Blog Posts by Matt Nesto

With first quarter earnings season now 90% over, and the stock market extending a winning streak that has led to a string of record highs, investors could be forgiven for assuming that all is well inside the halls of corporate America. Unfortunately, it's not. As John Butters, senior earnings analyst at FactSet explains, that's only half the story.

"On the earnings side, we'll give the companies high marks. On the revenue side, the marks aren't as good," Butters says in the attached video of the better than expected 3.2% earnings growth rate for the S&P 500 (^GSPC) versus no sales growth at all.

"However, if you go to the revenue side, it was not a good quarter. We saw less than half (48%) of the companies beat (sales expectation) and it looks like we're going to finish with no growth for the quarter," he says, pointing out that it was even less than the meager 1% sales growth analysts were looking for at the start of earnings season a month ago.

Despite this mixed report card and an overwhelmingly negative guidance ratio (where 79% of companies gave a bleaker outlook than the analysts who cover them), equity markets have largely ignored cautionary indicators and tacked another 3% onto a 6-month, 20% rally that started in mid-November. Over the past five years, Butters says, this negative guidance ratio has averaged only about 61%, which suggests that, for whatever reason(s), companies are even more cautious today than usual.

There's a crazy game that kids play where they try to pick which hypothetical travesty or torture would be preferable. A typical quandary might ask if you would rather "be run over by a steam roller or stung by 1,000 bees." In reality, neither choice is desirable but that's not the point of the game.

Along those lines, I posed a similar line of questions to Patrick Wolff, chief investment officer at Grandmaster Capital, on the sidelines of the Berkshire Hathaway (BRK-A, BRK-B) shareholder meeting in Omaha, where he was a spectator and performer, showing off his skills playing blindfolded chess against six players at once.

From his viewpoint, Wolff is far less concerned about the Fed extracting itself from its quantitative easing "experiment" than he is about the risks lurking within the world's second-largest economy.

"I'm no too worried about it," Wolff says in the attached video of the Fed's easy money policy; a policy that Warren Buffett refers to as a ''huge experiment." "If and when the U.S. economy really comes roaring back the Fed (will have) lots of ways to tighten appropriately."

On China, however, Wolff is blunt.

"My own view is that China's economy is in a bubble," he says, referring to the fast-growing Asian nation as "a dangerous place" to invest that is likely "to end very, very badly."

After three consecutive quarters of disappointment, Groupon (GRPN) is back in the positive surprise column once again. Thanks to a simplified approach and amended objectives, the daily-deals site saw its first quarter revenues rise 7.5% to a better than expected $601 million.

Under the leadership of its new co-CEO's (Eric Levkofsky and Ted Leonsis), the company scaled back the spam-like email outreach of yore and is focusing instead on growing its search business.

As my co-host Jeff Macke and I discuss in the attached video, the stock has more than doubled since November and the turn-around is being driven in part by the company's conversion from what it calls "Push to Pull," which allows users to search for the sort of deal they want, rather than scanning their inbox to see if something enticing might be in there.

"The stock is going higher because the company is no longer at risk of completely dying," Macke surmises, adding that investors should not confuse one quarter's worth of progress "with a huge comeback story."

Just when you thought the 8% bounce in the price of gold over the past few weeks might just be the long-awaited start of a bigger turn around, and some investors are saying it's nothing more than a temporary turnaround.

While many investors continue to call for a rebound to the prior record levels of $1900 an ounce and beyond, other pros suggest this might be the perfect time to jump off, and Larry Swedroe, principal with Buckingham Asset Management, is one of them.

"The main reason people buy gold, I find, is as a protection against inflation and it doesn't do that job well at all," he says in the attached video. "I think gold hedges two things; the risk of lose monetary policy and certain geopolitical risks like wars."

Under Warren Buffett's leadership, Berkshire Hathway (BRK.A) has grown into a $270 billion company that owns ten of billions of dollars in common stock in companies like Wells Fargo (WFC), IBM (IBM), The Washington Post (WPO), and Coca-Cola (KO). In addition, the Buffett empire fully owns 80 businesses ranging from insurance to furniture to candy and ice cream.

At this year's annual shareholder meeting in Omaha, Nebraska, Buffett said at least eight of the companies he owns are so successful, that they would be on the Fortune 500 list if they were stand alone entities.

So how does a business change once it gets backed by Buffett?

Long before the billionaire got involved, Dairy Queen had been busy dishing up dillies and other delectable treats for more than 60 years at its thousands of iconic stores scattered around the country.

While the Berkshire Hathaway (BRK.A) billionaire’s sweet tooth is the stuff of legend, so is his business acumen and eye for a deal. When he got the chance in 1998 to acquire this household name, he scooped it up on the cheap.

"Over the last five years, we've had some tremendous growth," says Dairy Queen International President & CEO John Gainor from the floor of the Century Link center in Omaha, Nebraska. "Right now we have 6,300 stores, we're in 22 countries. Our international business continues to grow. We have 1,100 units in international markets, and our biggest international market is China where we have 550 stores."

And Dairy Queen isn’t alone. In fact, business after business in the Buffett empire will tell you that the prestige, autonomy and financial clout that comes from being a part of Berkshire Hathaway is a huge competitive advantage. But this doesn't mean the company gets gutted or restructured.

One year and 35% after their last get together, Berkshire Hathaway (BRK.A) (BRK.B) shareholders have plenty to be happy about. The company posted a 51% increase in first quarter profits, earnings of nearly $3,000 a share, a 5.5% increase in book value and, most of all, a record high share price that has made Berkshire the fifth most valuable company in the world.

It’s a quarter and a trend that renowned Buffettologist Jeff Matthews says reflects the fact that Berkshire’s 80 businesses are in the right place at the right time.

"What it says is the U.S. is doing great. Companies like GE and Siemens that are worldwide are having trouble outside the U.S. Berkshire is 95% U.S. and they're knocking the cover off the ball," he states from the exhibition hall at the Century Link Center in Omaha, Nebraska.

Of course, with each passing year, the talk only grows about who will ultimately try to fill the shoes of 82-year-old chairman Warren Buffett. In fact, the first question at today's annual shareholder meeting raised the issue. Buffett confessed it's “the number one subject our board considers at every meeting.”

That said, he also assured the crowd that preserving the culture is key to future success after he’s gone, noting that if "something foreign were introduced into this system," the partners and shareholders would reject it.

His 89-year-old vice chairman, Charlie Munger, was characteristically more blunt on the matter, saying, “To all the Mungers in the audience, don’t be so stupid as to sell these shares.”

When Warren Buffett takes the stage at the Berkshire Hathaway (BRK.A) annual meeting this weekend, the love and adulation of his 50,000 followers will almost be palpable. And why not? At nearly $160,000 a share, the stock is up almost 30% since the last time they met, having outperformed the S&P 500 by a 2-to-1 margin. Since the last outing in Omaha, there has also been nearly two dozen acquisitions, a handful of strategic investments and a down-tick in the political rhetoric and tax policy promotion that was irritating to some of his affluent fans.

While acknowledging that Berkshire investors are happy with their stock and loyal to their leader, Larry Swedroe, author of Think, Act, and Invest Like Warren Buffett, says most actually ignore his most basic advice.

"I think it's one of the great anomalies," Swedroe says in the attached video, explaining that people almost always name Buffett as the greatest investor, "yet often do the opposite of what he instructs."

He cites three key areas where the Buffett faithful look the other way, including the Oracle's commandment to ignore all market forecasts, to never time the market, and to be passive rather than active when it comes to investing.

It may not be the best six months we've seen in this post-recession period, but the 18 percent rally in the S&P 500 (^GSPC) since November is certainly the longest streak of monthly gains. With stocks pushing deeper into record territory, John Canally, economic strategist at LPL Financial, says investors need to heed the conflicting signals.

"It's very strange. You have markets telling different stories," he says in the attached video. "I think I trust the commodities markets a little bit more than the U.S. stock market as an indicator."

While stocks have been able to overcome every obstacle for the past 6 months, Canally says they're sending an "everything is great" message to investors, while bonds and especially commodities are reflecting the risk of deflation or economic contraction.

That doesn't mean he's bailing on stocks, it simply means he's positioning for a modest pullback. "If and when we do get a pullback, it's not going to be a 10-20% pullback like we had in these past three years," he says, noting the improved fundamentals, especially in the housing sector.