The Mexican peso rallied 2% against the dollar as a consensus emerged that Donald Trump lost his first presidential debate. (I guess no wall then?… And maybe we should short concrete stocks!) Ironically, there’s a direct correlation between Trump’s changing fortune and the peso. Go figure.
If the first debate is any indicator, Clinton would be good for the stock market, as stock averages increased after her victory. Several clients have asked me what I thought a Trump victory would mean. I personally believe that, at least initially, the world markets will be in turmoil (Mexico included). It’s hard to imagine that they would not respond negatively, but this is strictly my humble opinion.
Regardless of the outcome on November 8th, the nation will be divided. Both sides are probably already picking their impeachment panels. All we can do is vote for the candidate that most closely aligns with our own values. Good luck to all of us. I constantly worry about what our generation has done to future generations.
I recently met with a client and asked him what his investment expectations were. Tongue in cheek, he asked for great returns with no risk or volatility. A funny thing happened on the way to the riskless forum, though. Low volatility is currently equated with increased risk. How can this be possible? I have often discussed the herding effect with you. A current example is FANG – Facebook, Amazon, Netflix & Google. These four companies have been swaying the S&P 500 for several years. If you remove them from the S&P500 index, the returns are quite different (mostly lower over the past 7 years). Because of their dominance/sway in the S&P, active managers pile money (herding) into these four stocks so as not to miss out on the action. Warning… watch out below!
I avoid this type of company because I truly believe they are not realistically valued. So, how is low volatility equated with higher risk today? Managers are throwing money into dividend paying stocks (historically equated with lower risk) and bidding up their stock prices. This makes dividend stocks a higher risk today because like FANG, many of their stock prices are not realistically priced. So where is an active manager/stock picker to turn? – to stocks that do not garner much current attention. And this, ladies and gentlemen is our forte…traveling the road less traveled.
GCM will be making some strategy changes. The leash will be severely shortened with regard to our emerging equity investments. Management will no longer be given the benefit of the doubt if they miss their goals. If a company commits to a specified time frame in which to meet certain goals, they will be held accountable. If they consistently fail, the company will be removed from our portfolios. Last year, we made a small fortune with Dot Hill which we owned for more than five years. Although it eventually increased 5-10 times, they were very careful not to over-commit during our holding period. That is why we exhibited patience. We never felt misled and understood that the market for their products was just taking longer to develop.
This year, we will remove equities from our portfolio about which we were patient but not rewarded — due mostly to management shortcomings. The good news is that no one will have to worry about paying capital gains tax for the 2016 tax-year (taxable accounts).
“You can’t always control what happens to you in a game or in life, but you CAN control how you respond. That’s where your power is.”
As I recently stated in a newsletter:
On the way to making serious money, you spend a lot of time losing serious money. That is not only true for individual stocks, but for portfolios as well.
Two tenets by which we invest:
- Focus on the businesses, rather than the short-term share prices.
- Understand that over the long haul share prices will reflect the value of the businesses.
“Never give up on a dream just because of the time it will take to accomplish it. The time will pass anyway.”
Members of the Jewish faith just ushered in the New Year. It is traditional to eat apple slices dipped in honey to symbolize the hope for sweetness throughout the year. Here’s to a sweet and fruitful ending to 2016!
– Len
Goldberg Capital Management is an investment adviser registered with the State of CT Department of Banking. This Newsletter and its contents are for informational and educational purposes only. You alone will need to evaluate the merits and risks associated with the use of the information provided herein. Although this Newsletter may provide information relating to approaches to investing or types of securities and other investments you might wish to buy or sell, no information provided in this Newsletter is intended or should be construed as an investment recommendation or endorsement from Goldberg Capital Management. Please remember that past performance is no guarantee of future results.