Happy 4th of July!
Thank you to our military and Veterans for your courage, strength and dedication to our country.
From every mountainside, let freedom ring! - Martin Luther King Jr.
Investor Education: American Depositary Receipts (ADRs)
American Depositary Receipts (ADRs) are securities that represent ownership in foreign companies that trade on a U.S. stock exchange. ADRs are issued by U.S. banks and are denominated in U.S. dollars.
Read our overview of ADRs here!
Consensus Opinion
“The central principle of investment is to go contrary to the general opinion, on the grounds that if everyone agreed about its merit, the investment is inevitably too dear and therefore unattractive.” —John Maynard Keynes
The markets closed out the quarter and the first half of 2023 last week. Friday’s gains added to the strong performance to start the year, as the S&P 500 finished the first half up 15.9%, while the Nasdaq clocked in a gain of 31.7% during the last six months.
These strong gains were about as expected as we entered the year, weren’t they? Well, not exactly. As a Bloomberg article from early December of last year titled “Wall Street Turns Bearish on Stocks After Bad Year” described it:
One bad year in the stock market has turned Wall Street strategists into bears after two decades of bullishness.
The average forecast of handicappers tracked by Bloomberg calls for a decline in the S&P 500 next year, the first time the aggregate prediction has been negative since at least 1999. Most of them turned progressively more dour as the worst year in the market since the financial crisis moved toward its end.
Going against consensus opinion is often the most attractive and profitable course of action. That can be the case for both broad stock market indices and individual companies.
Hedge fund manager David Einhorn recently made this case in an interview at Cambridge Union when discussing his previous investment in Apple:
For about a five-year period, Apple was our biggest holding. And Apple is the most profitable investment in the history of the fund. The difference is, though, when we owned Apple, everybody hated Apple.
…When we bought Apple, it was around 8 times earnings, or 9 times earnings. And sometimes on a bad day, it was around 6 times earnings. And it was growing at 30 or 40 percent per year. But people thought it was very temporary. And we argued that the opposite was true.
At various points throughout 2012 and 2013, Apple and Microsoft traded at less than 10 times earnings for extended periods of time. The consensus said these well-known, large companies wouldn’t be able to maintain their level of earnings at the time, much less experience growth in those earnings.
But grow they did. They grew earnings and market cap, and are now the two most highly-valued companies in the world, with Apple now surpassing $3 trillion in market cap. For the decade that ended on June 30th, Apple’s stock has risen over 1,400%, and Microsoft has risen about 1,100% (before dividends), compared to about 230% for the S&P 500.
Sometimes, the small, unknown company is misunderstood and goes on to great returns. And sometimes, misunderstanding occurs among companies everyone knows and whose products they use almost every day.
Tweets of the Week
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Planet MicroCap Podcast: Mid-Year 2023 MicroCap Review
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Wichita amusement park ride manufacturer sold to private firm
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