Articles for the week ending in October 10th of 2009
I have a neutral stance towards Barack Obama but giving him the Nobel Peace Prize must be the biggest joke of all time :( Grr... can't believe the Nobel committee couldn't find someone more worthy. The Peace Prize is always controversial, partly because political opponents, epsecially warmongers, never approve of anyone, but this is a low for the Nobel committee. Obama has done very little for world peace. You could run through magazines or newspapers and find dozens who are far more worthy.
Anyway, I haven't spent much time lately on investing due to my job search. I read stuff on the commute home but haven't followed the market very closely or done any research on potential investments. The most important development appears to be the decline of the US$. The US$ index is back to what it was last year. This is going to cause problems for me because my portfolio is mostly in US$-denominated assets. So even though US stocks are rallying, it is fictitious gains to me. However, I'm more optimistic on the US$ long-term so I'm not so concerned in the long run.
The surprise of the week was the Austrialian government raising rates early in the week. I remember thinking that Hugh Hendry suggested that rates wouldn't go up but they just did. I wonder if his position blew up or not.
Here are some articles that may interest you... skip my rant about my job hunting if you not interested...
Sort of a Rant About My Job Search (skip if not interested)
Job hunting is always frustrating and emotional for me. It's like all the emotions critical to a play or a drama compressed into a short period of time: constant happiness (when you find a position and apply, thinking how great it will be for you :) ... followed by constant tragedy (when you don't even get a call) :( It's even more dissapointing when I'm supposedly in an area (data analysis, statistics-oriented with business focus) with good demand. In any case, I did make the following observations and they are not good.
Canada is somewhat similar to America when it comes to the structure of the economy and certain types of jobs. It's not a pretty sight, in my eyes, when most of the openings for data analysis jobs (for somewhat young people like me--these are junior to mid-level jobs) are in marketing of financial products or something that depends on debt. For instance, I see quite a number of openings for credit card analysis and the like. Admittedly a big chunk of Toronto's economy is dependent on banks—the biggest 5 banks in Canada are in Toronto—but it is kind of sad when you see companies in telecommunications, hardware, and the like depend on debt so much. It's possible that these are trashy jobs that no one wants to do and hence is publicly posted (people in other jobs don't leave their good jobs) but it's not clear.
You would think that companies would be more interested in analyzing potential customers in foreign countries, or even locals that don't depend on debt to finance their purchases, yet that isn't necessarily the case. Canada, or USA, is not going to go very far if quite a number of the quantitative jobs are being created to increase purchases by consumers who depend on debt. Ideally, you should try to sell some (tradeable) good to foreigners who actually have cash.
Another negative thing is that job creation is mostly due to the government. At least this is the case in Canada, which is showing pretty good numbers. As anyone that has looked at long-term history knows, government is needed to provide some services but it doesn't create wealth. This is ok for the time being but, ideally, we need private sector job creation.
Anyway, I haven't spent much time lately on investing due to my job search. I read stuff on the commute home but haven't followed the market very closely or done any research on potential investments. The most important development appears to be the decline of the US$. The US$ index is back to what it was last year. This is going to cause problems for me because my portfolio is mostly in US$-denominated assets. So even though US stocks are rallying, it is fictitious gains to me. However, I'm more optimistic on the US$ long-term so I'm not so concerned in the long run.
The surprise of the week was the Austrialian government raising rates early in the week. I remember thinking that Hugh Hendry suggested that rates wouldn't go up but they just did. I wonder if his position blew up or not.
Here are some articles that may interest you... skip my rant about my job hunting if you not interested...
Sort of a Rant About My Job Search (skip if not interested)
Job hunting is always frustrating and emotional for me. It's like all the emotions critical to a play or a drama compressed into a short period of time: constant happiness (when you find a position and apply, thinking how great it will be for you :) ... followed by constant tragedy (when you don't even get a call) :( It's even more dissapointing when I'm supposedly in an area (data analysis, statistics-oriented with business focus) with good demand. In any case, I did make the following observations and they are not good.
Canada is somewhat similar to America when it comes to the structure of the economy and certain types of jobs. It's not a pretty sight, in my eyes, when most of the openings for data analysis jobs (for somewhat young people like me--these are junior to mid-level jobs) are in marketing of financial products or something that depends on debt. For instance, I see quite a number of openings for credit card analysis and the like. Admittedly a big chunk of Toronto's economy is dependent on banks—the biggest 5 banks in Canada are in Toronto—but it is kind of sad when you see companies in telecommunications, hardware, and the like depend on debt so much. It's possible that these are trashy jobs that no one wants to do and hence is publicly posted (people in other jobs don't leave their good jobs) but it's not clear.
You would think that companies would be more interested in analyzing potential customers in foreign countries, or even locals that don't depend on debt to finance their purchases, yet that isn't necessarily the case. Canada, or USA, is not going to go very far if quite a number of the quantitative jobs are being created to increase purchases by consumers who depend on debt. Ideally, you should try to sell some (tradeable) good to foreigners who actually have cash.
Another negative thing is that job creation is mostly due to the government. At least this is the case in Canada, which is showing pretty good numbers. As anyone that has looked at long-term history knows, government is needed to provide some services but it doesn't create wealth. This is ok for the time being but, ideally, we need private sector job creation.
- A lost decade for youth? (BusinessWeek): Alan Greenspan, who is over-rated when it comes to finance or understanding capital markets, is actually pretty good on other economic topics. He recently remarked that human capital is being destroyed on a massive scale and although he wasn't talking about younger workers specificially, I think it applies quite well to the younger population. The minimum wage hike recently won't help but that's a minor cause of the present situation. Some may argue that gloomy stories always come out during every recession but it's hard to dismiss a fact such as the one mentioned in the article that the percentage aged 16-24 with jobs in September was the lowest since at least 1948 (when records began.)
- Netflix CEO says DVD won't be primary delivery method after 2 years (The Working Guy @ Yahoo! Tech): Anyone investing in movie studios better be sure of the business model at their companies. We know how badly newspapers, music labels, and magazines are doing. DVD sales are down and movie studios are apparently struggling. The Netflix CEO implies that streaming may displace the DVD (the CEO doesn't really say what will replace DVDs but I think he is implying streaming.) In my opinion, the key thing to remember with these big macro shifts is, not that the industry will die off, but, rather, that the profitability will change. In other words, people are not going to stop watching movies no more than they are going to stop listening to music. However, the profitability of certain businesses will be drastically different.
- Short-term thinking of investors (The Economist): The Economist is going to start restricting its free articles and it's going to suck for a cheap guy like me but oh well... Here is a story on Carrefour that illustrates how some investors appear to be very short-term-oriented, possibly to the detrimental of long-term growth. Carrefour, the 2nd largest supermarket chain in the world, has established operations in China and Brazil. But a private equity shop and a major shareholder are pushing for Carrefour to unload its Chinese and Brazilian operations in order to pay out a special dividend and retire some debt. Unlike typical restructurings, the concern is not that the foreign operations are performing poorly. In the short term, that appears to generate profit for shareholders but you are giving up future potential. Some people are going to hate me for saying this but I feel some of what William Ackman does is similar to what is happening here. Ackman is obviously 1000x better an investor than me but I just shake my head at some of his proposals. For instance, the attempt to get Target, a successful retailer in America, to monetize its real estate while taking on very long-term liabilities (in the form of future rent payments) seems very short-sighted to me. Such a strategy is more appropriate for a declining retailer like, say, Sears, but not a leading one like Target.
- (Recommended for contrarians) One investor's thoughts on investing in turnarounds & a look at Eastman Kodak (Variant Perceptions): A nice, new, blog started by PlanMaestro that deals with deep analysis of various contrarian-type investments. There are some detailed analysis of the oil & gas industry so commodity investors may want to read some of his older posts. Anyway, the linked blog entries pertain to turnaround investing. If you are a contrarian investor, you should check out those posts. Investing in distressed companies is really tough and it goes to the heart of contrarian investing. But all investing is tough. I mean, I look at classic value investors putting their money in Graham-type companies and I always think they are the riskiests, worst, most-fraud-prone, companies out there. So it's all in the eye of the beholder... It's interesting that Kodak is covered because I have had that on my watchlist for more than an year now. I "gave up" on Kodak because its brand didn't seem strong anymore and its balance sheet looked vulnerable. Kodak restructured the debt recently—shareholders paid for it, although it appears to have been priced in many months ago—so its financial strength is likely much better right now.
- (Highly Recommended) Book Excerpt of Too Big to Fail (Also check out this interview with the author, Andrew Ross Sorkin) (Vanity Fair; h/t anonymous poster at Naked Capitalism): I don't usually read new books because I am so far behind on reading the classics and am generally drowning in information. But this excerpt makes me want to read the up-coming book by New York Times reporter, Andrew Ross Sorkin, Too Big to Fail. As someone who witnessed the financial chaos on a daily basis, admittedly from the outside, and even ended up losing a big chunk of his net worth due to a disastrous bet, it's a big part of my life. I have read 'financial-historical' books in the past, such as When Genius Failed by Roger Lowenstein (a recommended book in the same genre) but it never touched me. When emerging market government defaulted on their bonds in 1997, you never knew what it really meant or how it felt. In contrast, when John Mack of Morgan Stanley says, "Tell him to get fucked. I’m trying to save my firm." I know exactly what that means. It's amazing that Morgan Stanley survived. Too Big to Fail looks like it might be finance book of the year.
- (Recommended) The bull case for China (The Economist): An insightful article that argues that China is not in as risky a state as the bears claim. There were some facts that I never knew of before. For instance, BCA Research's estimation on the efficiency of capital usage in China implies that capital efficiency is much better than I had believed. Other articles I have read before suggested that capital usage is very poor in China, with many businesses not even earning their cost of capital. I am still skeptical but it's very hard to be confident making a call on this. Among other problems, a big one in China is that the numbers are unreliable. If GDP is more on the fictitious side as some bears claim—in a Madoff-like sense, China's GDP numbers are very smooth and don't fluctuate much, even when everything else is falling apart (in nature, and certainly a social science like economics, it is rare to see something like that)—then using a formula with GDP as an input will throw off everything. Conversely, on the bullish side, corporate profits may appear low but it is possible that they are purposely understated to avoid taxes (and pay off criminals, bribes, etc.) Just like how the unemployment rate in some undeveloped countries looks large when in fact that is simply because the black and grey markets, which tend to be large in those countries, aren't properly counted.
- Don't ever forget that financial assets depend on the real economy (Buttonwood @ The Economist): A subtle point that is missed in the short and medium terms. It's easy to get caught up in market fluctuations but ultimately, the value of financial assets depend on the underlying asset.
- Are you born cheap? Is that something you inherit? (New York magazine): None of the articles from New York ever print properly :( but anyway, this is an interesting article on whether people are born cheap. It isnt' a scientific study so who knows what the reality is but it is interesting. If being cheap, or cost-conscious, is intrinsic then it may have impact on investing. Certain investment strategies, such as value investing, probably requires one to be cost-conscious. Quite a number of successful value investors are naturally cheap. Of course, the environment does impact the person, with many growing up in depressions or poor countries, being very cost-conscious. But of the two, the environment or genes, which is more dominant?
- Why is capitalism crash-prone? (New Yorker): I haven't read this article yet but it looked interesting so thought some of you may want to check it out.
- (Not Related to Investing) Lehman Brothers art to be auctioned off (Fortune): I have never purchased a painting in my life but anyone into it, and living in New York, may want to check out this art auction. It includes some items from Lehman Brothers. You can get the online catalogue here and the PDF file here. Art is subjective but quickly flipping through the catalogue, I see some stock-market-related paintings in there. Most of them, though, are about New York City. The best one is probably the one mentioned in the Fortune article, I Love Liberty by Roy Lichtenstein, an artist I actually like quite a bit.
- (Not Related to Investing) Paintings Barack Obama is hanging at the White House (New Yorker): I don't get the impression that Barack Obama is into art, but I don't know much about him. But even if his selections were art-for-art's-sake, it sort of symbolizes and presents an element of the person. Similar to how the color of clothes may indicate something about the person—some will never flashy clothes in bright colours even if they didn't consciously avoid those colours—the selection of art, music, etc, also indicates some subconscious aspect of a person.
Interesting notes on the job search rant. I'm wondering if you enjoy researching companies as potential investments, if your data skills can land you a job in equity analysis. This is the route I may take since I'm in an engineering profession. Unfortunately, my macro view is that the finance sector(dealing with capital markets) will be in years of consolidating.
ReplyDeleteMy background is also in engineering (computer), although my current job is data analysis (more statistics.) Some equity research role would be interesting but here is my current thinking on that:
ReplyDeleteI have thought about finance--not just now but when I graduated from university (I did some 5 yr engineering & management program so I essentially took all the core business courses)--but I have some concerns. I don't want to kill your motivation but I don't know if I'm a good fit. The problem with most investment jobs is that, quit frankly, they are sales jobs. If you have good interpersonal skills and favour client relations, then that is good for you. In fact, you could make more money than almost any other profession. Otherwise, I'm not so sure.
Even for an equity analyst, they have to handle a lot of client relations. I don't mean just dealing with questions about your research (this is ok and analysts should be prepared to answer), but actually selling your research to others. This is definitely the case with smaller firms, who can't subsidize equity research off investment banking or banking services like large firms can. If you listen to mutual fund managers, some of they say they spend as much as 40% of their time dealing with clients, going on the road, and so on. I'm not saying everyone is like this but that's kind of how it is. Even Warren Buffett spent some time trying to get people to give him money to manage (after he went back to Omaha to strike out on his own.) I don't mind dealing with potential clients but I am not good at selling of any sort :(
On top of all this, as you point out, the financial sector may be entering long-term stagnation. Right now one also has to compete against all the laid off financial professionals over the last couple of years, so it'll be tough to break in. This actually isn't the case in Canada, which didn't face a financial crisis, but it definitely is the case in America--a week doesn't go by when I don't read some laid off finance professional struggling to get a job.
My ideal goal is to break, not into finace or equity research or the like, but into so-called market intelligence, business intelligence, market research, and the like (I'm using these vague terms purposely because it is really a broad area). In these areas, you are not necessarily looking at it from an investor's point of view but from a firm's strategic point of view. These areas also mean that you are not limited to the financial services sector and can literally work in any industry. This is more easier for me since my current experience is more in-line; but it is also something that interests me more.
ReplyDeleteMy favourite courses when taking business in university (it was a minor) were not in finance, although I liked that a lot as well, but, rather, corporate strategy. This is a broad area and entails activities such as analyzing competitors, figuring out what new products to introduce, and so on. Unfortunately such jobs are senior (sometimes requiring MBA but often requiring 15+ years of experience) and one really won't get to work on such tasks. However, I think if I can break into something like "market research," I can gain a lot of knowledge and possibly work on more strategic projects.
So-called "market research" sort of overlaps with "equity research" and both can be good for people like me. Some people don't like market research jobs because they are more marketing-oriented and often not as prestigious as those of financial analysts. But, nevertheless, it may be a good stepping stone for me.
We'll see what happens... The ironic thing is that policymakers, executives, think tanks, etc, keep saying they want business-oriented individuals with quantitative skills but it's virtually impossible to get an interview, even for a junior/intermediate position.
Thanks for sharing! As for me, I'm applying for an MBA and from there will decide which route to take. I have decided whatever I do, wether its being a consultant or an analyst, I'd like to have as much exposure to the BRIC(maybe not russia) markets as possible, since I think that they will be more prosperous in the next 20 years. I've only taken a few econ classes and feel that an MBA would help in getting potential oppurtunities whether in the financial sector or working at a company. I have a few friends that are in management consulting that work on business intellegence, pricing, analysis etc. working to provide reccomendations to the management of companies and they seem to enjoy the work. I just recently found out how a lot of corporations kind of make business decisions using IT services and then excel modeling (basically using DCF with hundreds of inputs on anything you can imagine through customized SAP software) to create pricing modles, monitor inventories..etc.
ReplyDeleteI like the notion of trading/investing because(it is enjoyable/fun to me to do reserach on potential investments and it is a skill that can be transfered as well). While the idea of client relations is not too bothersome to me, corporate bureaucracy is. Good luck with the search.
Here are my thoughts on what you said. Do note that I don't have experience in everything that is discussed and everything I say should be construed as opinion or speculation about the future...
ReplyDelete" As for me, I'm applying for an MBA and from there will decide which route to take. I have decided whatever I do, wether its being a consultant or an analyst, I'd like to have as much exposure to the BRIC(maybe not russia) markets as possible, since I think that they will be more prosperous in the next 20 years. I've only taken a few econ classes and feel that an MBA would help in getting potential oppurtunities whether in the financial sector or working at a company."
Are you currently in School or working? I think the usefulness of an MBA depends on many things, including how good of a school you can get into, how much it costs, what your future goals are, and so on. Ideally, you should think about what area you would like to focus. You can do this afterwards but it helps if you think about it early. I never did my MBA but did think about it when I was about to graduate from school, and also thought about it recently.
You were bearish on the financial industry from a macro point of view, so, if that comes true, do keep in mind that there may be a surplus of MBA-caliber workers in finance. By the time you graduate, the situation would improve but it may still be somewhat tough.
I graduated with a computer degree in early 2000's and the computer industry was essentially in a depression. My career was completely fucked and I never really got into any decent company or areas that fit my skills and capabilities. Even to this day, this makes it difficult for me. The computer industry was essentially shedding jobs for the first 3 or 4 years of the decade. I'm not predicting the same thing in business or for MBAs in general, but some areas of finance may be in a depression for a while.
I think international exposure, whether BRIC or not, will be a big asset. The world is more globalized and even if you dont' get a great job right away, your international exposure will help you in the long run.
" I have a few friends that are in management consulting that work on business intellegence, pricing, analysis etc. working to provide reccomendations to the management of companies and they seem to enjoy the work. I just recently found out how a lot of corporations kind of make business decisions using IT services and then excel modeling (basically using DCF with hundreds of inputs on anything you can imagine through customized SAP software) to create pricing modles, monitor inventories..etc. "
ReplyDeleteI'm somewhat familiar with what you have described. The biggest boom in the technology industry is probably in the so-called business intelligence field. This is what you are referring to and most of the job postings I see are in those fields. There are probably 5x more jobs in, say, designing and deploying SAP enterprise systems than, say, software development (in C++/C#/Java/etc.) I am sort of on the periphery of this area, being more on the analytics side, but it is something that is very prevalent. Unfortunately, I don't have exposure to the enterprise systems or enough design/development so it doesn't help my job prospects :(
I think the business intelligence field is attractive from a job point of view because they are pure engineering/business analysis jobs and can't be outsourced easily. One of the problems for workers in developed countries is that you are literally competing with cheaper labour locations. So this area is more secure.
"I like the notion of trading/investing because(it is enjoyable/fun to me to do reserach on potential investments and it is a skill that can be transfered as well). While the idea of client relations is not too bothersome to me, corporate bureaucracy is."
ReplyDeleteOne thing to keep in mind is that investing for fun is very different from managing other people's money. If you do poorly for a few months or even an year with your portfolio, it's fine. But life will be difficult if you doing it professionally.
I agree with you that investing skills are transferable. In fact, as you quoted of Buffett, you will be a better manager if you knew investing, and vice versa. At worst, you may also learn some economics and be aware of the political and social environment.
Yes, currently I am working in software but plan on applying for next years admissions. I am quite cautious on the value/worth of an MBA if its not from a top school or does not have good recruiters. Basically there has been an oversupply of MBA students in the job market and now MBA grads are having to find alternative career paths that arent in Finance or Consulting. I think its would be useful to me since I havent taken a lot of business courses and it would help me break into a particular field. The other concern I have is with the cost of the MBA, people cannot possibly repay all that tuition without having a big six-figure salary(which is now under pressure unless you work at Goldman Sachs). Even with all my bearishness, I am still considering doing it because I think that a business education would be useful in the next 20-30 years, not perhaps the next 5. I am not nessecarily bent on getting a finance job as an analyst but if you think about the things that analyst's do, there are many business jobs that can fit into that category(management consulting, business developent, coporate strategy etc.) I would prefer equity analysis because that is probably more interesting to me, but one has to have a fairly open mind in the worst collapse in the past 70 years. Either way, companies choose to make investments all of the time through buyouts, investments in new technologies..etc. so being part of that process would be really interesting as well. I am looking at things from an extremely macro point of view, and as of now cannot really tell what sector I'd really be interested in. I agree with you that investing others money is a completely different and if returns are not very good in for 1 or 2 years, one would probably face extreme scrutiny. The problem however is that for a lot of ideas to work out, it takes at least 1 or 2 years. Convicing your partners and investors of this is the hard part. This is different than a hedge fund that is trading all day, which is not something I am particularly interested in.
ReplyDeleteGood luck with your future endeavours and all the best to you... I agree with you that, regardless of near term outcomes, having a business education of some sort will help you in the long run.
ReplyDelete