I have been talking about
this for several months, maybe even a year or so, but not to the technical
depth that these two people are this past week. I think this is worth
considering and baking into your long-term risk management variables.
My pontifications have been more cultural evolution derived but these
guys are helping me understand the investment implications.
JP Morgan analyst is quoted within the below
Heisenberg on Seeking Alpha
Rather than comment on different articles this Sunday, i will point them out and make a point
i do not think there’s a needed order to read – but read the comments
Point – risks continue to grow globally across mutliple asset types. there are short term plays but they contain complex variables and winning hands are beyond average investors (myself included). i am comfortable with my recent moves taking more and more capital out of equities and placing in short-term treasuries (<6 months). Might i miss out another 5% of S&P upward melt? sure … but as somebody posted last week (can’t remember who): i want a return OF my capital, not just a return ON my capital.
Reminder: i’m semi-retired with short runway to acquire additional capital
I woke up early this morning and reviewed overnight market results and became momentarily optimistic … maybe all this trade tension has released, and we can go back to normal investing / trading.
Alas … that’s how daily news distorts things and invites us to relase our well thought out strategies. I am often reminded of something smart people taught me long ago: a single or couple of data points do not make a trend. Plans and strategies are based on a set of clues (trends) not single data points.
Here is the key single data point that i found burried in https://barchart.com daily update: “China’s Shanghai Composite climbed to a 2-week high on signs that state-sponsored funds entered the market and bought blue chip stocks.” – that diffused some of my news based optimism earlier.
My bearish move money to Treasuries and wait for better value entry points (in US and Asia) remains intact.
Here’s another post on the topic of government intervention https://seekingalpha.com/article/4207078-comes-chinas-literal-plunge-protection-team
In the not too distant past, I worked on a large corporate project w/ Bain & Co, so a SA post from Brad Thomas (Mr. REIT) caught my attention. Knowing Bain’s basic methodology is not necessary to undertstand this article https://www.bain.com/insights/some-companies-arent-the-biggest-players-in-an-industry-wsj/
Segment profit pools and differentiation are the critical elements here from an investment analysis perspective. I will be using this in my portfolio 2.0 (or 2025 Portfolio) exercise targeting first on two segments: Global telecom (Canada and India) and IOT low-power connectivity solutions. These are both foundational elements in my 2025 Portfolio.
A subsequent post in October will build out the other elements in 2025 Portfolio, and how that construct will be used.
this is a well measured take on recent earnings growth projections and historical comparisons of PE expansion / contraction. The industry growth changes since July 1 are important i think. The two areas i will be diving into: Teleco and Utilities (sustainable) to look for additional solid dividend payers with dividend growth at good price (entry point).
This both fits the current target narratives (IOT and 5G) … VOD was added this past month, and the Canadian telecos (especially RCI and TU) are being watched carefully.
these folks are the best at talking about data w/out emotion or agenda. their forthcoming posts on S&P earnings are a must read. My bias is that Q2 earnings reports (earnings, revenue and forecasts) will be underwhelming and Q3 even more negative unless something changes. Financial engineering and government stimulus and debt financing (private and public) can only march on for so long … As result, i bought SPY October puts at 275 adn 278 (way down now, but i will be patient)
… what happens when the music stops? Who will be left w/out a chair? I will bet the small retail investors will not only be standing but holding an empty bag. Invest carefully in the near future
Berkshire just changed their corporate policy wrt stock buybacks … they WILL now be able to buy their own stock. This is an important sign of the times … good values are REALLY hard to find. Here’s a JPM analyst take: “J.P. Morgan analyst Sarah DeWitt said the new repurchase policy is “a major positive catalyst” for the stock, since it gives Buffett and Munger more flexibility to spend excess cash of about $86 billion, which has been a large drag on returns, “particularly given Berkshire has not been able to find attractively valued acquisitions in an expensive market.”
Caution to those of you looking for long-term good value purchases at this point …
Note: This is one of my ‘must read’ posts every Sunday – here are the elements i found useful and interesting.
Quote: The punditry should prepare for a week where Anything Goes.
- Jeff’s comment: “The market was up 1.5%, a very nice gain. The week’s trading range was only 1.2, lower than the last few weeks and much lower than the long-term average.”
- My comment: I am finding that ‘big’ money hits in last 10 minutes of trading days. Look at the volume spikes at day’s end. This week each spike furthered the day’s trend, yet Friday’s end petered out.
CPI both Headline and Core – External pointer https://www.advisorperspectives.com/dshort/updates/2018/07/13/inflation-an-x-ray-view-of-the-components
- I found this graphic telling
More on sentiment — investor sentiment may have shifted this week – while as this author points out it’s not ‘really high’. I pay attention to these shifts, both for contrairian indicator and increasing awareness on spikes in FOMO buys from inexperienced investors and traders. http://www.horancapitaladvisors.com/blog/2018/07/12/sentiment-is-widely-positive
- 10 yr flat from last quarter
- Higher S&P 500
- Anticipated inflation down slightly, but risk of inflation increasing
External link to 7 year rate of return forecasts https://pensionpartners.com/the-next-7-years/
- in many of the divergences, mutliple / value expansion beyond normal expectations ruled
- seems sooner or later mean regression plays its part … the timing is always a mystery and its catalyst unknown as of yet
- The one key take away from both prediction sets (2011 and 2018) is that rates of returns across the different groups are MUCH lower in the 2018 set. – I agree
Jeff’s closing had two points that i found interesting
- Quote: “Earnings season. Everything suggests a big increase over last year – 20% or so. The forward guidance last quarter was good, and the tax cut effects are playing out. This may not translate into higher stock prices unless the report is perfect. The market meme emphasizes trade war, strong dollar, and rising costs. Any company that highlights these themes in the outlook will see an instant reaction in the stock price.”
- Earnings conference calls should be brutal this quarter if folks are doing their jobs and folks w/ downside views are going to get punished severely. But this also sets up companies exaggerating 2H 2018 and more importantly 2019
- Quote on worrying topic: “The trade war. With the apparently modest market reaction, more of the punditry is concluding that victory is in the cards. Actually, stocks would probably be about 10% higher without the trade concerns.”
- This i struggle with … i doubt if the FANG folks would be 10% higher, but maybe broader participation.
A Wealth of Common Sense posted a really sound review of diversification http://awealthofcommonsense.com/2018/07/some-considerations-for-investing-globally/
I am in total agreement with many of the key points. I have been more capital out of US equities both on a valuation risk and a political risk. One could argue that political risk may not be isolated to US, but diversification has its purposes. The other element that is worth considering is the historical transitions of the ‘power economy’; the US time may be waning and who knows for sure what economy will assume leadership – China, India, or … this transition seems to be starting …
Lance is dangerous for me to read as he exaggerates the echo chamber in my head. His analysis is much more technical than i could ever imagine pulling off, but our portfolio management actions / bias usually map pretty well. I was just remarking in my Q2 report that gains for the first 6 months were less than all the action, hype and angst we all lived through those 6 months. The next 6 months will probably be just as difficult, but Lance has some good S&P risk management advice – a read worth the time, imho.
A recent post resonated with me as I have a tendency to grab the falling knife as soon as it hits my preconceived value target – a falling knife gets my attention for sure. This was a thoughtful post and with greater discipline, I see adopting similar practices
Quote: “When it comes to stock prices, the key lesson from my experience of making such mistakes of omission and some of commission – and learning from them – is that it is foolish to try to capture the first and last part of a stock’s move. If you are right in your analysis, and the long-term fundamentals of the underlying business are good (even if the short-term hurts), you can make a lot of money in the middle. That’s the most peaceful part of the wealth generation process – in the middle, not on the edges.”
Brian’s post is timely and as always data-rich – https://seekingalpha.com/article/4184936-style-box-update-large-cap-growth-vs-value-divergence-getting-lot-attention
I am absolutely value biased so this is obvious in many ways. The surprise was diving into the holdings of the two ETFs mentioned. We have different definitions of value factor companies. I look for companies priced below or at the longer term value that have high confidence in delivering to the value assumptions (revenue, earnings and dividends).
IWD – https://seekingalpha.com/symbol/iwd
Editorial Note: I have changed my posting methods starting in Q3. I will post more often with singularly sourced content to summarize and comment. My plans and actions will be posted on an event-based cadence rather than a time bound post (i.e., weekly). Though because Jeff publishes with discipline weekly, the event is weekly.
My weekly walk thru – https://seekingalpha.com/article/4184906-weighing-week-ahead-investors-start-worrying-2020
- a rollar coaster week and perfectly appropriate to 2018 YTD – up 0.84% with dollops of fear and greed several times that created a false sense of real movement
Speech Recognition Jeff pointed outward to: https://seotribunal.com/blog/voice-search-facts-stats/
- This is incredibly important and interesting moving forward regardless of your platform (i favor 3): mobile, automobiles, retail
- I have been watching NUAN for several months at first as a trade and then as trying to figure out how / if they will play here. Not enough for actionable
- Look at the section on “Search by Age” … this is telling and obvious but important for this upcoming demographic transition from consumption (for me i think usage models and use cases) by boomers to the millenials as they spending shifts
- The results on “Smartest” were surprising at first blush, but if one buys into the assumption that the larger, more diverse the data set, it is clear that Google and MSFT would have the larger, better data sets. … where are the other data sets that have yet to be fully monetized?
- When you mash that data with the SEO element, it gets very interested when narrowed to a consumer transaction
- This surprised me as i was expecting to see either flat or increases … an overlay with auto loans in trouble would be a great visual.
- I see same. There’s been a shift in the sentiment just based on the noise in the media channels. If you take this as contrarian indicator it fits with the Fear and Greed Trader post and my comments. My near term rational bias is upward but crazy sideline comments will disrupt rationality as it has of late.
- Consumer confidence is not contrarian indicator and this will be an important indicator to watch for more supportable trends
- 10yr holding to <2.90% – too low for me to increase rate exposure at this time, though around 3.0%, i start looking for investment opportunities
- Anticipated inflation to be watched for continued upward trend
- Short term technical health degrads … interesting and a surprise
The close: Market timing is not feasible, but risk recognition is.”
- Herein is the challenge for us folks – risk recognition is necessary, but not sufficient. Risk management requires actions. The key question or challenge for m is how to mitigate the risk AND be comfortable with the opportunity cost of those actions. Nothing is really free.
Actions – Last Week’s Plans
- Specific Analysis Completed
- TU – after completing a similar review of RCI, I was leaning toward TU as the better long position (Ring 1 Position). What became clear is that the tools I was using so far were insufficient. I am recycling through the methodology and will write it all down
- CLDR – I know enough about this company to be wary, but do think they may have a decent story if they can break from Hadoop narrative – but this is trade for me at this point. Others think differently
- Thought this was a good perspective on strategy and how one holds themselves accountable to that strategy – I am working to write mine all down (sigh)
- Actions Taken
- STM – lost position to stop-loss
- CRON – sold 1/2 position
- FIT – sold 2/3 Aug 7 puts (still hold balance and Aug 6 puts)
- Opened trades: INFY, TCEHY(long) and WEN (short)
The Clues this Week
- Equity / Stocks
- A leading indicator to watch?
- Brian G with very sound advice about watching Q1’19 earning estimates and their revisions – I want to see the revenue estimates moreover
- Lance R posted a similar story focusing eyes on Q1’19
- Redfin is an interesting story — it could be part of a new narrative that I am working on wrt Millennial / Boomer demographic shifts. This is not like the Dent story that I have received 5x daily, but an actionable line
- This company, SBUX, may be on the other side of this narrative, depending on how aggressive they can move internationally (China and India). I am skeptical of this author’s optimism.
- Another attempt to identify and predict a leading indicator – while interesting from conceptual view, I do not find it fully actionable
- Jeff Miller’s WTWA and my commentary
- What a ride this week and not immediately clear what is the trend – other than react to the daily news
- This point was subtle and probably overlooked due to the absence of any eye-popping visualization: Quote: “Leading economic indicators increased only 0.2% versus 0.4% last month and expectations of another 0.4% increase.”
- Are student loans a canary or just one of those data sets people like to see as ‘powder keg’? Read the post Jeff points to
- Indicators are stable
The Plans next Week
- Nothing yet – re-planning the next 60-90 days