Since April of 2005, the portfolio Marketocracy calculated annualized rate or return is 7.1% (the S&P 500 annualized return for the period is 6.9%). Marketocracy subtracts the equivalent of 2% of assets annually to simulate management fees – as though the portfolio were a mutual fund. Without that fee, the return beats the S&P 500 annual return by about 220 basis points annually (9.1% to 6.9%).
Since the last update, I have added Gilead to the portfolio. I also dropped PetroChina and Templeton Dragon fund (as I had mentioned I would do).
The current stocks, in order of return:
|Stock||Current Return||% of sleep well portfolio now||% of the portfolio if I were buying today|
|Amazon – AMZN||736%||12%||9%|
|Google – GOOG||400%*||21%||15%|
|Danaher – DHR||129%||8%||8%|
|Apple – AAPL||85%||17%||17%|
|Toyota – TM||50%||8%||10%|
|Intel – INTC||46%||7%||8%|
|Pfizer – PFE||21%||6%||6%|
|Cisco – CSCO||14%||3%||3%|
|Abbvie – ABBV||1%||6%||8%|
|Gilead – GILD||-6%||6%||8%|
The current marketocracy results can be seen on the Sleep Well marketocracy portfolio page.
I make some adjustments to the stock holdings over time (selling of buying a bit of the stocks depending on large price movements – this rebalances and also lets me sell a bit if I think things are getting highly priced. So I have sold some Amazon and Google as they have increased greatly (and I have added to ABBV and GILD at nice prices). These purchases and sales are fairly small (resulting in an annual turnover rate under 2%).
I would consider selling Cicso. I also would like to find a good natural resource stock or two if I can find good stocks. I do feel the portfolio is too concentrated in technology and medical stocks so I am would choose a stock with a different focus if it were close to as good as an alternative focused on technology or health care, but I will also buy great companies at good prices even if that results in a less diverse portfolio.
I don’t try and sell significant portions of the portfolio and have a large cash balance to time the market. I will, however, sell some of the individual positions if I think the price is very high (or to rebalance the portfolio a bit).
The market has gone down a fair amount recently and may go down more. It may be in that downdraft I will find a nice candidate to add at an attractive price.
If you wonder why the Apple return isn’t higher, I debated adding it at the outset but decided against it. So I only started adding Apple in 2010 and added to that position over the next several years.
* Marketocracy seems to have messed up the returns for Google (probably due to the split); this is sad as their purpose for me is to calculate returns, but my guess is between 350-450%
|4||Exxon Mobil||USA||$342 billion|
|5||Berkshire Hathaway||USA||$340 billion|
|9||Wells Fargo||USA||$282 billion|
|10||Johnson & Johnson||USA||$281 billion|
Google and Amazon were star performers in the last 4 months with Google up $127 billion and Amazon increasing $96 billion moving Amazon from outside the top 20 into 8th place. Facebook increased in value by $64 billion and moved from the 18th largest market cap to 7th. The China market declined quite rapidly since June and the largest Chinese companies saw significant drops in market cap.
Industrial & Commercial Bank of China and China Mobile dropped from the top 10 (replaced by Facebook and Amazon). That results in USA companies holding the top 10 spots (the next 5 are either Chinese or Swiss).
The next ten most valuable companies:
|11||Industrial & Commercial Bank of China||China||$250 billion*|
|12||China Mobile||China||$247 billion|
|14||Petro China||China||$241 billion|
|16||JPMorgan Chase||USA||$241 billion|
|17||Hoffmann-La Roche||Switzerland||$231 billion|
|20||Procter & Gamble||USA||$210 billion|
Market capitalization shown are of the close of business October 30th, as shown on Google Finance.
The 11th to 20th most valuable companies includes 3 Chinese companies, 3 USA companies, 3 Swiss companies and 1 Japanese company. Alibaba, Tencent, China Construction Bank and Walmart dropped out of the top 20 (replaced by Amazon, Pfizer, Proctor & Gamble and Toyota). Alibaba remained above $200 in market cap making it the only company worth more than 200 billion that missed the cut. In the top 20 the USA gained 2 spots, China lost 3 and Japan gained 1.
The total value of the top 20 has barely changed since my June post on the top 20 most valuable companies in the world: from $6.046 trillion to $6.054 trillion. Since my October 2014 post of the 20 most valuable companies in the world the total value of the top 20 companies has risen from $5.722 trillion to $6.054 trillion, an increase of $332 billion. Several companies have been replaced in the last year to create the current top 20 list.
A few other companies of interest (based on their market capitalization):
The 10 publicly traded companies with the largest market capitalizations. Since October of last year the top 20 list has seen quite a bit of profit for stockholders (mainly in Apple and Chinese companies).
|4||Exxon Mobil||USA||$352 billion|
|5||Berkshire Hathaway||USA||$346 billion|
|6||China Mobile||China||$340 billion*|
|7||Industrial & Commercial Bank of China||China||$306 billion**|
|8||Wells Fargo||USA||$292 billion|
|10||Johnson & Johnson||USA||$273 billion|
Apple’s market cap is up $115 billion since the last list was created in October of 2014. That increase is more than 50% of the value of the 14th most valuable company in the world (in October 2014).
China Mobile increased $100 billion and moved into 6th place. Industrial and Commercial Bank of China (ICBC) increased $78 billion to move into 7th place.
Exxon Mobil lost over $50 billion (oil prices collapsed as OPEC decided to stop attempting to hold back supply in order to maximize the price of oil). Alibaba (the only non-USA company in the last list) and Walmart dropped out of the top 10.
The total value of the top 20 increased from $5.722 trillion to $6.046 trillion, an increase of $324 billion. Several companies have been replaced in the new top 20 list.
The next ten most valuable companies:
|11||JPMorgan Chase||USA||$250 billion|
|12||China Construction Bank||China||$250 billion**|
|13||Novartis (NVS)||Switzerland||$246 billion|
|14||Petro China||China||$237 billion|
|19||Hoffmann-La Roche (ROG.VX)||Switzerland||$231 billion|
Market capitalization shown are of the close of business last Friday, as shown on Yahoo Finance.
The current top 10 includes 8 USA companies and 2 Chinese companies. The 11th to 20th most valuable companies includes 4 Chinese companies, 3 Swiss companies and 3 USA companies. Facebook (after increasing $21 billion), China Construction Bank (increasing $68 billion – it is hard for me to be sure what the value is, I am not sure I am reading the statements correctly but this is my best guess) and Tencent moved into the top 20; which dropped Procter & Gamble, Royal Dutch Shell and Chevron from the top 20.
A few other companies of interest (based on their market capitalization):
I believe a huge amount of money will be made due to self driving cars. Figuring out who will make that money is not easy.
The value of being able to use the time you are moving to your destination instead of concentrating on driving is huge. And the reduction in deaths, serious injuries, injuries, damages, frustration and waste of time caused by accidents will be a huge benefit to society. Many people attempting to focus on phone calls or whatever else instead of driving create lots of that damage due to accidents.
There will also be big restructuring in how the economy works. Car sharing (such as Zipcar) will greatly increase I think and Uber and Lyft will likely be big players in a move to driverless cars. It sure seems like fewer cars will be needed. Space wasted on parking cars should be greatly reduced. Deliveries will likely see big changes. The impact on the economy will be huge. Even the health care system may see billions in savings.
Toyota is an amazingly well managed company. They should capitalize on any important shifts in the auto industry. But will they do so for driverless cars? Will there be a decrease in demand for cars so large that Toyota losses more than it wins? My guess is the decrease in demand globally will not be huge for the next 10 years (of course I could be wrong). My guess is Toyota will do well, but may be caught a bit behind, but then will come back strongly.
For those that don’t think Toyota can innovate, remember the Prius. Also they have been big investors in robots. That they haven’t turned robots into a big business yet though may be a sign of weakness (related to turning innovation into business profits).
I think Toyota will do the best of the large traditional car companies at taking advantage of this opportunity. Honda would be my second pick.
Google has been at the forefront of the driverless car efforts; I first wrote about self driving cars in 2010 about Google’s efforts (on my Curious Cat Engineering Blog). They are willing to take big gambles. They have a very good engineering culture. They are very profitable. They haven’t done much at creating profitable businesses outside of search and ads though. Still I think they may be huge winners in this area. I would guess by licensing technology to others, but things are involving quickly we will see how it plays out.
Tesla has a great engineering culture with a priority given on innovation and customer focus. They are in the car industry though I don’t lump them with the “traditional car companies.” I give weight to the value Elon Musk will bring them. They have big potential to be one of the big winners in a self driving car future. But they have yet to create much profit. Will they be able to turn promising engineering and leadership into a huge business? I think the odds are good but that is still a difficult challenge. Others have much more money than Tesla. Apple has so much money they could even buy Tesla easily.
Elon Musk recently spoke about the current state and near term future:
Musk also stressed that the new Tesla autopilot system, which uses radar, ultrasonic sensing and cameras to create a sort of super-smart cruise control, obstacle avoidance and lane-keeping system, is not the same as a self-driving car.
Apple seems like a long shot to me. It doesn’t seem like the type of business Apple has gone into in the past. The argument for doing so is the huge pile of cash they have (over $170 billion which is an absolutely huge number – it is also a bit fake in that they have started borrowing tens of billions instead of spending that cash). The moves with the cash are based on 2 circumstances. First they would have to pay large amounts of taxes to use that cash in the USA (taxes are delayed as long as they hold it overseas). And second interest rates are so low, borrowing money hardly costs them anything.
One thing for investors consulting historical data to remember is we may have had fundamental changes in stock valuations over the decades (and I suspect they have). Just to over simplify the idea if lets say the market valued the average stock at a PE of 11 and everyone found stocks a wonderful investment. And so more and more people buy stocks and with everyone finding stocks wonderful they keep buying and after awhile the market is valuing the average stock at a PE of 14.
Within the market there is tons of variation those things of course are not nearly that simple, but the idea I think holds. Well if you look back at historical data the returns will include the adjustment of going from a PE of 11 to a PE of 14. Now maybe the new few decades would adjust from PE of 14 to PE of 17 but maybe not. At some point that fundamental re-adjustment will stop.
And therefore future returns would be expected to be lower than historically due to this one factor. Now maybe other factors will increase returns to compensate but if not the historical returns may well provide an overly optimistic view.
And if there is a short term bubble that lets say pushes the PR to 16 while the “fair” long term value is 14, then there will be a negative impact on the returns going forward bringing the PE from 16 to 14. That isn’t necessarily a drop (though it could be) in stock prices, it could just be very slow increases as earning growth slowly pushes PE back to 14.
Another thing to consider is another long term macro-economic factor may also be giving long term historical returns an extra boost. The type of economic growth from the end of World War I to 1973 (just to pick a specific time, there was a big economic slowdown after OPEC drastically increased the price of oil). While that period includes the great depression and World War II, which massively distorts figures, from the end of WW I through the 1960s Europe and the USA went through an amazing amount of economic growth.
The 10 publicly traded companies with the largest market capitalizations.
|2||Exxon Mobil||USA||$405 billion|
|5||Berkshire Hathaway||USA||$337 billion|
|6||Johnson & Johnson||USA||$295 billion|
|7||Wells Fargo||USA||$270 billion|
Alibaba makes the top ten, just weeks after becoming a publicly traded company. The next ten most valuable companies:
|11||China Mobile||China||$240 billion*|
|12||Hoffmann-La Roche||Switzerland||$236 billion|
|13||Procter & Gamble||USA||$234 billion|
|14||Petro China||China||$228 billion|
|15||ICBC (bank)||China||$228 billion**|
|16||Royal Dutch Shell||Netherlands||$227 billion|
|19||JPMorgan Chase||USA||$224 billion|
Petro China reached to top spot in 2010. I think NTT (Japan) also made the top spot (in 1999); NTT’s current market cap is $66 billion.
Market capitalization shown are of the close of business today, as shown on Yahoo Finance.
According to this March 2014 report the USA is home to 47 of the top 100 companies by market capitalization. From 2009 to 2014 that total has ranged from 37 to 47.
The range (during 2009 to 2014) of top 100 companies by country: China and Hong Kong (8 to 11), UK (8 to 11), Germany (2 to 6), France (4 to 7), Japan (2 to 6), Switzerland (3 to 5).
Related: Stock Market Capitalization by Country from 1990 to 2010 – Global Stock Market Capitalization from 2000 to 2012 – Investing in Stocks That Have Raised Dividends Consistently – The Economy is Weak and Prospects May be Grim, But Many Companies Have Rosy Prospects (2011)
A few other companies of interest:
Facebook, USA, current market cap is $210 billion.
Pfizer, USA, $184 billion.
Toyota, Japan, $182 billion.
This is potentially a real risk to Google. The odds of such a huge success it decreases Google’s profits are tiny (I think). But there is a real risk that the increase in Google’s profits going forward are materially affected by a well done competitor to Adsense.
Adwords is Google’s platform for buying ads. Those ads are then displayed on Google’s websites and on millions of other websites. Other websites can host ads via the Adsense program. It seems to me what is really at risk is better seen as Adsense business. The business on Google’s own websites is not at risk (Google’s profit from its sites are double I think all the other sites [via Adsense] combined).
If Amazon took away 10% of what Google’s Adsense business 4 years would have been that is likely material to Google’s earning. Not huge but real.
Even losing the ads on Amazon’s web site is likely noticeable (though not a huge deal, for Google, for many companies it would be significant, I would guess).
There is even the potential Google has to reduce their profitability, on Adsense, to compete – giving web sites a better cut of revenue.
One of the things that annoy me as an investor is how happy the executives are to grant themselves huge amount of pay in general and stock in particular. The love to giveaway huge amounts of stock to themselves and their buddies and then pretend that isn’t a cost.
Thankfully the GAAP rules changed a few years ago to require making the costs of stock giveaways show up on official earnings statements. Now, the companies love to trumpet non-GAAP earnings that exclude stock based compensation to employees.
SG Securities estimates that corporates bought back $480 billion in stock last year, and then reissued about $180 billion.
The theme of the article is that stock buybacks have declined drastically very recently. There has been a huge bubble recently fueled by the too-big-too-fail bailout (quantitative easing). But don’t expect the executives giving themselves tons of stock to decline.
Accounting isn’t as straight forward as people who have never looked at it would like to think. While giving away stock is definately a cost, it isn’t a cash cost. The cash flow statement is best for looking at cash anyway. And the better your company does the more the free spirited giveaway of stock costs (both in your reduced share of the well performing company and the higher cost to buy back the shares they gave away).
They have excuses that they hire people who are not motivated enough to do their job for their pay so they need to offer stock options as a extra payment. But the main reason they like it is they can pretend that the pay to employees isn’t costing as much as it is because we gave them stock options not cash. As if paying $1 billion in cash is somehow more costly than giving away options and then spending $1 billion on buybacks of the stock they gave away.
Options make a lot of sense for small private companies. In a very limited way they can make sense as companies grow. But the practices of executives in huge bureaucracies giving away large amounts of your equity, on top of huge paychecks, is very harmful.
Related: Apple’s Outstanding Shares Increased from 848 to 939 million shares from 2006 to 2013 (while I think Apple’s large buyback is good, the huge share giveaways continue and are bad policy) – Google is Diluting Shareholder Equity by 1% a year (2009-2013) – Executives Again Treating Corporate Treasuries as Their Money
Hedge funds seek to pay the managers extremely well and claim to justify enormous paydays with claims of superior returns. Markets provide lots of volatility from which lots of different performances will result. Claiming the random variation that resulted in the superior performance of there portfolio as evidence the deserve to take huge payments for themselves from the current returns is not sensible. But plenty of rich people fall for it.
As I have written before: Avoiding Hedge Fund Investments is One of the Benefits of Being in the 99%.
This is pretty well understood by most knowledgeable investors, financial planners and investing experts. But funds that charge huge fees continue to get away with it. If you are smart you will avoid them. A few simple investing rules get you well into the top 10% of investors
- seek low fees
- diversify – pay attention to risk of portfolio overall
- limit trading (low turnover)
- use tax advantage accounts wisely (in the USA 401(k)s and IRAs)
From a personal finance perspective, saving money is a key. Most people fail at being decent investors before they even get a chance to invest by spending more than they can afford and failing to save, and even worse going into debt (other than to some extent for college education and house). Consistently putting aside 10-20% of your income and investing wisely will put you in good shape over the long term.
Options can be used as an aggressive strategy to make money with investments. By following news events for quite a few different companies you can put yourself in the position to act when stories break, or events occur which can cause mini trends in their stock price.
Volatile stocks with frequent news provide the opportunity to make money on large changes in price. Amazon is a company an Amazon that often makes headlines. Recently, they have been in the news quite a bit, and savvy binary options traders have been cleaning up.
Binary options are a type of option in which the payoff can take only two possible outcomes. The cash-or-nothing binary option pays some fixed amount of cash if the option expires in-the-money while the asset-or-nothing pays the value of the underlying security.
For example, a purchase is made of a binary cash-or-nothing call option on Amazon at $320 with a binary payoff of $1000. Then, if at the future maturity date, the stock is trading at or above $320, $1000 is received. If its stock is trading below $100, nothing is received. An investor could also sell a put where they would make a payoff if the conditions are met and have to payoff nothing if the conditions are not met.
Examples of big news in the recent past
Amazon Fire Cell Phone – Earlier this year, we watched as Jeff Bezos unveiled the new Amazon Fire 3-D cell phone. As happens in most cases when a company unveils a great new product, we saw this cell phone cause Amazon’s stock price to go through the roof. So, as a trader, seeing the unveiling happen first hand would indicate that the value of Amazon was going to rise, and give the trader unique opportunity to make trades on realistic expectations with this asset.