Equitable Investors

Warren Buffett says, “I just sit in my office and read all day.” Not everyone can afford to devote themselves to reading to that extent so here's a shortcut - the headlines that caught our eye this past week and compelled us to click and read... or this week view a number of charts. Behind the most unbelievable stock run of 2017 at Big Un Limited | AFR Beyond that the most enthusiastic backers of Big are excited punters who frequent online stock forums, who have found themselves on to a winner. The lack of institutional share ownership means it's almost impossible for the sceptics to bet against the stock by shorting it, as no shares are available to borrow. What’s hot, what’s not – Stockhead’s yearbook of ASX debutants for 2017 | Stockhead From cannabis for pets to infant milk formula, ASX debutants make quite the class for 2017. Overall there have been 93 IPOs on the market to November 30, not including reverse takeovers or re-listings... if all p...

There's plenty of people out there at this time of year cutting the numbers on how various classifications of equities have performed during calendar 2017: Industrials compared to Resources; Small Caps relative to Large Caps; Value versus Growth; maybe Health v IT. What about those sectors that have had a real "Buzz" about them, relative to the market or even compared to each other? What have been the buzz categories this year? Off the top of my head, I come up with Cannabis, Chinese demand for Aussie food brands, cryptocurrencies and lithium (if you've got others, let me know). So how have these buzz stocks performed? Stocks associated with cryptocurrencies under-performed relative to other buzz categories - they only delivered a capital return of 140% in the first 11 months of the year. Sure that looks great compared to the 10% capital gain for the S&P/ASX Small Industrials or the 24% gain for the S&P/ASX Small Resources. But its nothing compared to th...

Warren Buffett says, “I just sit in my office and read all day.” Not everyone can afford to devote themselves to reading to that extent so here's a shortcut - the headlines that caught our eye this past week and compelled us to click and read... or this week view a number of charts. US mean & median household net wealth showing sharp divergence | WSJ Interesting papers on the "alpha" from stock-picking & public communication of analysis... | via Alpha Architect "Throwing a bone to stock pickers". These Maps Show How Economic Freedom Around The World Enriches/Impoverishes People | ValueWalk Australia and New Zealand also stand out in the Pacific as bastions of freedom. Returns-based View of Opportunity Set | OSAM Research For all but the largest investors, we would argue a returns-based approach is more likely to be applicable when assessing the opportunity set. Australasia Targeted M&A by Quarter | WSJ Australian M&A's...

A net return of 3.44% for November lifted the Equitable Investors Dragonfly Fund’s net return for its first three months to 5.5%. One of our strategic value investments struck an attractive deal to sell a business and one of our growth investments completed the purchase of a business that will more than double group earnings, resulting in healthy monthly returns in both cases. Read the full report here .

Warren Buffett says, “I just sit in my office and read all day.” Not everyone can afford to devote themselves to reading to that extent so here's a shortcut - the headlines that caught our eye this past week and compelled us to click and read. View from above Pool of negative yielding bonds tops $11tn in November | FT More than $11tn of sovereign and corporate bonds traded with a yield below zero at the end of November, despite quickening global growth and a view among investors that central banks will begin to remove their extraordinary accommodation. How To Read Financial News | Collaborative Fund October 27th, 1929. It’s the day before the Great Depression begins. One of the most important days in market history. Let’s go back in a time. What would you find? Dig through the New York Times that day, and the entirety of stock market coverage is summarized on one page, a third of which is a Chanel shoe ad. Companies shunned all-stock mergers in 2017 | FT ...

Warren Buffett says, “I just sit in my office and read all day.” Not everyone can afford to devote themselves to reading to that extent so here's a shortcut - the headlines that caught our eye this past week and compelled us to click and read. Myth Busting: Stocks Correlations and Active Investment Opportunities | Alpha Architect I will show that stocks can be perfectly correlated and have massive return variability, similarly, one can show that stocks can have zero correlation and maintain limited return variability. Bubbles | @jsblokland Past financial bubbles, excluding the Dutch Tulip mania of the 1600s Opinion: The chance of a bitcoin crash is greater than 80% | MarketWatch There’s a greater-than-80% chance that bitcoin will soon crash. To be sure, mine is not the first column to suggest that a bitcoin BTCUSD, +0.47%  crash is imminent, especially as bitcoin’s price tops $10,000. But you may not realize just how high the probability of a crash has become. Di...

Warren Buffett says, “I just sit in my office and read all day.” Not everyone can afford to devote themselves to reading to that extent so here's a shortcut - the headlines that caught our eye this past week and compelled us to click and read. Investors Have Gotten Too Complacent on China Debt | WSJ Corporate debt ticked down by a measly 1% of GDP in the first quarter of 2017, according to the Bank for International Settlements, after rising by nearly 50 percentage points over the past five years. The debt time bomb that keeps growing and now equals nearly half of US GDP | CNBC Corporate debt is at its highest level relative to U.S. GDP since the financial crisis, and while not a concern, a snap higher in rates or an economic slump could make it a bigger worry... Debt of nonfinancial companies has grown $1 trillion in just two years and now totals $8.7 trillion, roughly 45 percent of GDP, according to Informa Financial Intelligence. Good times may be over for overseas sho...

We reckon that the managers and directors most aligned to maximising shareholder value will be those with a considerable portion of their wealth tied up in equity in the business they are involved in. Earlier today we used software group Reckon (ASX code: RKN) as an example in this post on livewire. In discussing RKN, we touched very briefly on the evidence backing up our logic on equity incentive. We discuss this further in Equitable Investors' paper on the factors and inefficiencies we seek to capitalise on as part of our investment process: "Seeking Advantage - Focusing on the Underlying Drivers of Excess Returns Most Evident in Smaller Companies to Optimise Investment Portfolios for Return and Risk". You can find the paper at www.equitableinvestors.com.au or by clicking here . Or you can read our earlier blog entry on Alignment of Interest here .

Warren Buffett says, “I just sit in my office and read all day.” Not everyone can afford to devote themselves to reading to that extent so here's a shortcut - the headlines that caught our eye this past week and compelled us to click and read. Feeding the world  | Raconteur Diets are changing as millions of consumers in Asia and Africa join the global middle class. Their governments are subsiding agriculture to boost production while the US and Europe are trying to cut farm payments as they seek to reduce government deficits. MYOB buys Reckon's accounting group for $180 million  | AFR The acquisition... represents about 50 per cent of Reckon's business in terms of revenue and earnings before interest, tax, depreciation and amortisation... with MYOB paying almost the equivalent of the company's entire market capitalisation (including Thursday's 30 per cent jump). Disclosure: Equitable Investors and its associates have an interest in the shares...

Warren Buffett says, “I just sit in my office and read all day.” Not everyone can afford to devote themselves to reading to that extent so here's a shortcut - the headlines that caught our eye this past week and compelled us to click and read. Fundamental Analysis and the Cross-Section of Stock Returns: A Data-Mining Approach (Digest Summary) | CFA Institute Fundamentals-based anomalies are consistent with mispricing... predictive ability of top fundamental signals is more pronounced among stocks that are small and have low institutional ownership, high idiosyncratic volatility, and low analyst coverage. One Bitcoin Transaction Now Uses as Much Energy as Your House in a Week | Vice An index from cryptocurrency analyst Alex de Vries, aka Digiconomist, estimates that with prices the way they are now, it would be profitable for Bitcoin miners to burn through over 24 terawatt-hours of electricity annually as they compete to solve increasingly difficult cryptographic puzzles...

If you've read our "Seeking Advantage" paper ( available here ) you would know that Equitable Investors believes in fundamental inefficiencies in equities markets. And those views were reconfirmed by a piece of academic research that considered over 18,000 fundamental signals, concluding that: "many fundamental signals are significant predictors of cross-sectional stock returns" "This predictive ability is more pronounced following high-sentiment periods and among stocks with greater limits to arbitrage" "fundamental-based anomalies, including those newly discovered in this study, cannot be attributed to random chance, and they are better explained by mispricing" The research paper, "Fundamental Analysis and the Cross-Section of Stock Returns: A Data-Mining Approach" can be found on the University of Missouri website ( here ) or you can read a summary from CFA Institute ( here ). Consistent with our view, the research fin...

Warren Buffett says, “I just sit in my office and read all day.” Not everyone can afford to devote themselves to reading to that extent so here's a shortcut - the headlines that caught our eye this past week and compelled us to click and read. Greenlight Q3 '17 letter | Greenlight Capital Given the performance of certain stocks, we wonder if the market has adopted an alternative  paradigm for calculating equity value. What if equity value has nothing to do with current or future profits and instead is derived from a company’s ability to be disruptive, to provide social change, or to advance new beneficial technologies, even when doing so results in current and future economic loss? The Morningstar Mirage  | WSJ Investors everywhere think a 5-star rating from Morningstar means a mutual fund will be a top performer—it doesn’t. There’s a link between CEOs who torture the English language and poor stock performance  | MarketWatch "Academic research shows when m...

Warren Buffett says, “I just sit in my office and read all day.” Not everyone can afford to devote themselves to reading to that extent so here's a shortcut - the headlines that caught our eye this past week and compelled us to click and read. Mergers and acquisitions often disappoint | The Economist The study looked at M&A deals done by listed companies in America’s Russell 3000 index between January 2001 and August 2017; deals were only included if they cost more than 5% of the total enterprise value of the acquirer (5% of the equity value, for financial companies). The acquirers’ shares underperformed the market (see chart) and those of rival firms in the same industry. Vital Signs: the spooky mortgage risk signs our bankers are ignoring | The Conversation To put it in context, there appears to be in the neighbourhood of A$1 trillion of interest-only loans on the books of Australian banks. Trump and Stocks: What Gives? | Bloomberg The International Monetary...

"When your competitors go one way, do you follow them, or do you go the other way?" That question was asked of a room of close to 100 financial advisers by keynote speaker Geoff Ramm at Centrepoint Alliance's annual conference last week. The focus at the time was effective marketing but resonated with this investment manager in a different context. The stocks that contributed most to the performance of the Equitable Investors' Dragonfly Fund in the month of September were clear cases of neglect. Investors, on the whole, had turned their focus elsewhere... Read the full article here .

In the main we accept that markets price in known information relatively efficiently. But... information in the public domain is not always widely digested or assimilated and understood. There is evidence showing stock prices react gradually rather than instantly to new information. This is the third excerpt from a brief paper Equitable Investors put together, " Seeking Advantage -  Focusing on the Underlying Drivers of Excess Returns Most Evident in Smaller Companies to Optimise Investment Portfolios for Return and Risk ". You can read the previous excerpts at blog.equitableinvestors.com.au  a nd you can find the paper itself at   www.equitableinvestors.com.au . While information may exist in the public domain, it may not have been widely disseminated; or it may be widely disseminated but a broad base of investors may not have the additional knowledge to understand the materiality of one piece of information among many. The smaller a company is, the less likely it ...