, and your future harvests will depend on what you decide to do now.
It was a light week as far as earnings reports go. Payroll giant Paychex met expectations, as did drug retailer Walgreen’s. Levi Strauss fit for investors with a smaller loss, but WD-40 did not provide enough lubrication with a slight miss. Shaw Communciations, the large telecom giant in Canada met their number. In the oil market, a buildup of supply dampened the IEA’s forecast of better demand. Next week, on Tuesday and Wednesday, the largest banks will kick off earnings season. It is expected most will report higher loan loss reserves but keep their dividends at the same level. The one outlier is Wells Fargo, which is thought to announce a large dividend cut and thousands of job losses. The new CEO is an ex Chase guy who led Bank of Mellon for many years, Charlie Scharf. It is going to take quite a while to clean up the mess at Wells, as it rhymes with smells for a reason. Still, Mr. Scharf has plenty to work with and he knows what to do. Just something to keep your eye on and no, I am not saying buy it. You certainly should watch it, though. Politically, the Democrats continue to measure the curtains for the White House, and are even preparing for a full sweep in the Senate. If you are a Republican, and you know I am, it is a very difficult vision. When you are depending on the Donald, with polls showing him down ten points and worried about Bubba Wallace, your future prospects for the next four years or longer are troubling. It is why you invest in businesses you believe you can rely on. I have to go and plant some seeds. Thank you for reading the blog this week, and if you have any questions about investing, please email me at firstname.lastname@example.org.
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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 CFA designation does not mean Y H & C Investments will outperform broad market indexes.