Back when I was in high school, I got selected to go to a program called "Camp Enterprise," which was run by the Rotary Club. It was pretty impressive in hindsight. At the time, I was just happy to get a couple of days out of school and then get to dance with a pretty girl at the closing party.
Some of the speakers for the camp included business executives who traveled a couple of hours to talk to kids from various high schools. I remember in particular Marc Marotta, a former Marquette Warrior basketball player who became a prominent lawyer and community leader, and Ulice Payne Jr., another Marquette alum who went onto a trailblazing law and business career, who eventually became president of my beloved Milwaukee Brewers.
In one of the breakout sessions, we had a presentation that featured some thoughts from Napoleon Hill's writings. The title of today's article is a little different from an actual quote from Hill. The actual quote is:
"Direct your thoughts, control your emotions, and ordain your destiny!"
I have taken that with me in life, using it to stay balanced when things were going bad and when things are going good. I also applied it when I coached kids and men's sports teams, getting some good results and positive outcomes after the sports were done. I have made a point of using it for investing too.
I rarely tell people to sell specific securities unless they hire me to do a portfolio review. However, I have made a point of suggesting people sell some popular dividend growth stocks lately, mostly because those stocks lack the "growth" part of the equation anymore and are carrying historically high valuations.
In making a case for selling Coca-Cola (KO), Verizon (VZ) and Procter & Gamble (PG), I got some spectacularly emotionally charged responses. The same happened when I made the case for selling Altria (MO) due to slowing growth on secular trends and government hurdles.
Take a look at any article about Tesla (TSLA). The flood of emotion, and ideology, are all over the place. How does any of that add to the discussion of whether Tesla is likely to succeed?
The same emotions spill out on oil investments, which get it from the "end fossil fuels now" crowd and the "oil forever and ever" crowd. Does injecting emotional ideology really help anybody's analysis? I think it hurts.
Over 25 years in the financial industry, I can say that my number one observation is that emotions, whether it is outright fear, or some sort of self-validation issue (often related to ideology or group affiliation), are the number one impediment to investor success.
When analyzing an investment, Jim Rogers said in an interview with Fortune, "I realized right away that if I just literally read a company's annual report and the notes -- or better yet, two or three years of reports -- that I would know much more than others."
I concur with that idea, but I also am a realist and know that folks don't have 50 hours per week to read like some of us do. So, at least ask the important questions if you are getting a synthesis of the information from others.
Here are three stocks that create a lot of emotional discussion. I would pose these are some of the questions that really need unemotional answering. I follow up with some quick thoughts of what I am thinking for you to ponder.
Ultimately, with Tesla, if it can ramp up business on cars without massive dilution, they have a chance. I don't think we can discount the power of affluent millennials buying Tesla EVs.
Residential solar is the least efficient solar and relies on individual homeowners, many of whom are strapped to make a big capital investment unless the company absorbs it which comes with different problems.
China has at least six battery plants getting ready to go and there is much more cost efficient battery storage (for microgrids and grid) than lithium that are major competitors for Tesla.
China and India seem to want Tesla factories, so I don't believe financing is a problem, but I expect deals to be like the one with Tencent (OTCPK:TCEHY), which include dilution.
For me, I'm calling a Munger on this one and passing on any call on the company even though I think it's dramatically overvalued. Tesla is too hard to figure out, so I am avoiding Tesla from either side.
If you own shares, now is a good time to sell Tesla in my opinion on valuation concerns as the company would have to become the largest manufacturer in the world to justify the current price. I think that is unlikely and if it does happen, it'll be a very long time in the future.
Exxon Mobil (XOM):
Earlier this year, Exxon removed 3.5 billion barrels of tar sands oil from its reserves at Kearl, where it still has 1.3 billion barrels it plans to develop - for now. The company has billions more barrels with little to no value around the world, that it will have to write off eventually, if oil prices don't stage a significant and long rally.
Exxon is America's largest natural gas producer and has a strong hold on that. Given that natural gas is slowly replacing coal, as wind and solar soak up 100% of net new production needs, it seems apparent that the natural gas assets are valuable long term. Exports of American natural gas further support the future pricing of U.S. natural gas.
Whether you believe man is responsible for a significant portion of climate change or not, 195 nations are currently on board with the Paris Climate Agreement, so regulations could change dramatically if a "green" politician is elected president at some point with a sympathetic Congress. I find it likely regulations change dramatically eventually.
If the world starts going greener in an even more pronounced way, then Exxon could use its money to go more towards alternative energy - and, of course, that would be expensive.
Exxon is a hold to me here, but I would patiently be looking to sell it into the next oil bull market.
Pfizer is a company that I worry about the growth aspects. Not only is the company soon to lose patent exclusivity on Viagra at the end of this year, with Teva (TEVA) able to manufacture a generic, but also on Lyrica at the end of next year.
The Viagra expiration is extremely dangerous for Pfizer as it represents another hit to what was its main revenue driver a few years ago. Already, Eli Lilly's (LLY) Cialis has been boning into Viagra sales and now it'll have a generic to fight off.
To be sure, Pfizer has a significant pipeline, despite licensing out some lines a while back. The problem is that nothing is certain to be the next billion-dollar drug and they need one soon. Maybe Ertugliflozin, which is designed to reduce blood glucose levels is that drug, but diabetes 2 treatments are a crowded space at this point, so it's hard to project.
My greatest concern for Pfizer, and other drug makers, is that the pharmaceutical companies are soon going to see major legislative shifts that dig into profit margins. Socially, that might be good, but at the stock level, it sure wouldn't be. That's a real risk investors should consider.
As the baby boomers get older, there is certainly going to be more demand for drugs. Will it be enough to offset fewer home run pills and potentially tougher market conditions owing to legislation? That's very hard to tell.
While Pfizer is at no risk of going to zero, I think retesting their ten-year lows is a very real possibility amid a transition at the company and likely the industry. I rate Pfizer a sell at the current price levels and would be hard pressed to add back until I know what the laws on healthcare will be in the future.
In telling people to sell stocks that they might be emotionally tied to due to past performance or ideology, I know I run some risk of being criticized. That's life in the SA fast lane I suppose. Emotionally, it doesn't bother me that I might get flamed. It makes me sad, though, that if I'm right and people disregard what I'm pointing to that they'll lose money and the financial freedom that comes with it.
Controlling my emotions and directing my thoughts to what is truly important is a key that I keep turning. It has served me well to remember to step back from the forest to see the trees. I think it will help you too.
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