Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 376

Welcome to Firstlinks Edition 376

  •   24 September 2020
  • 2
  •      
  •   

Weekend market update: The S&P500 in the US rose strongly on Friday, up 1.6%, while NASDAQ recovered some lost ground, rising 2.3%. However, this was at the end of a losing week where the US gave up 0.6% and Europe was down even more on COVID-19 worries. France and the UK are struggling. Friday in Australia produced the amazing result that Westpac, fined $1.3 billion the day before, rose 7.4% on the Government's intention to loosen credit laws. Banks pushed the S&P/200 index to a gain of 1.7% over the week.  

***

The US tech index, the NASDAQ, peaked on 2 September 2020 at 12,058 and closed three weeks later at 10,632. On the same days, Apple hit US$137.98 and then fell to US$107.12. These falls of over 10% and 20% seem high but both were simply returning to their early August levels. It's hardly a rout when a month's gains are given back, although Morgan Stanley analysts warned the sell off was only half way done.

The bigger question is whether such a stock correction will scare off the 'Robinhood' traders. Much of the demand for tech has come from new retail investors living the 'markets only rise' dream, buying US$500 billion notional value of stock options in August alone, or five times the previous monthly high. The options sellers who take the other side of the trade cover their exposures by buying the same shares, adding to demand. For the first time ever, options trades exceeded normal share trades on US stock markets in August.

What happens when these new players realise markets do indeed fall and their options are well out-of-the-money and likely to expire worthless? Perhaps they hang on for a rise. As we discussed in this article on retail investors, it is their impact on the actions of professionals that has the most impact on the stock market. The chart below shows the incredible growth (blue line, almost vertical) in 'small trader call buys', that is, stock options bought by retail punters hoping the market will rise. Apple's fall will test the mettle of many of them.

And yet amid the tech 'correction', an eight-year-old cloud-data software company floated with a value of US$70 billion. Snowflake's shares rose from its issue price of US$120 to reach a high on the first day of US$319. At its closing price, it was worth six times more than its last funding round as a private company as recently as February 2020.

In case you are wondering who gets a piece of the action when first day trading leaves US$4.3 billion on the table, the answer is, those closest to the investment banks handling the deal. It's impossible to receive an allocation unless you know someone or are a big client, with Warren Buffett making a billion on the day. As David Dechman, once Head of Private Wealth Management at Goldman Sachs, confirmed in an internal memo written many years ago, the system allows the rich and connected to become even wealthier (sourced from Bill Gurley's Twitter feed via AFR):

"The hot deals are obviously a currency, which can be used to please institutions, please high net worth individuals, acquire new customers ..."

Does the same thing happen in Australia now? Of course it does. Winning the hot deals is not just about the fees the investment bankers earn. Having said that, the first day of trading on the ASX on Wednesday for the P2P lender Plenti (ASX:PLT, previously RateSetter) closed at $1.30 versus its $1.66 issue price. It hit a low of $1.16 on Thursday suggesting some buyers were there for the stag which never turned up.

This week, a focus on tech and innovation

We continue our Interview Series with Thomas Rice, who manages the innovation fund that delivered 43% in the last year by finding the best new ideas around the world. He describes his biggest positions and what he likes and does not like in global tech. How could you not love a job like that with a world of new tech to pick from?

Then in the high-profile Battery Week, a comprehensive review of Tesla looks at whether the current price can be justified. The market did not like Elon Musk saying major cost improvements could take three years, and Vikram Mansharamani takes a deep dive into the bubble of Tesla's share price.

Adrian Fyffe describes the impact of currency movements on a global portfolio, and ways that Australian investors can access the big US names like Facebook, Apple and Google while minimising costs in FX transactions.

Moving on from tech, Christine Benz takes an unusual look at retirees who have enough money and would rather protect what they have than push for more, while Wade Matterson shows how, even for relatively wealthy retirees, the current age pension provides a safety net if the market falls. It's a reassurance but financial independence is still the best outcome.

Are we facing a W-, V- or U-shaped recovery? Kristiaan Rehder thinks it's more likely a K, with some companies doing very well as the expense of others.

In the final three articles by Leisa on our Survey, she covers your views on the increase in Super Guarantee and fall in JobKeeper, how you have changed your investment portfolio and your economic outlook, and how COVID-19 has affected you including long-term consequences. There's a fascinating collection of hundreds of comments on how you think the world will change ... or not.

In a footnote to last week's article on how LICs and LITs are facing challenges, another conflict appeared in the media this week with high-profile bankers Rob Ferguson and Malcolm McComas running the following advertisement in The Australian Financial Review

 

Graham Hand, Managing Editor

Latest updates

PDF version of Firstlinks Newsletter

Australian ETF Review from Bell Potter

ASX Listed Bond and Hybrid rate sheet from NAB/nabtrade

Indicative Listed Investment Company (LIC) NTA Report from Bell Potter

LIC Monthly Report from Morningstar

Plus updates and announcements on the Sponsor Noticeboard on our website

 

banner

Most viewed in recent weeks

Have the rules of retirement investing changed?

In retirement, we still want to reduce stock volatility while generating cash flows. The two needs have not changed, but the reward expected in the old days from interest payments has gone. What should we do?

18 Aussie names for your watchlist

A Morningstar stock screener reveals a cross-section of companies with competitive advantages that are trading at material discounts to estimated value. This is a list of 18 highly-rated names worth watching.

Hamish Douglass on what really matters

Questions on the stock market/economy disconnect, how to focus long term, technology's growing role, income in a low-rate world, Modern Monetary Theory and endless debt and the tooth fairy.

Kate Howitt: investing lessons and avoiding the PIPO trade

Kate Howitt identifies the stocks she likes and the disappointments, gives context to the increasing role of retail investors, and explains why the market is more of a 'voting not weighing' machine than ever before.

Buffett and his warning about 'virtually certain' earnings

While many investors are happy to invest in any online companies, Warren Buffett focusses more on the quality of future growth, buying companies whose earnings are 'virtually certain' in 10 or 20 years from now.

Welcome to Firstlinks Edition 378

Budgets are forecasts, and more than most, Josh Frydenberg and Treasury waved a wet finger in the air in compiling the 2020 version. How many companies will now employ a new apprentice for $100 a week subsidy? Which back-of-the-envelope showed 3.5 million businesses would use the instant asset write off? And the $17.9 billion for super savings based on the YourSuper proposal is wishful thinking.

  • 8 October 2020

Latest Updates

Weekly Editorial

Welcome to Firstlinks Edition 380

Former US Vice President Al Gore once told me he needed to raise only US$70,000 when he first ran for politics. Now Biden and Trump spend billions just on television advertising. Little wonder so many favours are owed after each election, and this time, it really matters. Plus investing insights from Kate Howitt, Hamish Douglass, Roger Montgomery, Phil Ruthven and Morningstar's top stock picks.

  • 22 October 2020
Interviews

Kate Howitt: investing lessons and avoiding the PIPO trade

Kate Howitt identifies the stocks she likes and the disappointments, gives context to the increasing role of retail investors, and explains why the market is more of a 'voting not weighing' machine than ever before.

Investment strategies

Hamish Douglass on what really matters

Questions on the stock market/economy disconnect, how to focus long term, technology's growing role, income in a low-rate world, Modern Monetary Theory and endless debt and the tooth fairy.

Investment strategies

Buffett and his warning about 'virtually certain' earnings

While many investors are happy to invest in any online companies, Warren Buffett focusses more on the quality of future growth, buying companies whose earnings are 'virtually certain' in 10 or 20 years from now.

Shares

18 Aussie names for your watchlist

A Morningstar stock screener reveals a cross-section of companies with competitive advantages that are trading at material discounts to estimated value. This is a list of 18 highly-rated names worth watching.

Economy

Are debt and its servicing cost serious worries?

The impact of the pandemic on Australia's debt and deficit has forced the government into borrowing on a scale unimaginable at the start of 2020. What are the implications, and what is even more important?

Investment strategies

Why not use options to protect your share portfolio?

Many investors ask why fund managers do not protect the portfolio downside by using options. All insurance has a cost, and achieving full protection is expensive, but there are other ways to use options.

Property

A-REITs offering much-needed income

Many listed property stocks were hard hit by COVID, especially in retail, but foot traffic outside Victoria has held up relatively well. Some sectors are now good value for the recovery and less working from home.

Sponsors

Alliances

© 2020 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use.
Any general advice or class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.