We have been on the road exploring new towns with the Little Man, for the past week. We spent a few days tent camping in the Pisgah National Forest, outside Asheville, North Carolina. The forest was green and lush, and the trout streams were clear and cool. I need to figure out how to get back up there a couple more times before winter. The trout and my fly rod are calling.
We then worked our way up to visit our friends in Wisconsin, which has been outstanding so far. Our children have been playing while we discuss investing and the world’s problem over craft beer and cheese curds. (It’s a good thing we aren’t on a diet.) Today we hit the farmers market on the Capital steps in Madison, Wisconsin. If it weren’t for the winters, and the taxes, I really think I could live in Wisconsin. (The rest of the pictures are from our recent camping adventures.)
Daredevil Driver of the Week: The hefty old motorcycle guy on I-24 outside Paducah, Kentucky. He was riding a large gold colored Harley-Davidson, but that wasn’t what caught my attention. What caught my attention was that this fellow was riding his bike at 75 mph with no hands, because he was hunkered down behind his windscreen trying to light his cigarette. It would have been nice if I could have taken a picture, but there is the fact that I was also driving our car at 75 mph. Anyway, this guy had a heck of a time lighting that cigarette…..and must have worked at it for a minute and a half. One it was lit, he proudly stuck it in his teeth and took off past me at a rapid clip.
Last week we closed out a profitable swing trade in Klondex (KLDX). Our take over the two week holding period was a little over $650 ( for about a 12% net return). We didn’t have internet access while camping, hence there wasn’t a mid week update post. We closed out our ADM swing trade for a couple dollars in profit, when the stock wasn’t responding the way we expected. (It’s not like every trade will be successful, and no capital was lost on this one.)
Yesterday I initiated a swing trade in Pan American Silver (PAAS), when I purchased 350 shares at $16.03. We have used this company’s stock for swing trades in the past, and even wrote a POST six weeks ago stating our buy levels. Unfortunately, the risk in this company’s stock has increased over the past month…..but I am still looking to capture about a 10% return…..and sell in the mid $17 range. The FinViz chart below provides a reasonable representation of what I am thinking.
Our preference would still be to put long term capital to work, but we just haven’t been finding the opportunities lately. Until those opportunities develop, we’ll keep making short term swing trades where we think we can make $300-$500 per trade. That’s not great money, but it isn’t terrible either.
This week’s edition of weekly reads is abridged because of our travels, but I wanted to start off with the most interesting business development of the past week. Unless you live under a rock…..or are blissfully camping outside the range of an internet signal, you have likely heard that Amazon will be buying Whole Foods. I am not particularly surprised that Amazon wanted to buy a grocer, though I am surprised Bezos chose Whole Foods. Anyway, it has been obvious for a while that the highly fragmented grocery business is ripe for consolidation. The grocery business is a high volume, low margin business….with the added kicker that the products spoil if they aren’t sold in time. That sounds like exactly the type of industry in which Amazon can thrive…..with their expertise in logistics and big data management. I think that the media is missing one key point of this deal however. Most of the talk has been about how Whole Food’s business will move online, which it will to some degree. I think the bigger lesson is that physical storefronts are crucial in order to put Amazon’s products in customer’s hands…..as well as cross marketing the plethora of Amazon’s wares. Think of an Apple Store of sorts, where customers show up for specialty foods or to get their prescriptions filled……and then try out Amazon’s Alexa or Echo. If Bezos thought that Amazon could dominate retail without physical locations, they would not have been developing physical bookstores over the past few years. Additionally, Amazon’s management will be able to use the tons of information they have gathered on each customer to personalize that customer’s store experience. This may be my own confirmation bias based on my real estate experience, but I find it hard to believe that an outstanding capital allocator like Jeff Bezos would make such a move if he didn’t think that physical locations were such a crucial part of his domination strategy.
The title of this article is a bit of click bait, but I love to read articles that espouse a position contrary to my own. While I consider the current market environment similar to the later stages of most bull markets…..I think it shares as many similarities with 1999 as it does differences. The crux of the article hangs on a variety of soft data, as well as the recent S&P 500 returns and the treasury spreads. These are circumstantial similarities, but the article does make for an interesting thought experiment. What are your thoughts on the aging bull market?
This interesting article shed some light on an under reported risk to the returns General Electric’s shareholders. Specifically the company’s unfunded pension liability. The article details how GE’s management has used free cash flow that should have been directed to cover future pension liabilities, to instead buy back shares in the hopes of goosing GE’s stock price. These efforts have accelerated over the past couple years, as activist investors have put added pressure on the company’s Board. On the plus side, management has spun off non-core businesses over the past few years…..but those moves have failed to improve the business performance in a meaningful way. We sold our shares of General Electric last summer, and have no regrets. I think this article is an interesting thought exercise on what can happen when the interests of a company’s shareholders, management, and activist investors are not well aligned. Enjoy.
Disclosure: Long KLDX and PAAS. This article is for informational purposes only and should not be considered a recommendation for anyone to buy, sell, or hold any equities. I am not a financial professional. The information above is provided by FinViz.com and Yahoo Finance.
What caught your eye this week?