Sunday, October 17, 2010

Is There Something Happening Beyond the Discounting of Quantitative Easing?

Focus where others aren’t

I am the first to admit that many of my fellow equity securities analysts are not sufficiently aware of the bond, currency and commodities markets, but at the moment I think there is too much attention on the Federal Reserve’s expected significant purchase of US Treasuries. In the Fed’s terminology this strategy is called quantitative easing. The continuous focus on the Fed makes me recall an old baseball saying that advises players to hit the ball where there are not fielders close by. Thus far in October and most of September, the stock market has been in lock-step with the bond market. I would suggest that there are increasing opportunities to hit the ball where the fielders aren’t (buy winning stocks).

Some examples

I am intrigued with new products and businesses that have a potential of being created everyday in America. As a developer of new products myself, I have found that one of the best opportunities is to find large companies that have big problems which a new product or service can help. For the banking business, there will be no bigger public relations problem over the next several (you can supply: weeks, months, or years) than the foreclosure mess that has been created. From the public policy and publicity standpoints, the creators of securitized mortgages, mostly the banks, need to be able to quickly ascertain the legitimate title to properties that are in default and are in the foreclosure process. There have been huge numbers of paperwork errors at best or in too many cases, fraud. Currently the internal systems of banks and mortgage companies are viewed with suspicion. I have learned recently of at least two data processing-oriented companies that are seeing their order books explode. (Two of my relatives hopefully will benefit from this upsurge in their business.)

American entrepreneurs

Regular members of this blog community already know that I was given an iPad and found it so useful and, in time, essential that I bought one for my wife, Ruth. Several years ago who would have known that today we could not contemplate going on a trip without our electronic personal tablets? The genius of Apple and other American entrepreneurs is creating products and services that we did not know we needed and “can’t live without.”

I should not focus on the American entrepreneur without the recognition that it is the American marketplace that can buy new products and services in quantity. In an age where the US is seeing the number of its new car brands shrink, we have at least one new automobile company, Tesla. Though initially these few cars will be produced in the US, much of the capital and technology came from overseas.

Implications for ultra high net worth investors

What does this mean to the ultra high net worth investor?

First, good investors recognize that the import of the headlines, both in print or spoken by the “talking heads,” is already being evaluated or discounted in today’s securities prices.

Second, one should look for investment ideas in the shopping malls and the back pages of focused periodicals. These periodicals can be financial, but more likely are trade or scientific journals.

Third, many of the fortunes of ultra high net worth people came from a single-minded focus on markets and products that others did not see. While I have a bias looking for technological advances, over this weekend I learned of a very successful businessman who made his money in something as prosaic as ironing board covers. To do this he had to solve product, distribution and capital problems. In many ways his “formula” was not a great deal different than that of Apple or Tesla.

Fourth, every day there are opportunities for the intelligent and patient investor to make money.

Please share with me some of your successes.

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