Weekly Updates (3-11-2015)
- joshnosal
- Mar 11, 2015
- 3 min read
————— Summary —————
Mile Stones in the Market
The Key to Buffett's Success
Top 10 Emerging Technologies in 2015
Blackstone Targets Africa's Power Shortage
GM Buys Back $5 Billion Worth of Shares
Buffett Warns About Banks
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NASDAQ has reached a near all-time high since 2000 with the S&P 500 continuing on a bull trajectory that is close to being the third longest since 1929. However, persistent job growth has created an increase in wages and will almost inevitably lead to a Federal hike in rates within the year. Nevertheless, investors feel that the rising interest rates to be imposed by the Fed will actually correct market errors without sending the market into a slump.
The World Economic Forum has identified 10 emerging technologies:
Fuel Cell Vehicles—create potential to scale rapidly; revolutionize large-scale supply networks; and help meet sustainability goals.
Next Generation Robotics—allow for the advancement in fields of manufacturing assembly lines, agriculture, and nursing care.
Recyclable Thermostat Plastics—may now be heated and reshaped more than once; allow for the reduction in landfill waste; and have been predicted to replace non-recyclables within the next 5 years.
Precision Genetic Engineering Techniques—great potential to enhance crop yields once the global controversy is addressed.
3D Printing—caters to consumer needs and alleviates constraints of mass production; the next step will be printing integrated electronics.
Emergent Artificial Intelligence—early use in cancer treatment options; technology uses large quantities of data to facilitate automated decision-making.
Distributed Manufacturing—works to replace supply chain elements with digital information to assist local manufacturers and end users in the assembly/production process.
“Sense and Avoid” Drones—complete tasks too dangerous for humans.
Neuromorphic Technology—includes advanced computer chips; the next challenge will be developing software to maximize their potential; IBM is a major player right now with its Truenorth chip.
Digital Genomes—work to enable diagnoses based on tumor genetic makeup; allows for more precise therapies.
The combination of a large amount of capital and a desperate need for energy has made Africa an attractive market for Blackstone. Blackstone is now focusing on infrastructure development. They have adopted a conservative strategy based on Blackstone’s expertise in energy development paired with wealthy individuals in Africa who have experience in the market. This strategy creates a safe opportunity to break into the country’s equity market.
GM has pushed for a buyback of shares to avoid a recent distracting proxy fight. The buyback will also serve to improve stagnant share prices and avoid a board disruption as a potential director vies for position. GM has announced that it will dip into the $49 billion bailout it received in 2009. The market has received this strategy well as GM stock rose by 3% in response to this news.
Warren Buffet, in his annual letter, again bashes investment bankers and private equity practices. According to Buffett, bankers are paid for their actions, encouraging buyouts at 20-50% premiums resulting in value distortion. Despite this criticism, he has public praised certain industry leaders at Goldman Sachs and JPMorgan. Buffett seems to find a lot of value in bankers that focus on stepping into the shoes of their clients. With regard to private equity, Buffett draws attention to the fact that LBOs used by private equity firms transform businesses into merchandise to be bought and sold without developing the company’s underlying value. This starkly contrasts with Berkshire Hathaway’s long-term strategy of taking interest in its investment targets without a quick turnaround.
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In the past 50 years Warren Buffett has brought the Berkshire Hathaway stock price from $19.46 to $146,186, a gain of 751,113%, with average earnings of almost 20% on equity. The key to this success rides on Berkshire’s strategy of retaining all earnings, compounding these with the ROE of 19.4%. Without issuing dividends, the firm has been able to employ a modest amount of leverage, a stark contrast with banks that use 10-20x leverage.
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