Market Posts Strong Week On Bank Earnings; Learning from Bogle-
I think when you're trying to teach the great concepts that work, it helps to tie them into the lives and personalities of the people who developed them. I think you learn economics better if you make Adam Smith your friend. That sounds funny, making friends among the eminent dead, but if you go through life making friends with the eminent dead who had the right ideas, I think it will work better in life and work better in education. It's way better than just being given the basic concepts. Charlie Munger, Poor Charlie’s Almanac
One of the joys of reading is being able to learn from other people. With the emergence of the internet and the advent of wireless technologies, stronger and cheaper computing power combined with more portable factor forms enables people to access information about anything from nearly anywhere in the world. There is plenty of wonderful material about nearly every important subject just ready to be digested if one is a willing student. Along those lines, some of the most life-changing information and helpful wisdom has come from people I never met or will meet. Specifically, Warren Buffet and Charlie Munger, John Malone (did get to meet him), and Jack Bogle made a massive impact. If you were not aware, Mr. Bogle was the founder of Vanguard and passed away this week at nearly 90 years young. He had a very interesting life and career and will certainly be placed into whatever is the Mt. Rushmore of Investing. What was unique about Mr. Bogle is he was involved in the money management profession and actually failed as a CEO of Wellington Management by buying another investment company, which turned out to be a major mistake. Mr. Bogle then began Vanguard in 1975 and launched the first index fund in 1976. At the time, the fact that a small mutual fund company launched a new fund was not something others in the investment world paid attention to. His genius was in the simplicity and accuracy of the premise that keeping costs as low as possible and investing for the long term was the road to success. It remains valid decades after the origin, and it is why Vanguard now holds nearly 5 trillion in assets. Mr. Bogle was a source of wisdom and strength for the investment world and his consistent mantra of staying the course, even when markets get rocky, is probably underappreciated. Although Vanguard is a global powerhouse in index instruments, it also has a wide range of actively managed funds. Mr. Bogle was vehemently opposed to excessive trading, and the emergence of exchange-traded funds and the ability to quickly go in and out of the wide variety of those assets continually drew his wrath. The world, and especially the investment community, lost a brilliant and great man this week. He will certainly become, as Mr. Munger puts it, one of the eminent dead.
In markets this week, the earnings reports from financial giants JP Morgan, Goldman Sachs, and Bank of America bolstered the market although Chase and Morgan Stanley missed, and B of A and Goldman beat. Chase misses and earns $7 billion in a quarter, and it demonstrates the earnings power of the largest banks. All had issues with their trading results in fixed income, currencies, and commodities, much of it related to the difficult December month. In the oil and energy world, OPEC told us their production cuts had the desired result and in combination with lower than expected inventories in North America, oil prices strengthened. Schlumberger, the largest energy servicing firm, noted shale production in North America will be lighter than expected in 2019 because of the recent drop in the price. Last week, I mentioned the price differential in Western Canadian and Baaken based crude and how it had blown out in recent months. Naturally, over the past few weeks, the Alberta provincial governor required production cuts to bolster prices and that spread has now narrowed. Along the Texas refining coast, heavy Venezuelan crude has been much harder to come by as well, also bolstering prices for the heavy stuff elsewhere. Still, the lack of pipelines in Western Canada and the Baaken won’t be solved any time soon, so that pricing differential bears monitoring. The auto world’s leading figure, Mr. Musk, announced bad news with a reduction in the workforce by 7% in an effort to get the price of the Model 3 down to $35K. Brilliant guy, interesting and controversial company, but the car business remains brutally competitive and those conditions are not going to change any time soon. Netflix announced a price hike and added 9 million paying customers, adding to the 100 million they already have. Mr. Hastings mentioned on the call that in his mind their largest competitor is Fortnite, the massively popular video game. I wonder if Mr. Iger and the Mouse house took that to heart? Next week brings a shortened one, but the earnings reports will keep rolling in. In the meantime, the search for knowledge, especially through the esteemed members of the past, remains a constant quest for self-improvement.
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 one's 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.