Category: Missives

When you run an equity portfolio which is concentrated in 25-30 common stock selections, there are usually three stocks which stick out as particularly attractive at any given time. It is tempting to cherry pick and buy those outside of our strategy. As of the end of October 2020, there are more than ten of our stocks which appear to be worthy of extra attention and affection.

Joe Kennedy was getting his shoes shined in 1929 and the shoeshine boy was giving him stock tips. Think of how humiliating it might have been to Kennedy, who had dramatically reduced his common stock ownership. This upstart had been making money and couldn’t wait to pass along his wisdom to Mr. Kennedy. Joe quickly surmised that there was nobody left to buy stocks and established a huge short position in the stock market. The fortune he made by betting against stocks was part of the wealth which led his son, John F. Kennedy, to become President of the United States in 1960.

Anyone who owns U.S. large cap stocks must understand what can happen from the actions of the government to enforce the laws on the books for antitrust. Contrary to popular opinion, these laws are not set up to primarily protect consumers from being gouged on price by someone with a monopoly. They are, in the words of Congressman John Sherman, designed to stop our nation from “social disturbance” arising from the “concentration of capital in the hands of vast combinations.” In other words, it was designed to limit the power of for-profit companies to receive a disproportionately large share of the success in our society.

[…] The Governor of California, Gavin Newsom, announced on September 23, 2020 that beginning in 2035 no new internal combustion automobiles can be sold in his state. Currently, 5.3% of California cars on the road are electric/hybrid. California is probably one of the most successful states in the adoption of non-combustion engines. Is Newsom making the same kind of folly we made in 2011 (early/wrong)? Is he piling on the negative narrative for energy at an important psychological juncture? Does this trigger a series of questions about the likelihood of attaining his goals and the duration of the usefulness of the oil and gas in the ground in late 2020 in the U.S.? […]

[…] The great irony of the current situation is that most of the economic power and most of the financial resources associated with political power are in the hands of Apple and the other huge tech companies (Amazon, Google, Facebook, Microsoft, etc.). In other words, the success in our society is going to the fewest number of people that have the least possibility of spreading their success to the folks around them. […]

[…] Quality is an overused word to describe the winners (surviving planes) of today’s stock market. People will explain the profitability or return-on-equity of a company like Microsoft. In my mind, it’s like explaining the fuselage’s ability take bullets when all that should be focused on is whether the engine is well armored. The only way to measure that from a historical perspective is to ask the question, has success come to investors paying 40x earnings for a stock from the 10 largest market cap list? Chance of fatality is low, but it’s usually just another chance to languish. […]

Due to the pandemic, there is a sense of permanence on Wall Street to what has transpired. This permanence focuses on the changes that we have seen in the recent five months in our daily lives. These changes include shopping online versus shopping in-person, getting takeout versus sitting in a restaurant and working from home instead of talking sports around the water cooler with our colleagues. The question at hand for this argument of permanence is whether it is truly permanent or if it is temporary. The definition of permanent is, “lasting or intended to last or remain unchanged indefinitely.” So, to us this begs the simple question: will our lives remained changed indefinitely?

In the time since COVID-19 hit the economy and stock market, there has been three phases. First, the question was ‘when’ will the economy return to pre-COVID normal? Next came ‘sooner or later’? Recently, we have moved to ‘will the economy ever come back’? For long-duration investors like us, what are the investment implications in where we are now in a U.S. stock market with many securities priced for ‘never’?