Taking to the Bed--And Other Tales of the Pandemic

 

"I want to be alone"--Greta Garbo

Whenever my late mother was feeling really sick, she liked to say that she was going to "Take to the bed," one of her many Southernisms. If she just wasn't feeling well, but not truly ill, she stayed out of bed and the household routine would continue as normal. But "taking to the bed" was something else entirely, and it meant that there would be no grilled cheese sandwiches for lunch and no clean laundry for a day or two. She was, after all, in the bed, and she was not going to get out of that bed.

When I had COVID I felt like a had a case of the flu for two days--and during that time I really did follow my mother's routine of taking to the bed. What was unusual about COVID was what followed, the quarantine period of several more days to keep from spreading it. I don't like isolation, much less imposed isolation (partly because I don't like being told what to do). But in hindsight, I see some benefits in spending some time by myself. This is something distinct from a vacation, which many people view as a time of rest and relaxation. If you have ever taken children to Disneyworld, though, you know that so-called vacations can be anything but restful. When I returned from such a trip once, I told friends that "after that vacation, I'm going to need a vacation." My wife and I enjoyed tremendously the Windstar cruises we took, but that also involved almost daily planned  excursions, where we would leave the ship to tour the local areas. I love history, so I loved our time at Normandy beach, site of the D-Day battle; and during some time in London, we visited Winston Churchill's World War II bunker. I wouldn't trade these experiences for anything, but what they provide is not exactly the rest you would get from just being alone with nothing really to do.

Whenever there is a crisis--and the pandemic certainly qualifies as one--many people will assume that once the crisis has passed, life will return to the way it was, back to "normal," before things fell apart. What evidence can we find to show what aspects of life seem to have changed permanently versus those parts of life that have regained their old, familiar shape? I suspect that the pandemic-imposed reprieve from an overly active life has taught some of us that being alone doesn't have to mean being lonely, that some intentional quiet and solitude can be an occasional elixir. People (like me) who are prone to FOMO (Fear of Missing Out) likely didn't suffer from that much during the pandemic, because there wasn't anything to miss out on. Maybe now we have learned that it's okay to miss out sometimes, but my best bet is that we have shifted our priorities, so maybe the things that once seemed to be the end-all, be-all are just no longer that high on the totem pole.

One change that is still playing out is the remote work/work from home development. Some firms want their people back in the office, while others seem fine with the new arrangements. People need to be in an office for tasks that require face-to-face collaboration, while other functions can be performed at any location with a laptop. And then there is Zoom, which has now become a verb. We still don't know the long term effect on commercial real estate. People will say, as they say about retail space, Oh, firms will always need an office. But how much office? Success or failure happens at the margin, and it doesn't take every business bailing out of office space to cause problems for commercial real estate. And people will always do some shopping at bricks-and-mortar stores, but how big do those stores need to be? This could be a double whammy for commercial space, especially if employees are demanding work from home as part of their job descriptions.

Travel took a major hit during the pandemic, and now we are seeing a surge in pent-up demand. There is even an acronym to add to our lexicon: YOLO, or You Only Live Once. Generation Z (birth years 1997-2012) and younger Millennials (birth years 1981-1996) tend to be more oriented toward "experiences" rather than the acquisition of material goods. If we follow the money, that means more funds spent on travel, maybe going snow skiing instead of buying a new car. I learned a long time ago not to let my personal tastes cloud my investment assessments. Case in point: Airbnb (ABNB, $160). I have no desire to stay at an Airbnb because I prefer hotels, at least the ones that offer room service. I really do not want to go grocery shopping to stock the kitchen while I'm on vacation (although that's exactly what we do when we rent a beach condominium every summer). Airbnb seems tailor-made for these younger cohorts, of which I am definitely not a member. A not-so-familiar name in the travel-related space is Clear Secure (YOU, $20), which offers an identity verification and security platform. The app allows users to digitize documents, such as passports and vaccine records, for what the company calls a "friction free" travel experience at airports. The market cap is just shy of $3 billion.

The hardest part of the pandemic for me was the lockdown phase, which meant no social gatherings and no church services (even funerals). I thought for a time that I was going to lose my mind, cut off from being with my friends in groups, large or small. One secret to a happy and healthy life is balance, time spent with other people leavened with some time carved out for doing nothing, except perhaps reading a good book. Too much of one thing at the expense of the other and life is not in balance. The more I think about it, I view alone time as something like exercise--you don't exercise all day but you make time for it regularly, a slice of the day that breaks up your busy routine. 

Maybe this weekend I'll set aside some time to finish that Stephen King book I've started reading. Actually, I'm becoming a little bored, so I think it is time to set aside my inner Greta Garbo and find a party--don't want to catch FOMO!

Life is short. Get busy.

Jim

Disclaimer/ Disclosure: Individual stocks are mentioned here for the sole purpose of illustrating investment concepts, and nothing stated here should be construed as the advice to buy or sell any security.

Copyright 2024 James Brinkley Taylor, Jr.

Email me with any feedback, questions, or comments:

jbrinkleytaylor@gmail.com 

Channel Surfing, Binge Watching, and Cutting the Cord

 

Over the past thirty years that  my wife and I have known each other, we have always enjoyed watching our favorite television programs together. Fortunately for us, we have about the same tastes in shows. With all of the steaming options available today--and so-called "Prestige TV--it is an endeavor to find what is going to be on our screen next. So, my job is to do some research to find the next series or limited series that will appeal to both of us. I have to stay on my toes with this task, because if I fail to deliver, my wife will tune in to her default option, the Hallmark Channel. I have nothing against these programs, but it seems to me that all of their movies have essentially the same plot, with the main variable being who Lacey Chabert, Hallmark's ridiculously cute perennial heroine, will fall in love with this time. I guess my chromosomes are showing, as Hallmark fare seems to have the greatest appeal for the female audience.

Thinking back on how our viewing habits have changed, I realize that the only scripted show we continue to watch on traditional network television is Blue Bloods, and that show is in its final season. My wife has been talking about how we should "cut the cord" with our cable tv service, and I know a lot of other people who are thinking the same thing (if they have not severed it already). The real game-changer here, poised to push us over the edge, is YouTube TV, which seems to offer just about everything that cable delivers. This cord-cutting trend has had me questioning our small position in Comcast (CMCSA, $43). I don't like to invest in companies that are losing customers. However, Comcast also owns NBCUniversal, so they have quite a collection of assets under their roof. A major investment thesis of mine involves content, and the demand for programming to put on all of these channels and services. I have held this view for many years, and I'll have to admit that it hasn't played out as I had expected. To further make the point, consider Disney (DIS, $123). They own everything from Snow White to Frozen, and that means all of the merchandise based on those films (I have a granddaughter who loves to sing Let it Go, almost to the point sometimes that I could use a Valium). Comcast and Disney are each up just 7% over the past five years, underperforming the S&P 500, but I continue to think that the market is not properly valuing those assets. Consider that Apple (AAPL, $171)  has a market capitalization of $2.6 trillion, while Disney's market capitalization is $225 billion. Is Apple really worth ten times more than Disney? I don't think Apple is worth too much--I think Disney is worth too little.

I tried recently explaining to a young person how television watching has changed in my lifetime. I started out by noting that what used to come over the airwaves (television) now comes through a wire, and what used to come through a wire (telephone service) now comes over the airwaves. I guess I should have started my story with something more attention-grabbing for such a young mind. Maybe my contemporaries will appreciate the nostalgia of a rooftop television antenna and the four channels we had when I was a lad. My favorite business story, however, is the transformation of Netflix. Do you remember their mail-order business? Those red envelopes? Now Netflix is a media behemoth with plenty of its own content. I remember once on one of my many trips to rent movies at Blockbuster (especially the one in Destin, just across the highway from our condominium) I wondered what would happen if Blockbuster could deliver their movies over cable, saving us all our trips to their locations. I wonder if Blockbuster even considered buying Netflix. Actually, Netflix tried selling itself to Blockbuster at one time, but the latter company wanted nothing to do with it. This is what we can chalk up to "a failure of imagination."

If you are looking for the next bit of quality programming to watch, I have found that Internet Movie Database (IMDb) is my indispensable resource. I have the app, IMDb, on my iPhone, and I consult it constantly. This will tell you everything you might want to know about any series, movie, performer, etc. It has certainly helped me pull my wife out of the Hallmark quicksand.

I imagine that someday soon I'll be hauling our cable boxes off to the Comcast store to complete the cord-cutting--and get the credit I am due for surrendering the equipment. If you might be following in my footsteps, here's a tip: I always go to the Comcast location in Germantown. It is worth the extra drive, because the location closest to my house always seems to be filled with people who are trying to pay their bills to avoid a service shut-off. Apparently, the good people of Germantown pay their bills the old-fashioned way--on time.

For now, my wife and I seem to be set in our new ways and content with all of our streaming options. But, if you notice that we are eating 5:30 dinner at Piccadilly and rushing home to catch Wheel of Fortune every night, it will probably be time to call the Intake Team at Trezevant Manor. And one more thing: if you have cut the cord or are thinking about doing so, please send me an email about your thoughts and experiences at my email address below.

Life is short. Get busy.

Jim

Disclosure/Disclaimer: My family members and/or I own shares of CMCSA, DIS, and AAPL. Individual stocks are mentioned here for the sole purpose of illustrating investment concepts, and nothing stated here should be construed as the advice to buy or sell any security.

Copyright 2024 James Brinkley Taylor, Jr.

I welcome your thoughts, questions and feedback, so please email me here:

jbrinkleytaylor@gmail.com

Ripped From The Headlines

Is it possible to achieve investment success in stocks using just information gleaned from general news sources and our own observations--and without poring over "official" investment analyst reports? I have known many investors who have done just that. They pay attention to what is going on in the world around them, and they apply knowledge from their own field of expertise. 

First off, what do we mean by "success"? Different people have different definitions of success because different people have different goals, and success is usually measured by the extent to which we reach a stated goal. In the original Rocky movie (1976), Rocky Balboa does not win the climactic match with Apollo Creed, but he does go all 15 rounds. That is success enough for Rocky (and quite an eye-opener for Apollo). For investors, the success of a stock portfolio typically means outperforming some benchmark, such as the S&P 500, consistently over time. If over a five year period the S&P  was up, on average, 10% a year but your stock portfolio was up 7% annually over the same time frame, that is not really success (you would have fared better buying the index fund). It would be success if your goal was to not lose money, but that is not really what we are considering here. Just to be clear, I am referring to that portion of your assets that you choose to invest in stocks, your stock portfolio, and not your other assets like real estate or bonds.

Now let's fire up those powers of observation. It does not take a rocket scientist to know that there are a lot of overweight people in America. Being overweight can lead to diabetes, which can cause kidney failure. Dialysis, anyone? This line of thinking might put dialysis center operator Davita (DVA, $138) on your radar screen. It would have been a nice addition to your portfolio, as DVA has had a five-year annualized return of 20.44% versus 12.73% for the S&P. In another case, suppose that at the beginning of this century you had noticed the popularity of energy drinks--you see your friends drinking them and you observe their shelf space in grocery stores. If you had invested in Monster Beverage (MNST) 20 years ago, you would have found the best-performing stock in the market. Shares have gained more than 100,000% over that time period, well ahead of the S&P 500. I can't resist calling these "monster" returns. Is investing really as simple as paying attention? No, of course not.

Good information is the lifeblood of investing, with the emphasis here on good. There is so much information that comes across my desk and through my email inbox, and most of it is useless for making stock choices. I actually divide information into two categories: actionable and non-actionable. Most of what I see (just glance at, really) is about as actionable as a coupon for a Brazilian Butt Wax (this is a real show on cable). Most of the actionable information is what I actually pay to receive. My favorite among the investment advisory services is The Motley Fool, which has supplied me with quite a few very profitable stock ideas (Netflix, Amazon, Facebook, and NVIDIA to name a few). If you are going to follow one of these services, be sure to do a little digging into their track record. Your power of observation is a great place to start, but at some point it is a good idea to read some trusted and reliable investment research--and that is not necessarily research from the brokerage firms. This will also help remind you that the product is not the same thing as the company, and the company is not the same thing as the stock.

Now, when it comes to observation, when was the last time you saw a television commercial for a home generator? I can't recall seeing any until a few years ago when I started seeing commercials for Generac (GNRC, $114 ). Every house I know of at Horseshoe Lake that has a generator has a Generac. Most of these houses are new and were built by the same contractor, who recommends Generac. Most homeowners take his advice, because most of them are not inclined to go shopping for one. What is reliable about the power at Horseshoe is that it reliably goes out--like every time there is a good gust of wind. I like to keep meat in our freezer, so I don't want to worry about losing power. I suspect that what is also going on here is that generators are going mainstream. I think the home generator is something akin to what microwave ovens once were--something that very few people had. Once people realized what a convenience a microwave could be, more people started buying them, and today I would say that it is rare to find a kitchen without one. So, if I'm correct, the generator will soon be just another standard home appliance. When you start seeing commercials for Generac's competitors, you'll know that the day has arrived. Keep those powers of observation sharp!

Life is short. Get busy. And Pay Attention!

Jim

Disclosure/Disclaimer: My family members and/or I own shares of AMZN and NVDA. Individual stocks are mentioned here for the sole purpose of illustrating investment concepts, and nothing stated here should be construed as the advice to buy or sell any security.

Copyright 2024 James Brinkley Taylor, Jr.

Email me with any questions, comments, or feedback:

jbrinkleytaylor@gmail.com

The Magicians and the Luddites

 

"Any sufficiently advanced technology is indistinguishable from magic."

---Science fiction writer Arthur C. Clarke

I remember using a manual typewriter to type my papers when I was in high school and college. I could hit one of the keys and watch as the metal arm rose up to strike the ink ribbon to put a letter on the page. I wouldn't call it magic, but the typewriter was a marvel when it was first introduced in the latter part of the 19th century. People who employed their penmanship for office work were out of a job, of course, the same fate suffered by the buggy whip makers after the advent of the automobile. As technology advanced through the twentieth century and into the twenty-first, each successive innovation probably more and more seemed to resemble magic. Artificial Intelligence (AI) is now the latest trick out of the box--and Wall Street loves new tricks.

The chief magician on Wall Street right now, the Harry Houdini, if you will, of the technology sector, is NVIDIA (NVDA, $870), the company that makes the complex chips that are required to make AI work. If you had invested $10,000 in NVDA ten years ago, that investment would be worth about $2 million today. It is human nature to hold a fascination for shiny, new objects, and as investors, we don't want to bet against human nature. Teenage boys like to look at pictures of naked women, and men don't go to Hooters for the food. For better or worse, human nature is not likely to change. Visionaries over the generations have tapped into human nature to launch wildly successful enterprises. I am thinking not so much of Hugh Hefner, but instead of Walt Disney. Disney understood that people of all ages loved stories, and that children would be fascinated by animated cartoon characters. A simple rule is to give the people what they want, not what you think they should have. Better yet, convince them that what you have is what they truly want.  That is what made Disney (DIS, $112) a rewarding investment for generations. As long as technology holds the promise of making life easier or more enjoyable, or making work easier, consumers and businesses will likely be willing buyers. I am writing this at my computer keyboard, and I have no idea how my keystrokes make it onto my blog. But I don't need to understand that, because all I really care about is that it does what I need it to do. And it's a lot better than that old, manual typewriter.

The Luddites were a group of textile workers in early 19th century England who saw the new textile machinery as a threat to their livelihoods. They felt so strongly about this threat that they took sledgehammers to the new machines. People who raise concerns about technology today are often referred to as modern day Luddites. They probably won't be smashing up any machines, though, because the brains of AI are working away in data centers spread across the country. For years, some people have voiced concerns that jobs will be lost as a result of new technologies. The analysts and economists typically respond by saying that the same dynamic economy that produces AI will also produce new jobs to go along with it. That is true in a macro sense, but you and I live our individual lives very much in the micro.  If  AI can write your company's marketing plan,  just how many warm bodies do you need working in the marketing department?  "Labor saving" technology sounds appealing, until the labor it saves is yours. And then what do you do if your skills are no longer in demand because your job is now being handled through the magic of AI? You can go get a degree in computer science from M.I.T., or you can start cleaning hotel rooms (until that job is done by a robot). Let's hope the choices are not really that extreme.

Another concern raised about AI seems to come from the conspiracy corners of the world. Namely, that the technology becomes so powerful that it has a mind of its own and takes over everything. Think about the AI computer HAL in the movie 2001: A Space Odyssey. If some AI system takes over and starts launching nuclear missiles to start World War III--well, nobody will be around to say, "I told you so." (And nobody will be around to listen.) I would like to think that if an AI system started running amok, then someone would just pull the plug and disconnect the wires.

Some more down to earth worries that we are likely to hear much more about in the not-too-distant future involve the technology's environmental impact. It takes enormous amounts of electricity to run these data centers--and huge amounts of water. Here are links to two articles on the topic:

https://www.nytimes.com/2024/02/29/business/artificial-intelligence-data-centers-green-power.html?unlocked_article_code=1.aE0.R-0U.Q9Ik-n9JCIhN&smid=url-share

https://www.theatlantic.com/technology/archive/2024/03/ai-water-climate-microsoft/677602/

Another question worth pondering here is, What happens when the rabbit doesn't come out of the hat? What happens when the technology fails? Just recently the AT&T cellular network went down, and I saw firsthand the panic that ensues when people can't use their cell phones. Waking up to this reminded me of the morning when I got up and was all ready for my day when I went outside and discovered that my car had a flat tire. So much for my best laid plans, at least for a few hours. We all take for granted that things are going to work--that when we flip the switch, the lights and the coffee maker will come on. But what if the power goes out and stays out for an extended period of time? Like weeks or months?That could be caused by a solar flare of great magnitude, or by a foreign adversary launching an Electro Magnetic  Pulse (EMP) attack. Either way, the power grid gets fried like Oscar Mayer bacon. Such a massive and extended loss of electricity would send society into chaos as people and stores eventually ran out of food. If you think crime is bad now, just imagine hordes of starving people barging through your front door and plundering your kitchen. I thought all of this was just more conspiracy stuff until I read a book called Lights Out by Ted Koppel, the former host of  the ABC news television program Nightline. It's a sobering look at how all of this could unfold.

Here is an article on the topic:

https://www.newyorker.com/magazine/2024/03/04/what-a-major-solar-storm-could-do-to-our-planet

I have always been an optimist, seeing the glass as half full (until I drink what's in it).  Rather than dwell on a low-probability yet terrible outcome, I choose to think about possible solutions. When choosing stocks, I like to look for problem solvers. The power grid is at the center of many concerns, whether due to the strains placed on it by electricity demands or the threat of a massive outage. The problem solver here might be Quanta Services (PWR, $240), which provides infrastructure solutions for the electric and gas utility, renewable energy, pipeline and other energy industries. The power grid needs to be upgraded and hardened, and PWR seems to be in the sweet spot for all of that work.

I don't usually make specific predictions, but I will venture two here. The first is that AI itself will actually be part of the solution, especially in the area of making more efficient use of power. Second, that we'll hear a lot more about nuclear energy as the solution to power demands. Meanwhile, I will be eagerly awaiting the next magic trick to come out of the box.

Life is short. Get busy.

Jim

Disclosure/Disclaimer: My family members and/or I own shares of NVDA, DIS, and PWR. Individual stocks are mentioned here for the sole purpose of illustrating investment concepts, and nothing stated here should be construed as the advice to buy or sell any security.

Copyright 2024 James Brinkley Taylor, Jr.

Email me with any feedback, questions, or comments:

jbrinkleytaylor@gmail.com

Who Let The Dogs Out?

                                    Opie                                        

Opie, our Basset Hound pictured above, is the latest in a series of rescue dogs that my wife and I have adopted over the years. Rescue dogs typically have been named by the rescue group caring for them, but my wife and I have always, until Opie, renamed ours (some of the rescues have had what I call "stripper names," like Crystal or Sugar, and we had names already picked out, anyway). Opie was a name we kept, because what could be more perfect than Opie Taylor, who was the son of Sheriff Andy Taylor on The Andy Griffith Show. Our Opie even has reddish-brown coloring and freckles. I have even thought that we could have a whole menagerie of pets named after characters on the show--Barney, Aunt Bee, Floyd the Barber, etc. I even have human friends who have been auditioning for years to be Otis, the town drunk.

As was widely reported, pet adoptions surged during the COVID pandemic, sometimes to the extent of emptying the animal shelters of all of their guests. This made prefect sense, because if you are locked down at home, some canine companionship could at least ease the isolation. I also found that Opie made for a pretty handsome Zoom backdrop. Owning a pet involves some expenses, of course, and while you don't have to buy a Louis Vuitton dog bed, you are probably not going to cheap out on your pet's healthcare. Spending more and more at the veterinarian is a trend that has been in place since long before the pandemic, as people increasingly view their pets more as members of the family. Some investment analysts have even coined a term here as an investment theme: "the humanization of pets." Opie's latest battery of annual vaccines cost us about $400, and that is on top of the $200+ for his anti-anxiety medication. There are pet healthcare options now that didn't even exist when I was a kid going with my dad to take Rover (yes, I named her when I was four years old) to the vet. 

Just as Opie can engage his ultra-sensitive Basset nose to track a chipmunk in our backyard, smart investors have a nose for following the money. There is money being spent here, and the scent leads to a company called IDEXX Laboratories (IDXX, $555). IDXX develops, manufactures, and distributes products, including diagnostic products, and services for the veterinary and livestock sectors. This is not what I call a "consumer facing" company, meaning that you and I don't buy their products and services directly. But, if your pet has been to the veterinarian, there is a good chance that products from IDXX (or one of its competitors) have been involved in any diagnosis and treatment. More money spent on pets means more potential for business for the company. IDXX has a market cap of about $45 billion; the shares have had a 21.76% annualized five-year return, compared with 12.50 % for the S&P 500. This is what I like to see: a company in the sweet spot of an emerging and enduring trend.

My wife and I love our veterinarian, Dr. Thomas Slattery at Walnut Grove Animal Clinic here in Memphis. We have been taking our pets there for years, and we are committed to supporting locally-owned businesses whenever we can. Now, you might assume, reasonably so, that your animal clinic is owned by one or more of the vets at the practice--but wait...it might not be. There has been a trend lately of Private Equity (PE) firms buying up veterinary practices (along with nursing homes, motor home parks, and other businesses). Is this necessarily a bad thing? Some people think it warrants at least a raised eyebrow.  Here is an article from The Nation, a decidedly left-leaning magazine that rarely has anything positive to say about capitalism and free markets:

https://www.thenation.com/article/economy/private-equity-pets-veterinarian/

Yes, Private Equity firms are in it for the money. But guess what? Your veterinarian is partly in it for the money, as well, because everyone has to make a living. Don't expect The Nation to celebrate the virtues of the profit motive, but no profit means no animal clinic. My own experience is that the most important part of this equation is the individual veterinarian, her expertise and palpable concern for animals. You wouldn't expect someone who hated dogs to go into the field. But private equity involvement here does cause me some concern. I like to go into a business and be able to shake hands with the owner. If the ultimate boss is the Private Equity firm, then the owner is likely not even a veterinarian, and is removed from the day-to-day operations. Having corporate overlords whose chief focus is efficiency raises the specter of unfavorable outcomes--and the fear that things may start "going to the dogs," so to speak. My advice? If you love your vet and are satisfied with the quality of care she is providing, then by all means stick with her. She is the one who truly matters.

Speaking of local businesses, we shop at Hollywood Feed for our dog food, dog beds, toys and other pet paraphernalia. And one business that is not threatened by Amazon is dog grooming. Wendy Isham owns and operates Star Barks Mobile Pet Spa, and she comes to us in a gigantic bus that is outfitted inside for bathing and grooming the dogs. The dogs even get a bandana after each session. Wendy provides exceptional service, and it is the ultimate convenience for us.

Take are of your pets, but always be aware of who is behind the curtain.

Sweet Dreams, Opie

Life is short. Get busy.

Jim

Copyright 2024 James Brinkley Taylor, Jr.

Disclaimer/Disclosure: My family members and/or I own shares of IDXX. Individual stocks are mentioned here for the sole purpose of illustrating investment concepts, and nothing stated here should be construed as the advice to buy or sell any security.

Email me with any questions, comments, or feedback:

jbrinkleytaylor@gmail.com

                                                

 

Remains of the Day

 

Humphrey Bogart as Philip Marlowe and Charles Waldron as General Sternwood

 in The Big Sleep

My wife and I spent about a year recently visiting estate sales in search of items for the lake house we were building. Some productive bargain-hunting, but I found it depressing to be immersed in the detritus of some stranger's life. Estate sale outfits will stick a price tag on everything in sight, from the intriguing pieces to the gross items and the sad ones. I saw a piece of men's underwear (boxer shorts, but not my size) and a child's art creation, the latter which I purchased for one dollar in hopes of returning it to the homeowner or a relative, thinking that the sentimental must have been swept up in the  estate sale person's zealous effort to clear out every last item that wasn't bolted in place. The whole experience is like picking through a days-old buffet of rotten fruit and molded cheeses to find one edible morsel. Of course, one man's trash is another man's treasure--and there is the occasional useful item, such as a glass Pyrex dish, that has not become tainted with use.

All of this got me to thinking about how furniture and other household goods make their way through this market system of second-hand belongings and how those goods are priced. As I write this, I see on my computer screen that the last trade of Microsoft (MSFT) was at $406.34, with the bid at $406.33 and the ask at $$406.36. If you wanted to buy shares, you might have to pay the ask price; if you owned shares and wanted to sell them, you might get the bid price. MSFT is the most valuable company in the world, with a market cap of some $3 trillion, and the shares are very liquid. The "tightness" of the bid/ask spread can be viewed as a measure of that liquidity. Now consider a very different situation, where you want to sell your house, and you put it on the market for $400,000. It is not likely that you would get that price--unless it is a red hot real estate market, or someone falls in love with your house and just has to have it, or unless Taylor Swift once slept there. Odds are that someone will make you an offer of, say, $375,000, which you will counter at maybe $385,000, and you'll end up selling at something less than your original $400,000 asking price. The bid/ask framework applies to many transactions, even if not explicitly stated as such. The market for houses, obviously, is not as liquid as the market for stocks.

Now imagine a fictional interior designer, whom I will call Jacques Fountainbleau (he must have a stylish and sophisticated-sounding name). Jacques loves to haunt estate sales, and at one sale he sees a chest that catches his eye. He thinks this piece will work perfectly in the home of his client, whom I will call Ophelia. Jacques will pay $400 for this chest and then clean it up and price it at $2,000 for Ophelia. He is decorating her entire house--wallpaper, paint colors, sofas, chairs, tables, etc.--and the chest is just one piece of his project. Ophelia is happy to pay Jacques a hefty sum, because she is not concerned with the prices of the individual pieces (we can think of this as a gestalt experience). She is, after all, getting a house designed by the famous (at least locally) Jacques Fountainbleau, and she is paying a price for the panache. One day Ophelia decides to downsize and sell the chest. She hires an estate sale manager, and the chest sells for $500, 30% of which goes into the estate sale manager's pocket. If you pay top dollar for a lovely piece of furniture at a highly regarded antique shop, don't expect to be able to sell it down the road at anywhere near that price. 

In a similar vein, you can buy a bottle of Veuve Clicquot Champagne for about $70 at the liquor store and drink it at home. You can also go to the Windsor Court Hotel in New Orleans and pay about $150 for the same bottle. Why? Because drinking Veuve at home is just not the same as sipping Veuve in the Polo Lounge of the Windsor Court. It's all about the experience, and it's really more about psychology than it is about economics.

My wife is quite skilled when it comes to sniffing out bargains, and she demonstrated this as we shopped for lake house furnishings. I think of her approach as stripping out all of the psychology involved with shopping and putting the focus on the functional and utilitarian (it is a lake house, we used to say to each other). I see estate sales as "clearing" events, where the primary goal seems to be to get rid of all the stuff--and making any money from it is really secondary. When the situation is one where someone really wants and needs to sell, it makes for a buyer's paradise. And my wife is still going to enjoy her Veuve in the Polo Lounge, because she will definitely not be shopping for the cheapest bottle of bubbly in New Orleans.

Maybe one day some of my cherished belongings will wind up in an estate sale. And maybe when people are picking over my stuff, that line from The Big Sleep will come to mind, where General Sternwood says to Philip Marlowe: "You're looking, sir, at a very dull survival of a very gaudy life."

Life is short. Get busy. And Happy Valentine's Day!

Jim

Copyright 2024 James Brinkley Taylor, Jr.

Email me with questions, comments, or feedback:

jbrinkleytaylor@gmail.com

Hanging on Every Word

 

Federal Reserve Chairman Jerome Powell

Fed Chairman Jerome Powell appeared on 60 Minutes Sunday night, saying nothing really different from what he had to say after the Fed's meeting last week. The markets Monday are acting as though he had said that the Fed would sell short every stock in the S&P 500. As I wrote in this space in December, the big news about the Fed's so-called pivot is that they are likely done raising rates, and that the next move would likely be to lower them. Some investors in wishful-thinking land got the idea that this would happen in March. I never thought a lowering of rates would happen in March, but the more realistic thinking is that this will happen sometime in 2024.

Stock prices, broadly speaking, are determined by a combination of two factors. First, expectations of future earnings. Second, the interest rate at which those future earnings are discounted to a present value. For a number of years investors enjoyed a magical situation where the economy was strong enough to produce good earnings for companies, while interest rates were at historic lows. Economic reality is not that magical, at least not over long periods of time. A strengthening economy typically puts upward pressure on interest rates, while at the same time enhancing the chances that companies will realize greater earnings. That results in a sort of tug-of-war between the two forces. What investors hope for is that earnings will be powerful enough to overwhelm the pressure on valuations from higher rates. When that happens, stock prices likely rise.

The numbers that came out last week show a strong economy with robust jobs growth, not a situation where the Fed would be eager to cut rates. Normally the Fed would wait for at least a whiff of weakness before taking action to stimulate the economy, to stave off a recession. It just does not make sense for the Fed to cut interest rates anytime soon. That could change at any time, and when it does, that is when we will likely see an interest rate cut.

As for investing and stock-picking, the same old rules apply--there's really nothing radically new here. I prefer companies that have strong earnings growth prospects from a meaningful secular tailwind. That is why the AI companies have been so strong. Over the past year alone, Nvidia (NVDA, $690) is up some 227%. With a strengthening economy, economically-sensitive (cyclical) stocks have the potential to outperform, along with consumer discretionary companies that benefit from a strong labor market. Historically, though, consumer staples stocks, such as Procter and Gamble (PG, $159), tend to lag in such an environment. People don't buy more Charmin and Bounty just because they have more money.

It looks as if the Fed has engineered the so-called "soft landing" that everyone thought was so elusive. They have dampened inflation without killing the economy, and that is no small feat. Some commentators are suggesting that this is a "no landing" economy now, where growth keeps chugging along without persistent inflation. It has to land sometime, though, but for now I'll enjoy the flight.

Life is short. Get busy.

Jim

Disclosure/Disclaimer: My family members and/or I hold shares of NVDA and PG. Individual stocks are mentioned here for the sole purpose of illustrating investment concepts, and nothing stated here should be construed as the advice to buy or sell any security.

Copyright 2024 James Brinkley Taylor, Jr.

Please email me with any questions, comments, or feedback:

jbrinkleytaylor@gmail.com

Wanderlust

 

A Vail Resorts Property

My earliest memory of travel--in fact, my earliest memory of just about anything--is of a trip my parents and I took to Ponte Vedra Beach in 1964, when I was four years old. I sort of recall building sandcastles and frolicking in the waves that year, but those memories would blend with all of the subsequent beach vacations that followed. What impressed me so much about this particular trip was our mode of travel: the train. This was an overnight trip, and I remember the Porter ringing his bell to call us to the dining car and the Pullman releasing our beds from the wall for when we returned. It was all new to me and seemed quite magical. Passenger rail travel run by the railroad companies would soon be a relic of the past, ushering in the era of Amtrak as a far inferior substitute. I like to call Amtrak "The Post Office on Wheels." 

Regardless of the mode of transportation, the desire to travel and soak up new experiences in heretofore unfamiliar places is something that is ingrained in the human psyche, the human soul. It is stirred by the restless feeling, a wanderlust, that there is something out there worth finding, whether for intrinsic reward or for profit. It is what called the earliest humans to venture beyond their original domains to populate the world. It is what enticed the early European-Americans to venture to the Western frontiers. It is what launched the Starship Enterprise on its "five-year mission to explore strange new worlds..."

The people who follow trends and the characteristics of various generations say that Generation Z, those born between 1997 and 2012, constitute a cohort who would rather spend their money on experiences than on the acquisition of material, tangible goods. There is nothing really wrong with that, but you can't put an African safari or a Taylor Swift concert on your balance sheet (but many of them may not know the difference between a balance sheet and a fitted sheet). 

Travel and concerts were two things that took a hit during the COVID pandemic, but both are making a comeback. Vail Resorts (MTN, $ 212) is an operator of mountain resorts and ski areas. I once heard an investment advisor say that one reason he likes the company is because "God isn't making any more mountains." So true, because the supply of locations for ski resorts is limited. The market cap here is about $8 billion, and the stock is up 233% since 2013. Live Nation (LYV, $90) is a company most of us experience as Ticketmaster, as the two companies merged in 2010. Live Nation owns concert venues and is engaged in promotions and ticket sales, along with just about everything else that has to do with live performances. The market cap here is about $21 billion.

Albert Einstein once said that "Imagination is more important than knowledge." I don't think the great scientist meant to denigrate knowledge, but rather meant to emphasize the importance of imagination, which many people may not appreciate enough. I would say that imagination can ultimately lead to knowledge, but there is a missing link here, and that is curiosity. Most of us are not content to just sit at home and fondle our imaginations, and it is curiosity that pulls us out of our daydream and into action. When I was a small child, I was so curious about how my toy robot worked that I took it apart. I couldn't put it back together, so I threw a tantrum. Curiosity, of course, has its healthy limits, but is an essential characteristic for a successful investor. I'll raise a glass to the curiosity that propels us on meaningful and exciting adventures, investing and otherwise, and to the something out there that is worth finding.

Life is Short. Get Busy--and Stay Curious!

Jim

Disclosure/Disclaimer: My family members and/or I own shares of MTN and LYV. Individual stocks are mentioned here for the sole purpose of illustrating investment concepts, and nothing stated here should be construed as the advice to buy or sell any security.

Copyright 2024 James Brinkley Taylor, Jr.

Email me with any questions, comments, or feedback:

jbrinkleytaylor@gmail.com