When I was an eager young man and enthusiastic about coaching, an elder coach counseled me about the mistake many other coaches made when evaluating players. He said most coaches are very dismissive of players, using quotes like this guy cannot do this, he cannot play dead, why would you bother with him, stuff like that. This approach is not going to accomplish much, he warned, because everything in coaching is based on who can you get compared to the team you already have (known as recruiting). You might not think player A is very good, but if he is better than what you have, guess what, you better not dismiss him. It illustrates the concept of relativity, which is applicable in nearly every domain you can think of. For example, when applying to colleges, individual students compete against other students in the same class. The colleges compare all of them and select those they think are the best fit (unless, of course, their parents are alumni who can fork over the bucks). In sports, say football, when you compare the Browns, a losing team for many years (think 0-16, 1-15), to the Raiders, the Raiders look pretty good even though they typically don’t have a winning team. If you compare those Raiders, to say, the always in the hunt Patriots, the Raiders don’t look so great. In politics, if you compare Mr. Trump to Mr. Lincoln, well, he doesn’t bode well. Put the Donald up against Mr. Obama, he is a superstar, at least in my opinion. You get the point, right? Now let’s turn to relativity in the investment world.
The crucial concept of comparisons might take even more importance in finance than in other fields because when you make choices with investing, there is the chance of both making money and losing it. As a result, it is a smart idea to take a wide range of alternatives to look at when you are comparing assets. For example, stocks versus bonds, real estate, commodities, cash, private equity, hedge funds, venture capital, Cd's, and land would qualify as a pretty broad universe of choices. If you drill down to say, just stocks, you might compare active investing to passive, meaning selecting individual companies versus just owning an index or exchange traded fund of the S&P 500 or Dow Jones Industrial Average, etc. If you dig deeper, and choose active, what sector do you choose? Banks, pharmaceutical, media, technology, internet centered, social networking, cloud vendors, cuber security, energy, gaming, biotech, etc? In picking one area, like say the financial, you might compare JP Morgan with its competitor group like Citigroup Inc (NYSE:C), Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), Deutsche Bank (DE:DBKGn), Credit Suisse (SIX:CSGN), UBS Group AG (NYSE:UBS), and PNC-Mellon. By continuing to narrow down the focus with lots of comparisons, you begin to find where you think the best place for your capital is. My mom, bless her heart, when something good happens, she usually says, “It’s better than a kick in the head.” In making choices about anything, especially finance, its all relative.
In the markets this week, Mr. Trump mentioned the Fed policy of raising interest rates and why he was against it, while simultaneously pursing his policy of escalating the trade tiff with China. He brought up potentially $500 billion more in tariffs on the Asian leaders exports. The European Union and Japan agreed to reduce tariffs on most of the products as trading partners, which just highlights the issue which has dominated the business headlines for the last six months. Netflix (NASDAQ:NFLX) started the earning season off with a nice miss on subscriber estimates, but Microsoft (NASDAQ:MSFT) more than made up for it on Friday with big numbers in the cloud area. Comcast (NASDAQ:CMCSA) decided to bail on the Fox bidding war, leaving Disney as the victor for those prized assets. You don’t have to be the sharpest tool in the shed to look at the media area and understand that Disney is serious about competing with Netflix in the direct to consumer space. Netflix has a huge installed base, but Disney is the clear leader of the best content. Turning towards next week, the heavyweights in many areas of the corporate world will report, including Google (NASDAQ:GOOGL), Facebook (NASDAQ:FB), McDonald’s Corporation (NYSE:MCD), Amazon (NASDAQ:AMZN), Exxon (NYSE:XOM), and many others. As we mentioned, the results they announce will be compared to previous quarters and years, because of this important idea of, ta da, relativity.
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.