Cash Flow Advice From Hong Kong’s Richest Man – Li Ka-shing

Advice from an 80 year old billionaire with businesses that span across many different industries, from old line manufacturing to high tech.  One of the pearls of wisdom he cites is an important factor in sizing up investments and operating businesses, cash flow is king.

“I’m always very careful with my cash flow.  That will ensure I have extra capital to get into another industry whenever I want to.”

Forget gross merchandise volume, return on equity or debt-to-equity ratios. The most important metric in business is cash flow, according to Li. The tycoon says he’s been keeping an eye out on cash flow since he became an entrepreneur more than six decades ago. One needs to generate good cash flow before expanding into other industries and to store up some insurance for a rainy day, he said.

Source: Five Pieces of Advice From Hong Kong’s Richest Man – Bloomberg

Robo-Advisor Platform Halts Trading Following Brexit Vote

Aren’t the robo-advisors selling their services as passive investors?   In this case, they’ve decided that being a passive investor means no access to the markets.  Sounds like human biases and active management is an issue even in the robo platforms.

 

Betterment, the leading independent robo-adviser, pulled a Wizard of Oz moment on Friday when it decided to delay trading for two and a half hours to protect investors from market volatility following the shocking Brexit vote.

Source: Betterment’s move to halt trading following Brexit vote sparks controversy

Tesla Buying Solar City is “Ludicrous”

We all know Tesla (TSLA) CEO Elon Musk is a genius, but the strategy of combining two money losing, cash burning businesses together to get scale and synergy is ludicrous.

Last year Tesla burned through $2.1 billion in losses and capital expenditures.  Adding Solar City’s (SCTY) cash burn rate of $2.4 billion to the company, which Musk is proposing to do, just makes Tesla a bigger money losing business with profitability pushed even further into the future.  Warren Buffet has said that it is better to buy a good business at a fair price than to buy a bad business at a good price, with the purchase of Solar City, Tesla is getting neither a good business or a fair price.

Tesla and Elon Musk are truly operating in “Ludicrous” mode.

Musk Fails to Assure Investors Rattled About SolarCity Takeover

Successful Investing Takes Investigating Like Sherlock Holmes

Investing isn’t the study of finance. Or that’s only part of it. Investing is really the study of human behavior, which incorporates everything from psychology, to sociology, to statistics, to history and math. There is so much to learn about investing from fields and people who, at first glance, have nothing to do with investing.

Source: Sherlock Holmes On How to Be a Better Investor — The Motley Fool

Hedge Funds Buckling Under Fee Pressure, LP Apathy

A greater portion of hedge funds (78%) say they’re open to cutting fees than investors report even asking for better terms (63%), according to a major BNY Mellon survey.

Source: Chief Investment Officer – Hedge Funds Buckling Under Fee Pressure, LP Apathy

German Bunds Reach New Milestone as Yield Declines Below Zero – Bloomberg

The yield on Germany’s 10-year government bund, Europe’s benchmark security, fell below zero for the first time on record, as investors’ seemingly insatiable demand for haven assets created another bond-market milestone.The nation joined Japan and Switzerland in having 10-year bond yields of less than zero. The plunge in yields, which has been driven by European Central Bank’s policy of negative interest rates and asset purchases, has accelerated amid a weakening global economic outlook and as polls indicate the “Leave” campaign in Britain’s European Union referendum is gaining momentum.

Source: German Bunds Reach New Milestone as Yield Declines Below Zero – Bloomberg

Shrinkage vs. Growth

Looking over the same period (2005-2016) for other stocks in the S&P 500, we see a similar trend as we saw with Northrup. The 10% of stocks which have reduced their share counts by the greatest percentage since 2005—stocks like Autozone, Travelers, Coca-Cola Enterprises, AmerisourceBergen, or Fiserv—have done very well as a portfolio. On average, they’ve reduced share count by 47% and they’ve outperformed the S&P 500 by an average of 88%[iv].  What’s interesting is that this strong performance has happened despite the fact the median market cap and net income growth has been lower for these companies than for the average S&P 500 stock.

Source: Shrinkage vs. Growth

Efficient Markets Explained

What efficient markets are associated with which is wrong is that efficient markets mean that the price is always right – that the price is exactly the present value of all of the dividends and the earnings that are gonna come in the future and the price is perfectly right. That’s wrong. The price is never right. In fact, prices are always wrong. What’s right is that nobody knows for sure whether they’re too high or too low. It’s not that the prices are always right, it’s that it’s never clear that they are wrong…the market is very, very difficult to beat.

Source: The Upside of Academic Finance

So What Is Risk Parity?

A note from Bridgewater Associates, an investment firm that oversees US$150 billion in client assets, vividly described how its founder, Ray Dalio, “laid the foundation” of risk parity while developing the All Weather investment strategy. The idea for All Weather is simple: Different economic scenarios pose risks to different asset classes throughout the business cycle. Dalio and his team identified four major risk scenarios and made sure that at least a part of the portfolio could weather each risk. So this is where the All Weather is similar to risk parity: Instead of targeting optimal risk and return in the traditional portfolio optimization setting, both strategies strive to achieve balanced risk contributions from all asset classes.

Source: Risk Parity Made Easy: Cliff’s Notes