Who you gonna believe, me or your lying eyes? Groucho Marx, Quote Investigator, 1933 Movie ‘Duck Soup’
As many of us in the world have experienced, you might run across people who, shall we say, have a tendency to mislead you. It might be a salesperson, now maybe a web site, which exaggerates the features of a product. As an example, you may have heard stories, or even the pleasure of your own situation, where a bright, shiny, new automobile was offered with every feature known to mankind at the low, low, low price of X. Two months later, you hear a knock, knock, knocking and the car won’t start. Lovely. Not to be outdone, the real estate area can be treacherous as well with those good looking agents driving you around town to find one undiscovered treasure. ‘It’s a cute fixer upper, should be a lot of fun, and not too much work or time to turn into a sparkling new home.’ Low and behold, six months later, the air conditioning and plumbing turned bad, there is asbestos in the roof, and you are staring at thousands of dollars in repairs. Very few people are immune from poor experiences, so it happens to nearly everyone. Why do I bring this up? Well, believe it or not, the financial world is rife with ‘opportunities’ which don’t always turn out to be, ummm, opportune.
You see, like the car or the house, not everything you buy financially turns out to be what is represented. Let’s start with those sharply dressed strategists or analysts that come on national television to talk about their market view, or hard to believe, best stock recommendation. Some of those analysts have been saying sell, or don’t buy, and of course buy buy buy, for decades. It won’t matter what the economic environment is, the time of year, inflation rate, interest rate, GDP growth, or potential changes of legislation in specific industries. It’s the party line, no matter what. Given what is transpiring in the political realm, I am sorry I mentioned party, please forgive me. Regardless, the investment banks or large asset management companies have highly compensated people who spend a lot of time analyzing different parts of the financial world, or industries and different economic conditions. However, what you have to take into consideration is the most important thing, what Munger says tops everything, which is incentive. If you don’t know their incentive, along with their reasoning, you are getting an incomplete picture. So, let’s turn to a pertinent topic regarding the investment world, which would be the economic outlook over the last year, and heading into next year.
Over the last year, we have experienced some interesting things, and still are. As has been the case for nearly a decade, interest rates are extremely low. In many parts of the world, fixed income securities have negative yields, which is highly unusual. We all know about the trade issues with the United States and China, clearly causing some consternation and hesitation among companies planning for the future. As part of the trade tiff, the manufacturing sector in the United States has seen slowdowns over the last six months. On that basis, many strategists proclaimed 2020 is when we are headed into recession, and it is probably starting now. No. Wrong. Wrong. Wrong. Wrong. If you took 5th grade math, you know that 70 percent is greater than 10 percent. Seventy percent is the consumer spending component of the economy. Ten percent is the manufacturing piece. Yesterday, the October retail sales number came in strong, after some blips in September and August. The consumer spending piece of the economy has been good for quite some time. It remains healthy. It has not changed for a good long while. Will it change in 2020? Well, do your own research, but keep in mind our friend Graucho.
In the market this week, there was a full slate of earnings report. Wal Mart, Cisco, and Nvidia were the headlines on Thursday, and all were strong, although Cisco and Nvidia offered a bit of tempered guidance. Luckin Coffee reported big growth, but large losses from expansion in China. They will be an interesting story to pay attention to on the mainland. In the media sector, CBS reported a nice number, while Disney popped on a 10 million subscriber gain from the opening day of availability for the Disney plus offering. SmileDirect offered investors something to grin about with a beat, while ADT offered no security with its miss. ADT has gone back and forth between private equity and the public markets numerous times. In Canada, the goose, meaning Canadian Goose ( a jacket manufacturer) kept shareholders warm with a large beat. Late in the week, Trump economic adviser and long time television commentator Larry Kudlow offered hopes of a trade deal with China coming to a conclusion. The market ate it up with a strong session on Friday.
Finally, last week I mentioned that I never have invested to outperform market indexes.
I thought I would clarify this for clients, readers, fans, or interested parties. I look at it like a student in school. When a student takes a test, the grade is a byproduct of learning the subject matter. With investing, your return is a result of the homework you do in researching, analyzing, and selecting businesses at good prices. The businesses clearly must fit the clients objectives. You control what you select and what you own. Not everything works all of the time, but businesses are always changing, and that is what makes it interesting.
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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 Chartered Financial Analyst in no way means or guarantee performance better than market indexes.