This past week I was in the locker room at my gym when I ran across a friend who told me he went to see the movie "The Wolf of Wall Street." My reaction was one of disgust as I went to see the it a few weeks ago and found it to be lacking of any redeeming quality. It is even more amazing, at least to me anyway, the film has been nominated for five academy awards. What does this say about Hollywood? Charlie Munger has a very appropriate saying which is applicable (and in many other cases as well), "Eat my bread, sing my song."
Martin Scorsese uses the life of a criminal, drug addict, and misogynist to glamorize everything wrong with the investment world. In fact, probably 90-99% of those responsible for investing other people's money are trying to do a good job for people. In a sad, but memorable scene with Matthew Mcconaugey, there is only derision given to the idea of a mutually beneficial relationship between the client and those who invest their capital. Leonardo Dicaprio is a good actor who has done fine work in many other films. However, he is as complicit as Scorsese in making a production which is garbage, at best. The bottom line is the film is typical of what Hollywood has now become, a place where studios churn out anything in search of a buck, irrespective of the validity or ramifications of what it produces. I find it interesting there are so many good stories around in history and in all areas of life and yet the major studios in Hollywood make gutless choices like this as a way to attract audiences to their films. I certainly won't be seeing any more Dicaprio or Scorsese productions, and I hope you won't either.
Moving from fantasy to reality (although many valuations of companies these days could very well be thought of as make believe, too), this past week opened the earnings season for corporate America. A few of the major money center banks performed nicely, while Citi had a subpar report. In the consumer space, two enterprises which had poor reports were Sodastream and Best Buy. The stocks were obliterated, one down nearly 20% and the other 40% over the course of two days. These two situations are just further proof volatility remains at least one constant in the equity market. Fluctuations can either be feared, or embraced, depending on the approach of the participant.
In the energy market, the big news came from Shell, who guided down their results for the final quarter of 2013. Shell has been hurt by the tough refining environment in Europe and Asia, as well as poor choices related to shale projects in North America. Still, with a new CEO on board, Shell as indicated their priority will be return on invested capital as opposed to finding sources of new production growth. All across the energy sector, the rationalization of investment versus returns on capital will be a theme which have a permanent seat at the table. In addition, choosing projects with stable operating environments certainly is going to have to factor into these decisions. When it costs billions to invest in a project, the prospect of facing terrorists while trying to find a very valuable resource just does not make much sense.
Elsewhere in the energy world, the most recent railcar crashes in North Dakota yet again highlight the danger of working with resources like oil. As more and more "black gold" gets moved by railroads, accidents like these have a higher probability of occurring . Historically, the safest method of moving oil has been pipelines. North America actually remains underserved by the pipeline network, which is why the Keystone proposal has plenty of merit to it. However, the decision has been delayed for going on four years now. In fact, the Canadian government has indicated it's frustration with the slow pace by the notoriously ineffective Obama Administration. Essentially, it's (bleep) or get off the pot. I am afraid the Canadians are probably going to be disappointed by the ultimate outcome.
All over the globe, a more apparent problem are the security issues related to the use, storage, and processing of data facing businesses, government, and consumers. You see this with the lapses at Target, the NSA, and most recently, Starbucks (if you consider it a breach). As technology evolves, these issues are going to take on even more importance as the public is not going to accept situations where their data could be compromised. Especially in business, where every lawyer under the sun is looking for any reason to sue a company with financial resources, it is becoming more obvious that paying more for proper data security is going to be a fact of life going forward.
In the emerging markets, the major story which has broad implications is the effort of the Chinese government to move their economy from one heavily dependent on infrastructure spending to one which is more based on domestic demand. For countries whose economies are very much based on exporting raw materials, worries about sharp reductions in GDP growth has resulted in some currency weakness and capital flight. As a result, the investment world is starting to become far more interested in different growth possibilities in countries like Mexico, Indonesia, Vietnam, and Malaysia. The world is a big place with plenty of possibilities, and the quest for investment returns never stops.
Thank you for reading the blog, I hope you have a healthy, happy, and productive week!!!
Y H & C Investments, Yale Bock, and the family of Yale Bock own positions in securities mentioned in the blog post. Investing in stocks can lead to the complete loss of your capital. 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 charter holder.
Disclosure: I am long BBY, C, .