Y H & C Investments July 2023 Update- Edition 178
Investors are creatures of habit-
Index April 2023 May 2023 June 2023 Year-to-Date
Dow Jones
34, 407.60 +5.48% -1.51% +1.91% +3.80%
S& P 500
4450.38 +1.46% +2.18% +3.92% +15.91%
Nasdaq
13, 787.92 .04% +7.57% +4.13% +31.73%
Russell 2000
1888.73 -1.86% +.60% +3.16% +7.24%
Oil- 75.19
(Brent) -5.30% -.82% -1.58% -12.56%
Gold-1927.80 -.56% -.52% -1.86% +5.34%
Silver-
22.99 +4.96% -6.46% -3.0% -4.94%
10 Yr. Treasuries- Yield-3.844%
100BP=1% +3.9 bp +30.4 bp +14.5bp -3.6 bp
WSJ/US Dollar Index
97.47 .93% +2.44% -.30% +.95%
Bitcoin
30, 417 +39.32% -6.17% +11.80% +83.45%
Y H & C GARP Portfolio (Returns not GIPS Certified)
+2.7% -8.4% +7.3% +1.6%
Y H & C Concentrated GARP Portfolio (Returns not GIPS Certified)
0.0% -17.8% +11.7% -8.9%
Creatures of Habit: People, and Investors, Go Back to the Tried and True! (Return figures in this section come from the May 31, 2023, edition of the Wall St. Journal. Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research the investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
When I was in high school, I had a cranky old man named Mr. Kukan as my teacher for Honors English. How I made it into honors English is a mystery, but, ok, I did. Mr. Kukan had us come into class and immediately write our 5 vocabulary words for the day. We had to write them down, look up the definition, and use them appropriately in a sentence. In math, a similar routine took place as instead of vocabulary words, there were practice problems (three), which we had to complete. Even worse, or better, depending on how you looked at it, we had to show our work. The demands placed on these poor students by these taskmasters, the old-school teachers! The same way there is a routine in the educational setting, it holds true in other areas- sports, politics, and the business world.
In the athletic realm, many coaches have a constant practice structure. What you also find is they will run the same plays during games, and in crucial moments of a contest, stick with their best options. Similarly, players will use their favorite moves when the game is on the line. Politically, candidates have stump speeches where they say the same thing to every audience, maybe tailoring it to a specific geographic region or constituency. In business, processes, and routines are used for efficiency purposes. The most famous is Six Sigma, created by General Electric with a goal of 100% mistake-free work (free of defects in manufacturing). It is now applied in many areas of the service area as well. Turning to the financial markets, over the last decade, the dominant habit or go-to for investors has been to pile into large technology stocks. Over the first six months of 2023, if you did not own one of the ten largest tech companies, your performance suffered. A question to consider is what happens when the large technology strategy stops working. As long as it is successful, investors will keep going back to the well. Capital always flows to where the highest returns are, so if the return profile changes, money flow moves as well. For now, big tech continues to work.
Y H & C June Activities!
June was a busy month as we attended the LD Microcap Conference in Los Angeles and ValueVail in Vail, Colorado. Both are invitation only, with ValueVail limited to only 40 investors selected by Vitaliy Katsenelson, the CEO of IMA. I also completed the continuing education requirements for the CFA credential, a yearly endeavor.
The LD conference is always interesting as I sat in on quite a few companies but only met with a few executives. One was an existing holding which is well-positioned and performing nicely. The other was in the energy area where I found the situation quite unique. Microcaps are a very difficult area where most of the companies are entities that are not a good fit. One could make the same argument about larger enterprises as well. Capital is scarce and you only want what you think are the best holdings.
In Vail, there were only 20 presenters, and I was not chosen. Nearly all had a long history at the event so in that regard it is quite understandable as Vitaliy sticks with the people he is familiar with and trusts. Many of the companies I had prior knowledge of and some we owned already. Many of these individuals are quite accomplished academically and professionally so the intellectual capital at the conference is very impressive. Attending the conference was a good experience because it reinforced my belief that investing is still about trying to get the most you can for your money. By keeping it in this context, I focus on what is important when evaluating businesses.
Also, long-time readers will notice I have changed formats for the newsletter. I believe readers are more interested in specifically what I am thinking and doing in the markets so that is what I am going to communicate. If you have opinions on this change please email or text me.
Finally, clients should know the timeline for what will take place in July. Around July 10th you will get your quarterly letter and update. Mid-July we will be working on transitioning all clients to the Schwab platform from TD Ameritrade. The move from TD to Schwab should ultimately wind up in a better experience for clients. I will stay in touch to make sure any problems or concerns are solved and if there are any questions please email or text me.
Y H & C Industry & Holding Update! (YH & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research the investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)
Across our individual holdings, the three areas where we have concentrated positions include real estate, energy, and financial services. All have struggled with the perception of a slowing economy and a Federal Reserve which is committed to taming inflation by raising interest rates. At some point, monetary policy will change and the effect on these areas of the market will have an impact on capital flows.
One of the difficult parts of investing is holding positions where the stock doesn’t move much. In many of our companies, each day the management teams are investing capital in their businesses for future benefits. It often will take years for this to influence the stock price. Some of our companies are in situations where they have been investing for years, and shareholders should start to see the benefits relatively soon (think six months). In the meantime, a big part of investing is patience and hanging in there. As an example of this dynamic, we own a microcap company that has been investing over the last few years in the financing of charged-off loans. It is a company that makes money in a variety of industries, including real estate, charged-off receivables and equipment, and the valuation and financing of these assets. It has a very good team and a long history of profitability in nearly any economic cycle. The stock has performed well this year, but in the prior two years did not budge. It is well positioned in a tougher economic climate, but it highlights why you must be patient with many companies where the stock may act like a pet rock.
Thanks for reading the newsletter this month, and if you think it is worthy, recommending it to a friend or family member would be greatly appreciated.
(Y H & C Investments may have positions in companies mentioned in this newsletter. It is the responsibility of each investor to research the investments mentioned so they can decide on the appropriateness and suitability of the investments consistent with their risk tolerance, risk constraints, and return objectives)