The Weekly View (8/14/17)

What’s On Our Minds:

The war of words between President Trump and North Korea’s Kim Jun Un caused the CBOE Volatility Index (“the fear index”) to spike 55% last week.  While volatility has been extremely low this year, last week’s spike serves as an important reminder that volatility will inevitably rear its ugly head every once in a while.  Read on to learn what drives high volatility and how investors should respond when markets gets turbulent.

High-volatility Markets

Originally used by chemists to describe chemicals that evaporate (and explode) easily, “volatile” has become the generic term for anything erratic or subject to sudden changes.

Today, most people hear about volatility in connection with investments and the stock market. But what does volatility mean in a market? Can we measure it?  What does it mean for an investor’s current assets?

A Measure of Movement

Just like in chemistry, market volatility is about change. Stocks (or other investments) that are thought to have more predictable price fluctuations have “low volatility” while those expected to make drastic movements (both up and down) are said to have “high volatility.”

Most people use volatility to gauge the risk they are taking when purchasing an investment or planning a portfolio.

Highly volatile investments are judged as unpredictable with their returns. Though this means a volatile investment could significantly exceed its projected return, it also means that it is more likely to fall considerably short or cause a loss.

Two Types of Volatility

Investors commonly use one of two types of volatility when looking at stocks: historical volatility and implied volatility.

An investment’s historic volatility is measured according to its standard deviation—that is, comparing how much it has fluctuated in the past to its average rate of change.

Implied volatility, on the other hand, shows the expected volatility of a stock over the next 30 days. It is calculated using the current premiums on stock options.

Implied volatility is a measure of both anticipated performance and market sentiment. When option writers have increased concerns about a stock’s future price, they compensate by charging more for option contracts. The higher the premium they charge, the greater the anticipated fluctuations. The premium, therefore, implies the level of volatility.

The standard indicator of total market volatility is the Chicago Board Options Exchange Market Volatility Index—ticker symbol: VIX. It relates the implied volatility of all options on S&P 500 stocks due in the next 30 days.

Because the implied volatility is greatly influenced by investor emotions, the VIX is commonly referred to as “the fear index.”

What does High Volatility Mean for Investors?

Volatility is an inescapable part of investing. The future is uncertain and every investment carries risks.

However, unless an investor is involved with buying or selling options, a brief increase in volatility or the VIX is unlikely to require any changes to his or her investments.

A volatile market might cause stock prices to rise and fall by significant amounts, but it does not necessarily affect the future value of owning shares in a company.

Investors should choose stocks based on the underlying value of a company, not a temporary price fluctuation. The fear associated with the VIX should not give way to irrational buying or selling.

Nevertheless, prolonged periods of high volatility can make it more difficult for investors to plan for retirement. Even though the market could be rising in value, high volatility makes it difficult to set reliable retirement dates.

Those nearing retirement typically desire less volatility in their investments, as significant downturn can delay retirement by several years.

A high-volatility market is one that can produce both significant gains and significant losses. Investors must recognize that every investment has the potential to become volatile. Volatility is an expression of market fears and past changes, not a guarantee about the future.

Last Week’s Highlights:

Domestic markets have been on a strong run recently during a solid second quarter earnings season. 90% of the S&P 500’s companies have reported and 74% of them have beaten investor expectations.  Last week, domestic stock indices experienced a bit of a hiccup due to geopolitical tensions surrounding the situation in North Korea.   After a strong run, the Dow Jones broke its 10-day winning streak on Wednesday.  The trash talk between President Trump and North Korea’s Kim Jung Un caused safe havens (bonds and gold) to rally last week.  Overall, last week served as a reminder that investors can be an anxious bunch and that geopolitics can in fact influence our markets here at home.  The team here at Tufton continues to remind our clients and friends that these types of short term market jitters should not weigh on your long-term investment objectives.

Looking Ahead:

Aside from keeping an eye on the situation unfolding between the United States and North Korea, investors will continue monitoring earnings updates and continue trying to figure out what’s next for the Federal Reserve.  The U.S Census Bureau will report retail sales for July on Tuesday.  The Federal Open Market Committee will release its meeting minutes from its July 26th meeting on Wednesday and the first rounds of NAFTA negotiations between the U.S., Canada, and Mexico will commence. Weekly jobless claims will be released on Thursday. On Friday, we will close out the week with University of Michigan reporting their Consumer Sentiment figures for the month of August.

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The Weekly View (8/7/17)

What’s On Our Minds:

One of the most interesting aspects of investment and the stock market is its ability to show trends. Any given company on any given day has a stock value that behaves individually. However, there are certain characteristics that people might expect to see from companies depending on their size.

Commonly referred to as its “market cap,” a company’s market capitalization is the total value of all shares of its stock (both common and preferred). Though market cap is easy to calculate (shares multiplied by price), determining why a company holds its current share price is much more difficult.

In general, companies are classified into one of four categories: large-cap, mid-cap, small-cap and micro-cap. Large-caps (sometimes called “big-caps”) typically have a value of over $10 billion. Mid-caps span approximately $2-$10 billion. Small-caps are usually below $2 billion, with micro-caps being smaller than $250 million. Sometimes the terms “mega-cap” or “nano-cap” are also used; these are reserved for truly gigantic and extremely small companies, respectively.

Characteristics of each Cap Category


Large-caps are typically the most stable companies on the market. They are big companies with long histories and a lot of market recognition. Large-caps are more likely to pay out stock dividends and make good on bonds. Investors that focus on large-caps will try to use this stability to produce measured, consistent growth for their clients.


A mid-cap company usually carries a lot of weight in its particular industry, but is not as widespread as the large-cap companies are. Investors that predominantly use mid-caps aim to have higher gains from growth than large-caps, but put themselves at slightly more risk. During times of economic decline, mid-cap investors will usually lose more than large-cap investors.


Most small-cap companies are well established, but individually, have a minor role in the market. Their functions are usually non-essential, but they have plenty of room to expand and might possibly move into the mid-cap range. Small-cap investors try to harness this growth potential, but cannot be certain of success. These funds often have years of significant gain broken up with occasional years of loss. Small-caps will often boom during economic recovery.

Choosing a Market Cap Style

There is no “right answer” when it comes to choosing a type of cap for investing. Although any single type of market-cap might outperform any other type, success in the future is ultimately unknowable. Large and mid-caps might weather economic downturns better, but are less likely to grow quickly when things are good.

When investing, whether in bonds or stocks, it is important to get all the information. Risk and return must be balanced properly in every portfolio and the means to do it is not always clear. If you are consider adjusting your investments, contact Tufton Capital Management with all your questions and concerns.



Last Week’s Highlights:

There was a flurry of activity during the week as strong earnings continued to drive the major indices higher. The Dow set a new high water mark above 22,000 and the S&P 500 continues to march towards 2500. A particular Cupertino phone company continues to be the apple of the markets eye, as AAPL had a large earnings beat. The stock finished the week with a 4.5% gain and is up 34.5% YTD. Tesla had a strong quarter on unexpected revenue growth and continues to trek higher into even frothier levels. The market values Tesla $15B more than Ford motor company and $7B more than General Motors.

There was positive economic data this week as employers added 209,000 jobs in July and brought the unemployment rate down to 4.3%. In political news, General Kelly replaced Reince Preibus as White House Chief of Staff and fired Director of Communications Anthony Scarramucci, who only held the position for 10 days.


Looking Ahead:

Earnings are starting to slow down, but Disney and Home Depot, along with younger companies, like Snap Inc., are reporting. It’s supposed to be a quiet week in Washington D.C. as no major bills or testimonies are scheduled. These truly are the dog days of summer…


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The Weekly View (7/31/17)

What’s On Our Minds:

Market bubbles, like the tech bubble of the 1990’s, have formed for as long as there is record of exchange, and all follow a similar pattern of speculation.

In the early 17th century, the Dutch became enraptured by tulips, and created the first chronicled speculative bubble in history. As recorded in Charles Mackay’s Madness of Crowds, tulips began to grow rapidly in popularity all around Europe, and therefore tulip prices rose sharply. Many deft merchants identified this trend and made a large profit in trading tulips. Other merchants and the nobility, seeing these extraordinary profits, jumped into the tulip market. As a result, prices for tulips kept rising and rising, backed by nothing but speculation. Soon enough, nobles, farmers, seamen, chimney sweepers, and maidservants alike were all dabbling in tulips. Below is a chart of what one individual paid for a single tulip bulb!

(Source: The Tulipmania: Fact or Artifact?)

Eventually, the tulip market ran out of new money to keep bidding up prices. As reality sat in, speculators all ran for the exit and prices plummeted. Many speculators lost all their savings as contracts they purchased were ten times the price that tulips were then trading.

This is an important lesson for us in 2017. As Benjamin Graham poignantly argues, “an investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” Graham would certainly have chuckled at otherwise serious individuals who lost a whole year’s salary on buying tulips.

Buying something, be it tulips, Bitcoin, or the hot stock of the day, as an investment because everyone else is doing it, or because of tremendous recent returns is not investing, but speculating. It may work in the short term, but it always has devastating effects in the long term.

The lessons of manias past are always important to keep in mind in an ever changing market. This isn’t to compare any particular asset to the tulip bulb craze, but it is always smart to study history in an attempt to understand the present. Many people will make bold claims about “X being in a bubble” or “Y will never go down.” A prudent investor, not speculator, will not be swayed by the opinions of crowds and will continue to drown out the noise and invest in quality assets at good prices.

Tulip Price

(Source: The Tulipmania: Fact or Artifact?)


Bitcoin Price


Last Week’s Highlights:

The Dow Jones Industrial Average climbed to a record 21,830.31, up 1.2% the past week, backed by strong earnings. Big names like Verizon, Google, McDonald’s, and Boeing all surpassed expectations for the second quarter and gave an optimistic forecast for the future. Oil rose 8.6% last week after Saudi Arabia cut its oil exports and OPEC said they might discipline member nations who do not follow OPEC’s production limits.

The Federal Reserve left interest rates unchanged after their meeting Wednesday. They hinted that the tapering of its $4.5 trillion balance sheet will begin “relatively soon.” GDP rose 2.6% in the second quarter, which was slightly less than the estimated 2.7%. The growth was driven by increased consumer spending and increased business investment, both positive signs for the macroeconomic health of the US economy.

In Washington, the GOP’s repeal and replace effort to end ObamaCare has concluded for now. In a vote for “skinny repeal,” John McCain shocked the nation by casting the decisive “no” vote, resulting in a 49-51 vote. The market has been indifferent to the chaos in Washington as the major indices continue to climb, despite a recent legislative defeat (TrumpCare), high profile firings (Chief of Staff Reince Preibus), and swirling allegations surrounding the current administration. The next major agenda item is tax reform, which is very important to corporate America, and has been a major reason for the so-called Trump Bump.


Looking Ahead:

There will be a slew of economic data released this week. On Monday, the Chicago Purchasing Managers Index will be announced. Personal income and spending data, and the ISM Manufacturing Index will be reported on Tuesday, and nonfarm payrolls will be released Friday. The Bank of England also will issue a rate decision on Thursday.

In large cap earnings this week, Apple, Under Armour, Sprint, Time Warner, Kraft Heinz, and Pfizer are all set to report. Oil earnings are in full swing with BP, EOG, Devon, Chesapeake, and EPD reporting throughout the week. At General Electric, John Flannery will be replacing Jeff Immelt on Tuesday and investors will be waiting for any news about the direction of the company.

In political news, there are hopes that Republicans will abandon Healthcare reform for the time being and begin to focus on tax reform. Mike Pence will visit Eastern Europe.


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The Weekly View (7/24/17)

What’s On Our Minds:

With very little volatility in domestic markets lately, let’s review the tax management strategy of “tax loss harvesting”.

Aside from research roles, Tufton Capital’s portfolio managers are responsible for all aspects of portfolio construction and supervision, which includes the management of gains and losses that are realized in our clients’ taxable accounts. Of course, tax implications are not the paramount concern in the management of a portfolio, but trading responsibly with this in mind can make a big difference for investors come tax day in April.

Selling at a loss may seem to run counter to your investment goals, but because the IRS allows for investment losses to be used to offset capital gains, investors should look to make the best of an otherwise unprofitable investment. With that in mind, investors should consider selling poor performers in their taxable accounts by conducting tax loss sales. This strategy is especially good for investors in the 25-35% Federal tax brackets who must pay a long-term capital gains rate of 15%. The tax savings increase for the highest income earners in the 39.6% Federal tax bracket, who must pay 20% on long-term capital gains. Plus, depending on where you live, you may be subject to capital gains taxes at the state level. Our clients in Maryland know this all too well!

Of course, we don’t make trades just for tax purposes. If we think a stock is going to increase in value, we hold it. If we think it is going to go down, we sell it. But using a tax wash sale, in which a security is sold and then repurchased after 30 or more days, enable an investor to claim the tax loss but still hang on to an investment that he or she thinks has long-term potential.

Take for example a single person who has an annual income of $100,000. He would be in the 15% long-term capital gains bracket. In his brokerage account, he has a realized long-term capital gain of $50,000 in Investment A and an unrealized long-term capital loss of $30,000 in Investment B. If he sells his shares of the losing stock, he can offset the $50,000 gain against the $30,000 loss, resulting in $20,000 of net long-term gains. If he does not harvest the loss, the Federal tax on his $50,000 long-term gain would be $7,500. By partaking in this tax loss harvest, he will save himself $4,500, which would have otherwise been a piece of his Federal tax liability for the year (See Figure 1).

Portfolios with large unrealized gains will likely have some positions that have unrealized losses. Although a loss may be hard to look at, sometimes it’s best to bite the bullet and clean these losers out of a portfolio. This management strategy allows investors to free up cash in the portfolio, which can be deployed into other, more attractive investments.

While it’s important to avoid the tax tail wagging the investment dog in your overall investment strategy, a disciplined approach to managing tax liabilities is an important component of wealth management.

Last Week’s Highlights:

On the back of strong earnings, all three domestic market indices notched new record highs during the week, but finished with mixed results. Major banks reported earnings, with most producing top and bottom line beats but with mixed results beyond the headline numbers. Goldman Sachs had gains in its equity portfolio but reported weak trading revenue. Bank of America posted a surprise drop in net interest income. Netflix was a major winner for the week, adding 5.2 million users in the quarter, and posting a 32% jump in revenue. Activist investor Nelson Peltz stated his intentions to begin a proxy battle with Procter and Gamble over obtaining a board seat. He argues that P&G has not followed through on long term plans and doubts future plans will be implemented.

In economic news, ECB President Mario Draghi hasn’t discussed the wind-down of the ECB’s bond buying program, but is expected to do so later this year. Baker Hughes’ U.S. rig count reported a loss of 2 rigs but still reports 488 more rigs than the year prior.

On Capitol Hill, Republicans failed to bring the health care reform bill to vote due to lack of support, but they promise to bring a full repeal bill to vote soon. They also hinted at a potential tax cut, and Dodd-Frank partial repeal, but markets failed to react due to Republicans’ perceived inability to enact legislation.


Looking Ahead:

This coming week has a packed schedule, both on Wall Street and in Washington. The Senate is poised to vote on a stand-alone repeal of ObamaCare sometime this week, as Republicans try to keep true to their 7 year old campaign promise. The Senate is going to hear testimonies from Jared Kushner, Donald Trump Jr., and Paul Manafort, which should provide some color on the ongoing Russia investigation.

On Monday, ministers from six OPEC nations gather in Russia to discuss the current supply gut in oil and how the cartel is going to respond to it. On Wednesday, the Federal Reserve will end its two-day meeting and announce its decision on interest rates. They are expected to clarify their language on when they will start to normalize their $4.5 trillion balance sheet. Treasury Secretary Steve Mnuchin will testify on the state of the International Financial System on Thursday. Lastly on Friday, the US’s 2nd quarter GDP growth will be reported.

In the markets, Google, Haliburton, AT&T, Caterpillar, Coca-Cola, and Exxon Mobil are among the notable companies reporting earnings this week. Tesla is expected to deliver the first of its lower-cost Model 3 cars. Scaling and production have been hiccups for Tesla in the past, so the market is looking to see if the Model 3 rollout will be successful.

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The Weekly View (7/17/17)

What’s On Our Minds:

THE WORST OF THE BEST: Mistakes Made by (Otherwise) Successful Investors

In Wall Street’s long history, many investors and companies have made successful investments that put them on the map (and made them hundreds of millions of dollars).  Their success leaves people astounded and, in all likelihood, a bit envious.

But, despite their prolific returns, no one has a perfect investment record. In the hunt for extraordinary profits, an investor’s mistakes can lead to extraordinary losses. And, though it won’t make your stock-picking skills any better, it’s nice to be reminded that even investing giants are still human beings. Here are just a few of the biggest investing mistakes from the past few decades.

Carl Icahn Bets on Blockbuster’s Resilience and Loses

A skilled investor known for turning around failing businesses, Carl Icahn is reported to have invested over $190 million in video rental giant Blockbuster from 2004–05.  Icahn believed the shares to be severely undervalued, but, in reality, the company was permanently losing its market share and was later forced to liquidate. Icahn ended up losing around 97 percent (more than $180 million) of his total investment by the time he threw in the towel in 2010.

The silver lining? Icahn recognized the value of video streaming service Netflix, which was largely responsible for Blockbuster’s decline, and quickly bought nearly 10 percent of the company. When he sold just half of his shares in October 2013, he pocketed over $800 million in profits.

Warren Buffett’s Oil Fiasco

Despite being the most successful investor of all time, Warren Buffett has made a few errors in judgment. His biggest mistake began in 2007–08, when oil prices peaked across the world. Buffett, known for his ability to pick out undervalued stocks, made an uncharacteristic purchase of highly priced ConocoPhillips stock. His purchase was massive, approximately $7 billion in shares. As demand and prices fell following 2008, the stock lost almost half its value. Although ConocoPhillips somewhat recovered, it is estimated that Buffett lost at least $1.5 billion on his commodity speculation.

LTCM Defeated by the Russian Winter

In the 1990s, John Meriwether and his hedge fund Long-Term Capital Management (LTCM) were astounding investors on Wall Street. Using detailed mathematical models and borrowing money to leverage their investments, LTCM targeted small, but predictable, bond trades. LTCM was rarely wrong and produced fantastic returns. However, in 1998, LTCM made a $10 billion bet on Russian bonds, leveraging their money 100-fold. When the bonds went the wrong way later that year, LTCM became destabilized and had to be bailed out by other Wall Street firms to avoid a meltdown in the bond market. By the time Meriwether dismantled LTCM in 2000, it had lost some $4.6 billion.

Bill Ackman Helms a Sinking  J.C. Penney

An activist investor, Bill Ackman is known for finding underperforming stocks and pushing their company profits to the limit. In October 2010, Ackman’s hedge fund took a nearly $1 billion stake in the struggling J.C. Penney and put Ackman on the company’s board of directors. However, the changes made to the company were largely ineffective and the share price continued to plummet. In less than three years, Ackman stepped down from the board and sold his fund’s shares in the company; the resulting losses exceeded $400 million.

David Bonderman’s Bankrupt Bank

Billionaire David Bonderman has been known to find huge profits in scooping up companies on the brink of failure. During the financial crisis, the giant Seattle-based bank Washington Mutual, or “WaMu,” looked like a perfect buying opportunity for Bonderman. Spearheaded by his renowned investment firm TPG Capital, investors dumped a total of $7 billion into the bank in April 2008. However, just five months later, the FDIC shut down WaMu and took all its assets, destroying its investment value. Investors lost every dollar they paid, and TPG Capital’s own $1.35 billion stake in the bank vanished overnight.


The history of investing is littered with hundreds of investors, financiers, and businesses that made big bets and lost. These examples serve as a good reminder that all investments are uncertain, even for the smartest investors in the world.

In investing, success is not about being perfect, but about getting more investments right than wrong. As an investor who is not working with millions or billions, you can only aim to avoid extremely risky investments and not get carried away when buying into an apparent opportunity.

Last Week’s Highlights:

Markets finished the week at a record high Friday with the all major indices gaining a percent or more. Oil prices were up 5%. Janet Yellen spoke in a dovish tone when speaking in front of congress. She highlighted the strength of job growth and indicated the intent to wind down the Fed’s $4.5 trillion balance sheet starting this fall. Her major worry is that inflation remains below the Fed’s target of 2%.   Low inflation coincides with a soft Consumer Price Index (CPI) number and lagging real estate prices- not good for economic growth. China posted Q2 GDP growth of 6.9%, driven by 10% growth in consumer spending and firmer exports, especially steel. President Trump has made cutting US’s trade deficit with China a top agenda item and has also flagged the steel trade as a point of contention.    


Looking Ahead:

Earnings season is officially in full swing with some big names reporting this week, including Under Armour, Bank of America, Microsoft, and General Electric just to name a few.  With major tech, industrials, and financial firms all reporting, earnings this week will showcase the health of corporations across a large portion of the economy.

There will also be a host of economic data being reported. Tuesday will have export and import data. Housing data will be released this week on Tuesday and Wednesday, and initial jobless claims will be reported on Thursday. With Janet Yellen taking a slightly dovish tone, all eyes will be on any potential data points for the Fed to base its monetary policy on. Also, Japan and ECB will be announcing their monetary decisions later this week.

In political news, gridlock continues on Capitol Hill as the vote on the bill to replace Obamacare has been delayed until Senator John McCain recovers from surgery.

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The Tufton Viewpoint, Summer 2017: A Rising Tide Lifts All Boats

With the fireworks long faded, and the bunting stowed away, the high holiday of summer has come and gone. But if the party is over, a question now looms large. Who’s going to tell that to the American stock market?

For all the talk of stormy seas that preceded it, the story of 2017 has turned out to be one of decidedly smooth sailing. In the first six months of the year, both the Dow Jones Industrial Average and the S&P 500 rose by 9%, more than doubling their gains over the same period last year. Over on the NASDAQ, where high-technology (and high-publicity) business models reign supreme, the good fortune rolled in even faster. Up 15% since the year began, the index is on track to turn in its best year in nearly a decade. A few weeks back, while all three indices breached or skirted all-time highs, the VIX—which measures fear in the market—approached a 20- year low. Just like those 4th of July fireworks, the year has certainly begun with a “bang.”


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The Second Quarter of 2017: Steady As She Goes

by Eric Schopf

The stock market continued to march higher in the second quarter. A solid 4% total return in the second quarter of the year brings performance for the first half of 2017 to around 9%.  On June 19, the Standard & Poor’s 500 reached an all-time high of 2,453.  The Dow Jones Industrial Average and the NASDAQ markets also hit record highs during the quarter.  This strong performance has been accompanied by very low volatility.  For example, the stock market fell for three consecutive days just twice during the quarter.  Another positive mark was that the largest one-day drop in the S&P 500 during the quarter was 1.82% on May 17, which more than recovered in the five trading days that followed.  The lack of volatility in the stock market reflects the placid, stable U.S. economy.  This year will mark the eighth consecutive year of economic growth falling in a tight range of 1.5% – 2.5%.

On the other side of the fence, the bond market marched to the beat of a different drum during the quarter.  Short-term interest rates moved higher in reaction to Federal Reserve policy, but intermediate- and long-term rates moved significantly lower.  The yield on 10-year U.S. Treasuries touched 2.14%, approaching levels that prevailed in December 2015, prior to the start of the Fed’s tightening cycle.  Lower long-term rates cast doubt over anticipated future economic growth and the inflationary pressures that typically accompany such growth.


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Diversification: Investing’s “Free Lunch”

by John Kernan

Diversifying a portfolio is a relatively simple concept. If you have more securities and one goes bad, it won’t sink your whole ship. Diversification is often called investing’s “free lunch” for good reason.  You get the benefit of lower risk with little extra cost to you as the investor.

Proper diversification isn’t always as straightforward, and investors can get themselves into a mess while thinking they’re doing the right thing by holding lots of funds. For example, any investor choosing a mix of assets has certainly heard of diversification, but while looking at a menu of 50+ mutual funds, how to diversify might not be so clear. He or she might “wisely” choose several funds that look to be different. Looking at Vanguard’s “Stock Funds” menu, it would be easy to pick the following list of funds: (more…)

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Company Spotlight: Bristol-Myers Squibb (Ticker: BMY)

by Barbara Rishel

Bristol-Myers Squibb (Ticker: BMY) is a leading biopharmaceutical company that discovers, develops, manufactures, and distributes products worldwide.  Squibb was founded in 1858 and Bristol-Myers Corporation was founded in 1887, and the two came together a hundred years later in 1989 to form BMY.  Today, the company generates annual revenues of $20 billion.

BMY’s product line serves several important therapeutic areas, but most important to Bristol is its oncology business.  Within oncology, investors’ hopes focus on Bristol’s drug Nivolumab, marketed as Opdivo. Opdivo works as a checkpoint inhibitor, using the patient’s own immune system to combat cancer.  Immune checkpoint science has been progressing in the fight against cancer for almost twenty years, but Opdivo only received FDA approval for the treatment of melanoma in 2014, making it a cutting-edge treatment.  The drug is undergoing further testing in combination with other drugs to improve outcomes and expand the addressable market.


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Great Investors: Benjamin Graham

If anyone could be considered the father of modern stock analysis, it would be Ben Graham. During the ‘30s, ‘40s and ‘50s, Graham pioneered the ideas of “value investing” and taught the next generation of investors to see the difference between stock evaluation and market speculation.

Ben Graham was born Benjamin Grossbaum in 1894. He was born in England, but his family emigrated to the United States when he was only a year old. His parents ran a reasonably successful importing business until his father died in 1903, at which point the business deteriorated. Ben was forced to begin working while still in school.


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The Weekly View (7/10/17)

What’s On Our Minds:

Nonfarm payrolls rose 222,000 in June, beating economists’ expectations.  Unemployment remains near historic lows at 4.4%. This came in well above economists’ predictions of 178,000 jobs. April and May numbers were also revised upward. A negative in Friday’s report was the wage growth numbers, which rose 2.5% from last year, below estimates of 2.6%. Wage growth continues to be slow and is another indicator of lower than expected inflation.

Economists believe low wage growth and inflation will give the Fed an even greater case to continue to tighten monetary policy. It is also important to realize these numbers are constantly revised, so all interpretations should be taken with a grain of salt. Moving forward, all eyes will be on wage growth and whether strong jobs numbers will have a positive effect on GDP growth, which has been tepid.

Another interesting topic is whether or not the natural employment rate is lower than once thought. The Fed believes the natural rate is somewhere between 4.7%-5.8%. Economists normally believe inflation should “catch” soon after employment dips below the natural rate and that a shortage in the labor market should force wages higher.   In theory, this should cause the economy to start to overheat, but this has yet to be seen in the current expansion.  Is the natural rate lower than once thought or is something else going on?

Last Week’s Highlights:

With a mix of strong economic data and geopolitical uncertainty, markets eked out gains during the week of trading shortened by the July 4th holiday.  Both the S&P 500 and Dow Jones remain up by more than 8% for the year.  Stocks had a good day Friday after the June jobs report was released.  The Federal Reserve’s meeting minutes were released, and the Fed discussed plans to continue unwinding its $4.5 trillion balance sheet.  The G20 summit and tensions with North Korea put geopolitics in the forefront of investors’ minds.


Looking Ahead:

Janet Yellen will be speaking before Congress on Wednesday.  Investors are eager to hear what she will have to say regarding the Fed’s reaction to recent jobs and inflation data.  Inflation and retail sales data will be released on Friday. Second quarter earnings season gets underway this week with reports coming out of J.P Morgan Chase, Wells Fargo, and Citigroup on Friday.

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The Weekly View (7/3/17)

What’s On Our Minds:

Tufton Capital Management would like to wish all of our clients and associates a Happy Independence Day!


Last Week’s Highlights:

The first half of 2017 is officially in the books.  Tech stocks were Wall Street’s darlings in the first half of the year but have struggled recently.  Bank stocks came back into vogue in June.

Stocks were mixed last week. The S&P was down slightly, the Dow was flat, but the NASDAQ was down 2% due to volatility in the tech sector. Financial stocks had a good week after it was reported that all 34 U.S. banks passed the Federal Reserve’s annual stress test.

Looking Ahead:

It’s a short week of trading but investors will have plenty of fresh economic data to review.  The market will close at 1 PM on Monday and will be closed on Tuesday as Americans celebrate the Fourth of July.  The PMI and ISM manufacturing indices and construction spending from June will be reported on Monday.  On Wednesday, the Fed will release minutes from its last meeting.  On Friday we will cap off the week with the highly anticipated June jobs report.

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The Weekly View (6/26/17)

What’s On Our Minds:

One may associate the summer months with longer days, beach vacations, leisurely weekends, and a general slowdown in the business world. But instead of getting lulled into the “Summertime Blues”, at Tufton Capital, we are cranking up our research efforts with a full crew of summer interns.

At Tufton, our Investment Committee stays busy throughout the year as our five portfolio managers and two research associates conduct all the firm’s equity research in house.  To stay ahead with our research efforts during the summer months, it has long been a tradition for the firm to hire highly qualified summer interns to run valuations, write reports, and present their findings to our Investment Committee.  It is important work that we believe benefits both the firm and our interns as they look to get into the investment business after college.  Many of the alumni from our internship program have gone on to land great jobs on Wall Street after college.

This year we are happy to have a crew of four interns joining us for the summer.

Chris Guidry is joining us from Hood College where he is majoring in Economics with a concentration in Finance.  Chris is the Chief Investment Officer of the Hood College Student Investment Fund. Prior to attending Hood, Chris was a Sergeant in the United States Marine Corps.

Nick Kuchar interned with the firm in 2015 while he was at Gilman and is joining us again this summer from the University of Michigan. Nick is a member of the Michigan Interactive Investment Club where he and other students manage a $20,000 fund.  Nick is also a recruiting analyst for the school’s football team.

George Sarkes is joining us for his second summer at Tufton.  George recently graduated from Washington and Lee University where he majored in Accounting and Business Administration and was a member of the Beta Alpha Psi honor society.

Haley Greenspan is joining us from the University of Maryland where she is attending the Robert H. Smith School of Business and is majoring in Finance and Computer Science.

We are very pleased with our intern team’s progress thus far this summer and appreciate the hustle and bustle they bring to our office.

Last Week’s Highlights:

Markets were quiet last week as there were not any market moving catalysts.  Senate released the long awaited healthcare bill after closed door negotiations. Details are still being figured out. Oil once again dipped in bear market territory; it lost 4.4% on the week and ended at $43.01. Banks passed the Fed’s stress tests that require them to have adequate capital levels to lend during a recession. Uber CEO, Travis Kalanick, resigned under pressure from investors amid ongoing negative PR and controversy.

In global news, tensions spiked in Syria as an American jet shot down a Syrian government jet. International stability is topic of concern for investors, and developments overseas continue to affect the markets.



Looking Ahead:

All eyes will be on Washington D.C. for the upcoming vote on Senate Republican’s alternative to Obamacare, the BCRA. The Congressional Budget Office (CBO) will issue a report on the BCRA Monday, estimating the bill’s cost/savings, along with how many individuals will be left uninsured. Five Republican Senators ranging from hard-line conservative Ted Cruz (R-TX) to moderate Dean Heller (R-NV), have openly opposed the bill in its current form. Mitch McConnell can only afford two GOP defections to pass the bill, and he plans to vote on the bill on either late Thursday or Friday, before the July 4th recess. One sixth of the US economy could be affected by the changes in the healthcare law.

On Wednesday, the Federal Reserve will publish its results on if big banks passed their stress tests. The stress tests, which were started because of the Dodd-Frank financial overhaul, are expected to be less strenuous because the Trump administration removed the qualitative part of the test that led to embarrassing failures for banks, such as Citigroup, Deutsche Bank, and Banco Santando.

Lastly, Blue Apron, the meal-kit company, is set to IPO Wednesday. They are expecting to raise $586 million from the IPO and are given a $3 billion valuation, making it one of the bigger IPOs of 2017.


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The Weekly View (6/19/17)

What’s On Our Minds:

On Friday, it was announced that Amazon will make its largest acquisition to date by acquiring Whole Foods for $13.7 billion. By acquiring the 460-store grocery network, Jeff Bezos, CEO of Amazon, is planning on Amazon becoming a top five grocery retailer by 2025. Traditional grocers, like Krogers, Costco, and Walmart, saw their shares sink on Friday at the prospects of a pricing war and disruption in the industry.

This purchase should be a game changer for the grocery business. Like any merger or acquisition, there will be some winners and some losers.  As Amazon continues to transform the way consumers shop, they should benefit from more grocery options and a more efficient shopping experience which should save them time and money.  The deal could end up being an unfortunate scenario for Whole Foods cashiers and other minimum wage employees, as Amazon will be looking to cut costs and optimize efficiency in brick and mortar stores.

Amazon is known for waging fierce price wars and upending traditional logistics methods to cut costs. Market commentators have speculated that Amazon will look to cut costs at the pricey chain by eliminating cashiers, changing inventory, and updating the stores’ approach. As one might expect from Amazon, technology could play a large role.

Last year, Amazon released a concept called “Amazon Go” where shoppers walk into an Amazon grocery store, check in with an app on their phone, pick out what they want to take home, and then simply walk out.  Amazon Go stores can track which products you take off their shelves and automatically charge your account.  Amazon calls it “just walk out” technology.  While it’s unclear if Amazon will apply the concept in Whole Foods stores, it’s likely we will be seeing some changes in our neighborhood Whole Foods stores.

Click here to see a video on the “Amazon Go” concept

Last Week’s Highlights:

The S&P 500 finished up 0.06% last week. Technology stocks continued their slide, down 1.37% as fears continue to mount about the sector being overvalued at 2000-esque levels. Industrials (+1.13%), Real Estate (+.81%), and Utilities (+.82%) were the winners of the week with Tech (-1.37%), Consumer Staples (-1.27%), and Materials (-1.12%) being the losers.

The Federal Reserve raised its benchmark interest rate to between 1% and 1.25%. This is the second increase this year, and Fed Chair Janet Yellen suggested that it will stick to plans to raise rates three times in 2017. Yellen also laid out a plan to gradually ‘normalize’ the Fed’s $4.5 trillion balance sheet by not reinvesting the principle when the 10-year Treasury notes and Mortgage Backed Securities come due.

Travis Kalanick, the embattled CEO of Uber, announced an indefinite leave of absence as the firm agreed to recommendations to conduct an independent review into its abrasive corporate culture that has led to a series of PR disasters, mostly related to corporate sexism. With half its C-Suite empty and operating at a $607 million loss, Uber is certainly going through growing pains.

Oil prices plunged to their lowest levels in seven months after data from the International Energy Agency indicated that stockpiles of crude in America are falling by much less than had been expected, and they do not expect the global supply glut in oil to ease this year.

Looking Ahead:

Brexit talks begin today, and investors will be hungry for any information related to the extent and timing of the UK’s exit from the European Union. Many economists are hoping the new agreement will at least partly maintain the UK’s participation in the European free trading area.

The White House will be holding a tech summit this week, and the Paris Air Show will be taking place all week. The Paris Air Show is a perfect platform for Aerospace/Defense to showcase new technology, so look for market-making news to come from this event. The tech summit should give insight to the lengths the Trump administration will go to modernize the nation and partner with tech companies.

U.S. housing market data and crude oil inventory numbers will be released on Wednesday, Initial Jobless Claims report and EU consumer confidence on Thursday, and the EU leader’s summit will take place Thursday-Friday.

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The Weekly View (6/12/17)

What’s On Our Minds:

Forget about FANG; there’s an updated group of market moving mega-cap tech stocks in 2017.  The “Fabulous Five” includes Facebook, Amazon, Apple, Microsoft, and Google. The street is calling the high-flying group “FAAMG”.  Combined, the FAAMG stocks have added $660 billion in market value this year and even though these companies are only 1% of the number of companies in the S&P 500, these top 5 tech stocks account for 13% of the market value weighting in the index.

Last Friday, Goldman Sachs’ research department took a shot at the FAAMG high-fliers noting that the overall return of the Nasdaq and S&P 500 is getting increasingly dependent on the FAAMG group.  The report even went as far to compare the run up in these stocks to the euphoria in tech stocks before the burst of the Dot-Com bubble nearly 20 years ago.  Goldman analyst Robert Bourojerdi wrote, “This out performance, driven by secular growth and the death of the reflation narrative, has created positions extremes, factor crowding and difficult-to-decipher risk narratives (e.g. FAAMG’s realized volatility is now below that of Staples and Utilities).” For investors, Friday’s report from one of Wall Street’s top firms, was hard pill to swallow and the exuberance built in these companies’ share prices was interrupted.  Facebook was down 2.27%, Amazon was down 2.95%, Apple was down 3.52%, Microsoft was down 2.39% and Alphabet was fell 2.3%.

Clearly, Goldman’s research department is a bit worried the investors are getting caught up in the game of chasing growth in this small group of names.

Even though these types of moves are exciting to follow, we urge our readers to avoid getting caught up in the day to day media hype, and remain focused on the long-term prospects of their investment portfolio.  The Tufton investment team continues to diligently monitor developments throughout the market and clients’ individual portfolios.


Last Week’s Highlights:

While financials had a great week due to a Dodd Frank repeal moving through the House of Representatives, a move Friday by technology stocks drove the S&P and NASDAQ into the red. NASDAQ was pushed lower by note by Goldman Sachs that suggested investors are overestimating the stability and strength of many recent outperformers in the Tech space. This led to a quick selloff and profit taking across the board in tech, and ended with the Technology Select Sector SPDR ETF (XLF) slumping -2.47%. Energy stocks had a volatile week, dropping in value midweek, but recovered on Friday.  The price of WTI oil moved to its lowest level since November, on higher than expected inventory levels, as supply and demand forces continue to duel it out causing uncertainty in the energy sector.

Political forces continued to drive the narrative and influence the markets, but last week, economic forces took the wheel in moving the needle. The Comey testimony before Congress did not reveal anything particularly material or surprising, and markets reacted positively. In other news, Nordstrom is seeking to take itself private, GM sided with management against activist investor David Einhorn’s proposals, and Alibaba surged on raised guidance.


Looking Ahead:

All eyes will be on the Federal Reserve this week when they decide Wednesday whether to raise short term interest rates. The Street is expecting the Fed to increase rates by 25 basis points. Janet Yellen will also hold a press conference afterwards, which will be closely followed, because it could shed light on the state of the US economy, future Fed rate hikes, and if they will start to unwind the Fed’s $4.5 trillion balance sheet.

The Producers Price Index (PPI) and the consumers price index (CPI) will be reported Tuesday and Wednesday respectively.  Both are measures of inflation and it is estimated that each increased between 0.2% and 0.5% this past month.

To wrap up the week on Friday, the stock market will likely see increased volume because it is a ‘triple-witching’ day.  Triple witching days happen four times a year in March, June, September and December. It is a day when contracts for stock index options, stock index futures, and stock options all expire on the same day, and the stock market is flooded by arbitrage traders seeking to exploit price disparities.


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