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Rookie Corner: What Hollywood Has Taught Me about Fundamental Analysis?

May 7, 2020

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Good Day Rookie Bloggers! I hope and trust you are all doing well in these turbulent times? I fully understand this is a struggle for a lot of people as this has pushed many of us way out of our comfort zones in a multitude of ways. Some are outside of their comfort zones from a financial standpoint or maybe a motivation standpoint or perhaps even the social aspect can be waying heavily on some folks. Regardless of what the troubles are that you are facing I hope and trust that you can get through these times and come out stronger on the other for it. This brings us today’s topic. Today I want to talk about some things that I see in the world of movies or sports or just pop culture in general. I will bring this around to how I view the markets these days from a fundamental perspective as well. So let’s go!!

I have noticed in the pre-corona world, perhaps because I am getting older I have noticed this more, that society for a large part tends to hold in higher regards people with professions that deliver some form of entertainment or perhaps a wanted distraction from the drudgeries of life or perhaps just a look into a fantasy world. I see that the actors we see on the big screen or on TV are paid very well and dare I say too well? I try not to go down the road of begrudging anyone for what they get compensated for marketing their particular set of skills but it does seem somewhat excessive at times. It is not only the movie stars that are put in this particular category but it is also our beloved athletes that garner the most cash for their chosen profession. I understand fully that the big names like Lebron or Brady are maybe the exception to the rule but looking at the data in recent memory seems there are more and more of their counterparts that are achieving these massive heights in compensation for providing the globe with dazzling entertainment of their respective sports. There is a third group that I mentioned that is the most puzzling to me personally and it is probably because I am older and do not understand the allure. This third group is the social media type folks or the “not-so-real” reality TV personalities. Case in point is the Kardasians? I don’t see the allure of this fantasy world that they seem to reside in but they sure do pretty well at the bank from their exploits. Now, maybe someone could explain to me what the allure is but I just don’t personally see the attraction of this group?

These three groups are some of the highest compensated folks on the planet for what they do and yet it seems to me that they are really just entertaining the masses and that I am unsure how these valuations come to pass? Since I am a capitalist at heart, I suspect these levels of compensation come about because of supply and demand just like anything else. We go to the movies and we go to the concerts and the sporting events and we watch the TV shows and then we buy the products associated with these things and therefore the demand is there and the supply I suppose is limited and therefore higher prices abound. This is fundamentals at is finest, higher demand and lower supply = higher prices for goods and services. This is the first thing I learned from Hollywood about fundamental analysis, is sometimes you don’t have to necessarily understand why the supply and demand is where it is but you do have to recognize and react accordingly to it.

The second thing I learned from Hollywood about fundamental analysis is that supply and demand can be very fickle. Case in point is our post-corona world that we are currently living in and what the world will look like going forward as well. I look at the world now and I don’t see the sports stars or the actors or media darlings as being held in quite as high regard as they were before this virus took hold. Currently, I see the doctors, nurses and scientists are the most important people at this point as least from my view. The need for being entertained is still there but I am guessing that the need for quality healthcare is further up the list of wants and needs at this point. This is the supply and demand shift that I see right now. The demand for the aforementioned groups is still there but I kinda feel like its not as much demand as there was before. The supply side of things now is very interesting as well as there are lots of players waiting to fill the entertainment void but as the current state, they are unable to do so somewhat due to the state of the virus at this point.

Now, looking forward I don’t know exactly how all this will play out in the future, I guess that depends wholly on how this current situation with the virus ultimately resolves itself but I would be guessing that things going forward could be very different than what the old normal was. A good view of this can be seen from our man, Warren Buffett. Just this past week Mr. Buffett rid himself of his airline holdings as he said he doesn’t see any attractiveness in that space at this time. This is an about-face from how Mr. Buffett was feeling about the airlines when he acquired a large holding of a particular airline a while back. You see Mr. Buffett truly understands fundamentals, he gets supply and demand and he acts accordingly. I would have to believe that if Mr. Buffett looked at the airline industry going forward he might have some concerns about how it will function in the post corona world. It is these changing fundamentals that we need to consider when investing or to a smaller degree, trading.

So, I guess I should say thank you to Hollywood for showing me the fickle nature of supply and demand and how it relates to fundamental analysis. What this means to me as a trader and investor is that whatever your stance on the fundamentals of a particular company at the time of acquiring that company is that perhaps it would be prudent to build something into your daily routine to keep up to date with the fundamentals just in case they have changed as the world has changed, just like Mr. Buffett did.

Happy Trading and be safe,

Coach Holmes

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