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Equities Rebound As Earnings Season Arrives

By Yale BockStock MarketsApr 15, 2018 04:05AM ET
Equities Rebound As Earnings Season Arrives
By Yale Bock   |  Apr 15, 2018 04:05AM ET
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When you look at the role of financial markets in broader society, context becomes quite important. For example, if you are an inner city kid just trying to get a quality education, the relative performance of the Russell 2000 versus the S&P 500 means nothing. If you are a Chinese citizen, one of nearly 2 billion, or an Indian trying to navigate a country of over a billion other people, the performance of a stock listed in the US matters little, if at all, to your daily life. Consider the plight of someone undergoing chemotherapy two or three times a week, and well, financial markets might hold very little attraction. The same thing can be said for someone in a nursing home. However, in a larger lens, if you consider the large state run pension funds or higher education foundations that fund all kind of liabilities, including teacher and public employee pensions and potentially donate to inner city projects all over the country, well, their ownership of equities in various forms seems much more important if they are viewed as a funding source for those less fortunate. So, looking at situations with an overall context is quite important, especially when doing rigorous analysis. Let’s apply this to individual portfolio management, shall we?

Those who cover finance often mention individual sectors or holdings and discuss their performance over a time frame. In doing so, without listing and giving detail to the overall value of a portfolio and the weight given to a holding, a viewer is receiving incomplete information. If you have a portfolio of ten holdings, and one stock comprises one tenth of one percent of the total value, and it drops by twenty percent, but the overall value of the entire assets goes up by twenty percent, does the portfolio owner flip out because one stock was terrible? In most cases, probably not. If that one terrible stock was the one mentioned by the finance program, it would appear the company was poor. Taking it even further, if the company had a ten year track record of beating the market indexes by many percentage points, think something like an Amazon (NASDAQ:AMZN) or Facebook (NASDAQ:FB), the fact that it dropped 20 percent over a month or two means very little. So, context matters in both life and in finance, and it is worth understanding and taking to heart this valuable lesson. Besides, when did Tom Brokaw ever steer anyone wrong, right?

In the markets this week, Mr. Zuckerberg held his own quite well with the neanderthals that made every attempt to humiliate him during his testimony in front of Congress. The more you watch our Senators and Congressman, the more you realize it is just the same script every time. They prepare this long drawn out speech trying to put whoever is in front of them in their place with some sort of moral outrage. As if our duly elected representatives care about anything other than a campaign contribution and pandering to their constituencies. (Sorry for the editorial commentary and back to our scheduled programming) Verifone Systems Inc (NYSE:PAY) got taken private, yet again, and late in the week, JPMorgan Chase & Co (NYSE:JPM), Wells Fargo (NYSE:WFC), and PNC Financial Services Group Inc (NYSE:PNC) told us they made billions. I know you were worried. In my little world, a situation took place where a value holding that is a turnaround reported mid week and the market hated its guidance, though the financial results were fine. The management communicated in a way which essentially said margins probably won’t improve for two years. Great, want to watch investors flee, this was the case. It is unfortunate and disappointing when your leadership does not put their plan into proper context for investors to digest, or in a way which is understandable. Three years from now, it probably won’t matter, unless of course, the management team is actually trying to take the company private, which could be their ultimate motivation. You never know, which is why investing is, uh, interesting.

Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog, Investing in securities involves risk and the potential loss of ones principal. Past performance is no guarantee of future results. All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one's overall financial situation. The fact that Yale Bock has earned the right to use the Chartered Financial Analyst in no way means or guarantee performance better than market indexes.

Equities Rebound As Earnings Season Arrives

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Equities Rebound As Earnings Season Arrives

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