'What comes first, the compass or the clock? Before one can truly manage time (the clock), it is important to know where you are going, what your priorities and goals are, in which direction you are headed (the compass). Where you are headed is more important than how fast you are going. Rather than always focusing on what is urgent, learn to focus on what is really important.'
In the capital markets, there is always plenty of news, but not much of the information is critical for making decisions about investment merit. With the deluge of earnings reports over the past week, however, the last five days served as an important reminder of why reporting season is always important, and the foundation of what equity prices are based on. This is not to say that the market is always efficient. Over the long term, usually it is. Still, the idea market values always are an accurate representation of the worth of an enterprise is not one hundred percent correct. There in lies the opportunity, but one certainly full of risk. Which is why investing is not for the faint of heart. If you lack resolve, you will be tested, without a doubt. Of course, everyone believes they have the fortitude to hang in there when it gets difficult. Sure you do, of course you do.
Last week, the proverbial bleep hit the fan when technology heavyweights Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Yahoo (NASDAQ:YHOO), and Qualcomm (NASDAQ:QCOM) all reported numbers which disappointed Wall Street. Apple sold over 60 million devices, but fell short in phone orders and got hammered. Microsoft had great cloud numbers, not so much in PC related devices, and took a massive write down. Nobody yahooed for Yahoo but it still showed better growth and some promise in their mobile areas. Head chopping and activist investor participation were the themes for Qualcomm, which certainly did not help the cause. Adding to the joy was the despair about the current state of affairs in China. Ray Dalio of Bridgewater Associates remarked the firm missed the crash in equities and now was not a place which was 'safe' to invest. Interesting, I did not realize first aid was what should be considered when allocating capital. My mistake.
Adding fuel to the fire about China was the continued decline across the commodity complex. Oil, gold, copper, steel all were hammered repeatedly this week, and any company in those areas got beat up. The poster children in these places are great firms like Caterpillar (NYSE:CAT), United Rentals Inc (NYSE:URI), and Freeport-McMoran Copper & Gold Inc (NYSE:FCX). You would not know it based on the constant selling this week. Helping the situation was Coca-Cola (NASDAQ:COKE) and Boeing (NYSE:BA), which both reported nice quarters, and the soft drink maker even showed some volume growth in North America. It has been a while, so congrats to the fellows down in Atlanta. In the gaming world, Caesars Entertainment Corporation (NASDAQ:CZR) shares got torched after losing a court order centering around their treatment of large hedge fund creditors. The artist formerly known as Harrah's has been battling to preserve their equity for a long time, but it appears the creditors have a good chance of reclaiming the assets. Stay tuned.
In what you would have thought would be very positive for the market, Seattle stalwarts Amazon (NASDAQ:AMZN) and Startbucks reported superb numbers on Thursday after the bell. Amazon actually overtook Wal-Mart (NYSE:WMT) in equity value and it appears Starbucks (NASDAQ:SBUX) will do the same with McDonald's (NYSE:MCD) relatively shortly. The hardest part about these situations is there have been a few occasions over the last decade where you could buy the stocks at good prices. As they continued to report good numbers, those chances become few and far between. Still, Amazon represents a great example of what investors have to 'overcome' when facing a demanding equity market. For a few years now, Amazon's stock had done very little, until recent quarters. Friday, it was up 10% in a day, and nearly 20% after the bell on Thursday. You saw the same thing with Google (NASDAQ:GOOGL) a few weeks ago. The stock did very little for a few years, and in one day it goes up 100 points. Both are emblematic of another issue which affects the current environment, very few winners. Why should an institutional buy an index, or a small stock, when they can just own Google, Amazon, Facebook (NASDAQ:FB), or Apple and get out performance? Of course, the assumption is this will always be the case. Maybe, maybe not. Right now, and it's been this way for a long time, market leaders remain the preferred entity. Elsewhere, AT&T (NYSE:T) showed nice growth and got approval from the FCC for it's purchase of Direct TV.
Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.