Posted on : By : PPD1962 Posted in : Uncategorized

EQUITIES: Is Nvidia fabulous or just fabless?

QUESTION:  Should I buy Nvidia Corporation (NASDAQ:NVDA)?

ANSWER: No, as NVDA is outrageously expense on the back of AI hype.

Fabulous technology companies come and go (e.g. Silicon Graphics or Sun Microsystems) because they either can’t innovate, don’t have a sustainable advantage or their margins are so large that competition ruthlessly expands.  OK, today, NVDA designs good chips, but they are beholden to TMSC to make them.  Other foundries might become manufacturers of the NVDA AI chips or may partner with NVDA, but it is inevitable that margins will fall as it moves from fabless to a fab or fab-lite.

Now to the AI hype….is it going to be the same as dot.com, blockchain, Web2.0, etc bubbles?  TSA thinks so because no one is trying to attempt to quantify the revenue upsides or cost downsides of the application of AI, and this is because there really are limited useful applications of AI (e.g. creating potential pharmaceutical molecules to investigate).  In most cases an ordinary algorithm is a better solution than AI because you don’t need to consider the multiple solutions or need to evaluate every solution for “hallucinations“,

Fun facts: Sun Microsystems’ campus is now owned by Facebook and Silicon Graphics’ campus is owned by Google.  In short, today’s roosters can become tomorrow’s feather dusters.

Contact TurnerStreet if you wish to buy our current asset allocation recommendation (we do cash and equity only allocations for our wholesale clients), and the list of the stocks TurnerStreet would buy for a typical wholesale client, or if you would like TurnerStreet to manage your equities and derivatives portfolio.

IMPORTANT: This Q&A is general product advice for wholesale or sophisticated investors, and NOT
Posted on : By : PPD1962 Posted in : Equities

EQUITIES: Exxon Mobil worth it?

QUESTION:  Should I buy Exxon Mobil Corporation (NYSE:XOM)?

ANSWER: Maybe not today, but XOM has a long-term place in any large cap global portfolio.

Why?  XOM is just very good at what it does.  Over the years it has copped a lot of flack for some of its organisation foibles (rank and yank, single focus, obsession with numbers), but it is this quirkiness that lets it achieve what it does, and what is does is very difficult.

Why not? TSA believes many listed corporations are takeover targets.  However, no existing corporation could add value by taking over XOM, so there is no additional price catalyst.  What about private equity?  They think they are clever, but aren’t smart enough to add value to very technically challenged industry, and the technical folks (e.g. engineers) wouldn’t tolerate it.

Fun fact: XOM was the company responsible to inventing the predecessor of Powerpoint and bullet points.  You can still identify ex-Exxon employees by their use of the phrase of “corky dots” instead of bullet point.

Contact TurnerStreet if you wish to buy our current asset allocation recommendation (we do cash and equity only allocations for our wholesale clients), and the list of the stocks TurnerStreet would buy for a typical wholesale client, or if you would like TurnerStreet to manage your equities and derivatives portfolio.

IMPORTANT: This Q&A is general product advice for wholesale or sophisticated investors, and NOT suitable for retail investors.  Retail investors should seek advice specific to their circumstances and not rely upon general product advice written for other types of investors.  Retail investors acting like wholesale/sophisticated investor are likely to experience inappropriate and/or excessive risk for their circumstances, and unacceptable losses.
Posted on : By : PPD1962 Posted in : Equities

EQUITIES: where are your Chinese stocks?

QUESTION:  Where are your Chinese stocks?

ANSWER: We don’t recommend holding any Chinese stock in an equities portfolio.

Essentially, transparency on the economy, markets and companies in China is very low due to reasons most sentient life forms would be familiar with.  The conditions could be great; the conditions could be terrible: no one knows for certain.  (Actually, if someone says they do know, they are lying unless they are members of the Politburo.)

However, we do know something important about China: the weathly are leaving.  This is not like US plutocrats leaving New York for Miami.  There are serious issues for Chinese folks to change their domicile so the reasons must be substantial.

TSA posits that conditions to increase wealth in China is now not as great as it was during the time the Chinese emigrants created their first million(s).  Hence, if insiders are leaving, why should you invest?

Contact TurnerStreet if you wish to buy our current asset allocation recommendation (we do cash and equity only allocations for our wholesale clients), and the list of the stocks TurnerStreet would buy for a typical wholesale client, or if you would like TurnerStreet to manage your equities and derivatives portfolio.

IMPORTANT: This Q&A is general product advice for wholesale or sophisticated investors, and NOT suitable for retail investors.  Retail investors should seek advice specific to their circumstances and not rely upon general product advice written for other types of investors.  Retail investors acting like wholesale/sophisticated investor are likely to experience inappropriate and/or excessive risk for their circumstances, and unacceptable losses.
Posted on : By : PPD1962 Posted in : Debt|Equities|private credit|Private Equity

EQUITIES: which stock should I buy?

QUESTION:  The number of listed stocks is falling across many exchanges.  Which stocks should I buy?

ANSWER: Your question is the wrong one for investor interested is getting a reasonable return of any given risk preference.  The question should be what shouldn’t I own?

Since the nadir of the global financial crisis (“GFC”) in 2009 the listed equities markets have profoundly changed because:

  • the proliferation of private equity funds;
  • the increased availability of  private debt to companies and investors;
  • the shift from active management to passive management in public equities’ markets; and,
  • gamification, rather than investing, by small retail investors.

In short, picking winners requires now requires an even larger edge in information (non-public mostly) and analysis, whereas picking losers in the listed markets requires mostly analysis and public information.

TSA expects the number of listed equities to continue to shrink.

Contact TurnerStreet if you wish to buy our current asset allocation recommendation (we do cash and equity only allocations for our wholesale clients), and the list of the stocks TurnerStreet would buy for a typical wholesale client, or if you would like TurnerStreet to manage your equities and derivatives portfolio.

IMPORTANT: This Q&A is general product advice for wholesale or sophisticated investors, and NOT suitable for retail investors.  Retail investors should seek advice specific to their circumstances and not rely upon general product advice written for other types of investors.  Retail investors acting like wholesale/sophisticated investor are likely to experience inappropriate and/or excessive risk for their circumstances, and unacceptable losses.
Posted on : By : PPD1962 Posted in : Asset Allocation|Cash|Debt|Derivatives|Equities

AA: is it ok to have only two asset classes in your portfolio?

QUESTION:  I saw this article by JP Morgan’s highly rated analyst.  It says people only need two asset classes: global equities and a domestic corporate bond portfolio.  Can this be correct?

ANSWER: Yes, and depending on the overall size of your portfolio and your risk aversion to large drawdowns you might just be able get away with one asset class (global equities).  Under both scenarios, you will need some allocated to cash for transaction and costs, so technically it will be two or three asset classes.

The JPM analyst quite succinctly explains the global equities and local bond pairing, but I will focus on a global equities only allocation.

Many years ago, I was given about 100 portfolios of  HNW individuals  to manage.  The most aggressive was an all equities (no bonds, quasi bonds or REITS, and minimal cash) but what struck me was the age of the HNW investor.  It was a +70-year old woman.  After speaking to a few people it was obvious why the portfolio was constructed the way it was.

Firstly, she had been investing for a long time and had been through many drawdowns on her portfolio (Black Monday, GFC, etc).  She understood the magnitude of a very large drawdown in percentage terms, but her account balance was large effort that those drawdowns weren’t going to affect her lifestyle (travel, buying gifts for grandchildren, etc).

Secondly, she wanted to leave the largest possible estate and legacy for her family, so was willing to have the most aggressive large cap equities portfolio she could.

So with a single asset class portfolio she achieved her short term plans and long term goals.  The traditional advice model for her would have resulted in radically different portfolio and outcomes, with a large allocation to bonds and low risk assets.  The message, using the Monty Python line, is that we are all individuals and portfolio construction should be bespoke to you!

Finally, complexity might help someone sell financial products and service, but for the investor simple and low fees can deliver a better outcome.

Contact TurnerStreet if you wish to buy our current asset allocation recommendation (we do cash and equity only allocations for our wholesale clients), and the list of the stocks TurnerStreet would buy for a typical wholesale client, or if you would like TurnerStreet to manage your equities and derivatives portfolio.

IMPORTANT: This Q&A is general product advice for wholesale or sophisticated investors, and NOT suitable for retail investors.  Retail investors should seek advice specific to their circumstances and not rely upon general product advice written for other types of investors.  Retail investors acting like wholesale/sophisticated investor are likely to experience inappropriate and/or excessive risk for their circumstances, and unacceptable losses.
Posted on : By : PPD1962 Posted in : Equities

Equities: if everyone is going passive, why shouldn’t I?

QUESTION:  I saw this article in The Economist.  If everyone is going passive equities, why shouldn’t I ditch my active equities manager?

ANSWER: You probably should ditch your existing active equities manager, but don’t put the money into passive funds.

Firstly, as background, let’s not pretend that traditional active managers were not the catalyst themselves for the growth of passive investing.  Active managers were constructing portfolios with poor return/risk characteristics, and charging too much. Their objective was raising funds under management (“FUM”) from investors which required top decile performance….do you realise how much risk you need to take to get to top decile in any quarter, and is it any surprise that the volatility will mean bottom decile performance regularly too?

Family offices and HNW individuals will eventualy realise that active management can be done differently, therefore avoiding the perils of passive fund investing, and the poor return/risk characteristics of traditional active managers.

You are invited to join the family office of TurnerStreet’s founders in a new form active equities management where the risks match the returns. The objective is not to shoot the lights out, but to do a little better than the index over the long haul.

Contact TurnerStreet if you wish to buy our current asset allocation recommendation (we do cash and equity only allocations for our wholesale clients), and the list of the stocks TurnerStreet would buy for a typical wholesale client, or if you would like TurnerStreet to manage your equities and derivatives portfolio.

IMPORTANT: This Q&A is general product advice for wholesale or sophisticated investors, and NOT suitable for retail investors.  Retail investors should seek advice specific to their circumstances and not rely upon general product advice written for other types of investors.  Retail investors acting like wholesale/sophisticated investor are likely to experience inappropriate and/or excessive risk for their circumstances, and unacceptable losses.
Posted on : By : PPD1962 Posted in : Asset Allocation|Equities

AA: should you put all your savings into stock?

QUESTION:  I saw this article in The Economist?  Should I put all my money into stocks (equities)?

ANSWER: It really depends on how rich you are.

If you are poor, you need money for the basics: food; shelter; and, clothing.  If you have cash, you aren’t going to risk it on buying risk-assets; crypto currencies; or, even, lottery tickets (although some hard-core pragmatists would argue that makes sense).

As you get richer, you want to spend more on yourself now and in the future, so you need to think about investing (returns and risks) and how that will correlate with your spending for needs and wants.  At this stage having some equities makes sense.

Get even richer, and you need to add legacies (for family, friends and philanthropic interests).  Hence, you are interested in longer term returns and can wear the fluctuations in the markets for risk-assets.

Let me give you an example of an 80 year old woman; she owns a beautiful house ($15m); her investment portfolio is $11m; has about dozen grandchildren, etc; and, has some philanthropic interests.  This investor put all her money into equities and every year, despite market fluctuations, has spent more on Christmas presents for her family, spent more on other discretionary expenditures, each year.  With measured drawings, and long term returns of equities, she has optimised her utility.  The size of her portfolio compared to drawings means bear markets have been irrelevant to her.

Contact TurnerStreet if you wish to buy our current asset allocation recommendation (we do cash and equity only allocations for our wholesale clients), and the list of the stocks TurnerStreet would buy for a typical wholesale client, or if you would like TurnerStreet to manage your equities and derivatives portfolio.

IMPORTANT: This Q&A is general product advice for wholesale or sophisticated investors, and NOT suitable for retail investors.  Retail investors should seek advice specific to their circumstances and not rely upon general product advice written for other types of investors.  Retail investors acting like wholesale/sophisticated investor are likely to experience inappropriate and/or excessive risk for their circumstances, and unacceptable losses.
Posted on : By : PPD1962 Posted in : Equities

EQUITIES: which portfolio benchmark?

QUESTION:  which is the best portfolio benchmark for an equities portfolio?

ANSWER: Depends on your risk and return preferences, and market outlook.

Market-neutral equities portfolio may be the best when there is a risk of a market downturn (exaggerated by passive funds),

Contact TurnerStreet if you wish to buy our current asset allocation recommendation (we do cash and equity only allocations for our wholesale clients), and the list of the stocks TurnerStreet would buy for a typical wholesale client, or if you would like TurnerStreet to manage your equities and derivatives portfolio.

IMPORTANT: This Q&A is general product advice for wholesale or sophisticated investors, and NOT suitable for retail investors.  Retail investors should seek advice specific to their circumstances and not rely upon general product advice written for other types of investors.  Retail investors acting like wholesale/sophisticated investor are likely to experience inappropriate and/or excessive risk for their circumstances, and unacceptable losses.
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Posted on : By : PPD1962 Posted in : Debt|Equities|Realty

EQUITIES: are American banks a concern?

QUESTION:  Property is in a hole, interest rates are going up and we have crazies in control (or not in control) of parts of the US government, so are you concerned about US banks?

ANSWER: Yes.

Maintaining bank stock multiples is about confidence and there is a lot to be concerned about in the US:

  • recent political activity (border and military bills) suggests that Republicans would now generate a real crisis if it damaged the Democrats’ prospects in this year’s elections, and causing a debt crisis is the biggest possible crisis (although some think it would blow back on the Republicans);
  • interest rates aren’t going down, and likely to go up, this year due to low unemployment and higher inflation;
  • property defaults are going to happen;
  • the US government needs to get debt levels down and it isn’t going to happen without structural reforms; and, finally,
  • unlike most banks in OECD countries, the US runs theirs on socialist principles with respect to house mortgages but free-enterprise principles for bank executive remuneration, and this creates a moral hazard that eventually governments will not want to continue funding!

The bottom line is that US banks will need more capital over time.   Although some US banks are better than others, it is difficult to justify any except Morgan Stanley.

Contact TurnerStreet if you wish to buy our current asset allocation recommendation (we do cash and equity only allocations for our wholesale clients), and the list of the stocks TurnerStreet would buy for a typical wholesale client, or if you would like TurnerStreet to manage your equities and derivatives portfolio.

IMPORTANT: This Q&A is general product advice for wholesale or sophisticated investors, and NOT suitable for retail investors.  Retail investors should seek advice specific to their circumstances and not rely upon general product advice written for other types of investors.  Retail investors acting like wholesale/sophisticated investor are likely to experience inappropriate and/or excessive risk for their circumstances, and unacceptable losses.
Posted on : By : PPD1962 Posted in : Realty

REALTY: tips for the DIY investors

QUESTION:  Previously, you said TSA only does cash and equities portfolios, but that you would provide some tips for DIY property investors, so what are they?

ANSWER: Firstly, it is worth noting that despite realty being the largest asset class for most investors, it remains largely unregulated in most countries.  For example in Australia, you don’t need a licence to advise someone to borrow $4.5m and buy a $5m house.  However, you do need a licence to tell the same person to use $500 of cash they already have to buy $500.00 of stock: crazy but that demonstrates the vested interests in real property by real estate agents and banks/financiers.

(Note: in Australia property is taxed differently depending on whether it is the owners principle residence.  Surprisingly, real estate agents and banks/financiers are also willing to give tax advice despite not being qualified).

Here are some tips, that may, or may not, suit your DIY plans:

  • buy freehold property rather than lease hold or strata because there is more development potential;
  • buy property close to government run transport, preferably trains, trams and ferries (buses less so);
  • never tell a real estate agent (they want to maximise their commission and they work for the vendor) what your budget, financing arrangements, property us, etc will be: they are not your friends so err on the side of less information;
  • assume the rental potential of the property is lower than the real estate tells you;
  • do the buy v. rent analysis if you are going to be an owner-occupier;
  • never offer a price to buy before auction or expression of interests close unless you know the vendor is in distress and will take a very low price;
  • buy, or get your mortgage broker, to give you all there recently settled property transactions in the area so you don’t need to rely on the potentially dishonest or selective information by the real estate agent (who works for the vendor);
  • always add 50% to any building work you estimate a property may need;
  • don’t bid at auction unless the property is on the market (if you aren’t sure ask during the auction);
  • if you are the highest bidder, don’t start to bid against yourself at an auction (this should be obvious, but it is now rampant in Sydney);and, finally,
  • buyers have to try to be as unemotional as possible, it is also necessary to be an unemotional seller!

Realty is unique and its uses can be various, depending on who owns it, so it is something that requires on-the-ground research.  It is a task an investor or owner/occupier must do separately on each property.  In our home town, Sydney, it is one-day a week task to buy or sell.  Good luck.

Contact TurnerStreet if you wish to buy our current asset allocation recommendation (we do cash and equity only allocations for our wholesale clients), and the list of the stocks TurnerStreet would buy for a typical wholesale client, or if you would like TurnerStreet to manage your equities and derivatives portfolio.

IMPORTANT: This Q&A is general product advice for wholesale or sophisticated investors, and NOT suitable for retail investors.  Retail investors should seek advice specific to their circumstances and not rely upon general product advice written for other types of investors.  Retail investors acting like wholesale/sophisticated investor are likely to experience inappropriate and/or excessive risk for their circumstances, and unacceptable losses.