March 5, 2019

The Interesting Factor

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.