Month: June 2019

Life in Four Dimensions

© Can Stock Photo / fredmantel

Kurt Vonnegut wrote about a race of beings who could see in four dimensions. The fourth dimension is time. “All moments, past, present, and future, have always existed, always will exist.” They could look at different moments from the past or future the way you and I might look at a stretch of the Rocky Mountains.

This is an interesting way to think about the work we do together with you, planning for the future. It requires us to see the future we want, and do what is needed to make that plan potentially become reality. People in their working years need to see ahead a decade or two or three, and envision the future.

Our investment process relies heavily on history, being able to see the past. Most conditions in the economy and markets repeat from time to time in one form or another. We can better understand these things when we know what has gone on before. In other words, seeing the past may provide clues that help us in the present.

The Vonnegut quote contains an implication with which we strongly disagree. The idea that the future is already set implies that nothing we do matters.

In fact, our whole philosophy is that the choices we make are crucial in shaping the future. There are many things beyond our control, but we control our actions. We do not control the future, but we can work to make the best things more likely to happen.

Putting this all together, we can formulate our own idea about life in four dimensions: learn from the past to shape the future we desire. When we work together, we have a better chance to pull this off.

Clients, if you would like to talk about this, or anything else, please email us or call.

Louisville, My Home Sweet Home

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Planning to work to age 92 has a side effect: there is no date any time soon after which I can do what I want. Cathy and I knew this. A decade ago we figured out that we needed to have some fun along the way. That’s how the whole snowbird plan got started.

Snowbirds are people who go south for part or all of the winter, migrating north to their homes in the spring. We began doing that in 2010, for a few winter months. It was the best of both worlds. We had our home in Nebraska to enjoy most of the year, close to friends and family, and a place to get some weeks of warmth in the dead of winter.

A couple years after we began this, Cathy’s health went south. She was diagnosed with a slew of pretty awful lung conditions. We were able to continue our snowbird routine. Her rising need for oxygen eventually made flying impossible, so we simply drove back and forth.

Three years ago, things got to where long road trips were no longer possible. She had to choose where to live. The specialists who saved her life and continued to treat her are in the south. And Nebraska winter weather could be fatal in a power outage or a stalled car. Staying in the south became a matter of medical necessity for Cathy.

At the same time, health insurance paid the bills for stuff that kept Cathy alive. My small group policy required me to maintain Nebraska residency. And I needed to be in the shop at 228 Main Street for a bit every month. (Our work for you helped Cathy, because it’s expensive to be sick.) I became a long-range commuter. Cathy could remain in the warmth and I could keep the business end going.

Cathy got extra years of life with the help of Florida weather and Florida doctors—important years, in which children got married and grandbabies were born. With her passing, I can focus again on life in Louisville, my home. I’ll be selling Cathy’s Florida house – it’s too much, and in the wrong place.

We have come full circle, back to the original situation. I’m going to work to age 92, so I need to figure out how to have some fun along the way. Bottom line, I’ll be spending much more time at home in Louisville.

Clients, if you would like to talk about this or anything else, please email us or call.

Extreme Discounts

© Can Stock Photo / konephoto

One of the basic distinctions made in the stock market is between growth and value. Growth stocks offer the potential or history of above-average growth in revenues and earnings. Investors are buying a brighter future.

Value stocks present a low cost in terms of price for a current dollar of earnings, or price/earnings (P/E) ratio. In the late 1990’s growth stock boom, value stocks were derided as “old economy” stocks. The exciting “new economy stocks,” computer chip and internet and fiber optic companies, were all firmly in the growth camp.

Investing in growth worked well until it didn’t. Value stocks went nowhere until the Tech Wreck, when growth stocks peaked and then fell a long way. The stock market often experiences periods where one of these factors outperforms, and the other one lags.

A recent article at MarketWatch.com1 detailed the work of a Wall Street analyst who claims that value stocks are at their biggest discount relative to growth in many years. The charts show that valuation differences generated by a decade of strong growth stock returns put value stocks at perhaps the biggest discount in history relative to growth.

In plain language, the bargain stocks have generally become bigger bargains.
When there are sound reasons for expecting better stock prices at some point in the future, we may own companies that are underwater, or down from what we paid for them, for an extended period.

We strive to own the best bargains. It is hard to watch as bargains become even better bargains while more expensive stocks do better. But we know how this works. We believe that sooner or later the bargains will produce gains.

If the differences in valuations are at extreme levels, perhaps the trend change is coming sooner rather than later.

Clients, if you would like to talk about this or anything else, please email us or call.

Notes & References

1. MarketWatch, “Value Stocks are Trading at the Steepest Discount in History”. https://www.marketwatch.com/story/value-stocks-are-trading-at-the-steepest-discount-in-history-2019-06-06. Accessed June 14th, 2019

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

One of a Kind

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I wasn’t picturing this day back in the 8th grade when, playing the role of Charlie Brown to her as the little red-haired girl, she didn’t know my name. Nor on the first day of freshman year in high school, when the divine miracle of alphabetical order put Cathy Livingston’s locker next to mine. Nor on the 4th of July the following summer, when our long romance began.

Not when we married, and certainly not when the babies came, four in all.
But seven years ago I learned this day was coming–and here we are. Football players strive for ‘yards after contact.’ Cathy battled to get ‘years after diagnosis,’ and she got them. She saw kids get married and she met her grandbabies in those hard-won years.

She’s gone, but not. She lives on in the intelligence of her children, the determination (stubbornness?) of her grandchildren, the formative influence she had on me, our children, the kids she cared for, and in a thousand other ways. This lover, child enthusiast, Disney fan, dolphin watcher, mother, and grandmother endures in our hearts and memories.

At the end of our life together, I am filled with an abundant gratitude, not regrets. Sad, and hopeful. Who wouldn’t be? On a ventilator, unable to speak, nearly paralysed, in her last hours she communicated by writing. One of her messages to me: “You have a lot of wonderful life left.” One chapter ends, another begins.

My work for you is not done. I don’t have the option of curling up into a ball, there is too much to do. I’ll need a little time and space—but I’ll be back. After all, making the most of it is one of the things I learned from Cathy.
Thank you all, again, for everything.

Knowing and Doing

© Can Stock Photo / yarruta

Knowing and doing are two different things. We were reminded of this recently, during a Financial Literacy Month discussion. A colleague surprised us with a contrarian opinion on financial literacy.

Conventional thinking is that the presence of so many people who fail to save for retirement and make costly mistakes is proof that more and better financial education is needed. Our colleague asked us whether the issue was one of knowing, or one of doing?

“Consider what we know about health and what we do about health,” he said. By some estimates, lack of exercise and poor eating habits lead to millions of deaths each year, not to mention deaths from tobacco use and alcohol abuse. Haven’t we all heard about these things?

Likewise, most people may have heard that investing for the future is a good idea, and spending within one’s means. But surveys show that many are ill-prepared for retirement.

Whoever first said “knowledge is power” perhaps was only partly right. Wall Street pioneer Roger Babson wrote a century ago:

“Experience has taught me that there is one chief reason why some people succeed and others fail. The difference is not one of knowing, but of doing. So far as success can be reduced to a formula, it consists of this: doing what you know you should do.”

Our view at 228 Main is that ‘knowledge in action is power.’ We will continue to promote knowledge and awareness of financial and investment concepts and ideas. But we will also work to motivate and persuade on the merits of taking worthwhile action.

Knowing. And doing. We need both in order to get where we want to go. Clients, if you would like to talk about this or anything else, please email us or call.

About Cathy and Me, and the Path Ahead

© Can Stock Photo / Geleol

Some of you have known me since childhood, or for a very long time. Others, we’ve met more recently. Not all of you know this story in full. But circumstances have made it pertinent to all.

It’s personal. But in my integrated life, personal things have business ramifications.

First, some history. In the eighth grade I was Charlie Brown to Cathy as the little red-haired girl – I was totally infatuated, but she didn’t even know my name. That changed the morning of the first day of freshman year in high school. Looking for my assigned locker, there she was: the magic of alphabetical order put Cathy Livingston’s locker right next to mine.

By the following 4th of July, when I was 15 and she almost was, our long romance began. We married four summers later, and built a life over the next four-plus decades.

Ten years ago Cathy developed troubling symptoms. Seven years ago she was diagnosed with four kinds of lung crud and pulmonary artery disease. These things are big trouble. Dr. Internet gave her 2-5 years to live; he didn’t know how tough she is. However, recently things became critical.

During an emergency admission to the Mayo Hospital ICU, the lung transplant evaluation team roared into action. After a seven day whirlwind of consultations with six kinds of specialists, they listed her for transplant with a very high priority, based on her dire condition.

With a commitment to communications via every means and an able, growing staff, I have been able to serve as caregiver these past several years AND take care of business. Cathy has gotten what she needed from me, and business adapted – it did not suffer. I have been able to work a full schedule, with the time flexibility afforded by 21st century communications and the best clients in the world.

You need to know what the path ahead looks like. For perhaps four months after transplant, I’ll be able to work much as I have in recent years. This means I need the scheduling flexibility we’ve already figured out. For those four months, I may not spend any time in the shop. Cathy will be my top priority, and the role of a transplant caregiver is quite demanding during this phase.

Thereafter, I’ll have more flexibility than I’ve had at any time in the past five years. With new lungs, Cathy will be able to walk on the beach again, and drive, and go to the store, and live with a lot more independence.

I still want to work to age 92. And the business is still the source of the health insurance and other resources to do what we need and want to do on the home front. I feel my obligations to you very deeply, and I will be there for you.

Clients, if you would like to talk about this or anything else, please email us or call.

Pipeline of Medical Miracles?

© Can Stock Photo / Nickondr

Everybody has troubles. If you don’t believe me, just ask them. Among the troubles some people have are chronic or acute medical conditions.
A list of these might include the following:

• Neuromuscular: Parkinsons, Multiple Sclerosis, Alzheimers, Spinal Muscle Atrophy, neuropathic pain.

• Inflammatory: Crohn’s Disease, IBD, rheumatoid arthritis, lupus, pulmonary fibrosis, liver diseases.

• Dozens of forms of cancer, leukemia and other blood diseases.

These conditions have one thing in common. Each one is the target of one or more drug therapies currently in the research pipeline of three established biotechnology companies. These firms seek to discover, develop, manufacture and distribute innovative therapies for people with serious medical problems.

Importantly for us, these three firms are already profitably engaged in the business of distributing past discoveries. The research pipeline represents both hope for people with problems and potential future business. Stock in these firms is trading at below-market multiples of earnings, one of the valuation measures we use to judge the attractiveness of a potential holding. This is no guarantee of future returns, of course.

We believe the future is bright for this industry. But we cannot know which drugs in the pipeline will ultimately be approved as safe and effective. Therefore we cannot know which company’s stock will do best. This is why it makes sense to have a diversified approach – owning shares in a variety of companies.

Clients, if you would like to talk about this investment theme or anything else, please email us or call.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

Stock investing involves risk including loss of principal.

Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.