Heisenberg gathered some info from some of his friends, and I am paying attention! Not sure exactly what more I can do to ‘defend my portfolio’, but I will not be surprised if a 2000 tech refresh hits the air waves.
Quote: “With the bulk of US companies having reported, we have summed up the report and accounts posted so far. Despite strong markets last year, net income barely moved, with a rise of just 0.3%. More worrying is without the Big 5 companies (Microsoft, Alphabet, Apple, Amazon and Facebook), net income fell 7.5%.“
And if you just want a bit more poison in your coffee, quote: “In valuation terms the divergence of tech forward PEs from the overall market has only been a very recent phenomenon. And just as notable is the extreme divergence of valuations between tech and value stocks something not seen since the late 1990s Nasdaq bubble. One key difference with the late 1990s Nasdaq bubble is that it is now not just tech (and growth stocks generally) that have reached extreme levels (both in absolute terms and relative to value stocks). Quality stocks (with sound balance sheets) have also joined the party.”
I am often reminded how much money and effort is spent convincing the public and investors things are not all that they seem to be … call it spin, call it manipulation, call it bulls^^t … it’s all the same and as investors putting our hard earned and saved capital to work requires us to do our due diligence
Regardless if you fully believe the points made here in this post, investors need to pay attention … it’s time to REALLY read SEC submitted documents and annual reports, not just press snippets.
Note: During the week, I create a batch of financial articles that do not seem urgent, and I read while on a long stationary bike ride on weekend. Below is today’s batch. – the ‘thumbs up’ icon mark the better posts imho.
Comment: I so much wanted to fall in love w/ FEYE. The conference call was a snoozer – the set up (think election) is perfect but they just don’t seem to have the wherewithal to string together. In the end, the call was way underwhelming.
Conclusion: I will keep the Jan ’21 calls but no new$ added.
Comment: Given the stock price response to earnings, I was expecting something valuable. However, I found it just a bunch of noise and long winded ‘plans’ – execs totally missed the div stop and impact to cash flow while remarking about their increased cash flow in back-half 2019; India highlighted as major risk – still see major revenue inflection 2h 2020 – next earnings report will be interesting. Their comments about China business allow some interesting inferences but nothing actionable.
Conclusion: remains on my buy list but valuation must be right and urgency is lacking (on the purchase) – happy with my ERIC position!
Comment: This conference call was another lesson in executive strategy statements within the context of performance – didn’t hurt that they had a blow out quarter and the macro sentiment increases value perception. I actually passed this on to folks as a great example of exec communication – clarity and repetitious. This transcript is a must read if you are interested in executive communications, BEP and / or sustainable energy generation.
Conclusion: Even though i took profits on 20% of my position (at price >$52.00), I will buy more in multiple accounts – target price mid-$40s. I will also turn DRIP back on!
Comment: A good high level narrative look at the past future decade in Emerging Markets – but NOT an actionable analysis. I used this to compare my narrative stance wrt EM but the deeper dive details for actions are sorely missing here (tho to be fair, it was not their intent). I think worth a quick look
Comment: A quick and solid look at old truisms about valuations, investing and bear markets. Chuck is a master investor and does show a pretty good historical trick with FastGraphs. I think only relevant if you are new to investing or a current user of FastGraphs and want a new trick.
Comment- There’s a bit of doom and gloom inside this post but not without value for an investor with current or planned investments in Asia. I found their sections on India and Korea most interesting and helpful for my own EM narrative constructs — of the EM opportunities in the next phase (2-3 years?), I am leaning more toward Korea as last year’s dog and my experiences partnering w/ Samsung. – India is confusing imho but with demographics that cannot be ignored (this article didn’t help).
Conclusion: Keep my lean toward Korea and hedge my China exposure accordingly.
A great data visualization – portfolio risk management
One of the better financial data geeks (my opinion) published a great post today … this visualization is worth a year subscription to SA.
Why do I find this so valuable … compare the down points and remember what it felt like in 2010 as most stock prices dropped beyond what I thought was rational at the time. From a portfolio risk management perspective, those ~50% downs are important to use an inputs – my bear market experiences were in 1987 and 2000 and 2010 … none of these no matter how bad I thought they were compare with those 50% drops.
Question for portfolio managers: is your risk management that robust? I need to work on mine!
Bloomberg: Sixteen Leading Quants Imagine the Next Decade in Global Finance
Quote 1 “It’s no longer enough to apply quantitative tools in investing; these tools have to be used intelligently, with awareness of their often subtle vulnerabilities. These changes will drive a growing divide between quants who blindly follow wherever the data leads them, and quants who ask, “what are the limitations of our methods, and where can they go wrong?” In time, the latter—and their customers—will win.”
Quote 2 “As the techniques the quant pioneers discovered proliferate, the industry’s leaders and intellectual frontier will focus on creating models based not only on historical data, like today, but on a fundamental and more data-driven understanding of human behavior. Past patterns can be used to predict future prices but measuring and analyzing human biases in myriad circumstances will lead to the creation of an entirely new suite of models, less prone to the curse of overfitting and to crowding. These techniques will not just be the preserve of the investment industry but also be used by policy makers and central bankers.”
Quote 3 “Most of the fundamental investors will become familiar with principles of quant strategies and will incorporate it in their investment process. This will cause traditional quant strategies (e.g. factors) to lose effectiveness and become increasingly volatile. The investment landscape will become saturated with passive and quant strategies, and this will increase market fragility and make it more prone to tail events. The next severe recession will put the new market structure to the stress-test, and that may lead to widespread failures. Quant models that are calibrated on historical data will not be able to anticipate these events. In the aftermath of the crisis, investors and managers will aim to re-introduce more human oversight and discretionary decision making in the investment process and liquidity provision.”
A couple of recent posts by same author are worth a walk-thru imho.
There’s a bit of an echo chamber as I am fairly aligned here in the valuation tiering – my variance is however i am not so willing to take capital risks in the middle tier and will accept lower return rates for lower capital risk, aka, bills and short-term high quality bonds.
In a quick post this morning from Heisenberg on the data out this morning, a statement struck me square in the face
Quote: “Retail sales came in better than expected for December (even as some cohorts were revised lower for prior data), perhaps relieving some worries about the stability of the key pillar holding up the US economy at a time when business investment is subdued and C-suite confidence remains depressed.”
Heisenberg is one of the smartest financial bloggers I read, so I am not pointing a finger at his misuse of indicators – his was a summary statement, not a conclusion or inference of the data.
Here’s the problem – mixing indicators and trying to reconcile their inferences – Retail numbers are backward historical indicators; CFO confidence is a forward looking indicator. It’s no surprise they are not consistent. From an investment perspective, which direction do you want to review and analyze (i remember all the prospectus i read … historical performance is no guarantee of future performance). But all the C-suite people i worked with looked ahead and planned accordingly – …
That graphic is a great overview of the segment … the rest of the article fills in the gaps around this table.
My portfolio contains: WELL, DOC and LTC. These positions were trimmed in 2019 given the run up and earlier I sold all my VTR as I am not a fan of SHOP-heavy senior housing businesses. Up-coming earnings reports and conference calls will be important to see if additional capital should be applied … i am skeptical until later in 2020, but facts will tell.
The title of Mr Duy’s post is a bit misleading or a teaser, but the content is worth the read. While the easiest explanation is often close to accurate, continued FED theories of economic and market manipulation stretches the imagination. Duy makes it simple rather than conspiratorial.
Quote: “Morgan Stanley & Co. LLC forecast that about 70,000 MW to as much as 190,000 MW of coal-fired generation is “economically at risk” from the deployment of a “second wave of renewables” in the U.S. under three of the more likely scenarios in a recent analysis. The research firm said these projections exclude about 24,000 MW of coal generation already set to shut down.
“Driven by the surprisingly low cost of renewables, we believe that carbon-heavy utilities that have not historically led the pack in clean energy deployment will accelerate their earnings growth by pursuing a ‘virtuous cycle’: shutting down expensive coal plants and investing in cheap renewables,” Morgan Stanley analysts wrote in the Dec. 10 research report.”
I grant that climate work has done tremendous work to help drive alternative energy sources, but sometimes simple economics takes hold and it’s a freight train running wild down the mountain … better late than never!
Disclaimer: of the companies mentioned in MS report, I am long either common or preferred in: D, DUK and PPL. No short positions.
From Heisenberg today, quote: “If we had to guess, we’d be inclined to think Druckenmiller’s assessment of 2019 will apply in the new year as well. That is, traders will be left “wondering about where the hell the next bomb is coming from”, constraining their ability to take the positions they’ve taken historically.”
The other structural point made that was interesting was about equity buyer demand in 2020 – hadn’t seen that one described so well / clear.
Hoya Capital posted a view on the big Cell Tower REITs. While their update is one of the best they’ve produced recently, I provided the following feedback.
@Hoya Capital Real Estate one of your better pieces imho. this is a complicated space and I would like to see a ‘usage’ view on the tower business contrasting 2 major usage models – a) consumer mobility (aka phones) and b) machine to machine communications. I believe that the latter in the 5G game will generate the majority of the data eventually (at least 5 years out). Have you all looked at that business driver vis-à-vis the tower REITs to determine if the usage models will change REIT pricing power?
I will update on their response if received. This is a very complicated space and investors are putting down big $ with little understanding. To follow up on my post yesterday … due diligence is required and can be hard work. Carry on!
A recent post at SA got me going … i own a small slice of this company and had missed this in my financial analysis due diligence. I made a mistake (was stupid), and now need to correct it. I will exit the postion quickly. Here is my comment to the author
Thank you for this analysis … I have a small portion of LAND and will discard quickly based on this as I had missed it. Seems way out of whack and with the games FPI management played back a bit, one would think the farm REITs would come to a ‘squeaky clean’ view. Not there.Also, I tried to reconcile this w/ www.investing.com/… … – no go even at the ‘roll up’ number unless the two sources are using different time periods (would be bizarre)Sad, as I too thought this was a plausible play on a real asset in limited supply … Good work on your part and reminder to all that financial due diligence takes effort.`
Hats off to the author for doing the needed grunt work, and ‘not to self’ do you due diligence better!