"Do not underestimate the ‘power of underestimation.’ They can’t stop you, if they don’t see you coming.” ― Izey Victoria Odias
Whenever you walk into a store, especially one which is not a supermarket, salespeople are taught to somehow welcome your presence. In expensive, high-end outlets, you might even have a door greeter say something like, “Welcome to Tiffany’s" (if you have ever visited, you know the phrase) and bow or take off their top hat. Many people, like myself, hate to be bothered by anyone, so in order to help accomplish that goal, they might dress in a, shall we say, less formal way. Maybe even a touch sloppy, messy, or certainly not neat. They definitely would give the impression of a person without the means to afford expensive items. The sales person would then ignore them, as, why bother with a person who cannot help you earn your sales quota (commission)?
In fact, many individuals use these kinds of techniques to throw others off the trail on purpose. When you are ignored, or underestimated, it is an advantage in almost every endeavor. In the world of investing, the ability to find situations others don’t pay attention to is a crucial part of trying to outperform the indexes, or other investment professionals. Buying Amazon (NASDAQ:AMZN) up 30% after it has tripled shouldn’t be mocked, but it also is probably not the recipe for out-performance in the next decade, either. If you bought it after it crashed in 2000 to 5 bucks a share, well, clearly that is a different story. The same holds true about Facebook (NASDAQ:FB) as a year after it went public, it fell to below 20, versus 180 now when everyone loves it. Forging your own solitary view of a business, especially when the rest of the world avoids it like the plague, requires plenty of research and analysis, and above all, the ability to live with being ignored and underestimated. Well, at least I think so.
On the macro front this week, Fed minutes showed uncertainty about inflation and the question of how quickly and how many times interest rates might go higher. Bond yields were bolstered a touch by heavy auctions and tepid demand. Wal-Mart (NYSE:WMT) missed the online portion of expectations while Home Depot (NYSE:HD) impressed with another strong number. HP (NYSE:HPE) showed strength in the enterprise arena while Qualcomm (NASDAQ:QCOM) solidified its position in acquiring NXP, to the detriment of Broadcom (NASDAQ:AVGO). General Mills (NYSE:GIS) showed its love for natural pet food products in the 8 billion dollar purchase of Blue Buffalo, while private equity based Albertsons will digest the leftovers of Rite Aid (NYSE:RAD).
Warren Buffett released his annual shareholder letter today, and he stuck to the topic of investing and business, for the most part. I found most interesting his cash hoard of 120 billion or so and discipline in finding many companies too highly valued for his taste. In addition, his thoughts about being able to endure four 35% or more declines in portfolio value and why it is crucial to not use margin when investing are significant. It is a reminder of what can happen in markets (anything) and why prudence and patience are required.
Next week, markets will see another deluge of earnings reports, along with Jay Powell's first session in front of the ethical wonders that represent our fine country (the politicians). In that domain, I am not sure if I have ever seen a more contentious time in terms of having Republicans and Democrats agree on anything. It makes me want to ignore anything related to the subject. Of course, that might be exactly what those idiots wants from their constituents. They would have us right where they want us- being underestimated.
Yale Bock, Y H & C Investments, its clients, and the family of Yale Bock have positions in the securities mentioned in the blog, Investing in securities involves risk and the potential loss of ones principal. Past performance is no guarantee of future results. All investment decisions should be considered with respect to ones risk tolerance, return objectives, liquidity needs, tax considerations, and one's overall financial situation. The fact that Yale Bock has earned the right to use the Chartered Financial Analyst in no way means or guarantees financial returns which exceed those of a market index.