What we’re reading (7/21)
“For Some Stocks, Bad News Is Good News” (Wall Street Journal). “Shares of many technology and pharmaceutical companies have looked like safety plays during the pandemic. Other stocks that have long been considered defensive bets during a downturn, such as those of real-estate and utility companies, have suffered steep losses.”
“This Billionaire [Leon Cooperman] Says The U.S. Stock Market Is Overlooking The Rapidly Growing National Debt” (CNN Money). Another ‘notable and quotable’ personality taking a stab at arguing the market is “overlooking” fundamental economic factors. But before you jump on that bandwagon, consider what you have to believe in order to believe that’s true: that the entire stock market is missing something that you’re seeing?
“The Hidden Risk In Your S&P 500 Index Fund” (MarketWatch). Punchline: the S&P 500, being a capitalization-weighted index, is heavily weighted toward FB, AAPL, NFLX, MSFT, AMZN, GOOG. Recall, from our blog post here that when you have a cap.-weighted portfolio, you’re implicitly adopting a “momentum” strategy.
“Investors Juggle Earnings, Eurozone Recovery Package, and Covid-19 Cases This Week” (Nasdaq). Lot of news set to drop this week. As the article points out, “[w]hen we close the books on July next week, just over 300…S&P 500 names will have reported their June quarter results, which means before too long we will have a firm handle on how second-quarter earnings are shaping up and also the degree to which EPS expectations are changing for the second half of 2020.”
“Good Debt Vs. Bad Debt: Why What You’ve Been Told Is Probably Wrong” (CNBC). The fundamental rule of investing is that a good investment is one in which the payoff on the investment, when adjusted for time and risk, exceeds the cost of the investment. You might call such investments “net present value (NPV)”-positive investments. While main street has historically considered some investments, like getting a college degree or buying a home, “good investments,” as an economic matter, there’s good reason to think there are no categories of investments that are automatically NPV-positive. If there was, someone would be making that investment already, raising the “price” of it, and reducing the net present value for anyone else that comes along next.
