Nice day for the S&P/ASX 200 Index yesterday, it jumping 0.6% higher to close at 5,653.
Miners again led the way, after a weaker US dollar supported commodity prices, and Chinese manufacturing and services data pointed to a strong start to 2017.
Seems I picked a fine time to swear off mining stocks for life. Especially when smaller cap technology stocks seem to be the ones issuing the profit warnings.
Yesterday was the turn of former market darling, the company formerly known as OzForex, now trading under the name of OFX Group Ltd (ASX: OFX). Shares in the provider of foreign exchange services slumped more than 20% after yet another profit warning, and a dumping of its CEO.
I'm not usually one to dive in to such "falling knife" situations. Turnarounds usually take time, and the days are often darker before dawn. And I'm also reminded of the old Warren Buffett quote…
"Both our operating and investment experience cause us to conclude that turnarounds seldom turn."
Still, I'll be keeping a close eye on them, especially if the share price keeps falling from here. At a share price of $1.30, OFX Group shares trade on a trailing P/E of around 16 times earnings, and a trailing fully franked dividend yield of 4.6%.
Speaking of Warren Buffett, the man commonly known as the world's greatest investor has been on a spending spree since Donald Trump's election win, spending $12 billion to load up on stocks.
While he thinks Trump's ambitions of growing the US economy by 4% per annum are highly unlikely (you may have noticed how Trump is rather prone to exaggeration), Buffett did say GDP growth of 2% "will produce miracles."
The U.S. economy grew by 1.6% last year, the lowest since 2011.
What was it I was saying yesterday about the potential for further gains ahead for our miners, including Fortescue Metals Group Limited (ASX: FMG), and BHP Billiton Limited (ASX: BHP)?
If the US economy does produce miracles, you can expect these miracles to spread to other parts of the world, including China, and by extension, to Australia.
Right on cue, the BHP share price is back above $27 and the Fortescue share price is closing in on $7.
Many investors are wary of jumping into the stock market right now.
They are worried about what Trump might do next. They follow the doomsayers, who are always predicting a market crash.
Yet here's Warren Buffett — a man who publicly backed Hillary Clinton in the recent US election — piling into the stock market with incredible enthusiasm.
If it's good enough for him…
As to what Buffett was buying, he was as tight-lipped as ever. We'll likely get some clues when his Berkshire Hathaway makes its next regulatory filing around February 14th.
Rather than second-guess Buffett, you could just go out and buy shares in his Berkshire Hathaway. They've had a stellar 12 months, jumping over 25% higher.
I first bought Berkshire Hathaway shares in 2000. By regularly adding to my holding, and through capital appreciation over the past 17 years, it has grown to be my largest position — by some distance.
Hurrah for long-term investing.
Even though I'm overweight Berkshire Hathaway — in both my personal portfolio and my SMSF — I couldn't sleep easier. Run by one of the world's best ever capital allocators, the diversified conglomerate — owning everything from a train operator, to retailers, insurance companies and aeroplane manufacturers — is about as "safe as houses" as they come.
While we're Stateside, both Apple and Facebook have just announced stellar results, pushing their share prices sharply higher, in the process giving the US stock market a boost.
And where US markets go, we follow.
My advice? Ignore Trump. Follow Buffett. Buy stocks.
Back here in Australia, today's falling knife is Ellex Medical Lasers Limited (ASX: ELX), a global leader in medical devices for the diagnosis and treatment of eye disease.
Its shares have fallen as much as 20% today after saying sales revenue growth has stalled in the last six months. Hell hath no fury like a growth stock gone wrong.
As I said above, I'm usually one to steer clear of such falling knives. But as with OFX Group, I'm interested in Ellex shares.
The Ellex management are saying the primary cause of the lack of sales growth was a shift in management focus to the establishment of a new manufacturing facility in Adelaide. This resulted in a significant customer order backlog, which it expects to deliver against in the coming months.
As problems go, demand exceeding supply is about as nice as they get. On the flipside, management taking their eye off the ball is not a great look.
Still, Ellex is still talking a good game, saying they expect total revenue for FY17 to be materially higher than FY16.
As ever, the proof will be in the pudding. Some may want to nibble on the shares today. For me, I'd prefer to wait for the company to deliver on their promise.
Sure, I might miss some upside, but the stock market is littered with over-promisers and under-deliverers… something that can truly decimate share prices of former growth companies.
