Posts

Ten Thousand Words - March 2019

Image
Apparently, Confucius didn’t say “One Picture Worth Ten Thousand Words” after all. It was an advertisement in a 1920s trade journal for the use of images in advertisements on the sides of streetcars. Even without the credibility of Confucius behind it, we think this saying has merit. Each month we share a few charts or images we consider noteworthy.

Funeral parlour operator Invocare found Australia's death rate was unusually low in calendar 2018 but actuaries report life expectancy for a 65 year old is in decline in the UK; the rise of the machines as recognisers of imagery; Mohamed A. El-Erian highlights the negative yield boom; a pizza chain outperforms Google; and Equitable Investors' FIT Index series shows the smallest companies struggling to keep up over the past month.


Australian death volumes dip


Source: Invocare


UK data shows life expectancy at 65 is falling


Source: WSJ.com, Institute and Faculty of Actuaries


Artifical Intelligence: neural networks are delivering human-level…

The probability of a stock going up or down

Image
"What is the probability of a stock's price going up vs going down at any given time?"

The answer depends on how you are looking at this:

(i) if you are looking purely at the very next second with no additional information, there are three ways the stock could go: up, down or flat (no change).

(ii) if you are looking at buying a stock at any given point in time but then holding it for a period of time, historical data starts to indicate that the odds favour up over down.

A while back I ran some stats on my domestic equities market (Australia). I found that 64% of industrial stocks (a broad category that excludes resources plays but includes most other sectors including tech and financials, achieved a positive return in the five years to May 20, 2018. The chart below sets out the distribution of returns.

But that is just one time period in time. Using US data, alpha architect ran a more detailed study that you can read here.

If you look at market returns rather than indiv…

Ten Thousand Words - February 2019

Image
Apparently, Confucius didn’t say “One Picture Worth Ten Thousand Words” after all. It was an advertisement in a 1920s trade journal for the use of images in advertisements on the sides of streetcars. Even without the credibility of Confucius behind it, we think this saying has merit. Each month we share a few charts or images we consider noteworthy.

This month, we observe earnings expectations for ASX listings drift into the February reporting season; Nomura shows us how US equities have performed after dropping at least 17.5% (they have performed well); Merrill Lynch's February fund manager survey shows the biggest allocation to cash since 2009; Merrill also shows us big things are ahead for the "Internet of Things", while from Goldman Sachs we get a look at the scale of the leading public cloud operators relative to their growth rates; and finally we take a look at venture capital deal activity courtesy of KPMG (and find that angel/seed deal volumes have declined progre…

Cannabis stocks weren't smoking in 2018

Image
From time to time we've published an index on cannabis stocks and on other speculative thematics - lithium, China consumer plays and cryptocurrency stocks.

We had another look at these indices, based on the average share price moves of baskets of stocks exposed to the relevant themes, to provide a client with some perspective on how they have performed compared to the continually bubbly narrative of newsletter writers.


Figure 1: Average share price performance of ASX-listed cannabis stocks since Jan 2016

















Source: Sentieo, Equitable Investors


On our calculations, cannabis stocks fell 36% in 2018 - but that was better than cryptocurrency stocks (down 62%), lithium stocks (down 53%) and China consumer stocks (down 40%).

These stocks tell the story of market sentiment – they will run very hard when sentiment is strong and they will have the biggest declines when people start to worry.


Figure 2: Speculative thematic indices peaked in Dec 2017/Jan 2018



















Source: Sentieo, Equitable Investors

Ten Thousand Words - January 2019

Image
Apparently, Confucius didn’t say “One Picture Worth Ten Thousand Words” after all. It was an advertisement in a 1920s trade journal for the use of images in advertisements on the sides of streetcars. Even without the credibility of Confucius behind it, we think this saying has merit. Each month we share a few charts or images we consider noteworthy.

This month, a massive outflow of funds from global equities in late CY2018 was highlighted by Paul Moore of PM Capital and Blackrock backs this up with an estimate of the impact of uncertainty on US equities; Morgan Stanley shows that none of the key asset classes bettered inflation in CY2018; Blackrock looks at previous periods in which "value" stocks have under performed and Equitable Investors concludes that the value end of its Australian equities universe (Financial, Industrial and Technoogy - FIT - stocks with market caps of $10m to $5 billion) did indeed have a tough CY2018.



Record equity outflows (published early Jan 2019)

S…

Ten Thousand Words - December 2018

Image
Apparently, Confucius didn’t say “One Picture Worth Ten Thousand Words” after all. It was an advertisement in a 1920s trade journal for the use of images in advertisements on the sides of streetcars. Even without the credibility of Confucius behind it, we think this saying has merit. Each month we share a few charts or images we consider noteworthy.

This month, Evans & Partners sets out the downward trend in earnings expectations for the S&P/ASX 200; capital flows into short-term bonds while the World Uncertainty Index has been on a long-term upward trend; the best performed stocks in Australia between 2007 and 2017 were yield plays and the worst were stocks with no yield; while back in the US, academics show IPOs can be dicey and Bianco Research highlights an increasing percentage of US companies don't cover their interest expense with Earnings Before Interest and Tax

Revisions to FY19 earnings expectations for the S&P/ASX 200


Source: Evans & Partners



Flows of capita…

Copper Got Hot

Image
We're finalising a "State of the Market" presentation for clients of Equitable Investors and have been thinking about different ways to look at how "hot" the Australian sharemarket got.

Here's one chart we put together showing a surge in the level of interest in the daytraders chat forum, HotCopper, as measured by Google Trends

















The AFR, the local must-read for investors, has maintained steady interest levels since 2010HotCopper, the home of speculators and daytraders, has experienced a surge in interest“Peak” HotCopper appears to have been January 2018Interest in speculative micro-cap and tech stocks was curbed ahead of the broader market decline in October amid scandals that played out earlier in calendar 2018 such as the collapse of online video review business BigUn and the implosion of logistics app player GetSwift.

Ten Thousand Words - November 2018

Image
Apparently, Confucius didn’t say “One Picture Worth Ten Thousand Words” after all. It was an advertisement in a 1920s trade journal for the use of images in advertisements on the sides of streetcars. Even without the credibility of Confucius behind it, we think this saying has merit. Each month we share a few charts or images we consider noteworthy.

This month, the stock price of listed hedge fund giant Och-Ziff shows that buying things just because they have plunged in price doesn't mean they will go up again; high-flying ASX listing with P/E multiples greater than 26x were the most heavily sold in October; while The Reformed Broker highlighted just how significant changes in P/E multiples are to returns; historic data shows there's no reason, based on seasonality, to expect a bounce in ASX small industrials in November; Pimco sets out how correlated with equities different debt instruments are;  and Stratfor charts out how the top 15 cities hold ~11% of the world's wealt…

October Sell-Off Hit High-Altitude PE Stocks Hardest

Image
Companies listed on the ASX with high price to earnings multiples bore the brunt of last month's sell-off.

Equitable Investors reviewed the data on the torrid month for learning and insight. Figure 1, below, shows the worst hit companies were those with price-to-earnings (PE) multiples greater than 26 times the earnings reported in the last 12 months.

Almost 90% of companies with PE multiples of between 40.4x and 80.3x declined in October, compared to about 78% of all stocks.

The least impacted stocks amid the negativity were those trading on multiples close to the market average in the band of 16.3x to 19.6x.


Figure 1: October share price performance sorted by Price-to-Earnings (PE) multiples (using earnings from the last 12 months) at the beginning of the month

Source: Equitable Investors, Sentieo
Note we have excluded most negative PE bands from this table


As noted in this column for livewire markets, a high-flying company like logistics software group Wisetech Global (WTC), priced…

Rocky - tober

Image
We keep hearing about the "October Effect" - it even has a definition at investopedia.com.au. October 2018 has clearly been a shocker for equity markets. The S&P/ASX 200 Index is down 6.5% and the indices covering smaller Australian stocks are down at least 10%.

Earlier this year we pulled together five years of weekly price data for the S&P/ASX Small Industrials Index and reviewed the week-by-week average performances. So we've returned to that data to have a look at how this index performed in Octobers past.

We counted a week as belonging to a month if its last trading day was in that month - so the week ended September 1, 2017, was grouped in September even though it started in August.

Based on this data, October does not stand out as such a troublesome month: only the first week of October had a negative return on average, with the other weeks up on average. The first and third weeks of October have been negative more often than positive - but other months we…

Disclaimer

Nothing in this blog constitutes investment advice - or advice in any other field. Neither the information, commentary or any opinion contained in this blog constitutes a solicitation or offer by Equitable Investors Pty Ltd (Equitable Investors) or its affiliates to buy or sell any securities or other financial instruments. Nor shall any such security be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction.

The content of this blog should not be relied upon in making investment decisions.Any decisions based on information contained on this blog are the sole responsibility of the visitor. In exchange for using this blog, the visitor agree to indemnify Equitable Investors and hold Equitable Investors, its officers, directors, employees, affiliates, agents, licensors and suppliers harmless against any and all claims, losses, liability, costs and expenses (including but not limited to legal fees) arising from your use of this blog, from your violation of these Terms or from any decisions that the visitor makes based on such information.

This blog is for information purposes only and is not intended to be relied upon as a forecast, research or investment advice. The information on this blog does not constitute a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Although this material is based upon information that Equitable Investors considers reliable and endeavours to keep current, Equitable Investors does not assure that this material is accurate, current or complete, and it should not be relied upon as such. Any opinions expressed on this blog may change as subsequent conditions vary.

Equitable Investors does not warrant, either expressly or implied, the accuracy or completeness of the information, text, graphics, links or other items contained on this blog and does not warrant that the functions contained in this blog will be uninterrupted or error-free, that defects will be corrected, or that the blog will be free of viruses or other harmful components.Equitable Investors expressly disclaims all liability for errors and omissions in the materials on this blog and for the use or interpretation by others of information contained on the blog.