Topley’s Top Ten – November 6, 2019

Author

Matt Topley
November 06, 2019

1.International Exposure and Earnings

Mon,Nov 4, 2019

As earnings continue to roll in this earnings season, one interesting dynamic has been the contrast between the beat rates of companies based upon the share of revenues that come from abroad versus the US. Using data from our International Revenues Database to gauge international exposure and our Earnings Explorer to get third-quarter earnings results, so far this earnings season, the beat rates for companies with more than half of their revenues generated within US borders have held up much better than those with a majority of revenues coming from abroad. Heading into this week, 74.3% of companies with a greater domestic focus have reported EPS above analyst forecasts while only two-thirds of those with a more international focus have beaten estimates.  That is a shift from what has typically happened so far in 2019 and illustrates the impact that the strong dollar has had on results.  As shown in the chart below, the current picture is nearly the exact opposite of where things stood a year ago when more than 74% of internationals were reporting EPS above analyst estimates.  In regards to sales, although companies with domestic heavy revenues have generally seen higher beat rates, the spread between domestics and internationals has widened to more than 5 percentage points this quarter.

While this could be a result of multiple factors ranging from analysts potentially overestimating global demand to trade, the dollar is also likely a key factor.  For large-cap US companies which often have multi-national exposure, movements in the currency markets often have large impacts on corporate results.  For that reason, it’s extremely important for investors to know where the companies they own have the greatest exposure.  One great tool to track revenue exposure is our International Revenues Database.  If you don’t already have access, start a two-week free trial to Bespoke Institutional to unlock access to all of our interactive tools today!

©2019 BespokeInvestment Group

2.Stocks Yielding More Than Bonds.

3.Bitcoin Whale…Pre Regulation and Futures Markets.

Back in late 2017 when bitcoin spiked to nearly $20,000 seemingly overnight, we felt like Ice-T trying to bag a perp: Was it Adam Smith’s ghost, or something more mischievous? We’ll take something more mischievous. A new study in the Journal of Finance suggests 2017’s price surge was the doing of an unknown manipulator operating from a single account at Bitfinex, then the largest crypto exchange.

The nitty-gritty: The study’s finance professor authors argue the so-called whale used a dollar-pegged cryptocurrency called tether to ratchet up demand for bitcoin when bitcoin fell below certain price thresholds. That misconduct may have led to this:

4.Netflix shares have surged 23,000% since the turn of the century, but that’s nothing compared with the top performer

If you had invested $100 at the beginning of this century in shares of Netflix NFLX, -1.79%, your position would be worth more than $23,000 today.

Not bad… for second best.

Cost-estimatingwebsite HowMuch.net took a look at some of the hottest stocks of the 21stcentury and found that, while the streaming giant has, indeed, enriched itsshareholders, Monster Beverage MNST, +0.92% dominatesthe competition in terms of returns over the past two decades.

Yes, the energy drink maker.

So what’s$100 in Monster stock worth, as of October 22? Try a cool $62,444. As you cansee from this chart, no other S&P SPX, +0.01% stock comesclose.

Netflixisn’t the only FAANG stock making the grade. Apple’s AAPL, +0.22% $100 would have turnedinto $7,416. Having two tech juggernauts like that in the top 10 is nosurprise, but how about Equinix EQIX, -2.52% and TractorSupply TSCO, +0.55% in the third and fourthspots, while Berkshire Hathaway BRK.A, +1.54% and Walmart WMT, +1.22% didn’t even make thecut?

As for Monster, the stock’s fierce rally in the face of anincreasingly crowded energy drink market has been propelled for years by asteady diet of earnings and revenue growth. Shares hit a bump in the roadearlier this year but have since recovered and are up more than 15% since thestart of 2019.

The company reports quarterly results Thursday.

5.Middle Market Leverage Climbs to All-Time Highs.

PIMCO

The tipping point: What’s different this time?

Increasedcredit risk

Manyinvestors evaluate the magnitude of distressed opportunities by drawingcomparisons with previous cycles. The current market offers dramaticcomparisons with the period before the global financial crisis in 2008−2009(see Figure 1).

Theleverage profile of middle-market companies has risen dramatically over thepast few years and indicates the vulnerability of these companies to anyinterruption in earnings growth, whether from customer loss, commodity pricepressure, regulatory changes, or management changes − allof which are idiosyncratic headwinds independent of any broader marketdownturn. Of note, reported leverage multiples would be significantly higher ifnot for the growing practice among companies to include “proforma earningsadjustments” that reflect increased earnings and improved credit profiles atthe time of their debt issuance (see Figure 2).

Kaveh Waddell16 hours ago

A proposal for $100 billionin new funding for fundamental AI research is circulating Congress withbipartisan support, Senate Minority Leader Chuck Schumer said Tuesday.

Why itmatters: Without a big increase in money for AI research, expertssay, the U.S. is liable to fall behind fast-moving adversaries like China oncritical emerging tech.

The bigpicture: The White House has hammered the need to stay ahead ofcompetitors. But researchers say doing so will require far more funding thanthe roughly $1 billion currently earmarked for non-defense AI developmentannually.

  • By contrast, Shanghai’s city government alone plans to invest $15 billion in AI over the next 10 years. (Total Chinese government funding numbers are hard to come by.)

What’shappening: Speaking at a conference arranged by the National SecurityCommission on AI, Schumer announced a “discussion draft” circulatingin Congress and among companies.

  • According to Schumer, the proposal would put $100 billion toward AI over the course of five years.

  • It would also create a new agency under the National Science Foundation focused on emerging technology, which would work closely with DARPA, an agency that funds defense-related research.

  • The new money would go toward universities, companies and defense agencies.

What they’resaying: “We will do better dollar for dollar than the Chinesegovernment in investing in AI,” Schumer said. “But if they outspendus three, four, five to one — which they’re doing now — we’ll fallbehind in five years or 10 years and we will rue the day.”

  • “This should not be a partisan issue,” he added. “This is about the future of America.”

  • Schumer called on the conference attendees, which included some top Pentagon officials and Big Tech bigwigs, to push the proposal along.

  • Despite wide support, he said the proposal does not have the “full-throated support” of President Trump and Senate Majority Leader Mitch McConnell.

7. 9 signs you’re lying to yourself about money

Tanza Loudenback16 hours ago

  • Honestygoes a long way in personal finance, and we have to start with ourselves.

  • Ifyou tell yourself you don’t need to save for retirement because it’s years away orthat it’s OK to have debt becauseeveryone else does, you have some work to do.

  • Replacingour white lies about money with action and good habits clears the path to wealth.

  • Read more personal finance coverage.

Before the new year rollsaround, take some time to audit your financial life.

It’s easy to make rationalizationswhen things aren’t going our way. But if you pull back the curtain and identifythe source of the issue — and the white lie that’s masking it — it becomeseasier to kick bad habits and clear the path to wealth.

If you’ve uttered any ofthe following phrases, it could be a sign you’re lying to yourself about money.

“Idon’t need to worry about retirement for years”

Why it’s wrong: Retirement is one long-term financial goalthat everyone should plan for. Look at the number of years you haveuntil retirement as an advantage, because exponential growth depends on it.

How to improve: If you have a workplace retirement plan,like a 401(k), start contributing as much as you canimmediately. Defer enough of your salary to at least score your employer’smatch (if there is one) and increase it steadily from there.

Perhaps most importantly, start thinking about what your ideal retirement looks like, even if you planon working forever. Figuring out how you’ll spendyour time and where you want to live can go a long way in estimating costs andmotivating you to save.

“Disabilityand life insurance can wait”

Why it’s wrong: Having insurance is like carrying anumbrella — you may not need it, but you’ll sure be glad you have it when thestorm hits.

If your career is your largest asset, a temporary or permanentloss of income can affect you and your dependents greatly.

How to improve:  Your employer may provide short-term disability insurance or life insurance at group rates, but if yousupport anyone — children, a spouse, or otherwise — and rely on a steadypaycheck to pay regular bills or stay on track financially, you probably needadditional disability insurance and/or life insurance. 

Disability insurance can help replace lost wages if there’s an accident or illness that keeps you from work for a period of time. Meanwhile, life insurance provides a chunk of cash to your beneficiaries if you die prematurely — and the younger and healthier you are, the cheaper it will be.

“I’ve got my savings under control”

Why it’s wrong: If you’re not saving money automatically, you’re at a majordisadvantage compared to those who are. When you pay yourself first, there’slittle to no effort involved. Why not make it easier?

How to improve: If you’re just kicking whatever cash youhave left over at the end of the month into a savings account or retirement account, there’s a better way. Setup automatic transfers, direct deposit, or make use of your employer-sponsoredretirement plan to save pretax money.

If you’re saving for short-term goals in an account earning lessthan 1% interest, you can do much better. Pick a high-yield savings account with no feesand high APY and watch your money grow.

“Notbuying coffees will make all the difference”

Why it’s wrong: The problem isn’t buying the $4 latte. It’s the belief thatcutting out minor purchases, no matter how much we enjoy them, will be the ticketto wealth. But depriving yourself isn’t the answer.

How to improve: As financial expert Ramit Sethi says,it’s the “big wins” that make aworld of difference. For example, negotiating a higher salary, automating yourmoney, investing consistently, avoiding high-interest debt, andmaintaining good credit. “If you can focus on the5-10 Big Wins, rather than 50 little things, you can have an insurmountableedge in life,” Sethi says. 

“Lovewill help me figure it out”

Why it’s wrong: If you don’t have a healthy relationshipwith money on your own, you won’t be able to fix it by adding a partner to themix.

How to improve: Money should be a an ongoing conversation in every healthyrelationship. Talk about your goals, your systems, your perceptions of money,your good (and bad) habits, and how you can work together effectively. 

“I’mgreat with money”

Why it’s wrong: If you have no emergency fund, no retirement savings, and/or you have credit-card debt, there’s still work to do.

How to improve: There are at least four things people who are good with money do everyday: balance their needs and wants, make decisions that bring them closer totheir goals, limit their exposure to temptation, and practice patience. Thesestrategies lay the foundation for managing your money wisely.

“Everyonehas debt, it’s no big deal”

Why it’s wrong: Debt may feel ubiquitous in your socialcircle or wider society, but that doesn’t mean it’s healthy. In fact, high-interest debt is what holds so manypeople back from building wealth. When managed responsibly, mortgages and student loans probably won’t derail yourfinancial life, but credit-card debt certainly can.

How to improve: Avoid debt by paying off your credit-cardbalances in full, every month. If you already have debt, make a plan to pay it off as soon as possible. You’llsee your credit score improve and be able to putthe money you recoup to work.

“Ican afford everything my friends have”

Why it’s wrong: Chances are you don’t make the same amountof money as your friends, or have the same expenses or financial goals.Mindlessly throwing your credit card down at every happy hour and draining yoursavings account to go in on a summer house because that’s what everyone else isdoing isn’t the way to wealth.

How to improve: Make a list of your own financial goals tohelp you figure out what’s really important to you and only spend money on thethings that bring you closer to achieving them. Now is the time to bediscerning about how you spend your money. As Sethi puts it, “cut costs mercilessly on thethings you don’t care about.”

“Iwon’t lose money if I don’t invest”

Why it’s wrong: While it’s true that your money is atgreater risk invested in the stock market than sittingin a cash, the biggest loss is not investing at all. You can’t time the marketto avoid loss and downturns — they’re an inevitable part of the market cycle —but the longer you stay invested, the better you’ll fare.

How to improve: Four financial planners told BusinessInsider that the best and easiest way to get started investing is through indexfunds, which you can find in your 401(k) or IRA retirement accounts or regularbrokerage accounts.

Index funds are investments in a broadselection of stocks. Rather than choosing and buying individual stocks, aninvestor owns a small piece of every company or asset in the fund. They’relow-cost and don’t require active management, making them the ultimate“set and forget” investment.

8.5 Key Lessons on Building a Business That Super-Successful Female Founders Wished They’d Known When They Started

Ellevest’sSallie Krawcheck, Sweeten’s Jean Brownhill, and CaaStle’s Christine Hunsickerdished on the realities of launching a company at the Fast Company InnovationFestival on Tuesday.

CELINE GROUARD/FAST COMPANY

Nineout of 10 startups fail. “I’m surprised it’s not more!” said Sallie Krawcheck, the co-founder and chiefexecutive of Ellevest, a financial-advice platform that caters towomen, at the 2019 Fast Company Innovation Festival inNew York City on Tuesday.

Thatsurprise is a direct result of her own experience. Krawcheck, who foundedEllevest in 2014 after serving in a series of high-profile positions onWall Street, said she knew that starting a company would be hard, butdidn’t realize at the time just how fraught and consequential some earlydecisions would be.

“Youprobably have only one big mistake you can make,” said Krawcheck, who wasjoined on stage by Jean Brownhill, the founder and CEO of home-contractorplatform Sweeten; and Christine Hunsicker, the co-founder and CEO ofclothing-subscription management company CaaStle. Unfortunately, she said,anything more than that might be devastating to the business.

Hereare five other lessons the three founders admitted they didn’t knowwhen they started their companies.

1. The very first steps are the most consequential.“When you have this blank canvas, it’s actually the most terrifyingtime,” Hunsicker said. “If you have an idea, you have about halfof a percent of a startup.” In other words, the kernel of a conceptfor a business doesn’t actually get you anywhere near execution.What you do with your blank canvas is far more important, she said: “Thething you forget … is now every decision has long-lastingrepercussions.”

2. The emotional roller-coaster is real.Brownhill, a trained architect, knew that starting her own company would be achallenge. What she didn’t anticipate was how proud she’d be of the successfulmoments–or the huge emotional toll the tough ones could take. “I think Ididn’t realize how high the highs would be and how low the lows would be,”she said. “There’s no way to prepare for that.” 

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3. There’s a lot more to fundraising than getting into “theroom where it happens.”“I can get a meeting,” Krawcheck said. “But to show up as not ayoung white or Asian male with a degree from Stanford… even the mostwell-meaning individuals are racist, sexist, ageist–and we don’t talk aboutthat.” She cautioned would-be founders not to underestimate how muchinvestors still rely on pattern-matching, and to consider alternatives topartnership-based venture capital funding.

Brownhillexplained that in the course of raising Series A funding for Sweeten, she’darranged, coordinated, and taken more than 250 meetings. One tip sherecommends: Get to know a colleague or friend of each investor you’re trying tomeet with: “You do need a warm intro.” Krawcheck cautionedfounders to find investors they trust, like, and respect, and noted that “it’seasier to divorce your spouse than it is to get rid of an investor in yourcompany!” 

4. “It’s lonely at the top” isn’t justa clichéHunsicker had been in the No. 2 position at multiple companies before startingCaaStle. She’d hear the CEO say “it’s very lonely,” but couldn’tfully grasp why that was. Then she stepped into the top job. “Youdon’t sleep well, you look a little tired. … Everything you do is beingscrutinized, and you’re setting the tone and energy level for thecompany,” she said. “That’s a burden that until you’re in it youdon’t appreciate.” 

5. It can feel impossible.To exist, and ulitmately succeed, as a founder, “You just have to be ableto eat through a wall,” Hunsicker joked. Brownhill put it morepractically: “You have to convince yourself that this is absolutely anecessity for yourself,” she said. “Then, if you’re in a ton of pain,you’re probably doing it right.”