Thursday, April 12, 2012

A Pause that Refreshes, Romney vs Obama, Rite Aid, and Introducing Lending Club-

So, the market goes down five straight days, and is now in the process of recovering those gains (and then some) in the last two sessions. For many investors, the volatility is hard to stomach. Instead of looking at it that way, another prism might be more advantageous. More specifically, when the market falls, you get more for your money as a buyer. Yes, you lose money, on paper, temporarily (maybe permanently).

  I was reading through Mr. Buffett's annual letters, and one key point struck me. He makes the comment he loves to buy businesses where the current year is a loss, but earnings and profit will resume for a long period of time- a great example would be his buy of American Express many years ago, or his recent investment in Bank of America. Yes, I know, his stock is down, but let's see how it winds up at the end of the year, or in 5 years. Also, want to point out a mistake I made in my last blog post. I inaccurately stated Best Buy has no debt, which is wrong. It does have debt, but one year of cash flow from the business covers the entire debt burden. (Sorry for that error and I will try to be correct in the future)

On to the main event, Romney vs Obama, Obama vs Romney, should be very interesting. I will only say it would be a great thing for Mitt Romney if Democrats see him as presenting no threat to their man. The best thing in a competition is to have your opponent assume they are invincible, or think the other side is not worthy. When a guy creates a dominant private equity firm like Bain, believe me, they are more than capable.

The reality of the presidential campaign is there are about 10-12 states that are going to decide the matter. Both sides will spend heavily in those states. The fundraising situation is also interesting because Obama has a huge war chest of his own to spend. Romney will have a war chest, but the Superpac's will be the where he have the majority of his support. Expect a brutal advertising campaign on both sides. The debates will matter immensely, especially the first one. Here is a nice article summarizing where we currently are in the process: http://www.realclearpolitics.com/articles/2012/04/12/romney_trails_obama_but_key_numbers_break_his_way_113816.html

One of the biggest problems in corporate america is when an enterprise takes on too much debt. We could also say the same thing about sovereign countries- see Europe, the United States, and many more. Debt is available in many forms, but the key is to use it to your advantage, and not have the tail wag the dog. Here is an article about Rite Aid, which took on too much debt in a private equity transaction-http://online.wsj.com/article/SB10001424052702304444604577339432385367746.html?mod=WSJ_hp_LEFTWhatsNewsCollection

Finally, an interesting development that John Mack joins the board at Lending Club. John Mack is the ex-CEO of Credit Suisse and Morgan Stanley and was a very good CEO at both of those Wall Street firms. The fact that he joined a lending startup lends a lot of credibility to the entity-http://www.bloomberg.com/news/2012-04-12/ex-morgan-stanley-ceo-john-mack-joins-lendingclub-board.html

If you forgot the Covestor Next Invest conference, here is a link as it is available through April 21, 2012-presentations.inxpo.com/Shows/Covestor/R...
I hope everyone is enjoying the spring. It was interesting being in Toronto and seeing the difference in the weather versus Las Vegas. Las Vegas has its issues, but the weather now is hard to beat. Really appreciated the comments last week, and if you have any on the current post, please share them, no matter how opinionated they are!!!

As always, on any company mentioned here, past performance is not a guarantee of future returns. Investing involves risk of losses on invested capital. One should research any investment and make sure it is suitable with your objectives, risk tolerance, risk profile liquidity considerations, tax situation, and anything else pertinent to your financial situation. Also, the CFA credential in no way implies investment returns will be superior for any charterholder.

(If you are interested in seeing the latest Seeking Alpha articles about specific stock picks from Yale Bock and Y H & C Investments, click the following links)
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