Tag Archives: Investment

Tencent profit beats estimates as investment gains offset gaming weakness
November 14, 2018 12:00 pm|Comments (0)

HONG KONG (Reuters) – Tencent Holdings (0700.HK) said on Wednesday its third-quarter net profit rose 30 percent, beating estimates, as investment gains offset a weak performance in the Chinese company’s core gaming business.

FILE PHOTO: Tencent Holdings Chairman and CEO Pony Ma (C) visits the Tencent booth following the opening ceremony of the fifth World Internet Conference (WIC) in Wuzhen, Zhejiang province, China November 7, 2018. REUTERS/Stringer/File Photo

Net profit at China’s biggest gaming and social media group in the July-September quarter rose to 23.3 billion yuan, compared with an average estimate of 19.32 billion yuan, according to 15 analysts polled by to I/B/E/S data from Refinitiv.

Revenue rose 24 percent to 80.6 billion yuan ($ 11.59 billion), the slowest quarterly growth in more than three years, in-line with estimates.

China, the world’s biggest gaming market, has been imposing tougher rules on the industry, including a halt to new game approvals since March and calls to tackle young people’s gaming addictions.

This contributed to Tencent reporting its first quarterly profit fall in more than a decade in its April-June quarter. The company also cut its gaming marketing budget.

Tencent shares, which more than doubled in 2017, have dropped by about a third so far this year, wiping about $ 165 billion in value from the group’s market value.

In the third quarter, Tencent benefited mainly from a more-than-doubling in net gains from its investment activities, including the initial public offering of online food delivery to ticketing services company Meituan Dianping.

Douglas Morton, Head of Research, Asia at Northern Trust Capital Markets, said the result beat was a positive surprise even if not counting the investment income.

“What the real surprise is or the real comfort for the market will be that the mobile gaming data which beat expectations,” he said.

Tencent said smartphone games revenues grew 7 percent year-on-year and 11 percent quarter-on-quarter to 19.5 billion yuan, mainly due to contributions from new games. Despite the new approval freeze, Tencent already had 15 approvals and released 10 titles in the quarter, it said in the filing.

PC games revenue dropped 15 percent year-on-year due to continued user migration to mobile games and high base in the same quarter a year ago.

Advertising revenue, which accounts for 20 percent of the company’s total revenue, rose 47 percent, supported by a 61 percent jump in social and other advertising.

Tencent said its cloud services revenues more than doubled year-on-year in the quarter while the number of paying cloud customers grew at a triple-digit percentage rate year-on-year. Cloud revenues for the first three quarters of the year exceeded 6 billion yuan, it said.

Monthly active user number of WeChat, the most popular social network in China, rose incrementally to 1.08 billion.

($ 1 = 6.9536 Chinese yuan)

Reporting by Sijia Jiang; Editing by Muralikumar Anantharaman and Jane Merriman

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Panasonic to consider more investment in Tesla's Gigafactory if asked: executive
July 2, 2018 6:28 am|Comments (0)

OSAKA (Reuters) – Panasonic Corp would consider further investment in Tesla Inc’s so-called Gigafactory if requested by the U.S. electric vehicle maker, an executive at the Japanese conglomerate said on Monday.

FILE PHOTO: The Tesla logo is seen at the entrance to Tesla Motors’ new showroom in Manhattan’s Meatpacking District in New York City, U.S., December 14, 2017. REUTERS/Brendan McDermid/File Photo

The investment would come on top of the $ 1.6 billion Panasonic is contributing to the automotive battery plant, which it jointly operates with Tesla in the U.S. state of Nevada.

“We would of course consider additional investment if we are requested to do so,” Yoshio Ito, chief of Panasonic’s automotive business, said at a media roundtable, responding to a question about the possibility of further investment, given the chance.

Panasonic’s initial investment in the Gigafactory is almost complete, and the Japanese electronics maker has not made any decisions on whether to pledge further funds, Ito said.

The comments come after Tesla hit its target of producing 5,000 Model 3 electric sedans on Sunday morning, several hours after the midnight goal set by Chief Executive Elon Musk, two workers at the factory told Reuters.

Production of the Model 3, which began last July, has been plagued by a number of issues, including over-reliance on automation creating bottlenecks in battery production.

Meanwhile, the U.S. firm has been burning through cash as it tools up its assembly line and works on projects such as its Model Y crossover sport utility vehicle.

Its free cash flow – a metric of financial health – widened to negative $ 1 billion in its latest reporting quarter from negative $ 277 million three months prior, excluding costs of systems for its solar business.

Musk has said Tesla it will not need to seek cash in 2018 but Wall Street analysts anticipate a capital raise this year.

Panasonic is the exclusive battery cell supplier for Tesla’s current production models, making them in Japan as well as at the $ 5 billion Gigafactory.

Ito said last week at Panasonic’s general shareholders meeting that a pickup in production of the Model 3 has resulted in occasional battery cell shortages.

Reporting by Makiko Yamazaki; Additional reporting by Sayantani Ghosh; Editing by Christopher Cushing

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Netflix plans $1 billion European investment drive: Financial Times
April 18, 2018 6:02 pm|Comments (0)

(Reuters) – Netflix Inc will raise its investment in content across Europe and plans to spend about $ 1 billion on original productions this year, the Financial Times reported on Wednesday, citing people briefed on the plans.

The Netflix logo is shown above their booth at Comic Con International in San Diego, California, U.S., July 21, 2017. REUTERS/Mike Blake

The revised budget will be more than double that of last year, the report said.

Reporting by Sonam Rai in Bengaluru; Editing by Arun Koyyur

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Here's Why You Shouldn't Pay $1.10 For A Dollar Of Investment Grade Bond Assets
February 18, 2018 6:12 pm|Comments (0)

I’ve received questions from prospective subscribers about the types of trade alerts that we issue to the members section of the Cambridge Income Laboratory. One type of trade is CEF arbitrage, or more specifically a pairs trade, where we simultaneously identify an overvalued CEF and an undervalued CEF in the same sector. The strategy then entails selling or selling short the overvalued fund while simultaneously buying the undervalued fund.

The advantage of a CEF pairs trade is that because both the sold and bought funds are from the same sector, we aren’t making a directional bet on the performance on the underlying assets. Instead, we’re simply relying on the powerful concept of reversion of CEF premium/discount values (see Reflections On Chemist’s CEF Report Pick Performance In 2017 for how this has worked well for us in the Chemist’s monthly CEF picks).

There are two main limitations of the CEF arbitrage strategy. The first is that the magnitude of the gains are unlikely to be very large, simply because it is by nature a hedged strategy. That’s the trade-off for the strategy being relatively low risk. The second limitation is that unless you already own the overvalued CEF identified in the pairs trade, you would have to locate shares of the overvalued CEF to sell short. With some of the smaller, less liquid CEFs, this can range from expensive to downright impossible. The most optimal set-up is therefore already owning the overvalued CEF, and then locking in profits by selling the fund and then replacing it with the undervalued CEF in the same sector.

With the introductory blurb out of the way, let’s see how this has played out for one of the more recent CEF pairs trade that we identified in the members section of the Cambridge Income Laboratory.

About 4.5 months ago (see Sell This Investment Grade Income CEF Now), we noticed the premium of Western Asset Income Fund (PAI), an investment grade bond CEF, suddenly spiking up to +10.16%. The 1-year z-score was +3.6, indicating that this fund was significantly more expensive than its recent history. My comments from the initial article are reproduced below:

I was looking through the CEF database today and noticed the Western Asset Income Fund (PAI) trading at an exceptionally high z-score of +3.6.

Its current premium of +10.16% is at a 5-year high.

(Source: CEFConnect)

A 1-year z-score of +3.6 tells us that the premium/discount is trading 3.6 standard deviations above its 1-year historical value. Statistically speaking, this would be a 0.02% probability of occurrence, assuming that the distribution of values is normally distributed (which it isn’t, but the point is that such a high z-score is a rare occurrence).

The 5-year chart above showed that the fund traded at quite substantial discounts over the past 5 years, sometimes exceeding even -10%. This makes the current premium of +10.16% even more unusual than the 1-year z-score of +3.6 would indicate.

At this juncture, I wanted to look at the entire history of the CEF since inception. Perhaps the past 5 years was just an anomaly, and that the CEF has commanded a consistent premium in the past? It turns out that was not so.

Going back to inception, only during a brief period in 2009 did the fund’s premium exceed 10%. An unusually high premium for an investment grade fund might be understood during the immediate recovery period after the financial crisis…but why now? I can’t think of a fundamental reason why someone would pay $ 1.10 for a dollar of investment grade debt.

(Source: CEFConnect)

I then check out the premium/discount values of the peer group. Maybe investment grade bond CEFs are for some reason on a tear thus accounting for PAI’s unusual premium? Nope, that’s not it.

The premium of PAI is 3rd-highest out of the 15 CEFs in the “investment grade” category of CEFConnect. But I don’t consider PIMCO Corporate & Income Strategy Fund (PCN) and PIMCO Corporate & Income Opportunity Fund (PTY) to be traditional investment grade income CEFs, so not counting those two funds PAI has the highest premium in the peer group.

(Source: Stanford Chemist, CEFConnect)

OK, so PAI is a pretty good sell or short candidate. What did I pair my short PAI position with?

What did I pair my short PAI position with? I chose the BlackRock Credit Allocation Income Trust (BTZ). I wanted to choose a fund with a negative z-score, but rather amazingly all 15 investment grade CEFs had z-scores 0 or greater. BTZ’s z-score of +0.8 wasn’t the lowest, but its discount of -9.04% was the widest in the peer group, as you can see from the chart above.

Next, I wanted to see compare the price and NAV returns of these two investment grade bond CEFs to check if there were signs of deteriorating portfolio values in the undervalued CEF, which might cause me to consider BTZ as the long partner in this pairs trade.

The opportunity for the pairs trade comes from the fact that PAI’s price return is significantly outpacing its NAV return, whereas that is not the case with BTZ. We can see from the chart below that PAI appears to be blowing BTZ out of the paper with a +19.29% YTD return compared to only +8.94% for BTZ.

Chart

However, their YTD NAV returns are nearly identical.

Chart

No warning signs there. That leads me to the conclusion that:

In summary, if you own PAI, now would be a great time to sell!

Let’s see how the thesis played out 4.5 months later. BTZ had a total return loss of -3.88% over this time frame. That’s bad, of course, but still relatively much better than PAI’s loss of -14.1% over the same period. In other words, BTZ outperformed PAI by 10.22 percentage points in only 4.5 months, or about 27% annualized.

Did PAI’s portfolio do much worse than BTZ’s? No, and in fact the reverse was true. PAI’s net asset value [NAV] fell by -2.10% over this time period, but BTZ’s was even worse at -3.24%.

If BTZ’s portfolio did worse than PAI’s, why was its total return (much) better? My regular readers will have already guessed at the answer: premium/discount mean reversion! Over the last 4.5 months, PAI’s premium of +10.16% has sank to a discount of -4.82%, while BTZ’s discount of -9.04% has widened slightly, to -11.9%. Therefore, the majority of the outperformance of the long BTZ/short PAI pairs trade was due to the contraction of PAI’s discount.

Chart
PAI Discount or Premium to NAV data by YCharts

Summary

This article hopefully conveys our thought process in recommending a pairs trade to our members. Anyone who owned PAI and swapped to BTZ to would have profited to the tune of ~10% in only 4.5 months (~27% annualized), which is equivalent to about 2.5 years worth of distributions from PAI!

Note that I did not need to do a deep dive analysis of either PAI or BTZ to initiate this pairs trade. This was based almost entirely on premium/discount mean reversion, or as my fellow SA author Arbitrage Trader likes to say, “simple statistics”.

Taking stock of the situation today, the long BTZ/short PAI trade has to be considered to be largely completed, as PAI is now trading with a discount of -4.82% and a 1-year z-score of -1.5, indicating that is now cheaper than its historical average. Although BTZ’s z-score of -2.5 is even lower, as is its discount (-11.9%), the gap in valuation is no longer there.

Are there any current opportunities? The following table shows the 12 CEFs in the database that currently have z-scores greater or equal to +2.5. If you own ones of these funds, if might be a good idea to seek out another fund in the same category that is trading with a more attractive valuation, particularly if the fund that you own is also trading at a premium. Don’t let mean reversion catch you out!

Name Ticker Yield Discount z-score
MS Income Securities (ICB) 2.71% -1.47% 3.9
BlackRock Science and Technolo (BST) 5.32% 3.05% 3.2
Tortoise MLP Fund (NTG) 8.61% 9.26% 3.2
ClearBridge Energy MLP (CEM) 8.85% 5.53% 3.1
Gabelli Utility Trust (GUT) 8.50% 44.95% 3.1
Templeton Emerging Mkts Income (TEI) 3.79% -8.17% 3.1
Sprott Focus Trust (FUND) 4.97% -8.86% 3.0
Nuveen S&P Dynamic Overwrite (SPXX) 5.58% 9.54% 2.9
RiverNorth Opportunities Fund (RIV) 12.09% 6.83% 2.7
Deutsche High Income Oppos (DHG) 5.42% -0.60% 2.6
First Trust New Opps MLP & En (FPL) 10.52% 6.67% 2.5

Western/Claymore Infl-Lnk Opps

(WIW) 3.79% -9.71% 2.5

(Source: CEFConnect, Stanford Chemist)

We’re currently offering a limited time only free trial for the Cambridge Income Laboratory. Prices are going up on March 1, 2018, so please join us and lock in a lower rate for life by clicking on the following link: Cambridge Income Laboratory.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long the portfolio securities.

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Uber board strikes agreement to pave way for SoftBank investment
November 13, 2017 12:00 am|Comments (0)

SAN FRANCISCO/NEW YORK (Reuters) – Uber Technologies Inc’s [UBER.UL] warring board members have struck a peace deal that would allow a multibillion-dollar investment by SoftBank Group Corp to proceed, and would resolve a legal battle between former Chief Executive Travis Kalanick and a prominent shareholder.

A photo illustration shows the Uber app on a mobile telephone, as it is held up for a posed photograph, in London, Britain November 10, 2017. REUTERS/Simon Dawson

Venture capital firm Benchmark, an early investor with a board seat in the ride-services company, and Kalanick have reached an agreement over terms of the SoftBank investment, which could be worth up to $ 10 billion, according to two people familiar with the matter. The Uber board first agreed more than a month ago to bring in SoftBank as an investor and board member, but negotiations have been slowed by ongoing fighting between Benchmark and Kalanick. The agreement struck on Sunday removes the final obstacle to launching the tender offer.

SoftBank, a Japanese conglomerate that has become a heavyweight in Silicon Valley tech investing, is leading a consortium of investors that plans to invest $ 1 billion to $ 1.25 billion in Uber, and in addition, will buy up to 17 percent of existing shares from investors and employees in a secondary transaction. The terms are expected to be signed on Sunday, one of the people said, although the tender offer would likely take weeks to complete.

Uber is valued at $ 68 billion, the most highly valued venture-backed company in the world. SoftBank’s roughly $ 1 billion investment of fresh funding is expected to be at the same valuation. The secondary transaction, or the purchases from employees and existing investors, would be at a lower valuation.

A spokeswoman for Benchmark did not immediately respond to a request for comment, and a spokesman for Kalanick declined to comment. Uber did not immediately respond to a request for comment.

Completing the SoftBank deal would allow Uber to open a new chapter after a year of controversy, including the resignation of Kalanick, the ouster of several top executives, sexual harassment and discrimination allegations, and multiple federal criminal probes. The deal is also tied to new governance rules that aim to more equally distribute power and bring more oversight to the company.

“Uber had a remarkable first six or seven years, a bumpy past two years, and now the Softbank deal allows for a full reset,” said Bradley Tusk, an Uber investor and political strategist who works with tech companies.

The logo of SoftBank Group Corp is displayed at SoftBank World 2017 conference in Tokyo, Japan, July 20, 2017. REUTERS/Issei Kato

It would also be a major victory for Uber’s new CEO Dara Khosrowshahi, who often served as a mediator to help broker the agreement, according to a third person familiar with the matter.

To allow the deal to go forward, Benchmark has agreed to immediately suspend its lawsuit against Kalanick, which it filed in August in an effort to diminish the ex-CEO’s power at the company and force him off the board, one of the sources said.

Upon the successful completion of the SoftBank investment, Benchmark would drop the lawsuit entirely, the person said.

In turn, Kalanick must receive majority board approval should he want to replace the board seats over which he has control, according to the source. In addition to his own seat, Kalanick controls two more, which are occupied by Ursula Brown, the former Xerox Corp CEO, and former Merrill Lynch & CO Inc [BACML.UL] CEO John Thain. Kalanick appointed them in September without first consulting with the board.

“Ending the litigation is a big step forward if it finally ends the specter of Kalanick retaking control,” said Erik Gordon, an entrepreneurship expert at the University of Michigan’s Ross School of Business.

Uber’s board already approved a slate of governance reforms that are contingent on completion of the SoftBank deal. They include removing super-voting rights that gave Kalanick and his allies outsized power, adding new independent directors and increasing the size of the board to 17.

Uber plans to run newspaper ads informing investors about the share purchase, and SoftBank will propose a price at which it will buy stock. The company has threatened to invest in ride-hailing rival Lyft if it doesn’t get the Uber deal done.

The deal gives early investors such as Benchmark, whose Uber stake is worth nearly $ 9 billion, the opportunity to cash out a very lucrative investment.

Reporting by Heather Somerville in San Francisco and Greg Roumeliotis in New York. Additional reporting by Liana Baker in San Francisco.; Editing by Diane Craft

Our Standards:The Thomson Reuters Trust Principles.

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Saudi Prince Alwaleed bin Talal optimistic about Twitter investment: CNBC
October 23, 2017 12:00 pm|Comments (0)

RIYADH (Reuters) – Saudi Prince Alwaleed bin Talal, who owns investment firm Kingdom Holding, said in an interview with CNBC on Monday that he was optimistic about his investment in Twitter.

FILE PHOTO: Saudi Arabian Prince Al-Waleed bin Talal arrives at the Elysee palace in Paris, France, to attend a meeting with French President, September 8 , 2016. REUTERS/Philippe Wojazer

“It’s not going to be easy because they face some difficulties, but our entry point was very reasonable, so right now it’s holding on a breakeven point,” he said.

Reporting by Katie Paul; Editing by David Goodman

Our Standards:The Thomson Reuters Trust Principles.

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Fool Me Twice: Expanding The Set Of Investment Options
September 30, 2017 10:35 am|Comments (0)

Living in a knowledge economy, it almost goes without saying that knowledge is important. In fact, Eric Beinhocker went a step further in his book, Origin of Wealth, when he concluded that knowledge is the genesis of wealth. More specifically, he explained that “Knowledge … is information that is useful, that we can do something with, that is fit for some purpose.” In many ways this is an uplifting message. By recognizing knowledge as a primary vehicle for human progress, he also guides readers to a course of action that can improve almost any situation.

Of course, this insight also applies to the world of investing and underlies much of what compels the best investors. Because securities prices tend to gravitate to the sum of discounted future cash flows, there are typically handsome rewards for those who can identify and act on instances of significant deviations from intrinsic value. Typically anyway. Over the last few years, knowledge has lost much of its pre-eminence as a means by which to create wealth in the markets – and this has some very important implications for investors.

Historically, hedge funds have epitomized the application of knowledge for the purpose of creating wealth in the investment world. They tend to hire the smartest people and deploy the greatest resources in the endeavor of making tons of money. The industry is plastered with tales of their greatest trades and impressive track records.

Over the last few years something odd has happened with these funds, however: Many of them have been struggling. Of course, hedge funds often take risky bets and it is not unusual for one to occasionally have a big bet go bad. What is unusual is that a large concentration of the best hedge fund managers have been suffering repeatedly and closing funds down and/or closing their shop down. There seems to be some information content in this pattern.

Going back a couple of years to 2015, for example, the Financial Times documented market turmoil (here) that caught several of the big hedge fund names. As the article reports, “Some of the worst hit were funds that specialised in stock picking,” and noted that, “David Einhorn’s $ 11bn Greenlight Capital lost 17% up to the end of September.”

More recently John Burbank of Passport Capital shut down his long-short strategy (here) after a stretch of weak performance and some big redemptions. The story reports that the firm’s flagship Passport Global fund also suffered major redemptions this year which substantially reduced the firm’s assets under management.

Also of note is the case of Hugh Hendry and his Ecclectica funds. After suffering through a tough period after the financial crisis (here), Hendry changed strategic course and seemed to be stabilizing performance. That all changed fairly quickly this summer, however, when a couple of consecutive months of negative returns were followed by significant redemptions and Hendry decided to close down shop altogether.

Mark Hart also made news this year with his Corriente Advisors (here). Long a bear on the Chinese yuan, he “spent seven years and $ 240 million waiting on a crash in China’s currency.” His rationale for such a big trade was solid: “Hart believes that the Chinese crawling devaluation is an error as it carries with it the latent threat of much more devaluation in the future, thus encouraging even more outflows, which in turn forces China to sell even more reserves, which destabilizes the economy even further, forcing even more devaluation and so on.” Unfortunately for him and his investors, it just hasn’t worked out that way. At least not yet.

While periods of poor performance are endemic to the business, the breadth of significant performance challenges among such high profile funds begs the question as to why it is happening now. One simple explanation is that the hedge fund business is a tough one. While managers have the potential to earn substantial fees, this must be done in the context of an environment that is intensely competitive and for which many clients are impatient. Not only must you be right about your trades, but you must be right within a short enough time horizon that your clients don’t leave first.

That still doesn’t answer why these performance travails among top managers have been more concentrated recently, however. Something else appears to be going on. One explanation is that the mechanism by which knowledge produces wealth in the capital markets is broken. In other words, it’s not so much that these managers have been wrong as that the markets have failed to reflect information as accurately as they normally do. Unusually, mispricing in the markets has been both persistent and nearly systemic.

In an important sense, this is just another way of talking about valuation – which we and plenty of other commentators have been doing for some time now. One of the primary suspects in the case of persistent mispricing is the group of entities that are not sensitive to price (an issue we highlighted (here)). Whether this group has been comprised of central banks buying trillions of dollars worth of securities regardless of price or people buying passive funds with little regard for investment merits, this unbalanced demand for financial assets has changed the quality and quantity of information embedded in market prices.

As such, at least one of two things is likely to be true. One is that the phenomenon of widespread security mispricing is a temporary phenomenon and likely to revert. Insofar as this is the case, investors can expect the substantial disparities between intrinsic values and market prices to start dissipating. During this “normalization” process, it is likely that passive funds will persistently underperform and that some of the best active funds will post huge performance numbers.

The other possibility is that, we are now in a period of semi-permanent market inefficiency in which market prices remain detached from underlying values for a substantial but indeterminate period of time. Under this hypothesis, markets are no longer clearinghouses of supply and demand for securities that reveal useful information, but rather instruments of (often capricious) public policy and expressions of mindless attachment to stocks and bonds. In this scenario, market prices contain very little information and therefore provide little basis upon which to efficiently allocate capital throughout the economy.

This is a critically important point for investors. Information greases the wheels of capitalistic, free market economies and keeps them moving efficiently. Less information means less efficient capital allocation – means less economic growth – means less wealth creation. In other words, wealth is not signaled by securities prices per se, but rather by the information imbued in those prices. If those prices don’t contain useful information, then they are just arbitrary numbers

If this seems a bit unnerving, it should be. Anyone who is saving for retirement (or a similar long term goal) and is trying to maximize their chance of succeeding should be alarmed by any element of arbitrariness in the process. Yet this is exactly what happens with most investment plans because most plans focus almost exclusively on financial assets. Such an emphasis creates a discernible risk that the reported totals in these plans overstate the real wealth that has been accumulated. In other words, many investors probably don’t have as much saved up as they think they do.

Although this presents a challenge for investors, fortunately there are things that can be done. An example from the technology world points the way and not surprisingly, it involves knowledge! More specifically, as Tristan Harris describes (here), it essentially involves inoculating oneself against the imposition of false choices. Harris knows a lot about the subject; he spent three years at Google (NASDAQ:GOOG) (NASDAQ:GOOGL) as a Design Ethicist “caring about how to design things in a way that defends a billion people’s minds from getting hijacked.”

In his hijack prevention effort, Harris discloses something of a taxonomy of ways to fool people. The number one spot on that list is to “control the menu,” or, as he puts it, “If you control the menu, you control the choices.”

As he describes, “Western Culture is built around ideals of individual choice and freedom. Millions of us fiercely defend our right to make ‘free’ choices, while we ignore how those choices are manipulated upstream by menus we didn’t choose in the first place.” He provides an illustrative example: “This is exactly what magicians do. They give people the illusion of free choice while architecting the menu so that they win, no matter what you choose.” He concludes with the message, “I can’t emphasize enough how deep this insight is.”

While Harris’ intent is to prevent people from being sucked into a limited menu of apps on their smart phone and foregoing a world of other, often more fruitful activities, the lesson is just as apt for investors. It is much harder to make good decisions when you don’t consider the alternatives. As it stands, the vast majority of advisers, for a variety of reasons, focus almost exclusively on financial assets when creating investment plans. But that focus creates a false choice. Worse, when financial assets are overvalued, not only are they a false choice, but a bad choice. Paraphrasing Harris, no matter what you choose, you lose.

The best way to avoid being fooled by false choices (such as picking one fund over another) then is to always consider the broader realm of possibilities. As Harris notes, the types of potentially revealing, but rarely asked questions include things like: “What’s not on the menu?” “Why am I being given these options and not others?” “Do I know the menu provider’s goals?” “Is this menu empowering for my original need, or are the choices actually a distraction?”

And there’s the catch that seriously challenges the assumptions of most investment plans. Does this menu empower your original need? Do financial assets completely fulfill your needs for retirement? Or do they introduce undue risk and uncertainty?

No doubt, financial assets are great when they are working. You put away some money and it just keeps growing. You get a benefit with no extra work. But when they don’t work, and by definition there are no guarantees, they can fall in value at really inopportune times. And if they are overpriced to begin with, declines can be permanent. The nightmare scenario is when this happens at a time when you are too old to recoup losses, but young enough to have to endure the consequences for a long time.

Fortunately, it is not difficult to expand the realm of investment possibilities to non-financial assets. In fact many thoughtful investors may already be doing this on some level anyway – with or without help from their advisers.

One key non financial asset for consideration is cash. Not only does cash serve as a relatively secure store of value, but it also provides an option to buy other assets more cheaply in the future. In addition, real assets like rental properties can produce their own cash flows regardless of prices for the asset. Precious metals don’t produce cash flows, but can help preserve wealth against the threat of inflation. Finally, intellectual capital in the form of new skills that can be remunerated also constitutes a potential avenue for investment.

In many respects then, knowledge is more than just a virtue that can improve people’s lives. It is also a means by which to create, and to some degree, measure wealth. This ends up being a useful concept at times when market prices lose their information content and drift from intrinsic values. While many people enjoy watching prices go up, the reality is that this phenomenon only makes the job of accumulating wealth that much harder. At worst, it sets investors up for a nasty surprise at a time when it is too late to do much about it.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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Pacad Investment Ltd. Takes Position in Citrix Systems, Inc. (CTXS)
February 18, 2017 7:00 pm|Comments (0)

Ameriprise Financial Inc. now owns 227,327 shares of the cloud computing company’s stock valued at $ 19,371,000 after buying an additional 4,896 …


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The 5 Most-Sold Stocks Of All US Investment Funds
October 14, 2016 10:45 pm|Comments (0)

Hedge funds have struggled to outperform the market in 2016. According to the Barclay Hedge Fund Index, the average net return for hedge funds year to date is 3.43%, compared to 6.1% for the S&P 500. Throughout the second quarter and third quarter, the market has continued its heated pace of growth, even as several worrying trends signal a disconnect from economic reality. For one, nonfinancial-corporate profits from current production (operating income) declined from a 7.6% increase in the year ended June 2015 to a 9.3% contraction for the year ended June 2016. At the same time, nonfinancial corporate debt rose from 601% in the second quarter 2015 to 697% in the recent second quarter, the highest since 717% reached in second quarter 2010, according to Moody’s Analytics.


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Why Dedicated Servers Are Known As Smart Investment And Technology Management Move
January 7, 2016 3:15 am|Comments (0)

The deployment is as easy as installing a WordPress site. Needless to say … In a few minutes, data backup and hosting applications let you use highly secured servers reserved for your business located in world-class data centers. And let you be the


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