If you remember the old Beatles song, you understand the meaning of getting by with a little help from our friends. Today, we’re doing something a little unusual. I’m going to share four pieces I came across recently, because I believe they can help us all get by better in one way or another.
Some of the articles have to do with the shutdown, but not all. (Regarding the shutdown, I wrote a post for the Five Cent Nickel blog that’s scheduled for this Wednesday. It’s not the done thing to repeat yourself on various blogs, so if you’re interested in my take, that’s where you’ll find it.)
And so here are a few of our friends, as well as what they are offering us to help us get by:
Barron’s Editorial: A Comedy In The Making
Comedy = Tragedy + Time.
Apparently Carol Burnett once said that. This Barron’s editorial was about the government shutdown. You can see where the headline came from. The gist of the piece is that we’ve been through scares like this so often, and the outcome of each previous one was so, well, inconsequential, even positive, that nobody is taking the shutdown seriously this time.
Bottom line: the mess is a buying opportunity.
Jake Huneycutt: Now is the time to be fearful
Jake wrote this piece on Seeking Alpha about the question many investors are asking in these times: how close are we to another stock market bubble? (Seeking Alpha, by the way, is the premier source of objective opinion on stock investing, at least in my opinion, because they publish all points of view, as long as the reasoning is more or less sound.) He offers one of the more comprehensive looks at the S&P 500 index’s PE ratio over more than 100 years. Here’s his chart:
The PE ratio of any stock (or market) has two components: Price, and Earnings. The PE ratio (Price divided by Earnings) will climb when prices get ridiculously high, or when Earnings fall through the floor. Obviously, we don’t regard it as a bubble when earnings drop, only when prices climb. Yet, he shows that most PE spikes in fact came from dips in E (recession) rather than exuberant price climbs. The tech bubble of 1998-2000 is about the only exception.
The historic average PE has been around 15. However, in recent times, it has been climbing slowly, but surely. Back in March I talked about this, but I thought a further update may be an interesting read for all. Mr. Huneycutt’s conclusion is that if you look at this chart, you can see we’re getting to the stage where Jaws music starts playing:
His point, I think, is one worth noting. Stock market bubbles have a habit of forming slowly, lasting longer than they should, but when they crash, it’s fast and furious. Something to keep a lookout for…
From Barry Ritholtz comes an interesting post, reiterating the fundamental truth about successful investing: you need to keep all emotion out of it. Obamacare is a good case in point: most of us have an opinion about the Affordable Health Care Act, and most of those opinions are strongly held. However, to be successful, you need to take a dispassionate look at the situation and ask yourself: where will money be made? And, how can I invest in that?
A good example is American Express. They charge their cardholders a lot more than Visa or Mastercard issuers, and they also charge merchants a lot more to accept American Express credit cards. As a consumer, that alienates me. I think AmEx is a bad deal, and therefore I avoid it and attach a negative connotation to the name and every time it’s presented to my attention. Warren Buffett sees it differently: here’s an outfit who’s able to overcharge everyone and get away with it, year after year after year. He sees that as a license to print money, and therefore he wants to invest in that company, and others like it. I’ve had to learn to rethink my views about all investment opportunities.
Mr. Ritholtz succeeds in taking the emotion, rhetoric and ideology out of the Obamacare thing, changing the issue to: who stands to make more money from Obamacare, and how to I, as an investor, get in on that action?
I know, I know, I should stay away from this thing. I should have invested in something much closer to home, much more understandable and a lot more stable in its growth, you know, something like Chipotle.
But hey, I never claimed to be the brightest bulb on the Christmas tree, and you know what they say: if at first you don’t succeed, do more research. And, again from the good folks at Seeking Alpha, here is one of the best attempts I’ve seen to quantify the potential market for a game changing technology. I still believe 3D printing is going to change our lives in the same way that the PC, internet and smartphone did.
You may pick nits about the numbers Alex Cho uses. For instance, I doubt John Deere pays its average manufacturing worker $76,000 a year, even if you include all the bennies. However, that’s not the important thing. What’s important is Mr. Cho’s reasoning. He is looking at 3D printing as a dislocating technology, and then he attempts to quantify the arena about to be dislodged.
Even if you never plan to invest in anything remotely dealing with 3D printing, this (admittedly very long) article is (IMHO) a phenomenal example of how to go about looking at something out of the box, with out of the box glasses on.
Have fun. Be wise. Read.