“Apple Had Better Wow Wall Street With Earnings Today,” says a headline at MarketWatch.
Apple indeed reports after the closing bell today. Given how the market got off on the wrong foot this morning, the headline sounds like a threat. As we write, the Dow is off about 350 points.
More about today’s turbulence in a bit. The factors behind it are merely urgent. Here’s what’s really important.
“We’ve already seen some big moves in the overall market this year,” says our Chris Mayer, stepping back for perspective.
“And the urge to grab a quick gain or let go of a ‘loser’ is strong. We’re like the little kids in those famous experiments who can’t resist eating a marshmallow in front of them even when promised two if they wait five minutes.”
Bad move if you have a long-haul, “high conviction” idea in your portfolio. Chris relates how Warren Buffett bought Disney in 1966 at a split-adjusted price of 31 cents a share. By 1995, it was worth $66.
Alas, Buffett bailed in 1967 at 48 cents.
“This reminds me of another story,” says Chris, bringing us back around to Apple.
“Dan Oliver at Myrmikan Capital points out that Apple from its IPO in 1980 through 2012 was a 225-bagger.” That is, every $10,000 invested in 1980 turned into $2.25 million by 2012.
“But those who held on had to suffer through a peak-to-trough loss of 80%… Twice! The big move from 2008 came after a 60% drawdown. And there were several 40% drops. Oliver noted that Apple spent about a third of its trading days at half of its interim highs.
“And yet you can’t just hold onto everything. Lots of big winners have gone completely bust. So it takes patience, some savvy stock picking and — as with most things in life — some luck.”
That’s the idea behind Chris’ “Coffee Can Portfolio.” Buy a few long-haul ideas and wait 10 years. “You’d have a few that didn’t do so well, but the winners would more than compensate,” he explains. “The idea behind it is, of course, to force us to sit still. You ignore the ups and downs. And in this way, you harvest the powers of compounding to their fullest.
“You don’t have to put all of your money in a Coffee Can Portfolio. You just take a portion that you know you won’t need for 10 years. I bet the final results will exceed anything else you do.”
Chris named five stocks to put in the coffee can for his Capital & Crisis readers in April 2013. To date, including dividends, the weakest performer is up 30% — about the same as the S&P 500. The strongest is up 83%, and the average is up 46%. Not bad at all…
Ironically, the same patience pays off in one of the most “go-go” sectors of the market right now — biotech.
Our tech maven Stephen Petranek points us to a Wall Street Journal article from autumn 2013, around the time he joined us at Agora Financial. It quoted a fund manager who said, “Biotech has become too rich for our tastes.”
Stephen’s take now: “In a way, I don’t blame him for being cautious. Biotech stocks are scary. They are based on a lot of hope and promise, and they do appear to traditional investors to have gone too far too fast.
“But there’s an underlying reason for those increases: This field is finally coming together. So many companies that have been toiling for so long to bring unconventional new therapies to market are finally succeeding. There’s a confluence of success in stem cell technologies, immunotherapies and genetics the likes of which could not even have been imagined a decade ago.”
Point being you can’t wait for pullbacks on a high-conviction idea, Stephen says: “You want to get in as soon as you make the decision to invest. Capital is flowing into these stocks.”
Yes, they’re volatile. Deal with it: “Biotech stocks went down more than 20% twice last year,” Stephen acknowledges. Those are steep hills on this roller coaster ride, and you simply must accept that it is a roller coaster and not all the hills will be up.
“If you do accept the volatility that comes with biotech investing, you’ll likely be a winner. Because the reason other people, smart people, are investing in these companies is that we are on the verge of seeing cures for many cancers and much of heart disease — not just treatments for these diseases, but cures. We have never before in human history been looking down that tunnel at such a bright light.”
Since coming on board 16 months ago, Stephen’s average Breakthrough Technology Alert recommendation is up 57%. Only two positions are meaningfully in the red, and both by less than 25%.
To the particulars of today’s market turmoil: The elite media are chalking it up to earnings and economic numbers.
Then again, the elite media said Wall Street and the rest of New York would be shut down today by the storm of the century. In the event, New York got 7 inches of snow, and the hip hashtag on Twitter is #Snowperbole.
“Blizzardmobile”? Does anyone take CNN seriously anymore?
Still, several bellwether stocks have delivered earnings disappointments, including Caterpillar and DuPont. Even Procter & Gamble missed the vaunted “analyst expectations” — not because people are buying less toothpaste and toilet paper, but because people overseas are buying toothpaste and toilet paper with currency that’s losing value against a rising U.S. dollar.
Meanwhile, the Commerce Department said orders for durable goods tumbled 3.4% in December. Whoops, the “expert consensus” on Wall Street was looking for a 0.7% increase. That’s four out of the last five months the number has fallen.
Even if you factor out automobiles and aircraft because the month-to-month numbers are volatile, the report was still a bummer.
With all that as the backdrop…
- The S&P 500 is down 27 points as we write, to 2,030. Small caps are holding up better than blue chips
- Hot money is flooding into Treasuries, the yield on a 10-year note now 1.76% — another low point going back to May 2013
- Gold is taking another run at $1,300 — $1,295 at last check
- The greenback is weakening, the dollar index a shade above 94.
Once again, stepping back… the S&P is nowhere near breaking its six-year uptrend. For that to happen, the index would have to stumble another 70 points to 1,950…
“For now, I foresee little change in Saudi oil policy,” assesses our Byron King as crude trades this morning at $45.47.
As we write, President Obama is in Saudi Arabia paying a call on King Salman, who ascended to the throne after King Abdullah died last week. Interestingly, the president is accompanied by former Secretary of State James Baker — the Bush family consigliere who’s perhaps closer to the House of Saud than any other American.
“Certainly in the short term,” says Byron, “low oil prices will persist as long as Saudi policy within OPEC is not to reduce output. And not reducing output is the policy for now.
“Saudi has intentionally allowed oil prices to drop from the previous $90-100 range per barrel, to the current sub-$50. The Saudi idea is to instill production discipline within OPEC. Plus, shake out U.S. shale and Canadian oil sands. And suck the wind out of Russia’s sails. And smack down Iran.
“Saudi oil policy reminds me of those scenes toward the end of the movie The Godfather. Remember when Michael Corleone is in church having his child baptized? Meanwhile, Michael’s guys are out and about, knocking off all his enemies. ‘It’s strictly business.'”
But once everyone’s been knocked off, then what? More from Byron tomorrow…
[Ed. note: For only a few more hours, the doors remain open to the Agora Financial Reserve. The Reserve offers you access to nearly everything we publish — Byron’s natural resource and military-tech ideas, Stephen’s cutting-edge biotech recommendations, the fruits of Chris Mayer’s globe-trotting… plus a variety of short-term trading strategies, none of which require you to glue yourself to a computer screen.
We’re closing the doors at midnight. With time limited, we won’t give you any more windup here in The 5. Chances are you know the basics of the Reserve already. Now it’s time to review the details and decide whether it’s right for you. Click here to examine your invitation.]
“I live in California, and that needs no further explanation,” a reader writes after we explored the curiosities of utility pricing yesterday.
“Gas and electric bills have been for some while finely detailed according to ‘tiers’ of consumption and allocated to bins for ‘distribution’ and ‘generation.’ Also, getting stupid letters from them discussing ‘smart meter’ readings that show daily consumption… in less occupied houses, this leads to corporate-form letter queries like, ‘Why is your electricity use high around 10 a.m.?’… It is called an electric clothes dryer, you morons!
“I have not yet figured out where the real market arbitrage is hiding. It is a slow grind as invention diffuses into the economy. Photovoltaic is not the whole deal, not by a long shot. LED lighting has already made compact fluorescents antiquated. Efficiency will grind utilities down in a manner similar to cellphones conquering Africa without them having gone through the landline phase.
“So far, nobody is piling this on top of the oil glut, but a real crystal ball would look at that aspect too. The missing link is how to store and retrieve the ephemeral solar and wind-generating output — brilliant utility management would be dumping boatloads of effort into that short-term storage functionality, but they can’t see their own feet for the girth of their paunches. (Hey, maybe that is the arbitrage?)”
“The USA (indirectly, I suppose) created al-Qaida,” a reader asserts after we mentioned in passing how factions in Saudi Arabia aided the rises of both al-Qaida and ISIS.
“The USA 1) funded Sunni insurgents fighting against Russians in Sunni Afghanistan, led by Saudi citizen Osama bin Laden in the 1980s, 2) funded Sunni (Egyptian) mercenaries fighting for Sunni Saddam Hussein against Shiite Iran in the eight-year Iran-Iraq War in the 1980s, 3) fought against Sunni Iraq (under Saddam Hussein) in the Desert Storm ‘OIL’ war in Kuwait, from bases in Sunni Saudi Arabia. American troops stationed at U.S. bases on Saudi soil were a massive insult to devout Sunni Muslims, including Osama bin Laden and al-Qaida.
“The BBC didn’t mention these unpalatable facts, either. Political correctness is served.”
The 5: Point taken.
Meanwhile, we’re struck by how everyone from John Kerry to John McCain has fallen all over themselves to offer up fulsome praise to the memory of Saudi Arabia’s King Abdullah.
“It’s not often,” writes Murtaza Hussain at The Intercept, “that the unelected leader of a country which publicly flogs dissidents and beheads people for sorcery wins such glowing praise from American officials. Even more perplexing, perhaps, have been the fawning obituaries in the mainstream press which have faithfully echoed this characterization of Abdullah as a benign and well-intentioned man of peace.”
Then there are the 28 redacted pages from the Joint Congressional Inquiry into the Sept. 11 attacks. The Bush administration barred their publication on national security grounds.
“There’s nothing in it about national security,” Rep. Walter Jones (R-North Carolina) told The New Yorker last fall. “It’s about the Bush administration and its relationship with the Saudis.” Rep. Stephen Lynch (D-Massachusetts) said it furnishes evidence of complicity by Saudi Arabian individuals and organizations in the attacks.
So far, the push to make the 28 pages public is limited to a few congressional backbenchers. With senior Democrats and Republicans both part of the presidential entourage in Saudi Arabia today, it’s likely to stay that way…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Last call: The current Agora Financial Reserve membership drive closes tonight at midnight. We might not have another one till the end of the year. If you’ve been on the fence, now’s the time to act.
