Wouldn't That Be Crazy?

Wouldn't that be completely crazy if the three year consolidation in this stock ended this week and a new uptrend started?  I mean....what are the chances?  The name of this company has been removed to protect the innocent (and for the benefit of my clients).  The future reveals itself day by day.  If you quit staring at your smart phone and look up every now and then, there is a lot to see out there!  

Namaste,

 P. Franklin, Jr.

1/12/18

All opinions and estimates included in this communication constitute the author’s judgment as of the date of this report and are subject to change without notice. This communication is for informational purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. This information is subject to change at any time, based on market and other conditions. Any forward looking statements are just opinions – not a statement of fact.

Investing may involve risk including loss of principal. Investment returns, particularly over shorter time periods are highly dependent on trends in the various investment markets. Past performance does not guarantee future results.

Probably Nothing To See Here

As far as I know, there are only two ways to make money: 1) buy low and sell higher or 2) Sell high and buyer lower.  If anyone knows another way, please let me know.

Looks kinda low to me,

P. Franklin, Jr.

1/12/18

All opinions and estimates included in this communication constitute the author’s judgment as of the date of this report and are subject to change without notice. This communication is for informational purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. This information is subject to change at any time, based on market and other conditions. Any forward looking statements are just opinions – not a statement of fact.

Investing may involve risk including loss of principal. Investment returns, particularly over shorter time periods are highly dependent on trends in the various investment markets. Past performance does not guarantee future results.

If You Are Concerned About Interest Rates.....

If you are wondering if rates are really going to move higher, maybe it would be to your advantage to monitor the Nikkei 225 index.  Just sayin'.

Domo Arigato,

P. Franklin, Jr.

1/12/18

All opinions and estimates included in this communication constitute the author’s judgment as of the date of this report and are subject to change without notice. This communication is for informational purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. This information is subject to change at any time, based on market and other conditions. Any forward looking statements are just opinions – not a statement of fact.

Investing may involve risk including loss of principal. Investment returns, particularly over shorter time periods are highly dependent on trends in the various investment markets. Past performance does not guarantee future results.

Don't Watch This Graph!

I'm guessing a lot of people are watching this graph of 10-year treasury yields.  The bond market is a large market and an important data point for sure.  Graphically, rates do look to want to move higher.  I've indicated the line of least resistance, in that a break above the green, dotted line would signal a reasonable move to the second red line.  Why not the first red line?  Because it is too obvious.  Most professionals are looking at the first red line.  Rates probably move through this point.  My guess is that IF that happens, the potential move I just described would happen quite fast.  If rates happen to get to the third red line, bonds might finally look attractive again (assuming the US continues to pay its debts - which is an assumption).

In my opinion, the bond market is the side show.  The bond market has been a pretty crappy place to try to make money for some years.  So, I think the best thing to do is look for cracks in other markets.  The dead bodies will begin to rise to the top.  IF rates begin to rip higher, trust me, there will be bodies.  Astute investors should only care about rates, in so far, as they will guide you into the areas of opportunity.  Complacency has ruled the capital markets for too long.  The capital markets need a good blow-up because that is what capital markets do.  They punish the misappropriation of risk.  In the late summer of 1998, we had a 3 month draw down in the SPY of over 20%.  We saw Russia default.  We had the Asian contagion.  We had the "geniuses" at LTCM blow up.  This set the stage for a sling shot move to the upside for US equities.  In times of chaos is where the real easy money is to be made!

I feel there have been too many asset classes that move in tandem.  There is no need for diversification if everything moves in unison.  There will be a break down because in the capital markets there are winners AND losers.  It is not like youth sports today where everyone gets a blue ribbon.  The market is not like colleges and universities today with safe spaces and language police.  The market is designed to take your money, but give you wisdom (colleges just take your money).  IF rates move meaningfully higher, I'll be watching the game board for opportunities.  

Happy Returns!

P. Franklin, Jr.

1/11/18

All opinions and estimates included in this communication constitute the author’s judgment as of the date of this report and are subject to change without notice. This communication is for informational purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. This information is subject to change at any time, based on market and other conditions. Any forward looking statements are just opinions – not a statement of fact.

Investing may involve risk including loss of principal. Investment returns, particularly over shorter time periods are highly dependent on trends in the various investment markets. Past performance does not guarantee future results.

Inverted Yield Curve Muppets - Unite!

I can almost feel all of the "investors", both professional and individual, who have been outside with the birds looking in during this latest stock market move, using this chart above to mentally justify their lack of results.  The chart above relatively mirrors the length of time I've been professionally managing money.  So I've seen some really good times and some not-so-good times.  

Just to back up for a minute, the slope of the yield curve provides a good insight as to the US economy.  During times when the yield curve is flat or worse, negative, you can be assured that economic weakness is present or just around the corner.  Keep in mind this is just one view, but it is a pretty good gauge.  A second point to keep in mind is that humans are terrible at making investment decisions.  There has been great research as to why this is, but the biggest hindrance is, most likely, the human brain's willingness to extrapolate the most recent past out into the future.  

With that as a back-drop, let's again look at the graph above.  Just looking at the slope of the yield curve, it does in fact appear to be flattening.  If you were to look at the direction of the spread, it does appear to moving to the zero (blue) line.  It makes for a really nice story to spin a narrative of the pending recession and doom for the US stock market when referencing this chart.  However, one does not have to go too far back in time to see where this "analysis" is really faulty.  I've marked a couple of blue arrows to highlight one of the greatest bull markets in history.  The yield curve was pretty flat and even was negative for a short period of time in 1998.  The small blue box is the period of time when the NASDAQ doubled in price.  Many stocks went up hundreds of percent from Fall of 1999 to Spring of 2000.  If it were me, I'd spend more of my energy looking for causality or driver of stock returns.  (Hint: it's not the slope of the yield curve)

The point of this whole post is that predicting what is going to happen is really hard.  Another point before I wrap this up, is even if i could predict with great precision what fundamentally the economy or a specific company will do in the future, I will never be able to predict how individuals will interpret and react to that data.  It is such as waste of time.  There is no financial edge in story telling.  Well, unless your a financial sales person!  The process of making market decisions should be multiple steps.  This analysis should be well researched and vetted.  One should spend more time trying to disprove a thesis, than find data to support the concept.  But most importantly, when the facts change, you need to change too.  Watch price.  It reveals the truth little by little.

Cheers,

P. Franklin, Jr.

December, 5th 2017

 All opinions and estimates included in this communication constitute the author’s judgment as of the date of this report and are subject to change without notice. This communication is for informational purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. This information is subject to change at any time, based on market and other conditions. Any forward looking statements are just opinions – not a statement of fact.

Investing may involve risk including loss of principal. Investment returns, particularly over shorter time periods are highly dependent on trends in the various investment markets. Past performance does not guarantee future results. 

There Are So Many Things Wrong With This Chart!

While investing will always be an endeavor in probabilities, it pays to pay attention to what information the stock market is tells you.  While I won't go into any of the fundamental issues with this company or industry, the chart alone was telling you most of what you need to know.  Individual investors should heed the warnings that are telegraphed when major shareholders are leaving the party.  As of the latest filings, there were close to 3000 mutual funds that own this significantly over-valued (in my opinion) household name.  Also in my opinion, this will be the ultimate downfall with today's love affair with passive investing.  Sure you'll own some great companies, but you'll also own a lot of crappy ones as well.  To me, this is definitely not a bottoming pattern.  I have no interest in holding shares in this stock.  Remember that over time, the stock market is a weighing machine.  The fact that the company is a household name, or has a great product or service is of no relevance.  Market participants simply suck all future returns into the present until there is no where for the price to go accept lower.

Valuation and Price/Volume,

P. Franklin, Jr.

August 15th, 2017

All opinions and estimates included in this communication constitute the author’s judgment as of the date of this report and are subject to change without notice. This communication is for informational purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. This information is subject to change at any time, based on market and other conditions. Any forward looking statements are just opinions – not a statement of fact.

Investing may involve risk including loss of principal. Investment returns, particularly over shorter time periods are highly dependent on trends in the various investment markets. Past performance does not guarantee future results.

Why Is Investing Difficult?

Pictured above is a stock I am currently doing research on.  This is a stock that my clients have previously owned.  When I owned this stock before, all of the shares were liquidated above $200.  And no, I never got the high price.  Contrary to what the media or banks and brokers...or ahem..."wealth advisors" want you to believe, there are only two ways to make money in stocks.  One way is to buy low and sell at a higher price and the second way is to sell high and buy-back at a lower price.  That's it.  There is no other way to make money in the stock market.  Yes, you can make a few percent in dividends, but today that's not enough to live on.  So good or bad, you also need capital gains.  

Okay, back to our picture above.  I've removed the name of this company for compliance reasons, but in reality, it doesn't matter.  Let's assume, just for arguments sake, that the orange line represents a reasonable assessment of this businesses' fair value.  With this assumption in place, we can begin to make some observations.  

 1.  Business value really doesn't change that much from year to year.  The black, price line,        moves around much more than estimated value.

2.  The stock price can wildly deviate from business value.  This is why the right active management strategy can add a lot of value to a client's financial life.  But it forces one to "think."    Today, most investors and advisors favor "non-thinking" strategies.  

3.  Stocks can stay over-valued for long periods of time, but when conditions change, the "re-set" to fair value can occur very quickly.  The reversion-to-the-mean process can be a very painful emotional lesson.

4.  This might seem a bit contradictory, but "fair-value' is a bit meaningless in the sense that stock prices rarely stay at a "fair-value."  Think of this more like an over-pass on a freeway.  The "fair-value" estimate is something stocks tend to pass by rather than ride along.

There are more observations we could make, but I think you get the general idea.  I'd like to close these comments with a brief discussion on price buffers or "margin of safety."  I don't like to use the term "margin of safety" because it can lead people to think I'm something that I am not - which is some deep-value guy.  The capital markets are much more complicated than to adhere to such a narrow perspective on price.  Anyhoo, if you can again refer to the graphic above, you can observe there is a pretty big spread between today's reasonable assumption of business value and the current stock price.  In this assessment of fair-value, there is a lot built in that can go wrong.  I build in a lot of failure.  Contrary to previous years when the stock price was well above fair-value, there isn't really much that can go wrong without disappointing investors.  Right?  I mean sliced bread has already been invented so that idea is out the window!  To give someone the best chance to make money in stocks, I'd suggest giving yourself a big buffer.  I always set a stop loss ( a predetermined price where I would sell my position), but I also look for stocks that trade with a big buffer.  This is one of the reasons why I'm taking a look at this stock.  

Cheers!

P. Franklin, Jr.

August 10th, 2017

All opinions and estimates included in this communication constitute the author’s judgment as of the date of this report and are subject to change without notice. This communication is for informational purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. This information is subject to change at any time, based on market and other conditions. Any forward looking statements are just opinions – not a statement of fact.

Investing may involve risk including loss of principal. Investment returns, particularly over shorter time periods are highly dependent on trends in the various investment markets. Past performance does not guarantee future results.

I'd Be Paying Attention To This...

The previous move up to $175.75 was confirmation of a continuation of an uptrend.  Further declines in IYT with a series of closes under the green moving average line would not be a healthy sign for the average stock in the stock market.  Such a scenario could be a signal that the previous up move was a false move and one should begin to prepare for declining share prices.  Stocks that are not going up in price are of little use for me.  If such a scenario played out, I might begin to tighten stops as the market environment would not be conducive to making money.  You cannot pay your rent, your mortgage, or your child's college tuition with "value" or "a good company."  Last time I checked, I couldn't pay for groceries with my "fair-value estimate" of the stock certificate.  You first have to convert those shares into money at the current price.  If you are thinking that, "I'm a long-term investor and I don't pay attention to short-term moves in price," just know that every long-term decline started with a short-term decline.  It is mathematically impossible to compound one's account when the share price is declining (unless your short).  Have a discipline.  Stay focused.  Honestly evaluate your decision making.  Make the necessary changes along the way.  Improve.   The value of your account is the most honest friend you have!

Cheers,

P. Franklin, Jr. 

April 27th, 2017

All opinions and estimates included in this communication constitute the author’s judgment as of the date of this report and are subject to change without notice. This communication is for informational purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. This information is subject to change at any time, based on market and other conditions. Any forward looking statements are just opinions – not a statement of fact.

Investing may involve risk including loss of principal. Investment returns, particularly over shorter time periods are highly dependent on trends in the various investment markets. Past performance does not guarantee future results. 

An Excerpt From, Don't Be The Patsy At The Stock Market Table.

I approach risk like a typical client does – a loss of my hard-earned money! Most financial plans and investment sales presentations present risk as volatility.  Volatility is essentially how much an asset wags around the average return of that asset.  If I was a short-term trader, volatility is a very appropriate measure of risk, but I am not.  Ironically, as a market operator, I should be looking for volatility not shunning it.  Large deviations or dislocations create opportunity.  Generally, any of the sales presentations or "financial plans" where "risk" is a measurement are generally worthless for long-term guidance in my opinion.  Risk is not something that can really be measured.  This is not a science.  There are no "laws of finance."  There is no gravity in the stock market.  Just how low is low?  If a stock goes up by 50% or down by 50%, which one is riskier?  Is one more volatile then the other?

The way the stock market works, as stated above, I'm skeptical that risk can be measured statistically.  Therefore, let’s at least create a framework where we can identify whether we should be packing a Winter parka!  (Note: You can also refer back to Lesson 6.)  At this time we need to identify two areas of risk.  We either take the red bill or the blue pill.  One pill gives us the truth and the other keeps us in the illusion.  This is where we separate "information" risk from "price" risk. 

Let me state that all decisions in the stock market involve risk.  There is even risk in doing nothing.  Price is simple.  It is there in your newspaper and on your computer screen.  It is a fact.  The stock price does not lie. We want information in order to base our decisions on.  Here's the thing, in our quest to reduce "risk" by gathering more information or possibly waiting until the tone of the information improves to justify the investment - it is probable the price has moved higher.  If so, then we have done nothing but increase our price risk. In our attempt to reduce information risk, we have increased the only risk that really matters, and that is price risk. The chances of the stock going down has in fact increased not decreased.  At the market bottom, the news is bad (high information risk) and price is cheap (low price risk). As price increases, the stock is already discounting all of the public and non-public (insider) information into the current price. This is why stocks always top on good news and bottom on bad news.  The key takeaway is that price does a much better job forecasting the news than the news does in forecasting price!  When you begin to focus on what risk is most vital to your financial well being, I am confident your investment success will improve.

Happy Returns!

P. Franklin, Jr.

April 27th, 2017

All opinions and estimates included in this communication constitute the author’s judgment as of the date of this report and are subject to change without notice. This communication is for informational purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. This information is subject to change at any time, based on market and other conditions. Any forward looking statements are just opinions – not a statement of fact.

Investing may involve risk including loss of principal. Investment returns, particularly over shorter time periods are highly dependent on trends in the various investment markets. Past performance does not guarantee future results.

Guess What? Your Stock Market Partner Is A Bit Bipolar!

The lesson here is that no one forces you to buy or sell.  You don't have to do anything.  The market is there to serve you, not the other way around.  The flip side of this, is simply doing nothing because you're "right" and the market is "irrational" is a quick way to the poor house. It is not about being right or wrong.  Those are absolute terms and stocks don't care nor do they operate on those terms.   The key is that stocks and the stock market only worry about are things getting better or are they getting worse.  Contrary to what you might think, the price of a stock today is a reflection of what willing buyers and sellers are anticipating the company will generate in earnings 12 to 18 months into the future.  The past is almost irrelevant.  We don't drive our cars by looking in the rear view mirror and we don’t invest by looking at what the company has already booked in earnings and revenues.  So here is the rub.  The future is unknowable.  So we are merely guessing?  There are no guarantees in life and the stock market is no different.    Selecting investments you've adequately researched and understand will help reduce the chance of major losses.  Now stocks prices regularly fluctuate.  As medium to long-term market operators, we largely ignore the day-to-day movements since there is too much noise, and concentrate on a 12 month to 36 month outlook.  One of the greatest advantages as individual investors is time, but remember time is not an excuse to hold on to your losers.  So we want to think about the stock market as a business partner.  I turn on my computer every morning not sure what mood the market will be in.  But that is okay, because no one forces me to do business with the market everyday.  I get to choose when I want to transact.  So when the market has been in a really good mood for several years and prices are high relative to earnings, I am happy to have my business partner take those shares off my hands.  Conversely, when my partner is having a long duration of bad hair days and is grumpy and in a foul mood, marking down share prices well below a reasonable value, I am happy to do business with my partner.  The stock market is there to serve us, not to be a slave to the day-to-day market gyrations.  Most people get this backwards!

Best Returns!

P. Franklin, Jr

April 21st, 2017

All opinions and estimates included in this communication constitute the author’s judgment as of the date of this report and are subject to change without notice. This communication is for informational purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. This information is subject to change at any time, based on market and other conditions. Any forward looking statements are just opinions – not a statement of fact.

Investing may involve risk including loss of principal. Investment returns, particularly over shorter time periods are highly dependent on trends in the various investment markets. Past performance does not guarantee future results.