"Know what you own, and know why you own it." - Peter Lynch 

As the new year proceeds and we move towards a new government, there are still plenty of things one can depend on. You know the New England Patriots are destined to win their division and make a deep run in the NFL playoffs. You know popular Hollywood actors and actresses are going to make political speeches which make one question why anyone should listen to their opinion. You know the weather is going to turn bitterly cold, especially in the Northeast and Canada. You know the gym you workout at is going to be jam packed for a few weeks with a few sunshine patriots dedicated to losing 10 pounds even though the weight never eventually comes off. Finally, you know the largest banks in the globe will report earnings of billions of dollars and Wall Street will smile approvingly and continue to ignore their equities. However, to be fair, there is a very good chance this year investors will sit up straight and pay attention, thanks to the potential of a strengthening interest rate environment.

Naturally, with respect to the last certainty, the largest money center banks reported huge earnings yesterday (Chase, Wells, Bank of America).  All earned anywhere from $4-6.5 billion for the quarter.  Elsewhere, pharmaceutical manufacturers took it on the chin when our President elect dinged them in his yearly press conference.  Apparently, the Donald is not very impressed with their lobbying power, let alone the prices they charge for supplying the large government medical programs.  Barron’s came out with its roundtable discussion and many are skeptical of the prospects in Europe and tepid on the equity markets in general.  The general consensus is a 5-6% gain at best as rich valuations and the unpredictability of the legislative outcomes here in the United States are potential issues.

The ‘big names’ (Gabelli, Abby Joseph Cohen, Felix Zulaf, etc) also question the effect of our new leader’s trade policies towards the rest of the globe, especially the big C. The idea of an import tax might strike my old professor Mr. Navarro as a good thing, but we all know in economics there is no free lunch.  Like in chemistry class, for every action there is an equal or potentially more severe reaction.  Which is why Mr. Trump, Navarro, and Ross better think very carefully about how they pursue the populist agenda they have planned.  Duly noted.

As for my take on the concerns about the market, I believe the most important consideration for an owner of assets is the wise quote from the legendary Fidelity fund manager Peter Lynch. If you are invested in individual companies, you should understand why you own them.  You want to be able to describe what specific actions each company is taking over the next year to improve or grow their business.  Every enterprise is dynamic, with some parts struggling and others having better results. What is the leadership doing to grow the customer counts, improve margins, and increase the amount of money spent with the company?  These are basic fundamentals any entity has to be able to answer in a clear way.  If there are more severe problems at a company, what are the corrections being made?  When you go through your portfolio, most of the answers should be at the tip of your tongue.

In most cases, you aren’t going to be making huge changes if you own high quality companies.  As for new opportunities, you might want to change or add one or two, maybe three new holdings. Maybe there is an area you find interesting, say drones, artificial intelligence, water, cement, China, the cloud, whatever, and you want exposure there. You narrow your research into a few companies you think offer your best shot at growing the value of your assets, and certainly focus on the management. I hope this helps, as Mr. Lynch is always someone you can rely on.

Looking ahead to next week, it is a short one with heavyweights like Goldman, United Health Group, Netflix, American Express, and IBM reporting. I almost forgot, but I am sure you didn’t, there is the little matter of the inauguration, right?  Maybe a few people will turn out, even members of Congress, who knows?

Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charter holder.