Let Me Buy A Car Online

December 14, 2013 Leave a comment

I want to buy a particular car but the nearest dealership is in Perth, Western Australia. That’s 300 km’s away from where I live.

I know the car, model, colour, interior options, wheels and engine configuration that I want.

I did a lot of things online. I searched for it online, compared it to other cars and I even “built” my preferred vehicle on the manufacturers website.
BUT, I couldn’t buy it online.

Nope, I need to go into a dealership and buy it from them, which in turn means that I pay for their selling margin, sales persons commission, their overheads, dealer delivery costs and my time and fuel to get there and back.

The dealer adds little value, other than allowing me to test drive it. I don’t need you to “listen” to me. I have already researched it, answered my own questions and made a decision, all online.

I could probably organise finance online and have it delivered to me too? (With free floor mats thrown in)

Just like the financial services industry, unless you add value, give advice and perhaps make me some money (unlikely from a car dealers perspective), price is questioned in the absence of value.

You see, I no longer need to go to a record shop and ask the person behind the counter, what is the new hot album. Spotify and others already tell me this.

Tesla currently let’s me one of their cars online. All I have to do is click, “Buy Now”. I only wish they would deliver to Australia.

What other industries could be affected, that may allow me to Buy Now, without dealing with a sales rep?
Real Estate selling and rental agents?

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The sludge is deep out there

December 8, 2013 Leave a comment

Every now and then, I enjoy having a “double-take” at financial news articles and seeing what’s behind the story, while I “try to hear what’s not being said”, or perhaps, not being written.

Many financial news articles are designed to mislead and frighten and some of them are just worryingly funny.

Some of the stuff I have seen in only the past couple days include:

“Australian Dollar falls for the sixth straight week, its longest since 1985”. Holy cow!, makes it sounds like the Aussie has fallen below 55 cents. Another journalist writes, “and it looks set to extend its decline into the seventh week”. How does she know this?

“CEO celebrates their stock price rising 40% on day of IPO”. So either your bankers did a bad job valuing your business, you did a bad job representing your pre-IPO shareholders or you have incentives tied to the performance of the stock’s public price.

Qantas CEO cries foul over uneven playing field compared to Virgin’s ability to raise capital. Seriously! I wonder what Ansett or anyone else who has tried to compete against QF think.

As CEO of Woolworths nears his retirement, the ownership of their “poker-machine business does weigh on his conscience.” OK, Grant. You’ll get by, I’m sure.

If clients only knew of the lack of investing experience and competence possessed by “Chief Investment Officer’s” that are hired at certain brokerage and investment houses

Fund Managers tell the public that they should be investing overseas (outside of Australia) because it’s apparently not practical and too difficult to be a direct share investor in international equities. No, it’s not. I’ve been doing it directly for myself and clients for over 20 years. Amazingly, these comments from a fund manager happens to coincide whenever they launch their first international (product) fund.

For those who only wish to hear what they want to hear, this post is not a gripe nor soured with grapes. It’s meant to alert people to the bullshit they are fed in the financial press.

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How To Go From Sinophile to Sinophobia – Ask Australia

November 14, 2013 Leave a comment

A country’s Foreign Affairs  isn’t only about setting policy but you need to understand economics in order to achieve your diplomatic objective.

Having a few politicians who are certified Sinophiles isn’t an automatic pass either.

Unfortunately, politicians and their advisors often aren’t financially literate let alone considered to be business people and because of this, they fail to understand how to deal with other countries over the length of many economic cycles.

In Australia’s case, it was the only large developed economy to survive the 2008 Global Financial Crisis. The fact that it has hasn’t posted a year with negative economic growth for 22 years in another anomaly.

Over the past 10 years, Australia’s economy benefitted from China’s appetite for its commodity resources (see China’s stimulus) and we loved them for it but after a while Aussies weren’t happy with what panned out, as the social and financial divide was then blamed on a “Two-Speed” economy.

When a large trading partner saves your economy, you say “Thank You”.

You don’t;

  1. antagonise them by placing U.S. Marines in Darwin and lie about the real reason they are there.
  2. call them dirty polluters (even though you have been one for a 100 years before them)
  3. revile the fact that their students come to Australia to study and “take away places from Aussie students”.
  4. ban their large telecomm networking company from participating in the construction of your own National Broadband Network
  5. obstruct and oppose their companies from buying assets (farms) from a willing seller in a free market enterprise system &
  6. charge their citizens more tax if they choose to buy property in Australia.

Oh Australia, you just don’t get it.

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How The Economic Machine Works by Ray Dalio

October 8, 2013 Leave a comment

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Price charts don’t tell the whole story

September 17, 2013 3 Comments

Towards the end of calendar year 2007, the stock price of Australian rail & port operator, Asciano (AIO) was trading at $18 per share giving it a market cap of A$4.9 billion and it’s Enterprise Value (market cap plus debt and minus its cash) was A$8.97 billion. They were also near reporting a financial year EBITDA of A$626 million.

Six months earlier, the company had listed on the Australian Stock Exchange and was trading around $25 per share.

Today, the stock price is $5.80 and its market capitalisation is A$5.65 billion and the Enterprise Value is A$8.75 billion. Both figures are near or higher than the values seen at the end of 2007.

Incidentally, its 2013 Financial Year EBITDA was $911 million.

After seeing its stock price fall by more than 70%, how can this company’s worth be higher than its 2007 level?

Asciano now has a float of 975 million shares.

So, we take the 975 million shares and multiply it by $5.80 per share to equal $5.65 billion of Market Capitalisation.

Back in 2007, AIO has 273 million shares on issue which when multiplied by its $18 share price gave it a market cap of A$4.9 billion.

The difference being, Asciano has quadrupled the amount of shares on issue over the past 5 years.

This highlights one example of where you need to do your homework when understanding a company’s value rather than simply looking at a price chart.

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Wi-Fi access in aircraft – Poll

August 21, 2013 2 Comments

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Price Is A Problem In The Absence Of Value

August 16, 2013 Leave a comment

The CEO of AMP is resigning, so I had a look at how the stock price has performed under his tenure.

Since being CEO, AMP’s stock has fallen 7% compared to the ASX 200 Index, which has risen 168% over that same time.

Hmmm……

BHP’s recently retired CEO oversaw a total stock return of negative 17% while the benchmark index broke even.

Qantas’ current CEO can brag that his company’s stock price has declined 46% during his watch vs. the index return of + 55%.

Myer’s stock price has left shareholders 14% poorer (and I am counting dividends)  under the current steward but the index has climbed 28% over the same time period.

English: Why Pay More?, No. 112 The High Stree...

But I can hear the cries already. They’re in a tough industry, it’s cyclical, they inherited a bad egg from the previous boss, it’s competitive and margins are tight.

Perhaps the board is equally to blame for poor stock price performance as much the management team that is charged to execute the strategy?

To contrast, the current ANZ’s boss has presided over a 42% total stock return whilst the index fell 3%, Westpac’s stock performance has been an impressive 90%, which handsomely beats the 15% return that the index managed and last of all, had you owned that boring old power utility, AGL when their present CEO took over, your total return is 55% versus the ASX 200’s negative 3%.

Some commentators talk about what legacy a departing CEO has left or the systems they put into place.

Whilst they are being rewarded handsomely (which I don’t object to), shareholders rewards should be somewhat aligned.

Don’t even get me started on their “golden handshake” severance pay.

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Can Qantas stock take-off ?

August 11, 2013 Leave a comment

Qantas 767 after take off

Qantas CEO, Alan Joyce’s recent address at an industry event didn’t give me any incentive to keep digging through the company’s numbers to determine whether the business was worthy of investment.

Mr Joyce’s used the upcoming Australian election as a reason for the conservatism in spending money on flights but once the election is over, he “hopes” confidence will be restored.

The industry in Australia has had extra capacity and this has slowly fallen, yet Mr  Joyce says that they will not rule out adding capacity to the domestic market, basically in order to help them increase their market share. ???&$Y*@#$*@#!)

In a domestic market that is practically a duopoly and where international flights are inter-continental and wrapped up in code shares agreement together with the cost cutting measures conducted over the past few years such as self check-in and outsourcing of maintenance, Qantas still can’t post a net profit.

In fact, Qantas’ stock price has declined 46% since Mr Joyce took over in November 2008, compared to the ASX 200 Index rising 55% over the same time.

Maybe Qantas is a stock worth looking at, after all. Comparing its current valuations to other airlines isn’t inspiring but with a stock price nearing its all-time low, you may need to look at it from the perspective of where the company and it’s figures are going to be, rather than where it currently is.

To start with, imagine what the stock price would do, if Mr Joyce was replaced?

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The Coming Slaughter of the Yield Pigs

August 7, 2013 Leave a comment

Dollar in Piggy Bank

Major Australian banks have again raised billions of dollars by issuing debt.

In some instances, the issuer of the debt isn’t the parent company and in cases where it is, investors should wonder why do the most creditworthy banks in the world need to offer 300 basis points (or greater) above their benchmark rate, in order to attract investors?

Perhaps it’s because the debt is perpetual, its pays non-cumulative distributions, its unsecured and subordinated

Other questions to ask include; what is the credit rating of the debt, is if the credit rating of the debt is different to the issuer, when does the debt mature, can it be “called” or “converted”, are distributions franked, am I being paid fairly or enough for the risk I am taking or perhaps simply, does this investment benefit you or are the odds stacked towards the “house”.

I also question whether I should buy it at “par” rather than a discount.

Sadly, many Australian retail investors don’t possess the required skill and knowledge to analyse debt investments.

In turn, they often aren’t receiving objective advice,. Instead, they are often being “sold” the investment rather than being advised whether it’s appropriate for their portfolio.

There has been plenty of debt on offer, so I ask myself, why should I buy something that has ample supply?

The genius behind the banks decision is to raise capital when they don’t particularly need it and they do so when their costs (or the rates they offer) are cheap.

Australian interest rates are now at record lows with the current Reserve Bank rate sitting at 2.5%.

With the pendulum at an extreme, there is greater probability that interest rates triple in the next 10 years before they move to 1%.

Are these investors buying something at the wrong end of the cycle?

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Corn on 3 year lows

August 5, 2013 Leave a comment

English: Very First Corn Flakes Package: http:...

Very First Corn Flakes Package

Due to an expected record U.S. harvest, the price of corn has fallen to levels last seen in 2010 and at prices also seen in 2008.

What a contrast when compared to the spike in prices during the 2012 drought.

The price of corn has now fallen (on a weekly basis) at least 2 standard deviations below its mean on a weekly and monthly basis which covers the past 20 years.

When I look at its price on a quarterly basis, corn have reverted to its rolling mean over a 40 year period.

Supply must have increased significantly but our work suggests that demand remains steady, if not slightly higher, especially when accounting for animal feed usage.

The decline in price over the past 12 months has helped the share prices of companies such as Gruma (Mexican tortilla maker), Pepsi and Kellogg, while share prices of other beverage companies, namely Coca Cola have lagged their peers and index considerably.

Did you know that corn is used as a sweetening alternative to sugar in many drinks and many foods in the form of High Fructose Corn Syrup or HFCS.

If we look to buy some actual corn itself, its current price is $4.74 per (generic) contract renders it oversold, whilst support may be found 7-9% lower surrounding the $4.30 level but let’s not split husks over it.

Further reading: Litchfield, Ruth (2008). High Fructose Corn Syrup—How sweet it is. Ames, IA: Iowa State University Extension and Outreach. Retrieved 1 March 2013.

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