image description

To deploy client capital in a way best suited to meet the client's financial needs and then constantly keep watch over that capital to respond to the opportunities and pitfalls inherent in today's financial markets.

Archive for the ‘Market Commentary’ Category

Arrival Capital’s Fall 2016 Preview

Posted by on September 23, 2016

Well, with summer officially over, attention now turns to autumn, traditionally a time that sizzles with vigor and opportunity along with uncertainty and the sense of another year heading into the history books.  Before looking ahead, however, one more look back at summer is warranted.

For Arrival Capital Management LLC, the summer of 2016 was a season of exciting changes.  First, we moved offices to a beautiful commercial townhouse on New York’s Upper East Side, at 94th Street and Lexington Avenue.  We hope you will pay us a visit if your are ever in the neighborhood.  Second, and more far reaching, Arrival Capital stepped up it’s capacity to effectively serve clients with a new institutional relationship with TD Ameritrade (TDA).  TDA will serve as our primary custodian for individual client accounts.  This new relationship will give Arrival Capital more sophisticated analytical and practice management tools that will ensure your investment management is state of the art, yet will continue to be based on timeless concepts of value investing and contrarian analysis individually tailored to each client’s investment needs and goals.

But enough about us.  The summer was a time of low volatility and glacier-like but upward market movements.  This came after a negative 2015 and a more than 10% drop to start off 2016, as well as another sharp drop on the day of the Brexit vote..  What turned the negativity around?  The easy answer is the concept of TINA, standing for “there is no alternative” to US stocks, given global uncertainty and record low or even negative interest rates around the world.  Even 1-2% growth is better than nothing, goes the thinking.  There is certainly some truth to this school of thought.  But markets are also fairly adept at pricing in future profit potential, and one can’t help notice that through a cloud of negative market sentiment fanned by the so-called “smart money”, market participants seem to be anticipating higher profits and a generally benign business environment in the near future.  Skeptics might term this complacency, but we would would suggest that the country’s problems and challenges are front and center, particularly in a fraught election year.  But with unemployment fairly low, and energy and food prices continuing to stay down, it appears that the American consumer still has the wherewithal to sustain American businesses.

The great unanswered question continues to be whether American business will step up and resume investing in both people and productivity enhancements that will carry us forward in a more sustained way economically.  Another wildcard is whether the rest of the industrialized world, whether Europe, China, Japan or Great Britain, can get the most of their own people and businesses. Obviously, these questions are still outstanding, as is the American presidential election.  But the market is telling us, despite the uncertainty, that people continue to be productive and generate value, which investors can capitalize on by taking advantage of market disruptions and recurrent bouts of investor pessimism to snap up the most attractively priced, genuinely strong businesses out there in the world.

How to identify those companies?  It is both art and science.  Observing societal, cultural and business trends is vital.  For example. knowing how today’s young people consume media and entertainment (hint: YouTube and Xbox), or how people pay for things (Visa and PayPal).  Understanding what is working in the world also means staying with companies even through temporarily tough times which are treated as permanent impairments by investors at large (see Apple and just about every drug and biotech company at times).  Finding enduring strength sometimes means stepping up when people are running for the exits (see Chipotle and the major media companies like Fox and Disney).

The modes of thought required to find good investments at great values is varied but the underlying methodology is the same: buy value, buy underpriced cash flows or assets, buy low.  Don’t chase and don’t panic.

Circling back to the year we’ve had so far, we don’t want to sound the all clear or to dismiss those advising caution.  The world is uncertain, times are unusual economically.  Those sounding the alarm have some valid points.  But the way we take into account the potential for somewhat bad outcomes or the so-called “tail” risk of a small chance of something really bad happening is to stick to value investing and hold cash.  The percentage of cash depends on a number of individual variables, but in a low interest world, cash is the place to be as a complement to a well-diversified equity portfolio.

Autumn, despite the falling leaves, is a time of new beginnings, big and small.  The right investment portfolio can undoubtedly make a difference in people’s lives and help them discover new possibilities within themselves and for their families.  Come stop by Arrival Capital or give us a call, and let’s start planning a better future.

Have a great autumn.


2016 Q1 Review — A Tale of Two Directions

Posted by on March 31, 2016

On the afternoon of February 11th, less than two months ago, major stock market averages were down more than 10% to start off the year, one of the worst performances to begin a year in decades.  This awful start followed a negative year for most stock markets in 2015.  What was driving the negative performance and pessimistic mood?  A litany of concerns including declining growth in China, a rapidly falling price of oil, fears of a slowdown in the US economy and a general sense of fear and malaise that the world economy was teetering on the edge of recession or worse.  With all this, then, the best response was to … start buying hand over fist!  Yes, navigating stock markets are never truly easy, but understanding human emotion, and specifically that age old battle between fear and greed, can continue to map an approach for the astute investor at even the darkest of times.

The declining price of oil was perhaps the single biggest factor driving stock market declines.  Down from a price in 2014 of $100 to the mid $20’s this past February, oil’s scary decline brought down with it the price of other commodities as well as the entire high yield bond market.  This despite the fact that declining energy prices gave US consumers more money to spend on other items (except for those whose jobs depended on energy).  But throughout 2016 up to February 11th, oil kept going down, dragging stocks with it.  But, as we remarked at the time, oil is not going to $0, they won’t pay people to fill up at the gas station.  That meant that at some point oil prices would stabilize and with it, so would the price of stocks.  As with everything in this 24/7, hyper-connected world, this final bottoming process took place in a matter of days, followed by a move up in stocks to basically where they started the year.

So what was the proper response in those dark days of early February?  It is surely 20-20 hindsight to say you should have bought everything in sight.  But perhaps the better lesson is not to ever get too negative or too positive.  Instead, let the numbers of particular companies and investments drive your analysis.  What were sales and earnings looking like?  What trends, multi-year and industry specific, would take precedence over the temporary ups and downs of energy prices?  What companies’ stock prices were being driven down with the market as a whole even as those companies had prospects and opportunities that merited rising prices not falling ones?  Yes, an investor needed to keep an eye on China, oil prices, the Euro, interest rates and a host other factors.  But these were the proverbial trees and an investor’s job remains to see the trees but never lose sight of the forest.  And what is the forest?  Simply stated it is value.  Analyzing what investments are intrinsically worth, based on profits, assets, intellectual property, and future prospects, all examined against a realistic appraisal of the overall economic situation as it is in the present and likely to be in the near future.  This may produce a range — if there is a recession, company A may be worth x, if an economic boom, it may be worth 3x, but in the most likely economic scenario, it will be worth 2x.  And if the company is already selling at x, then the clear response is to buy the stock no matter how gloomy media commentators and prognosticators are in their assessments.

Investing remains about process and detail, but it is also about constantly searching for value, being opportunistic and, sometimes, blocking out the raw emotion of the times from investment decision making.  Arrival Capital takes this approach to investing client funds, and augments the discovery of value-based, wealth generating investments with the hard work of ensuring each client has a diversified portfolio that can survive difficult economic climates yet also profit handsomely when the economy provides a beneficial tail wind or at least is neutral to the process of specific investment values being unlocked.  If you or a friend, acquaintance or loved one can benefit from this type of personalized, value-based approach to investing and wealth management, please give us a call anytime.  In any event, have a terrific Springtime!

A Tricky Year Draws to a Close — Q4 2015 Investment Update

Posted by on November 20, 2015

Nearly eleven months into 2015 the Dow Jones Industrial Average is unchanged for the year and the S&P 500 index is barely positive.  Does that mean all the ups and downs, the emotional swings caused by August’s abrupt market correction (a more than 10% decline) and autumn’s swift recovery were all meaningless?  Not exactly.  The volatility, the hand wringing, the apparent global pessimism, are all part of a process of pricing in expectations as well as justifying the historical outperformance of stocks over the long term.  The volatility of August and September is the price we pay for long term positive returns that beat inflation.  For a value investor such as Arrival Capital, moreover, the extreme pessimism that accompanies stock market declines creates the opportunities that can lead to long term outperformance with a lower level of risk.

Over the past few months, general market downturns have combined with certain industry-specific overreactions to create particularly intriguing opportunities.  For example, a summer warning by Disney (DIS) about ESPN cable subscriptions led to a huge sell-off in major media stocks.  Some of the these stocks have invaluable media franchises as well as production and distribution assets that represent terrific long term value at the right price.  In healthcare, and particularly pharmaceuticals, a couple of high profile drug company missteps cast a pall over the entire industry that may provide attractive entry points for long term investors.

Of course, value investing is not always easy.  Energy, for example, is an industry facing hard times and low prices.  But is it really time to step up for a long term investment?  The jury is still out but we continue to believe there may be a place for energy pipeline and infrastructure businesses in many investors’ portfolios.

The upshot of all this is that even if 2015’s returns may not rank in comparison with the stand out returns of the past few years, the summer sell-off of 2015 and general market malaise throughout the year presented value investors with a chance to accumulate positions in investments promising a chance at strong returns and yet have the requisite margin of safety all value investors should seek.  Finding good companies at great prices or great companies at good prices, value investors can use years like 2015 to set up a portfolio for years of strong returns with hopefully a lower level of risk than the market as a whole.  That really is the name of the game in a nutshell.

Finally, as we head into the week of Thanksgiving, let us take a moment to be thankful for those in our lives, whether family or friends, clients or co-workers, that provide the joy and purpose to our lives, as well the humor and camaraderie.  Have a happy and healthy Thanksgiving.