Break Out of the Box!

rencontres scènes jeunesse From time to time, I reissue pieces written and published in the past.

try these out While I draw inspiration for subjects from current trends, I strive to offer insights having a longer shelf life than a week, a month or a year. This is one such piece that falls into the category of behavioral finance.

cosmogenic isotope exposure dating As an investor, I am always looking out for pitfalls others make, one, to avoid or, two, to exploit. One such pitfall which has not received the attention it deserves is the slavish devotion to style purity.

opcje binarne darmowe demo In the case of small-cap investing, style guidelines — in particular, selling a stock from a fund or portfolio because its market capitalization now exceeds some arbitrary threshold — can be, well, ludicrous. If you have found a winner, a stock which has increased several fold in price and has the potential to keep climbing, Why sell? As an analogy, this behavior is akin to winning a lottery jackpot and using the proceeds to buy more lottery tickets. Just because you were fortunate once does not mean you will always be so blessed.

http://www.emileallais.com/sliva/6439 The idea ties into a another notion which also does not receive the attention it merits. Technological advances typically require two to three generations before most of the economic value from the innovation has been extracted. As an example, consider the transistor. The modern transistor owes its heritage to work performed by Bell Labs in the 1940s and 50s and then by Texas Instruments. But the real innovation was the bulk production of cheap, reliable arrays of transistors etched on silicon chips beginning in the 1980s. This feat enabled the information revolution still unfolding in our midst. The important an innovation takes decades not years to for society to realize its full potential.

guitarist dating wwe diva For the average person a key worry should be the obsolescence of their skill sets. Most acquire a set of skills or competencies in their teens and twenties which they rely on to see them through their working lives. The problem is the world changes. Skills sought yesterday may diminish in value tomorrow.

rencontre hebdomadaire definition A way of hedging against this risk is to acquire a portfolio of companies exploiting new technologies or emergent demographic trends. Investing in a large number of such firms does not guarantee a winner, but it improves the odds. Over several decades, the gains from one or two such picks, that find a wave and ride it, cover the cost of other mistakes, potentially leaving a tidy nest egg.

Alas, this is not how most people invest. And, it is certainly not how most mutual funds are managed.

Click here to read, 20140503 Break Out of the Box

The Engine of Prosperity

After a spectacular run-up in stock prices in 2013 (with the S&P 500 Index delivering a total return of 32.4 percent for the year), the natural question on the lips of many is, Can it continue?

Alas, there is no simple answer. By some measures the U.S. stock market continues to look attractive. And, then, what are the other options? With bond yields low — and expected to increase — there seem to be no guarantees in fixed income securities. Overseas, the news is of slowing growth in China, endemic corruption in India and a kleptocracy in Russia intent on a land grab in the Ukraine. If these are the alternatives, a U.S. investor may be forgiven for sticking close to home

While I do not foresee a crash on par with the 2008 debacle, I fear corporate treasurers may be running out of options. For a non-financial company (read, not a bank) whose stock is publicly traded, there are three levers to arrange to make the firm’s stock relatively more attractive.

The first is leverage. This works as long as the interest rate paid on the debt issued is below the return on the marginal investment. With interest rates at record lows firms have reaped a bounty on this spread. The second is to sweat assets (and, their labor force). Firms have displayed startlingly ingenuity in passing off costs to their suppliers and demanding more effort for less reward from their employees. The problem is the workers are becoming restive and their suppliers are pushing back. And, the third avenue, is to buy back shares and raise dividend payments. Check and check again. Indeed, firms have been leveraging up not so much to finance new factories and facilities, but, rather to repurchase their shares.

At some point, individually and in the aggregate, firms will exceed the tipping point with way more debt capital than is prudent. This is reflected in the steady, secular decline in the number of companies sporting a AAA credit rating. Today only four firms continue to make it a point to maintain a sterling debt rating.

Hence the reason why the markets are consumed with revenue growth. Companies have demonstrated they can cut, cut again, and then cut some more. Few in contrast have demonstrated a knack for consistently raising revenues to grow earnings.

In the end, one firm’s expense is another company’s revenue. And, the compensation line on an income statement reflects the salaries of the economy’s end consumers.  If there is a present danger, it is not an inflationary surge, but a deflationary spiral if corporations persist in destroying demand.

Click here to read the commentary, speed dating tullamore 20140502 The Engine of Prosperity