Y H & C Investments March 2021 Monthly Update- Edition 152
|10Yr Treasury (1.426%)||+.35 bps|
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U.S Economic & Financial Markets Outlook-As the Vaccine Rollout Accelerates, Investors View Economic Recovery Favorably with Rising Oil Prices and Bond Yields! (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 February, the Dow Jones Industrial Average gained 3.17%, the S&P 500 grew 2.61%, and the NASDAQ inched up .93%. Oil popped 11.63%, while gold had a tough go of it, losing 8.13%. As a tough, cold, and especially grim winter winds down, the U.S. economy looks ahead to reopening. With an increase in vaccinations taking place, expanded supply on the horizon with the addition of the Johnson & Johnson vaccine should help distribution pick up even more over the next few months. Infection and mortality numbers have been improving over the last few weeks, and investors are embracing this data with increased enthusiasm for the economically sensitive pieces of the economy. Oil prices have jumped to over $60 per barrel, and bond yields now hover around the 1.5% level for the 10-year treasury note. With a whiff of inflation in the air, Fed Chairman Powell remains committed to prioritizing improving employment and allowing inflation to run hot for as long as needed.
On the earnings front, corporate profits remain in good shape as large segments like banking, technology, telecommunications, housing, automobiles, and industrial’s continue to provide stability and strength. The consumer area is also strong as household balance sheets are bolstered by low borrowing costs on mortgages and credit cards. Retail sales, especially at those companies with a strong on-line or omni channel presence, have also held up well (Amazon, Target, Wal-Mart, Costco, Best Buy, etc). With economic conditions holding up nicely in most areas, the service-related piece looks poised to rebound when the economy opens in full (6-9 months- 12 max). The unknown question for investors is could the economy rebound so strongly that inflation roars its head far more than anyone expects?
On the investment side, with pockets of craziness still quite evident, valuation remains historically elevated. The continuing justification for this is the low level of interest rates, accompanied by the rationalization that the Fed is in no hurry to begin tightening. As such, traditional metrics seem to be flashing warning signs about the outrageous multiples the favored few have been rewarded with. As is the case in nearly any market, very few winners find such extreme levels, so sifting through the sand to find the few valuable golden strands remains the task at hand. Patience and rigor are the required disciplines, so nothing has changed their, either. Good luck on your hunt!
Global Economic & Financial Markets Outlook-Investors Look Ahead to Reopening as World Markets Turn Green (All country index data provided by countryeconomy.com, February 28, 2021.)
After navigating a challenging 2020 and a winter of political drama, investors have begun to anticipate the world moving past the COVID-19 pandemic. With global rollouts of vaccines accelerating, many individual country indexes have turned positive. With continued support from global central banks, interest rates remain moored at zero (or below) in many countries. Let’s look at some individual index returns through the end of February.
One area of strength is in Eastern Europe where Austria (+8.31%), Bulgaria (+10.74%), Hungary (+4.0%), Romania (+4.84%), and Poland (-3.87%) show nearly all solid performance. In Asia, Hong Kong (+6.42%), China (+1.04%), Japan (+5.55%), Taiwan (+8.29%), India (+3.92%), Indonesia (4.39%), Thailand (+3.27%), and Vietnam (+5.85%) display similar strength. Moving south and east, Australia (+1.31%), South Africa (+11.72%), Mexico (+1.19%), Brazil (-7.55%) and Chile (+9.48%) also support the optimistic thesis. Looking ahead, the world continues the slow and painstaking task of vaccinating millions of citizens over the next year. As the process continues, investors will pay close attention to the progress being made and money flows will adjust accordingly.
The Art of Contrarian Thinking-Moonshots Are A Result of Looking Hard, Accurate Analysis, and Endless Patience! (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)
The great investor from Fidelity, Peter Lynch, came up with the slogan ‘100 bagger.’ He is referring to an investment which earns you 100x your money or turning $1 into $100 ($1,000 into $100,000). Some professional investors commonly refer to these situations as ‘moonshots.’ If you manage to achieve a few moonshots during your lifetime of investing, it probably will make a dramatic impact on your financial situation, depending on how much capital is allocated to each of these big winners. It’s all well and good to bring up the moonshot topic, but achieving the result is quite difficult. Let’s consider an approach of investing which may help accomplish the outcome that might even resemble a ‘moonshot.’
First, from a psychological perspective, I would not look at investing with a moonshot in mind. If your definition of investment success is a 100 bagger, 99% or more of the time you are going to be disappointed. Instead, you might create a template of specific characteristics of a what you consider a superior business. Think through what you want in a management team, how much of the business they own, and the kinds of industries you want to have exposure to. Look at the previous history of the business, the kinds of returns they have delivered, and the current financial condition. You should have a strong understanding of the revenue growth you are looking for, what you want from the balance sheet, and what kind of margin profile is desired. By compiling a broad outline of what you are looking for in an investment, you narrow down your potential candidates into exactly what you want. The next step to consider is the valuation, or the price you are paying for this potential prize. You should have an idea about what you consider an acceptable price for your purchase. Ratio analysis can be quite helpful in this regard (P/E, P/S, P/B, etc). Putting it all together, you are looking to get as much as you can for your money. If bought well, a 100 bagger is the byproduct of finding a company that meets your stringent business criteria. Usually, it involves buying a great business early in its development. As an investor, looking at many companies is the only way it happens, so turning over quite a few possibilities is the required first step. Good luck in your efforts to find and invest in a moonshot!
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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)