Tag: investing

Thoughts on how to invest right now.

Yesterday, the stock market tanked, having its worst day in two years. Meanwhile, interest rates are at new record lows.

The “search for yield” is no longer just the refrain of central bank governors. Today, a real person with a self-proclaimed ignorance of economics asked me this:

If I can’t put my money in the bank, and I can’t put my money in the share market, where can I put it?

The short answer is I don’t know.

I’d be more confident about Australia’s medium-run growth prospects if there was not such strength in the property market. But the risk I see is of a property market correction. That makes me nervous about property.

A fall in property prices would crimp consumer spending and hurt the stock market. So I’m nervous about stocks.

But the risk of a property correction is just one of the factors that makes me nervous about buying into Australian companies. I’m also worried about China. On anyone’s terms China has had a remarkable run. What happens when that ends?

Overall, as an Aussie, we’re very exposed to Australia as it is. Our employment prospects hinge (primarily) on the economy here. Should our investment returns be correlated with our employment prospects? It would seem unwise. So we turn our gaze overseas.

Investing globally looks risky, though. America’s S&P 500 is the highest it has ever been. And the ratio of stock prices to stock earnings is about a third above its long term average.

S&P500 at record highs
S&P500 at record highs

The reason people are so into stocks, of course, is the failure of bonds to offer anything approaching a reasonable return. Most countries can take your money for 10 years and reimburse you less than two percent a year -unadjusted for inflation.

But investing overseas looks relatively wise. If you think the global economy is normalising, you may be more inclined to bet on the Aussie dollar falling rather than rising. By buying foreign assets now, you gain the chance to get some positive returns in the foreign exchange market.

I personally wouldn’t buy Apple shares, because even though they have a lot of cash, I think they’re out of a far more precious commodity – ideas. The Apple watch is a giant distraction from the fact Apple depends almost entirely on the iPhone, a category where people replace their products every few years.

apple
Google trends data – this watch is not the saviour Apple wanted.

America is not completely devoid of investment opportunities though. A company that can benefit from a lower oil price might be a good safe buy. Perhaps an airline.

Nevertheless, upsides will be limited when buying established companies. Those with appetite for risk might be looking at other options.

I’ve been following Bitcoin for a few years, and while I remain skeptical, I think the hype-to-potential ratio is as good as it has been in a long time. Bitcoin’s price has stabilised (well, stable for Bitcoin) in the mid-US$200s.

btc

Bitcoin will live and die on its technical usefulness in transactions. I don’t think volatility is the problem. Bitcoin’s price can be unstable across a week or a month, but it won’t matter if people can buy some, transfer funds, and then sell it a few minutes later without accepting too much risk.

If there is a constant supply of people wanting to use it for transactions, then demand will be strong. Other people will hold it as a longer-term investment. The more this latter category grows, the fewer Bitcoins will be in circulation for transacting, and the more the price will rise.

The key will be simplifying the interface so people can use Bitcoin easily and safely.

For that reason recent developments that see infrastructure being developed for transacting in Bitcoin are encouraging. Bitcoin is now legal for transactions in California. An avalanche of new bitcoin transaction apps is hitting the market. And the biggest investment banks are getting involved with the currency.

The biggest risk Bitcoin faces is regulatory. Its appeal to organised crime makes it a target for governments, and so it remains an option only for the bolder investor. (I haven’t got any yet, but I am considering doing so. If I do I shall write up my experience).

So dear readers, if you want to dispute my assertions, share any stock tips, or provide investment wisdom, please leave a comment below!

Why the Nobel Prize is worth a little less this year.

This year’s Nobel Laureates got a raw deal.

The prize of 8 million Swedish Kronor was the least valuable prize awarded since 1990. Eight million Swedish kronor is worth $1,280,000 in Australian dollars, which is nice, sure.

But it’s not that rich when you consider the 2001 prize was 10 million krona, worth over $A1.9 million.

nobel 2012
Me, Stockholm, 2012

The value of the Nobel prize has varied a lot over time. Alfred Nobel gave the Nobel Foundation 31 million krona in his will, with instructions to give prizes to those who have conferred ‘the greatest benefit on mankind.’ The first prize was 150,000 krona, (worth 8 million krona in today’s money.)

nobel value

As the graph above shows, the foundation did a pretty bad job of protecting the buying power of the prize. The value of it fell steeply pretty much straight away. Some of the investment downturns coincided with World Wars and the Nobel Prize reached a low ebb in 1945 when its buying power was less than 30 per cent of in 1901.

Of course, that was the lucky year for Australia’s Howard Florey. Not only was his prize worth the least ever, but he also had to split it with two others, Fleming and Chain. That’s what you get for inventing penicillin.

The Nobel Foundation now has a very large sum of money. They turned the initial 31 million Krona into over 3 billion today, and give away just about a quarter of a percent of that total for each prize (of which there are six).

fund
There is detailed data only on the first year and then years since 1975. I interpolated some data after 1901 for illustrative purposes.

 

 

Nobel instructed the money to be invested in “safe securities.”

The wild variation in the blue line above suggests that is being interpreted fairly liberally.

And when we dive into the Nobel Foundation’s annual report, we can see they are invested quite aggressively.Screen Shot 2014-10-14 at 9.48.28 amSo if you have a Nobel Prize winning discovery, my advice is to save it up and release it in a year when the global stock-markets are doing well.