market research

Short Cuts

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When I was a child, a friend and I were off on some adventure or other. We arrived back at his home quite a bit later than expected. His mother was waiting, and demanded an explanation. My friend’s answer was Marx Brothers-quality dialogue: “We took a short-cut!”

His mother seemed to think that a short cut ought to reduce travel time, not increase it.

Some financial professionals and investment advisors take a very similar short cut. They adopt the view that it is either not possible to do better than the market averages, or not worth the effort of trying.

The reasons sound plausible, but may not stand up under examination. Human nature often encourages counterproductive behavior. We believe untrained human nature is a poor guide to investing; training and education may improve investor behavior, which may improve investment results. But the short-cutters seem to pander to human nature in its untrained state.

Active investment managers typically underperform the market averages, and this is often cited as evidence “it is too hard to beat the market.” What many fail to see is that active managers have human beings as customers, so may include popular investments and avoid out-of-favor sectors in order to draw more funds to manage. These tactics, of course, may be detrimental to actual investment results.

So that human nature thing enters into that argument, as well.

Life is straightforward for the short-cutters. They typically avoid the hard work of researching specific investment opportunities; they spend no time reading SEC filings, press releases, and conference call transcripts. They have no reason to try to understand the role of emotion driving money into different market sectors.

Hey, it is a free country and we are glad it is. Each person is entitled to his or her own opinion; investors are free to use or ignore any advice or advisors.

The short-cutters have become very popular. At the same time, with your help, our business has continued to grow and prosper. We do not mind the existence of short-cutters; they may actually reduce the competition for favorable opportunities. But we do want you to understand what we are talking about, and why.

If you have questions or comments on how this may apply to your situation, please write 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.

Spring 2017 Market Themes

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We look for promising investments by studying opportunities in detail, reading annual reports, SEC filings, analyst commentary, and doing our own arithmetic. Potential gains live in the gap between the unfolding reality and consensus expectations. The outcome of this study and thought is a list of investments we would like to own.

Although we look at individual companies, we often find themes in our list. This makes sense when you consider that undervalued companies are often found in unpopular industries.

Last fall we wrote about three of our market themes. Biotechnology companies, the evolution of the automobile, and natural resources continue to figure into our thinking. Other themes have emerged.

Consolidation has fundamentally changed the dynamics of the airline industry. It used to be that fierce waves of competition caused price cutting, which led to poor financial results and even bankruptcies. But there are not twenty players, or even ten any more. Consolidation and liquidation has reduced the number of major competitors to four.

The four biggies compete with each other, but more gently. Each knows that lower growth ambitions and stable pricing may lead to greater profits than higher growth ambitions and lower prices. This idea of a pricing oligopoly seems to explain the behavior of the airlines, which are booking record profits. We believe the market has not awoken to the new dynamics, and undervalues the stocks. We may be wrong.

The European equity markets have had one problem after another for more than a decade. An index of major blue chip stocks, the Eurostoxx 50, is lower than it was ten years ago. Meanwhile in the US, major averages have doubled. Dividend yields and prices are more favorable “over there.” So we have begun to include European equity exposure in portfolios.

The Buy List of thirty-some holdings reflects these themes and other opportunities we believe to be attractive. There are no guarantees on any of them. We can tell you we are excited about the prospects. If you would like to discuss your holdings or situation in detail, please write 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 performance referenced is historical and is no guarantee of future results.

Stock investing involves risk including loss of principal.

Value investments can perform differently from the market as a whole. They can remain undervalued by the market for long periods of time.

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

Meet Our Research Sources

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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.