Nio

I see that Shanghai based electric car manufacturer Nio filed for a listing on the NYSE this month, and this will be quite a large offering bearing in mind that shipping only just started in June on its ES8 seven passenger SUV. Nio means Blue Sky Coming and is one of the recent Chinese EV startups (there are now over 500 of these). Maybe the cash generated from the IPO will enable the company to give Tesla a run for its money, but we must not forget that all the biggest car manufacturers now have electric car products under development too.

AI,FAANG,and MANIA

In the past investment professionals and writers used short phrases like “Senior Sisters of Growth” to refer to a small group of growth stocks. Now they use acronyms like FAANG and MANIA.
I was interested to see which of these companies is liked by Artificial Intelligence at the present time, so used the AIEQ daily portfolio to get some answers as of today.
The largest portfolio holding is Alphabet (Google) with 3.42%,
the fifth largest is Amazon with 1.96%, while Facebook and Apple are both way down the list at 1.43% and 1.36% respectively. So that is Watson’s view today, but this may change quickly. The two things that I most like about the AIEQ portfolio are the lack of “conviction” stocks and the ability to see exactly what they hold today.
Conviction stocks can make or break conventional portfolio managers, especially when “safe” investments crash and burn – a regular occurrence these days. GE recently cratered, and major oils can also bring unexpected event risk – look at what happened to BP a few years ago.
Downloadable updated portfolios are also an attractive feature of many exchange traded funds, as they provide a useful insight into stock selection. For example, if you are checking income stocks there is a Schwab ETF – SCHD – that is worth researching to see what they hold.

Marijuana and the Juul

I have been reading about the legalisation of marijuana in the U.S. with some interest, as some of the investment tip sheets have been promoting the shares of growers. My main concern is the availability of guns to people smoking pot, especially if they are in the group who are more likely to develop mental illness such as schizophrenia. So I think that this is an area where investment is best left to others.In addition to this,I just read an interesting post pointing out that corn rose from 4 dollars a bushel in 2010 to eight dollars in 2013, and is now back down to four dollars – the reason was farmers planting more corn after ethanol production drove the price higher. Apparently the pot market is already oversupplied and prices have fallen substantially.
Also reading about the Juul – which has grabbed a sizeable market share of the e-cigarette market according to Nielsen.
Juul Labs is at present a small unquoted business, but has raised substantial funding in unquoted convertible notes. It is interesting because the other big players are mostly “big tobacco” companies like BAT. The Juul looks like a long memory stick and works discretely – unlike some of the steam engines – so I can see that it will appeal to the millennials. Should be big enough to get a market listing soon.

5G

Small flat boxes are beginning to appear on lamp posts and utility poles in many places right now. This is in preparation for 5G – which will take us further into the future of the internet of things by providing for huge increases in mobile data traffic as well as very significant increases in both mobile internet and residential broadband speeds. I think this will be bad news for cable and satellite subscriptions, so these categories are best left alone.
Verizon seems the most interesting large participant as it is positioned to deliver both mobile and residential 5G services.
Smaller Vodafone foolishly sold its 45% stake in Verizon’s cellphone business some years ago – this was the best thing that they owned at the time – and the only winners from this appear to be the large pension funds who kept their Verizon shares offered as part of the deal (U.K. pension funds have favourable treatment under the double tax agreement with the U.S.)Nevertheless they should also benefit from 5G unless management find a way to trash this opportunity too.
Smaller companies involved in 5G include Ceragon Networks who are a wireless backhaul company. They provide the means to connect the flat boxes to cell towers and operators networks, and no doubt they have a few government contracts too in this age of covert surveillance.

Roku

I like looking at new concepts in home entertainment, and only discovered Roku quite by accident. I bought a Samsung TV in Barbados, and the screen failed just after the warranty period.
It was a Smart TV and I was using an Android Kodi box which turned out to be complex and near useless.
So I replaced with a Hitachi Roku TV and what a difference – wow – even though quite a few apps are geographically unavailable. So I’m using mostly Netflix and YouTube through Roku, although other stuff should be available through a laptop that can use Kaspersky servers in various countries.
I see that the company originally spun off from Netflix, and got a quote in September 2017. It also acquired a Danish Smart Speaker company last November and is launching a product now which will only work with Roku TVs and produce better sound than sound bars – with no wires.
So Roku looks interesting, and I guess that their (also new) web based service may come into its own after 5G if those wearable products that enable people to order up a screen on their large white wall become a reality.
The question that I ask myself is whether Roku will be to TV what DOS and Windows are to PCs. Should certainly help with reducing billing from cable and satellite TV providers.

Let me frighten you next

Bernard Madoff is estimated to have lost investors around $18 billion in a $64.8 billion Ponzi Scheme. He operated a hedge fund and was sentenced to 150 years in prison. He must have been a very good salesman, as a lot of investment professionals were taken in and have probably been trying to distance themselves ever since. You can read about him in Wikipedia.
But you cannot read about a chap named Roger Levitt unless you look up “Frederick Forsyth fraud” on your browser – he’s not mentioned on Mr Forsyth’s Wikipedia entry, but it is clear that the author was a victim of a large fraud from his own newspaper articles. According to the British press, other victims included Sebastian Coe, Adam Faith, and Lennox Lewis. As this was a smaller fraud by a small investment advisory business, I guess that a lot of small investors lost their life savings and were unable to recoup like Mr Forsyth who published several novels after losing most of his money. The U.K. authorities were unable to persuade Mr Levitt to plead guilty, except to one or two small offences, as apparently some sort of deal was proposed in a Court lavatory. So Mr Levitt was not even locked up – he received a sentence of 180 hours Community Service !

What happened to the bond market?

If you look at the very long term charts of Federal Reserve rates you will see that these started super low in the long distant past 1940s then rose to super high levels as Paul Volker struggled to beat inflation in the early 1980s.
Recently the rates have been super low again because of the banking crisis ten years ago, and numerous other crises since.
Now it seems that Central Banks are ready to raise interest rates so we are close to the start of a long period of rising rates with occasional fluctuations to manage overheating and smaller recessions.
What do we need bonds for anyway ? Let us say that sometime in the future our equities have low valuations, and that house we always wanted comes up for sale at a recession price, the only places that you are going to find cash easily are deposit accounts and short dated government bonds. Short dated means up to five years till the final maturity date.
Forget about corporate bonds, even AAA rated ones, as they contain a lot more “event risk”, whether risk of unforeseen downgrades, or risk of bankruptcy.
As for long dated bonds, these belong in the portfolios of life assurance companies and pension funds, as they enable future liabilities to be met or hedged. Even for these holders, the actuaries need to get things right or disaster can strike.
So from my perspective the low risk side of people’s investments should be in cash deposits or short dated Treasury Bonds. It is also worth looking at Government Savings options, which carry the same security as Government Bonds. For example in the U.K. National Savings accounts enable various types of interest paying deposits .

The US Treasury website gives US residents greater opportunities. You can buy Treasury Bills with ultra short dates,  or Treasury Bonds.

Choosing an investment adviser

This is a very important step. I am sure that most people can find someone to work with, but this does require a lot of diligence.
People to avoid include security traders and salesmen. Traders find it difficult to deal with clients, and their decisions are often compromised by rules and regulations putting the client first. So you will never participate in their best ideas.
There are three types of salesmen. Institutional security salesmen are often completely over the top, and in my old environment were forbidden from advising private clients as they were such a liability. Many private client businesses also employ sales people – they talk the talk but often could not hack it as portfolio managers. So the pertinent question is “If I come to you as a client, who exactly will be looking after my account ?” If the manager is already in the meeting, talk to them – if they are not in the meeting this is a bad omen.
Then there are the salesmen who market all sorts of investment plans including hedge funds, tax saving plans, lump sum investment plans, etc. They take an upfront commission and sometimes draw in accountants to successful people, as the commissions are high (paid from your money of course) and the days of brown paper envelopes stuffed with cash which can be given to introducers are not yet over. Avoid like the plague. They certainly will be nowhere to be seen if there is an outbreak of investment Ebola.

About me

I am retired now, and used to work as an investment adviser and manager. Started work in the days of manual calculating machines, slide rules, and IBM mainframes, so I’ve experienced a lot of changes in work practices and regulation, and met a lot of interesting people. Now I have time to read a lot more than I used to, and am able to take a more active approach to personal investment.