MidSouth Week in Review
May 28, 2021

Weekly Update from Fund Manager Buzz Heidtke, MidSouth Investment Fund

All the major stock indexes were up for the week with the S&P rising 1.2%.  For the month both the Dow and S&P were up and the NASDAQ was down.  U.S. bank profits rose 29.1% in the 1Q as banks adjusted expectations for future credit losses downward.  Consumer confidence in the U.S. was unchanged in May, following four straight months of gains, signaling an optimistic view of the economy amid concerns over rising prices and waning government support.  Sales of new homes fell more than expected, 5.9% in April, blamed in part on rising home prices.  Jobless claims hit a pandemic low in declining to 406,000 vs. 444,000 the previous week, the 4^th straight weekly decline.  Sources:  Wall Street Journal and New York Times

The markets will be closed Monday in observance of Memorial Day.

BuzzBits

Beating the Market – The key to making money in stocks is not to get scared out of them.  In dieting and in stocks, it is the gut and not the head that determines the results.  The person who never bothers to think about the economy, blithely ignores the condition of the market, and invests on a regular schedule is better off than the person who studies and tries to time his investments, getting into stocks when he feel confident and out when he feels queasy – Peter Lynch, Beating the Street …..According to one study the average investor only made 2% a year.  Why?  Because they buy at the top and sell at the bottom vs. around a 10% return for the buy and hold investor– Buzz

80 Beers – minus your age, plus 40 should give you the year you were born.  Did it work?  Or did I miss it by a year? – Buzz

Value Investing – During a 22-year period, the S&P rose at a 10% annual rate.  However, if you had invested in the bottom 10% of companies with the lowest price-to-book value ratios, your return would have been 19.8% annualized - Buzz

The Housing Boom – “The market won’t collapse all at once, yet the dip will be painful” – Yale economist, Robert Shiller ….. On Tuesday, the commerce department reported that the median price of a new home in April was $372,400, a 20.1% gain over the previous year, the strongest gain since 1988 …..More would-be buyers are staying on he sidelines.  A recent consumer survey showed that more people think now is a bad time to buy a home than a good time …. The first time that has happened since Fannie Mae started the survey in 2010 – Kiplinger

SPACs – The special-purpose acquisition companies were hot last year but not this year.  Blank-check companies with no assets merge with private companies and then raise money through an IPO.  Among 44 tech start-up’s that completed a SPAC deal from the start of 2020, their share prices have fallen 12.6% - Wall Street Journal

Covid Infections – For the first time since June there are fewer than 30,000 daily.  “I think by June we will be down to one infection per 100,000 vs. eight now.” – Dr. Scott Gottlieb, FDA 

It’s Too Late – Biden’s $6 billion budget assumes the capital-gains rate increase took place in late April, which means it’s too late for high income investors to realize gains at the lower rate.  The top tax rate on cap-gains would rise to 43.4% from 23.8% - Wall Street Journal

Learning – “In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time, none, zero.  You’d be amazed at how much Warren (Buffett) reads, and at how much I read.  My children laugh at me.  They think I’m a book with a couple of legs sticking out.” – Charlie Munger, Vice Chairman of Berkshire Hathaway

Reversing Defunding – Most cities that were involved in defunding are now restoring their police departments or proposing to spend more.  In the last three months, homicides rose 32% in cities with a population of one million+.  Oakland cut $14 million from their police budget last year and by mid-April there had been 41 homicides vs. 13 last year – Wall Street Journal

The Dow – Jones Industries Average began 125 years ago with 10 companies that included:  GE, and long-forgotten names like America Cotton Oil and Distilling & Feeding.  The average has risen 7.7% each year.  The roster expanded to 20 names in 1916 and 30 names in 1928.  No stock has been in the Dow for the entire 125 years – Wall Street Journal

Pets – More than 12.6 million households adopted animals from March to last December, helping to propel an increase in visits and revenue to vet offices.  Morgan Stanley projects the growth spurt will boost industry revenue to $275 billion in 2030 vs. $100 billion in 2019 – American Pet Products Assoc.

A Bad Sale – Daimler bought 10% of Tesla in 2009 for $50 million and had sold its entire holdings by 2014 for less than a billion dollars.  Today, a 10% stake in Tesla is worth $10 billion+ - Jay Kumar

Igor Moiseyev Ballet Training Session - https://youtu.be/NhxAkCf_oc0. 

Tuesday Morning (TUEM - $4.01)

I purchased the stock for as low as 19 cents a share last May, just after they had filed for Chapter 11 reorganization, and it has become my biggest gainer ever.  I also picked up a large block of the stock directly from the company this February at $1.10 a share, just after they came out of bankruptcy.  I specialize in small cap value stocks that ideally have a reason or catalyst for purchase.  For example, I purchased Altria last fall as an indirect play on Covid since I had heard that the number of smokers was increasing due to more staying at home.  The company also had raised their dividend for 50 consecutive years and had an 8.8% yield.  It was also a play on the legalization of pot.  I also bought a small cap copper mining stock after hearing that electric cars used 3.8x more copper for production than gas autos.  I read four newspapers daily and around 25 magazines, looking for trends.

Why did I buy Tuesday Morning?  As Covid started, retailers got killed and when they did begin to turn around, it was the on-liners, such as Amazon that began to do well.  Years ago I followed Dollar General, a company that used to sell close-outs that they picked up from troubled retailers.  The company always did well during bad times as their shoppers looked for bargains.  Unfortunately DG no longer sells close-outs, but Tuesday Morning does.  I have visited several of their stores and about half of their customers that I talk with say they come almost every week looking for bargains and the different merchandise that is available each week.  I haven’t sold any of my stock yet because within the past month they have hired a new CEO and CFO with great credentials and announced this week, that they have been approved for relisting on NASDAQ - Buzz 

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