Iron Capital Insights

  • Iron Capital Insights
  • November 24, 2015
  • Chuck Osborne

What Can You Do?

We live in a crazy world. Every time one sees the news he sees a world in turmoil. When we see the events in Paris and manhunts throughout Europe, the natural response is fear. For those of us fortunate enough to grow up in an era when world history was still taught, this is scary stuff.

China: An emerging world power experiencing the first real economic slowdown in a long time, simultaneously trying to flex its muscles at its borders. The U.S. and Russia: Two world powers who don’t really like each other working in close proximity against a mutual enemy, simultaneously fighting over one’s invasion of a neighbor. Radicals wreaking havoc globally. Collectively this has all the elements of potential disaster.

Facing this horrific news day after day can make one start to feel helpless. To add insult to injury, we have admittedly less important but nonetheless real issues in the financial markets. For more than a year now we have seen the underlying market deteriorate while the headline indices mask much of this because of a few large outliers. The ten S&P 500 stocks with the highest returns over the last year are currently selling for an average of $160 for every one dollar of earnings. One would assume such companies must be growing like crazy, but those same companies have earnings growth of negative 1.67 percent. If that sounds crazy to you, that is because it is.

In the meantime, there is a company that we own in many client portfolios which is growing earnings at a rate of 35 percent, and its stock is selling for $2.33 for every dollar of earnings. This company, however, is in the oil industry; no one seems to care for the moment that the company is doing great, because its industry is out of favor.

None of it makes sense. So what is one to do in a world that does not make sense? Fortunately for us it is the beginning of basketball season, which means we can lean on the wisdom of the late great John Wooden. Coach Wooden had many great sayings, but one of my favorites is, “Don’t let what you can’t do get in the way of what you can do.”

We can’t make the market behave rationally, but we can control what we own, knowing that in the long run what we own will matter.

We can’t control the world around us and make evil people disappear, but we can teach our children through our example to love our neighbors.

We can’t make bad things go away, but we can draw inspiration from a band of Pilgrims who gave us the first Thanksgiving.

There were 102 passengers on the Mayflower when it left England in September of 1620. After a 65-day journey across the North Atlantic and a harsh New England winter, only half survived to see the first harvest. Having lost half of their colleagues and endured hardships which we can barely imagine in our modern world, the Pilgrims could have done a number of things. What they chose to do was to give thanks to God.

Even with all the bad things that happen in our world we still have much for which we are thankful. In keeping with our tradition, here is my list:

1. I’m thankful for long-term investment opportunities provided by short-term traders.

2. I’m thankful that the United States of America is a place where people are still free to disagree without threat of violence.

3. I’m thankful for the opportunity to once again coach my son’s basketball team.

4. I’m thankful that my Wake Forest Demon Deacons are finally headed in the right direction under second-year coach Danny Manning.

5. I’m thankful for my family – immediate and extended.

6. I’m thankful for a good friend lost this year and the time we had together.

7. Of course, I’m always thankful for Mama’s pumpkin cheesecake and my loose-fitting pants that make enjoyment of said cheesecake possible.

8. Finally, I am thankful for you, our clients and friends. Your trust in Iron Capital is our greatest asset and we value it every day of the year.

Happy Thanksgiving!

Chuck Osborne, CFA
Managing Director