There Be (Data) Giants

By |2018-06-05T07:01:20-05:00June 5th, 2018|Global Market Update|

Why are the data giants so giant? Jolly Green Giant near Le Sueur, Minnesota. Public Domain. Source: Wikimedia In a word, fundamentals. Since 2010, the market size of Facebook, Apple, Amazon, Microsoft, and Google has tripled, while their revenues have more than tripled, and their earnings have more than doubled. This has happened while the companies have amassed a giant cash hoard of over half a trillion dollars. By some measures, the valuation of the data giants has gotten cheaper, not more expensive. How [...]

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User Goods

By |2018-06-04T07:06:39-05:00June 4th, 2018|Global Market Update|

How much are users worth? Public Domain. Source: Dreamstime Amazon has Prime, Netflix has subscribers, and Limebike has riders. Each of these companies has a user-base that loves its service, and creates value for the firm that manages it. But what is the basis for this value? What makes some user-bases profitable, while others – like newspaper subscriptions – seem to wither away and die? It goes back to the fundamentals of finance. The value of any asset is based on its cashflows, growth, [...]

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The Price of Everything, the Value of …

By |2017-11-27T07:22:58-05:00November 27th, 2017|Global Market Update|

Is everything overpriced? Photo: Henning Schlottmann. Source: Wikipedia One of the most reliable ways to perform well in our unpredictable markets is to find something that everyone believes and take a position outside of that consensus. In other words, to find a contrary opinion. Because when everyone believes something, and it’s priced accordingly, there’s often profit to be made on the other side. For example, everyone knew in 2006 that housing prices don’t come down. If the price falls, people just take their homes [...]

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Valuable Questions

By |2017-08-28T07:19:34-05:00August 28th, 2017|Global Market Update|

Are stocks overvalued? Shiller PE. Source: A cynic knows the price of everything and the value of nothing. That’s what I keep reminding myself when folks trot out historical PE charts like Shiller’s calculation, which averages corporate earnings over the last decade and then compares the stock market’s total market capitalization to that average. And by that measure, stocks are now valued at almost 30-times their decade-long average earnings. That’s a figure that gives pause. It’s only exceeded by the levels of 1929 [...]

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Valuation, Cashflow, and Cash

By |2017-07-27T07:44:50-05:00July 27th, 2017|Global Market Update|

Cash is king. Image: Glitch. Source: Open clip art Cashflow determines what a business is worth. When investors put money into a company – whether it’s private, public, high tech, or old school, they want a return on their capital. That returns comes from cash the business can sustainably generate from their ongoing operations. When I was first learning how to “read” financial statements, there was no clearly defined way to identify cashflow. Some folks included net working capital, some didn’t. We had to [...]

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Rationally Exuberant?

By |2017-07-17T12:21:18-05:00June 2nd, 2017|Global Market Update|

How are company earnings doing? Photo Ryan McGuire. Source: Gratisography Among market watchers, it’s common to lament that everything seems overvalued. Whether it’s price-earnings ratios or index funds garnering two billion dollars a day or the market reaching record levels, folks are worried that if they buy now, we could be replaying 1999 or 2007 – the boom before the bust. No one wants to go through those gut-wrenching declines again. But what if the market deserves its high valuation? What if it lives [...]

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Risk, Reward, and Valuations

By |2017-07-17T12:21:18-05:00May 22nd, 2017|Global Market Update|

Risks, Rewards, and Valuation Is the stock market risky? Photo Rhett Sutphin. Source: Wikipedia Of course it is. Anyone who went through the Financial Crisis or dot-com crash or Long Term Capital crisis or ’87 crash has experienced the gut-wrenching feeling of having significanlty less in savings than they had just a few months before. Nobody likes that feeling. And the longer you hold onto stocks, the more likely you are to experience a bear market. These can be caused by wars, recessions, panics, [...]

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The Merchants of Venice

By |2017-07-17T12:21:20-05:00April 27th, 2017|Global Market Update|

How do we know what a company is worth? Photo: X. Source: Pixabay We want to base our investments on facts, not feelings. One reason Apple is worth more than GM, even though GM has twice as many employees, is that Apple earns more – five times more – than the car giant. Both companies have iconic brands with global scale. But Apple is far more profitable . But how do we know this? We know it because of double-entry accounting: debits, credits, income, [...]

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Homeward Bound

By |2017-07-17T12:21:23-05:00April 6th, 2017|Global Market Update|

Is now a good time to start international investing? Photo: Victor Hancek. Source: Picjumbo Most investors have a home-bias in their portfolio. That is, they own a higher percentage of domestic stocks than a globally diversified portfolio would indicate. This is true for folks who tout indexing as well as for active managers who pick stocks. US-based investors prefer US stocks; UK investors prefer shares listed in London; Japan-based investors prefer Japanese stocks, and so on. There are several reasons behind this. Familiarity bias [...]

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Public Values, Private Values

By |2017-07-17T12:21:27-05:00March 17th, 2017|Global Market Update|

How much is a stock worth? Chicago Board of Trade. Source: Wikipedia The short answer is, whatever someone else will pay for it. But what if there isn’t much of a market? What if the shares trade “by appointment,” only changing hands when there are motivated buyers and sellers? If you don’t have access to a private valuation consultant, what do you do? Other markets deal with infrequent trading and illiquidity all the time. Bonds and real estate are both idiosyncratic – no bond [...]

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