Value investing wins

As 2017 proceeds and the Trump Administration takes power, there are certain things one can depend on.

You know the New England Patriots are probably destined to make a deep run in the NFL playoffs and the weather is going to turn bitterly cold in the Northeast.

You also know the largest banks in the world will report earnings in the billions of dollars and Wall Street will ignore their equities.  

 

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Robust Earnings

However, in my opinion, there’s a good chance this year investors will pay attention, thanks to the potential beneficial impact of the rising interest rate environment.

Big money center banks such as JPMorgan Chase (JPM), Wells Fargo (WFC) and Bank of America (BAC) recently announced earnings of anywhere from $4 billion to $6.5 billion for the quarter.  

Elsewhere, the stocks of pharmaceutical manufacturers took it on the chin when Trump suggested that Washington should force drug companies to competitively bid for government business.

 

Tepid Returns

Barron’s came out with its roundtable discussion and many are skeptical of the prospects in Europe and the equity markets in general.  

The general consensus is for a 5% to 6% gain for US stocks in 2017, given rich valuations and the unpredictability of the legislative outcomes of the Trump administration.   

As for my take on the concerns about the market, I believe the most important consideration for an owner of assets comes from the legendary Fidelity fund manager Peter Lynch.

 

Drill Down

If you’re invested in individual companies, I believe you should understand why you own them. You want to be able to describe what specific actions each company is taking over the next year to improve or grow their business.  

Every enterprise is dynamic, with some parts struggling and others having better results.  

What is the leadership doing to grow the customer counts and improve margins?

These are basic fundamentals any entity has to be able to answer in a clear way.  If there are more severe problems at a company, what are the corrections being made?  

 

Study Up

When you go through your portfolio, I think most of the answers should be at the tip of your tongue.  In most cases, you aren’t going to be making huge changes if you own high quality companies.  

As for new opportunities, in my opinion, you might want to change or add one or two, maybe three new holdings.  

Maybe there’s an area you find interesting such as drones, artificial intelligence, China or cloud computing.

You narrow your research into a few companies you think offer your best shot at growing the value of your assets and focus on the management.  

I hope this helps, as Mr. Lynch’s investing philosophy, in my view, is something you can rely on.
 

Photo credit: htmvalerio via Flickr Creative Commons