As value managers, we are often asked if a company whose stock price is down substantially is a value trap. This is especially true when we are auditioning new holdings. We like to buy a company with a long history of success when it falls deeply out of favor for one reason or another.
Last week, we discussed a short history of Qatar and its geopolitical imperatives. This week, we will analyze the events precipitating the blockade, the blockade itself, the GCC’s demands and the impact thus far on Qatar. We will examine how the situation has reached a stalemate and, as always, we will conclude with market ramifications.
We’ve heard Warren Buffett continue to repeat an important phrase, “what the wise man does in the beginning, the fool does in the end.” This begs the question, when does a foregone conclusion become what we call “a well-known fact”?
On June 6, several members of the Gulf Cooperation Council (GCC) announced a sweeping blockade of Qatar, also a member of the GCC. The GCC members enforcing the blockade, led by Saudi Arabia, issued a list of 13 demands which Qatar rejected.
Saudi Arabian King Salman recently named his son, Prince Mohammed bin Salman (MbS), as the new crown prince, replacing Prince Nayef. The move was momentous but not necessarily unexpected. Initial reports suggested the change was consensual, but recent articles make it clear Prince Nayef was ousted.
The stock market is discounting an accelerating rate of technological change in our society. A mad dash by investors is anticipating a world organized like “The Jetsons” cartoon from my childhood. We thought it would be useful to look back at other points in time where great technological change was anticipated and see how that worked out for S&P 500 Index investors.
“Kill the Umpire”, the fan cried to open the 1996 baseball season in Cincinnati, and 7 pitches later, the man behind the plate, John McSherry, was dead, all 320 pounds of him screaming for more oxygen to feed his struggling heart. He’d been killed by his poor health, by a billion molecules of sink-clogging cholesterol that fed on his coronary artery and sucked up his life’s blood like a vampire at midnight.
As we look out into the second half of 2017, it is important to understand that we believe the U.S. stock market has tried to “kill” investor enthusiasm. We would argue this enhances the position of the value-oriented and long-duration equity manager in a way that that doesn’t kill us and makes us “stronger.”
We update our geopolitical outlook for the remainder of the year. This report is less a series of predictions as it is a list of potential geopolitical issues that we believe will dominate the international landscape for the rest of the year.
As growth/momentum begins to wilt under the weight of ever increasing expectations, value should once again attract investor attention.