One of the popular thoughts in the business and investment world is to find large markets and target those areas in order to grow one’s business (or capital).  Currently, the places many find most attractive would be related to technology.  If you aren’t already familiar with these segments , think places like cloud computing, data analytics, software as a service, infrastructure as a service, data storage, data security, artificial intelligence, machine learning, virtual reality, augmented reality, robotics, sensors, autonomous driving, and drones, among many.  Semiconductors and software have long been two critical areas because they are the brains and functionality of computing, no matter what kind of device is being employed.  Maybe more important, it is where these large, luscious, juicy, and ever attractive margins are, which is why the competition in these fields is so heavy.  

 

On the investment side, it is no secret where the growth is supposed to take place, which is why the leaders in these fields have their stocks bid up.  Investors anticipate what will happen based on what has taken place, and assume the future will pretty much play out like the past.  It is why Amazon, Facebook, Google, Microsoft, Adobe, Nvidia, Netflix, and Tesla command large premiums to the rest of the market, in some cases, astronomically so.  Buyers believe in their future ability to grow revenues, cash flow, and net profits.  Just because these possibilities are thought probable does not mean it is guaranteed, not at all.  In fact, the way competition works, I believe the opposite is true.  When an opponent is known to be good, or a business is thought dominant, those who are in their path make sure to improve their capabilities, refine their strategies, and take a good hard look at how to be better competitors.  As examples, just look at how Wal Mart, Target, Costco, and others are starting to respond to the Amazon-Whole Foods purchase.  You may have noticed suppliers are being squeezed and forced to make difficult choices, additional on line alternatives are integrated into physical stores, and delivery options have been enhanced.  My own thinking is to find situations where there are big markets, but thought not to be, and certainly not priced in.  In fact, buying what is thought to be shrinking has a double bonus.  You pay a cheaper price and get rewarded when growth actually takes place.  It is far different than paying a huge price for growth which is widely assumed to happen where the competition is incredibly fierce.  Over time, think years and increments of five, not months and seconds, investors get rewarded with what actually takes place, not what is assumed.  It is what makes investing, like Mrs. Truss communicates, a place where those of us live with the ‘painful consequences.’  Duly noted.

 

In the glare of the big lights, Mrs. Yellen and the Federal Reserve Board stood pat this week and decided not to raise rates, but did let the world know that shrinking the balance sheet is a priority.  Some critics, especially well known bank analyst Dick Bove, think the Fed has a mismatch of funding (borrowing short, lending long) which could eventually be the market’s Achilles heel.  In the meantime, it is assumed the market will see a .25 basis point rate hike in December and three more in 2018.  On this idea, bank stocks performed better, with the expectation of improved net interest margins.  Health care stocks rebounded at the end of the week after John McCain announced he would not vote to replace the Affordable Care Act.  The energy complex had a nice week, especially the refiners, as crack spreads remain elevated with the shut in of capacity on the Gulf Coast.  On the earnings front, retailers remain in the dog house as Finish Line and Bed Bath and Beyond failed to impress, to say the least.  General Mills also was detrimental for overall sentiment with a poor outlook, but FedEx calmed those fears with a solid outcome.  

 

Finally, on the political front, President Trump made his first speech to the UN and immediately upset North Korea, Iran, and Venezuela.  Clearly, when you are upsetting that trio, you are doing something right.  Mr. Trump then moved on to the athletic domain, where he dis invited the Golden State Warriors to the White House and then made his thoughts known on those players who decide to express their ‘opinion’ by not standing for the National Anthem.  Interestingly, Donald was once an owner of a football team in something known as the United States Football League.  Naturally, the big boys in the NBA and NFL like LeBron James decided to opine on our controversial President.  Well, at least with Donald it is never dull, you have to give him that.

 

Thanks for reading the blog this week and if you have any questions or comments, please email me atinformation@y-hc.com