Dock Street’s Letters

Tech is always in its own world
Several large tech companies have been making headlines about layoffs. They’ve used lots of scary language about recessions and upcoming weakness.

A lot can happen in a week, but is it important?
Last week offered an extreme example of the futility in trying to trade on headlines. At the start of the week, the election dominated headlines, and a red wave was assumed to be incoming…

Pictures tell the story best Inflation is the number one topic on the minds of nearly everyone right now.  The prevailing idea is that the Federal Reserve is the cause of and the solution to inflation. The reasoning goes something like this:...

Being greedy when others are fearful Our timing might not be ideal, but we do believe that the fall of 2022 will turn out to have been a very good time to put cash into the stock market. Recommending stocks at a time like this is hardly...

What does history tell us? We don’t know when the current bear market will end, but we do know that it will end. When it does, the stock market will recover, so the question then becomes, how fast and to what levels? While the speed of a recovery...

Investing for the long-term isn’t always exciting When talking to a client about venture capital investment, and the excitement of being involved in the startup world, I was reminded of a story from Jon Krakauer’s book Eiger Dreams.  The scene...

This is not our first bear market and it won’t be our last The Federal Reserve and the stock market have concluded that the only way to bring inflation down is to engineer a recession. With 20-20 hindsight it is clear that the Fed screwed up in...

Despite increasing global concerns Inflation erodes consumers' purchasing power. But the most recent data shows that consumers are still purchasing discretionary items that they would choose to cut if they were feeling constrained.  ...

There is no alternative country The world is a mess right now and the US economy is not escaping pain free. But compared with the rest of the world, the USA looks pretty good.  Home buyers know to follow the rule alluded to in our headline....

Time is on the side of the patient investor The portfolio management system we began using two years ago yields some interesting information about client accounts. Below are two charts that illustrate why investing for the long-term can be...

So far, so good Looking back it is clear that several important turning points were reached in June: inflation peaked, interest rates peaked, and the stock market (probably) hit bottom for this cycle. None of this was expected at the time. In fact,...

Cutting out the middleman We read a lot. But we’re selective about what we read. Starting about 7 years ago, I cut down my news consumption and started reading more from primary sources. For example, instead of reading an article about the GDP...

Why we start with the financials Everyone has heard of Twitter. Few people have heard of Cadence Design Systems. You could call both companies “Technology companies” and their annual revenue is comparable (Twitter’s revenue is about 5.2B, Cadence’s...

Cryptocurrencies collapse Bear markets reveal economic mistakes. In 2000 the mistake was investing too early in the Internet, resulting in the Dot-Com bust. In 2008 it was loaning too much money on easy terms to home buyers. This time the mistake...

Another asset class suffering permanent value destruction In another note we introduced the idea of permanent value destruction vs the temporary variety. Hundreds of Cryptocurrencies and recent IPOs without earnings were examples. But these markets...

Demographics as Destiny Nobody is born knowing anything. As a consequence, each generation tends to learn the same lessons as the prior ones, but under some different circumstances.  Millennials just learned that the stock market doesn’t...

Consumers aren’t hunkering down despite higher costs Nobody has to go to a restaurant. It’s a choice. When times are tough and you need to be more cautious with spending, going to restaurants is a simple thing to cut out of your budget. ...

Business continues as usual The beginning of 2022 has been a tough start for the market—and it’s not even half over. There’s a laundry list of things to worry about, and prognosticators are tripping over themselves to warn you about how it’s all...

Cash profits are the tell In every bear market the value of some businesses are destroyed forever. (And yes, this is a bear market.) In the 2000-2002 bear, it was the Dot-Com stocks without business profits that never recovered. In 2008, it was the...

So far this is a “normal” year for stocks, even though it doesn’t feel that way The chart below helps us put this year’s nasty stock market in perspective. The green dots mark the gain or loss for the full year, while the gray bars indicate the...

Getting through to the other side of the valley This is the third time in four years that the market has fallen this hard: the fall of 2018, the winter of 2020 and now this. Do those past corrections tell us anything about what to expect this time?...

History can teach us something about investing The war in Ukraine has revealed a truth about history largely ignored for a couple of generations—individuals matter and individuals make history. Vladimir Putin and Volodymyr Zelensky prove the point....

War divides the world, threatening prosperity The invasion of Ukraine is a human catastrophe and threatens to be a serious problem for the world economy. The price of crude oil is up 60% this year and might be on its way to a record above $150....

Tom Joined Dock Street in 1995—the best partner anyone could ask for When Dock Street really came together in the mid 1990’s, the Greenwich office was filled with highly experienced investors. So on days like today I often ask myself what would...

No, it’s better, because the odds are in your favor After watching Super Bowl commercials this weekend, it’s pretty clear that there’s a lot of gambling going on. Several commercials highlighted apps that allow you to trade crypto-currencies &...

A correction can take the good with the bad January has been a nasty month for stock investors, but it should not have come as a surprise. Charlie Bilello says it well: Drawdowns are the norm for equities, not the exception; they are the price...

Not all growth companies deserve the name Along with much of the stock market, Dock Street portfolios have suffered in the last week as active traders focus on the threat of rising interest rates. These same active traders are sitting on fat...

The signal in a sea of noise In September we wrote about how despite all the bad news, estimates for future earnings continued to rise. Now that we’re rounding out 2021 and there’s even more bad news, what are the prospects for 2022 and...

Investment advice from the wrong people Toward the end of every bull market there are signs of speculation---as opposed to investing. Earlier this week Evan McGoff was treated to several minutes of cryptocurrency advice from a gig driver, the...

Fewer stocks are pushing the market higher Most of the stocks we own in portfolios happen to be larger companies. This is not a criterion for investment at Dock Street, but it is the result of 1) holding great businesses for many years as they get...

Stock prices anticipate future corporate earnings The stock market has had a near vertical ascent for about 18 months. This has surprised many people as there has been no shortage of things to fret about. But the stock market is a forward looking...

Trimming expectations in the short-term The chart below illustrates the 18% gain for the stock market so far this year. At this rate the market will be up over 30% in 2021---an outcome we find unlikely. While earnings gains have been spectacular in...

The stock market saw this coming Another historic chart, but this time it’s good news. Business sales in April were up 40% from the Pandemic year before. A normal good year would show a 15% gain in sales. The red line shows sales (revenues) through...

Defending an argument, or trying to learn?  Everyone’s talking about inflation these days. That makes sense---prices for all kinds of things are increasing at higher rates than we’ve seen in years.  Some of this is simple arithmetic. 2020...

Investment opportunity, disrupter, fad? Twelve years ago, in the depths of the financial crisis, a white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System'' was published under a pseudonym. The next year, software was released making...

How to protect our investments from inflation A couple of weeks ago we discussed the current economy and concluded that we are in the midst of a massive boom in activity. But is the economy running too hot? Is this a real economic expansion or one...

Sharing some of what we read We like communicating our thoughts in writing. But sometimes someone else says it so well that it’s better to just share what they wrote.  A research firm that we’ve subscribed to for decades wrote the following...

But Owning Multinationals Nearly every business we own is based in the United States. But that doesn’t mean these companies don’t benefit from the growing global middle class. To the contrary, many of the larger US companies are “multinationals”...

And once you found them, don’t let go There are two fundamental ideas that guide our process at Dock Street: Long-term business ownership is the primary wealth creation engine. The stock market offers investors the opportunity to partner with...

One year ago the market crashed---who sold and who didn’t? Simply buying a broadly based stock index rather than a portfolio of individual stocks is a rational plan. But there’s a catch. Experience suggests that investment success can be defined as...

The latest pullback in stocks In the last few days stock prices have fallen modestly, with most of the damage in the types of stocks we own in our portfolios. The reason for this might be lurking in the following two charts.  First is the cash...

Cases are down and vaccinations are up We present the following charts without much comment. Never before have we seen an event where the same facts can be interpreted in so many different ways. So rather than interpret the facts, these charts...

A different kind of recession and recovery The strength of the US economy (and stock market) remains a mystery to many given the high levels of unemployment and remaining lockdowns in several large states. We have never lived through a government...

A year full of worries, and great returns for stock investors Last June we sent out an email entitled: “No More Lockdowns” (attached). Six months later it’s obvious that our prediction was wrong. In spite of that Dock Street clients enjoyed one of...