Market Drifts Down As Expectations Exceed Results!
Knowledge comes, but wisdom lingers. It may not be difficult to store up in the mind a vast quantity of facts within a comparatively short time, but the ability to form judgments requires the severe discipline of hard work and the tempering heat of experience and maturity. Calvin Coolidge
Maturity is the idea which refers to achieving full development. The quicker one is able to approach life in a serious, analytical, and thoughtful way, the more they are judged to be mature. As people grow older, they typically learn to reduce those actions which won’t help them and begin to limit non productive language and deeds. As one goes through their own individual journey in life, some individuals are far better at learning from their lifelong experiences and leveraging that information in a useful way. Others, even at an advanced age, never seem to draw on their various experience to help themselves. There are kids who are quite mature at the age of 10. Conversely, you can run across people in their 40’s, 50’s, 60’s, or older, who have all the emotional and intellectual maturity of a three year old crying baby. You can refer to your own daily lives and classify people in either category. The reason I bring maturity to the weekly scribbling is because I think it is an important part of investing.
You see, for those of us who are participants in the daily, weekly, monthly, and yearly trials and tribulations of financial markets, you come to learn that nobody is correct about every investment they make. Indeed, far from it, if you are right more than you are wrong, you are probably doing pretty well. A huge aspect of investing is learning as you go, and building upon what you have previously experienced. There are some who believe the best thing that can happen when you first start investing is to lose a big portion of your money, especially if it is only a small amount. In doing so, a person will realize how difficult the task is and that a loss of capital is a distinct possibility. Markets have a way of humbling you, and if you can learn from these experiences, in the long run, ultimately they can work to your benefit. I bring this up because intellectual and emotional maturity are what is required when things inevitably do not go your way in the market. What does this have to do with the current investment environment, you might ask (a very mature observation!)?
As you probably have observed, the market of 2018 is not the same as it was only a few short months ago. Volatility has increased dramatically and the daily swings of two hundred or more points have become the norm. Company earnings reports can lead to massive losses or gains on the basis of very little, maybe a comment or two by an executive which was not thought out very well, or they were just being honest but it was taken in the wrong context by the investor base. It requires maturity to look past one data point, adopt a longer time horizon, and act appropriately depending on the circumstance. For example, the largest integrated oil companies reported last week and you had a variety of results. Royal Dutch Shell met estimates, Chevron exceeded production numbers, and Exxon disappointed. One can choose to focus on one of the companies and draw a conclusion about investing in energy, or you can evaluate all three in total and you might come to a different decision. I would submit the latter is probably appropriate, but nonetheless, having the maturity to choose which approach you use is in these kinds of circumstances is critically important. Of course, you were mature enough to figure that out already. Let’s turn towards last weeks events, shall we?
On the earnings front, the action was hot and heavy with all kinds of major companies reporting. The cable and telecom areas drew investors wrath as cord cutting and subscriber growth did not impress. Technology charmed as Microsoft, Intel, and Amazon went three for three on Thursday with earnings beats. Alphabet, formerly Google, also posted a nice number early in the week but was not rewarded for it. That same day, Caterpillar put up a strong beat but commented that their earnings might have reached a peak. Guess what happened? Jim Chanos went on television and told the world he was still short Tesla, as well as the quick service restaurant area, including Dunkin Donuts and Restaurant Brands. In that area, Starbucks met expectations, as did Dunkin. On the energy front, with the next OPEC meeting at the end of May, all eyes turn towards that and another little situation. Next week, Apple reports on Tuesday, along with hundreds of others. Maturity dictates you stay informed.
Politically, last week President Trump hosted his first state event for France and also met with German leader Angela Merkel. Both leaders brought up the impending May 12 decision by the Donald on whether or not to pull out of the Iran Nuclear Arms agreement and reinstate sanctions on the leadership in Tehran. Most observers believe the US will pull out, especially if you look at the policy stances of freshly confirmed Secretary of State Mike Pompeo and National Security Advisor John Bolton. We will know shortly, but if the US does reinstate sanctions on Iran, the oil market is going to react to the prospect of at least 500k barrels of supply being taken off the market. I suspect the decision is made and the US will pull out, but maturity dictates to wait until the decision is final. Finally, as I know many of you are avid readers, you might check out Ray Dalio's fine management book called Principles (NY Times Best Seller) and while you are at it, take a quick gander at Jeff Bezos's annual letter to shareholders. Both are well worth your time.
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.