The obstacles to making winning investments are so powerful these days that you do have to wonder why anyone even bothers to try.
No, I am not talking about how there are entire ad campaigns that call you a dope if you even try to pick stocks. You will be in violation of the "single stock risk" doctrine, which says you might pick the wrong stock and do serious damage to your nest egg. Somehow the campaigners have made you feel that it's pretty darned binary -- you pick stocks, you could pick the wrong stock, you pick an index, somehow it doesn't matter, you will do fine.
That such a false dichotomy could have taken hold is a testament to the wonders of advertising and I salute those who have single-handedly scared the bejesus out of people who try to pick stocks, if only because it is so effective that I marvel at how successful their gambit truly is. They get it done.
But that's not what I am talking about. I am talking about all the obstacles to buying even the stocks that are the obvious winners as we wind up October.
Let me give you some examples of the faux danger that confronts anyone buying or owning stocks.
First, there's the notion of headline risk. Right now we are surrounded by articles about how the Russians used social media to influence the election and that Facebook Inc. (FB) and Twitter Inc. (TWTR) are in the cross hairs of legislators and regulators. (Facebook is a holding of our Action Alerts PLUS charitable trust.)
This has got to be one of the biggest yawner stories of all time. Did anyone even think for a second, "Wow, there's a tweet that's opened my eyes and makes me aware of something" if the tweet wasn't from Trump? If the Russians had revealed they were behind the tweets would you have found yourself doing anything different anyway?
Yet when I read the stories they have this menacing approach to them, that somehow if you own Facebook or Twitter or anything else in the space you are about to get walloped by Washington.
Yes, it is true that perhaps programmatic non-human ad buying will need to be reviewed by the companies in question, meaning they will need to hire some people at a cost to their gross margins to create software that flags potential foreign intrusion. They can do it. The changes will cost money, no doubt. But remember when Alphabet Inc. (GOOGL) was supposed to be in danger of losing huge ad dollars because of the possibility of placement next to Crypto Nazi content? Talk about a story that totally shook out so many shareowners. I remember telling people not to sell and we begged club members of Action Alerts PLUS to use the hoopla to buy. (Alphabet also is part of our Action Alerts PLUS portfolio.)
Still, it's the kind of story that won't die until Congress kills it and every headline will spook people as surely as the ghosts that show up at your door tonight.
Then there are the Apple Inc. (AAPL) component stories (Apple is a part of our Action Alerts PLUS portfolio, too). How many times have people abandoned the stock of Apple off a Far East paper no one reads here saying that Apple quietly has told suppliers it doesn't need more parts because of weak demand? Three times each iPhone? Five times?
Next thing you know, we get another story that says suppliers can't meet demand.
These stories always cause you to sell low and buy high as people love to trade this stock. It's almost ineluctable. Of course, no real supplier is allowed to talk to the press about Apple's business because Apple is like "Fight Club" -- the first rule of Apple supply is you can't talk about it to anyone. So how can we ever trust these stories, especially as Apple has been known to switch suppliers constantly? We only know of one case where this move has been vocal and that's the one today: Apple to go with Intel Corp. (INTC) if Qualcomm Inc. (QCOM) doesn't relent.
Of course, Qualcomm says Intel is offering an inferior chip. Don't expect Intel CEO Bryan Krzanich to refute that. He knows the Fight Club rule.
Still, the ultimate takeaway: These stories force you to be Ulysses-like and strap yourself to the mast so as not to bolt because of the sirens from the Circes in the press and their sell-side research analyst acolytes.
How about the valuation conundrum? These stocks always look expensive to those who talk about them. But not once, other than here, do you ever hear about how much cheaper they are than the consumer packaged goods companies that I regard as so dangerous to own. The 1% growth in Mondelez International Inc. (MDLZ) is not what I desire. Yet it sells at the same price-to-earnings ratio as Apple. It's almost as if there are two different markets.
There's the "safety first" market -- the consumer packaged goods and drug companies -- which turns out to have incredible risk. And there's the "safety last" market of the techs, which turned out, because of growth that wasn't foreseen, to be far less risky. The missing element? You had to believe.
There's nothing wrong with believing when it comes to the stock market. All pieces of paper require a leap of faith and trust. Most don't have it when it comes to owning the fastest-growing tech stocks. When we look back at this year's earnings for tech, we discover that the stocks in circa 2016 were incredibly cheap versus the out-years. Yet, we are told to ignore the out-years by people who are worried about how expensive stocks are. They are fools.
Now, though, consider the larger issue of the big obstacles to owning stocks. Go back a few years ago. We heard from so many bears that when the Fed starts raising rates it will be the end of the bull. Have you noticed that this market now cheers rate hikes? We need them to maintain the momentum. In the meantime, the utilities and the housing stocks, most sensitive to rates, have been among the strongest performers. It turns out to be a worry canard!
We had come to believe that the dollar could not be stopped in its ascent. Yet it was stopped cold by a whole bunch of currencies and I don't think that move is done. It turns out to be incredibly important, as I thought it would, and it is behind a lot of what's going on among the industrials and the techs, which have huge businesses overseas. A huge part of the earnings "surprises" have come from a weaker dollar, which is barely noted. We talked about the stronger dollar endlessly and how it hurt earnings. The weaker dollar barely gets mentioned, so we don't cynically asterisk the numbers and we take them as real. (By the way, another wrong correlation: Remember when we were told if the dollar was weak, oil goes higher? Turned out to be totally untrue. A bogus correlation.)
Then there are the one-off worries. Worries about the new Fed chief. Worries about the Robert Mueller investigation. Worries about how much of the tax reform is baked in so if it doesn't happen stocks have further to fall. Worries about the age of the bull. Worries about each 1000 points on the Dow. Worries about the comeback of wage inflation. Worries about the storms and insurance. Worries about the Border Tax. Worries about state and local tax deductions. They are endless. Worries about the foolhardiness of dip buying.
Yep, the obstacles to getting here are mighty. It's a virtual never-ending gauntlet set by the analysts, influenced by unhealthy sardonic corrosive cynicism, not skepticism, and picked up by an anxious-to-be-negative media, which confuses negativity with rigor every day of the week.
If you made it this far, perhaps you should stay on the course, hit the steeplechase, go through the house of horrors, brave the holographic axes and guillotines and make some money despite all those who are Manchurian Candidates for the bears playing solitaire with a deck of red queens, trying to pry you from your investments.
