The English idiom don't judge a book by its cover is a metaphorical phrase which means you shouldn't prejudge the worth or value of something, by its outward appearance alone.

 Wikipedia quotes

Let’s face it, society today is based on speed, and I don’t mean the illegal pharmaceutical.  With the transformation of the world into digital dominance, everything happens quickly.  Want information now, click, click, touch, touch, presto, there it is.  World events, which used to be transmitted by television, now get tweeted and instantly the globe is informed.  You get my drift.  Anyway, with the power of digitization and quick access it seems society believes the process of making decisions should be accomplished quickly, now more than ever.  When dealing with anything regarding substantial sums of money, however, usually it is best to make assessments in a systematic way.  Charlie Munger and Monish Pabrai advocate having checklists in a similar fashion as pilot training academies do for aspiring sky kings.  As one spends more time in the financial world, you realize the wisdom in this approach.  In retrospect, quite a few of the capital allocation mistakes I made would have been quickly eliminated with a more rigorous methodology.  Still, nobody is born a great investor and these are the kinds of experiences one has to go through to improve.  As time passes, if one elevates the decision making process, it should upgrade the quality of those decisions and shift the odds of favorable outcomes to where the vast majority slant in your favor.  Yes, long held wisdom still applies in today's click, click world.

In the financial markets this week, yesterdays weak May jobs report (135k vs 185k expected) was shrugged off as equities continue to head higher.  Earlier, the divisional heads of JP Morgan and Morgan Stanley suggested weak fixed income trading numbers would hamper this quarter’s results as the rock bottom interest rates and volatility make things tough for the money center banks.  Also in the doghouse remains oil prices, as the battle between OPEC and US shale providers continues to favor the shale guys.  With US oil production over 9.3 million barrels per day and at a high for the year, the big question is how long will this continue?  Reports from the ground seem to indicate costs are headed higher for sand and water, the key inputs for fracking.  However, in the deep water area, expenses are headed down as big oil keeps working to leverage their existing fields and be far more concerned with return on capital.  If ever there were situations where today’s leading quote is applicable, banks and oil would be it.  I am not saying they are worth buying, but my feeling is, if you take your time, the banks and energy areas are definitely interesting areas to investigate.

In the political world, the big news this week was President Trump deciding to get out of the Paris climate accord.  While the environmentalists and left wing are up in arms, if one looks at the information about the decision, you can understand why it was made.  Yes, the United States should want the world to reduce carbon emissions and has actively done more to make it happen than any other country.  If one looks at transportation and electricity production, the two largest markets for energy, alternative energy is nowhere close to being able to completely provide the market with enough to supply all users. In electricity, they make up maybe 15% of supply at most, and in transportation it is below 5%.  So, for now and the foreseeable future, carbon based supplies dominate what the world works with.  Electric vehicle adoption will happen over time, with some believing it will be quite quick.  Others feel, nope, it will take decades. In fact, in Asia, coal plants are being built at the rate of a plant a week, and China and India have no plans to reduce their quest for energy, carbon based sources included.  It makes no sense, unless you are a captive of the environmental and progressive lobby like our previous President and the Democratic party, to hold back the US energy industry.  It is has a great deal of potential for job creation, like many other strategically important industries (sensors, cloud, AI, etc).  Mr. Trump is often accused (and probably been guilty) of not abiding by the quote at the top of the page.  In the case of the Paris accords, in my opinion, he made the proper decision, whether the world and environmental lobby likes it or not.  

Thanks for reading the blog this week and if you have any questions or comments, please email me at information@y-hc.com

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.