Posts tagged ‘Angela Merkel’

Sweating Your Way to Investment Success

There are many ways to make money in the financial markets, but if this was such an easy endeavor, then everybody would be trading while drinking umbrella drinks on their private islands. I mean with all the bright blinking lights, talking baby day traders, and software bells and whistles, how difficult could it actually be?

Unfortunately, financial markets have a way of driving grown men (and women) to tears, usually when confidence is at or near a peak. The best investors leave their emotions at the door and follow a systematic disciplined process. Investing can be a meat grinder, but the good news is one does not need to have a 90% success rate to make it lucrative. Take it from Peter Lynch, who averaged a +29% return per year while managing the Magellan Fund at Fidelity Investments from 1977-1990. “If you’re terrific in this business you’re right six times out of 10,” says Lynch.

Sweating Way to Success

If investing is so tough, then what is the recipe for investment success? As the saying goes, money management requires 10% inspiration and 90% perspiration. Or as strategist and long-time investor Don Hays notes, “You are only right on your stock purchases and sales when you are sweating.” Buying what’s working and selling what’s not, doesn’t require a lot of thinking or sweating (see Riding the Wave), just basic pattern recognition. Universally loved stocks may enjoy the inertia of upward momentum, but when the music stops for the Wall Street darlings, investors rarely can hit the escape button fast enough. Cutting corners and taking short-cuts may work in the short-run, but usually ends badly.

Real profits are made through unique insights that have not been fully discovered by market participants, or in other words, distancing oneself from the herd. Typically this means investing in reasonably priced companies with significant growth prospects, or cheap out-of-favor investments. Like dieting, this is easy to understand, but difficult to execute. Pulling the trigger on unanimously hated investments or purchasing seemingly expensive growth stocks requires a lot of blood, sweat, and tears. Eating doughnuts won’t generate the conviction necessary to justify the valuation and excess expected return for analyzed securities.

Times Have Changed

Investing in stocks is difficult enough with equity fund flows hemorrhaging out of investor accounts like the asset class is going out of style. Stocks’ popularity haven’t been helped by the heightened volatility, as evidenced by the multi-year trend in the schizophrenic  volatility index (VIX) –  escalated by the international geopolitics and presidential elections. Globalization, which has been accelerated by technology, has only increased correlations between domestic market and international markets. In decades past,  concerns over economic activity in Iceland, Dubai, and Greece may not even make the back pages of The Wall Street Journal. Today, news travels at the speed of a “Tweet” and eventually results in a sprawling front page headline.

The equity investing game may be more difficult today, but investing for retirement has never been more important. Stuffing money under the mattress in Treasuries, money market accounts, CDs, or other conservative investments may feel good in the short run, but will likely not cover inflation associated with rising fuel, food, healthcare, and leisure costs. Regardless of your investment strategy, if your goal is to earn excess returns, you may want to check the moistness of your armpits – successful long-term investing requires a lot of sweat.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

www.Sidoxia.com

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in ETFC, VXX, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

October 16, 2016 at 5:10 pm Leave a comment

Rise of the Robots

Battery Operated Toy Robot

We’re losing our jobs to robots, and they will destroy our economy. It makes for a great news soundbite, but has no factual basis in reality, if you look at the actual trajectory of automation and technology innovations throughout history. The global economy did not collapse when the steam engine replaced the oar; the automobile supplanted the horse; the computer became a substitute for the abacus; and the combine killed off the farmer. The same notion holds true today as robots become more ubiquitous in our daily commercial and personal lives.

From the early, post-revolutionary birth of our country in the 18th century, the agrarian economy accounted for upwards of 90% of jobs and financial activity…until farming technology evolved (see chart below). As new agricultural advancements were introduced, like the cotton gin, plow, scythe, chemical fertilizers, tractors, combine harvesters, and genetically engineered seeds, human capital (jobs) were redeployed into other growth sectors of the economy (e.g., factories, aerospace, semiconductors, medicine, etc.).

Source: Carpe Diem

Source: Carpe Diem

Given that human labor accounts for about 2/3 of an average company’s expense structure, it should come as no surprise that corporations are looking to reduce costs by introducing more robotics and automation into their processes. The advantages to robotics adoption are numerous and I describe many of the reasons in my article, Chainsaw Replaces Paul Bunyan:

A robot won’t ask for a raise; it always shows up on time; you don’t have to pay for its healthcare; it can work 24/7/365 days per year; it doesn’t belong to a union; dependable quality consistency is a given; it produces products near your customers; and it won’t sue for discrimination or sexual harassment.

 

At Sidoxia Capital Management we opportunistically identified this growing trend quite early as evidenced by our initial 2012 investment in KUKA AG (Ticker: KUKAF), a German manufacturer of industrial robots. KUKA has recently made headlines due to a bid received from Chinese home-appliance company (Midea Group: Ticker – 000333.SZ) that values the dominant German robotics leader at $5 billion. Despite KUKA’s +273% share price appreciation from the end of 2012, not many people have heard of the company. While KUKA may not have caught the attention of many U.S. investors, the company has captured a bevy of blue-chip global customers, including Daimler, Airbus Group, Volkswagen, Fiat, Boeing, and Tesla.

Rather than sitting on its hands, KUKA has done its part to develop a higher profile. In fact, President Barack Obama and German Chancellor Angela Merkel recently received a robotics demonstration from KUKA’s CEO Till Reuter at the world’s largest industrial technology trade fair in Hannover, Germany this April (picture below)

Source: Bloomberg

Source: Bloomberg

The recent multi-billion dollar bid by Midea Group has turned some onlookers’ heads, but what the potential deal really signals is the vast opportunity for robotics expansion in Asia. Rising labor costs in China, coupled with the enormous efficiency benefits of automation, have pushed China to become the largest purchasing country of robots in the world, ahead of the U.S., Japan, Korea and Germany (see chart below). However, according to the International Federation of Robotics (IFR), in 2015, Japan remained the country with the largest number of installed robots. IFR does not expect Japan to remain the “king” of the installed robotics hill forever. Actually, IFR estimates China will leapfrog Japan over the next few years to become both the largest purchaser of robots, along with maintaining the largest installed base of robots.

Source: Financial Times

Source: Financial Times

In the coming months and years, there will be a steady stream of sensationalist headlines talking about the rise of the robots, and the destruction of jobs. We’ve repeatedly seen this movie before throughout history. Rather than a scary bloodbath ending, over the long-run we’ll likely see another happy ending. Any potential job losses will likely be outweighed by productivity gains, coupled with the benefits associated with more efficiently deployed labor to new growth sectors of the economy.

Even KUKA realizes the automation dynamics of the 21st century  will serve as a net labor enhancer not detractor. If you don’t believe me, just ask Timo Boll, world champion table tennis player, who tested this theory vs. a KUKA robot (see video below). Ultimately, the rise of robots will lead to the rise of global growth and productivity.

investment-questions-border

www.Sidoxia.com

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper. 

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs), KUKAF, BA, and TSLA, but at the time of publishing had no direct position in Daimler, Airbus Group, Volkswagen, Fiat Chrysler, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.

June 11, 2016 at 10:36 am Leave a comment

Sweating Your Way to Investment Success

Source: StopSweatyArmpits.com

There are many ways to make money in the financial markets, but if this was such an easy endeavor, then everybody would be trading while drinking umbrella drinks on their private islands. I mean with all the bright blinking lights, talking baby day traders, and software bells and whistles, how difficult could it actually be? 

Unfortunately, financial markets have a way of driving grown men (and women) to tears, usually when confidence is at or near a peak. The best investors leave their emotions at the door and follow a systematic disciplined process. Investing can be a meat grinder, but the good news is one does not need to have a 90% success rate to make it lucrative. Take it from Peter Lynch, who averaged a +29% return per year while managing the Magellan Fund at Fidelity Investments from 1977-1990. “If you’re terrific in this business you’re right six times out of 10,” says Lynch. 

Sweating Way to Success

If investing is so tough, then what is the recipe for investment success? As the saying goes, money management requires 10% inspiration and 90% perspiration. Or as strategist and long-time investor Don Hays notes, “You are only right on your stock purchases and sales when you are sweating.” Buying what’s working and selling what’s not, doesn’t require a lot of thinking or sweating (see Riding the Wave), just basic pattern recognition. Universally loved stocks may enjoy the inertia of upward momentum, but when the music stops for the Wall Street darlings, investors rarely can hit the escape button fast enough. Cutting corners and taking short-cuts may work in the short-run, but usually ends badly.

Real profits are made through unique insights that have not been fully discovered by market participants, or in other words, distancing oneself from the herd. Typically this means investing in reasonably priced companies with significant growth prospects, or cheap out-of-favor investments. Like dieting, this is easy to understand, but difficult to execute. Pulling the trigger on unanimously hated investments or purchasing seemingly expensive growth stocks requires a lot of blood, sweat, and tears. Eating doughnuts won’t generate the conviction necessary to justify the valuation and excess expected return for analyzed securities.

Times Have Changed

Investing in stocks is difficult enough with equity fund flows hemorrhaging out of investor accounts like the asset class is going out of style (See ICI data via The Reformed Broker). Stocks’ popularity haven’t been helped by the heightened volatility, as evidenced by the multi-year trend in the schizophrenic  volatility index (VIX) –  escalated by the “Flash Crash,” U.S. debt ceiling debate, and European financial crisis. Globalization, which has been accelerated by technology, has only increased correlations between domestic market and international markets. As we have recently experienced, the European tail can wag the U.S. dog for long periods of time. In decades past,  concerns over economic activity in Iceland, Dubai, and Greece may not even make the back pages of The Wall Street Journal. Today, news travels at the speed of a “Tweet” for every Angela Merkel  – Nicolas Sarkozy breakfast meeting or Chinese currency adjustment, and eventually results in a sprawling front page headline.   

The equity investing game may be more difficult today, but investing for retirement has never been more important. Stuffing money under the mattress in Treasuries, money market accounts, CDs, or other conservative investments may feel good in the short run, but will likely not cover inflation associated with rising fuel, food, healthcare, and leisure costs. Regardless of your investment strategy, if your goal is to earn excess returns, you may want to check the moistness of your armpits – successful long-term investing requires a lot of sweat.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

www.Sidoxia.com

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in ETFC, VXX, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

January 15, 2012 at 5:08 pm 3 comments

Solving Europe and Your Deadbeat Cousin

The fall holidays are quickly approaching, and almost every family has at least one black-sheep member among the bunch. You know, the unemployed second cousin who shows up for Thanksgiving dinner intoxicated – who then proceeds to pull you aside after a full meal to ask you for some money because of an unlucky trip to Las Vegas. For simplicity purposes, let’s name our deadbeat cousin Joe.

Right now the European union (EU) is dealing with a similar situation, but rather than being forced to deal with money-begging cousin named Joe, the EU is being forced to confront the irresponsible debt-binging practices of its own relatives – the PIIGS (Portugal, Ireland, Italy, Greece, and Spain). The European troika (International Monetary Fund/IMF; European Union/EU; and European Central Bank/ECB), spearheaded by German and French persuasion, is contemplating everything from prescribing direct bank recapitalization, bailouts via the leveraging of the EFSF (European Financial Stability Facility), ECB bond purchases, debt guarantees, unlimited central bank loans, and more.

New stress tests are being reevaluated as we speak. Previous tests failed in gaining the necessary credibility because inadequate haircuts were applied to the values of PIIGS debt held by European banks. European Leaders are beginning to gain some religion as to the urgency and intensity of the financial crisis. Just today, Germany’s chancellor (Angela Merkel) and France’s President (Nicolas Sarkozy) announced that they will introduce a comprehensive package of measures to stabilize the eurozone by the end of this month, right before the summit of the G20 leading global economies in Cannes, France.

Pick Your Poison

Whatever the path used to mop up debt excesses, the options for solving the financial mess can be lumped together in the following categories:

1. Austerity: Plain, unadulterated spending cuts is one prescription being administerd in hopes of curing bloated European sovereign debt issues. Negatives: Slowing economic growth, slowing tax receipts, potentially widening deficits (reference Greece), and political reelection self interests call into question the feasibility of the austerity option. Positives: Austerity is a morally correct fiscal response, which has the potential of placing a country’s financial situation back on a sustainable path.

2. Bailouts: The troika is also talking about infusing the troubled banks with new capital. Negatives: This action could result in more debt placed on country balance sheets, a potentially lower credit rating, higher costs of borrowing, higher tax burden for blameless taxpayers, and often an impossible political path of success. Positives: Financial markets may respond constructively in the short-run, but providing an alcoholic more alcohol doesn’t solve long-term fiscal responsibility, and also introduces the problem of moral hazard.

3. Haircuts: Voluntary or involuntary haircuts to principal debt obligations may occur in conjunction with previously described bailout efforts, depending on the severity of debt levels. Negatives: There are many different sets of constituents and investors, which can make voluntary haircut/debt restructuring terms difficult to agree upon. If the haircuts are too severe, banking reserves across the EU will become decimated, which will only lead to more austerity, bailouts, and potential credit downgrades. Such actions could hamper or eliminated future access to capital, and the cost of access to future capital could be cost prohibitive for the borrowing countries that defaulted/restructured. Positives: Haircuts eliminate or lessen the need for other more painful austerity or restructuring measures, and force borrowers to become more fiscally responsible, not to mention, investors are forced to conduct more thorough due diligence.

4. Printing Press: Buying back debt with freshly printed euros hot off the press is another strategy. Negatives: Inflation is an invisible tax on everyone, including those constituents who are behaving in a fiscally responsible manner. Positives: Not only is this strategy more politically palatable because the inflation tax is spread across the whole union, but this path to debt reduction also does not require as painful and unpopular cuts in spending as experienced in other options.

The Costs

What is the cost for this massive European debt-binging rehabilitation? Estimates vary widely, but a JP Morgan analyst sized it up this way as explained in the The Financial Times:

“In a worst-case, severe recession scenario, €230bn in new capital is needed to meet Basel III requirements, assuming a 60 per cent debt writedown on Greece, 40 per cent on Ireland and Portugal and 20 per cent on Italy and Spain, and that banks withhold dividends.”

 

More bearish estimates with larger bond loss haircuts, stricter regulatory guidelines, and harsher austerity measures have generated recapitalization numbers north of €1 trillion euros. Regardless of the estimates, European governments, regulators, and central banks are likely to select a combination of the poisons listed above. There is no silver bullet solution, and any of the chosen paths come with their own unique set of consequences.

As time passes and the European crisis matures, I am confident that you will be hearing more about ECB involvement and the firing-up of the printing presses. Perhaps the ECB will fund and work jointly with the EFSF to soak up debt and/or capitalize weak banks. Alternatively, and more simply, the ECB is likely to follow the path of the U.S. and implement significant amounts of quantitative easing (i.e., provide liquidity to the financial system via sovereign debt purchases and guarantees).

Dealing with irresponsible and intoxicated deadbeat second cousins (or European countries) fishing for money is never a pleasurable experience. There are many ways to address the problem, but ignoring the issue will only make the situation worse. Fortunately, our European friends on the other side of the pond appear to be taking notice. As in the U.S., if government officials delay or ignore the immediate problems, the financial market cops (a.k.a., “bond vigilantes”) will force them into action. In the recent past, European officials have used a strategy of sober talking “tough love,” but signs that the ECB printing presses are now beginning to warm up are evident. Once the euros come flying off the presses to detoxify the debt binging banks, perhaps the ECB can print a few extra euros for my cousin Joe.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

www.Sidoxia.com

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct position in JPM, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

October 9, 2011 at 4:36 pm 2 comments


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