Dock Street’s Letters

They benefit long-term owners of great businesses Everyone loves dividends. Buybacks don’t get the same affection—but they should. This is probably because they’re a bit misunderstood. When a company pays a dividend to shareholders, it’s pretty...

Stocks go up 3 years out of every 4 The majority of people who could invest in stocks don’t do it. They perceive that the risks are too high and they settle for lower returns that promise a smoother ride. The graphic below says they are making a...

What do Banks, Custodians, and Brokers actually do? The last few weeks have brought heightened scrutiny of the companies we trust with our money. Each time there are high profile bank failures – today, 2008, the S&L crisis – savers, investors,...

Two extremes don’t equal balance The Federal Reserve has been implementing emergency policies for over a decade now. In plain terms, they kept short term interest rates extremely low and made it easy to borrow.  These policies made it easy for...

They often have Last week Evan McGoff made the reasonable argument that a recession is unlikely when so many economic indicators trend higher, not lower. The bearish (pessimistic) view is that these same indicators will result in higher inflation...

Ed Yardeni’s “No Landing” Scenario Over the last several months, we’ve written a few letters about the resilience of the economy, despite the many concerns about a recession – “No Recession in Discretionary Spending” and “Recession Watch”. Here’s a...

Big tech gets leaner For the first time in years the big news out of Silicon Valley concerns large scale layoffs. Layoffs normally result from falling sales or profits, but that’s not currently the case in most large technology companies. Sales are...

The most well advertised recession in history The consensus in the stock market appears to be that a recession in 2023 is a near certainty. We agree, but will it be an economy-wide recession or one that is confined to certain sectors of the...

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...

Why not just buy what’s working? Since early February some of the stocks in Dock Street portfolios have fallen in price, while other sectors of the market have reached new highs. Given the outsized gains in our portfolios in 2020 this shouldn’t...

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...

Keeping an eye on our most successful investments A couple of weeks ago we promised an answer to the following question: “Is the technology rally for real or is this a replay of the DotCom bust of 20 years ago?” Since asking that question, tech...

Generating income in a world of low interest rates The headline above asks a reasonable question, but not one with a satisfying answer. In today’s world the answer is “Next to nothing.” For investors hoping to live off the income of their...

Taking reasonable risks Over the last year or more, the stock market has split into two types of businesses: those benefiting from the Internet and those threatened by it. Our headline is another way of saying the same thing. Generally, our...

The bull market will continue, but prices are moving up faster than we’d like As we indicated last week, there is no sign of a recession in the US economy, which is good news for the stock market. This week we take a quick tour of what we see in...

A quick survey of the US economy We attempt to track the US economy since a recession is the most common cause of an equity bear market--something we’d like to avoid if possible. Within the US economy we are focused on consumers, both as job...

Don’t buy it Whenever stock prices move to the downside you’re going to hear about it. The newspapers and the TV news channels trip all over themselves to tell you what’s wrong and why it’s so very bad. In the midst of a decline, those reasons...

The odds favor new highs in stocks prices As we indicated earlier in the week, there is no sign of a recession in the US economy, which is good news for the stock market. Below we take a quick tour of what we see in the market itself and make a...

A quick survey of the US economy It’s been ten years since the last recession in the United States so maybe that’s the reason there’s so much speculation about the next one. But at this point there’s no sign of one in the numbers---especially those...

There’s no such thing Everyone wants the following---a stock that only goes up and never goes down. We all know that’s a fantasy, but many investors still expect something like that to happen.  What about a stock that outperforms when the...

Which is more important? The business or the price you pay for it? As we have argued before, just about any investment style can be successful, as long at the investor sticks with only one approach. “Style Drift” is one of the deadly investment...

What we expect in 2019 Technically the Panic of 2018 qualifies as a “correction” rather than a “bear market” because the S&P 500 fell “only” 19.8% instead of 20%. For those of us with real money on the line, the fourth quarter of 2018 was nasty...

Are crypto investors being forced to sell? When you’re going broke you sell wonderful things. You have no choice---or rather you only have a set of bad choices.  We think that’s what’s been going on with people who invested in Bitcoin and...

Recessions and falling corporate earnings kill bull markets This week the current bull market will become the longest on record. But instead of celebration, this event will most likely trigger multiple headlines warning of a stock market top....

And for the right reasons Technology stocks make up about 25% of the S&P 500, making it the market’s largest sector. The last time tech was so big was about 20 years ago, during the roaring dot-com mania.  So is this a “here we go again”...

Dealing with the apparent chaos of the stock market Stock investing is an intensely psychological game. Short-term price movements create stress and a constant desire to understand why the market did what it did today. For most people the stress of...

Therapy for frayed nerves When the market goes nutty, as it has since last week, we are reminded of what Warren Buffett wrote in early 1987. His point was that the stock market could be thought of as a manic/depressive institution. Not that much...

Rational competitors can innovate together Last winter we wrote about our investments in Visa and Mastercard. Today we revisit the topic of owning two dominant companies in the same type of business. Others in our portfolios include: 1) S&P...

Neither one Warren Buffett is famous for many reasons, but one stands out as we learn of his massive buying of Apple stock late last year . He’s always said he would avoid technology companies since the industry is so competitive. He now owns over...

What’s better than a monopoly? For more than three years, we’ve owned the stocks of Visa and Mastercard, the two dominant payment processors in the credit card industry. The chart below shows how they’ve performed over the last two years, both...

Staying home makes the most sense for US investors World trade figures point to weakness worldwide. And it’s not just oil and other commodities driving the numbers down---China’s export volume is down in the last year and so is Korea’s. Non-energy...

Technology changes everything For months now we’ve focused our attention on the problems faced by stock investors, but problems like these create opportunities. If stocks are sold off, as we expect, excellent companies will be offered at reasonable...

How bad are bear markets and what we might expect this time In spite of recent market strength, the evidence that we entered a bear market in 2015 continues to pile up. We thought it might be helpful to take a look at the past for clues about what...

Cash is flowing out of Emerging Markets and China leads the way The following collection of charts illustrates the dramatic change in the flow of funds in and out of Emerging Market economies. (See below for data sources) What are “flows”? Trade...

Less than is sometimes reported We like to keep these notes short, but that might be a challenge as Greek turmoil, the China crash, and renewed commodity weakness casts doubt on our positive outlook for the world economy. Jumping to our...

How these client emails help the investment process What purposes are served by these notes to clients? We write to make clear what we are thinking, both to our clients and ourselves. During informal conversations in the office, we are constantly...

All Central Banks on the same page---US, Japan, Eurozone, and China One of the oldest investment rules cautions investors to not “fight the Fed.” In other words, when the Federal Reserve is making money cheaper, or keeping it cheap, don’t bet...

The former need to be avoided, while the latter create opportunity Last week we wrote about the need to avoid permanent losses when investing. The problem with temporary losses is that they can feel very permanent during the process. So how do we...

The former need to be avoided, while the latter create opportunity The pain of loss is much more powerful than the pleasure we get from gain. Maybe this widespread trait developed over hundreds of thousands of years worrying about famine while...

Buying or selling an investment based on last year’s performance Over the years, numerous studies have shown that moving in and out of investments, funds, or partnerships based on recent performance nearly guarantees mediocre results. Perhaps the...

Tremendous sales growth with a growing competitive advantage Amazon.com is the single biggest force in Internet commerce. The company’s product catalog runs the gamut from diapers to digital media, with new products and services being added all the...

What is it and why we believe in it How do we find the individual stocks we own in Dock Street portfolios?  Let’s start with how we don’t do it. We don’t go “top down.” By that we mean first examine the economy, then try to identify trends in...

Three digit stock prices have become a status symbol in corporate boardrooms We have never thought that stock splits made much difference, but it is interesting to watch corporate treasurers reach the same conclusion. Stock splits seem to be going...

These tech giants aren’t slowing down Several years ago, Jim Cramer of Mad Money fame christened the Four Horsemen as the tech stocks every investor needed to own: Apple, Google, Amazon, and Research in Motion. The last one makes the Blackberry...

A wide, shallow river With the Federal government partially shut down for two weeks and Washington politicians playing chicken with the country's credit score, it is easy to conclude that our best days are behind us. We beg to differ. The US...

We switch from Windows to Apple computers Our computers were getting slow and Microsoft recently announced that our operating system would no longer be supported a year from now. It was time to upgrade. We decided to go with Apple instead of...

We think there’s room for both Last month a client asked about an interview with the Chairman of Google, Eric Schmidt. During the interview Schmidt referred to Apple’s “closed” system in contrast to the Android mobile operating system offered by...

Is it the “Smart Money” or the other kind? "We simply attempt to be fearful, when others are greedy and to be greedy only when others are fearful."-- Warren Buffett. It is easy to know when everyone is fearful---we all seem to panic at the same...

What’s wrong with Apple? Not much. Apple stock has been giving us heartburn since September. But rather than try to explain why the stock behaves in certain ways for short periods, we’d like to focus attention on 1) the underlying business and 2)...

The Robotics Revolution Ever since steam was efficiently harnessed to power factory machinery, most technological advances have been greeted with fear rather than celebration. Below is an 1880’s cartoon illustrating the threat of robots on...

We still live in an age of technological miracles Even though we expect very little from the stock market over the next year or two, we remain very optimistic about the long-term potential for our economy. Revolutionary technology is the main...

Slowing growth and a strong stock market---not our favorite combination Long-term, we remain optimistic about stock investing. However the evidence of trouble in the short-term continues to pile up. Below is a chart comparing the S&P 500 with...

We have no plans to sell now, but there will come a time... In the last 3 1/2 years Apple shares are up 740% as the chart below illustrates. The second chart shows what happened to the largest holding at Dock Street in the late 1990’s: Cisco...

Even Apple was punished for only selling 26 million iPhones The following question was raised by a client in a recent email.  Two of our portfolio companies declined sharply after guidance and earnings announcements: FDS and CSTR.  Can't...

And now corporate earnings stop growing If your kid comes home with a C-minus on his report card you may be relieved to know he isn’t failing, but there’s no reason to be really happy either. That’s where we are today with the US economy---growing...

Apple’s China business today is bigger than the entire company in 2007 Since the turn of the 21st century a smart portfolio owned what China needed and avoided what China made. That meant owning commodities and avoiding a long list of consumer...

“I think there’s room to expand,”  Jim Cramer Apple has 51 new stores on the drawing board, adding to the total of 361 stores worldwide. Of those 51 new locations, 28 are scheduled to open in China and Hong Kong. At the moment there is one...

When is a $500 stock cheaper than an $82 stock? This month Apple’s stock closed above $500 per share and CNBC announced its “market cap”, or total value, had reached $475 billion. That number rang a bell, and sure enough, that was the peak in...

Price/Earnings ratios recover from last year’s correction There are only two ways to make money in the stock market---slow and fast. The slow money comes from an increase in earning power over time. The fast money comes when investors change their...

Every major central bank is making money easier to borrow There’s a very old rule in the stock market: “Don’t fight the Fed”. It works in both directions---if the Fed is making money more plentiful and cheaper to borrow, stock prices have a tail...

Policy errors remain the biggest risk for investors The term “policy error” covers a lot of ground and the errors take many forms. Here are a few recent examples: Bernanke led investors to believe that more monetary easing was likely---and then...

We think it’s Europe, but in the meantime we need to keep our guard up We won’t know for a while who is going bust, but our best guess at this point is a major European bank (or two). We are faced with the highly uncomfortable prospect of waiting...

Ignore the headlines (from Washington) and read an earnings report Below is a list of 10 stocks owned by Dock Street clients showing the percentage increase in earnings over the last 12 months and next to that the increase in stock prices since...

The Debt Ceiling mess will not change our investment strategy Should we be worried about a default by the US government? We don’t think so and the chart below is the reason why. Above is the yield on 10 year US Treasury Bonds since the beginning of...

Investors with cash may be getting nervous This week illustrates the dangers of getting too worked up about market corrections and also investing while reading headlines. Missing a week like this one is the most common reason for mediocre...

Not the beginning of a bear market Since the middle of February the stock market has gone nowhere and many investors are worried that this could be the beginning of a major drop in stock prices. We don’t think so. And the chart below is the main...

Dan's Travels - Part II Ray Yang runs his travel agency out of a 10 by 15 office with two desks and a couple of laptops. When I walked in with my guide Rocky, there were four guys sitting around a coffee table smoking and playing cards---but I'll...

Dan's Travel - Part One T-shirt for sale in Beijing: "Money is not a problem, no money is a problem." Maybe a good slogan for Dock Street! Some sample headlines from the China Daily: "Parents decide to send their kids to learn English earlier." The...

Look out above – this recovery is for real In our reading this week we came across the following (astounding) comment: “Although the stock market can, and has, mistakenly predicted more recessions than actually have occurred, it has always...