Iron Capital Insights

  • Iron Capital Insights
  • January 31, 2020
  • Chuck Osborne

Excuses, Excuses

To paraphrase comedian George Carlin, have you ever noticed how other people’s reasons are excuses and your excuses are reasons? A couple we know made a New Year’s resolution to do a “Whole 30” diet challenge with some friends. I’m sure your question is the same as mine: how do they lose weight eating a whole cake instead of just one piece? However, I found out that is not what they meant by “whole” foods. Ten days into the challenge, they texted us a picture of them with pizza and a beer. Their reason (excuse)? The challenge consumed their thoughts all day long…and they got hungry. How long did your resolutions last this year?

Well, the market has been going steadily upward. That is, until this week. Volatility has risen its head and while we really have not gone anywhere, we have had some down days. Why? The coronavirus of course. That is what all the news networks are telling us. The market is down because of the coronavirus. Is that really the reason?

I want to be clear that the coronavirus is a serious and tragic thing. I am not making light of that. Our thoughts and prayers go out to all who are affected, either directly or through the loss of a loved one. It is a tragedy and a real public health scare.

However, it is not a reason for American companies to be worth less today than they were a few days ago. No, it is an excuse. Markets do not go up in straight lines; they take three steps forward and two steps back. That is their nature. We have been on a sustained upward movement, and we are overdue for a breather. When this situation occurs, any headline becomes a convenient excuse.

Health scares, political scandals, natural disasters – you name it; when it is time for selling and nothing else is around, Wall Street will grab any excuse to generate some trades. That does not mean those trades are actually related to the value of a stock.

The real news affecting stock values is not so dramatic. The Federal Reserve met and essentially said, “all is well, we are leaving rates right where they are.” Fourth-quarter gross domestic product (GDP) came out Thursday and the U.S. economy grew at a better-than-expected 2.1 percent. It is still early in earnings season, but thus far the news has been good. The new trade deal with our North American partners is now official, and we have a “phase one” deal with China.

All real signs point to stocks climbing higher, it just will not be in a straight line. As always, we need to remain prudent in our decisions. It can be hard to know when it is just an excuse or a veritable reason; this is why we believe so strongly in investing from the bottom-up.

Amazon is still selling a lot of stuff and Apple is still delivering iPhones. It is far easier to have some understanding of the future of a specific company than it is to try and figure out how the coronavirus will impact Chinese GDP.

So, whatever your reason, enjoy the thing you promised to give up less than a month ago and understand the media’s reason for day-to-day market activity is just an excuse.

Warm regards,

 

 

Chuck Osborne, CFA
Managing Director