Are markets concerned about the US/Chinese trade war?

Are markets concerned about the US/Chinese trade war?

As the trade war between the US and China continues to escalate the press seems to be making more of the issue than equity markets. Since hitting a June high of 25,322 the Dow Jones Industrial Average today stands at 24,618 which while a significant drop is not catastrophic. When you also bear in mind the all-time high of 26,616 was hit on 26 January 2018 perhaps the trade issue is not a major problem as yet.

The situation regarding the NASDAQ Composite index is even less concerning with the market falling from a June high of 7806 to 7706. The figure of 7806 is the all-time high for the NASDAQ Composite index which occurred on 11 June 2018. Indications suggest that the performance of companies such as Facebook and Netflix, both recently hitting all-time highs, has helped to support the index. Continue reading “Are markets concerned about the US/Chinese trade war?”

Can Oprah Winfrey repeat Weight Watchers trick with Apple?

Can Oprah Winfrey repeat Weight Watchers trick with Apple?

Tech giant Apple has announced a deal with Oprah Winfrey to create original programming with an investment of approaching $1 billion expected in this area. What is described as a “multi-year deal” is a major coup for Apple as it looks to challenge the likes of Netflix and Amazon. In a world where content is King there is no doubt that Apple has signed up the Queen of content and a lady who has shown her Midas touch in recent times.

Revolutionising Weight Watchers

Those who follow the stock market will be well aware that back in October 2015 Oprah Winfrey acquired 6.4 million shares in Weight Watchers at a price of $6.79. She took an active role in the company and in March this year she sold 2 million shares at around $60 per share banking a $110 million profit in the process. She still holds 4.4 million shares with the price now approaching $100! Continue reading “Can Oprah Winfrey repeat Weight Watchers trick with Apple?”

The US trade deficit does need addressing!

The US trade deficit

In 2017 the US trade deficit, excluding services, was a staggering $810 billion. Yes, the US imported $810 billion more than it exported. While Donald Trump’s fairly blunt attempt at rebalancing the trade deficit, using tariffs, has attracted significant criticism, does he not have a point?

Why should the US have a trade deficit?

Goods to the tune of $2.895 trillion were imported into the US in 2017 with exports well behind at $2.329 trillion. So, which countries export far more to the US than they import?

China – there is a $375 billion trade deficit between the US and China
Canada – Canadian businesses export $18 billion more of goods to the US than they import
Mexico – the US is $71 billion short on trading equilibrium
Japan – there is a $69 billion trade deficit with Japan
Germany – the US has a $65 billion trade deficit with Germany Continue reading “The US trade deficit does need addressing!”

The dangers of funding investment with debt

In theory investment is fairly straightforward; you buy a share when it is cheap and sell it when it is fair value or even overbought. However, like so many things which are simple in theory in practice it is not as easy to make gains with every investment – indeed it is impossible. So, against this scenario you have to wonder why some people choose to fund their investment portfolio using borrowed funds.

Timing is everything

If you borrow for example $20,000 over a 36 month period at a rate of 5% per annum then your monthly repayments including interest and capital would be around $640. So in theory you are paying back 3.2% of the money you borrowed each month for a 36 month period. If your initial investment secures a 30% return then in effect you are $6000 up which would wipe out your loan leaving you with about $3000. However, life is not that easy! Continue reading “The dangers of funding investment with debt”

Quality start-ups will never struggle for funding

Can Oprah Winfrey repeat Weight Watchers trick with Apple?

Stock markets and economies around the world are extremely cyclical. Human nature dictates that markets will be overbought and oversold with unerring regularity. In light of the 2008 US mortgage crash we saw one of the worst economic downturns in living history. Stock markets collapsed, economies dried up, banking systems froze and the end seem to be nigh. Fast forward a decade, stock market are flying high, economies are starting to pick up although it has to be said this is based on cheap finance with historically low interest rates. In light of this extreme volatility many people assume that start-up funding can be difficult to find. Continue reading “Quality start-ups will never struggle for funding”

Warren Buffett and George Soros, life in the old dogs yet!

Does the herd mentality exaggerate market volatility?

While Warren Buffett and George Soros may be names from the past that many modern day investors know little about, the last few weeks have shown there is still life in the old dogs yet. Let’s not forget these two giants of the investment world are multi billionaires and have been around for decades. George Soros “broke the Bank of England” making billions of dollars as the UK government caved in and suspended membership of the ERM. Warren Buffett has taken a long-term approach to investment and banked billions of dollars along the way.

Apple investment

Despite publicly declaring that he was a technophobe in years gone by, Warren Buffett recently increased his stake in Apple to become the largest independent shareholder. Having acquired 75 million shares in Apple, on top of the 165.3 million shares held at the end of 2017, his investment vehicle Berkshire Hathaway now owns 4.8% of the company. The stake is valued at in excess of $40 billion! Continue reading “Warren Buffett and George Soros, life in the old dogs yet!”

Stock buybacks, a self-fulfilling prophecy

Stock buybacks, a self-fulfilling prophecy

We live in an age where interest rates are near historic lows and therefore finance is cheap and stock market yields compare well to bank accounts. We also live in an age where companies such as Apple have a war chest in excess of $100 billion and nothing to spend their money on. There are now serious concerns that stock buybacks could lead to the self-fulfilling prophecy of market support. However, there may be a fly in the ointment in the long term!

Stock buybacks

When a company decides to buy back its own stock this is seen by many people as a vote of confidence in the short to medium term. Indeed many would go as far as to suggest that the company believes it shares are undervalued and therefore the repurchase of shares in the market is immediately earnings enhancing. However, this is not always the case. Continue reading “Stock buybacks, a self-fulfilling prophecy”

Berkshire Hathaway in the news

Berkshire Hathaway in the news

Many people will think of Warren Buffett as an investor who shuns the limelight, avoids publicity where he can and simply “gets on with the job”. However, over the last few days Berkshire Hathaway (Warren Buffett’s investment vehicle) has been in the news for a number of reasons.

First-quarter losses

The headlines show that Warren Buffett’s investment vehicle recorded a $1 billion loss in the first quarter of 2018. Historically the company has used operating earnings as a way in which to measure the overall success of the company’s investments. However, a recent change in regulations has forced the company to include unrealised gains and losses on equity and derivative investments as part of the company’s earnings. The fact that this accounting change equates to a $6.4 billion hit to net income in the first three months of 2018, yet just a $1 billion loss for the period, perhaps shows the underlying strength of the company. Continue reading “Berkshire Hathaway in the news”

Is there greater scope to profit from prosperous small companies?

Is there greater scope to profit from prosperous small companies?

There are many investors and investment funds which are unable to allocate funds to relatively small companies due to their terms of management and personal preference. These parties tend to stick to the medium to larger better-known US stock market companies even though there are many smaller companies which could well be the giants of tomorrow. So, is there greater scope to profit from prosperous smaller companies compared to their larger counterparts?

Size does matter

In simple terms, the larger the company listed on any stock market the more interest from analysts and investors alike. It goes without saying that those managing the funds of individuals would only invest in companies where they have a deep seated knowledge. As the larger companies are able to pay analysts to publish research notes this puts more information into the public domain and greater transparency. Well, that is the idea! Continue reading “Is there greater scope to profit from prosperous small companies?”

Be wary of share buyback programs

Be wary of companies buying back their own stock

Time and time again we hear of companies looking to buy back their own stock because it “is too cheap”. There will be some situations where companies look undervalued but at current stock market valuations it is sometimes difficult to justify the “cheap” tag. If we look at the US market, we see that the Schiller price/earnings ratio for 10 year inflation adjusted average earnings now stands at 31. This compares to just 16 in “a more traditional environment” and would suggest that many company stock market valuations are taking growth for granted. They may not be as good value as it seems when companies start buying back their stock.

Why would you buy back your own stock?

A buyback programme should be earnings enhancing in a perfect world, a reduced number of shares based around the same profitability, i.e. a lower price-earnings ratio with more potential on the upside. If a buyback program is not earnings enhancing from day one then you really do need to wonder why hard earned company funds are being used to reduce the number of shares in circulation. Continue reading “Be wary of share buyback programs”