“Competition is always a good thing. It forces us to do our best. A monopoly renders people complacent and satisfied with mediocrity.” – Nancy Pearcy
As a boy and later a young man growing up, I was ultra competitive and took losing very hard. The same can be said for many people, but consider yourself fortunate if you receive the proper guidance on dealing with the short end of a sporting endeavor. If one figures out the mistakes made and how to improve those areas, ultimately you can wind up stronger in the long term.
In nearly every field, but especially business, competition is brutal. Let’s take money management as an example. If you are a good investor and find a way to outperform market indexes (a very difficult task), you would think people would beat down a door so you can help them grow their capital. Maybe, maybe not. It turns out there are other good investors, and not just in equity investing. They can be also be found in fixed income (bonds), venture capital, real estate, commodities, private equity, hedge funds, currencies, and options. With technology, the current environment makes it so you can mix and match any one of these asset classes looking for your ideal portfolio. You know, the one where you gain 30% per year with no risk, the one everyone wants.
Anyway, in every area of the economy the competition is fierce. Interestingly, maybe the best investments are ones where there is lack of competition, or none at all. Oops, darn it, I might have given away an important secret to my worthy competitors.
In the market this week, the February jobs number came in hot at 235 thousand, essentially making it all but certain Janet and the Federal Reserve Board will raise interest rates .25 basis points on March 14.
Elsewhere, large institutional investors are now reticent to embrace the new IPO of Snap (NYSE:SNAP) as the dual class structure gives them pause, even going so far as to push for SNAP to not be included in major indexes.
Another emerging area, the artist known as Bitcoin, was handed a setback late Friday as the Winklevoss twins were rejected by the SEC in their efforts to create an ETF centered around the asset. Bitcoin’s price had shot up to 1200 before retreating after the SEC’s decision. It is up significantly from the 300 buck level only a few years ago.
The oil world met this week in Houston for the CERA conference where all the big boys spoke including the Saudi oil minister, the heads of all major integrated international oil companies, the largest shale producers, and low and behold, the Prime Minister of Canada, Justin Trudeau. The CEO’s of the largest majors spoke of efficiency and their prospects for improving their cost structures over the next few years, mostly because of projects coming on line which should be immediately accretive to cash flow and earnings. The Saudi’s met with the shale guys to warn them about production levels and market share gains.
Looking ahead, the crucial issue is the ability of OPEC and non OPEC producers to keep production restricted versus the ability of the shale producers to make money at lower prices. Usually technology wins, but with oil, depletion rates and return on capital also are important. All in all, if you are long you go with the shale guys, more conservative stick with the majors, and short find a good refiner. No extra charge for the advice.
On the earnings front, Adidas (DE:ADSGN) showed their strength with a winning report on Monday, clearly putting the hurt on Nike (NYSE:NKE) and Under Armor. Brown Foreman displayed there is always demand for Jack Daniels, and beaten down H&R Block (NYSE:HRB) reminds us of one of the only few certainties in life.
In the political world, the House passed the first few attempts to find a way to repeal and replace the Affordable Care Act, and in the process have upset nearly every medical constituency imaginable, nurses, doctors, and patients. The key person in the attempt to replace the ACA is HHS Secretary Tom Price, who gets a great deal of latitude on many of the different elements of that law. As a long time doctor familiar with the profession, he is going to be the driver if the Republicans are going to have success. As part of this effort, a major obstacle is the Freedom Caucus, the most conservative and vocal opponents of the new reform bill, which they deem as Obamacare light.
Meanwhile, it is clear Mr. Trump will also have to help drive the effort to pass the bill. Donald is doing his part, hosting members of Congress like Ted Cruz, inviting them bowling, showing them around the White House, the friendly host thing. Kind of acting like a President should, right? Of course, the Democrats will be at war with him for at least the next four years, so competitive forces always act as a mitigating force in the political realm, just like in so many others.
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.