The Goddess of Internet Business has Spoken

Mary Meeker has been the voice of internet business since i first read her in 2010/11 when i used to write speeches for technology VP … her 2017 review is posted now.   https://www.slideshare.net/kleinerperkins/internet-trends-report-2018-99574140

Here are my comments as i walk thru … bold are the most meaningful to me … it will take a couple more walk thrus

  • slide 9 — user growth will be HARD; ARPU will be the key metric driving service business (way more so than our recent love of ‘new users’)
  • slide 25 — Google hits 95% accuracy for voice — good progress, but the interaction requires much work imho, and i am VERY interested in voice input but just can’t deal w/ pushing buttons first … IA / machine learning is the backend (even if on device)and i think the interaction model is broken
  • slide 31 — well articulated paradox and the companies i think that will really build ARPU will be those companies who HELP their consumer / client through that paradox, and not, like the recent FB example, leave it up to users to figure out (or government agencies after sh*t hit fan)
  • slide 39 — what is it about US companies?  Where are the Chinese innovators? (not yet in MSCI – this could be a misleading data set)
  • slide 41 — WOW – can i infer that R&D leadership builds market leadership?
  • slide 49 — the digital retail journey; who can build that journey (w/ great UX) across different platforms? — that seems like a big win
  • slide 62 — Amazon is competing w/ Google for product searches … an interesting turn that i had not anticipated (though should have)
  • slide 71 — reminds me of the billboard promotions on busy highways, but the product purchasing rates are VERY high -> common marketing strategy:  go to where bunches of people are congregating and with clever means tell them what they need to buy (rinse and repeat)
  • slide 75 — this is a golden slide that prompts the following questions
    • what will be the next ‘platform’ for marketing / promotions after social media efficacy falls to too slim returns on investment (or cost)
    • what will be the impact to advertiser platforms, e.g., Google, FB, etc (their margins)
  • slide 76 — echos back to my first comment wrt ARPU and user acquisition costs
  • slide 82 — SPOT and subscriber growth; the next step is to transition this to profit or ARPU
  • slide 84 — you retail geeks (especially those w/out digital presence) should pay attention to this trend
  • slide 91 — Alibaba is a beast … i do not care what metric you use, Ali is just amazing
  • slide 94 — and if you think Ali is sitting in China rich and happy, … guess again
  • slide 103 — scary
  • slide 119 — ok all you MacMansion owners; time to get w/ the rest of the world
  • slide 136 — the unintended consequences of shifting the burden of healthcare spending – brilliantly stated here
  • slide 143 — hard to get head around this at any detail level; adoption rates are lightning fast
  • slide 163 — simply stated and so true – i am perfect example
  • slide 165 — this is where there is HUGE fear and as well opportunity (on demand labor unions so to speak – wage and benefit protection without losing the benefits of ‘on demand’)
  • slide 184 — cloud computing declining costs — the defacto standard for start ups and new businesses — cheaper costs, flexible, lower capital required
  • slide 191 — is there a silver lining of better customer service when business knows more about you? — seems so
  • slide 199 — AI for rent via AWS
  • slide 200 — the same from Google
  • slide 201 — look where CIO folks want to spend their money … networking equipment (assuming NFV and IaaS) was surprisingly high
  • slide 209 — USA data privacy laws written in 1974 – really?  do you remember what you were using / viewing / sharing in 1974?
  • slide 210 — china is serious about their intent to use data (it does not map well to our cultural norms and expectations) … this will in time will test our assumption that a ‘free’ society grows better / faster … i am buying more and more China company stocks, ETFs w/ China exposure, so i am not convinced that assumption is correct
  • slide 211 — Cisco’s comment should get your attention — cybersecurity is not just for money anymore; it’s war
  • slide 218 — the size of internet companies and their values are staggering
  • slide 223 — relate this back to slide 210 – the chinese people seem to be more willing to share their data too
  • slide 227 — college degrees in engineering degrees — in undergraduates USA trails signficantly, but then much of world comes to USA for grad school (if they can)
  • slide 243 — look at the growth in data use in China … WOW
  • slide 253 — the ecommerce growth rates of S Korea and China exceed the rest of the world … see my comment above wrt slide 210 – while not causally related there is a huge growth story here that will continue
  • slide 278 — USA, Inc.  A great section and worth the time to read thru

Shadow Rates

Shadow rates rather than any published or discussed rates as a recession predictor?  Probably as good as any other crystal ball – the specific timing is of course hard, but i did focus on the timing for different types of equities – watch for value to pick up larger buying interest once the last top (rate increase path) – build quality positions before hand is this author’s recommendation – https://www.marketwatch.com/story/heres-how-stock-market-investors-could-be-surprised-by-a-peak-in-rates-2018-05-23

Weekly Update, May 28, 2018

The Actions Taken (last week’s plans)

  • Covered 3/4 of my short position in MWA for minimal gain – did not want to hold the full position over the long weekend.  The resiliancy of MWA run after earnings has been a surprise,
  • Traded in and out of ACBFF and CRON for ~10% gains; still hold small position in each as in my ‘big 4 Canada Weed’ stocks
    • One comment on ACBFF – my sale was really broken up into small lots (<100) … for most of the day, this and its cousin, APHQF, trade in small lots with larger trades coming in the last 10 minutes or first 5 minutes of market.  Taking large positions >500 seems like a liquidity risk and i will focus mostly on CRON and CGC to see if liquidity is better.

The Clues this Week

  • Equity / Stocks
    • A couple of posts on Canada Weed companies this week here a bit helpful, especially the second on on the different province-level legal structures for retail distribution
    • https://seekingalpha.com/article/4176516 – From one of the better technology analysts on Seeking Alpha, a review of AAPL.  While his take on AAPL is worth the read, his methodology is even better.  Thinking of DCF as a floor for some companies is an interesting approach, but for me i would want to include a larger set of DCF methods like https://finbox.io provides.
    • https://seekingalpha.com/article/4175850-american-gridlock – an often read author posted something that is a bit political and may distract people from the key message – the next cyclical downturn in US economy will be different than anything post WWII given the structural changes to demographics, economics, jobs and government social safety nets.
      • Actionable take-aways include:  a) Non-US investments (Canada, China and India are my current targets); b) high quality corporate debt (Apple, Berkshire, Microsoft); and c) multinational companies w/ global product / services reach, and d) small US companies with superior products / services (IOTS is an example).
    • https://seekingalpha.com/article/4176193-pattern-energy-group-go-wind-blows#alt1 – A good valuation study on PEGI.  I am over extended on PEGI in several accounts.  My goal is to collect the dividends for the intermediate term as i do not see material downside risk to capital ($17.00 would be an extreme macro event imho), and closer to end of year can make better tax management decisions on the range of positions.
    • S&P week was quieter than last week
    • A very busy ‘news and data’ week; ISM and jobs will be the ones most likely to spark irrational movements 
    • Jeff Miller’s weekly indicator set is interesting – look at 10yr, SP and inflation expectation 
    • https://seekingalpha.com/article/4177534-bristol-myers-squibb-one-stock-ignore – Here is an example of why i cannot confidently invest in Pharma companies (even though i have small positions in JNJ and PFE)
      • This is NOT to knock this author.  This is to suggest that i just do not understand the Pharma business well enough to form strong opionions (that can drive investment decisions).  I have also yet to find a Pharma author that simplifies this sufficiently.
      • While BMY may be a great investment, i just cannot bridge my ignorance to make that call w/ conviction.
    • https://seekingalpha.com/article/4177567-place-like-cone – Brad Thomas on CONE – while the data center REITs fit within my IOT narrative and i was once interested in them as growth vehicle (ala Brad), i find that risk to that assumed growth is greater than i want to take on w/ REIT investment.
  • Debt / Bonds
  • Automation and Robotics

The Plans for Next Week

  • Specific Analysis
    • Water component makers is next deep dive for possible new (revisit) narrative – XYL, PNR, ITRI, BMI and MWA are the current list
  • Actions Set Up
    • Weed Trades – CRON (holds support @ $5.90), ACBFF (holds support @ $6.20), CGC (unclear on patterns after NYSE listing)
    • Tech Trades – CLDR, FEYE, IOTS and CY
    • Investments – TU, RCI (value entry points not fully discerned – patterns still being understood)

Weekly Update, May 20, 2018

General Reads

Credit, Rates and Bonds

S&P and other equity

Jeff Miller’s WTWA https://seekingalpha.com/article/4175654-weighing-week-ahead-will-higher-interest-rates-lead-lower-stock-prices

  • From Doug Short – the weekly S&P view; look at the volume patterns at the bottom.  The greatest yield by far (from visual) is in the closing hour – does that closing hour direction set the ‘morrow, too?
  • Rail Traffic is usually interesting and this table is great … the key for me was the ‘accelerating’ labels  
    • Port traffic as well  – quote:  Port traffic improves on both imports and exports. Steven Hansen’s (GEI) analysis suggests that the implications are stronger for global economic growth than for the U.S.
  • Weekly indicators … seems quiet and stable other than the 10yr  
  • And the big indicators … the green trends are holding
  •  
  • Jeff points to this article as a ‘should read’ https://seekingalpha.com/article/4171190-want-see-bears-go-zoo
    • Stay calm, stay focused
    • I add – always understand the business (profit) motivations of the people sending you information – few are doing anything for your benefit alone

Actions and Analysis

Weekly Update, May 13, 2018

Plans and Clues Blog – a personal investment journal, not advice

More General / Macro Oriented Weekly Reads 

  • General Reads
  • Stocks
    • One of 3 Canada Week stocks i hold (very, very small position) … These are swing, high risk intermediate trades and long term speculations (TWMJF, APHQF and CRON).  CRON being the largest position and the most ‘trade-like’.  The upcoming countdown to recreational legalization is going to be key for these stocks, as well as export opportunity.
    • More up-side w/ S&P?  http://seekingalpha.com/article/4173102 … i will take it; keep selling covered calls and upping my stop loss orders accordingly on positions that i want to trim or capital i want to protect
      • I am selling into the rally, not buying into it
    • Brian Gilmartin’s latest on S&P earnings http://fundamentalis.com/?p=7784
  • Rates / Bonds
    • REIT investments are closer to rates / bonds than stocks imho.  While this overemphasizes the retail segment, the sentiment is consistent it seems and contrarian views suggest adding to REIT exposure that can ride through economic cycles  https://seekingalpha.com/article/4172245-trouble-reit-land 
    • A Data Center REIT specific deep dive  http://seekingalpha.com/article/4172113
      • I only hold Data Center REIT preferred (DLR.Pr.C) after exiting QTS before its dive
      • While the data center is a key element in my IOT narrative, my view is that the risk in the REITs exceeds the reward on a grwoth or income basis – just think there is easier money to be made in other parts of the IOT value chain
      • I like the tower REITs better at lower entry points (e.g., CCI <$101)
      • The hyperscale buiness is going to be interesting in intermediate term … i would not want to be negotiating leases / prices w/ major CSP
    • A rational voice on bonds and their role in portfolio … regardless of the opinions and commentary http://seekingalpha.com/article/4172053
      • I agree and continue to both nibble at shorter term treasuries, as well as hunting for ~10 year corporates when 10yr rates exceed 3%, i.e., Berkshire, Apple, Microsoft quality
    • Treasuries are doing just fine even after this last week’s huge auction … there continues to be some supply / demand fears (supply will outstrip demand pushing rates higher) … maybe not, but all continues needed watch items  http://www.seekingalpha.com/article/4173291
  • Jeff Miller’s WTWA  https://seekingalpha.com/article/4173344-weighing-week-ahead-stocks-benefit-trump-policy-changes
    • https://static.seekingalpha.com/uploads/2018/5/12/55431-15261830686069257_origin.png
      • an easily observable trend this week – will it continue is the key question
    • This quote on ease of credit came as surprise, as ancedotal feedback locally is that credit is tough for small business.  Quote:
      • Bank lending is getting easier. New Deal Democrat notes that an ongoing criticism of the economy has been the deceleration of commercial and industrial loans. The Senior Loan Officer Survey tends to lead lending by about six months. He concludes, “Credit remains loose, and indicates continuing economic growth over the next 12 months”.
    • On inflation … “Inflation remained tame. The PPI increased 0.1% with the core up 0.2%. The CPI increased 0.2% with the core up 0.1%.”
    • A great pointer to China trade framework … if this is accurate, there will be little progress in short term.
      • This shows the segments that will be impacted w/out real progress  
    • Here’s where policy gets in the way of stated growth objectives for no other reason than rhetoric. Quote:
      • Economic growth. Looking a bit better with current “nowcast” results of 3-4%. Worries? Immigration limitations hit potential growth as do trade restrictions. In total, these may reduce GDP by more than 1%. [We are still headed for solid growth, but it will be less than it might have been].
    • Weekly indicators  
    • Jeff’s closing worrying statements ring true to me:  Iran and China
      • Iran. It appears that the European allies may split with the US. The chance for retaliation is higher. Most experts question whether bilateral negotiations are possible.
      • Deterioration in the tariff and trade talks. The high-level meetings have produced no progress on an issue of great economic significance. The market rates this as a bigger threat than do economic analysts. I agree with the market.

Specific Actions, Plans, & Analysis

  • Key summary point this week – confounding indicators and data increasing and keeping pulse on investments is getting harder …
    • will novice folks lose big?  employ professionals?  I’ll take Andy Grove’s advice – “Only the paranoid survive”
  • Per last week’s update, I added to my T position by almost 50%; cost basis $31.65.  Regardless of Time Warner outcome, the yield and capital risk to T @ 31.65 was just too hard to pass – i consider the position now complete (though would add more for intermediate trend trade if opportunity surfaced)
  • I traded in and out of IOTS before / after earnings for small profit.  I still hold 10% position but was greatly disappointed by the market’s reaction to earnings and strategy execution.  I expect this to drop in price unless surprise news surfaces – M&A in close proximity or new major deal – i still love this small cap investment – earnings conference call transcript
  • Sold a couple of $80.00 June ’18 calls on BMO stock that i would be ok w/ trimming at $80+/share … this is not a reflection of BMO quality, but position balancing
  • Worked through Canada telco analysis this last week, and found TU the favored risk / reward company within my IOT narrative – target <$35.  Risk low = $30, valuations ranged from GuruDCF $34.10 and SimplyWall.St $39.42.  ROE above my 15% guardrail and ROIC close to 10% target.
  • Next segment on deck for deep dive = water component manufacturers:  BMI, PNR, XYL and MWA (i shorted MWA ~$11.50 for a swing trade as the price is ahead of itself after earnings imho)
  • In retirement account, i also add 50% position to VGSH to compliment positions in VGIT and VCSH
    • I was a bit early on VGIT and VCSH and carry small unrealized losses
    • I am not yet ready on the longer end … e.g., VGLT

Weekly Update, May 6, 2018

Plans and Clues Blog – a personal investment journal

More General / Macro Oriented Weekly Reads 

  • Company Specific News
    • HASI earnings release and the market’s reaction to the facts were odd imho and the second consecutive quarter where the company delivered pretty much what they said they would and there’s a sell off.  Just baffles me.  Seems like there’s a group of investors who are always thinking that the company will delivery beyond what the company predicts (tells investors), and when the upside surprise if missing, a sell-off.  HASI management team seems to be executing their strategy just as described https://seekingalpha.com/article/4169663-hannon-armstrong-sustainable-infrastructures-hasi-ceo-jeff-eckel-q1-2018-results-earnings
    • AAPL is the case study for cash flow to net earnings ratio over time … i think a great read, not so much for the APPL example, but how we may use this to evaluate other companies, e.g., i might have sold my terrible GE position before my capital gains evaporated to near 0.  http://fundamentalis.com/?p=7760
  • Good Reads in General (Macro Focus)
    • This author gets a bunch of crap from readers (just browse the comments), but i think this is one of the better articles to really get your head around some of the interconnectedness and interdependencies and virtuous cycles that are going to continue to influence our investment success (or failure)  https://seekingalpha.com/article/4170152-flashpoints-risks-word-gandalf
    • Same author with a warning about reading only those articles (data sets) that supports your bias; i try to constantly challenge my bias and deliberately read opposing views (my own choir can be my very worst enemy) https://seekingalpha.com/article/4169674-just-tell-want-hear-ok
    • Labor seems to be one of the key variables behind further rate increases (inflation and investor demand from Asia are others).  Rates of growth on productivity, workforce inclusion / exits, and wage growth, i find much more important than a summary unemployment rate.  It surely seems that the desired growth to support continued rate increases is decelerating  https://seekingalpha.com/article/4168516-viewing-employment-without-rose-colored-glasses
  • Rates: — A panel discussion on rates that was hard for me to find an actionable outcome, but the dialogue was interesting when you focus on the variables they discuss https://seekingalpha.com/article/4170251-bond-yields-headed-major-breakout
  • S&P: — The always insightful market update from Lance Roberts https://seekingalpha.com/article/4170383-market-hangs-onto-support – my perspective is there is tension in the momenteum / direction at a ‘market level’ and this sets up exaggerations of price swings to news or events — opportunities on both sides to play back the regression to mean/norm.
  • Jeff Miller’s WTWA – https://seekingalpha.com/article/4170358-weighing-week-ahead-stocks-stuck-neutral
    • First … look at Jeff’s headline and mashup w/ the above bullet:  “Why are stocks stuck in neutral?”
      • Another S&P roller coaster to nowhere?
    • This is chart i do not remember seeing before, and if it accurately maps smart money sentiment, this follows my perception of news / blogosphere sentiment -> decidedly negative relative to not too long ago
    • Here’s a version of everybody’s favorite employment view, but wait for Jeff’s follow-up bullet (first the chart) 
      • now the bullet (quote): “Unemployment falls to 3.9% but wage growth remains weak (Dean Baker).”
      • Wage growth and productivity are the variables that i am now thinking are most important to infer rate direction acceleration
    • Of the small set of Jeff’s ‘The Bad’ this is the bullet that caught me:
      • “ISM manufacturing and services indexes both missed expectations, although the readings remain high. (Bespoke).”
        • Missing expectations on such a widely followed index is perplexing … what are analysts missing is my question?
    • Weekly Indicators

      • Unchanged 10yr (materially)
      • S&P unchanged
      • Anticipated inflation unchanged
      • Technical health falls
      • … stuck in neutral
      • I agree w/ Jeff’s 2 fear bullets (quote):
        • “Iran. The deadline for US withdrawal from the agreement is nearing. There are still no signs of progress. Estimates suggest that Iran sanctions could move oil prices higher by $10 bbl.
        • Deterioration in the tariff and trade talks. The high-level meetings have produced no progress on an issue of great economic significance. This is the most significant issue for the market, and it remains a rhetorical playground for world leaders.”
  • ESG Investing / Proactive Investing

Specific Actions, Plans, & Analysis

  • T – Still on my ‘should buy more’ list, but could not pull the trigger.  https://seekingalpha.com/article/4168476-t-sky-falling … Somewhere between 31.50-31.75 is sweet spot for position adds at this point
  • PFE – Last week i thought i would increase my position in PFE; then i started poking around.  This article helped me form one view that pushed back my urgency in taking additional positions https://seekingalpha.com/article/4169013-pfizer-buy-dip
    • While the author does a great job of describing the value of PFE core competency of late stage trials and marketing / sales, i find that insufficient capability with a limited moat to bet really big on the company.  This is part due to my superficial understanding of big pharma R&D risks / benefits.
    • I will continue to dig into PFE, but am expanding my search parameters in the healthcare product segment before jumping in more
  • FEYE – been on my watch list for almost 2 years and i have yet to pull trigger in any meaningful way (only swing trades).  This post is more positive than i am but conceede i have not dug to the bottom of the well https://seekingalpha.com/article/4170299-fireeye-turnaround-track i will also not take position with ‘hope’ of buyout / M&A.  (on DCF basis FEYE is ~15% overvalued – so there has to be a big cashflow breakout to support higher values)
  • IOTS – still have my position w/ cost basis of $6.75.  With earnings coming up, i looked very hard to best guess to buy more before / after earnings.  Reading thru as much as could find on company, i have no better view … 5 analysts cover the company and estimates are tightly bound.  Price action Monday and Tuesday will determine my play.  Here is a 5-day chart w/ pivots.  I may take another 25% position or so between 8.30-8.00 if possible – else, will wait for earnings.  I have stop-loss at $8.00 (graph from https://www.barchart.com/)