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Showing posts from 2019

If a company has a low price to book ratio, does this mean its stock is undervalued?

Ten Thousand Words - April 2019

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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.

In the wake of the Lyft IPO, VC investor Josh Wolfe shows us that 63 companies were valued over $1 billion at IPO in the US, 50% were profitable in the year before IPO; Crescat Capital highlights record flows into a key US equities ETF and Blue Mountain Capital Management shows us why this may be a negative signal - investors expect high returns after realizing high returns (and expect low returns after realizing low returns) but reality runs counter to those expectations; meanwhile Robeco's Jeroen Blokland highlights that investors continue to pour money into negative yield debt (to be clear, that means they are paying the borrower); t…

Ten Thousand Words - March 2019

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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

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"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

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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

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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

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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…

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