Market Commentary - December 2017

I attended the Evidence based investing conference last week and was able to listen to some of the best and brightest in our industry. 

They keynote presentation was given by Scott Galloway, Professor of Marketing at NYU and he spoke about digital advertising/marketing. One of the most startling takeaways was just how powerful the FOUR are (Google, Apple, Facebook & Amazon). In 2012, these four companies had market capitalization of $751 billion, equal to the size of Turkey's GDP. While today their market capitalization is $2,371 billion, equal to the size of India's GDP! Remember, India's population is approximately 1.324 billion. The way the world consumes has changed and by 2020 over 30% of searches will no longer involve a screen! They will come in the form of Alexa, Siri and Google Voice.

  • The rest of the conference was focused on evidence based investing. Below are just some of my notes. I left the more analytical stuff out.
  • There is a big misunderstanding between economic and stock market fundamentals. The stock market rarely follows economic fundamentals in the short term and can persist for years. In short, stop trying to time the market based on the fundamentals of the global economy.
  • Volatility has come to a screeching halt as more people control a larger share (%) of the equity market vs. 10 years ago and the push to indexing and passive investing has largely replaced individual stock selection/day-trading which tend to be more volatile. 
  • Bitcoin was mentioned several times. The common theme was if you invest in it be prepared to lose it all. Introduction of government regulation or taxes could potentially cut the value by a third overnight. Until daily price fluctuations slow down, it is not a viable replacement for any currency. 
  • There are now over 110 hedge funds focused on cryptocurrency investing vs. 26 at the end of 2016. Too much speculation and this is fueling a massive bubble.
  • Commodities are the most "hated" investment (comparable to Emerging Markets from mid 2011 to end of 2015). Given central bank involvement in manipulating interest rates trying to time when to invest in commodities is extremely difficult as they tend to outperform in period of high inflation.
  • Emerging Markets are still "cheap" on a valuation basis compared to the United States and Europe with lower P/E and lower debt to GDP ratios. Emerging markets are becoming less reliant on commodities after the 2015 crash and placing higher emphasis on technology and manufacturing.
  • Tensions between China and United States are beginning to flair up and come 2018-2019 could lead to a major trade war.
  • Machine Learning/AI Investing has many worried. While it creates more options and variables with big data sets, initially it will be dealing with a very small sample size which can't be back-tested with much accuracy.
  • Internal investment fees will continue to decline over the next decade 

 

Here are some other facts I found interesting…

  • Women now control more than half of US personal wealth!
  • 1/6 queries entered into Google have never been asked before. 
  • Google and Facebook own 103% share of future digital advertising growth 
  • In 2016, Google advertising revenue compared to ad spend is larger than any single country in the world minus the United States.
  • More American households (58%) are Amazon prime members than voted in 2016 election (55%)
  • Apple's profit in 2016 ($45B) was nearly equal to Microsoft, Intel, IBM and Oracle combined! ($48B)
  • Since 2008, Walmart has paid $64B in corporate income taxes while Amazon has paid $1B.
  • Commodity Index has an annualized return of 2% the last 20 years with volatility of 14% while S&P500 has an annualized return of 10% last 20 years with the same level of volatility.