Bipolar Market Tests Investors!

Losing is only temporary and not encompassing. You must simply study it, learn from it, and try hard not to lose the same way again. Then you must have the self-control to forget about it. 

John Wooden 

In sports, politics, and now investing, it seems that, if one remembers the famous introduction from ABC’s Wide World of Sports many years ago, there is only “The Thrill of Victory”, and the “Agony of Defeat.”  Boy, ain’t that the truth.  Imagine if you are a hard working volunteer for the Democratic Party eagerly anticipating the first woman’s president to be elected in the fall of 2016.  You have put in numerous hours calling, canvasing, and extolling the virtues of Mrs. Clinton to anyone who has an ear and, maybe more importantly, a full checking or brokerage account.  You are ready to party hard, and be rewarded with a luscious position in the incoming administration when the fateful verdict gets rendered.  Utter despair.  If you want an idea of what I am talking about, go see the video of Ben Rhodes, the ex-Obama foreign policy guru when Mrs. Clinton was vanquished.  Anyway, recently in the NBA Finals, the defending champion Golden State Warriors, thought to be preordained as the next great sports dynasty, succumbed to injuries and a nice Canadian group.  The Warriors have now been dismantled and forced to rebuild, leaving many observers to question the handling of their talented players who played with injuries they maybe shouldn’t have.  Nothing’s guaranteed or preordained, in anything, ever, no matter what the so called experts say.  Now, let’s turn to the investment world, where we can see what lessons are applicable.

In the current environment of negative bond yields (in major foreign countries), a punk 10 year treasury rate, steady but maybe slowing economic growth, and a decade of over ten percent annual returns in the equity markets (12% actually), investors also have the bipolar approach of either winning or losing.  If you look at your portfolio, you might notice holdings that have either gone through the moon (hooray) or are lower than dirt (on par with where oil is found in the shale).  Think +500 or -80 or -90%.  The difference between investing and sports or politics, other than the fact that many investment professionals are extremely accomplished academically, is that investing is not a zero sum game, whereas the other two areas generally are.  Which is why we look at Mr. Wooden’s quote, where he is trying to teach people about learning skills, and see it as perhaps most applicable in the investment area.  You see, companies whose stocks have been poor performers still have business operations.  If you own some equity, you still have a chance to participate from improvement in the business. Central to this idea is the business must improve its operations, grow, and become more efficient. Until those things happen, today’s investors won’t even think about buying the stock.  Why should they?  They know there are all kinds of large companies growing quite quickly where they don’t have to take the risk of owning something which is not. Of course, if the business improves, well, the owners will have learned from their ‘losses.’

In the markets last week, the June jobs report came in hot at 224k versus an expected 165k, leading some to question whether the Fed will cut interest rates.  An extension on potential tariff increases with goods from China helped the mood, although OPEC’s decision to extend production cuts still didn’t help bolster the price of oil.  In the health care realm, large announced mergers like Abbvie-Allergan, Bristol Myers and Celgene, and CVS-Aetna are being questioned for their logic, as seen by the poor performance of the acquirers stock prices.  All are down a nice amount since the announced acquisition.  Academics have long studied merger and acquisition results and generally have come to the conclusion that most deals result in very poor performance for acquirers shareholders.  There is no hard and fast rule, however, as you can look at how Google was built through the important deals for Youtube and in the advertising area, or plenty of others, to see each case has its own merit to stand on.  Here in Las Vegas and in neighboring Southern California, the two major earthquakes centered in Ridgecrest, CA left people a little shaken up, literally.    Next week brings the start of earnings season late in the week and into next.  In the meantime, it is a long weekend and many are with their family, so I hope you are enjoying your time together.
     
 Thank you for reading the blog this week, and if you have any questions about investing, please email me at [email protected].
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.