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. 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...