On Friday, I strongly suggested settling down to a weekend of brewing multiple pots of coffee and reading dozens of earnings call transcripts. Doing so is what gives you a decent shot in understanding the market's rollercoaster ride in the last five sessions. Perhaps the volumes of free reading would also help decide if the pullback, correction, or whatever it's called these days, truly represented a short-term buying opportunity that would benefit your long-term future.
While it is highly unlikely you did what I had suggested, I actually re-read half of Ben Graham's "Intelligent Investor." Hey, I live alone and have no life. Go easy. Now, don't laugh and say that this exercise was a colossal waste of time in an investing environment led by hidden machines, Bloomberg terminals, and free-flowing inside information that flies under the radar of authorities. It was entirely beneficial, per the usual. The goal for me this past weekend was to reconnect with the very definition of "fundamental."
You see, friends and countrymen, amid the panic selling of last week, the month-long pullback, and Ebola scare headlines, the "pros" have been feeding you these tired, nifty lines uttered whenever the going gets rough in the market:
- The fundamentals of the U.S. economy have not changed.
- The fundamentals of global companies have not changed.
- Europe is okay.
- Merger and acquisition activity is likely to stay hot right into year end.
- Don't throw the baby out with the bathwater (lol, what does that even mean?).
- I told clients to sell weeks ago (pats back).
- We are in a 10-year bull market, but tactically we are in a short-term bear market (huh?).
- Equities are the best place to be, period.
There are hosts of other characterizations on the market that exist today that I probably missed. Believe me, I have heard this nonsense before; it's actually odd to see the same comments time and time again, through the years. Clearly, an entire generation of investing pros were taught by one another, and from the same textbooks. Good thing I am a millennial in financial services.
To all of this nonsense, I ultimately say: WHAT? What do you mean, the fundamentals of business have not changed since long positions were entered last month, three months ago, or last year? If "pros" could jump outside of their trading mentality for a hot second, I think they would be reminded, by their old school textbooks, that the fundamentals are ever so slightly starting to change. The market is sniffing out those future changes in corporate America that could bear fruit in 1Q15. For instance:
- Europe is slowing, no matter what authorities are planning to do asset-buying-wise. That slowing is fundamental to a broad set of companies, from a consumer behemoth like Amazon (AMZN) to an industrial giant in General Electric (GE).
- Quantitative easing is still scheduled to end this month, despite the reckless comments of non-voting Fed member James Bullard. That stands to reduce leveraged bets in tech names, slow the pace of M&A activity, and make financiers think twice about paying exorbitant valuations for startup tech companies. QE has become fundamental to investing since 2009; its removal from the equation signals a fundamental change is looming, one for which the market has to re-price asset valuations today.
I for one will not be so quick to say jump into the market right now, with "dry powder," cash, your child's college savings, etc. Let me see buying in the Russell 2000, or a blowout quarter from Apple (AAPL) (which is going to happen) be met with strong support by the market (as in, Apple shares popping, along with derivative names in tech). Or, let me hear IBM (IBM) call out robust service sales, or McDonald's (MCD) finally say demand for its fatty foods in Europe is stabilizing after a disastrous 2014 thus far. Until then, proceed with caution.
- I would take a few minutes this morning and listen to the earnings call from VF Corp.(VFC), its businesses touch so many different income levels of U.S. and European households. Even the company's boot business in China, which has been strong, will be a key economic read. Specifically, I am keen to hear comments on promotional activity at department stores, and if denim demand at Wal-Mart (WMT) has bottomed. The sales warnings from Walmart and J.C. Penney (JCP) suggest VF Corp. had some continued challenges in denim, which is quite telling on the health of the U.S. consumer in spite of plunging gas prices.