I have to admit that every time I attempted to write to
you in the past two weeks the narratives emanating from the media and via
vitriolic posturing on social platforms conspired to derail my comments that
were rendered obsolete before I even had a chance to comment on them. I also
have a natural reluctance to write about the markets when said narrative is
focused on one crisis after another especially when that crisis has casualties.
But I felt the need to comment, because as the market response to external
events has been de rigueur, it has been to ignore the noise going on that had
no direct influence on the global economies and the markets that reflect them.
But I am increasingly coming to the conclusion that for some companies, there
could be genuine impact and therefore listening to the noise is getting more
important all the time. This is what I’m hearing.
The Markets
Overall the markets have responded well in spite of the
challenges that are impacting some of the largest companies in the broad
indexes. Never mind that the economy has shown a modest pickup in productivity
and decline in inflationary concerns, or that much of the rebound in the
indexes this year can be just as easily traced to the sharp declines of the
last quarter. It’s too easy to blame external events. But for me the markets
are giving other triggers that are intriguing if not of some modest concern. Namely
the almost unanimous guidance coming from company representatives that 2019
will see a slowdown in earnings from revenues. Likewise I am curious of the
number of stocks that have risen after lightly negative earnings results and
those that have been aggressively sold on what should’ve been interpreted as
better results. In short, analysts are once again irrelevant to the investing
process, and the markets are better indicators of what investors is trying to
focus on. I think, looking for what investors find interesting is the best
place to start to focus on what exactly that is.
The Companies
Boeing (BA) is the first example. What has occurred in the aftermath of the tragic air crash
of the newest Boeing jet plane has been the aggressive grounding the plane in
the light of what appears to be similarities between this and another recent
crash. In short, BA has a lot to answer for, but in my opinion so to do the
airlines, the regulatory agencies and in time the media outlets spreading
incomplete narratives. Luckily, as of this writing there could be some new
evidence brought to light. In the meantime, BA has seen a predictable decline
in value and for now staying away until the dust clears, and in my opinion it
will, when a final word on the tragedy is shared.
Facebook (FB) is another
company in the spot light and while I’m the first to agree that the monoliths
our tech companies have become is somewhat concerning, I haven’t experienced
anything that has jarred me personally. That said, with an all-out inquiry from
the European Union, FB has had to contend with challenges to its platform, as
with Google (GOOGL) that too much privacy is compromised in the goal to make
money. In the US that’s taken even further by the growing concern that the
companies themselves are monopolizing their self-interest at the expense of
competition thereby inviting questions as to why should those companies not be
impacted by ant-trust legislation, just as companies like AT&T (T) and
Microsoft (MSFT) have been in the past, and survived to flourish. It’s even
beginning to bubble in the pre-election narratives. In my opinion whether or
not these companies should be regulated, I think to some extent, would that
have an impact on their valuations, probably to a small but manageable effect.
My reason is simple, Tech companies are involved in a lot of businesses that
are valued in sum to equal the whole company. If broken up, or regulated, the
shareholder would have to be more alert to where opportunity resides. For
example maybe Instagram, a FB company, is worth more in the future than
Facebook itself. Time will tell, but in my opinion, regulatory oversight isn’t
if, but when.
The Rest
We know what drives our
corporations but what drives our media? What drives our politicians? What
drives our social platforms? Greed of course, but in today’s world the drive to
profitability does not justify simply provoking a hysterical overreaction to
open-ended problems. But I also question the meaning of greed in a world that
provides society with the means to consume everything with a greed like zeal.
It in turn also carries with it an ongoing phenomenon that in my opinion is at
the core of modern day investment management, and that is the drive to be
interesting. This is a phenomenon because it touches everyone in the world and
presents itself with a new way to look, not just at industries and companies,
but at countries and communities as well. Going forward I’ll talk about this
phenomenon more and illustrate how it is currently impacting where my research
for ideas will take me, and you, in the future. I hope you will find it
interesting, because I do.
