Market Overview

Munger, Political Bile, And Reading for Fun

Munger, Political Bile, And Reading for Fun

How many different ways can I say that the market looks pretty expensive at these levels and a heightened sense of caution is warranted? My basic view of the stock market has not changed in the past week, and I do not expect it to over the next week. My trusty Barron's shows the market trading at 26 times earnings, and that’s not a fantastic starting point for a rally based on historical evidence. I could be wrong, and the Bulls could carry the day.

If I can find new safe and cheap ideas that pass my financial safety tests, I will buy them. I spend a good part of my day looking for stocks to buy, but I am not finding anything right now. Hopefully that changes soon, but I suspect it will take some sort of market dislocation to create some new inventory.

Of course, as much as the market loves President Trump, the Democrats and the left hate him even more. There is a full court press going on in Washington, and it has created some political turmoil early in the new administration's term. Trump and his team seem to be taking a page out of Andrew Jackson playbook by counter-punching, and all this just makes for some ugly politics. I confess that the vile mental regurgitations coming from both sides is hard to watch at times, but it will probably get worse before it gets better.

I find the lack of independent thought and strict adherence to unproven dogma from both sides to be disturbing. The markets do not seem to care about the turmoil at this point, but that is subject to change without notice. Battles over tax reform and regulatory rollback could be upsetting if it doesn’t proceed as smoothly as the bulls are hoping.

Charlie Munger had some advice for Mr. Trump's opponents at yesterday’s Daily Journal meeting. “Trump is not wrong on everything," he said. "Just because he isn't like us, roll with it. And if there is a little danger, what the hell, you're not going to live forever anyway."

He added that, "I always try and think about the good along with what’s not good. I think some of this stuff where they're re-examining options about the whole tax system of the country, I think that is a very constructive thing.” Mr. Munger also had some thoughts on all the protestors and boycotts saying “I don’t like all that. Basically, I’m not in favor of young people agitating and trying to change the whole world because they know so much. I think young people should learn more and shop less, so I’m not sympathetic to anybody. Young people are out in the streets agitating—that’s not my system. I think if you’ve got Hitler or something you can agitate. But short of that, young people should learn more and shop less.”

Investors would do well to follow not just Mr. Munger's words, but his actions as well. Once again this quarter the 13F filing from the Daily Journal, where he is the chairman, showed no activity. It has not shown any activity since 2009 when Mr. Munger took the firm's cash and bought four stocks as the markets were collapsing. He has not traded around the positions and “managed the portfolio" in any way. He has just sat still and watched his money multiply. Sitting on your butt, investing at its finest.

Speaking of 13F filings, I am apparently not the only one concerned about market levels. I saw a lot of selling in 13F filings this week from leading value and activist investors. There was even a good deal of selling among the bank stock specialists as valuation blossomed post-election, something I haven’t seen in a long time. It was not just the bank guys either as value types, and private equity firms were also doing a lot of selling and very little buying in the fourth quarter. This is just another caution flag about market levels and valuations, and you ignore it at your peril. I am not selling anything that I have yet, but I am very reluctant to be a buyer at these levels.

On to happier thoughts. Position players report in Sarasota today as the Orioles get ready for the new season. I like our chances if Bundy and Gausman pitch to potential and Tillman comes back healthy. We are going to have a tough year with Boston loaded with talent and New York adding youth and power to the lineup, but we have the bats to compete. Our bullpen looks good again. Buck Showalter was asked if this was the best bullpen he ever managed and he said, “This would rank right up there potentially because of the depth of it and the ability for Brad and Zach and Darren and if Mychal can duplicate what he did the last month of the season. The difference is all four of them can get left- and right-handed hitters out. That's what’s unusual about it. They’ve got an inning, they pitch it. You’ve got four hitters, and three of them are right-handed, you don’t have to get a guy up as soon as somebody gets on base. That’s how you keep bullpens healthy.” If we can add competitive starting pitching to bats and bullpen, we will be in the hunt.

On the all-important recreational reading front, I blitzed through the first three books in the Jim and Kram Mystery series by Brent Purvis. Nothing educational in these other than a little history and geography of Southeast Alaska, but they are a fun read. Pure escapism, which may be increasingly needed as the political environment just gets weirder in the weeks and months ahead. Parts are laugh out loud funny, and all three have a decent plot. There is a new addition to the Miami Jones series out this week as well as new Charlie Crawford Palm Beach mystery. I am a fan of both of those series and am looking forward to consuming them soon.

Every once in a while I get an email complaining about my discussion of books and baseball and advising me to stock to the market. That doesn’t sound like much fun to me, so I usually send a polite thank you and ignore the suggestion. I am also asked why I don’t offer suggestions for more serious book. While I read a lot of nonfiction and have been known to dabble in philosophy, there are more than enough people doing that. Shane Parrish at the Farnam Street Blog does a fantastic job of this. Patrick O’Shaughnessy does a phenomenal job with his book club. You don’t need me to do that. Lots of other folks are doing that for you. I do a lot of serious reading, but I also read for the pure fun of reading, so I like to share some of the books I found fun to read

Also, most of us would be better off spending more time reading fiction and watching baseball than we do reading about chart patterns, formulas and astrological events that will help us make money in the stock market. Buying right and holding on over time is going to make you more money that all of that stuff. Patiently owning stocks bought at a discount price while watching baseball games and reading a good book is going to make you more money than all the lines you draw on charts over your investing lifetime.

That’s all for this week. I’m stopping by the American Association meeting here in Orlando next week, so I am sure I will have some interesting tidbits from that gathering. Plus there actual baseball games on Thursday and Friday!

Posted in: Hedge Funds Topics Sports Opinion Markets General