Wednesday, September 17, 2014
Another Day, Another Dollar
…as the Dow DJIA hits yet another record close. Is the end is sight? Is this mighty bull due for a breather? Probably not.
Frequent readers of this blog (all five of you) know that I have been bullish from the start of this run and have consistently predicted Dow 20,000 by the end of 2016. I see no reason to modify this standing call; the Fed's dovish tone, the real estate market's recovery, and the job picture all point toward higher and higher closes.
Clouds on the horizon? Plenty. The U.S. involvement in the never-ending Middle East wars is the most obvious concern, particularly to what lasting role this country will play in the region and also the net migration of a clear and present danger to our own shores keep this investor up at night. The response to the conflict in Ukraine was tepid at best, and fading by the day. Finally, the biggest potential danger from a macro-standpoint is an ebola-like (or just actually ebola) jumping in form-factor and consequently delivering a knockout blow to our medical response system.
Of these three concerns, only the last is probably one that can be adequately addressed and communicated with a valid solution to the American public; let's hear the plan to fight an inbound devastating pathogen. Lay out the blueprint Mr. President. The former concerns present no clear solutions, and we will undoubtedly be mired in Middle East conflict for years in one form or another until the utility of oil has been exhausted. The situation in the Ukraine only leads one to suspect it will fester and possibly grow to other regions as there seems to impetus to contain aggressive expansion.
With that said, it is hard to believe the that the path forward will not be up; every couple weeks there is a momentary pullback of several percent which has proven to be an excellent time to add to existing positions. The incremental gains of several years now are compounding both in valuation/dividends and more importantly, even hiring; expect that to continue. The IPO market is robust and technology (thank you Silicon Valley) keeps introducing better ways--both to do things and things themselves.
Make hay while the sun is shining fellow financial farmers!
Saturday, September 13, 2014
Founder of Chick-fil-A, arguably the finest and fastest chicken sandwich, Truett Cathy died on Monday September 8th, 2014. From many aspects readers of this blog can learn a great deal from this man.
Starting from nothing as a Depression era child, Truett founded Chick-fil-A which is now one of America's largest restaurant chains grossing over $5.5B a year in sales and consistently laser-focused on quality.
Muhtar Kent, CEO of Coca-Cola, had this to say about Truett. He was "an irrepressible optimist…he saw work as a privilege and made a point of enjoying it…he understood, like few others, what it meant to be a steward of a great brand. If a brand is a promise, then a great brand is a promise kept. Truett kept his promises."
For those readers who wish to Invest Like A Farmer, I encourage you to read up on Truett Cathy. His formation of a brand, his devotion to service, and probably the greatest compliment, his faith in God and his fellow man were remarkable. In terms of lasting influence in American business, there are few better.
Monday, September 8, 2014
Diamonds in the Rough
How as an investor can you find a potential diamond in the rough? An asset that is undervalued with the potential for exponential returns? Well, according to efficient market theory, it ISN'T possible because at any given time all assets are considered to be perfectly priced. Reality, however, dictates otherwise.
Efficient market theory does not take into account every possible future scenario based on unique perspective or insight; there are literally hundreds, if not thousands, or as some theoretical physicists believe, infinite distinct, discrete factors that go into determining any future event. It would be safe to say then, that by definition future events are unknown even to the smartest amongst us.
With that said, then, how can an individual investor ever hope to beat the legions of professional analysts on Wall Street and literally pick a diamond in the rough? Einstein said it best when he commented that knowledge was power, and perfect knowledge is not possible to mortals. What is possible, however, is experience.
Malcolm Gladwell's Outliers is a fascinating book based on what factors help influence success. In it he argues that repeatability, or perfect practice as defined by Lombardi, makes perfection (or at least extremely high outlying returns on an endeavor) possible. I believe the same holds true when selecting equities for your portfolio.
Finding companies whose brands are not yet fully established, yet focus on "perfect practice," I believe, offers the best opportunity for discovering those hidden diamonds. Successful branding takes time to take root, and it is in this time where execution of the business model can help score big points for early investors. The natural result of perfect practice is increasing brand awareness, increasing profitability, and increasing share price.
If it is diamonds in the rough you seek, look for emerging brands laser-focused on perfect practice.