Though I've never used illicit drugs, I do regularly drink caffeine through my coffee habit, consume alcohol via two or three glasses of wine a year, and have ingested nicotine having smoked a handful of cigars over the past couple of decades. As a libertarian on social issues, I won't comment on whether or not marijuana or other drugs should be legalized. As a fiduciary charged with providing a sound rate of return for my clients, I don't make any moral judgements on companies in which I invest as there is too much grey involved in making a judgment as to the goodness or evil of a company's people or its goods.
We have a very few clients who always call or email when the market sells off asking what we should do and why it is happening. The honest answer of course is that the stock market is declining simply because there are more sellers than buyers when panic sets in and investors move to the exits. There doesn’t have to be one specific reason - particularly in today’s algorithmically driven market. There is a proliferation of passive ETFs and mutual funds which are driven primarily by large growth/momentum stocks (i.e. FANG – Facebook, Amazon, Netflix and Google) which have begun to sell off from high valuations. When fear or greed overcomes the market, stock volatility is exacerbated as mathematical algorithms hit certain levels driving sell or buy signals. Thus, selling by computers begets more selling and in the reverse, buying can beget buying.
We don’t currently own Nike; however, this is not due to some patriotic position for or against the company’s recent ad campaign featuring Colin Kaepernick. Instead, it is based upon an unprejudiced review of Nike’s valuation, financials and its paltry 1% dividend payout.
On more than one occasion in recent years clients have written us about investing in Starbucks, the trendy coffee chain with locations in seemingly every city and town across the United States. Though Starbucks is the coffee shop of choice for some of us at Altrius, we believe that mistaking a company for the products it sells can trap investors into overpaying for its shares (for more on this, head over to our McDonald's vs. Shake Shack blog post) and have thought it expensive until recently. Previously trading at over 30 times trailing earnings with a dividend yield of around 1.5% - less than half that of our Disciplined Alpha Dividend strategy - Starbucks has remained outside of our value discipline in past years. However, the company caught our attention after a recent selloff and we added it to our portfolios in early August.
Charlatans and unethical scam artists don’t come right out and tell you they are attempting to make you part with your money while providing absolutely no value. The most skilled will tell you they are doing something altruistically and that they want to simply teach you what they’ve learned – for the small price of a subscription service or enrollment into their more intensive (and more expensive) classroom lessons.