Value Investing

Unexpected Events

I’ve been unable to post over the past three weeks due to some unexpected events. While “life happens” is a constant theme for most of us, lately things seemed to have piled on quicker than normal.

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Unexpected Events
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The first unexpected event occurred after a large pickup truck slammed into the back of our minivan. Thankfully no one was seriously hurt, but our van (below) wasn’t as fortunate and was determined to be a total loss.

With the “minivan dream” in jeopardy, I quickly began to search for a replacement. For a starved value investor, shopping for a deal on a minivan was surprisingly refreshing. While they aren’t giving them away, there are some “relative” values out there if you’re willing to be patient and disciplined. Unemployment also helped, especially in sharpening my negotiating skills! In any event, after a week of wheeling and dealing, our transportation issues have been solved, with the minivan dream rolling on.

A less unexpected, but still difficult event occurred last week when our dog, Pete, passed away. Pete was diagnosed with lung cancer a year and a half ago. We expected to lose him shortly after his diagnosis, but Pete was determined to stay with us longer. We were very fortunate to have Pete as a family member and friend – the kindest dog I’ve ever known.

We met Pete at our local animal shelter 13 years ago. How could anyone consider putting this dog down? Unfortunately, many dogs like Pete are unable to find homes and are put to rest during the prime of their lives. According to the Humane Society, “2.4 million healthy, adoptable cats and dogs – about one every 13 seconds – are put down in U.S. shelters each year.”

If you’re looking for a dependable investment analyst who is a good listener and never asks for a raise, I strongly recommend adopting a dog. Some of my best ideas and portfolio management decisions were made after long walks with Pete and his best friend Jimmy (our other dog). We believe Pete was 14 or 15 years old. He will be missed dearly.

Last, and certainly not least, a very good friend was diagnosed with cancer and began chemotherapy a few weeks ago. His cancer is treatable, but after visiting him in the hospital, I learned his path to recovery will not be easy and will take tremendous courage. Understandably, his sudden and unexpected illness has altered his view on his past and future. Life-changing events like these often cause us to put things into their proper perspective and reconsider our priorities.

It wasn’t long ago when I reassessed my life’s priorities. When I recommended returning client capital over a year ago, I took a hard look at my past and what I wanted out of my future. For most of my adult life, I dedicated a considerable amount of time and effort to my career. While I don’t regret my professional path and continue to have tremendous passion for investing, as recent events have reemphasized, there is more to life than finding high-quality small cap stocks selling at 70 cent dollars.

I often joke about how grateful I am for global central banks and their asset inflationary policies. But it really isn’t a joke. Without their trillions in asset purchases and a decade of negative real interest rates, I’m confident I’d still be behind my desk, consumed by the markets and my career. Although I plan to work again (I managed a mutual fund, not a hedge fund), I intend to remain committed to my newfound appreciation for a healthy and productive work-life balance.

If you’re sitting behind a Bloomberg and your eyes are tired from watching the green and red lights flicker, it may be constructive to reflect on how you’re allocating your time and what matters most to you. In my opinion, there hasn’t been a better time to take a temporary break from the markets. Given current valuations and opportunity sets, what will you really be missing? While it’s important to be prepared, maintaining balance can go a long way in successfully completing the current market cycle with your capital, family, and sanity all intact!

In any event, after taking a few weeks away from the markets, I’m back up to speed and should be posting again soon. In the meantime, I recommend reading General Mills’ (GIS) most recent earnings conference call. It’s a good summary of many of the themes I’ve been discussing over the past several months; especially as it relates to rising corporate costs.

As I was reading General Mills’ call, the following headline crossed Bloomberg, “Powell: No Sense In Data That Inflation About To Accelerate”. I’ll never fully understand why so many economists, investors, and policy makers rely on the “data” to form their macro views. Viewing the economy from the bottom-up, or through the eyes of business, makes so much more sense to me.

Nevertheless, until “New Trends with Few Friends” makes its way into the data, I suppose the Fed’s plan of going gradual — as long as nothing breaks — will continue. Until something does break (sharp decline in asset prices), I continue to believe rising corporate costs and inflationary pressures will persist. While few see it in the data currently, I would not consider inflation first, deflation later (higher rates causing a bust) as an unexpected macroeconomic event. In fact, at this stage of the cycle, isn’t this what we should expect?

Article by Absolute Return Investing with Eric Cinnamond