Your weekend edge - catch up with this week's readings:

Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
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Putting downturns in perspective(Link)

Buying is easy, selling is hard $(Link)
The researchers looked at more than 4 million trades among 783 portfolios from 2000 to 2016 and found that stock pickers actually showed skill when buying. However, the sales by these institutional investors cost them as much as 100 basis points, or a full percentage point, of yearly returns compared with a no-skill strategy of simply selling holdings at random. Translation: Investors spend way more time analyzing what to buy than what to sell.

Global inequality - it ain't what it used to be (Link)
On the planet as a whole, inequality has fallen dramatically. Not only has it fallen in terms of income, but it’s fallen in other dimensions of human well-being such as life expectancy and schooling. This is a poorly known fact in need of greater coverage. The poorest of the world have since experienced large increases in incomes. In fact, their living standards increased more rapidly than those of the richest in the world. Thus, there has been a fall in inequality. Depending on the methodology, the indicators of global income suggest falls between 9% and 33% since the 1970s.

A record number of Americans are 90 days behind on their car payments (Link)

More than 7 million Americans are at least 90 days behind on their auto loans, according to the New York Fed. That's higher than the peak in 2010 as the country was still reeling from the devastating financial crisis.

What happens when Canada ignores incentives and competitiveness (Link)
Between 2013 and 2017, Canadians increased investment outside the country by 74.0 per cent while foreigners investing in Canada declined by 55.1 per cent. Encana, one of the country’s premier energy companies now invests more outside of Canada than in it. And the company’s CEO recently moved to Denver and indicated that headquarter activity would become less-concentrated in Calgary. One of the country’s largest gold companies, Goldcorp, has just been purchased by an American company and much of its headquarter activity will now shift to the United States. TransCanada Pipelines recently announced it would change its name to TC Energy in part to try to attract more investors leery about investing in a perceived Canadian-only focused company.

Fossil fuels
Only 24% of Canada's total electricity generation comes from fossil fuels, ranking it sixth best out of 42 countries measured.

Emissions
Replacing coal with the large increases  in domestic natural gas production and replacing dirty imported oil with a domestically supported oil industry is apparently the biggest factor towards the U.S. leading the world in emission change. No misguided global initiative required for the US to lead the world.  Maybe it requires a new government, supportive of investment and local industry,  for us to be environmental leaders?  

Source: BP Statistical Review of World Energy 2018

Household saving rate
German household saving rate is on the rise. Most of real wage gains are being saved, not spent.

What is GDP in China? (Link) 
"And yet, when you speak to Chinese businesses, economists, or analysts, it is hard to find any economic sector enjoying decent growth. Almost everyone is complaining bitterly about terribly difficult conditions, rising bankruptcies, a collapsing stock market, and dashed expectations. In my eighteen years in China, I have never seen this level of financial worry and unhappiness." - Michael Pettis

A building binge leaves cities with 65 million empty apartments (Link)

Celebrating with Liz, Sarah, and Theo on their 2nd anniversary! 

Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________

Buying is easy, selling is hard $(Link)
The researchers looked at more than 4 million trades among 783 portfolios from 2000 to 2016 and found that stock pickers actually showed skill when buying. However, the sales by these institutional investors cost them as much as 100 basis points, or a full percentage point, of yearly returns compared with a no-skill strategy of simply selling holdings at random. Translation: Investors spend way more time analyzing what to buy than what to sell.

Global inequality - it ain't what it used to be (Link)
On the planet as a whole, inequality has fallen dramatically. Not only has it fallen in terms of income, but it’s fallen in other dimensions of human well-being such as life expectancy and schooling. This is a poorly known fact in need of greater coverage. The poorest of the world have since experienced large increases in incomes. In fact, their living standards increased more rapidly than those of the richest in the world. Thus, there has been a fall in inequality. Depending on the methodology, the indicators of global income suggest falls between 9% and 33% since the 1970s.

Household saving rate
German household saving rate is on the rise. Most of real wage gains are being saved, not spent.

Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________

What is GDP in China? (Link) 
"And yet, when you speak to Chinese businesses, economists, or analysts, it is hard to find any economic sector enjoying decent growth. Almost everyone is complaining bitterly about terribly difficult conditions, rising bankruptcies, a collapsing stock market, and dashed expectations. In my eighteen years in China, I have never seen this level of financial worry and unhappiness." - Michael Pettis

A building binge leaves cities with 65 million empty apartments (Link)

A record number of Americans are 90 days behind on their car payments (Link)

More than 7 million Americans are at least 90 days behind on their auto loans, according to the New York Fed. That's higher than the peak in 2010 as the country was still reeling from the devastating financial crisis.

Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________

Good morning & happy family day!


Putting downturns in perspective(Link)

What happens when Canada ignores incentives and competitiveness (Link)
Between 2013 and 2017, Canadians increased investment outside the country by 74.0 per cent while foreigners investing in Canada declined by 55.1 per cent. Encana, one of the country’s premier energy companies now invests more outside of Canada than in it. And the company’s CEO recently moved to Denver and indicated that headquarter activity would become less-concentrated in Calgary. One of the country’s largest gold companies, Goldcorp, has just been purchased by an American company and much of its headquarter activity will now shift to the United States. TransCanada Pipelines recently announced it would change its name to TC Energy in part to try to attract more investors leery about investing in a perceived Canadian-only focused company.

Fossil fuels
Only 24% of Canada's total electricity generation comes from fossil fuels, ranking it sixth best out of 42 countries measured.

Emissions
Replacing coal with the large increases  in domestic natural gas production and replacing dirty imported oil with a domestically supported oil industry is apparently the biggest factor towards the U.S. leading the world in emission change. No misguided global initiative required for the US to lead the world.  Maybe it requires a new government, supportive of investment and local industry,  for us to be environmental leaders?  

Source: BP Statistical Review of World Energy 2018

Your weekend edge - catch up with this week's readings:

Why do we make stupid investment decisions? (Link)
Stupidity is overlooking or dismissing conspicuously crucial information. Here are seven factors which can create situations where stupidity can flourish: outside circle of competence, stress, rushing or urgency, outcome fixation, information overload, group/social cohesion, presence of authority, overconfidence/ego and external justification.

Why time horizon works? (Link)

When earnings compound but changes in valuation multiples don’t, the importance of the latter to your lifetime returns diminishes over time. Which is great, because changes in valuation multiples are the most unpredictable part of investing. Assuming earnings compound over time – an assumption, but a reasonable one – here’s what happens when valuation multiples go up or down by, say, 20% in a given year:

Short money rules (Link) 

- Above-average results requires not being afraid of looking wrong
- Most people are afraid of looking wrong
- Good investing is 50% psychology, 48% history, 2% finance
- Obvious risk: not having three months of emergency savings
- Underappreciated risk: having three months of emergency savings when the average duration of unemployment is six months
- People like weekends because it’s when they have the most control over their time; financial goals should keep this in mind

Who is on the other side? - by Michael Mauboussin (Link)

Perhaps the biggest source of market inefficiency remains the human being. As groups, we repeatedly veer to extremes in our optimism or pessimism, leaving mispriced securities in our wake. 

Dividends and buybacks - Fact and Fiction by Aswath Damodaran (Link)

I believe that the shift to buybacks reflects fundamental shifts in competition and earnings risk, but I don't wear rose colored glasses, when looking at the phenomenon. There are clearly some firms that are buying back stock, when they clearly should not be, paying out cash that could be better used on paying down debt, especially in the aftermath of the reduction of tax benefits of debt, or taking investments that can generate returns that exceed their hurdle rates. You may consider me naive, but I believe that the market, while it may be fooled for the moment, will catch on and punish these firms. Also, the data suggests that these bad players are more the exception than the rule, and banning all buybacks or writing in restrictions on buybacks for all companies strikes me as overkill, especially since the promised benefits of higher capital investment and wages are likely to be illusory or transitory. If you are tempted to back these restrictions, because you believe they are well intention-ed, it is worth remembering that history is full of well intention-ed legislation delivering perverse results. 

Share buybacks
There is an argument that stock buybacks reduce the amount companies invest.  This chart shows the actual investments done by companies dating back to the 1940s. It's not obvious there is a problem.

The chart below adds "intellectual property" to the mix.  The world has changed and it's weird to not add spending on life-saving drugs or new apps and software that improves your life.  There is no obvious problem here. 

Can China stimulate while not adding leverage? (Link) 

Primarily a word used in the UK, cakeism is the belief that it is possible to enjoy or take advantage of both of two desirable but mutually exclusive alternatives at once. China's version of "cakeism", centers around the leadership's conflicting commitments to de-risking the financial system on one hand and on the other, hitting elevated growth targets north of 6 per cent. You can't really have a determined effort to deleverage the economy and not expect it to have a material impact on economic growth.

Happy Friday! The word of the day is Cakeism. 

Can China stimulate while not adding leverage? (Link) 
Primarily a word used in the UK, cakeism is the belief that it is possible to enjoy or take advantage of both of two desirable but mutually exclusive alternatives at once. China's version of "cakeism," centers around the leadership's conflicting commitments to de-risking the financial system on one hand and on the other, hitting elevated growth targets north of 6 per cent. You can't really have a determined effort to deleverage the economy and not expect it to have a material impact on economic growth.

Short money rules (Link) 
- Above-average results requires not being afraid of looking wrong
- Most people are afraid of looking wrong
- Good investing is 50% psychology, 48% history, 2% finance
- Obvious risk: not having three months of emergency savings
- Underappreciated risk: having three months of emergency savings when the average duration of unemployment is six months
- People like weekends because it’s when they have the most control over their time; financial goals should keep this in mind

Who is on the other side? - by Michael Mauboussin (Link)
Perhaps the biggest source of market inefficiency remains the human being. As groups, we repeatedly veer to extremes in our optimism or pessimism, leaving mispriced securities in our wake. 

It was a week of celebrations for EdgePointers 
Joel's 50th, Teresa and Matilde's 9th anniversary, Nancy's 3rd anniversary, Kris's birthday and Alexandra's 6-month anniversary! Everyone brought delicious goodies and our waistlines are paying for it. 

Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
_________________

Good morning. Two more days till chocolate is on sale!


Dividends and buybacks - Fact and Fiction by Aswath Damodaran (Link)
I believe that the shift to buybacks reflects fundamental shifts in competition and earnings risk, but I don't wear rose colored glasses, when looking at the phenomenon. There are clearly some firms that are buying back stock, when they clearly should not be, paying out cash that could be better used on paying down debt, especially in the aftermath of the reduction of tax benefits of debt, or taking investments that can generate returns that exceed their hurdle rates. You may consider me naive, but I believe that the market, while it may be fooled for the moment, will catch on and punish these firms. Also, the data suggests that these bad players are more the exception than the rule, and banning all buybacks or writing in restrictions on buybacks for all companies strikes me as overkill, especially since the promised benefits of higher capital investment and wages are likely to be illusory or transitory. If you are tempted to back these restrictions, because you believe they are well intention-ed, it is worth remembering that history is full of well intention-ed legislation delivering perverse results. 

Share buybacks
There is an argument that stock buybacks reduce the amount companies invest.  This chart shows the actual investments done by companies dating back to the 1940s. It's not obvious there is a problem.

The chart below adds "intellectual property" to the mix.  The world has changed and it's weird to not add spending on life-saving drugs or new apps and software that improves your life.  There is no obvious problem here.