April 5, 2016

On Tuesday, the S&P 500 fell 1.0% and Toronto was down 0.2%.

Wells Fargo was down 2.0%, Bank of America was down 2.4% and Couche-Tard was down 2.0%.

Before anyone gets too upset about that; here’s another thing that happened today: The companies on the S&P 500 as a group collectively made money today. And each of Wells Fargo, Bank of America and Couche-Tard almost certainly made money today. Not every company makes money every day. But some companies do. Banks in particular, unless they suffer unexpectedly large loan losses, tend to make money like clockwork every single day because the interest accrued on their loans is higher than the interest accrued on their deposits and is also high enough to cover their fixed costs of business.

If you own a diversified group of companies that collectively make money virtually every day then you will tend to make money on your investments over time. The fact that investors bid up and down the price of your stocks on a daily basis will not change that fact. On average for such a group of companies, you will be unaffected by random stock price movements unless you sell at a bad time, which admittedly you sometimes have to do but that is the exception and not the rule. (If stocks end up rising 10% in a particular year, does it really matter what they did on July 10th or any other date? If stocks rise at an attractive rate over a decade or two or three, how important is it for most investors that they fell on a certain day or a certain year?)

The “Panama Papers” stories provided entertaining news today. There will not be much sympathy for anyone exposed to be evading or even avoiding taxes via off-shore accounts. The name given to this story is no-doubt a play on words referring to the Pentagon Papers which were leaked in 1971. Not sure that most of the journalists covering this today will “get” the reference.

Another interesting story today was that the Board members of Pulte Homes have more or less revolted against the founder, Bill Pulte who they said had engaged in an unfair campaign against the CEO. It is very rare indeed for a Board to stand up to a founder like that.  It takes a lot of “independence” to do that. Warren Buffett has written that true independence does not come from being technically merely unrelated to the CEO or Chairman. Rather it requires a mindset and it requires that the Board members not receive Board fees that are an important part of their income. (It’s easy to imagine being independent in the abstract but a LOT more difficult to do if it means risking a salary that is an important part of your living standard). I looked up who is on the Board at Pulte. Sure enough they all appear to be people of substantial financial means (they are all executives and former executives). It’s nice to see a strong Board in action.