Wednesday, August 19, 2015

The Growth Engine

We find ourselves in the midst of a summer swoon characterized by extreme volatility, especially with a collapse in commodity prices and pure destruction of Asian stock prices. But since we Invest Like A Farmer, a classic summer sell-off presents numerous opportunities. As Fast Eddie Felson once commented, "Do you smell that? Money!"

First, the economic growth engine has not stalled. There are many, many specific industries including tech, biotech, and entertainment which, from a historical earnings perspective, are soaring. There have been more blockbusters in real dollar terms than any time in history. A lot of that has to do with the ability to pipe data, whether in terms of content or simply global connectivity, to an increasingly larger consumption base. Smart phones are ubiquitous, and that means countless upgrade cycles with thousands of must-have capabilities imbedded in them, for better or worse, that society demands; mobile pay, tweeting, and health monitoring immediately come to mind.

Second, a natural side-effect of success is chaos. As stylistically written in the NY Times recent hatchet job done on, success breeds contempt, copycats, and often litters the field with the failure of methods, products, and competitors that didn't succeed. The real concern should be for a LACK of chaos; the status quo almost universally signals a stall.

Third, they're probably right about biotech. First Bill Miller and now multiple other financial managers are jumping on the bandwagon saying that "the next Apple" is going to be a biotech. That makes sense; a product that can be distributed globally, small size, and lasting curative effect all point to towards a solid bullish case for this sector; have the stock prices themselves overextended reason? Maybe, but a strong product cycle often pauses, consolidates, and pushes higher.

Catching a falling knife is by definition a risky move; why bother? As financial farmers and readers of this blog well know, I suggest keeping a dry keg of powder (cash) at all times and waiting for that moment(s) of capitulation, and then waiting even a bit longer until you start to visually see and feel an uptick to deploy capital. We're probably not there yet, but if history is any guide, the volatility of August and September usually yield a multitude of buying opportunities (what we call "planting cycles"in the Invest Like A Farmer business!)

And that noise you hear in the background, the quiet hum? Oh that's just the growth engine humming along...