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Quotidian Investments Monthly Commentary – November 2019

December 6, 2019

In last month’s report we set out those corporate financial results for the third quarter of the year that had already been released during October by the companies we currently invest in. At that stage, 15 of our corporate holdings had reported and we were awaiting figures from the remaining 7. All of those outstanding results were released during the month of November. We were expecting good news and we were not disappointed. All 7 of those companies produced results that were higher than analysts’ expectations (based upon their percentage outperformances above expectation in respect of Earnings Per Share) and we set them out herewith:

Corporate results for the third quarter of the year have been feeding through during October and have largely been above market analyst’s expectations. Thus far, 15 of our holdings have reported profit and future sales numbers which have substantially beaten anticipations whilst only two members of our current portfolio have fallen short (and in each case for good reasons). We still await figures from the remaining 7 individual company holdings (all of which we expect to be good news).

Celgene (+10.60%), Regeneron (+4.10%), Jazz (+14.10%), (+1.50%), Activision (+36.80%), Take Two (+13.60%), Nvidia (+14.80%).

You can perhaps understand and forgive the merest scintilla of irritation and frustration that may have permeated our reports from May through to the end of September as inaccurate, overly-pessimistic and poorly researched predictions from the major market analytical outfits served to suppress stock market pricing. Our own analysis clearly suggested to us that stock valuations should be rising (for our holdings anyway) rather than going sideways or falling. Quotidian’s investment performance during October (and even more-so in November) has now reflected the economic reality of our portfolio instead of the turgid, fatalist and defeatist predictions of doom from Wall Street.

On 30th November 2019 the FTSE100 index closed the month at 7346.50, a rise of 1.35% in the month of November and it now stands at 9.19% for the 2019 calendar year to date. By comparison, the Quotidian Fund’s valuation at the same date shows an uplift of 6.52% for the month of November and the Fund is now up 28.54% for the 2019 year to date.

Of course, there will be periods of decline in stock-market pricing; we all understand that this is an inherent feature of equity investment. But in the long run, prices reflect the economic success of each individual company itself. Our cliché’d old adage of aiming to be in the right companies of the right sectors of the right global markets at the right time is fundamental to achieving successful investment returns. On occasion the market is determined to go against you no matter what, but, in the long term, patience and the courage to stick with a reliable and well-proven investment strategy does pay off.

As we look forward, three potential market-moving events are on the near horizon:

If the first stage of a China/USA trade deal has not been executed by 15th December then President Trump has stated that he will impose the additional sanctions he first threatened (and then postponed) earlier this summer. It is impossible to predict whether this is another bluff; an empty threat intended to put time pressure onto the Chinese negotiators or whether it represents a loss of patience as these talks have stumbled from one missed deadline to another. If tariffs are applied then the market is likely to react.

It would be sheer guesswork, however, to make investment decisions based on such an uncertain scenario and we do not believe in making judgements centred upon pure speculation. We will wait to see exactly what happens and make our judgements on the actuality.

The UK general election on 12th December will bring clarity once and for all to the doubts, fears and inactivity of the past three years in the government of the UK. Many of these doubts and fears have been deliberately manufactured and have served simply to add fuel to Project Fear; some have sought to pursue an overtly political agenda and some have simply been Machiavellian devices designed to derail and perhaps frustrate Brexit. Whatever the motives, the government of our country has been made to look inane, inept and foolish. Worse still, it has been so obviously undemocratic.

Of course, the result of the 2016 referendum is now the focal point of this fresh election and the result on 12th December will be pivotal for the immediate and the longer-term future well-being of the UK’s economy. With the benefit of hindsight and the perspective it provides, it is instructive to revisit the referendum result and consider its likely effect on the format of our next government. There is a strong possibility that Leave voters in the current election will now make their Brexit frustrations known through the ballot box.

Hopefully, the outcome of the current election will remove (or at least begin the process of removing) the inhibitions that have held back economic activity and investment in UK business and the economy generally for over 3 years now. We believe that the UK stock market is demonstrably undervalued and, with the right political leadership together with business-minded and intelligent fiscal policies, the equity market will make up for three years of effectively going nowhere.

Finally, you may have seen that Michael Bloomberg has just announced his candidacy for the Democratic Party nomination in next November’s USA presidential election. Bloomberg is 11th on the list of the richest people in the world; his wealth is put at $39 billion. He was the founder of the financial news service, data supply service and journalistic business that bears his name and dominates the supply of ‘news’ stories and financial data to the global Financial Services Industry. This is a position of enormous power and immense influence over the direction of equity markets.

Bloomberg himself was once a leading light in the Republican movement but, in a moment of sudden and unexpected epiphany, he became a ‘born-again’ socialist (of the champagne variety). Whilst his current set of beliefs are not as extreme left as Elizabeth Warren (who makes Karl Marx look middle of the road) or Bernie Sanders (who could be Josef Stalin’s long-lost twin brother), Bloomberg would certainly bring a socialist agenda to US politics and its financial and fiscal systems.

He has asserted that he will “spend whatever was needed” to remove Donald Trump from the White House. I mention all this simply because, in due course, the outcome of the next US election will have a profound effect on the direction of the US stock-market.

It is fair to say that the Democratic Party has moved even further to the left since Hilary Clinton was defeated by Donald Trump in 2016. As was already the case under Clinton’s manifesto, the Democrats were proposing unhelpful tax and monetary policies together with suppressive and interfering legislation. In particular these would have had a depressing effect on the healthcare and biotechnology sectors of their economy. These proposals would get worse for business and consumer confidence if an even more left-wing agenda (whether that is under Bloomberg, Warren or Sanders) takes power.

The entry of Bloomberg into the race raises cause for concern from an investment perspective. Firstly, in the run-up to the election Bloomberg has the tools, the power and the financial clout to disseminate even more ‘fake news’ and mud-slinging than is currently a regular feature of the US media. Propaganda and biased opinion being presented as news or as ‘fact’ is already rampant. It could get even worse.

Evidence of market manipulation regularly features when we see the financial authorities (both in the USA and the UK) impose eye-watering fines on those blue chip’ financial organisations that transgress market rules and feather their own nests. It often seems that ‘devil take the hindmost’ is the practice note of choice for some of these supposedly impeachable companies.

Given Bloomberg’s personal financial position, his huge level of wealth has the power to move markets to his heart’s desire. Trump has taken it upon himself to encourage people to measure the success of the US equity markets during his period of office as a proxy for the success of his Presidency overall. In so doing he has effectively set himself up as a hostage to fortune. That rather naïve and boastful stance may come back to bite him and ease the passage of those who wish to unseat him. As things stand today we are still of the view that Trump will be re-elected for a second term. That view may mutate as the US election campaign develops.

We are not for one minute suggesting that Bloomberg would act illegally or use his wealth and his media influence to move markets as a means of denigrating, embarrassing and ultimately defeating Trump.

Of course, we all know that politicians are men of honour and above reproach; their innate sense of integrity and their high moral standards would surely not allow them to sink to such depths.

All we are saying is that he has the means to do so and US equity markets could potentially become strangely difficult as we move ever closer to November 2020. We will be keeping our wits about us as we move towards the next Presidential election.

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