The Fed Raises, SEC Charges Elan, Facebook’s Fifty, and the Senators Question Mr. Kavanaugh!
Patience and diligence, like faith, remove mountains. William Penn
With most of civilization probably never having a higher standard of living, if you pay attention to what is going on in the world, there are times when you become convinced that some of the leadership in the world aren’t the brightest bulbs. Specifically, when you hear or read conference calls from company CEO’s, and you compare what results are produced against what the earlier projections were a quarter, a year, or two years prior, often times they don’t have a close resemblance. In fact, companies often go through struggles to accomplish what they set out to do. In the equity world, if you own stocks, if you think the correct time horizon is a year or two years out, you probably should extend it by double that amount, maybe more. One way to look at it is through other asset classes and what you would earn by owning that instrument for a year. For example, the ten year treasury note currently yields 3.065%. It means that after one year, by owning that note, your capital would have grown by three percent. If you own a certificate of deposit for a year, they currently yield around 2.5%. The dramatic fluctuations of stock prices over a year are far in excess of the 2-3% range, in many cases hovering around 50-70% in a year. The business results of the company can have quite a bit of variation, especially smaller entities. Obviously, something with 50 million in sales does not have the stability of something with 5 billion of sales. With so many variables affecting what takes place with a specific business, extending your time frame for a holding to achieve what it’s goals are makes sense. The hard part is staying patient when the investment world is trashing the stock price of that company you are so high on, or a management team you believe in. Mr. Penn wasn’t speaking specifically about investing when he mentioned patience and diligence but his heirs probably should get a royalty whenever a superstar investor comes on Bloomberg or CNBC and brings up a company that will require more time in order for investors to realize a profit. Fat chance on that, as you well know.
It was an interesting week in the investment world as the Fed decided to raise rates 25 basis points, it’s third such hike this year. With one more probably in the hopper for the rest of 2018, and the futures market indicating two more in 2019, stronger economic data dictates normalization may be steeper and longer than many participants previously thought. The SEC decided Elan Musk made a big boo boo by providing the market inaccurate information about possibly taking Tesla private at 420 bucks a share. Running a public company is serious stuff, as opposed to being a futurist, space explorer, or the next generation’s Steve Jobs. There are major responsibilities to those who trust you with their capital, as well as those entities which loan you enormous sums of money in the hope your grand plans become reality. At the very least, Mr. Musk would be wise to consult the best advisers and lawyers he can, and settle with the SEC by paying a huge fine, changing the governance at Tesla so he is not both Chairman and CEO, zip his lip, and stay away from Twitter and pot. Just sayin. Facebook announced yesterday another data breach, this time with a pittance of it’s 2 billion user base, only a mere 50 million people were affected. It is going to mean more government scrutiny, more fines, and more money expended to solve the data privacy issue. Those 50 percent margins dropping to 30% might be a best case scenario for a while. On the earnings front, Nike, KB Homes, and Scholastic beat expectations, while McCormick and Vail Resorts hit their targets.
Many readers have regularly suffered with my political commentary, and this week will be no exception. The Democrats played up the gender issue in the Senate judiciaries questioning of Brett Kavanaugh, to say the least. Meanwhile, one time Democratic National Committee leader candidate Keith Ellison has his own personal problems in this regard. Has he been called out once by any member of the Democratic party? No. Any ranking member on the Democratic side of the Senate judiciary have anything to say about Mr. Ellison? No. With respect to the appointment of Mr. Kavanaugh, it goes without saying that the issue of Roe versus Wade is the elephant in the room. If Mr. Kavanaugh would have signed a document saying he will never repeal Roe, I suspect the shenanigans the Democrats pulled in terms of holding the Ford allegations would not have occurred. Meanwhile, a Supreme Court appointment is important stuff, and is supposed to be weighty, with questions having serious implications. Instead, the general public was treated to the sight of queries by our Democratic Senators about, you guessed it, flatulence. Should we have been surprised? There are plenty of subjects in the world to be patient and diligent about, as Mr. Penn advised. Our current politicians and their infantile behavior is not one of them.
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.