You Gotta Be There

You Gotta Be There

February 23, 2023


“Company Up 62% in a Few Weeks!” 


“Stock Rips Over 90% Higher from Its Recent Lows!”


If you saw headlines like these, you would think you were reading about some penny or meme stock.  But these were recent performances of companies worth around a half trillion dollars, NVDA and FB respectively.  As I write in my upcoming book The Compound Code, An Expert Guide to Trading Stocks & Options co-authored with Coastwise Financial Advisor Patrick Fischer and coming out in April, even large cap companies can rebound quickly and violently.  You have to be there to benefit from these rapid gains. 


There have been periods in history where top quality companies like MSFT, DIS, SBUX and others traded basically sideways for years, then in a matter of months gained several years’ worth of solid returns.  In other cases, as with FB and NVDA, the stocks experienced material declines, many investors bailing when they ‘can’t take it anymore.’ Then the stocks reverse direction and nearly double in a matter of a couple months or less. Even large-cap securities like AAPL and AMZN, have experienced several 50%+ declines on their way to becoming trillion-dollar companies. It is vital that you do your fundamental research and look through weak periods so that you are not shaken (or scared) out of these otherwise great companies at just the wrong time. 

On the Importance of BS

Ahh what a difference 24 months can make. Not long ago financial pundits like Jim Cramer were screaming how ‘un-investible’ oil companies such as CVX were. They were written off as dinosaurs whose glory days were behind them. It did not help that the world had effectively shut down and for a brief period the price of the thing they were selling (oil) went negative. Yet CVX and other top tier companies not only survived, in the case of CVX, it is now printing record profits and just announced a $75 billion (no, that is not a typo) stock buyback. Similarly, FB declared a $40 billion buyback earlier this month after repurchasing around $28 billion of stock in 2022.


How did CVX not just survive but thrive after the most challenging period in the industry’s history which it serves? Two words: balance sheet. The profit and loss statement, or P&L, gets most of the headline attention. But having a strong balance sheet (think: how much cash and debt the company holds) is vital to not just get through but to take advantage of inevitable challenging times. While CVX not only continued to pay its dividend but actually increase it during this period (for nearly the 40th straight year), many of its second and third-tier competitors were either eliminating their dividends, or in some cases, declaring bankruptcy since they lacked the wherewithal to weather the storm.


Bottom line, episodes like we have experienced the last few years – and will go through again and again in the years to come (just different challenges we cannot predict) - reinforce the need to always buy the best-of-breed companies in any given industry.  Bad political, macro-economic, financial, social, and other headlines (and actual news) will always be present. But it is one thing to own a company like SBUX with such a strong balance sheet that it can have most of its stores around the world shut down for months on end and still not just pay, but increase its dividends. It is another thing entirely to own a local café (or even 3rd tier publicly traded company) that can easily sink when economic waters get rough. Making up for large permanent capital losses from selling low out of fear/panic or owning a company that is not strong enough to survive a given challenge, is difficult mathematically.  So, focus on the best companies in any given industry, be patient, set aside enough cash for your near-term needs, and your chances of investment success will go up dramatically.