When Everyone Gets A Trophy, None Wins- Jean Twenge (Author)

Like nearly everyone, I enjoy good comedy. I have seen many good comedians, and the most recent show I attended of Sebastian Maniscalco, was hysterically funny (highly recommend him if you are in your forties or fifties). One of his routines involves kids playing sports and how in modern society, everyone gets a trophy. If you participate, you get an award, regardless of your performance. He parodies this with what he would do if he were a coach (use your imagination). Many educators feel the current approach of always rewarding students regardless of the work product is phony at worst, insincere at best, and is forming a culture where kids aren’t being told the truth about the quality of their effort or work. As an ex teacher, these kinds of situations interest me more because it makes me so happy I am not in the educational world and dealing with the lofty goal of educating societies youth. Turning towards my priority, the investment world that is, last week was the start of 2018 and it kind of resembled this educational dilemma in that every day was a party as stocks rose three percent for the week. Stocks always go up. All kids get a trophy. Let’s sing kumbaya together, shall we. Yeah, right.

If you sense a bit of skepticism on my part, yes indeed, I am dubious things will continue this way in the market for the rest of the year. In fact, I am quite confident they certainly will not as on an annualized basis, stocks probably cannot maintain a 150% gain during a year (unless it is the NASDAQ, Amazon, Netflix, Facebook, or of course, Bitcoin related). I would point out that a measly two years ago, stocks began the year by dropping 15% in two weeks, and recovered quite nicely. At the time, I mentioned the situation would improve, and it did. There are a lot of positives which make investing in the market a natural. The economy is improving and tax cuts will put more money in consumers pockets, and corporations will retain far more of their profits than previously. They can also bring back foreign capital with a much less burdensome penalty. Most importantly, corporate profits are strong (about $150 bucks per share on the S&P 500). Yet, the bottom line is not every stock is a buy, all the time, regardless of the price. Not every company deserves to have stock appreciation. In fact, most of the time, probably nearly all the time, most stocks are not buys. Discernment and selection matter with capital allocation, and investors who just throw money at anything willdiscover, eventually, that capital is precious. Business quality matters, as does the price paid. No, not every company (for that matter every asset, including cryptocurrencies) is worthy of clicking the buy button, and not every student deserves a trophy. Period.

On the earnings front, it was a light week with the most noteworthy companies reporting being Walgreen's, Rite Aid, and Constellation Brands (alcoholic beverages and now cannabis supplier). Late next week, the biggest banks in the country will kick of earnings season and they will be closely watched in terms of how they project their outlooks and the effect of the tax cut on their capital allocation plans. CES begins this week here in town and keynotes from executives of Intel and Nvidia will highlight the show, along with plenty of other high profile technology companies. In the political sphere, Donald Trump and the leader of North Korea played who has the bigger button, and then the President made hash of his one time advisor Steve Bannon. Mr. Bannon had lost plenty of prestige backing the ill fated Alabama candidate, noted judge (pedophile?) Roy Moore, and his fall from stardom is now complete. There is a good chance it can help the Republican party unify, which will need to happen as Democrats smell blood with the midterm elections ten months away. With fierce blizzards covering the east, I hope everyone is staying safe and enjoying the start of the new year. Remember, not everyone gets a trophy, no matter how strong the year started.

Thank you for reading the blog this week, and if you have any questions about investing, please email me atinformation@y-hc.com

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.