Meet The Knifecatchers

In the same sense that cash is never "on the sidelines" (for each transaction, the cash merely moves from one party to another), someone always has to own the stocks. Who owns the stocks as the market drops by 10%, 20%... 50%?  

Meet the knifecatchers - pension funds with the scale and a deliberate plan to buy into market drawdowns. 

Facebook = Billabong

A bit of a long bow here. I was struck by this story on Business Insider which lists what teens think are cool now. 

Snapchat, Instagram, Netflix and not Facebook. 

Billabong was once a brand all of the cool kids were in to. Then the parents got wearing their stuff, and now it's not kewl. Now all you see are middle aged puff balls wearing Billabong. 

Perhaps a similar thing will happen to Facebook. I was struck by a comment in the story of one teen, who said it's lame-o because her parents are friends on FB. They will still do well, with their >1B users, and enormous cash pile. 

She's Going Down

Further to the last post, my gold medal goes to this: "since 1970 there has never been a case where the industrial sector shrank nearly 2 percent on a 12-month basis and the broader economy was left unscathed"

And we also saw that the equity market is trading at 1.6 times, much higher than usual. Goodbye to that if a recession hits. 

Possibly The Single Most Informative, Comprehensive, Interesting Blog Post I Have Ever Read

Here

You Can't Shine a Turd

Crushing profit warning for Shine. The troubles of Slaters is well known, with a total drawdown of 90%. IMF Bentham down 50%. I wonder why legal firms are doing so poorly all at once? One would think their business should be steady. 

Coal, Anyone?

After a 90% drawdown, is it time to buy coal?

No. 

Sour Apple

Via Slope of Hope who thinks we have seen the all time high for AAPL, never to be repeated. 

Looking at the log chart, their days of manic growth seem to be over, with long term support turning to resistance. 

The Mathematics Of Loss

It can be brutal. You see oil with a drawdown of 60% since mid 2014 and decide to take a flyer just after new year and buy some ETFs at $42. Your loss only three weeks later is 23%, even after this monster move on Friday. You will need to gain 32% to get back to even from here. 

Yield

BHP dividend now over 12%, but it's widely thought they will cut the next time. Even though they have never cut a dividend before. 

ANZ yield now over 7%. I wonder if the market is thinking a cut here too. 

On Second Thought ... WOW

Possibly the biggest waste of all. 10 years ago they had a huge moat, stonking great returns on equity and a comfortable stream of dividends for shareholders. 

Instead of concentrating on widening the moat and dealing seriously with Aldi, they went the Masters route and underinvested in grocery stores. What a waste of a great company. 

VAS Defense

The ETF for the Australian stock market, VAS, currently yields about 5%, with franking at 74%. Not bad! 

I wouldn't buy it just yet, and there is a downside risk to future dividend cuts in resources and banks. Still, something to keep an eye on once the 200 day MA catches up with it. 

On Second Thought ... SUN

Exactly what have the Suncorp board of directors and management done to earn their money?

One Second Thought ... QBE

Wow that is a brutal 10 year trend starting in 2007. 

When an acquisition happy company keeps saying "the purchase will be EPS positive in year one, sell"

Stocks Have To Go Down

One of the best posts of last year

IBB You Be Trippin'

For all of the pundits on TV trying to explain the drop in equity prices, NONE of the explanations will relate to the 30% drawdown in biotech. 

Maybe it was all about speculation, and hoping for greater fools. 

On Second Thought ... ORG

Maybe the Queensland gas idea wasn't so great after all. Origin price to book is now about 0.54

Even worse for Santos, whose share price is back to 1994 levels

ASX Breaches Another Major Support

On Second Thought ... NCM

If you are a buy-and-hold type investor, I can think of no worse stock than a gold miner. After 5000 years of mining, the best gold deposits have already been discovered. Exploration will only ever discover high cost deposits with a life of 20 years or less. 

Gold miners in the early 2000s did very well, with their low cost mines absolutely puking out 300% to 500% profit margins. What do the board of directors do with this windfall?

a) Use the money to explore and develop more mines. Pay very small dividends (but fat director fees and management pay)
b) Run the company for cash and send the shareholders huge dividend cheques. When the old mine is exhausted, place the company in hibernation and wait for the cycle to turn.

Just about all gold miners chose A. Option B was correct.  

Why Am I Still Being Asked To Pay $4 For a Coffee

75% drop from the 2011 top

On Second Thought... IAG

Probably not a mistake to demutualise 15 years ago, as the stock has doubled. But the board could have been tasked with doing nothing whatsoever over the last 10 years, and the result would have been the same. 

On Second Thought - ANZ

Not a great return over 10 years for ANZ shareholders, despite the credit boom, (and bust) and boom again. There's a bit more to the story than me being snarky, and at least a juicy dividend was paid the whole time - minus a capital raising or two. 

Australian banks used to be the dead cert. Looking at this, not so much. 

Yuan: Peg to USD Not Such a Great Idea

Diversification looks to be a better way of manipulating your currency. I would be irked if I was a Chinese exporter with key markets in Europe

Down Goes iSelect

I have to admit, back in the day when I was buying individual stocks, iSelect is a company I might have bought. No debt, and I have used and liked their product. 

It's a great argument to never buy individual stocks. There are simply too many variables out there to crush your nuts. A buy & hold investor in the ISU float will never get their money back. 

ASX All Ords On The Edge

The ASX All Ords has spent 6 months flirting with a major support/resistance line. Which way will it bounce/plummet?

I hate chartists who say "the market is coming to an important point and will either rise 30% or it will fall 40%". Pick a side, we're at war! My pick is down, and down some more.

A buy & hold investor jumping into the market in 2010 has only gotten the 4% dividend. At least it still beats cash. 

On Second Thought ... LLC

In June 2000, Lend Lease sold MLC for $4.6B. In retrospect, they would have been better off selling the whole company and sending the shareholders a cheque. 

Why Does Productivity Growth Stink?

The slowdown in productivity growth is well known, and there are less stars in the sky than articles trying to explain it.  

I haven't read anyone looking at the concomitant rise in inequality: the poor, medium and ordinary rich getting richer at a slower rate than the filthy rich. 

If you are filthy rich, most of your wealth will be saved. To the extent you spend, your expenditure will not be productive, relative to other people. 

To use an extreme example, if a billionaire spends money on a car, he is upgrading his Mercedes from a 2015 model to a 2016 model. How much has his personal productivity increased? Not a jot. But if a poor person has a jalopy which keeps breaking down, and he buys a reliable car, his personal productivity improves a lot. 

If a man in Kenya can get some extra money to replace his thatch roof with metal, he can be more productive instead of gathering thatch all the time. 

So the filthy rich should send some of their pile to Give Directly, in short. 

Value vs Shareholder Yield

As a huge fan of Meb Faber, I recommend reading everything he writes on this blog and it's also a good idea to read all of this books. 

My personal investing strategy is 50% the Ivy Portfolio (adapted for the ASX) and 50% Relative Strength. For the Ivy Portfolio, definitely read Faber's book, and for Relative Strength, Faber has written a white paper you can find on his blog, but go here for a more practical explanation.  

But Diploducet is not about telling you things you can find elsewhere. I found something strange by accident. On this graph, the blue line is the price of the Vanguard Value ETF. The green line is Fabers ETF for Shareholder Yield, SYLD. That is quite a correlation, and I have no idea why two vastly different strategies would end up with such similar results. 

On Second Thought ... BHP

Looking back on the mining boom/bust, it would have been better if BHP had ignored market share. Just do some modest brownfield expansion and watch the margins expand past 100%. Send fat dividend cheques to shareholders and wait for the cycle to turn. Some nice tier 1 assets would be available now for chips. Directors know very well they are making 50 year decisions but could not see past 5. 

Oh and most importantly of all, do not merge with Billiton. Let them be bought by Xstrata instead, and their second tier assets can be housed under one roof. 

On Second Thought ... BXB

In 2005, Brambles decided to sell all of their various businesses except for CHEP and Recall. They would have done better for shareholders to sell the lot and send owners a cheque. 

On Second Thought... AMP

The first in a series

There is strong argument to say that AMP should not have demutualised

CBA Cruising For Bruising (Eventually)

Comm Bank is trading at 2.6 times book value. 

The best large bank in the USA, Wells Fargo, is trading at 1.6 times. An average bank is 1.1

Traders have valued equity on the CBA balance sheet (and the other big 4 banks) at a high multiple for a long time. When debt inflation inverts to debt deflation, and all those juicy home loans start to stink, CBA will be crushed. If they merely fall back to the Wells Fargo level, they will be in the $50s. If they go below a P/B of 1.0, which should happen in a debt crisis, they'll be well under $30.

Down Goes Dick

Stock was >$2 just 6 months ago

ASX vs CRB WTF2

To address now the forex angle, we take a look at ETFs traded in USD - EWA (Australia) vs RJI. Correlation is still there 2008 - 2012 and a similar divergence, although not as pronounced. If EWA moves into line with commodities, it will be a 35% fall.