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Y H & C Investments January 2021 Monthly Update- Edition 150
|Index/Asset||December 20||4th Qtr 2020||Full Yr 2020|
|10Yr Treasury (.92%)|
|Top 5 S&P 500
|5. LB 105%|
|Top 5 Nasdaq
|5. PDD 370%|
Economic & Financial Markets Outlook-Markets Close the Year Strong As the Economy Slows While Waiting for Vaccines to Ramp! (Return figures in this section come from the December 30, 2020 edition of the Wall St. Journal. Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research possible investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
In December, the Dow Jones Industrial Average gained 2.13%, the S&P 500 rocketed 2.44%, and the NASDAQ tacked on 4.13%. For the fourth quarter of 2020, the Dow rose 10.03%, the S&P 500 popped 11.10%, and the NASDAQ soared 13.79%. In looking at the entire year of 2020, the Dow rose 7.25%, the Nasdaq was the clear winner, rocketing 43.64%, and the S&P 500 gained a solid 16.26%.
In terms of the entire year, clearly it was dominated by the COVID-19 disruption and how different segments either suffered or benefited. From an investment perspective, right now the March 2020 sell off does look one of those rare buying chances where the market was giving away quite a few great companies at attractive prices. As we enter 2021, those values are now few and far between. As far as the economy is concerned, the Covid crisis and the March shutdown exacerbated the dichotomy between perceived winners and losers. Clearly, service industries suffered the most pain, and continue to do so, especially small businesses like bars, salons, gyms, restaurants, and hotels. Those that benefited include anything stay at home related. Specific segment winners include video conferencing, cloud related security, networked exercise, internet shopping, e-commerce, software as a service, and on line infrastructure.
Another area which held up well was the various components of the health care complex. Specifically, pharmaceuticals, retailers and distributors, and diagnostics all played a big role in contending with Covid and the market rewarded those areas. In the financial services industry, investment banks and asset managers held up well in terms of business performance, while the large money center banks were believed to be saddled with low net interest margins and too many non-performing loans. Exposure to real estate delinquencies and the potential write down of more bad loans remain front and center for the banks. Now let’s turn towards 2021 and what to be aware of going into the new year.
Economic conditions remain quite predictable with rock bottom interest rates (10 year at .92%), tame inflation (1-2%), historically cheap energy prices (oil at 50$ a barrel), and what has been a nice economic recovery after an unprecedented shutdown. As vaccinations begin on a mass scale, the impact on domestic and global growth, related to the time frame of eliminating restrictions, should be dramatic. The key question is when does this happen in 2021: early, middle, or late in the year? Politically, all eyes are on Georgia as legislatively the outcome will determine whether gridlock for the next two years is certain or Democratic efforts at ‘progressive’ policies are feasible. 2021 will hopefully prove much better for the economy in the United States, but maybe not so much for investors.
Global Economic & Financial Markets Outlook-With Covid Raging Across the Globe, Country Performance Becomes A Dart Throw! (All country index data provided by countryeconomy.com, December 30, 2020.)
In the financial world, one of the famous stories passed down to inform investors of the futility of picking stocks is the outcome of a stock picking contest between those who throw darts at a dartboard and investors who pick individual stocks. You can imagine who won the contest (the dart throwers)! Similarly, in evaluating this year’s global equity index performance of countries, the random nature of the results would validate the idea that trying to pick specific countries which outperform a global index is a waste of time as well. Nonetheless, and keep in mind I am biased in favor of individual and country security selection, let’s look at the wide range of results, shall we?
In Europe, the FTSE fell 14.18%, the Dax (Germany) rose 3.55%, Spain’s IBEX is down 15.45%, and France’s CAC lost 7.14%. Italy, Portugal, and Greece retreated 5.42%, 6.06%, and 11.75% respectively. In Asia, Japan’s Nikkei is ahead 16.01%, China’s Shanghai is up 13.87%, Hong Kong’s Hang Seng is off 3.40%, while Signapore’s STI lost 21.21%. India’s Nifty advanced 14.90%, while South Korea’s Kospi is ahead a whopping 30.75%, and Taiwan’s TAE also had a strong year (+22.50%) as Thailand’s SET lost 8.26%. Australia fell a touch, losing 1.45%. In North America, Canada’s TSX gained 2.64%, Mexico’s IBC rose 2.65%, while Brazil’s IBOV crept up by 2.92% as Chile’s IPSA lost 10.55%.
Looking ahead, the question front and center remains how will the rollout of vaccines start to affect the Covid virus and when will the global economy start to return to more normal business conditions? Issues like trade, travel, tourism, and plenty of others, all are based on this important dilemma.
The Art of Contrarian Thinking-Business Results Verify Your Investment Thesis, Not Peer Reviews or Social Networking Posts! (YH & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research possible investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
The world, especially the investment universe, is full of, let’s call them copycats. Investment firms and their analysts are a social group. They have the same friends. They read the same periodicals, web sites, and articles. They watch the same shows. They listen to the same podcasts. They are constantly talking to other firms, investment banks, asset managers, hedge funds, clients, law firms, and the media. Many validate their ideas, or check their thesis, by running them past their clients or other contacts. The same applies to channel checks on a specific position. Many of these people are quite accomplished professionally and academically. If someone is managing 100 million to a billion or more of others capital, they can’t just have fallen off the tomato truck. At least not yesterday. In many cases, investment firms have skin in the game which makes them search for validation, which can be a form of confirmation bias. If you have bias in your thesis, it factually weakens the merit of your analysis. The bottom line is the whole world is trying to do well financially, and you should assume people will seek opportunity to get ahead, including the sharing or taking of an investment thesis, no matter how they get it.
I bring this topic up because I would urge you to not approach investing in this manner. Do your analysis, find sources and information which is reliable and accurate, and make your own decisions about investment possibilities. In time, and it may take many years, if you are right and allocate the capital you are responsible for to the idea, you will benefit. Let others talk, share, gossip, and socialize while you go about searching for a good investment opportunity. Markets will test you, and if they are your ideas and you know why you own them, you are much better prepared to withstand the inevitable volatility which awaits your ownership. I hope this helps your investing.
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(Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research possible investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)