John O’Connell, chairman and CEO, Davis Rea Ltd.  

FOCUS: North American large cap stocks


MARKET OUTLOOK:

Cleansing the Temple

There really isn’t a lot to say about what’s going on in the stock market that you likely haven’t recently heard. Not much has changed, with investors at somewhat of a standoff. Given the positive tilt to attitudes as expressed by mostly fulsome valuations, the betting is mostly of the bullish view. So, we won’t waste space here.

We naturally all prefer this positive vibe, but it does little to provide any assurance of how we will collectively feel one or two years out. The common view is that growth 18 months forward will still be good with above-average growth compared to historical series. To us this seems reasonable. Investors fully expect, likely correctly, that those in a position to print money will continue to do so.

Lest one think that government giving away money is recklessly one-sided, they continue to poke big business. Big business. Mostly, governments are just thinking about doing things. Most of this thinking is evidenced by the government suing someone. While printing lots of money. This is an acceptable compromise for most investors. They gripe about the waste but lap it up enthusiastically.

Government, the new church?

The cleansing of the Temple narrative tells of Jesus expelling the merchants and the money changers from the Temple.

In this account, Jesus and his disciples travel to Jerusalem for Passover, where Jesus expels the merchants and consumers from the temple, accusing them of turning it into "a den of thieves" and "a house of trade" through their commercial activities. (en.wikipedia.org/wiki)

The fastest areas of growth in big business spending are lawyers and lobbyists. They will continue to debate these lawsuits in the process getting richer, all the while ensuring not too much happens, so that good paying work continues. These are the Orange-Vested professionals. This is Rule 1. A1.0: ‘When writing law ensure only lawyers can understand.’

We have long acknowledged that the biggest risk to the companies that you own will be government helping someone else. Increasingly, global legislators are regulating (or threatening) big businesses, mostly via fines. This makes sense.

Government must look like they are actually collecting some money, not just printing it all. It seems like the perfect opportunity for a stick up. This is investing Rule 1. A1.05: ‘Criminals are not really bad because by law we need them.’

We have long argued that regardless of fines, which are really just back-taxes, these amazing companies will continue to thrive. This continues to be the case, and we expect that this will continue.

That these companies have, at present about 70 global disputes with legislators is a testament to their global reach, power, and profitability. Because of these hateful attributes, they should be able to craft suitable outcomes over time. This is rule 1. B22.3: “The rich just keep getting richer,” with a special wink to Rule A1.05.

When the US government sued Microsoft in the 80s for anti-competitive behaviour, Google was leasing its first office, and would soon be joined by others who would gradually displace Microsoft as the gorilla in the room.

This raises a few interesting points: 

1. Even though Microsoft was sued and Google et al excelled, Microsoft is still the second most valuable company in the world. It’s just that they missed so much opportunity in the last 20 years. 

2. The government didn’t stop Microsoft, the market did.

3.  Someone else is leasing their first office.

While we expect the companies you own to thrive for many more years, we are also actively watching and studying how they are adapting and looking for new disruptive companies tackling large market opportunities.

TOP PICKS:

John O’Connell's Top Picks

John O’Connell, chairman and CEO of Davis Rea Ltd., discusses his top picks: Amazon, Citigroup and Stanley Black & Decker.

AMAZON (AMZN NASD)

STANLEY BLACK & DECKER INC (SWK NYSE)

CITIGROUP (C NYSE)

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
 AMZN NASD  Y
 SWK NYSE  Y
 C NYSE  Y

 

PAST PICKS: September 23, 2020

John O’Connell's Past Picks

John O’Connell, chairman and CEO of Davis Rea Ltd., discusses his past picks: JPMorgan, Facebook and Bank of America.

JPMorgan Chase (JPM NYSE)

  • Then: $92.74
  • Now: $157.55
  • Return: 70%
  • Total Return: 74%

Facebook (FB NASD)

  • Then: $249.02
  • Now: $362.34
  • Return: 45%
  • Total Return: 45%

Bank of America (BAC NYSE)

  • Then: $23.26
  • Now: $40.85
  • Return: 75%
  • Total Return: 78%

Total Return Average: 65%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
JPM NYSE   Y
FB NASD   Y
BAC NYSE   Y