I hope you enjoyed a wonderful Independence Day holiday.
The highlight for me was having all three of my kids back home and
feeding 32 family and friends in my back yard, featuring lobsters
caught by my brother-in-law! But today it's back to work, and
I begin this issue with some concerns expressed by readers in
"I am increasingly concerned about the impact of inflation on the
value of my portfolio."
"Over 2/3 of all births in Los Angeles County are to illegal alien
Mexicans on Medi-Cal, whose births were paid for by
taxpayers. 95% of warrants for murder in Los Angeles are for
illegal aliens. How can I invest when the immigration
statistics are so troubling?"
"Unless we get the world's population down below 5 billion, we're
"My partner Scott is addicted to Kudlow. He's got to watch
him at 7 every night. But he's too scared to invest!"
"I'm afraid that the U.S. political class is so addicted to
lobbyist money that they'll never make the hard choices that can
get this country back on track. Our days are numbered.
China will be the next global leader."
And finally, addressing perhaps what is the greatest shared worry
of Americans today, "I'm worried that the BP oil spill will end up
hurting us more and costing us more than Katrina."
In short, there's plenty of worry out there.
But allowing worries about fundamental problems like these to
influence your investing decisions is a mistake, and the reason is
Everyone else who's investing in the market has ALREADY worried
about these things, and they've adjusted their investments
accordingly. In professional jargon, the market has already
"discounted" these concerns. Furthermore, the market as a
whole is much smarter than any one investor; the market is always
right. So instead of worrying about the future, and
attempting to calculate how these fundamental problems will affect
particular stocks or the whole market, you should simply watch
those stocks and watch the market!
If this is confusing, please read it again, because you must
understand this if you're going to be a successful investor.
(In one classic investment book, "How I Made $2,000,000 in the
Stock Market," by Nicolas Darvas, first published in 1960, the
author writes, "To guard myself against any possible interference,
I put up my barrier. … I buy a copy of an afternoon paper that
gives Wall Street closing prices. … I tear out the pages
giving the day's quotations and throw the rest of the financial
section away. I do not wish to read any financial stories of
commentaries, however well-informed. They might lead me
In sum, when it comes to investing, you should do what Darvas
did. Ignore the news and ignore the commentary. Simply
let the action of the market be your guide.
Getting back to worries (but away from investing), it's equally
important that you don't let today's worries influence your
thinking about what will happen to the U.S. and the world in the
The main problem with focusing on today's headlines is that they
foster a short-term mentality, and thus crowd out attempts to
balance the immediate with a longer-term view. And
longer-term thinking is difficult enough without the distractions
of the breathless commentators who repeat who-said
-what-today-on-what-topic ad infinitum.
So let me address the concerns above one at a time.
On the topic of inflation, many people are concerned that as the
economy recovers, today's super-low interest rates will encourage
buying and in the process fuel inflation. After all, that's
what's happened in previous decades. But a longer-term
perspective tells me that demographic forces--above all
Baby-Boomers shifting from spending to savings mode--will dampen
any inflationary tendencies.
On the topic of immigration, I have three thoughts. One, the
history of civilization tells us walls don't work. Two, the
strength of the U.S. has always come from immigrants striving to
build better lives for themselves, and I believe that tradition can
be continued, particularly if our Federal government works to
attract and keep educated people, and rewards productive behavior
more than it rewards unproductive behavior. Three, looking
longer-term, demographic forces again tell us that in a few decades
we will face a serious labor shortage, and that we may be competing
with other western countries to attract workers.
On the topic of the global population, I strongly believe that the
earth can support billions more people, but that to do it healthily
we must transition beyond our fossil fuel economy so that air and
water pollution diminish and so that the effects of global warming,
like rising sea levels, do not become too great to fix and/or adapt
to. We must recognize that the main cause of
poverty/malnutrition on earth is not due to a deficiency of assets,
but due to the misallocation of resources, and the main reason for
that is misguided government policies. Finally, we must elect
leaders who see the main benefit of growth--that every human born
can be not only a productive worker but also a person capable of
generating the ideas that help make the world a better place.
On the topic of watching Kudlow or any commentator every night, I
say, if it bothers you so much that you're fearful to invest, turn
it off! Get some perspective. Remember that the best
investments are those that are not obvious; they're undiscovered
small stocks like Isilon Systems (
) or stocks in out-of-favor industries like Alaska Airlines (
). While mass-market commentators like Kudlow might
provide entertainment, they're unlikely to be a source of great
investment ideas. And if you're still scared to invest,
remember that the long-term trend of the market is up, and that the
very best time to buy is at the deepest trough of pessimism.
On the topic of politics and lobbyist money, it looks like the next
election will bring a few fresh faces to the halls of power, and if
we elect carefully, these fresh faces will be somewhat less
beholden to the lobbyists. Overcoming the power of that money
won't be easy, but I don't favor trying to do it with the force of
law. I favor the forces of knowledge (transparency) and
On the topic of China, I'm very happy to see China growing, not
only because it's a chief reason that Cabot China & Emerging
Markets Report has been the top-performing investment advisory over
the past five years but because raising the standard of living of
people everywhere is good for us. But I'm not worried about
China taking the lead. Its economy is still just one-third
the size of ours, and I know that its economic growth will slow as
it grows larger and more complex.
Finally, turning to the topic of the BP oil leak, I see a parallel
with the case of the Cambridge, Massachusetts cop who was accused
of racism last July when he responded to a 911 call and ended up
handcuffing Harvard professor Henry Louis Gates, who was trying to
get into his own house. A $100,000 independent commission
announced last week that both the policeman and the professor were
at fault (something most of us figured out much more quickly and
cheaply). In the Gulf, I blame BP for incaution caused by
greed and I blame the Bureau of Ocean Energy Management, Regulation
and Enforcement (BOEMRE), also known as the Bureau of Ocean Energy,
and formerly known as the Minerals Management Service--whose head
has already resigned--for lax oversight.
I think BP was foolish to give away $20 billion to the U.S.
government without getting something tangible in return.
I think the lawsuits will drag on for years and make numerous law
I think the ocean will clean itself in time, but it will be a long
Finally, I think President Obama should use the leak as a
springboard to a new energy policy that discourages petroleum use
with a simple gas tax--just as they do in Europe--and encourages
the use and development of sustainable energy sources.
Furthermore, as the gas tax is phased in, CAFE (Corporate Average
Fuel Economy) requirements should be phased out; as their main
value has been in encouraging automakers to find ways to get around
the rules (like classifying baby-toting SUVs as trucks), and true
market forces should be allowed to determine what we drive.
In sum, there's always plenty to worry about, but putting these
worries in perspective can help you see the bigger picture, which
can bring psychic comfort … which can make you a better investor.
Moving on to the market, we got a nice rally today, but one swallow
does not make a summer (Aristotle) and one up day doesn't make a
bull market. But the rotten sentiment levels--which may have
reached a nadir last week--mean there are plenty of stocks trading
at bargain prices out there.
One worth investing in is Sysco (
) the leading distributor of food and related stuff to restaurants,
hospitals, hotels and schools.
It's a favorite of Roy Ward, editor of Cabot Benjamin Graham Value
Letter, who recently added it to his Wise Owl Portfolio and wrote
"SYY shares sell at only 15.0 times forward EPS with a dividend
yield of 3.2%. Sysco is a top-notch company in an industry with
excellent growth prospects. We expect SYY shares to advance to our
Minimum Sell Price of 39.97 within one to two years.
Sysco has 186 distribution facilities in the U.S., Canada and
Ireland. The company focuses on prompt and accurate deliveries and
on additional services such as inventory control assistance and
menu-planning advice. The company stays ahead of the competition by
offering a wide array of fresh, frozen and canned food products.
The company also offers a broad range of culinary equipment and
Sysco is building regional distribution super-centers to buy in
larger quantities to achieve lower prices and better serve its
customers. Sysco reported sales and earnings increases of 2% and
10% for the quarter ended 3/31/10. Sales to restaurants picked up
for the first time since the third quarter of 2008. We expect the
increase to accelerate during the next several quarters. We
anticipate sales will increase 5% and earnings will rise 10% during
the next 12-month period."
Roy's Maximum buy price is 31.02, and the stock is now trading
under 29, meaning it's a great buy for the investor who can buy and
hold for a year or so as it climbs to Roy's Minimum Sell Price of
For more details, click below.
Yours in pursuit of wisdom and wealth,
Cabot Wealth Advisory