Author Archive
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Morning News: January 8, 2020
Eddy Elfenbein, January 8th, 2020 at 7:12 amRussia Readies New Gas Link to Europe in Defiance of U.S.
Markets Recoil, and Then Ease, as Traders Digest Iran Attack
Oil Price Spike Clouds Corporate Profit Outlook, Putting Investors on Edge
Spotify Is Developing Daily Sports Programs in Podcast Expansion
Blackstone-KKR Hidden Hand in Ad Blitz Unleashes Washington Fury
Sonos, Squeezed by the Tech Giants, Sues Google
Impossible Foods Has Stopped McDonald’s Burger Talks, Shares of Beyond Meat Jump
Bytedance’s Video App TikTok Bans ‘Misleading Information’
Toyota Plans to Build ‘City of the Future’ With Housing, Robots and Autonomous Vehicles in Japan
Tesla Begins Delivery Of China-Made Model 3s, But Faces Increasing Competition And Shrinking Market
What Auto Slump? BMW Sees Another Record Year for Car Sales
Ben Carlson: My First Piece in Fortune Magazine
Michael Batnick: Animal Spirits: Millennials on Communism
Joshua Brown: Uncut Gems is a Personal Finance Movie!
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Morning News: January 7, 2019
Eddy Elfenbein, January 7th, 2020 at 7:08 amJapanese Prosecutors Obtain Arrest Warrant Against Carole Ghosn
Immigration Could Help Canada Top U.S. in Economic Growth This Year
Fear of War Sends Gold to Highest Price Since 2013
Why Events Tied to U.S.-Iran Tensions Are Not a Good Reason to Buy Gold
U.S. Gas Stations Rush to Adopt Chip Cards After Failed Bid to Delay Deadline
Wine Business Fears a Possible Disaster in Potential Trump Tariffs
Impossible Dumplings and Beyond Buns: Will China Buy Fake Meat?
Facebook Defies China Headwinds With New Ad Sales Push
Ford Quarterly Sales Slip on Slowdown in Passenger Cars Demand
Uber Partners with Hyundai on Electric Air Taxi
South Korea’s LG Display to End Domestic Production of LCD TV Panels by End of 2020
Nick Maggiulli: How Much Does Rebalancing Frequency Matter?
Joshua Brown: Optimism as a Default Setting
Howard Lindzon: Momentum Monday – War…What’s It Good For?
Michael Batnick: Financial Gravity
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Skip the Mental Accounting
Eddy Elfenbein, January 6th, 2020 at 8:24 pmBarry Ritholtz collected some words of wisdom for what to do “when a trade goes awry?” Here’s my offering:
Eddy Elfenbein, manager of the Focused Equity ETF who blogs at Crossing Wall Street, points out: “The worst investor in the world is the person who bought a stock, then realized it wasn’t the company they thought it was and they’re now sitting on a loss.” The investor who refuses to sell because they “don’t want to take the loss” has not realized yet that the loss of capital has already occurred. Waiting to break even is a form of “mental accounting” and a poor use of capital. “The stock is completely unaware of your purchase price.”
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Morning News: January 6, 2019
Eddy Elfenbein, January 6th, 2020 at 7:16 amOil Prices Surge as Markets Digest Iran News
Why So Many Emerging Markets Are Blowing Up Right Now
New Trump Ruling Limits AI Surveillance Exports Over China Military Fears
Defying Gravity? What Could Bring U.S. Stocks Down to Earth
Fed Focuses on Repo Market Exit Strategy After Avoiding Year-End Crunch
Morgan Stanley Says Economy Can’t Promise Trump Re-Election
Japan to Tighten Baggage and Bail Rules After Carlos Ghosn’s Escape
Borden Becomes Second Big U.S. Milk Producer to File for Bankruptcy
In a Burger World, Can Sweetgreen Scale Up?
A $1 Billion Solar Plant Was Obsolete Before It Ever Went Online
Ben Carlson: I Gotta Say, It Was a Good Year & 10 Things Investors Can Expect in 2020
Michael Batnick: The Good, The Bad and the Ugly
Jeff Miller: Will Middle East Conflict Bring an End to the Bull Market?
Howard Lindzon: The Art of NOT Selling
Joshua Brown: Hard to Have Euphoria When Everyone’s Expecting Pink Slips
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Morning News: January 3, 2020
Eddy Elfenbein, January 3rd, 2020 at 9:06 amOil Soars as U.S. Killing of Iran General Stirs Fear of Conflict
Futures Slump After U.S. kills Top Iranian Commander
Hong Kong Considers the Future: ‘If You Can Afford It, Leave’
Venezuela’s Latest Problem Is There Are Now Too Many Dollars
‘Gut Feelings’ Are Driving the Markets
U.S. Farmers See Another Bleak Year Despite Phase 1 Trade Deal
Nine States Face Economic Contraction, Most Since 2009 Crisis
Tesla Deliveries Rise to Record as Car Buyers Rush for Subsidies
U-Haul’s Anti-Nicotine Hiring Policy Is Draconian
Ghosn Getaway Jet’s Other Job: Ferrying Venezuelan Gold
Carlos Ghosn Might Not Be As Safe in Lebanon As He Thought
Ben Carlson: No One Wants to Follow a Pessimist
Michael Batnick: The Long Suffering
Howard Lindzon: Investing Is So Easy…
Joshua Brown: The State of the US Consumer
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About Those Wall Street Forecasts
Eddy Elfenbein, January 2nd, 2020 at 10:20 pmThis is the time of year when forecasters make their predictions for the year ahead. There are folks on Wall Street who are paid lots and lots of money to come up with these predictions.
Their track record, however, is not very good. In fact, there’s almost zero correlation between their predictions and how the market actually behaves.
As Warren Buffett once said, “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.” That’s certainly true. I dug into the numbers and found that there’s a decent correlation—a negative one—between their predictions and the year that just ended.
This means that forecasters simply take what just happened and assume the opposite will happen but to a much lesser degree. Forecasters also assume a very narrow band for the market’s performance, generally about 5% to 12% (though not always). In reality, the market is far more volatile.
First, I have to thank the folks at Bespoke for providing me the numbers. This scatterplot shows Wall Street’s prediction for the coming year on the horizontal axis and the actual result on the vertical axis. The R-square is a measly 0.0024. In other words, the pros aren’t very good.
Here’s the same chart but with one difference. The horizontal axis is still the prediction for the coming year while the vertical is for the year just ended. The R-square is a respectable 0.58. Notice how the trend line points downward, indicating a negative correlation.
If you want to make a respectable Wall Street forecast, here’s the equation. Take the return of the year just ended, then divide it by five. Take that and subtract it from 10.7% and presto, that’s your easy Wall Street forecast.
Now, for forecasting for how the market actually behaves. Weeellll….
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“Water Is Boring”
Eddy Elfenbein, January 2nd, 2020 at 3:48 pmNever count a sector out just because it’s boring. Here’s a 20-year look at the performance of the water sector (black) versus the S&P 500 (blue).
Bear in mind, this isn’t one water stock. We’re talking about the entire sector.
Since early 2000, water is up 1,346% compared with 134% for the S&P 500. (This doesn’t include dividends which could be even more in favor of water.)
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Right Where We Left Off
Eddy Elfenbein, January 2nd, 2020 at 10:48 amHappy New Year!
The stock market is getting started on a good note.
Things will get a lot more interesting soon, once earnings season starts.
Shares of Disney (DIS) are off to a nice start:
Disney shares were on the rise to kick off 2020 after some Wall Street analysts estimated significant growth from its new streaming service and recommended clients keep buying the stock.
Rosenblatt Securities analyst Bernie McTernan expects Disney+ to attract 25 million users by the end of the first quarter of 2020, he said in a note Wednesday. He previously estimated that figure to be 21 million subscribers.
“Following results from our 4th streaming video survey over the past 3 months we are raising our estimates for Disney+, now assuming 25M subscribers globally at the end of FY1Q20, up from 21M prior,” he said. “Awareness of the service and penetration of respondents has continued to trend higher throughout our surveys.”
McTernan reiterated a $175 price target and a buy rating on Disney, and added that the growth of Disney+ may be pulling some users away from Netflix.
On the econ front, this morning’s jobless claims report fell by 2,000 to 222,000. That’s a good number. We’ll learn a lot more next Friday, January 10, when the government releases the job stats for December. The unemployment rate is currently near a 50-year low.
Here’s an interesting stat from the Stock Trader’s Almanac: When stocks finish the first five days higher, the S&P 500 has been positive more than 80% of the time at year-end with an average gain of about 13%.
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Morning News: January 2, 2020
Eddy Elfenbein, January 2nd, 2020 at 6:55 amOne of Chinese Leaders’ Biggest Worries for 2020 Is Pork
China Halts British Stock Link Over Political Tensions
Trump Administration is Quietly “Gutting” Tax Law to Give Big New Breaks to Corporations
The Dollar’s Losses May Just Be Getting Started
Here’s (Almost) Everything Wall Street Expects in 2020
Private Equity Is Starting 2020 With More Cash Than Ever Before
U.S. Shale Producers to Tap Brakes in 2020 After Years of Rapid Growth
HSBC Kicks Off Year with Hong Kong Branches Closed, Vandalized
BAE to Get Green Light for $10 Billion Howitzer Project
Pika-Who? How Pokémon Go Confused the Canadian Military
Japan Tries to Solve the Mystery of Carlos Ghosn’s Audacious Escape
France Wouldn’t Extradite Carlos Ghosn if He Went There, Official Says
Cullen Roche: What Should You Do When the Stock Market Goes Bonkers?
Howard Lindzon: Happy New Year – 2020 Here We Come
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CWS Market Review – January 1, 2020
Eddy Elfenbein, January 1st, 2020 at 2:36 pmHappy New Year!
The 2019 trading year has come to a close. It was a very good year for Wall Street and for us. I’ll get to our performance in 2019 in a bit, but first let’s look at the 2020 Buy List.
The 2020 Buy List
Here are the 25 stocks for the 2020 Buy List. It’s locked and sealed, and I can’t make any changes for 12 months.
For tracking purposes, I assume the Buy List is a $1 million portfolio that’s equally divided among 25 stocks. Below are all 25 positions with the number of shares for each and the closing price for 2019. Whenever I discuss how the Buy List is doing, the list below is what I’m referring to.
Company Ticker Price Shares Balance AFLAC AFL $52.90 756.14367 $40,000.00 Ansys ANSS $257.41 155.39412 $40,000.00 Becton, Dickinson BDX $271.97 147.07505 $40,000.00 Broadridge Financial Solutions BR $123.54 323.78177 $40,000.00 Cerner CERN $73.39 545.03338 $40,000.00 Check Point Software CHKP $110.96 360.49027 $40,000.00 Church & Dwight CHD $70.34 568.66648 $40,000.00 Danaher DHR $153.48 260.62028 $40,000.00 Disney DIS $144.63 276.56779 $40,000.00 Eagle Bancorp EGBN $48.63 822.53753 $40,000.00 FactSet Research Systems FDS $268.30 149.08684 $40,000.00 Fiserv FISV $115.63 345.93099 $40,000.00 Globe Life GL $105.25 380.04751 $40,000.00 Hershey HSY $146.98 272.14587 $40,000.00 Hormel Foods HRL $45.11 886.72135 $40,000.00 Intercontinental Exchange ICE $92.55 432.19881 $40,000.00 Middleby MIDD $109.52 365.23009 $40,000.00 Moody’s MCO $237.41 168.48490 $40,000.00 Ross Stores ROST $116.42 343.58358 $40,000.00 RPM International RPM $76.76 521.10474 $40,000.00 Sherwin-Williams SHW $583.54 68.54714 $40,000.00 Silgan SLGN $31.08 1287.00129 $40,000.00 Stepan SCL $102.44 390.47247 $40,000.00 Stryker SYK $209.94 190.53063 $40,000.00 Trex TREX $89.88 445.03783 $40,000.00 Total $1,000,000.00 The five new stocks are Ansys (ANSS), Middleby (MIDD), Silgan (SLGN), Stepan (SCL) and Trex (TREX).
The five sells are Continental Building Products (CBPX), Cognizant Technology Solutions (CTSH), Raytheon (RTN), JM Smucker (SJM) and Signature Bank (SBNY).
Disney (DIS) is our largest stock, with a market cap of $261 billion. The Buy List is mostly large- and mid-cap stocks. Four of the five new buys for this year are our only stocks with market caps less than $10 billion. That’s not a strategic decision on my part. It just worked out that way.
Only AFLAC (AFL) and Fiserv (FISV) have been on the Buy List all 15 years. This is Stryker’s (SYK) 13th year.
Here’s a brief description (via Hoovers) of our five new stocks:
It’s good to look before you leap – and even before you make. That’s why ANSYS (ANSS) helps designers and engineers see how their ideas play out even before a prototype is built by simulating designs on a computer. The company’s software analyzes the models for their response to combinations of such physical variables as stress, pressure, impact, temperature, and velocity. Ranging from small consulting firms to multinational enterprises, its 40,000 customers come from a broad range of industries and include QualComm, Ford, TechnipFMC, Medtronic, and Speedo. Pennsylvania-based ANSYS generates about 60% of revenue from outside the US, with Japan and Germany among its leading international markets. Buy below $270.
Founded in 1888, Middleby (MIDD) makes a slew of commercial and institutional foodservice equipment for restaurants, retailers, and hotels worldwide. Middleby operates through three segments: Commercial Foodservice Equipment, Food Processing Equipment, and Residential Kitchen Equipment. The largest, Foodservice, makes machines for most types of cooking and warming activities. Products are sold under about 50 blue chip brands – Anets, Blodgett, Southbend, and TurboChef, among them. Residential Kitchen makes ovens, refrigerators, dishwashers, microwaves, and other related products, and Food Processing makes cooking, mixing, slicing, and packaging machines. About two-thirds of sales come from the US and Canada. Buy below $120.
Silgan Holdings (SLGN) is one of the leading makers of metal containers in the world, and in North America, it holds the #1 position in metal food containers. Its containers are used by customers such as Campbell’s Soup, Del Monte, and Nestlé to package soups, vegetables, meat, seafood, and pet food. Through its Silgan Dispensing Systems business, the company supplies highly engineered triggers, pumps, sprayers and dispensing closure solutions for health care, garden, home, and beauty and food products. Silgan also makes plastic containers used by personal care, pharmaceutical, and other companies. About 80% of its revenue comes from North America. Buy below $34.
Stepan Company (SCL) makes basic and intermediate chemicals, including surfactants, specialty products, phthalic anhydride, and polyurethane polyols. Surfactants, the company’s largest business, are used in cleaning agents and consumer products like detergents, toothpastes, and cosmetics. Stepan’s surfactants also have commercial and industrial applications ranging from emulsifiers for agricultural insecticides to agents used in oil recovery. The company also makes phthalic anhydride and other polymers, in addition to specialty chemicals for food and pharmaceutical uses. The US is Stepan’s biggest market. Buy below $110.
Trex Company (TREX) is all decked out with plenty of places to go. It’s the world’s largest maker of wood-alternative decking and railing products, which are used in the construction of residential and commercial decks, rails, and trims. Marketed under the Trex name, products resemble wood and have the workability of wood, but require less long-term maintenance. The Trex Wood-Polymer composite is made of waste wood fibers and reclaimed plastic. Trex serves professional installation contractors and do-it-yourselfers through about 90 wholesale distribution centers, which in turn sell to retailers including Home Depot and Lowe’s. Trex products are available in more than 5,500 locations, primarily in the US and Canada. Buy below $97.
The 2019 Buy List
Now let’s look at how we did last year. As it turned out, we beat the market by eight basis points, or 0.08%. This was a close finish.
For 2019, the S&P 500 gained 28.88% while our Buy List gained 29.99%. Including dividends, the S&P 500 gained 31.49% while our Buy List gained 31.57%.
By August, our Buy List had a 6% lead over the market, but much of that eroded away in the final weeks of the year.
For the long-term, we’ve done quite well. Over the last 14 years, our Buy List has gained 309.61% while the S&P 500 has gained 247.13%.
Our biggest winner of the year was Moody’s (MCO) which gained nearly 70%. Fifteen of our 25 stocks were up more than 30%. Every stock except Cognizant Technology Solutions (CTSH) and Eagle Bank (EGBN) finished in the black.
For people who care about such things, the “beta” of our Buy List in 2019 was 0.8125. That’s pretty low for us. The correlation of the daily changes of the Buy List to the changes of the S&P 500 was 89.96%.
The chart below details the Buy List’s performance. I’ve listed each stock along with the number of shares and the starting and ending prices. For tracking purposes, I assume the Buy List is a $1 million portfolio that starts out equally divided among the 25 stocks.
Eddy Elfenbein is a Washington, DC-based speaker, portfolio manager and editor of the blog Crossing Wall Street. His