The weekend’s fireworks cooled off before the open.
At the end of the week last week the Trump administration along with the Brits and French embarked on a missile raid of Syria’s chemical weapon labs. No deaths and a reported ‘very successful and precise’ mission. The two day break acted as a mini circuit breaker giving the market time to think and digest as well as giving news outlets a chance to get pictures of the precision destruction back to Western outlets. And pretty much most equity markets were showing signs of agreement with the raids.
And then there is this…
Talk about volatility – we have done a lot in the letters this year. So much so that a lot of these stocks have seen their multiples change but not really their businesses. What I mean by that is that these companies are generally do well and pumping out pretty good numbers. The only problem is that with all the bombings and trade war talks their stocks are lower – hence so are the multiples. This basically means that they have some work to do if they want to get back to their heady heights. A good example of this is Johnson and Johnson. Before the volatility J&J had been trading in the high $140’s with no real change in their business plan. After the volatility- including the release of good earnings- is now in the high $120’s. That just goes to show you how difficult of a road stocks have in front of them.
Another thing that is kind of weird is the fact that we bombed Syria on Friday night and the last 4 trading days in equities have been the slowest for the year. Something fishy there but I don’t know exactly what it is.
So, I just got off the set of Fox here in London. I was a guest on Stuart Varney’s show. I happen to really like Stuart and feature quite a bit on his line-up. If I am not mistaken he has the most watched financial news show during his air time on cable news. That is saying something. It’s a great show and has super vibe – that is why he is so good. Today as I was sitting in the green room getting the makeup applied, a lot of makeup, if you get my drift – the show’s producers changed my topic at the last minute. Believe it or not I like it when I can’t be scripted. Some people love it but I would rather not know the exact topic until the camera lights went on and they suddenly shout ‘Action’. I think it gives me the opportunity to think a little more off the cuff and be a bit more interesting. The topic changed from China to Netflix. I quickly looked at a Netflix chart and noticed that they were up 70% YTD. I thought that was kind of aggressive. I then looked at Amazon and saw that it was only up about 25%. Google was not up very much at all. That is when the camera light went on and heard the call of duty. When it came to me and Stuart asked for my thoughts this is what came to me. We have had a lot of volatility lately. I have been writing about it a lot. Nothing has changed with the way these companies are run but their multiples are lower. I said that in the above piece. But what also strikes me is this the best use of your investing capital? I mean, c’mon, is there nothing better to invest in than Netflix? I love the company. I am a customer as well. I see that there possible customer base is HUGE and they still really haven’t tapped into their potential. But, there is always that but, the stock is up over 70% YTD. That is the biggest negative about the stock. It has come so far so quick that it brought to mind a thing my father used to say when we were younger working on our family farm. He would say son, how much more milk do you think that cow has in it? What a perfect way to sum up that stock. Who knows where it goes. I have no real idea but it sure is a good looking heifer. The problem is managing your expectations against other things to put your investible cash into. Has that train left the station or is there still an opportunity? I will leave that up to you but my dad made it pretty clear to me.
While at the University of Colorado I was a member (bench warmer) of the football team in the mid-80’s. The coach was Bill McCartney and he later went on to win a national championship in 1990. I will note, conveniently 2 years after I graduated. Anyway, Coach Mac later was inducted into the College Football Hall of Fame and without speaking to him very much over the years; he still remains a positive influence in my life. He also struggles with Alzheimer’s – something that my father ultimately succumbed to 4 years ago. But Coach always used to say to me and the team, ‘if this was easy, then everybody else would be doing it’. I think that quote is also good for our business. I have been in it for over 30 years and it doesn’t get any easier. I probably am less surprised by crazy moves than I was when I was younger but that is probably just a function of seeing so many of them. The key here is that you can never stop learning – never stop reading. When I started in the pits of Chicago in the 80’s, it was a mass of sweat and swearing for 5 hours a day. Now when I get into the office here in London, I look more like a lawyer than a trader. We are all constantly reading, constantly writing, trying to make sense of it all. I think that is the key to longevity – make sure you keep learning and remember, if it was easy to do it, everyone else would be to. Thanks Coach Mac.