College Football Rankings and Value Investing

Since yesterday was a Saturday, my day was spent watching college football, of course.  My alma mater, Michigan Wolverines, are playing well but by no means does it mean we are going to win the Big Ten…and making it into the college playoffs would be quite an achievement with first year head coach Jim Harbaugh, but I digress.

One of the interesting things I heard from one of the commentators was that we can’t reward teams with higher rankings merely because they have the POTENTIAL for winning out the rest of the season or doing well.  They were very specific to say “you can’t reward potential.” I obviously agree, but I also laughed…why can’t we do that in college football?  Isn’t that what 99.99% of investors do with their own money?

I am a value investor.  I pay for what people ignore and think isn’t there.  I like to find value in things people have determined to be worth a lot less.  I also consistently argue about companies being bid up in price merely because of their potential: i.e. Amazon.  If I had $1 for every time I heard someone say “It’s ok for Amazon to go up.  They have SO much potential. They will be worth it.”  In past articles I have said “FINE! Yes, they COULD be worth it someday…wait until they get there THEN reward them with that value.  Don’t pay today for what they have yet to accomplish no matter how obvious it may appear to be!”

Something so simple as college football can teach us these lessons.  We don’t hand out championships in week 1, and in fact, rarely are the #1 teams at the beginning of the season the team that actually wins the title. The same is true with investing, yet people always fight history and the facts.  Rarely are the high flying “growth” stocks the ones that outperform, yet we consistently give them more value.  Why is it any different?

It’s hard to ignore stocks that continually go up but if you go look at Yahoo Finance articles just from July, you never saw anything about this market going down and in August, you saw it fall 12.5%.  Clearly the party goes…until it stops. Don’t be the one that bet on the growth and then get punished and not be able to sell before the end stops.  You think you will, but you won’t.  It doesn’t happen.

Not only is college football a wonderful thing to watch, we can learn a bit from it too.

Listen To The Words That I Have Been Saying!

1.) Stocks are NOT in a secular bull market that has 10+ years to go…That is ridiculous.  Secular bulls and bears are based on VALUATIONS.

2.) This is not an expected fall in stocks. Two weeks ago, no one saw this event and now it’s expected?  Good spin everyone.

3.) Valuations ALWAYS win in the long run.  Always.  That’s what matters.  Valuations are currently at levels almost as high as 1999!!!

In no way shape or form is the market going to be fun over the short long run (2-5 years).  Things will get ugly. They have to.  Valuations are crazy stupid high.  There is no way around it.  Every reliable valuation metric shows this.

All earnings have been growing have been because of interest rates and cutting costs, not from revenue growth that everyone should be concerned with.

Today, Friday, and Thursday have been glimpses into the future . When will it all go down? I have no idea…but this is not a healthy market.  Not in the least bit.

I write these words now so that everyone can read them in a few years and realize I was “wrong” for some time, but I stuck to the fundamentals and what works, and this is where it has led us.

Is Outsourcing Bad? What Does It Mean About Our Economy?

Donald Trump is making headlines talking about how he is going to bring jobs back from China, India, and Mexico.  Well, big surprise, Donald Trump is merely just trying to get attention like the attention-whore that he is.  To be fair, all politicians do this.  Hillary Clinton bragged about how voting Democrat in 2006 and 2008 would lower gas prices, mortgage defaults, and also end outsourcing….clearly that didn’t happen.  But either way, people need to understand that outsourcing of jobs is actually a GOOD sign of an economy.

So whenever I hear people talk about outsourcing, they discuss how it is taking away American’s jobs.  Ok. Yes, technically, that’s true.  But here is the circular problem with worrying about that.  Ok, so you want Americans to be paid $15 per hour to build a product that can be made by a worker at $1 per hour?  Ok. So that increases the cost of that item by how much?  A lot.  Then it has to be sold to the hard working families in the U.S. who can’t afford to spend more on extra things.  Which then leads to less sales.  Which leads to decreased profits and revenues by the companies selling them, which leads to layoffs of the workers whose very jobs were being saved by forcing jobs to stay in the U.S..  Do you see where I am going with this?

You can’t have a booming economy with EVERYONE making more money and everyone living well AND have inexpensively made products for less financially advantaged people to buy.  You can’t have your cake and eat it too.

Of course, many people in certain political parties will want you to believe that you can have lots of high paying jobs and low cost items. This is why a higher minimum wage doesn’t help people make more money.  All that happens is that cost of creating goods and services goes up, which causes the very people the minimum wage is helping to pay more for the products they need to survive. It’s inflationary.  And the people making $500K per year don’t care about paying $4 for something they were paying $2 for before but someone making $20K per year surely does.

I know I have brought up politics but this isn’t just about politics.  It’s about common sense.  Even China will be losing jobs to other poorer countries soon. Their economy is growing like gang busters, which is awesome! But their economy will change a lot in the coming decades to adjust for higher factory worker costs.  I import products from China now and I am sure over the next few years, we will start to see increased costs.  And that’s a good thing for China.

So stop complaining and just realize that jobs being outsourced means that EVERYONE in this country is making more money. Yes, someone who loses their factory job is out of a job, but they aren’t out of a job forever.  They will get new skills and adjust.  They may not make the money they made before, but that’s how the world works.  Adjustments are made.  As I always tell my father when he worries about fewer and fewer factory jobs: When the car was invented, it didn’t mean everyone who worked on a train lost their job forever.