In 1965 foreign ownership of USA stocks totaled about 2%, in 1990 it had risen to 10% and by 2015 to 26%. That the foreign ownership is so high surprised me. Holdings in retirement accounts (defined benefit accounts, IRAs etc.) was under 10% in 1965, rose to over 30% in 1990 and to about 40% in 2015. The holdings in retirement accounts doesn’t really surprise me.

The combination of these factors (and a few others) has decreased the holding of USA stocks that are taxable in the USA from 84% in 1965 to 24% in 2015. From the report

As with much economic data it isn’t an easy matter to determine what values to use in order to get figures such as “foreign ownership.” Still this is very interesting data, and as the report suggests further research in this area would be useful.

Related: There is No Such Thing as “True Unemployment Rate” – The 20 Most Valuable Companies in the World – February 2016 (top 10 all based in the USA) – Why China’s Economic Data is Questionable – Data provides an imperfect proxy for reality (we often forget the proxy nature of data)

In Q1 2016, we repurchased 3.2 million shares of Alphabet Class C capital stock for an aggregate amount of $2.3 billion, of which $2.1 billion was paid during the quarter. The total remaining authorization for future repurchases is approximately $1.4 billion. The authorization has no expiration date.

And they tout non-GAAP earnings, while of course reporting the GAAP earnings as required. One of the things executives like about non-GAAP earnings is they pretend the stock they give away to themselves doesn’t have a cost to shareholders. When you call attention to spending over $2 billion in the quarter to buy back 3.2 million shares it seems silly to then claim that the stock you gave away shouldn’t be considered as an expense.

How can you pay over $2 billion just to get back the stock you gave away and also pretend that money is not really a cost? And on top of that you promote the buyback as evidence that the stock is really worth more than you paid (after all why would you pay more than it is worth). But when you give the stock away to yourself that shouldn’t be seen as a cost? It is amazing they can do this and think they are not doing anything wrong.

And where does Google stand compared to last year for outstanding shares? 689,498,000 last year compared to 699,311,000 now. So nearly 10,000,000 more shares outstanding, even after they bought back 3.2 million this quarter. In the previous quarter there where 697,025,000 shares outstanding. All these figures are weighted-average diluted share balances for the entire quarter.

Google CEO, Sundar Pichai, got a $100 million stock award in 2015 (before being promoted to CEO). After the promotion he will be taking an additional “$209 million in stock granted every other year (he has to stay at Google for four years after each grant to cash them out).” He was granted $335 million in stock in 2014 and $78 million in 2013. You can see how quickly the executives paying themselves this well (this is 1 executive, a highly ranked one but still just 1) can dilute stockholders positions even with multi billion dollar buybacks in a quarter.

You don’t hear companies promoting how much dilution they are imposing on shareholders in order to provide windfalls for executives. I wonder why? No I don’t. I do wonder why reporters promote the buybacks and ignore the fact that the dilution is so extreme that it even overwhelms billions of dollars in buybacks.

Alphabet reported $6.02 a share in earnings and $7.50 a share in non-GAAP “earnings” for the latest quarter.

As I have said before I believe Google’s ability to extract enormous profit from their search dominance (as well as YouTube and adwords) makes it a very compelling long term investment. It would be better if the executives were not allowed to take such huge slices from the cash flow Google generates. But it is able to sustain those raids on stockholder equity and still be a good investment and appears likely to be able to continue to do so. Though I think they would be better off reducing the amount executives take going forward.

Related: Google Diluted Shareholder Equity by 1% a year (2009-2013) – Executives Again Treating Corporate Treasuries as Their Money (2011) – Another Year of CEO’s Taking Hugely Excessive Pay (2009) –

Apple lost $131 billion in market cap since my October post. Alphabet (Google) lost just $1 billion in market cap, and for a short time moved past Apple into the top stop. Facebook achieved a rare increase during this period, gaining $16 billion and moving up 1 spot on the list. All the top 10 most valuable companies are based in the USA once again.

The next ten most valuable companies:

Market capitalization shown are of the close of business February 26th, as shown on Google Finance.

The 11th to 20th most valuable companies includes 4 USA companies, 3 Chinese companies and 3 Swiss companies. Toyota fell from 20th to 25th and was replaced in the top 20 by Verizon, which resulted in the USA gaining 1 company and costing Japan their only company in the top 20. Pfizer also dropped out and was replaced by Walmart.

The total value of the top 20 decreased by $189 billion since my October post: from $6.054 trillion to $5.865 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 $5.865 trillion, an increase of $143 billion. The companies making up the top 20 has changed in each period.

Related: Global Stock Market Capitalization from 2000 to 2012 – Stock Market Capitalization by Country from 1990 to 2010 – Historical Stock Returns

A few other companies of interest (based on their market capitalization):

Pfizer, USA, $190 billion.
Coca-Cola, USA, $187 billion.
Royal Dutch Shell, Netherlands, $181 billion.
Visa, USA, $178 billion.
Toyota, Japan, $177 billion.
Anheuser Busch, Belgium, $175 billion.
Tencent, China, $170 billion.
Alibaba, China, $167 billion.
Chevron, USA, $159 billion.
Oracle, USA, $158 billion.

Walt Disney, USA, $156 billion.
Samsung, Korea, $153 billion**
China Construction Bank, China, $148 billion*
Agricultural Bank of China, China, $148 billion*
PepsiCo, USA, $144 billion
Merck, USA, $143 billion.
Bank of China, China, $136 billion*
Bank of America, USA, $133 billion.
Gilead Sciences, USA, $122 billion.
Citigroup, USA, $119 billion.

Novo Nordisk, Denmark, $108 billion
Sanofi, France, $107 billion
China Life Insurance Company, China, $80 billion

Market capitalization figures were taken from Google finance. ADRs were chosen, if available (so I get the cap reported in USD).
* market cap taken from Google finance based on the Hong Kong exchange (no ADRs option was available) and converted to USD.
** market cap taken from Google finance based on the Korean exchange and converted to USD.

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:

The current marketocracy results can be seen on the Sleep Well marketocracy portfolio page.

Related: 12 Stocks for 10 Years, Jan 2014 Update – 12 Stocks for 10 Years – 12 Stocks for 10 Years: January 2012 Update – October 2012 Update – 12 Stocks for 10 Years, Oct 2010 Update

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%

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:

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.

Related: Global Stock Market Capitalization from 2000 to 2012 – Stock Market Capitalization by Country from 1990 to 2010 – Historical Stock Returns

A few other companies of interest (based on their market capitalization):

Alibaba, China, $207 billion.

Samsung, Korea, $196 billion.**
Walt Disney, USA, $194 billion.
Visa, USA, $191 billion.
Anheuser Busch, Belgium, $189 billion.
Verizon, USA, $189 billion.
Walmart, USA, $186 billion.
Coca-Cola, USA, $186 billion.
China Construction Bank, China, $184 billion*.
Bank of America, USA, $178 billion.
Tencent, China, $179 billion*.
Chevron, USA, $169 billion.
Royal Dutch Shell, Netherlands, $167 billion.
Oracle, USA, $166 billion.
Citigroup, USA, $162 billion.
Agricultural Bank of China, China, $160 billion**
Gilead Sciences, USA, $160 billion.
Merck, USA, $155 billion.

PepsiCo, USA, $150 billion
Bank of China, China, $138 billion
Sanofi, France, $130 billion
China Life Insurance Company, China, $115 billion
Novo Nordisk, Denmark, $110 billion
BHP, Australia, $88 billion (down $71 billion since October 2014)

All these figures are approximate as stock buybacks and distributions are only shown quarterly, with Apple’s continued large buybacks the market cap is likely a small bit overstated for them (if I used only the price of GOOG, instead of using GOOG and GOOGL, Apple would be worth more that the other 2).

Market capitalization figures were taken from Google finance (Yahoo has vastly different market caps for GOOG and GOOGL which are just different classes of stock of the same company). ADRs were chosen, if available (to have the cap reported in USD).
* market cap taken from Google finance based on the Hong Kong exchange (no ADRs option was available) and converted to USD.
** market cap taken from Google finance based on the Korean exchange (ADRs doesn’t show market cap) and converted to USD.

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:

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.

Related: Historical Stock Returns – Global Stock Market Capitalization from 2000 to 2012 – Stock Market Capitalization by Country from 1990 to 2010 – Solar Energy Capacity by Country (2009-2013)

A few other companies of interest (based on their market capitalization):

Toyota, Japan, current market cap is $213 billion.
Pfizer, USA, $210 billion.
Procter & Gamble, USA, $210 billion.
Bank of China, China, $203 billion**.
Amazon, USA, $198 billion.
Verizon, USA, $192 billion.
Oracle, USA, $191 billion.
Royal Dutch Shell, Netherlands, $184 billion.
Chevron, USA, $191 billion.
Walt Disney, USA, $187 billion.
Samsung, Korea, $183 billion.****
Agricultural Bank of China, China, $178 billion**
Gilead Sciences, USA, $167 billion.
Merck, USA, $167 billion.
BHP, Australia, $114 billion (down $45 billion since October 2014).

Apple is very close to being more valuable than the 2nd and 3rd place companies together: Apple is worth $741 billion, Google and Microsoft together are worth $744 billion. All these figures are approximate as stock buybacks and distributions are only shown quarterly, with Apple’s continued large buybacks the market cap is likely a small bit overstated for them (if I used only the price of GOOG, instead of using GOOG and GOOGL, Apple would be worth more that the other 2).

Google issued a 3rd glass of stock GOOG that doesn’t have voting rights. Depending on if you used GOOGL or GOOG to value the company you get a difference of over $10 billion. There is a special class of stock for Larry Page, Sergy Brin that has 10 times the voting rights of GOOGL. I feel GOOGL is the real stock and GOOG is a derivative without voting rights (but otherwise suppose to be equal to GOOGL). Still I used a value in between the values given using either one of those prices to value the company.

* China Mobile market cap taken from their website and converted to USD.
** calculation by taking cap from MarketWatch and converting to USD – They are quoting the cap in HK$.
*** from Google finance (the market cap varies depending on which symbol you use)
**** from Yahoo finance converting to USD from Korean Won

I also close out the interview with some tips I have shared on this blog over the years

I think those that find this blog worthwhile will also enjoy the interview so I hope you read the full interview.

Related: more interviews with John Hunter – Investment Options Are Much Less Comforting Than Normal These Days – How to Protect Your Financial Health

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.

Monument to the People’s Heroes with the Shanghai skyline in the background. See more photos by John Hunter

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.

During that period the boom in communications, electricity, industrialization, air conditioning, modern farming practices (which continues booming significantly after 1973) indoor plumbing… increased the economy dramatically. We have had a subsequent period of massive boom related to computerization and software advances and health care drugs and technology. And Japan was a bit offset booming from 1950 to about 1990. And China has been booming from about 1990 to now.

While we may see similar boom, perhaps from robotics and continuing with health care technologies and perhaps India, Africa and South America could boom in massive globally macro-economicly significant ways. But it also is possible these huge macro-economic booms are not repeated. If so, it is natural that the historical stock market return would be reduced.

To a lessor extent financial engineering that was wise and useful, as apposed to just reckless gambling has boosted stock returns significantly. It is likely that won’t be repeated.

I like the idea of paying attention to long term historical data. And that has value for stock investors. But when you look at long term data you have to consider whether that data is not just providing measurements of what stock market performance can be expected to be (as say you would from testing scientific facts such as the boiling point of water). The historical stock data was true for a period of time and informs us about that period. But the next 40 years will be much different and to what extent the past data is relevant is open for debate.

Related: Global Stock Market Capitalization from 2000 to 2012 – Misuse of Statistics, Mania in Financial Markets – Are Stocks Still Overpriced? (2008) – Data Can’t Lie, But People Can Be Mislead – Investing Return Guesses While Planning for Retirement – S&P 500 Dividend Yield Tops Bond Yield: First Time Since 1958 (2008)

Alibaba makes the top ten, just weeks after becoming a publicly traded company. The next ten most valuable companies:

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.

China Construction Bank Corporation, China, $182 billion**.
Merck, USA, $161 billion.
BHP, Australia, $159 billion.
Walt Disney, USA, $154 billion.
Samsung, Korea, $152 billion.
Tencent, China, $143 billion**.
Bank of China, China, $133 billion**.

* China Mobile market cap taken from their website and converted to USD.
** calculation by taking cap from Yahoo Finance and converting to USD – even though it doesn’t say I am guessing they are quoting the cap in HK$ – which Google Finance also does.
*** from Google finance (the market cap varies depending on which symbol you use)

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.

Jeff Bezos spending spree – The day following the unveiling of the Amazon Fire 3-D cell phone, we watched as Amazon’s stock price plummeted. Why? Well, investors were putting pressure on Amazon to stop the overwhelming spending spree they’ve been on investing in new products and fulfillment centers. And this continues the long term trend of Amazon delaying earnings to invest in the long term. The stock price has done very well, though under some pressure the last year. The level of spending was just too much for some investors.

Jeff Bezos announced that although he understands that the amount of spending is a bit overwhelming, he feels as though it’s necessary for long term production. In the same announcement, he explained that as a result of that spending, Amazon would be generating a loss for the quarter and most likely the next. Because investors don’t buy in on losses, this presented an opportunity to make successful “Put” trades.

Amazon unveils a book subscription service – A couple of weeks ago, Amazon announced a new, “unlimited” (though limited to participating publishers which leaves out many, probably most, popular books) eBook subscription that gave users access to hundreds of thousands of book titles. As a result, the following day we saw a decent increase in Amazon’s stock price. As with the Amazon Fire 3-D cell phone, this presented traders with an opportunity to make informed, successful trades.

Amazon’s Binary Options Candelstick Chart- Source: Yahoo Finance

Earnings reports – Earnings reports offer the ideal window to make some profits, and when Amazon  released its second quarter earnings report, the resulting down trend, was a binary options trader’s dream. Based on the investments into new products and fulfillment centers, investors expected a loss similar to the drop in net income in April 2011. However, they didn’t expect for losses to be so large. In their Q2 earnings report, Amazon posted a loss of $126 million. As a result, Friday brought a dramatic landslide to the Amazon stock chart with shares falling nearly $40 each.

Trading with the news can be very profitable

Although, we talk about Amazon, in this post – this strategy of trading with news, and following the trends that ensue can be applied to any stock. Every day, events happen, such as product launches, earning’s reports, changes to high level management, scandals, all these have an impact on the price of a stock, and if we are ready to trade as these events unfold in real-time, as traders we can make hay as the sun shines.

They key, is to have your finger on the pulse, stay abreast of daily events, and news stories that have a direct impact on stocks, and be ready to trade on the back of them.

Related: Selling Covered Call Options – Google to Let Workers Sell Options Online