Tag Archives: Stocks

Ātri braukt uz nekurieni

Izņemot, ja saucamais ritenis, izrādās velo trenažieris.

Mūsdienās gandrīz katrs jaunuzņēmums, kas ienāk tirgū, cenšas sevi pārdot kā nākamo lielo tehnoloģijas kompāniju. Dažiem no viņiem patiešām ir potenciāls būt revolucionāriem un mainīt pasauli. Lielāko daļa no tiem tomēr tiks atcerētas kā mežonīgas idejas, kas tolaik dažiem šķita daudzsološas, bet šobrīd šķiet smieklīgas.

“Peloton” ir nākamais šāds tehnoloģijas uzņēmums, kas pirms nedēļas publiskoja prospektu un iesniedza dokumentāciju savu akciju sākotnējam publiskajam piedāvājumam. Es nevaru prognozēt nākotni, bet man ir tāda jocīga sajūta, ka šis nebūs no tiem uzņēmumiem, uz kuru mēs atskatāmies ar cieņu un izbrīnu.

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“Markets in Turmoil”

2 months ago we saw a tweet from Charlie Bilello. It was 27th December. The tweet stated that CNBC will be airing “Markets in Turmoil” episode that night. Episodes of this particular show are aired when markets have been falling hard and everyone is scared.

The tweet also included a look back at past occasions when the show was aired and the performance of the S&P 500 index following the episodes.

We’ve updated the table to include the most recent data:

Markets in Turmoil S&P 500 close 1-week 1-month 3-month 6-month 9-month 12-month Up to 2/25/2019
2/5/2018 2649 0.30% 3.70% 2.40% 8.90% 4.30% 5.41% 7.85%
2/8/2018 2581 5.90% 7.40% 6.30% 10.40% 10.60% 7.04% 10.66%
10/11/2018 2728 1.50% 0.10% -4.35% 3.29%
10/24/2018 2656 2.10% 0.90% 0% 6.06%
12/27/2018 2489 -1.59% 7.21% 12.74%

Going back to 2010 the airing of Markets in Turmoil basically has worked as a buy signal. Every single time after the show was aired 6 months later markets were higher, the same can be said regarding periods of 9 months and 12 months.

1-week after the airing of Markets in Turmoil more than 70% of time markets are higher, more than 60% of time markets are higher 1 month later and more than 90% of time markets are higher 3 months later. Since the last episode aired on December 27th S&P 500 Index returned 12.74%.

Any individual episode of Markets in Turmoil shouldn’t be taken as a buy or signal. Next time the episode could air when the markets are just starting to fall or vice versa starting to go up. Using the data and table above, we want to point out that history shows patience pays off. The longer your investment time horizon the less sense it makes to try and time every single market move. read more

OUR FEBRUARY RESULTS

Our weighted average return in February was -3.18%. Since 2015, we have generated a net return of +35.68% with a Sharpe ratio of 1.24.

In terms of investment strategy performance, our weighted average net returns for February were (a) -0.36% for conservative strategies, (b) -3.25% for balanced strategies, and (c)-4.37% for aggressive strategies.

February was a difficult month. January’s euphoria gave way to massive selling across all asset classes and served as a reminder that investing in capital markets is not easy.

Selloffs like the one that we witnessed in February trigger fear and doubt in investors. There is no way of being completely certain how much asset prices may fall on a short-term basis or how quickly they will recover. Although we invest client assets based on what we believe will transpire in the long-term, we are always aware of the psychological strain that such sell-offs can induce.

In our January commentary, we wrote:
Unfortunately, since the start of February we have witnessed a brutal sell-off that has reclaimed many of our January gains. We see this sell-off as temporary and do not see reason to panic. Our theses remain intact and we will be looking to add to discounted positions.

Thus far, our reaction has been correct. Although we are not always able to convince all of our clients to weather the storm, we try to take advantage of price weakness to set up future profits for others.

The primary instigator for February’s sell-off was higher inflation, which was signaled by a better than expected average hourly earnings data on February 2nd. If you have been reading our monthly reports, you will know that we have been keenly aware of inflationary forces and have shifted our investment strategy to accommodate the impact of inflation on our portfolios – namely by overweighting commodity producers. Unfortunately, commodities and commodity stocks were caught in the downdraft as well last month, but our thesis remains intact.

In February, Jerome Powell replaced Janet Yellen as Chair of the US Federal Reserve. We do not foresee that his policy will differ significantly from Yellen’s and anticipate that rates will continue to rise at a gradual pace. Unlike his predecessors for the past forty years, Powell has a background in investment banking and is not an economist.

We would be remiss not to mention that Trump’s corporate tax cut has elevated the issue of twin deficits (fiscal and trade) in the US. We find this to be the most appropriate explanation for the recent weakness of the US dollar. However, we believe this rationale to be overdone. Capital flows to where it is treated best, and Trump’s corporate tax cut has been the strongest encouragement to date for enterprise to flourish in America. That being said, Trump’s decision to implement tariffs on imported steel and aluminum sent tremors through financial markets at the start of March and led to the resignation of Gary Cohn from his post as Director of the White House’s National Economic Council. Tariff wars are terrible economic policy, but it has since become clear that the tariffs will not be imposed on all trading partners. It is rumored that Larry Kudlow will replace Cohn. Kudlow is an outspoken supporter of a strong dollar policy.

On behalf of our Client Portfolio Management team, I thank you for your continued trust and support!
Pauls

FULL DISCLOSURE: Please note that the opinions expressed in this blog should in no way be considered as investment advice or a solicitation to buy or sell securities.

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Facebook, Snap, Twitter…

Facebook posts astounding results

The stock price of Facebook surged more than 3% in after-hours trading, after posting better than expected quarterly results. The social media giant reported diluted earnings per share of $1.31 versus the estimates of $1.13, marking a 71% increase from the same period last year. Revenue was reported at $9.3 billion, which is 47% higher than a year ago.

The CFO of Facebook, David Wehner, said that ads are going to contribute less to growth in the following quarter. Facebook is looking to generate more revenue out if the news feed with Facebook TV – a long form video service is set to launch mid-August and ads placed in Facebook Messenger, messaging service with 1.2 billion daily users, is still in “early stages”.

The slowing ad revenue growth is something that the management of Facebook has been warning its investors for a year now. According to Wehner, the revenue generated by the ads placed in Messenger are not going to be able to fully offset the slowing growth elsewhere.

On a lighter note, algorithmic traders got very confused after Bloomberg released an incorrect earnings estimate, only to correct it moments later and see the stock surge. Click here to find more!

LINK: Facebook muscles its way to 71% earnings surge

No voting rights – no party, FTSE Russell to Snap, Blue Apron and others

FTSE Russell delivered a blow to companies with no or very limited public voting rights shares in the market by announcing that the companies that fall under this criteria are going to be excluded from their equity indices. The move comes after an industry-wide outrage by institutional investors over SNAP’s move to IPO with shares that hold no voting rights.

The shares of SNAP are most definitely going to be affected by this decision, as it virtually eliminates the chance of institutional investors or big pension funds investing in the self-proclaimed “camera company” in the foreseeable future.

The newly announced requirements are the following: corporations must have at least 5% of the shares with voting rights held by the public. The new requirements apply to all companies, with those already in Russell indices having time until 2022 to adjust their capital structure.

SNAP isn’t the only company affected by the new measures, Blue Apron and many others are going to have to take action in order to be a part of the widely used indices.

LINK: The FTSE Just Dealt This Major Blow to Beleaguered Snap and Blue Apron

Twitter tumbles

Twitter reported its quarterly earnings earlier today. The star of the past reported revenue of $573.9 million, representing a 4.9% decrease year-over-year. The reported number did, however, handsomely beat the analysts’ estimate of $537.2 million.

Despite the top-line beat, Twitter did not deliver on the monthly active users metric, which came in at 328 million users, the same as in the prior quarter. The monthly active user metric is so important, because it gives the investors an idea about how the turnaround of the company is going in the long-term. No growth indicates that the company is stagnating, which in turn is the reason behind the stock shedding 9% in pre-market trading.

In efforts to reinvent itself, Twitter has started focusing on video, more specifically – live-event video content. Twitter has got promising partnerships in its pipeline, but some investors are skeptical about Twitter’s ability to deliver.

What else is there to say, the ball is in Twitter’s court, the future of the company depends on how well they are going to be able to play it.

LINK: Twitter Fails to Grow Its Audience, Again read more

Links

False alarm

By looking at some of the biggest finance sites on Tuesday, one would think that a financial apocalypse had started. Amazon shares appeared to have plummeted by more than 70%. Luckily, it turned out to be a glitch caused by the websites using the wrong data sent to them by NASDAQ.

Reportedly, no securities were traded at the absurdly low price, as trading had been halted.

Science fiction becomes reality

Unlocking your phone and authenticating mobile payments is soon going to be as easy as just looking at your iPhone. According to people familiar with the product, Apple is currently testing 3-D Face Scanning technology, which might replace the fingerprint scanner on the upcoming iPhone.

Bitcoin as a wedding present? It’s been done before!

It might be the best present you wish you had kept to yourself. A 100$ worth of Bitcoin in early 2011 is worth more than $230000 today. Think about that.

Buy the Tweet, Sell the news?

Tesla stocks surged around 2% on Monday morning, after Elon Musk, the CEO of Tesla, tweeted that the new Model 3, their new, more-affordable car, had passed all regulatory requirements ahead of schedule and that they are expecting to produce 20000 Model 3 cars by December. Things turned a bit grim for Tesla as the day went on and the stock closed down a bit more than 2% on reports that they barely produced enough cars in the first half of the year to satisfy the lower-end of their guidance.

Read at Bloomberg, Business Insider

A virtual racing instructor coming to a racetrack near you!

Well, sort of. Porsche is developing autonomous driving software that would enable anyone to sit behind the wheel, while going around the track as fast as a professional racing driver would. It is important to mention that “sitting” behind the wheel is all they are going to be doing – the car is going to drive itself.

The software could also be used as “a virtual racing instructor”, which gathers data while you race and gives you objective tips on how to improve. That is a pretty awesome way of using AI if you ask us. read more

Big Tech Is Doing Very Well

We have been taking some profits on big tech recently, but the numbers in this link show why big tech share prices have done extremely well over the past year:

LINK: Big Tech Earnings and Revenue Growth


Are you surprised that Facebook grew its profits the most? We’re not. It validates the point that their network is a brilliant platform that has only begun to be monetized. read more

Will Spotify be the next hot IPO?

According to NY Times, Spotify has finally signed agreement with Universal Music Group. It’s world’s biggest record company whose artists include Lady Gaga, U2, Drage. And this has been their biggest obstacle to going public.

Spotify has been valued at more than $8 billion, it has 50 million paying subscribers and 50 million listening for free. Those listening for free have been paying by listening to ads.

We’ll keep an eye on Spotify as recently there are limited number of enticing IPOs. read more

Amazon reaches new highs

It seems that Amazon is unstoppable. Of course it isn’t but it may seem so.

There are plenty of articles that help Amazon go even higher, such as:

It’s most ambitions sports deal to date Amazon wins streaming rights to 10 NFL games

Amazon launches Amazon Cash, a way to shop its site without a bank card Link

Also, absence of bad press helps.

We’ve been writing about Amazon for quite some time and perhaps mentioning it too often. It’s been very profitable position for our clients and we’re still bullish. read more

European Banks

According to Goldman Sachs, currently 3 themes that make European banks attractive: 1) the potential of rising rates, 2) the valuation gap between US and European banks, and 3) decreasing political risks.

Our opinion coincides with that of Goldman Sachs.

  1. All Signals Point Towards Higher Interest Rates

Recent pickup in Eurozone inflation has alleviated concerns that Europe could be facing the threat of inflation. Prices are rising, as is economic growth.

Here is a chart of European inflation:

Eurostat Eurozon MUICP AllItems YoY Flash estimate NSA (Source: Bloomberg)

Forecasts of European economic growth that also improved:

Eurozone GDP Economic Forecast (Annual YoY%) (Source: Bloomberg)

Perhaps most significantly, sentiment is also on the rise:

Markit Eurozone Composite SA (Source: Bloomberg)

Data must always be evaluated in the proper context, and can be subject to mixed signals and revisions. However, the fact that all of these data sets are improving in concert with one another provides an increasingly strong signal that the European Central Bank could raise rates sooner rather than expected. Higher rates are important to banks because they allow them to earn a greater absolute spread between their borrowing costs and their interest income. As such, Goldman Sachs estimates that each 10 basis point rate hike would add 2%-3% to the 2018 profits of large European lenders. After a long period of subpar growth, it seems that the Eurozone economy is finally ready to grow faster than it has for a considerable period of time, giving ECB chairman Mario Draghi the green light to finally begin to normalize interest rate policy by raising rates European interest rates.

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