News

Karen Weiskopf and friends support COVID-19 Relief with community BINGO

May 14th, 2020

Karen Weiskopf, Vice President, Marketing at First Long Island Investors and several long-time friends got creative during quarantine and created a virtual BINGO game to support local businesses and Long Island charities engaged in COVID-19 relief efforts.  The group has raised over $33,000 so far and even had Academy Award Winner Natalie Portman call some numbers. CBS New York recently featured their efforts. 

Out of the Blue – COVID-19 Pandemic Perspective

March 24th, 2020

Background

We as a firm, had an excellent 2019 in absolute returns, making up for a downturn in the fourth quarter of 2018 caused by the premature Fed tightening and an evolving trade war with China.  2020 began with gains in the U.S. markets supported by the expectation of domestic growth fueled by almost record employment and strong consumers buttressed by low interest rates and low inflation.  Corporate earnings were projected to increase modestly over 2019.  Domestic GDP growth projections for 2020 and 2021 were between 1.8% and 2.2%.  Stocks looked reasonably attractive to us especially when compared to low-yielding bonds.  However, this level of valuation was attractive only if the projected earnings growth materialized.

Coronavirus 

Reality interfered with our plans when “out of the blue,” a vicious virus emanated out of Wuhan, China in December 2019.  It is believed the Chinese delayed disclosing the true nature of this coronavirus and the critically important fact that the virus was spreading from human to human – community spread.  This element gave rise to what would become a global pandemic as Chinese nationals and visitors to and from China became lethal carriers of the virus.  Unsuspecting nations including the U.S. and all European countries became victims, both victims of disease and the ensuing economic contraction necessary to stem the tide of the growth of this heinous virus.  Social distancing and “shelter in place,” both prescriptions for killing the virus as well as killing the economy, have become part of the norm!

Unfolding Impact

What is now occurring is a two-pronged war.  The first is a medical war against the virus.  Our soldiers are healthcare forces made up of frontline doctors, nurses, physician assistants, and all others on the front lines in all medical facilities.  They are battling day and night with the beginnings of a surge of patients as testing for the virus ramps up.  The virus remains highly contagious and some carriers have no symptoms.  Unprecedented amounts of testing are now being undertaken, but at a slower pace than required.  The best prescription to stem the tide of disease spread is social distancing which has become the cause of our second war, the economic one.

Social distancing has required the shutdown of an unprecedented amount of commerce.  Cruise lines, airlines, hotels, casinos, all professional sports, and live events (including concerts) began the economic contraction.  Now given the disease spread, government at both the Federal and state levels have created guidelines limiting groups to no more than ten or even worse “sheltering at home.”  Businesses have had to adapt to having employees primarily working remotely.  Virtually all restaurants, bars, and clubs throughout the country have temporarily closed.  Tens of thousands of workers are being let go or furloughed on a daily basis.  Most automobile production facilities have closed.  Schools, kindergarten through twelfth grade, across the country as well as many universities have sent students home indefinitely. 

This unprecedented dislocation of our way of life appears to be necessary to limit the spread of the disease and keep the fatality level down by spacing out hospital admissions in an attempt to deal with the capacity of our hospitals.  Additionally, this disease is particularly severe for seniors and people with preexisting health conditions.  There is really no way to adequately describe this challenge although it is one we believe that we as a nation will beat in time.

Economic Impact

Clearly, this “out of the blue” global pandemic has already brought an end to our 11-year bull market and will cause a recession.  A recession that a month ago seemed very unlikely to us.  It has also brought incredibly rapid government action along with decisive and bold Fed action lowering interest rates and using the Fed balance sheet in many developing ways.  It is expected that well in excess of a trillion dollars will be earmarked for afflicted workers, small businesses, and certain major industries.  Hopefully our elected officials can come together in the next few days and leave behind partisan politics. 

Investment Implications

As we write this, the S&P 500 Index has declined 30.4% year-to-date and declined 33.8% from its high in mid-February.  With so many industries and companies, big and small, curtailed or closed for an unknown period of time, corporate earnings and GDP will substantially decline.  Thus we are undoubtedly in recession and the stock market is declining.  High-quality bonds have performed better than high-yield, low quality bonds.  Real estate values will likely decline as commercial tenants defer or renege on rents.  Shopping centers are closed as stores have been forced to close, waiting out the hoped-for decline in disease spread.

In addition to this debacle, our economy also is digesting an oil war resulting from the failure of OPEC countries to reach agreement on limiting supply, primarily between the Russians and OPEC countries led by the Saudis.  The good news for now (for consumers and businesses) are lower oil and gasoline prices.  The bad news is the impact of collapsing prices on America’s oil and oil shale businesses.  This could also impact debt arrangements with many domestic banks.

Looking Across the Valley

As long-term investors, we have experienced other periods when unexpected events led to substantial market declines.  October 1987, the dotcom crash of 2000-2002, and the financial crisis of 2008-2009 were other periods where we faced dramatic market routs.  Our advice then was the same as it is now: stay the course in high-quality companies, bonds, and real estate.  Valuations have become quite attractive assuming that the companies we invest in will at some point in the not too distant future return to “normalized earnings.”  Some companies that we invest in might even benefit in the short- and long-term from this crisis including Amazon.com, Facebook, and Alphabet (Google’s parent company).  Additionally, other companies that we have an interest in will ultimately benefit from new 5G technology like QUALCOMM, or the continued move towards cloud computing such as Adobe and Microsoft.  We believe there is a certain inevitability of a return to normal where great companies will prevail.  Look to 2021 for more normal earnings and economic conditions.

However, for the time being the equity markets are falling quickly.  To make matters worse, high-quality companies are falling along with lower-quality ones.  Future earnings and dividends do not seem to matter in the short term but our experience tells us that they will matter in time.  Vitally needed pharmaceutical companies are trading at what we believe will be viewed as bargain prices with many paying high dividends based on the reduced share prices of these companies.  Banks that are well capitalized are also in free fall despite rock solid balance sheets.  Technology companies, as mentioned above, with great prospects also have fallen victim to the panic selling.  Every sector of the S&P 500 is down at least 20% with more than half of them down more than 25%.  There appears to be a disregard for a future that is brighter than the gloom and uncertainty of today.

As we have often said, we own interests in real companies that have assets and almost always make a profit.  In today’s world, that does not seem to matter, but it will.  We believe many of these companies are cheap and deserve to be held for the long term.

The consumer, who is the backbone of our domestic economy, has suffered a vicious gut punch.  A punch that has temporarily stopped many from working, shopping, eating at restaurants, and participating in activities that were always taken for granted.  Unemployment will soar in the weeks to come.  Many smaller businesses will close.  This is war.  We need the Federal government to come to the aid of the consumer, worker, and business.  We expect that to happen shortly.  This will make a difference and the sooner the better.

How to Invest

Our adherence to a prudent asset allocation has worked for us to a degree.  Many of our defensive and traditional equity strategies are outperforming their benchmarks despite being sharply down.  Quality will ultimately prevail.  Diversification in having some bonds and defensive strategies is keeping our clients in the battle.

We do not know where the bottom is as we have no crystal ball.  However, we believe we know good prices for solid companies, and those of today seem like good prices for many.  However, they could get even better.  That said, if one has additional liquid assets (beyond what is needed to either live on or sleep at night) we would consider deploying in stages to what we believe is an exceptional long-term opportunity for the future.

Hold on and let’s beat this invisible enemy, the coronavirus.  Once we as a society and government do that, you can count on America as consumers and businesses to come back.  We always do.

Thank you for your confidence in us and the kind words many of you have said to us as we have reached out to you during this surreal period of time.  Please do not hesitate to call.

Stay safe and practice social distancing and good hygiene.

In good health,

Robert D. Rosenthal, Chairman, CEO, and Chief Investment Officer

and

Ralph F. Palleschi, President and Chief Operating Officer

*The forecast provided above is based on the reasonable beliefs of First Long Island Investors, LLC and is not a guarantee of future performance. Actual results may differ materially. Past performance statistics may not be indicative of future results. Partnership returns are estimated and are subject to change without notice. Performance information for Dividend Growth, FLI Core and AB Concentrated US Growth strategies represent the performance of their respective composites. FLI average performance figures are dollar weighted based on assets.  

The views expressed are the views of Robert D. Rosenthal through the period ending March 23, 2020, and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such.

References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Content may not be reproduced, distributed, or transmitted, in whole or in portion, by any means, without written permission from First Long Island Investors, LLC. Copyright © 2020 by First Long Island Investors, LLC. All rights reserved.

Robert D. Rosenthal named to Long Island Press Power List

March 5th, 2020

First Long Island Investors is proud to announce that Robert D. Rosenthal, our Chairman, CEO, and Chief Investment Officer, has been named to the Long Island Press Power List.  Bob’s commitment to excellence in both is business and philanthropic efforts is commendable and he is honored to be recognized among such an esteemed list of peers. 

https://www.longislandpress.com/2020/02/04/17th-annual-long-island-press-power-list-announced/

Thought Leadership Series: The Business of Sports

December 24th, 2019
Photo of  Ralph F. Palleschi, President and COO of First Long Island Investors, Jon Ledecky, Co-Owner New York Islanders, and Robert D. Rosenthal, Chairman, CEO, and Chief Investment Officer of First Long Island Investors.
From left: Ralph F. Palleschi, President and COO of First Long Island Investors, Jon Ledecky, Co-Owner New York Islanders, and Robert D. Rosenthal, Chairman, CEO, and Chief Investment Officer of First Long Island Investors.

First Long Island Investors was honored to host Jon Ledecky, co-owner of the New York Islanders, for an exclusive event with clients and friends of the firm at the Garden City Hotel on November 7, 2019.  Mr. Ledecky has a prestigious background as a businessman.  He is a Harvard alumni who pursued a career in venture capital.  He went on to start his own office supplies business, U.S. Office Products, which eventually completed an initial public offering in 1995.  Following his departure from U.S. Office Products in 1998, Mr. Ledecky would go on to purchase ownership stakes in two professional Washington sports teams, the Capitals and the Wizards, from 1998 to 2001, before purchasing a stake in the New York Islanders in 2014.  After a two-year transition period, Mr. Ledecky became co-owner in 2016.

The event was a fireside chat between FLI’s Chairman, CEO, and Chief Investment Officer, Robert D. Rosenthal (past co-Chief Executive Officer and a minority owner of the NY Islanders in the 1990s) and Jon Ledecky.  The conversation began with accolades for the Islander’s 10-game winning streak they had at the time.  Mr. Ledecky pointed out the team-brand of hockey the players were bringing every night and how special the streak was given 6 veteran players were injured during the streak. The conversation then switched gears to the community.  Mr. Ledecky stated that owning a sports team is the next best service for the community outside of running for office.  It provides a platform with free-branding (news, radio, Instagram, Twitter, etc.) and large brand value through players and alumni that fans are passionate about. This can be used to provide a great service to the community off the ice. Hockey with a Heart, a program where the Islander’s spotlight a non-profit each game, is in its third year raising money and awareness for local charities with causes that range from cancer fundraising, military appreciation, food and toy drives, mental health, to gender equality, and beyond.  The Islanders Children’s Foundation was created in 2003 to support and provide opportunities to local youth.  The foundation has raised over $13 million dollars since inception.  Mr. Ledecky is extremely proud of the philanthropic efforts he is able to promote through the Islanders and their leadership in the community.

Mr. Ledecky spoke about his other investments as a businessman and the sectors and trends that currently pique his interest.  Mr. Ledecky suggested “walking the mall”, a strategy consisting of observing which stores were busy or empty, what products were being sold and what was not. Great companies such as Sunglass Hut and Pharmapax have come from understanding markets that are not served or can be served differently. Mr. Ledecky also touched on the transformation of business in recent history and three notable trends. The first was the continual shift in advertising dollars towards digital platforms, such as Facebook, Instagram, and Twitter, where there are millions of eyeballs every day.  The second was the rising popularity in online gaming/E-sports that can provide many unique business opportunities in the coming future. The final trend was 5G technology that in his mind will change the world that we live in.

The conversation shifted to Belmont, the site where the Islanders are building their new arena.  Mr. Ledecky was extremely excited about the opportunity to have a dedicated arena for the Islanders.  Part of the strategy for the new site was having a strong partnership with a concert and events promoter that can secure concerts during times the Islanders are either away or in off-season to continue to generate revenue.  Seeking advice from ownership of other sports teams that had managed a relocation was also a key step Mr. Ledecky took during the process. Mr. Ledecky and the Islanders hope to further enhance the surrounding area and its visitation appeal by building a 250 room hotel across the street with a retail footprint that is close to JFK airport.  The project carries numerous benefits such as $2.7 billion initial economic spend, $600 million ongoing spend, thousands of new jobs, and the first new Long Island Rail Road station in 50 years, all of which is beneficial to the economy of Long Island. 

Finally, the conversation switched back to hockey and the great relationship between front office and bench.  Barry Trotz, head coach of the Islanders, and Lou Lamoriello, President and general manager of the Islanders, have made great strides since their arrival in New York. Mr. Ledecky knew Barry from his previous ownership of the Washington Capitals (where Barry Trotz previously coached and won a Stanley Cup).  Lou Lamoriello was brought in through connections from Toronto and since uniting the two have done a terrific job with the organization.  Mr. Ledecky ended the conversation by saying “If you’re an owner of a sports team, the best thing you can do is realize you’re not a general manager or coach.”

Making Sense of the Markets

December 10th, 2019

The investment process at First Long Island Investors involves many elements including company specific research and analyses, extensive dialogue with our outside managers on companies, sectors, and the markets overall, interaction with economists, both independent and those affiliated with large organizations, as well as the investment professional networks of our team members.  Robert  (“Bob”) Rosenthal, our Chairman, CEO, and Chief Investment Officer, is part of an investment “think tank” alongside longtime mentor and acclaimed investor, William P. Stewart, and other respected market analysts.  Recently this group engaged in a conversation that was sparked by comments made by The Blackstone Group, one of the world’s largest private equity firms, and touches on the issues weighing heavily on many, including some clients. Bob’s perspective is below: 

The current “wall of worry” is made up of concerns regarding:  the timing of the next recession; the state of the (messy) political situation in Washington, including but not limited to the trade situation with China and ongoing impeachment proceedings; negative sovereign yields in Europe and Japan; IPOs of companies with no profits; income and wealth inequality; and other subjects.

While it is true that there is a fair amount to be concerned with, many (including Blackstone) are quick to ignore the strength of the consumer, continued GDP growth in the U.S., low unemployment, and growing corporate earnings.  (We do not see a recession in the near future.)  There is no distinction being made by Blackstone between high priced bonds and private equity versus a reasonably valued, but not cheap, stock market.  And of course, their approach takes a “market” perspective instead of viewing the opportunity through the lens of a concentrated portfolio of fine growing businesses, which is what we at FLI utilize for client assets and our own assets. 

Of the various concerns we are hearing, the biggest is the unknown effects of negative sovereign interest rates.  These negative rates are also keeping our treasury rates lower as Europeans and Japanese investors buy our bonds to earn a positive return on their capital.  The thought is that negative rates will boost economic growth in those regions.  I do not know if this will prove true and we at FLI have underweighted foreign equity investment as we do not like the lack of growth and socialist tendencies in many countries (e.g. France).  The outcome of these negative rates is one we will be sure to watch.

In looking at valuation excesses we reference late 1999/early 2000 when the S&P 500 was trading at a price-to-earnings ratioi of 31 and the ten-year Treasury was 6.5%.  These numbers are quite different from today, but that is not to ignore the point that the equity market is not cheap today.  Furthermore the great businesses that are leaders in secular growth including credit cards/electronic monetary transactions, cloud computing, and streaming of content (to name a few) do not typically trade at 100 times earnings as they might have back in 2000.  Valuations are loftier for durable growing businesses perhaps, but not nose bleed by any stretch.

It is easy to find danger in a bull market lasting ten years.  It is easy to worry about very low interest rates and central banks trying to stimulate growth and employment.  It is easy to look at IPOs where the share price declines after going public at absurd valuations while they seek their first dollar of profit.  It is easy to paint a bleak picture of business growth in the midst of a trade war.  It is also easy to fear the unknown of a political situation that could lead to socialism in the greatest economy in the world.  But it is harder to stay the course with a prudent allocation to fine businesses that can see growth for years to come or companies that have strong balance sheets and offer stability, growing dividends and market dominance.  This, in our opinion, is the alternative to very low to negative interest rates on sovereign debt or bloated private equity funds chasing too few really good investments, especially when most consultants have for years shunned the domestic equity market and pushed clients into private equity and hedge funds.

 At the end of the day, things have not changed.  A prudent asset allocation reflecting current valuations for each asset class category coupled with the recognition of one’s age, goals, and risk profile, while never losing sight of needing to invest for the long term (which will vary for each individual), makes the most sense.  But as we all know, there is always a “wall of worry” to be navigated.

So, we remain cautiously optimistic; we are somewhat defensive; and we are concentrated in our investments.  We do not own a “deworsified” portfolio in any of our strategies.  Third quarter earnings have come in very well for the market in general and specifically for the companies we invest in. Guidance is also quite reasonable.   Our Dividend Growth strategy is enjoying a strong year with dividend growth increasing for the portfolio by 10.4% on average.  (The strategy for the year is up over 22% which more than makes up for a slight loss last year of minus 4.4%.)  The two-year average appreciation is not at a nosebleed level nor are the valuations.  As for the market as a whole, currently the S&P trades at a P/E of 20.9i, which in an environment of a ten-year Treasury at 1.9% to us is also not nosebleed by any means.  For perspective, the dotcom bubble in late 1999 traded at a P/E of almost 31i when you could buy a ten-year Treasury at 6.5%.  That was considered nosebleed territory with a bond alternative that was attractive.  That is not the case today.

In summary, we have a defensive tilt; we are long term investors; we invest in concentrated strategies with companies that are doing well and have financial strength.  The environment of investing always has a wall of worry.  Today is no different, but the fundamentals still suggest that gains can be achieved.

A synopsis of the Blackstone interview can be found here:

https://www.investopedia.com/blackstone-group-warns-of-the-mother-of-all-bubbles-4775625?utm_campaign=quote-yahoo&utm_source=yahoo&utm_medium=referral&yptr=yahoo

*The forecast provided above is based on the reasonable beliefs of First Long Island Investors, LLC and is not a guarantee of future performance. Actual results may differ materially. Past performance statistics may not be indicative of future results. Performance information for FLI Dividend Growth represents the performance of its composite. The views expressed are the views of Robert D. Rosenthal through the period ending December 10, 2019, and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such.

Content may not be reproduced, distributed, or transmitted, in whole or in portion, by any means, without written permission from First Long Island Investors, LLC. Copyright © 2019 by First Long Island Investors, LLC. All rights reserved.


i Price-to-earnings ratio is based on a trailing twelve-month basis