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“Don't let the tall weeds cast a shadow on the beautiful flowers in your garden.” 

― Steve Maraboli, Life, the Truth, and Being Free

There are certain times of the year where you have to anticipate what probably will come next. For example, if you live in the middle or eastern part of the United States during the months of November through February, cold weather is a normal circumstance. Conversely, here on the West Coast, the months of May through September are going to be hot, usually very hot here in Las Vegas. If a couple gets married, typically a new bundle of joy arrives within the following 12 months. So, there are different times of the year where you should have an inkling about what to prepare for. Let us now turn our attention to the end of the year in the capital markets, and what to think about, shall we?

November Jobs Report Comes In Strong

The last few weeks of the year are always an interesting time, especially in the equity market. My favorite saying about it, which is quite applicable to major league sports leagues and teams, is that winners win and losers lose. Very profound, I know. However, it accurately sums up the current state of affairs quite well. You see, teams which win year after year probably are in the same position again. Low and behold, usually the Patriots sit at the top of their division, as do the Ravens, Steelers, Broncos, and maybe the Cowboys or Eagles.

Since our focus is the stock market, let’s turn to that area. We are at a time of the year where positions which have done well usually continue to do so. Anything that has not,  let’s just say there is a different place for them. As an investor, what you do now affects your taxes for next year, so now is the time to cull the weeds, or those entities which have not done well. It is a way to benefit from your losers, so when you get lemons, you make lemonade. Asset management firms, be it those that have plenty of representatives or robo-advisors (those that offer automated portfolio management) call this tax loss harvesting. If the company has lost your trust, or it has not performed in a long time and your are just fed up with it’s results, selling and using the capital for other companies is both smart capital management and good psychologically. Now comes the hard question, are you ready for it?

The difficult part of culling your ‘laggards’ is there is a very good chance that in time, they ultimately will perform. Viewed from a longer time horizon, if you have conviction in the company, its leadership, and underlying fundamentals, selling might not make a great deal of sense, especially if your tax situation is fairly simple (especially when you don’t have a lot of tax liability). If you do have plenty of liability, it becomes more complex, ahem, interesting. If you still believe in the company, maybe even more so, but want to take advantage of the losses, you can sell now and buy it back in thirty one days. What if all of a sudden the company makes a major announcement and the stock roars? At the end of the year, when very few investors are paying attention? Probably not. I’d take my chances under the assumption you will have a chance to buy it back in thirty one days at a similar price. So that covers a strategy for selling, but what about using your capital?

As I mentioned, the end of the year is when losers keep losing. We know from plenty of research, reading, and prior history, that cheap businesses can lead to rewards down the road. Now is the time where something that has been cheap might get cheaper. You might take your time, look for companies that you are quite interested in, and see if the underlying business is attractive. You can dollar cost average over the next few weeks or months, or wait until the last few days of the year, but I would not expect much to change in terms of the price for at least six months. However, now is the time to look for the weeds that eventually turn into flowers.

In the markets this week, the November jobs report came in much stronger than anticipated, with the 266k number much greater than the average of 205k over the last three months. As we have been mentioning for a while, the consumer segment (70%) of the economy is good, the manufacturing (10%) is where it is questionable. Nothing new there. In the earnings area, enterprise software heavy Salesforce whiffed while Workday beat. The large Canadian banks RBC and TD alternated with disappointment and joy, while discounter Dollar General met expectations as Jack Daniels provider Brown Foreman showed a strong number. Fizz, owner of Le-Croix, sparkled while EZ-Corp, a large pawn shop chain, shined as well. Not so for Tiffany’s, which had a poor number because of unrest in Hong Kong. Build-A-Bear, the lovable specialty retailer, beat expectations but the current quarter is much more applicable for shareholders.

Get rid of the losers

Turning towards next week, the big names will be LuLulemon and Costco and I suspect they will show strength. Remember, winners win and losers lose. In the meantime, I am sure you will sharpen your gardening skills.