Lemley Yarling Management Co
309 W Johnson Street
Madison, WI 53703
Comments on activity in client accounts
28 February 2020
Well that was quite a week. The mavens say that markets don't repeat but they do often rhyme. The 15% sell off from the all-time highs a week ago does remind of October 1987. In 1987 the DJIA dropped from a high of 2800 on around October 9 to 2400 (down 15%) in two weeks. The next Monday October 19 markets crashed and by midday Tuesday the DJIA was at 1800.
This week the DJIA has dropped from an all-time high last week of 29500 to 24000, down 15%.
Time will soon tell what occurs on Monday and today's action has been more positive (though still down) than what occurred in 1987.
The drop this week was precipitated by program trading and the ability to short on downticks. The markets were ripe for a pullback and so---
It is another trading saying that corrections in Bull Markets are swift, violent and scary. So far so good. Another truth is that bear markets rarely begin with violent corrections. And so, all things being equal, we would expect the selloff to run its course in the next several weeks.
There are two variables that may affect that resolution.
The first is that the ETF craze of the last several years has assured investors that buying and holding ETFs will solve all their investment problems and lead to worry free gains. Oops. How will ETF investors react when they receive their February statements showing accounts down 15% and more in a month?
Secondly the Covad 19 virus is the new darling of the cable news and Twittersphere. Never mind that:
Influenza is a highly infectious disease that usually strikes during the winter season. Globally, it causes an estimated one billion cases of influenza, resulting in 290,000 to 650,000 deaths per year. A person can get the virus simply by being near an infected person that coughs, sneezes or talks, or by touching something with the virus on it.
The Covad 19 virus is a type of flu that has never existed and so it will spread because there is no immunity to it. But as far as statistics currently available it is not measurably different from other flu viruses in its effects. (The death rate seems greater but that may be because of underreporting of mild flu cases.) Schools have always closed when too many folks at school got the flu. Airplanes have always been lousy places from a contagion standpoint. Cruise ships always have had outbreaks of communicable disease.
Of course, we continue to live in splendid isolation on our farm in the land of milk and honey so it is easy for us to pontificate.
Back to accounts, on Tuesday we sold half our ViacomCBS which was too large a position (trying to tell Mr. market we knew more) and the loss was also too large. With the market selloff we are able to deploy the funds realized to other issues that are down more than the ViacomCBS position sold. We traded Pfizer for a scratch profit when we decided we would rather have cash. Tuesday of this week we decided to commit some of our funds at midday expecting a rally but by Wednesday morning we thought better and sold the positions into a morning rally. Today Friday we decided to buy AT&T down 15% from its high two weeks ago, Verizon down 15% in the same time period, Intel down 20%, British Petroleum down 25% this month, and Devon Energy down 50% this year.
We also have repurchased GE, Sprouts (at $16- sold last week at $18.40) in some accounts and added to Marathon Oil, Cisco, Wells Fargo and Walgreens Boots.
We sold our entire Wisdom Tree Short Govt Fund to have dollars available if the selloff continues. Our Cash position in most accounts is 50% or more.
We now own: AT&T (6% yield 9X earnings); Verizon 5% 10X; Intel 2.5% 10X; Cisco 3.6% 12X; Walgreens 4% 8X; Wells Fargo 5% 10X; Sprouts 0% 12X; ViacomCBS 4% 5X; GE 1% 17X; BP Amoco 8% 9X; Devon 2% 20x; and Marathon Oil 2% 20X.
Hold on to your hats folks, it's going to be interesting for the next few weeks. This too shall pass- the when is the question of the day.
Valentine Day 2020
Markets continue to meander around new highs as the coronavirus acts as a hindrance and positive earnings report are a stimulus. This is the second approach to new highs in the last month. The 30% gain last year coupled with the ten-year rise from the 2008-09 collapse suggests caution.
During the week we added Cisco at 12 times earnings with a 3% yield and Wells Fargo with a 4.2% yield and at 11 times earnings. We know good yields and low p/e ratios are a thing of the past for investors but we are/and have always been more comfortable trading negative market reactions in quality issues than chasing the 100-time earnings wonder stocks.
We currently own ViacomCBS, Cisco, Well Fargo, Sprouts Foods, Under Amour, Marathon Oil, and a 60% cash position or more in many accounts.
7 February 2020
Markets moved to nominal new highs on Thursday before pulling back slightly on Friday ahead of the weekend. The coronavirus in China continues to be a worry for markets as China is the second largest economy in the world and the measures being taken to contain the outbreak are surely having an effect on economic activity.
In the La La land, traders pushed Tesla to $940 on Tuesday before realizing that Tesla production and consumption in China might be affected by the virus. But the volatile action is being enjoyed by market makers and Tesla still remains the darling of the day traders.
Back to the real world, we traded AT&T for a 50 cent to 1 dollar per share profit this week and will continue to do so as this strategy has been working for us- and has been more profitable than just holding- for the past year.
We currently own ViacomCBS, Sprouts Foods Markets and Marathon Oil along with a 70% or more Cash/USFR position in most larger accounts.
Spring is on the way.
Having just reached 76 and after 30 wonderful years owning the prettiest farm in America, we have decided that a move to a Madison, Wisconsin apartment while maintaining a small cabin in the area is the proper way to begin the next chapter of our lives.
Of course, we plan on continuing Lemley Yarling Management Company- Old traders (52 years and counting) never quit until ----.
With that in mind we have listed our farm for sale.
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