Topley’s Top Ten – September 11, 2019

Author

Matt Topley
September 11, 2019

1.Is the last Month the Start of a Value vs. Growth Trend?

Russell 1000 Value Outperforms Russell 1000 Growth for the Month

2.Value Vs. Growth Grid

3.One Day Momentum Record Drop vs. Value.

Momentum Massacre

Yesterday saw a nearly unprecedented collapsefor stocks with high price momentum relative to stocks with valuecharacteristics. These two baskets of stocks are most easily tracked using theiShares Momentum (MTUM) and Value (VLUE) factor ETFs.Momentum stocks are those that have been going up; momentum refers to theupward trajectory of price. Value stocks are generally low multiple, and oftenhave the opposite price attributes of momentum stocks. As shown in the chartbelow, yesterday was an absolutely catastrophic day for Momentum (MTUM)relative to Value (VLUE). Part of this was a function of rates, with recentupticks in short and long term interest rates driving utilities and otherdefensive stocks with strong trailing momentum lower, while banks rallied. Butit was broader than that too: software got smashed while oil & gas stockssurged, automakers ripped while stable consumer staples names took a hit, andthe market generally reversed all of the trends it has been operating on so farthis year in a massive stop-out of successful (up to now) trading strategies.  Starta two-week freetrial to Bespoke Institutional to see more details on the blowup of growth-oriented momentum stocks versus value stocks in reports publishedyesterday.

©2019 BespokeInvestment Group

4.S&P Following the Money Supply

5.Coal Share of U.S. Power.

6.The Second Machine Age

Morgan Stanley

  • AUG 5, 2019

AI, robotics and industrial software are rapidly approaching atipping point that could correspond with the greatest level of stockoutperformance. How investors can position for a Second Machine Age.

  • Technology investment is now transitioning from the consumerworld to the enterprise world as traditional technology and software companiesfocus on industrial opportunities.

  • This “Second Machine Age” centers around six developingtechnologies: Artificial Intelligence Software, Autonomous Vehicles, IoTHardware, Industrial Software, Robotics and Semiconductors.

  • These technologies combined could see annual growth of 17%,growing from $738bn in 2018 to $2.2trn by 2025, with the highest growth comingfrom AI Software (42%), Autonomous Vehicles (40%), and IoT Hardware(21%). 

Many ofthe biggest ideas in technology over the past decade have centered on howpeople communicate, consume, transact and travel. Over the next decade,however, the most profound innovations—and investment opportunities—could be onfactory floors, in operating rooms, at mining sites and energyfacilities.

This isnot a vague concept that may happen one day in a hypothetical world. It is verymuch here and now.

BenUglowHead of European Capital Goods equity research

Theworld’s economy is in the early stages of a Second Machine Age—sometimes called a “FourthIndustrial Revolution”—an explosion of new digital technology poised totransform manufacturing and industry as dramatically as the steam engine ortelegraph.

“The current pace of technological change isbreathtaking,” says Ben Uglow, Morgan Stanley’s head of research for theCapital Goods Industry. “This is not a vague concept that may happen one day ina hypothetical world. It is very much here and now, as real dollars are beingcommitted, with tangible benefits in efficiency and productivity.”

In theirnewest report, Investing in the Second Machine Age—Pickingthe Winners, Uglow and his research colleagues take an in-depth lookat the six most relevant technologies—artificial intelligence software, autonomous vehicles, Internet of Things (IoT) hardware,industrial software, robotics and semiconductors—and identify companies bestpositioned to capitalize on this theme.

Together,the market for these data-era technologies is poised for compound annual growthof 17%, growing from $738 billion in 2018 to $2.2trillion by 2025. Within these technologies, the teams estimated the highestgrowth could come from AI software (42%), autonomous vehicles (40%), and IoThardware (21%).

Source: Markets &Markets (AI Software), Allied Markets (AI Software, Autonomous Vehicles,Industrial IoT), Mordor Intelligence (Robotics), Statista (Semiconductors),Techavio (Industrial Software), Transparency Market Research (IoT Hardware),Morgan Stanley

The analysts see this as one of the most important investmentthemes of this decade, but a tricky one to navigate. The companies—like thetechnologies themselves—are still in the early innings. While that makespicking winners among AI companies or robotics companies more challenging, itsuggests that the best returns could be ahead.

7.Mobile Banking Usage over 90%

8.The New 10 Traits of Emotionally Resilient People

Researchlooks at how we endure stress and grow from trauma.

An earlier version of this article waspublished on Psychology Today in 2013. It has been expanded andrevised with the latest research on psychological resilience and post-traumatic growth.

Are WeSuffering From a Resilience Hangover?

In recentyears the topic of “psychological resilience” hasexperienced the life cycle of an A-list pop star sliding intoinfamous ruin. Yours truly wrote about it five years ago in a Psychology Todaypost, “10 Traits of Emotionally Resilient People.” Yet a coupleyears later, a book critic for The New York Times described resilienceas “a word that is somehow so conveniently vacant that it manages to beprofound and profoundly hollow.”

Is ourcollective “resilience” resilience waning?

Myoriginal article took a non-academic (i.e., applied/experiential) approach to the topic,because let’s be honest: Most of us aren’t reading science journals. Wewant to know in layman’s terms how science can be applied to our dailylives, and we love a top-10 list. With my new 10 traits listbelow, I update my original article with some of the latest researchto give resilience a refresh.

The New 10Traits of Emotionally Resilient People

1. Theyself-regulate and set boundaries.

Resilientpeople understand that there is a separation between who they are at their coreand the cause of their temporary suffering. A stressful or traumatic experience might play apart in their story, but it does not overtake their permanent identity. They regulate their emotional response tostress and practice acceptance of what they can and cannot change aboutthe situation. 

Accordingto resilience researcher Sherry Hamby, “Self-regulation is the ability to maintainemotional, cognitive, and behavioral control, even during timesof stress. It is the ability to experience and cope with feelings withoutbecoming overwhelmed. It also involves the ability to make good choices evenwhen tensions are high.”

Psychology writer Maria Konnikovawrites that “the research of Martin Seligman, the University of Pennsylvaniapsychologist who pioneered much of the field of positive psychology . . . found thattraining people to change their explanatory styles from internal to external(“Bad events aren’t my fault”), from global to specific (“This is one narrowthing rather than a massive indication that something is wrong with my life”),and from permanent to impermanent (“I can change the situation, rather thanassuming it’s fixed”) made them more psychologically successful and less proneto depression.”

2. Theykeep good company.

Resilientpeople tend to seek out and surround themselves with other resilientpeople when there’s a need for support. These supporters are our rolemodels — a source of learning and inspiration for how they handle what lifethrows at them. Social support and sense of community consistentlyshow up in research as one of the top resilience factors. As Dr. Romeo Vitelli tells us, “For peoplewithout this kind of support, loneliness can often contribute to the emotionalaftermath of trauma and make recovery that much more difficult.”

3. Theycultivate self-awareness.

Being“blissfully unaware” can get us through a bad day, but it’s nota very wise long-term strategy. Self-awareness helps us get in touchwith our psychological and physiological needs — knowing what we need, what wedon’t need, and when it’s time to reach out for some extra help. The self-awareare good at listening to the subtle cues their body and mood are sending. Theyunderstand when and where they are holding stress in their body, andwhen they might need a reframe of their current reactions to astressor or trauma.

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On theother end of the psychological spectrum, people might cling to an over-relianceon scientific explanations or a rigid sense of needing to stay strong atall times. A lackof psychological flexibility and vulnerability can make usemotional glaciers — always trying to be smart and strong in order to stayafloat, yet prone to massive stress fractures when we experience an unexpectedchange in our environment.

4. Theypractice acceptance.

Pain ispainful, stress is stressful, and healing takes time. When we’re in it, we wantthe pain to go away. When we’re outside it, we want to take away the pain ofthose who we see suffering. Yet resilient people understand that stressand pain is a part of the ebb and flow of life. As hard as it isin the moment, it’s better to come to terms with the truth of the pain than toignore it, repress it, or deny it. Acceptance is not about giving up andletting the stress take over; it’s about witnessing and experiencingthe full range of emotions, trusting that we will bounce back, andabsorbing lessons along the way.

5.They’re willing to sit in the space of non-judgment and not-knowing.

We aremasters of judgment. There is a constant commentator in our headbroadcasting an editorial about everything we encounter: That’sugly. That’s stupid. That person was looking at me funny. So-and-so hates me.Life sucks. I’m not good enough. We are also masters ofdistraction. Smart phones, television, overeating, abusing drugs, risky behavior, gossip, etc., areall temporary distractions from the suffering created by externalstressors and our internal commentator. There is now a large body of research indicatingthat mindfulness — part of which is being in thepresence of the moment without succumbing to unhealthy distractions, and partof which is not assigning judgment to everything we encounter — enhancesour psychological and physical well-being. It takes practice, but itrequires nothing but willingness. One doesn’t need to sign up for classes, buyspecial gear, download apps, or travel to a specific place to meditate ortake a more mindful approach to our daily lives. 

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6. Theylook for meaning.

Ourresilience toolkit strengthens when we experience growth and learningopportunities as a result of stressful or traumatic events. Accordingto Grych, Hamby, and Banyard’s Resilience Portfolio Model: 

   “Post-traumatic growth refers to deriving meaning from highlystressful experiences that lead to positive changes in views of self, theworld, and/or relationships (Tedeschi & Calhoun, 2004). Whereasresilience is conceptualized as maintaining psychological health despiteexposure to violence, post-traumatic growth is a healthy outcome thatoccurs because the individual experienced a stressful event.”

Whatdoes meaning look like? For some, meaning can be a newfound orstrengthened sense of purpose or a prioritization of what matters most intheir lives. Perhaps surviving violence or trauma gives thema reason to live, an affirmation of their life’s mission, or a senseof how they want to pass their legacy onto the next generation. Forothers, it can be a spiritual calling or the realization that they cantransform their suffering into leadership or teaching opportunities.

7. Theyhave a menu of self-care habits.

Resilientpeople have a list of positive habits that support them when they need itmost. We can all become self-care spotters in our life — noticing those thingsthat recharge our batteries and fill our cup. Dr. Karen Horneffer-Ginter,author of Full Cup, Thirsty Spirit, shares 25 soul-nourishing ideas, such asintentionally seeking out good news and the research-supported act of connecting with nature. Butit’s not enough to know our self-care habits, we mustintentionally make time for them. Perhaps that means starting adaily practice, such as exercising, meditating, or keeping a daily gratitude journal.

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Speakingof journaling. When we’re in the midst of stress and overwhelm, ourthoughts can swirl with dizzying speed and disconnectedness. We can findreprieve by getting the thoughts out of our head and onto paper. As Dr. JamesPennebaker wrote in his book Writing to Heal,“People who engage in expressive writing report feeling happier and lessnegative than before writing. Similarly, reports of depressive symptoms,rumination, and general anxiety tend to drop in the weeks and months afterwriting about emotional upheavals.”

Writing,journaling, and talking about our emotions holds a mirror up to ourcurrent state of being. Seeing our words on paper or hearing them saidaloud allows us to witness how we are coping with stress or trauma.

Accordingto this Harvard Business Review article,resilience within our work lives is increased by taking breaks for mentalrecovery. “If you’re trying to build resilience at work, you needadequate internal and external recovery periods. As researchers Zijlstra,Cropley and Rydstedt write in their 2014 paper: “Internal recovery refers tothe shorter periods of relaxation that take place within the frames of theworkday or the work setting in the form of short scheduled or unscheduledbreaks, by shifting attention or changing to other work tasks when themental or physical resources required for the initial task are temporarilydepleted or exhausted. External recovery refers to actions that take placeoutside of work—e.g. in the free time between the workdays, and duringweekends, holidays or vacations. […] The very lack of a recovery periodis dramatically holding back our collective ability to be resilient andsuccessful. Research has found that there is a direct correlation betweenlack of recovery and increased incidence of health and safety problems.”

8. Theypractice an optimistic worldview.

Notice Ididn’t say they inherently possess an optimistic worldview.Dr. Seligman points out in his book, Authentic Happiness,that we don’t have to be naturally optimistic to practice an optimisticworldview. For many of us, author included, that takes practice. We can catchour pessimism in the act and say, “No, that’s notwho I am or who I want to be. What’s an alternative way of looking at this?”

So whatis an optimistic worldview? Think of the most optimistic person in your life. Ibet they aren’t always smiling or carrying around pom-poms likelife’s little cheerleader, but they probably have a certain zest forlife and are guided by a set of optimistic tenets and strong values.Perhaps they believe that people are inherently good, that thingsusually work out in the end, or that there’s a higher power looking outfor them. Perhaps they refuse to accept that they are a victim of theircircumstances and focus instead on what they have the power to change.

9. Theyentertain alternative endings.

We can’trely on a crystal ball to predict our future, but we can train ourselvesto ask which parts of our current story are permanent, and which can possiblychange in the future. Can this situation be looked at in a differentway that I haven’t been considering? Can I picture an alternative ending tothis situation? This helps us maintain arealistic understanding that the present situation is being coloredby our current interpretation. Our interpretations of our stories will alwayschange as we grow and mature. Knowing that today’s interpretation can and willchange gives us the faith and hope that things canbe better tomorrow.

10.However, they also get out of their head.

In timesof stress we try to make sense of our suffering. Why did thishappen to me? Did I deserve this? Who did this to me? Why am I being punished?Why is life so unfair? Our answers to these questions create anarrative that we can either believe and cling to or witness and let floaton by like clouds in the sky. By practicing the latter, we are far less likelyto spin stories that are not grounded in reality — the little fictionsthat exacerbate our problems. Resilient people witness the spinning of yarnsand step outside of themselves. They direct their mental and physical energieselsewhere, such as taking care of other people or engaging in their workor hobby.