Carson Cole, Aug 27, 2015
What a week! It is in a week like this that we get tested on our investment convictions leading to second-guessing our choices. With the abundance of news outlets chronicling the decline, we see a plethora of red, and green seemingly endangered. This may lead to us to kicking ourselves, as hard-earned money has been lost.
The pain of loss is not pleasant and one solution may be to escape by selling, yet in history, we see that this is a folly. Overall market declines have always recovered. Most recently, from the low of October 2008, the S&P 500 has increased 109%, and assuming you were invested at the peak in October 2007, your portfolio would still be up 21%. And similar, if not more spectacular comebacks are evident over the sharp selloffs that occurred in 1929, 1987 and 2001.
Its important to realize that behind markets are companies. Companies with operating businesses, employing thousands of workers, all hard at work in factories humming away, or providing services to customers in need–all of which typically continue unabated and often ignorant of the gyrations of the market.
As I watched the market decline over 1,000 points when markets opened on Monday, the first thing we did was review all of our clients’ investments in light of the market indicating a more negative outlook. The result: No change in any of our positive opinions on our holdings.
Apple is one of our largest client holdings. Demand for its products remain extremely high globally and particularly in China. China’s economy may not grow as fast as in the past, but we do not see that impacting the high desire amongst its rising middle-class for mobile technology. Not only do we see demand remaining high in the country, we see the Company positioning itself globally as a technology leader into the future, in our ever-increasing technology-oriented world.
Yum! Brands is also held by many of our clients. It is one of the largest restaurant companies in the world, with over 41,500 restaurants primarily under KFC (Kentucky Fried Chicken) and Taco Bell restaurant chains. They are the largest in China, with 6,800 restaurants, and with most of the global fear emanating from China over its currency devaluation and slowing growth, we don’t see fewer people visiting its restaurants there, as its affordably priced offerings are no less attainable. In fact, Yum expects to open an additional 700 restaurants this year in China.
Netflix is a client holding in many accounts that are growth-oriented. The Company is a pioneer in Internet television, at the forefront of changing viewer habits in the U.S., and the sole source for digital viewing in many other countries. With nearly 60 million customers, and growing last year and in 2015 over 30% annually, the Company is the largest online media source for consumers globally. They are launching in Japan on September 2 through Softbank, which will introduce Netflix to its customer base of over 37 million cable subscribers. India is another huge market that Netflix is planning on launching into in the next 12 months. Netflix’s long term growth potential is very high.
Similar stories exist for AIG, China Mobile (they have over 600 million mobile subscribers!), Disney, Novo Nordisk, America Movil and for all of our investments. Each has a strong story behind it and we do not see their stories matching with their recent share performances or the market overall.
We have been buying. With the exception of one sell transaction, which was done only to rebalance to an alternate investment, all client transactions this week have been buys.
The market has been on a wild ride this week and will probably continue to be turbulent due to high uncertainty over global demand and U.S. interest rates. In time, this will pass and stock market values will continue their ascent, alongside the growth of their underlying companies.