(Bloomberg) — Wall
Street hasn’t been this down on Apple Inc. in a long time.
Rosenblatt
Securities downgraded the company to sell on Monday, bringing the total number
of bearish analysts up to five, among the 57 ratings tracked by Bloomberg. Five
is the highest number of sell ratings the iPhone maker has had since at least
1997, according to historical data compiled by Bloomberg. To put that into
context, Apple wouldn’t release its iMac computer until August 1998, and the
iconic iPod wouldn’t debut until October 2001.
In another sign of
the growing caution around the company, Apple’s consensus rating — a proxy for
the company’s ratio of buy, hold, and sell ratings — is currently 3.76,
according to Bloomberg data. That’s the lowest since 2004.
Skepticism
surrounding the company has accelerated in 2019, with all five of the sell
ratings coming in this year. Both New Street Research and HSBC lowered their
ratings on the stock to sell in April, and in January, the number of firms with
buy ratings dropped below 50% for the first time since 2004.
The caution has
been largely driven by uncertainty surrounding demand for the company’s
critical iPhone line, with the U.S.-China trade war seen as a particular
headwind. In January, Apple cut its revenue outlook for the first time in
almost two decades, in large part because of iPhone weakness. Apple’s
third-quarter results are currently expected to come out on July 30.
According to data
compiled by Bloomberg, more than 60% of Apple’s 2018 revenue was related to the
iPhone, while roughly 20% came from China, which is also a critical part of its
supply chain. Last week, Citi wrote that Apple’s China sales “could be cut in
half” due to “a less favorable brand image desire.”
Rosenblatt’s
downgrade came as analyst Jun Zhang expects the company “will face fundamental
deterioration over the next 6-12 months,” based on disappointing sales trends.
The downgrade pushed Apple stock lower by as much as 2.9% in Monday trading.
Still, the
sell-equivalent ratings hardly represent a consensus view. A plurality of 23
firms recommend buying the stock, while another 21 have hold ratings, according
to data compiled by Bloomberg.
The 2019 caution
hasn’t really been reflected in Apple’s stock performance. Shares are up more
than 40% from its January low, though they remain about 14% below record
levels.
The news was not
entirely negative for Apple on Monday, however, as Wedbush wrote it was
“incrementally more positive on global iPhone demand” following checks in Asia.
“We saw a ‘slight uptick’ out of Apple suppliers during our checks although
overall handset demand remains challenging,” analyst Daniel Ives wrote. He
affirmed his outperform rating and $235 price target.
(Adds context in second
paragraph, consensus rating in third, and stock performance in ninth.)
4.What
Factors are Cheap and Expensive Versus 10 Year and 35 Year History
Value and Small Cap Cheap?
5.The Median
Age of Tech Companies Going Public in 1999 was 4; Last Year it was 12
Barrons
Initial offerings could raise a record level of capital in
2019, potentially breaking the nearly $97 billion record set in 2000. But
Wainwright, and IPO investors, have returned wiser and more disciplined.
In a sense, the IPO market has simply grown up. For one thing,
the median age of tech companies going public in 1999 was four; last year, it
was 12. And having been burned in the bubble years by IPOs for wildly
speculative and ultimately failed businesses, such as theGlobe.com and eToys,
investors have tightened their standards. They now want established businesses
with substantial revenue and high growth.
The RealReal Is No Pets.com and
Today’s IPO Market Is Not the Next Dot-Com BubbleBy Eric J. Savitz
Passive investments control about 60% of the equity assets,
while quantitative funds — those relying on trend-following models instead of
fundamental research — now account for 20% of the market share, according to
estimates from J.P. Morgan.
Passive funds have attracted $39 billion of inflows so far this
year, whereas active funds lost a whopping $90 billion in 2019, the bank said.
It’s no secret that
machines are taking up a bigger and bigger share of investing, but the extent
of their influence is approaching shocking proportions. It is as high as 80%,
according to one major investing firm.
Passive investments such
as index funds and exchange-traded funds control about 60% of the equity
assets, while quantitative funds, those which rely on trend-following models
instead of fundamental research from humans, now account for 20% of the market share,
according to estimates from J.P. Morgan.
This means so much of
stock trading is now in the hands of automated buyers and sellers that the
market is increasingly sensitive to headlines and more prone to sharp price
swings, many notable investors believe.
Omega Advisors founder
Leon Cooperman previously said computer trading is creating a “Wild West” with the
markets, calling for an investigation by the Securities and Exchange
Commission.
DoubleLine Capital CEO
Jeffrey Gundlach has taken a shot at passive investing, saying it is causing
widespread problems in global stock markets. He called it a “herding behavior.”
“I’m not at all a fan of
passive investing. In fact, I think passive investing … has reached mania
status as we went into the peak of the global stock market,” Gundlach said in December.
While algorithmic models
have gained popularity on Wall Street, low-cost passive vehicles keep raking in
assets from Main Street. Passive funds have attracted $39 billion of inflows so
far this year, whereas active funds lost a whopping $90 billion in 2019,
according to J.P. Morgan.
“The pace of outflows
from Active is at a cycle high while the pace of passive equity inflows has
bottomed and [is] beginning to reaccelerate,” Dubravko Lakos-Bujas, J.P.
Morgan’s chief U.S. equity strategist, said in a note on Friday.
The
Federal Reserve (Fed) will likely cut rates at its next meeting in late July.
This begs the question: Will the Fed really cut rates with stocks up so much
year to date and near all-time highs? “It might sound strange for the Fed to
cut rates with stocks up a lot for the year,” explained LPL Senior Market
Strategist Ryan Detrick. “But since 1975, the Fed has cut rates 26 times with
the S&P 500 Index up at least 15% for the year, most recently in 1995 and
1998.”
Here’s the catch: A
year after those cuts, the S&P 500 was higher 23 out of 26 times—with a
very solid average gain of 13.4%. So it would appear monetary policy could be a
continued tailwind.
SALEM,
Ore. — Oregon is awash in pot, glutted with so much legal weed that if growing
were to stop today, it could take more than six years by one estimate to smoke
or eat it all.
Now,
the state is looking to curb production.
Five
years after voters legalized recreational marijuana, lawmakers are moving to
give the Oregon Liquor Control Commission more leeway to deny new pot-growing
licenses based on supply and demand.
The
bill, which passed the Senate and is now before the House, is aimed not just at
reducing the huge surplus but at preventing diversion of unsold legal marijuana
into the black market and forestalling a crackdown by federal prosecutors.
“The
harsh reality is we have too much product on the market,” said Democratic Gov.
Kate Brown, who intends to sign the bill if it wins final passage as expected.
Supply
is running twice as high as demand, meaning that the surplus from last year’s
harvest alone could amount to roughly 2.3 million pounds of marijuana, by the
liquor commission’s figures. That’s the equivalent of over 1 billion joints.
One
massive plot of land out in the frigid wasteland of the northern Yukon and
build a vast complex of unnecessarily poorly-designed buildings. There will be
no roads that lead there. No utilities. No central heating. And insufficient
staff to maintain the structure. I’ll then call it, “The Hall of Fame of Bad
Decisions.”
It will be perfect. Because not only will
the hall itself be a bad decision, but anyone who ever attempts to visit it
will clearly be making a bad decision as well.
Inside the hall, we will have exhibits for
all of the worst decisions ever made. There’d be one for that time when Kodak,
despite owning 90% of the market share of the camera industry and inventing the
digital camera, decided not to sell them and went bankrupt as a result.
There will be another for the time when Decca Records passed on signing The Beatles because
they thought “guitar bands are on the way out.” There will be a whole wing for
stupid military leaders who tried to invade Russia. And we’ll have a special
“Tiger Woods” wing where we rotate in/out celebrities who wreck their own careers
by doing something exceedingly dumb.
It’ll be great.
And I guess, while people are there, we’ll
trot out a speaker or two and give seminars on how to not make such
awful choices. They’ll offer some principles on how to make better life
decisions.
Maybe that seminar would go something like
this:
1. UNDERSTAND
VALUE AND BIASES
All tough decisions are essentially
about weighing values. There’s financial value, emotional value, social value, intellectual value, and
so on. You have to consider all of them, weighing them appropriately. And not
just in the short-term, but in the long-term as well.
As a general rule, we are all heavily biased
towards the short-term rewards and towards emotional value. We are biased towards our
pre-existing beliefs and protecting our reputation. And we’re also bad at
seeing long-term rewards clearly because it’s difficult to look past our
immediate fears and anxieties. Our emotions color everything we see.
Our “default” decision-making also makes it
incredibly painful emotionally to give up on something we’ve worked a long time
on, or to consider that we may have been wrong for years.
The fact is, we’ve all been wrong for years. We’re all wrong about
our value estimates. And until we can be honest about how wrong we were in the
past, we won’t learn to make better value judgments moving into the future.
Our “default” decision-making also
encourages us to avoid short-term failures, even if that means missing out on
long-term successes.
No, the sweet spot in decision-making is to
find the short-term failures that enable the huge
long-term successes to happen in the first place. Because this is what most
people are bad at. And because people are bad at it, this is where most of the
opportunity lies…
2. LOSE ON
PURPOSE (SOMETIMES)
Ever hear those stories of wildly successful entrepreneurs and
how they had, like, 23 failed businesses before they made it big?
The lesson we’re all supposed to take from
this is that persistence and hard work is the key to extraordinary success.
And sure, whatever…
Usually, we can’t help but look at them and
think about how “lucky” they got.
I mean, Amazon! Who knew?!
What we don’t consider is that out of those
dozens of failed, half-baked business ideas were all wagers with limited
downside and extremely high upside. That is, if they lose, they lose a little.
But if they win, they win a lot.
Let’s say I gave you a pair of dice and I
told you that if you roll double ones, I’ll give you $10,000. But each roll costs
$100. How many times would you roll?
If you’re not bad at math, you would know
that you should spend all the money you have rolling those damn dice.
Most people look at each decision as a
single roll of the dice. They don’t think about the fact that life is a never-ending sequence of dice rolls. And a strategy
that loses a lot per roll can actually make you a big winner in the long run.
Yes, you will lose the dice game way more
than you win. But when you win, your winnings will far outstrip your losses,
making it a worthwhile wager.
You can apply the same “risky” behavior in
your life to achieve more optimal long-term results:
Propose “moonshot” ideas at work knowing that 90% of
them will get shot down, but also that if one of them gets accepted it
will be a huge boost to your career.
Expose your kids to difficult subjects at an early age,
knowing that most likely they won’t take to it. But if they do, it will
give them a huge advantage throughout their life.
Be
excessively bold in your dating life,
stating exactly who and what you want, knowing that the vast majority of
people will not be compatible.
Buy
a bunch of difficult books expecting
that most of them won’t be useful or comprehensible to you, but also that,
occasionally, one will completely change your life.
Say yes to every invitation knowing that most of the
events/people will be kind of dull and you’ll just go home early, but that
occasionally you’ll meet someone really important or interesting.
When you think purely in terms of the
immediate result, you cut yourself off from the biggest potential gains in
life. And the reason most of us do this is because of our pesky emotions. Our emotions are short-term biased.
They are obsessed with the present moment. And this prevents good
decision-making.
3. TREAT YOUR
EMOTIONS LIKE YOU’D TREAT A DOG
Here’s one thing I’ve noticed over the
years: shitty dogs almost always have shitty owners. The dog’s level of
discipline is reflected in the owner’s emotional maturity and self-discipline.
It’s very rare to see a dog that’s wrecking the house, eating all the toilet
paper and pooping all over the couch and the owner has
their own shit together.
This is because our connections with dogs
are purely emotional. And if we suck at dealing with our own emotions, then
we’ll suck at dealing with our dogs. It’s that simple. If you don’t know how to
limit yourself and tell yourself “no” when necessary, then, well, don’t get a
dog. And if you do, don’t fucking move into my building.
Our emotions are kind of like our dog that’s
living inside our head. We have this part of ourselves that just wants to eat,
sleep, fuck and play, but has no conception of future consequences or risks.
That’s the part of ourselves we need to
train.
Our emotions are important. But they’re also
kind of dumb. They’re not able to think through consequences or consider
multiple factors when acting.
Our emotions overreact to things by design.
They evolved to keep us alive when we were hunting water buffalo on the
savannah and shit like that. When we’re scared we want to run away or hide.
When we’re angry we want to break stuff.
Thankfully, our brains evolved logic and the
ability to consider the past and the future and all that great stuff. That’s
what makes us humans. And not dogs.
The problem is, our “dog brain” is actually
what controls our behavior. You can intellectually know that eating ice cream
for breakfast is a bad idea, but if your dog brain wants fucking ice cream for
breakfast, then that’s ultimately where your body is going to go.
It’s only by training your dog brain with
your people brain, “No, bad Mark, ice cream for breakfast is bad, go do
something else that feels good and is healthy,” that your dog brain
gradually learns.
Do that enough and you have a well-behaved
dog brain.
Emotions are great for giving you that umph
of passion and spirit, the same way a dog is great
for running and fetching stuff and being a great friend and barking when
someone weird is hanging out by your bedroom window.
But the dog is limited. It needs context and
direction to behave well and function. And that’s your job as the dog owner.
Similarly, your dog owner brain must train the dog brain to sit down and shut
up when necessary. You must give yourself context and direction. Train yourself
to adopt the correct habits and make better
decisions. Reward and punish yourself.
Love your dog brain (i.e., love yourself),
accept your dog brain (i.e., accept your emotions), but also discipline them.
And every once in a while, indulge yourself…
that’s a good boy. Yeah, who’s a good boy? Who’s a good boy? Yes, you’re a good boy.
4. OPTIMIZE YOUR
LIFE FOR FEWEST REGRETS
Regret is sometimes called a “rational
emotion” by psychologists. And not really because regret itself makes us more
rational—at least not directly—but rather the way we predictregret is often done
in a rational-looking way.1
In making decisions, we’ll often consider
the options available to us, imagine our future selves after choosing one of
these options, and then try to feel how much regret we experience in this
simulated future state. We then run this simulation again, choosing a different
option, and compare that simulated state of regret/non-regret to the others.
This ability is both a) fucking amazing when
you think about it and b) incredibly useful as long as we use the most accurate
and complete information available to us (by using all the ideas we’re covering
here, of course).
Most of us are afraid of failing or screwing something up. But we
rarely ask, “Would I regret that failure?” If the answer is “no,” then that is
absolutely a risk you should pursue.
Similarly, a lot of us love
envisioning massive success. But
if we ask, “Would I regret never having that success?” usually we find that the
answer is “no.” Only when it’s “yes” should we probably make the sacrifices to
achieve it.
Sometimes, the right decision becomes
crystal clear when put into these terms. Legend has it that Jeff Bezos left his
cushy, high-paying job to start Amazon because it was so obvious to him that
he’d regret it if he got old and didn’t at least try this whole
“internet thing.” Staying at his job, on the other hand, carried a lot of
future regret that was apparently quite palpable for Bezos.
I personally know a lot of people—myself
included—who ultimately made big life decisions largely based on the path of
least regret. These decisions are almost always described as the best decisions
they’ve ever made. Go figure.
Instead of basing your decisions around
success/failure, or happiness/pain, base them around regret avoidance. Our
regrets are usually the best measurement of what is actually valuable to us in
the long-run.
5. WRITE SHIT
DOWN
The best way to help you sort out all of
your emotional drivel from actual decision-making is to write things down.
Writing things down is a simple but powerful
way to clarify everything that’s swirling around in your head. I get emails
from readers all the time with long screeds about the issues in their lives
only to have them say at the end that they don’t need a reply because writing
it all out was so cathartic and revealing for them.
The act of writing forces you to organize
and make concrete all the emotional turbulence swirling around in your brain.
Vague feelings become structured and measured. Your self-contradictions
are laid bare. Rereading what you write reveals your own logic (or lack
thereof). And it often reveals new perspectives you hadn’t considered.
And when it comes to mulling over a
decision, there are a few specific things you can write about to help you if
you’re having difficulties:
What are the costs and benefits? First,
take some time and do a good old-fashioned cost-benefit analysis of your
decision. But don’t just do the old-fashioned “pros” and “cons” list. Add
a couple more columns. Separate your “pros” into both long-term and
short-term. Add a column for regrets associated with each decision. And
note if there is any long-shot potential for success (see Principle #2).
What is your motivation behind the decision and is that a
value you want to cultivate in yourself? All
the decisions we make, big or small, are motivated in some way or another
by our intentions. Sometimes this is very straightforward.
Last night, I was
motivated by hunger to eat something and there was a burrito in front of me, so
I shoveled it into my face hole.
Sometimes it’s not
so straightforward though. Problems arise when our intentions a) aren’t very
clear to us and/or b) conflict with our core values.
For example, are you
buying that car because you would genuinely benefit from owning it, or because
you’re trying to impress the people around you?
Or are you filing
for full custody of your kids because you think it’s truly in their best
interest, or are you trying to get revenge on your ex after finding out they
are dating someone new?
Are you trying
to start a business because
you enjoy the challenges and ups and downs of making your own way, or are you
jealous of your friends that have successful businesses and feel like you don’t quite measure up to them?
If you identify some
ulterior motives when weighing a decision, stop and ask yourself if your
intentions align with who you want to be.
And if you’re asking
yourself, “Well shit, I’ve never thought about who I want to be. What
should I do?” Then I think you should take out a fresh piece of paper and start
writing that down.
For instance, here’s my Horrible Decisions
Hall of Fame Table:
Pros
* It’s funny
* Oh, Canada!
* Get to research celebrities with hookers
Cons
* Expensive
* Lot of work
* Really, really far away
* Joke is only funny for so long
Long-Term
* Illiquid asset
* Seriously, when am I ever going to
travel to this thing?
* For the rest of my life, I’ll be the
“Dumb Hall of Fame” guy.
Potential Regrets
* DOING: Tons, lost time, money, etc.
* NOT DOING: Uhh… none, really.
Rep. Value
* Do I really want to dedicate a huge
portion of my life and legacy to being a clever smart ass? Probably not.
So there you have it. No “Horrible Decision
Hall of Fame.” Why? Because it’s a horrible decision.
HOW TO KNOW WHO YOU REALLY ARE
We all think we know ourselves well, but psychological studies
show otherwise. In fact, most of us are somewhat deluded about ourselves. I put
together a 22-page ebook explaining how we can come to know ourselves better,
just fill out your email in the form.
You’ll also receive updates on new articles, books and other
things I’m working on. You can opt out at any time. See my privacy
policy.
1.Inflation Rolls Back Over….$11 Trillion Globally in Negative Yielding Bonds and Still No Inflation.
The risk of too little inflation
Written by Russ Koesterich, CFA Low inflation may sound appealing, but as Russ explains, it has drawbacks for investors.
By any account the U.S. equity market is having a stellar year. Stocks have benefited from easier financial conditions, which have in turn pushed up market multiples. By a happy coincidence, gains in market multiples have exactly matched the 15% gain in the S&P 500 Index.
But while stocks have benefited from cheap money and higher multiples, they have more recently been constrained by concerns over growth. The challenge is that the same slowdown that led the Federal Reserve to pivot and stop raising rates also puts earnings at risk. Recent developments in the inflation-linked bond market (i.e., Treasury Inflation Protected Securities, or TIPS) suggest that investors are right to be a bit more cautious.
Inflation expectations embedded in the TIPS market are signaling that already low inflation will fall even lower. In late April, the 10-year TIPS breakeven (BE), i.e. the amount of inflation TIPS investors expect during the next decade, was about 1.95%. Today, the 10-year BE is below 1.70%. The outlook for the next five years is even softer, roughly 1.50%. And while inflation expectations are higher using different market measures, such as inflation swaps, the direction is still down (see Chart 1).
