Latest News from Newealth

24 Sep 2020

Aussie Tech VS American Tech

There is a great deal of noise and media about tech stocks which makes it difficult to know what to buy.

All investors want value but which past goes up?

Compare for example our own WAAAXN (WiseTech, Appen, Altium, Afterpay, Xero and Nearmap) against the FAANG (Facebook, Apple, Amazon, Netflix and Google) on cash revenue and valuation and the numbers could not be more startling.

The WAAAXN has been burning through investor capital for the past 5 years and not making any money while the average valuation is double the FAANG.

Click for charts.

This is not a recommendation to sell WAAAXN and buy the FAANG.

Instead it is a reminder that the price you pay when investing is what matters.

Overpay, even for a quality asset and it could be decades before you make a profit.

Benjamin Graham taught this as part of his value investing principles and the insight is to remain invested according to your appetite for volatility and when fear and panic take hold, react by buying more quality assets at discounted prices.

 

22 Sep 2020

Harvard Business Review: Democracy is in trouble

The ancient Greeks built Democracy on four pillars- justice, equity, freedoms and representation.

  • Justice for the fair treatment of individuals and groups.
  • Equity for individuals and groups to have the same opportunities in life.
  • Freedoms for people to have the right to think and speak as they wish.
  • Representation for elected representatives to act on behalf of citizens.

This HBR Video talks about how to ensure the survival of Democracy.

Click to watch.

 

17 Sep 2020

Economic Impact COVID-19: Australian Economic Forecast

The OECD (Organisation for Economic Co-operation and Development) is expecting the Australian economy to contract 4.1% in 2020 which is an improvement on the 5.0% contraction forecast published back in June.

Worldwide GDP (Gross Domestic Product) is also forecast to contract less, the OECD is now forecasting 4.5% contraction instead of the 6.0% published in June.

Click to read.

What do you think?

 

15 Sep 2020

Middle Class Income: What went wrong?

The attached paper calculates that the aggregate income for the American  population below the 90th percentile would have been US$2.5 trillion or 67% higher in 2018 had income growth since 1975 remained as equitable as it was in the first two decades post World War II.

Click to read.

The middle class is barely holding on in the United States but it is not the fault of business.

And it is also not the fault of high net worth individuals who derive their income from business.

The fault is squarely with Government.

It is the role of Government to legislate for the people and to ensure that the income derived by business from society ultimately finds its way back into society.

Government makes the rules using legislation and business will play by the rules and yes business will also push the boundaries but ultimately comply with the law.

The problem with the current set of rules is that they will continue the trend of the past four decades which will result in even greater income inequality.

If the middle class disappears then so too does a countries economic prosperity.

 

10 Sep 2020

Market Metrics: Nasdaq Index

Sector investing can be sexy and even euphoric right up until that sector blows up and wipes out your investment capital.

What’s not to love about the FAANGM (Facebook, Apple, Amazon, Netflix, Google and Microsoft) which have increased over 500% during the past 7 years but the price you are paying today to buy these listed companies is extremely high relative to earnings.

This level of crazy in the tech sector has happened before.

Just turn your mind back to the run up to the 2000 Tech Wreck (Dot-com bubble) which was then followed by the 2001 September 11 terrorism attach and the second Iraq Gulf War in 2003.

The result for the tech sector.

The Nasdaq Index fell by 75% and investors had to wait 15 years for prices to return back to the 2000 price level.

Click for chart.

The price you pay is what matters when investing.

Overpay, even for a quality asset and it could be decades before you make a profit.

As Benjamin Graham taught, don’t speculate. Instead remain invested according to your appetite for volatility and when fear and panic take hold, react by buying more quality assets at discounted prices.

 

4 Sep 2020

Electric Vehicles: Meet The Aviar R67

This is cool.

Russian based Aviar Motors is building a light-weight carbon fiber replica body of the first generation Ford Mustang on to a Tesla Model S.

The lighter weight means that the Aviar R67 can go from 0 to 100 km/h in just 2.2 seconds which is faster than the Tesla Model S.

The future is most definitely electric.

Click to view.

 

2 Sep 2020

Market Metrics: US High Yield Corporate Debt

The pattern is repeating.

As the United States moves through this recession, the rate of debt defaults in corporate America has increased and will likely peak back above the 10% level.

As you can see from the chart- property, oil, airline, transportation and leisure sectors have all had a significant increase in the cost of borrowing. Airlines now have to pay 2.5 times more in interest to borrow money compared to December 2019.

Click for charts.

The point is to highlight that although the path to the current recession (COVID-19 Pandemic) is new the rhythm of this recession is not, it is still following the same routine as past recessions.

The market and investors are currently all waiting to see if financial assets will collapse a second time as they did back in the 2008 Global Financial Crisis before the bull market really takes hold.

As this recession plays out, we just patiently wait to react and take advantage when the opportunity presents.

 

28 Aug 2020

Friday Tidbit: How to live to 105

Dr Shigeaki Hinohara provided 6 pieces of advice on how to live to the age 105.

Completely agree with number 1, work keeps you young as long as you do not do not keep doing ridiculous hours as you get older.

  1.   Don’t retire. But if you must, do so a lot later than age 65.
  2.   Take the stairs (and keep your weight in check).
  3.   Find a purpose that keeps you busy.
  4.   Rules are stressful; try to relax them.
  5.   Remember that doctors can’t cure everything.
  6.   Find inspiration, joy and peace in art.

Enjoy.

Click to read.

 

27 Aug 2020

Initial Public Offering (IPO): Tech, tech, tech

IPO or Initial Public Offering refers to the process of offering shares of a private company to the public to raise capital using a public exchange.

For over half a decade it has been all about tech, tech, tech IPO’s which have generated massive amounts of investor and media attention.

In 2019 for example, public exchanges globally saw 263 IPO’s in the tech sector with total US$62.8 billion raised.

Must agree that the tech sector is exciting and sexy but the real question is whether all this hype converts into profitable returns for investors?

The answer, not surprisingly is both a yes and a no.

Some tech IPO’s have made insane returns for investors but in aggregate, the tech sector has been a disappointing investment.

For instance, the tech sector IPO’s in the United States returned -4.6% as a whole since 2019. This includes Uber which is currently trading at US$32.30 or 28.2% down from its US$45.00 IPO in 2019.

Click for chart.

Our point is that sexy and investing should never be used in the same sentence when investing because sexy businesses usually fail when it comes to making money over multiple decades.

 

21 Aug 2020

Friday Tidbit: Apple Inc.

It took 42 years for Apple Inc. to become the first listed company in the United States to be valued at a US$1 trillion dollars and only 2 more years to be the first to reach US$2 trillion mark in market capitalisation. Market capitalisation is calculated by multiplying the total number of shares on issue by the current share price.

That is 2,000 billion dollars or US$2,000,000,000,000.

Just confirms that money makes money and that the COVID-19 Pandemic has not been bad news for all business.

Click for chart.

 

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