Everyone believes the U.S. stock market has reached a permanently high plateau. Everyone, that is, but the bears.
Last week’s Investors Intelligence survey showed bearish sentiment at its lowest since 1987 (13.3%). In fact, short-sellers have nearly disappeared along with the few remaining bears. In addition, the VIX VIX, +3.32% is at historic lows (near 12), which reflects investor complacency.
Put another way, almost no one believes this market will go down.
Investment Opportunity 1
It is truly stunning just how short-term oriented investors are when it comes to stock market investments. You don’t see this type of thinking anywhere but in public equities where very few people are true owners of the underlying businesses.
In the private ownership of businesses, owners/investors act completely different. If they own a factory or a cleaning service business, they know that during some years business is better and during other years, it is worse. But this doesn’t mean that they are going to sell the business to someone else when business is soft and buy it back when things are humming along.
This company that operates in a very cyclical industry of oil and gas exploration services. Over the past 10 years, the company has done nothing but build shareholders’ value. However, because at the present time, the business is in a downward part of the cycle, investors are treating the stock as if it had some kind of disease. Why don’t they ever learn that the up-cycle follows the down-cycle like day follows night?
Investment Opportunity 2
When publicly traded companies are not growing revenues and profits, they are completely ignored by analysts and investors. This is understandable because there is no excitement, and therefore, no easy money to be made. However, just because there is no growth showing up in the financials does not mean that there won’t be any in the future. Growth does not happen out of nothing. Companies grow when they successfully satisfy the needs and wants of their clients by providing them with desirable products or services. People on Wall Street like to forget that, especially when stock prices are going up all the time.
Investment opportunity 2 was ignored by investors for many years. The company even hired a new CEO, but still, nobody cared. However, after two years of hard work, the results of his turnaround plan started to show in the financial results, and investors suddenly got excited and bid up the stock price by 200 percent. Then, the company reported a quarter that was not as good as investors had hoped for, and the turnaround CEO resigned to take another employment opportunity. Consequently, the stock price collapsed almost 50 percent from its high.
Right now, if the company were to be sold to a strategic buyer, investors would more than double their money from the current levels. However, stock market investors are not assigning it a higher valuation because as an independent entity, the company is not worth the price that a strategic buyer would pay, and also, with the CEO leaving, there is uncertainty.
Investment Opportunity 3
In the money management business, you can become an investment legend after having several years of great performance, but then you can go down the toilet if your investment performance suffers.
This is exactly the story of Investment Opportunity 3, and most specifically its founder. From 2000 to 2011, he was the investing legend. His company generated excellent results and everybody wanted to throw money in his direction. Then, came a few years of terrible performance and he wasn’t so such a hero after all.
We see this movie being played out over and over again. But, what is amazing is that very few recognize that this is the same movie with a different actor, and consequently, they can’t ever predict the ending. Well, the ending is always the same – if the investment thesis is sound, it will play out no matter what the others are saying.
Investment Opportunity 1 – Decent Return Possibility with Little Risk
Company 1 is an investment idea that at first does not look appealing. However, after you look at it closely, you realize that it gives you an opportunity to earn a decent return in a relatively short period of time without taking on too much risk.
The bad thing is that this idea is not something that will give you multi-bagger returns, but in this market multi-baggers are pretty much nonexistent.
Investment Opportunity 2 – Major Shareholders Said Enough is Enough
When you earn your own money, you can do whatever you want with it. You can invest it, you can save it, or you can spend it in whatever way you want. There is no one that is in control of it but you. However, when you take someone else’s money, then that money always comes with strings attached.
This is especially true with publicly traded companies that are owned by various shareholders. When these individuals invest their capital, they expect results. Consequently, the managers of publicly traded companies cannot spend money the same way they would if it belonged to them personally. If they ignore the shareholders, one day, they may wake up and have the rug pulled out from underneath them.
This is exactly what happened with the management of Company 2. For years, shareholders kept watching the company’s cash being wasted by the management. Finally, they said, enough is enough. We want control.
Investment Opportunity 3 – The Founder Took the Reins
Usually when change is needed, it is an activist hedge fund that shakes things up through a proxy fight. In the case of Company 3, change was definitely needed because too many promises were broken. However, instead of a hedge fund, it was the founder himself that removed the board of directors and forced the CEO to step down so that he could execute on a strategy that would unlock shareholders’ value.
The reason why change was needed was because the company was not reaching its potential. It was providing successful products to a wonderful client base, but this was not enough to be profitable.
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When I went to college, the tuition was not as ridiculous as it is right now so I was able to work part-time to pay for it. But right now with the help of the government that is driving tuition costs, some young people have to turn to porn to pay for it. Our leaders should be proud of themselves.
Yesterday, the GDP numbers for the first quarter 2014 came out and they were unexpectedly worse than anyone expected. By anyone meaning clueless economists. Anyway, I had a conversation with a friend and he said, “This quarter they blamed it on weather. Next quarter, they will blame it on the FIFA World Cup.”
Today, we have ABC News come up with the article “World Cup Taking a Bite Out of Worker Productivity.”
You really cannot make this stuff up.
The beginning of the year was not just bad for the United States economy: It was, on paper at least, the worst quarter since the last recession ended five years ago.
The Commerce Department revised its estimates of first-quarter gross domestic product Wednesday to show that the economy contracted at a 2.9 percent annual rate. A combination of shrinking business inventories, terrible winter weather and a surprise contraction in health care spending drove the first-quarter decline, which is the worst since the first quarter of 2009, when the economy shrank at a 5.4 percent rate.
What makes the sharply negative number all the more stunning is that it didn’t feel like an economic contraction at all in the first quarter. Employers kept adding jobs. Many measures of business activity and consumer confidence were stable. And forecasters are expecting a healthy pop of growth in the second quarter, which ends next week.