Hello and Happy Election Day!

A day late on the weekend reading this week. It was a tough loss for the Bills this weekend, but divisional games can also be tricky. Fortunately the Eagles took down the Texans on Thursday night to remain the last unbeaten team in the NFL!

By Stephen Mitchell

Earnings Insight (as of 11/04/2022)

As we continue to work through this busy earnings-season we wanted to provide a quick overview of how companies have performed so far:

  • 85% of S&P 500 companies have reported actual results.
  • So far 70% of S&P 500 companies have reported a positive EPS surprise which is below the 5-year and 10-year average.
  • Thus far, for Q3 2022 the blended earnings growth rate for the S&P 500 is 2.2%. This would mark the lowest earnings growth rate reported by the index since Q3 2020.
  • 71% have reported a positive revenue surprise, which is above the 5-year and 10-year average.
  • So far in Q3 all eleven sectors witnessed a decline in expected earnings for the fourth quarter
    • Led by Materials (-13.7%), Communication Services (-15.4%), and Consumer Discretionary (-14.4%).
  • With all eleven sectors reporting year-over-year growth in revenues
    • If the current 10.5% growth rate in revenues holds, it will mark the seventh straight quarter that the index has reported revenue growth in double figures.
  • The Energy sector is reporting the highest year-over-year earnings growth of all eleven sectors at 139%.
    • A large part of this has to do with higher year-over-year oil prices as the average price of oil in Q3 2022 ($91.43) was 30% above the average price for oil in Q3 2021 ($70.52).
    • All 5 energy sub industries reported year-over-year revenue growth above 20% as well.

Attention - Collab Fund

Attention – by Morgan Housel

Good communication is a critical part of success in any industry

In an attempt to garner the most attention many writers will turn to clickbait, pandering, and fear mongering. “The loudest voice wins.”

  • However, to garner long term trust, and the readers true attention, you must be more insightful

Some things to keep in mind while writing

  • Get to the point
    • “When a writer respects the readers time as much as they value their own words, trust is built..”
  • Good stories > deep lectures
    • “Stories stick with people in a way that a data dump of facts and formulas never can.”
  • Be broad
    • Stephen Hawking once said: “Someone told me that each equation I included in my book would halve sales.”
    • Clear language is something anyone from a novice to professional can easily understand
  • Introduce a new topic through the lens of something readers already know
    • A lot of good communication is teaching by analogy

Investing in Influence - Sparkline Capital

Investing in Influence – Sparkline Capital

Timely piece that breaks down lobbying for the current election cycle and investment implications from the firms that lobby the most

Since 1995 with the passing of the Lobbying Disclosure Act we have been given a little more transparency into some of the lobbying that occurs from public businesses and individuals

Just as with other intangible assets, political capital can be overlooked and undervalued by the market.

  • However, this political capital can be a way to potentially identify opportunities in the market
  • “Even in our capitalist society, government plays a powerful role in private industry. Just this August, the Inflation Reduction and CHIPS Acts authorized around $670 billion in subsidies for our scientific, energy, and semiconductor sectors.”

Lobbying comes from all types of industries and individuals

Top Public Company Donors

Top Individual Donors

According to their research the highest lobbying yield stocks have outperformed the market (Russell 1000) by 2.3% per year

  • This year is also shaping up to be one of the most expensive lobbying midterms ever at over $9B spent!

Electoral Price Inflation

At the end of the day not all lobbying is created equal and just because firms lobby a lot does not mean the money spent will be worth it.

  • “Buying $1.00 of political capital for $1.30 is a bad deal.”

The value of any investment is, and always will be, a function of the price you pay for it.” -Ben Graham

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