by: Andrew Wilkes
Whenever the New York Yankees go on a short term losing streak, does anybody still ever lose complete belief that they will win again? Of course not. The reason the Yankees have the success over the course of their franchises can be pointed to one thing that has the ability to stay constant, fundamentals. The Yankee way it is known as.
Well I’m coining the phrase, “The Apple Way.”
The Apple Way is simply the underlying assertion that they will break through in some way or fashion through game changing innovation capabilities. No matter how much I despise the Yankees, I will not put my money against the Yankee management and no matter how many analyst want to see a new player in technology come in, I will not put my money against Apple.
If anything, I’d put my money on Apple. After a 7 month stock tumble from its high of above $700 the past is behind. We can face reality, Apple makes a great product, the iPhone and iPad changed the game but now that everybody has one why buy a new one? That seems like a reason to sell Apple stock, they have sold the market dry and already own a tremendous share after their culture changing products. But this is where the Apple Way comes in. We know what kind of growth potential is possible from Apple. We know what kind of fundamentals they have in place. We know that we live in a technology driven market where one product can be targeted to improve the lives of each person in the world. This demand of technology leaves a big opportunity for suppliers and Apple is the leading candidate. If you wait until the official press release of new products you will have already been too late. Watch the Apple way run its course and see the stock’s price rise with it.
Here We Go Again
Remember the congressional circus of the “fiscal cliff” last december? Well get ready for cliff number two with the “Debt Ceiling.”
What is the debt ceiling? The national debt ceiling is a level imposed by Congress on how much debt the U.S. can carry at any given time
Today, President Obama held a special press conference to address this issue. He warned of the consequences that would occur without congress passing a bill to raise the debt ceiling.
“We’ve got to stop lurching from crisis to crisis to crisis,” Obama told reporters at the White House.
The President even threatened to take authority over the issue of the bill was rejected. Just as we saw during the pre “fiscal cliff”, the volatility and uncertainty of politics affect the stock market negatively. So far today, stocks are relative flat and $APPL dipped below $500.
If government spending is such an issue, then why is it so important that the debt ceiling be raised? Even though the government is in debt 16 trillion dollars, bills still must be paid. The 16.4 trillion dollar debt ceiling is expected to hit as soon as mid February.
“Raising the debt ceiling does not authorize more spending,” he said. “It just allows the country to pay the bills it’s already committed to.”
“The consequences of us not paying our bills would be disastrous,” he said.
Washington Is Still Split
Obama said it is possible that the Republican led House of Representatives could vote against raising the debt ceiling. If a government shutdown results, he said, “it will damage our economy.”
“They will not collect a ransom in exchange for not crashing the economy,” he said. “The full faith and credit of the United States of America is not a bargaining chip. And they better decide quickly because time is running short.”
Obama believes the country us making progress toward reducing the mountainous deficit but cutting spending alone will not do the job.
“We are poised for a good year if we make good decisions and sound investments,” the president said.
Therefore, expect stocks to be shaky while Washington is shaky. But what is new? Republicans are threating a government shutdown and Democrats extending benefits and increasing the deficit. But where will the debt ceiling end? If government never accepts its credit debt, when will they become responsible? I suppose we will do what American politics are best at, kicking the can down the road and worry about the problem when it starts to damage the economy.
As I sit here at my desk writing this article, I am dying a little bit with each word, but the truth is the truth. I grew up in the midst of Best Buy’s technology retailing dominance and I could spend hours in Best Buy as an 8 year old playing with all the cool gadgets, games and seeing the TVs. I cannot put a specific date on it but I believe this is as certain as Mark Sanchez throwing an interception, Best Buy is headed for the exits.
Even though their competitors such as Circuit City have beat them to bankruptcy, their earnings are gradually getting more and more depressing. In 2011, Best Buy’s market cap lost $9 billion and the company’s stock lost 40% of its market its value.
To buy in store, or to buy online?
While Apple’s products are being bought mainly from the additional number of Apple stores and online, Best Buy does not have the big drawing product. Amazon dominates TVs where you can buy a television up to $400 cheaper on some sets. Therefore, with the decrease of Apple products sells, the flat line of PC sells and online controlling majority of TV sells, Best Buy is not bringing in the profits they used to. After all why not walk into a Best Buy store and look at the 55′ Sony you want then go buy the same TV from Amazon for $200 cheaper. This is a critical problem for Best Buy as televisions have always been a major part of their revenue
With the increase of critics about the company’s management, there is not much Best Buy has been able to do to counter the downfall.
Low Net Margins are Obvious
Since it has established such an iconic brand name in electronics retailing, the company can continue to thrive if can adapt to the changing environment. Current management appears to understand this. The company is shutting down many of its large under performing big box locations and focusing on growing much smaller, mall-based “Best Buy Mobile” shops. These smaller stores cost a fraction to set up and focus on selling mobile equipment, which is the fastest and most profitable segment of the electronics industry. But doing this is incredibly easier said than done.
The large stores are part of the problem for Best Buy right now. Big rent notes, high electricity bills and also the payroll of the large staff at each store. Who can they appeal to? Why should I buy my laptop or television from Best Buy instead of online or a brand store like the ever profitable Apple Store? These are tough questions to ask and the future is dim for Best Buy.
Remember two weeks ago when stocks were dropping in the fear of falling from the fiscal cliff? Nobody dared to jump in the market and investors were holding onto their money like Adrian Peterson as he holds on to the rock while breaking NFL rushing records.
Now, after the resolution of the fiscal cliff, investors finally realize the double digit returns the market yielded last year. I suppose the fiscal cliff clouded all of our brains and we forgot all the good that had already took place along with the momentum which has been built up heading into the new year.
Fresh off of 5 year high in stocks long term equity and mutual funds enjoyed 22 billion in increased investments this week, according to Bank of America Merrill Lynch. That was the second-highest amount on record after the $22.8 billion that went into all equity funds in September 2007.
But enter the market with caution.
“I’m a little skeptical,” Art Cashin of UBS told CNBC on Friday. “I want to see if they continue.”
The fiscal cliff created a nightmare for investors and it halted investing confidence in its tracks, which in turn had a profound effect on stocks in the final month of 2012. With the congress circus of the fiscal cliff resolved, investors finally know what to expect from government regulations and can investment with more clarity.
And investing they are, by the billions.
Of that $22 billion inflow, $8.9 billion were into hedge funds, the biggest weekly influx in 12 years. Bofa/Merrill Lynch, which uses a composite from Lipper, EPFR and other services, has the data going back to 1992.
The S&P 500 jumped 13 percent in 2012, its biggest gain in three years and likely quite the eye catcher on the front page of newspapers and inside investment account statements.
I sound crazy right? Investing and baseball. Have I really gone mad or do I actually have a point?
If you have ever played or watched baseball then you know the failures that involve playing America’s past time. If you have ever attempted to build a successful portfolio then you also know first hand how complicated it can be to keep your returns on the north side of the “Mendoza Line.”
Fact of the matter is, baseball and investing indeed go hand in hand.
First, as I previously stated, baseball and investing both require an individual to deal with failure. If a MLB baseball player gets a hit just 3 out of every 10 at bats over his career, he will find himself in Cooperstown (location of MLB HofF) not very long after he retires.( Not to mention the mega bucks MLB organizations pay guys to maintain a .300BA) So that means learning to coping with perceived failure 7 out of ever 10 at bats. If you have ever played baseball, then you should know the thrill of hitting successfully and on the other hand, the disappointment of getting out. So you may ask yourself, how can a professional fail 70-80% of the time and not go absolutely insane? It’s quite simple actually.
Taking a discipline approach to the game of baseball requires you to keep your confidence and quite frankly, your sanity.
Now then, approach? Investing?
Yes, every investor has an approach to the stock market. The best take a disciplined approach everyday. Note I said everyday. Like baseball, investors cannot afford to show up and go through the motions. When they lose sight of their approach, they become a sub-par amateur investor. Their job and your money depends on the intuition that has been developed from a confident, disciplined approach to each decision that needs to be made. All it takes, is the one bad investment, the one bad decision on the day you decided to slug it out and not focus on what you truly know. A batting average is hard to maintain, even more difficult to pull up, and quick to fall and an investment portfolio can be tanked by a wrong decision. Taking a confident, disciplined approach to baseball will only make you a better player and is what can be looked too when times are tough. Remember the best hitter never get too excited when he is hot and never too low when he is cold. You can never tell when successful investors are rising with the bulls or running with the bears because their disciplined approach will not allow it.
Just imagine you are 0-3, in the division championship game. You already have been hitting as bad as Alex Rodriquez in the 2012 playoffs and coach is on the verge of dropping you from the 9 hole. It happens like it always does. The baseball gods find the person who has been struggling the most and give him the opportunity. How did that happen? You were due up 6th in the bottom of the 9th and the game was suppose to end with a walk off home run by the 4 hole stud. Nevertheless it happened, bases were loaded, two outs and the game was tied. No chance to escape with a squeeze and your recent worst nightmare just became reality. So what do you do? Look back at the past 4 games and realize you haven’t got on base since your playoff mustache was in its infancy, or do you fret upon how the same pitcher is still in who sat you down on three straight fast balls last time up? This is where I relate baseball and investing.(I know I rambled on but that story was actually from personal experience) If your answer was yes to either of the preceding questions then you have already failed. What is critical is that you learn from your mistakes, put the past behind and approach your chance of stardom with a confident grin.
In investing, you will fail. It is inevitable. The best fail and the worst fail a lot. It is your ability to cope with failure that will separate yourself from the rest of the field. When you are still wound up that $AAPL will probably not return to its $705.07 anytime soon, how on earth could you have been poised to jump in on $BA at the exact time when their new line of planes continued to show malfunctions. You had a bad call? So what. Everybody does. See where you went wrong in your analysis and keep your head up because your next call could very well be a big one.
As the great Benjamin Graham teaches, there are two types of investors. Enterprising investor and defensive investor. Most defensive investors either hire a professional or just put their money in an index fund or long term bond and not worry about it for years. For the enterprising investor it all comes down to research. Companies shell out multi millions of dollars on research and analyst. When you are investing, having a solid portfolio is the only path to prosperity. As much as I hate to say you cannot watch CNBC for a week and expect to have a great portfolio. As much as I love and respect Jim Cramer all of his calls will not turn out winners so you have to be prepared to put in time. Doing your homework is critical to a great portfolio. Knowing how to enter what, when, and why. If you cannot answer these questions then you are probably going to end up like A-Rod in October 2012, riding the bench while everybody else plays.
Do not be A-Rod and choke when opportunity arises. Definitely don’t be that guy who reflects on his past failures as to think it will do anything but worry you even more in the present time. And as always, learn and develop a disciplined approach to investing. Read, research, learn and enjoy gambling with Wall Street.