Investing psychology

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Behavioral coaching ranks last on what investors value most from their advisors. (Link)
On a list of 15 attributes, “helps me stay in control of my emotions” was ranked dead last by the 693 investors surveyed about what they value most from their financial advisors.

Many advisors believe that helping to control investor emotions is one the most valuable things they bring to the table making it clear that there is a disconnect between what advisors believe investors want and what investors are looking for. Could the perception of behavioral coaching’s stem from ego? Behavioral coaching has the opposite impact on advisor and client egos. As the purveyor of behavioral coaching, the advisors ego is boosted. Advisors get to be the “responsible adult” in the relationship, which feels gratifying. Conversely, the client’s ego must seemingly be checked to admit that behavioral coaching is necessary.

Gradual improvements go unnoticed (Link)

Since stocks bottomed in 2009, there have been so many potential reason to sell, making it very easy to fill this chart in. The hard part was choosing what to leave off.

We’ve seen a thousand versions of this chart, but we haven’t seen the opposite, one that plots all of the positive developments over the last nine years. This was a much harder task as bad news makes headlines while gradual improvements go unnoticed. The fact that bad news is disseminated 10x as fast as positive news is one of the biggest reasons why it’s so difficult to just capture market returns for the average investor.

Zach celebrating his 1st and Tracey celebrating her 2nd work anniversaries!

Wednesday charts

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Stop feeding them cheese!
There are still over 3 million "extra" young adults living at home. If they all enter the housing market over the next 15 years, that would boost housing demand by 200 thousand per year. A reason to be secular bullish on housing. But again the pace is likely to remain slow to moderate.

Who owns US government debt?
China, the world’s second largest economy, is the world’s biggest single country foreign owner of US government debt. Pensions & Insurers (17.4%), mutual funds & ETFs (12.7%) and the Federal Reserve (12.6%) hold the most securities outright.

Commercialized building sales continue to decline in China

Source: Bloomberg

All things energy

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Saudi oil production to peak......in just over a decade? (Link)
Saudi Arabia has produced 160 billion barrels of its 430 billion barrels of ultimate recoverable reserves, or nearly 40%. If Saudi Arabia produces at 10.5 million barrels a day, it would hit the 50% mark in approximately 14 years. After this point, according to the Hubbert curve, production would enter its period of structural decline.

Barbers are cashing in on this West Texas oil boom (Link)
A gusher of crude production has transformed the Permian Basin into America’s hottest oilfield. The Permian produced 3.9 million barrels per day as of January and could top 5 million barrels a day by 2023, surpassing Iraq. Fortunes are being made in this fracking-related gold rush, and money and workers are flooding in. Finding a haircut or grabbing a plate of good Texas barbecue is hard because demand outstrips supply. 

Pete McGarity opened Headlines Barber Shop in Odessa in 1998 and has ridden the boom-bust cycle before. In this latest boom he decided to capitalize on it and spent about $25,000 to retrofit a trailer into a custom, mobile barber shop. He drove it about an hour west to Pecos, Texas, and parked in front of the town’s only grocery store, hoping to catch oil field workers between shifts. It was an instant success. A cut costs as much as $40, more than the $25 he charged before the boom. There is usually a long waiting list, but patrons can cut the line if they pay $60, or $75 with a shave. Mr. McGarity’s barbers are raking it in making anywhere from $130,000 to $180,000 per year. He is considering investing in additional trailers to send to farther-flung towns in the oil patch and says the additional revenue may allow him to retire soon.

More global energy demand predictions (Link)
Oil demand peaking in the 2030’s, 2 billion electric cars on the road by 2050, 50% of power generation by renewables by 2035, and many other predictions which may or may not be accurate.

Weekend catch-up

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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Valuing Amazon’s & Walmart’s value chains Podcast (Link) Article (Link) 
As Amazon looked to enter the digital grocery business, they had a problem. Amazon quickly learned their existing distribution network was not well-suited to offer grocery products due to the grocery markets finite selection of goods and perishability as grocery products degrade with time and transport. To help solve this problem Amazon acquired Whole Foods in 2017 as they were already integrated into local markets and had the experience and ability to manage perishable goods that needed to be stocked and sold quickly, ensuring freshness and quality. Amazon's digital grocery channel could now be layered on Whole Foods existing network and stores. Walmart's value chain was already well integrated in local markets giving them a massive head start as both giants moved into the digital grocery business.

One of the original entrepreneurs in the 3-D printing world (Link)
Hans Langer founded Electro Optical Systems "EOS" over 30 years ago. Today, EOS’s 3-D printing machines have a base price as high as $1.6 million and fill the factory floors of companies like Boeing, BMW, Lockheed Martin and Siemens. After receiving his Ph.D., Langer thought he would become an academic, but a professor convinced him he could make a bigger difference in industry. Early in his career while working at General Scanning, Langer proposed the company start their own 3-D printing division. At the time, 3-D printing was in its infancy and the board of directors said no and argued it was to risky.  Langer had an idea that 3-D printing would one day be significant to the manufacturing industry as it could produce parts that would have been impossible using traditional manufacturing techniques. Convinced of his idea for 3-D printing he quit his job. In 1989, at age 36 with two young kids and just over $50,000 to his name, he founded EOS. Today he is worth an estimated $2.6 billion.

Howard Marks discusses how to think differently from the pack. Podcast (Link)
It is really easy to be average in investing. If you think the same as everyone else you will take the same actions as everyone else. If you take the same actions as everyone else you should have the same outcome. So you can't think the same as everyone else if you want a different outcome. You have to diverge. To be an above average investor you have to accomplish two things. First, think different from everyone and therefore take different actions. Second, you have to be right when you think different. Second level thinking is thinking which is different and better. Very few people can do it.

Nothing happens, then everything happens (Link)
Investing can often be characterized as mostly smooth growth with occasional interruptions of violent fluctuations, similar to being an airline pilot. Ninety percent of the job is uneventful to the point of automation; ten percent of the job is terrifying and requires complex skills and a flawlessly calm demeanor.

Rising Canadian household debt
The Canadian household debt service ratio rose to 14.87% in Q4 2018, a shade below the all-time high of 14.88% set back in the Q4 2007. Interest paid by Canadian households is closing in on $100 billion per year, and was up $10.5 billion in 2018.

The spread with the US now exceeds 5 percentage points, an all-time high.

US labour stats

No obvious signs of overheating in US wage growth

Empirical Research

This is thanks to the baby boomers demographic who are reluctant to change jobs for higher wages

Empirical Research

US asset flows 

Hedge funds now represent almost 33% of  trade volumes in the US

Empirical Research

ETF money flowing to safety in early 2019 

Empirical Research

What buying high and selling low looks like

Empirical Research

Friday reads

Get the Edge - Click here to view an archive of investment education, daily musings, book recommendations and more.
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Nothing happens, then everything happens (Link)
Investing can often be characterized as mostly smooth growth with occasional interruptions of violent fluctuations, similar to being an airline pilot. Ninety percent of the job is uneventful to the point of automation; ten percent of the job is terrifying and requires complex skills and a flawlessly calm demeanor.

One of the original entrepreneurs in the 3-D printing world (Link)
Hans Langer founded Electro Optical Systems "EOS" over 30 years ago. Today, EOS’s 3-D printing machines have a base price as high as $1.6 million and fill the factory floors of companies like Boeing, BMW, Lockheed Martin and Siemens.

After receiving his Ph.D., Langer thought he would become an academic, but a professor convinced him he could make a bigger difference in industry. Early in his career while working at General Scanning, Langer proposed the company start their own 3-D printing division. At the time, 3-D printing was in its infancy and the board of directors said no and argued it was to risky.  Langer had an idea that 3-D printing would one day be significant to the manufacturing industry as it could produce parts that would have been impossible using traditional manufacturing techniques. Convinced of his idea for 3-D printing he quit his job. In 1989, at age 36 with two young kids and just over $50,000 to his name, he founded EOS. Today he is worth an estimated $2.6 billion.

Wednesday charts

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

Rising Canadian household debt
The Canadian household debt service ratio rose to 14.87% in Q4 2018, a shade below the all-time high of 14.88% set back in the Q4 2007. Interest paid by Canadian households is closing in on $100 billion per year, and was up $10.5 billion in 2018.

The spread with the US now exceeds 5 percentage points, an all-time high.

US labour stats

No obvious signs of overheating in US wage growth

Empirical Research

This is thanks to the baby boomers demographic who are reluctant to change jobs for higher wages.

Empirical Research

US asset flows 

Hedge funds now represent almost 33% of  trade volumes in the US

Empirical Research

ETF money flowing to safety in early 2019 

Empirical Research

What buying high and selling low looks like

Empirical Research

Value chains | Thinking differently from the pack

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

Valuing Amazon’s & Walmart’s value chains. Podcast (Link) Article (Link) 
As Amazon looked to enter the digital grocery business, they had a problem. Amazon quickly learned their existing distribution network was not well-suited to offer grocery products due the grocery markets finite selection of goods and perishability as grocery products degrade with time and transport. To help solve this problem Amazon acquired, Whole Foods in 2017 as they were already integrated into local markets and had the experience and ability to manage perishable goods that needed to be stocked and sold quickly, ensuring freshness and quality. Amazon's digital grocery channel could now be layered on Whole Foods existing network and stores. Walmart's value chain was already well integrated in local markets giving them a massive head start as both giants moved into the digital grocery business.

Howard Marks discusses how to think differently from the pack. Podcast (Link)
It is really easy to be average in investing. If you think the same a everyone else you will take the same actions as everyone else. If you take the same actions as everyone else you should have the same outcome. So you can't think the same as everyone else if you want a different outcome. You have to diverge. To be an above average investor you have to accomplish two things. First, think different from everyone and therefore take different actions. Second, you have to be right when you think different. Second level thinking is thinking which is different and better. Very few people can do it.