Posts tagged ‘populism’

The Fallacy Behind Populism and Automation Fears

The rise of global populism and anti-immigration sentiments, coupled with the perpetual rising trend of automation and robotics has stoked the fear fires of job security. Many stories perpetuate erroneous stereotypes and falsehoods. The news reports and blog articles come in various flavors, but in a nutshell the stories state the U.S. is hemorrhaging jobs due to the thieves of illegal immigration and heartless robotics. The job displacement theory is built upon the idea that these two sources of labor (immigrants & robots) are cheaper and more productive than traditional blue collar and white collar American workers.

Although these logical beliefs make for great soundbites, and may sell subscriptions and advertising, unfortunately the substance behind the assertions holds little water. Let’s take a look at the facts. In the most recent April jobs report, nonfarm payrolls employment increased by 211,000 jobs, according to the U.S. Bureau of Labor Statistics. Since early 2009 the unemployment rate has plummeted from 10.0% down to a historically low level of 4.4%. Over the similar timeframe, the economy has added over 15,000,000 new jobs. Does this sound like an environment in which immigrants and robots are killing all American jobs?

Sounds like a bunch of phoney-baloney, if you ask me. Just look at the employed person chart below, which shows a rising employment trend over the last seven decades, with the exception of some brief recessionary periods.

As I point out in a previous article (see Rise of the Robots), from the beginning of the United States, the share of the largest segment of the economy (agriculture) dropped by more than 98%, yet the standard of living and output in the agriculture sector have still exploded. There may not have been robots two and a half centuries ago, but technology and automation were alive and well, just as they are today. Although there were no self-driving cars, no internet, no biotech drugs, and no mobile phones, there were technological advances like the cotton gin, plow, scythe, chemical fertilizers, tractors, combine harvesters, and genetically engineered seeds over time.

Source: Carpe Diem

And while there most certainly were farmers who regrettably were displaced by these technologies, there were massive new industries fostered by the industrial revolution, which redeployed labor to new burgeoning industries like manufacturing, aerospace, transportation, semiconductors, medicine, and many more.

While it may be difficult to fathom what industries will replace the workers displaced by self-service kiosks at restaurants, airports, and retail stores, famed economist Milton Friedman summed it up best when he stated:

“Human wants & needs are infinite, and so there will always be new industries, there will always be new professions.”

As globalization and technology continue permeating through society, it is true, the importance of education becomes more critical. Billions of people around the globe in developing markets, along with automation technology, will be stealing lower-paying American jobs that require repetitive processes. Educating our workforce up the value-add food chain is imperative.

The bottom-line is that integration of technology and automation will improve the standard of living for the masses. Sure, immigration will displace some workers, but if legislative policy can be designed to cherry-pick (attract) the cream of the skilled foreign crop (and retrain displaced workers), skilled immigrants will keep on innovating and creating higher valued jobs. Just consider a recent study that shows 51% of U.S. billion-dollar startups were founded by immigrants.

The populist drum may continue to pound against immigration, and horror stories of job-stealing robots may abound, however the truth cannot be erased. Over the long-run, the fallacies behind populism and automation will be uncovered. The benefits and truths surrounding highly skilled immigrants and robots will be realized, as these dynamics dramatically improve the standard of living and productivity of our great economy.

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 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.

May 6, 2017 at 11:11 pm Leave a comment

Managing the Chaos – Investing vs. Gambling

How does one invest amid the slew of palm sweating, teeth grinding headlines of Syria, North Korea, Brexit, expanding populism, Trumpcare, French candidate Marine Le Pen, and a potential government shutdown? Facing a persistent mountain of worries can seem daunting to many. With so many seemingly uncontrollable factors impacting short-term interest rates, foreign exchange rates, and equity markets, it begs the question of whether investing is a game of luck (gambling) or a game of skill?

The short answer is…it depends. Professional gambler Alvin “Titanic” Thompson captured the essence when someone asked him whether poker was a game of chance. Thompson responded by stating, “Not the way I play it.”

If you go to Las Vegas and gamble, most games are generally a zero sum-game, meaning there are an equal number of winners and losers with the house (casino) locking in a guaranteed spread (profit). For example, consider a game like roulette – there are 18 red slots, 18 black slots, and 2 green slots (0 & 00), so if you are betting on red vs. black, then the casino has a 5.26% advantage. If you bet long enough, the casino will get all your money – there’s a reason Lost Wages Las Vegas can build those extravagantly large casinos.

The same principles of money-losing bets apply to speculative short-term trading. Sure, there are examples of speculators hitting it big in the short-run, but most day traders lose money (see Day Trading Your House) because the odds are stacked against them. In order to make an accretive, profitable trade, not only does the trader have to be right on the security they’re selling (i.e. that security must underperform in the future), but they also have to be right on the security they are buying (i.e. that security must outperform in the future). But the odds for the speculator get worse once you also account for the trading fees, taxes, bid-ask spreads, impact costs (i.e., liquidity), and informational costs (i.e., front running, high frequency traders, algorithms, etc.).

The key to winning at investing is to have an edge, and the easiest way to have an investing edge is to invest for the long-run – renowned Professor Jeremy Siegel agrees (see Stocks for the Long Run). It’s common knowledge the stock market is up about two-thirds of the time, meaning the odds and wind are behind the backs of long-term investors. Short-term trading is the equivalent of going fishing, and then continually pulling your fishing line out of the water (you’re never going to catch anything). The fisherman is better off by researching a good location and then maintaining the lure in the water for a longer period until success is achieved.

Although most casino games are based on pure luck, there are some games of skill, like poker, that can produce consistent long-term positive results, if you are a patient professional with an advantage or edge (see Dan Harrington article ).  Having an edge in investing is crucial, but an edge is not the only aspect of successful investing. How you structure a portfolio to control risk (i.e., money management), and reducing your personal behavioral biases are additional components to a winning investment strategy. Professional poker player Walter Clyde “Puggy” Pearson summed it up best when he described the three critical components to winning:

“Knowing the 60-40 end of a proposition, money management, and knowing yourself.”

 

At Sidoxia Capital Management, we have also achieved long-term success by following a systematic, disciplined process. A large portion of our investment strategy is focused on identifying market leading franchises with a long runway of growth, and combining those dynamics with positions trading at attractive or fair values. As part of this process, we rank our stocks based on multiple factors, primarily using data from our proprietary SHGR ranking (see Investing Holy Grail) and free cash flow yield analysis, among other important considerations. Based on the risk-reward profiles of our existing holdings and the pool of targeted investments, we can appropriately size our positions accordingly (i.e., money management). As valuations rise, or risk profiles deteriorate, we can make the corresponding portfolio positions cuts, especially if we find more attractive alternative investments. Having a proven, systematic, unbiased process has helped us tremendously in minimizing behavioral pitfalls (i.e., knowing yourself) when we construct client portfolios.

The world is under assault…but that has always been the case. Throughout investment history, there have been wars, assassinations, unexpected election outcomes, banking crises, currency crises, natural disasters, health epidemics, and more. Unfortunately, millions have gambled and bet their money away based on these frivolous, ever-changing, short-term headlines. On the other hand, those investors who understand the 60-40 end of a proposition, coupled with the importance of money management and controlling personal biases, will be the skillful winners to prosper over the long-run.

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 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.

April 23, 2017 at 10:53 am Leave a comment


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