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This has been an eventful year in the markets, to put it lightly. Unforeseen events have had dramatic effects.
We wrote about some of the themes in our portfolios last fall. Airlines and biopharmaceutical companies both seemed attractive, with valuations at seemingly favorable levels. Needless to say, global pandemics turn out to be as great for biotechs as they are lousy for airline travel.
Our natural resource holdings had similar variation. Turmoil helped the shares of precious metal miners and hurt the shares of industrial metal producers as much of the global economy shut down.
We are keeping the long view in mind. The next energy revolution, driven by solar power and batter storage, will still require higher production of copper and other minerals. The decades-long trend toward higher levels of air traffic will resume. These are our views.
As we review the finances and prospects of our holdings and rebalance where appropriate, another theme has emerged. The shares of some basic kinds of companies, those involved in food and shelter and beverages, have gotten to bargain levels, in our opinion. It seems like it has been a long time since we felt that way, and we are excited to add holdings in these lines.
Last fall we believed that international equity markets had some attraction based on value compared to US holdings. We are more excited now about the emerging bargains we perceive here in the US.
Clients, these are the conclusions our principles and our processes are leading us to. If you would like to talk about this or anything else, please email us or call.
The opinions voiced in this material are for general information only and are 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. .
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets..
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.
The field of medicine has a pair of terms that mean the same thing. The words describe an incredibly useful concept. The concept has important applications to the investment markets, and other economic and business usage. We were aware of the idea, but previously had no handy term to describe it.
The words are “cryptogenic” and “idiopathic.” They mean ‘of uncertain or unknown origin.’ For example, a cryptogenic stroke is one that has no known causative factors. Sometimes doctors know why something happened, other times they don’t. When they don’t, the diagnosis includes one or the other of these descriptions.
How would this apply to investing?
Every day at the market close, commentators speak or write as if they know exactly why the market did what it did. Despite the market averages being set by millions of people making billions of dollars in transactions for a nearly infinite variety of reasons, commentators boil it down to ONE REASON. “The market rose today over better-than-expected whatever,” or “The market fell today because of poor whatnot.”
We have said as many ways as we know how: the market goes up and down. It just does. To put it in more clinical terms, the market has cryptogenic rallies and idiopathic falls. The short-term action is of mostly unknown or uncertain origin.
According to Investopedia.com, in 1602 the Dutch East India Company issued shares that could be traded on the first stock exchange in Amsterdam. We suspect that at the close of trading on the first day, somebody said something like, “The market rose today because the tulips looked set to bloom early.” And this nonsensical tradition continues to this day.
If we accept the idea of cryptogenic stock market action day to day, we can focus instead on long term trends and fundamentals that may prove more fruitful.
You already know Mark Leibman and our LPL Registered Administrative Associate Greg Leibman. But you might not know our allied staff economist, our fixed income research director, our market strategist, or the fellow who oversees the whole allied research effort. John Lynch, Matthew Peterson, Ryan Detrick, and Burt White have decades of experience, advanced degrees, specialized training and the appropriate professional designations.
Most importantly, they each have the ability to communicate economic and market developments with the context and background needed to get at the real meaning and significance.
These folks do not work at 228 Main. They are the key people among dozens in LPL Financial’s Research Department. In our quest to find the right investments, and to understand the economic and market environment in which we live, they play a major role. They put out reports, they help conduct the daily Research Morning conference call, they blog, they tweet—they communicate.
One of the wonderful things about life in the 21st century is the vast amount of information available. We’ve spent a lot of time appraising the quality of commentary from across the financial industry. We are able to follow key specialists at Schwab and Morgan Stanley and Wells Fargo and other firms, as well as our most respected peers and money managers.
The Washington Post, the Wall Street Journal and the New York Times provide a great overview of the major stories of the day, and more detailed trade publications are a vital source of news about the industries in which we’ve invested. People with specialized knowledge are available through blogs and social media, as well. We read the Detroit newspapers for auto industry news, Australian papers for news on global raw materials producers, and we find news sources for other situations as needed. Subscription-based investment research and data round out our fundamental sources.
We have what we need to do our own thinking, draw our own conclusions, and take action in pursuit of your interests. If you have specific questions, please call or write to ask them.