For what it is worth, I begin this edition of Willingdon Views with a sports analogy, as I have often done over the years, for two reasons. First, I received no small amount of flack after our last newsletter for not including a sports story. What was I thinking? Second, I cannot, for the life of me, find anything to say about the abysmal political situation that hasn’t been said a gazillion times already.
That being said… December 19, 1968 was a quite a day for the New York Knicks. It was the day the Detroit Pistons traded Dave DeBusschere to the Knicks in exchange for Howard Komives and Walt Bellamy. Most basketball historians attribute this memorable trade as the key event paving the way for the Knicks’ championships in the 1969-1970 and 1972-73 seasons, as DeBusschere became one of the pivotal players on those legendary teams.
Trades like this reset the path a team is on. They are the catalyst for change and accomplishment. They are game-changing events that become immortalized. It seems to me that the American economy, perhaps even our way of life, needs a game-changing event. Over the last two weeks the overall market has fallen about 10%, despite the progress or lack thereof in Washington. The message from the stock market is that the compromise in Washington is not a trade of a lifetime, nor is it a catalyst for change and accomplishment.
This realization leads to two questions. First, if we haven’t reset the path we are on as a country, then in what direction is the path we are on taking us? And second, if this isn’t the path we all want to be on, how do we find the right path? In his book “The Miracle of Freedom: 7 Tipping Points that Saved the World” author Chris Stewart makes the case that individual freedom, which unleashes the creative wealth-creating potential of civilizations, is not the norm in history but the exception. Freedom must be fought for, and once gained, will be under constant attack from greed, selfishness, frustration, and apathy. Today, there sure seems to be plenty of those four destroyers of freedom and sustainable economic prosperity.
The right path for our country includes the following: job creation, innovation, entrepreneurialism, and the ability to live within our means at all levels. I’m sure the right path includes a lot of other important things but let’s stick with my short list for now. In my view, all of these attributes are interrelated. We either get all of them or none of them, and at the present time, we are far from an abundance of any.
Following this train of thought, it seems logical to conclude that we are on the wrong path. One reason we are struggling to find the right path is that we can’t agree which one is the right path. If you are lost in the woods and you spend all day arguing about which direction to walk, at the end of the day, you are still lost in the woods. America seems lost in the woods.
For nearly a generation we lived beyond our means as a country. Will it take a generation to learn to live within our means? I think it might. If so, be prepared for a period of slow economic growth and an era where both sides of the political aisle, as well as the media, will focus more on assigning blame than on working as a team to get through these tough times.
Senator Bill Bradley, who played on those storied Knicks teams, explained the team’s extraordinary philosophy. He said, “We would routinely 
pass up good shots to pass to a teammate who had a better shot.” Despite being the best shooter on those teams, Bradley said, “I liked to make the pass that led to the pass that led to the basket.” That is true teamwork. Our country has to find this attitude. Can it?
From an investment perspective… We have identified two strategies that we believe should work relatively well in an extended period of slow growth. First, we will continue to focus on companies that produce innovative products and services. Companies that can grow earnings and market share faster than their competition through producing value-added “must have” products will likely be rewarded with rising stock prices. Apple is the best example of this in our portfolio. Second, we will try to continue to take advantage of our disciplined valuation analysis to buy and sell individual stocks when the emotional swings in the market create trading opportunities. Emotional extremes, while difficult to predict, do occur repeatedly in the market. With overall confidence and sentiment low, any tidbit of economic data or political development can send the market soaring or swooning. Our strategy is not just to avoid these emotional swings, but to try to take advantage of them. It is always best to remove emotion from the investment decision process. No small task in the world we live in today.
Michael Kayes, CFA
