Market Insights

2019 Fall Update -- A World of Promise and Uncertainty

Summer gives way to fall. In those first few days of September, we often feel a pang of regret that the restful flow of August is ending, with Labor Day as a hard and fast border with busier times. But, if you are like me, it amazes how fast we get used to September's quickening pace. School begins for the kids, football season starts up (with the usual New York Jets stressful disappointment). The business and cultural worlds rev up with new products, services and offerings. As investors, we are also thrown into a whirlwind of economic, political and business news. September is historically the worst month for stocks, even as this past August was also weak. But, as always, a prudent, value-based investor must take account of short-term trends and news flow only as a jumping off point for renewed longer-term analysis of business trends and company-specific potential. Wealth is created by understanding current prices and comparing them to an informed opinion of potential future value.

Looking at anything long term is always challenging for all of us, hardwired as we are for immediate satisfaction and avoiding imminent pain. These all too human behavioral biases are today compounded by the constant drumbeat of a news cycle created to hook, captivate and retain us day after day. This is not to say the news of the day, including political news, is not important to take into account as investors and citizens. But we can't forget that these "content creators" get paid, one way or another, on clicks, page views and subscriptions. Objective fact gathering and curation is not necessarily the end product anymore. Therefore, investors, in particular, should not let screaming headlines unduly influence your long-term views. There is more uncertainty now over more things than seems usual, but there is undoubtedly incredible promise in the products, services and innovation to come in the near and distant future.

What are some long term views and observations that have worked in recent years? Obviously, the large internet and technology names, such as Apple, Amazon, Google and Facebook, have grown revenue and profits. as they have changed the world. But there are also the financial tech companies, like PayPal, Visa and Square, that have also profited as they have revolutionized the way we shop and pay for things. In the non-tech world, companies like Boeing, Lockheed Martin and United Technologies have changed the world of defense and transportation. In the realm of retail, businesses like Starbucks, Nike, Home Depot and VF Corporation have proven the resilience of well-run brands and unique distribution systems even in the age of Amazon. Even in the relatively mundane world of utilities, companies such as NextEra, American Tower and American Water Works have grown exponentially from the efficient delivery of, respectively, basic energy, cellular service and water.

Though all the above companies have done extremely well for investors over a period of years and even decades, none of them have gone up in a straight line. There are always roadblocks, whether it is threatened regulations, changing trends or tragic accidents. it is the job of the investor to analyze the obstacles faced by businesses from time to time and thoughtfully judge whether the good times, the increasingly profitable times, are coming to an end and act accordingly. These are never easy decisions, either with companies with which you have expanded your wealth over years, or with new potential investments that are cheap because of current obstacles or fears. Today, those potentially profitable long- term holdings may be in healthcare, the cloud, or basic industrial companies that need a new burst of global growth that looks somewhere past the horizon.

Again and again, year after year, it is uncertainty and promise that the investor must balance in the quest for financial security and independence. At Arrival Capital Management, we are here to help you strike that balance.

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