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"Perseverance is not a long race; it is many short races one after another." --Walter Elliott Greetings from frigid southern Kill Devil Hills! The combination of an overzealous North wind, high gas prices, and all of the uncertainty surrounding Iraq, North Korea, and global terrorism have made this winter feel a little, well, bleaker than most. It's an uneasy, insecure, maybe- a- little- vulnerable kind of feeling. Long-time residents know that winter on the Outer Banks can be wonderful-uncrowded, mild, profoundly sensory. The downsides are the periods like the past two months-with howling winds, bitter temperatures, and an overriding inhospitality. I usually like winter on the Outer Banks, but this one is beginning to wear. C'mon spring!-- baseball in Wanchese, boating at the Inlet, Technicolor sunsets, and parkas in storage--and c'mon Iraq resolution! In this issue of Investor's Corner (yes, it's a name change) I'll answer reader mail, profile a company of local interest, and pass along some notable quotes. 1. Reader Questions: A. Dear Will, Why is the cost of gas so high? If I had known this was going to happen I wouldn't have bought an SUV that only gets 12 MPG. Help! Signed, OBX Jones. Dear Ms. Jones, thanks for your letter. Gas prices are high because the price of the underlying commodity, oil, has been going up all winter. Oil is going up because of the uncertainty surrounding the threat of military action in Iraq, coupled to a lesser degree with the political unrest in Venezuela, the world's fifth-largest oil producer. Iraq controls the world's second-largest supply of petroleum reserves. A regime change (IE the fall of Saddam Hussein) could quickly bring more of that supply to market, causing the price of oil to drop and stabilizing long-term supply. Until that happens, though, there is a "war premium" factored into the price of oil. There is also historical precedent to consider: The day that the US acted to liberate Kuwait in 1991, the price of oil dropped $14 a barrel, from $34 to $20. You can bet that oil suppliers know this and don't want to get caught holding any more than the absolute minimum amount of supply. So, the price goes up, at least until a resolution to the Iraq situation becomes more clear to the markets.
One Year Oil chart, price per Barrel B. Dear Will, Can you please explain what is meant by "diversification"? Thanks, Ginger Dear Ginger, the best definition of diversification that I can come up with is "Don't put all your eggs in one basket." In the investment world, that means it's generally considered prudent to spread your investment dollars across different asset classes-stocks, bonds, real estate, etc. An investor is optimally looking for asset classes that have a low correlation in order to balance portfolio risk. The upside of diversification is that there are a dizzying number of investment options available to fill the many investing "baskets" needed by the investing community. The downside of diversification is that there are a lot of mediocre investment vehicles out there. Determining a good diversification strategy and choosing good investment vehicles is extremely important/critical to investment success! Thanks for writing. 2. Stock of local interest: Sysco Foods As we all know, the Outer Banks is known for its world- class fishing, beaches, waves, lighthouses, sand dunes, …and restaurants. Sysco Foods--the company behind the silver trucks you see sidled up to your favorite eatery--is the engine behind the scenes of many Outer Banks restaurants' successes. Houston, Texas-based Sysco is the nation's largest foodservice marketer and distributor. The company combines purchasing leverage gained by its size and geographic footprint (it operates nearly coast-to-coast) with a commitment to superior business infrastructure, then simply executes, executes, executes. The foodservice business is a low-margin business. Indeed, Sysco's most recent reported operating margin was 4.7% and its profit margin was only 2.9%. Those tight margins make efficient operations a necessity, and in the eyes of many analysts who follow the company, operations are where Sysco really shines. Sysco's stock trades on the New York Stock Exchange under the ticker symbol SYY. For the 26 weeks ending 12/28/02, sales at the company increased 12% and net income increased 14%. The stock trades at a price to earnings ratio in the mid-twenties-not cheap by any means, but reflective of the company's leading position in its core business. Investors looking for a financially sound, intelligently managed, and operationally stable company with above-average long-term growth potential (after all, people have to eat, right?) may do well to consider Sysco Foods.
Sysco three-year chart 3. Notable quotes: I hope to use "Notable Quotes" to provide a gauge of current market tone. It is said that investment sentiment is a great contrarian indicator. In other words, when everyone's bullish, it's wise to be bearish. Likewise, when the bears are at their fiercest, a bullish posture is good for your pocketbook. One of the most widely- followed examples of this phenomenon is the Magazine Cover Indicator. The MCI says that when you see a big bull on the cover of your favorite magazine, it's probably close to the top of a market. Likewise, when doom and gloom is jumping off the pages at you, the bottom may be in sight. I'll scan the media for particularly good comments, and include them, space permitting, in future columns. Feel free to e-mail me your favorites. "I don't buy the argument that that you do well buying on dips. That dip may prove to be a chasm, and the rise beyond it not enough to make you whole. I also don't buy the argument that it's wrong to exit from the market when stocks are overpriced. With modest average growth in the years ahead, being out of bear markets will be more beneficial to your financial health than being in during bull phases. Remember, if you lose 50% on a stock, you have to double your money to get even." Perma-bear A. Gary Shilling, as quoted in the March 3, 2003 issue of Forbes "Investors are your worst enemy. They want you to be fully invested when the market is rising and want you to have cash when the market is declining." Edwin Walczak, portfolio manager, Vontobel US Value Fund, from the Jan. 20, 2003 Investment News "Going to war without France is like going deer hunting without an accordian." Ross Perot Good investing, Will Woodard is president of Dare Capital Management & Advisory, a Registered Investment Advisor and fee-only financial planning firm based in Kill Devil Hills. Dare Capital is committed to providing independent, objective, and professional financial advice. Mr. Woodard, his firm, or his clients may own the investments mentioned herein. Contact Will at (252) 480-0156 or e-mail Will@darecapital.com The fine print: This newsletter can be reprinted or forwarded--however, it is requested that reprints of any material in this newsletter include credit to Dare Capital Management and Advisory (252)480-0156 and an email link to will@darecapital.com. Thanks for spreading the word! All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Will W. Woodard, III and Dare Capital Management and Advisory, and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. Mr. Woodard, his firm, or his clients may own the investments discussed in this newsletter. Past performance is no guarantee of future returns. The information presented herein and the company's web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future results may vary for many reasons. Copyright 2003 Dare Capital Management and Advisory-all rights reserved. |
