The Adaptive Imperative

By |2018-02-08T06:00:27+00:00February 8th, 2018|Global Market Update|

Why is it so hard to beat the market? Photo: Marcin Chady. Source: Wikimedia One reason is because markets are adaptive. They adjust to expectations. Sometimes we get concerned about a market melt-up. That’s where prices adjust so quickly to expected good news that there isn’t time to take advantage of the improved outlook. Then, the overpriced market sows the seeds of its own correction: new deals are put together that don’t make any economic sense. Eventually, these shares fall, pulling the rest of [...]

A Mature Orchard

By |2018-02-07T07:03:17+00:00February 7th, 2018|Global Market Update|

Is the Apple tree getting old? Photo: Sita Magnuson. Source: Morguefile Companies have life cycles. They get started, expand, mature, and get old. Different life stages have different needs. Start-ups need to prove that their business model works; growing firms have to find the right people and markets for their products; mature companies maximize their profitability and may use excess cash to make targeted acquisitions; and older companies have to either re-invent themselves or prepare for a shrinking annuity business. The question for investors [...]

Markets, Matter, and Risk

By |2018-02-06T07:39:25+00:00February 6th, 2018|Global Market Update|

Risk is conserved. S&P 500 member returns, 2-6-18. Source: Finviz That’s what I thought as I looked at the recent sell-off. Ever since the recovery of the oil patch in March of 2016, the markets have seemed like a one-way, upward bet. Normal volatility has been suppressed. For decades, the market returns averaged 8%, with 15% variance. That is, most returns were spread between 22% and negative 7%. While the average was pretty reliable, any particular year could happen to fall between really positive [...]

Average is Ideal

By |2018-02-05T16:50:57+00:00February 5th, 2018|Global Market Update|

Do you want average returns? Or ideal returns? Aristotle from “The School of Athens.” Source: Wikipedia Lots of us look for perfection in what we do. We want the ideal job, the perfect car, the right schools for our kids. And there’s nothing wrong with trying to be the best we can be, for striving for excellence. When I compete athletically, I time myself to see how I’m doing against my personal best. But there can be too much of a good thing. Coffee [...]

Regular Regulation

By |2018-02-02T05:32:17+00:00February 2nd, 2018|Global Market Update|

Why do we need regulators? Source: Government Accountability Office Regulation is inefficient. No one ever hired a compliance officer to increase productivity. And regulation creates moral hazard. During the “blue law” era, the most energetic advocates for restricting alcohol sales on Sundays were both Christian ministers and bootleggers. The bootleggers got more sales if legal sales were restricted. This is called the “Bootlegger and Baptist” phenomenon. This creates opportunities for disruptive, entrepreneurial enterprises. Uber or AirBNB are taking advantage of the highly regulated taxi [...]

Amazon Health Services?

By |2018-02-01T07:07:45+00:00February 1st, 2018|Global Market Update|

Amazon Health Services? “Your margin is my opportunity.” Health Care Aggregation. Source: Strategery That’s how Amazon’s CEO Jeff Bezos sees the world. When a company tries to optimize its operations to satisfy an arbitrary Wall Street ratio, that creates space for someone else to disrupt their enterprise. And health care is full of high-margin businesses ripe for disruption. Amazon, Berkshire, and JP Morgan have launched a long-term initiative to provide health care for their employees. In many ways, their initiative is an ideal platform [...]