Full Disclosure: I (Nathaniel) am not a Wall Street analyst.
What do you think of when you hear "Wall Street estimates"? Most people vaguely think of sitting at home on their couch, channel surfing on their TV and coming across the CNBC channel. They may hear about a company that has reported their earnings, and Wall Street's estimates were different from what the company was reporting. Ring any bells? Beyond what you see on CNBC, what do Wall Street estimates truly mean? What effect(s) do they truly have on companies?
As many of you know, at LBW, we try to blog once a month. However, we felt “Election Decision 2016” warranted a continuation of our Q3 2016 Commentary where we wrote about the weeks leading up to yesterday - November 8, 2016. To quote our Q3 2016 Commentary “We will admit none of us at LBW are political geniuses nor wish to discuss our political views, but a new President (regardless of whom is elected) means uncertainty and uncertainty raises questions.”. The uncertainty we spoke about was made evident by the markets last night with the S&P 500’s and Dow’s (DJIA) futures losing roughly 5% at their lows. Why? The markets felt it was Hillary’s to win, but Trump gathered steam quickly and never gave it up thereby leading him to be declared the 45th President of the United States of America.
Some people may have potentially felt a sense of fear as they watched the market futures tumble and then open positively today. Our role as financial educators and active money managers is to address these potential fears and add perspective.
The volatility experienced, is not the end of financial markets. 2016 has been ripe with volatility from China’s stock market issues in January to BREXIT’s surprise vote in June. It is our role, responsibility, and skill set to be apprised of what factors may impact the businesses we invest in; this is our primary concern. As we tell prospective and current clients, we take such factors into consideration when conducting our research, but we do not let them dictate our investment decisions. Market volatility allows investors practicing the value investing framework to shine – as macro factors push markets down, companies we are researching or own could be selling at irrational discounts versus our estimates of their value.
“Election Decision 2016” may come with changes to policies such as re-negotiated trade agreements, altered financial regulations, and immigration policy upheaval. Specific companies may be impacted for better or worse. At LBW we think long-term, and as mentioned above, feel this potential short-term volatility may create opportunities. We will be ready to capitalize on these possible changes and/or volatility, and invest accordingly.