A word of caution from Morgan Stanley’s equity strategists:
« The latest burst of Tech outperformance has not been accompanied by superior EPS trends. Just now Tech shows few signs of stopping (or even slowing); for example: i) post its largest 1m outperformance versus the S&P since 2012, the NASDAQ is now 2.7SD above its 12M relative average; ii) 80% of constituents of MSCI ACWI’s IT index outperformed the market over the last month, the highest breadth reading since 2003. Amid all this euphoria we’d encourage investors to keep a close eye on EPS trends as the latest burst of price outperformance has not been accompanied by EPS outperformance. »
Goldman Sachs latest Top of Mind publication is about the bond bear market, and there are a number of opposing views on whether yields are going to continue climbing, or if inflation is going to accelerate or stay under control.
One of the most bearish views on bonds came from Paul Tudor Jones, the founder, CIO and principal of Tudor Investment Corporation, which has c$11 bn of assets under management according to Pitchbook.
Here are some of the most interesting quotes in the interview.
Facts: Cash & cash equivalents at Berkshire Hathaway (BRK) reached $116 billion at the end of 2017, compared with $86.4 billion at the start of the year. Per Morningstar’s Gregg Warren estimates, Buffett finds himself with « around $90 billion in dry powder that could be committed to investments, acquisitions, share repurchases and dividends. » Continuer la lecture de « What Options for Buffett Who Has $90 Billion To Invest? »
Numbers are staggering. Berkshire Hathaway, the holding chaired by Warren Buffett and Charlie Munger, earned $44.94 billion last year vs $24.07 billion in 2016, in large part thanks to tax cuts decided by the Trump administration. Operating earnings actually declined to $14.46 billion from 17.58 billion a year ago, mainly because the insurance business lost money. Tax cut contributed $29.11 billion to results, which « derives from a reduction of net deferred income tax liabilities that arose as a result of the reduction in the U.S. corporate income tax rate from 35% to 21%. »
A more meaningful number for understanding the valuation of BRK is the evolution of the net asset per share or book value per share. Last year, the number grew 23% to $211,750, outperforming S&P 500 by 1.2%. CAGR return for book value per share over 1965-2017 is 19.1% vs 9.9% for S&P 500. Patience, discipline, opportunistic approach, great deal of focus on price and knowing his circle of competence explain such an amazing performance.
The most important part of BRK release of its annual report is Buffett’s letter to shareholder. This year, Buffett covers the following topics :
Useful charts and data points gathered together by Morgan Stanley’s strategists in a report dated Feb 11. Their understanding is that the rise in real yields has been the real trigger of the spike in market volatility.
Michael Mauboussin is a highly respected investor, teacher, speaker and book writer. I came across a number of his notes in the past (including this one which I liked a lot). Thanks to the Internet and the many people who share good thinking, most of his notes are there to grasp and read.
While re-populating my blog, I came into his 1997 reflections on valuation. As Graham/Buffett nicely put it: price is what you paid, value is what you get. So to earn decent return when investing, you need to know the value so you can pay a price that gives you a good margin of safety.
The full note is available to read here. I just wrote down a couple of remarks that make sense to me and hopefully give you a quick overview of why it might be useful and what you will find inside.
Key purpose of the note is to defend the value-based approach of investing, to keep in mind what really matters in valuation and not to fall into « market myths ».
Deutsche Bank’s strategist team published a report to figure out what’s currently priced in by financial markets after the bout of volatility. Rising real yields are a clear threat to the rebound in equity market. But having recently talked to fund managers in other asset classes, real yields are a threat to many asset classes where lots of money have flown other the last years (EM debt for instance).
I attended a quite interesting presentation yesterday organized by Schroder on emerging markets. Two fund managers presented on equities and debt. The head of EM debt absolute return strategies had a very interesting analysis of the current environment.
According to Investopedia a « melt-up » is a « A dramatic and unexpected improvement in the investment performance of an asset class driven partly by a stampede of investors who don’t want to miss out on its rise rather than by fundamental improvements in the economy. »
Altran Technologies has decided to be bold, both in strategic and financial terms. The engineering services company has agreed to pay $2 bn for Aricent (a US-based rival owned by private equity firms KKR, Sequoia Capital and a former unit of Flextronics), valuing the company twice as much in terms on EV/Sales ratio based on LTM numbers. Continuer la lecture de « Altran: American Dream »
2017 has been good for US equities, but most of the performance is related to the technology sector… Valuation are stretched but could continue to be so for a while, as long as macro/monetary backdrop is supportive.
The laggard argument to reposition part of asset allocation to Malaysia might be a mistake, according to HSBC’s strategists. Investors should actually be looking at more fundamental drivers to reconsider their exposure to the Asian economy, such a rising commodity prices, increased China investments in the region and political upside risk.
Early 2007. HSBC had to concede it had deep financial troubles related to the US real estate market. The word « subprime » was starting to spread. Key players in the US real estate market, such as New Century, were also getting destroyed by the same rising tide. It was the start of the most important financial crisis in history since 1929.
« 2016 saw the 3rd best annual performance for US High Yield on record. Commodities posted their best year of returns since 2009, a feat all the more impressive given early losses. It was a surprisingly ho-hum year for performance in global equities (+8.5% in MSCI ACWI), global rates, and the USD (+4.3%), with those numbers masking big divergences by region, style, and the 1st-versus-2nd half of the year. We also note that global correlations have plunged, driven largely by the breakdown in rates correlation to risk assets and regional correlations within equities. »