Investment

While investing, don’t be misled by numbers

Published

2 years ago

April 24, 2023

Here’s a fascinating idea, verbatim from a talk by Rory Sutherland, a well-known advertising executive. “People look at Maths, and as soon as there are things in numerical form, you’ve won the argument. If you’re one of those marketers who’s trying to use words, and some other b_____ turns up with a spreadsheet, you’ve basically lost. The b______ with the spreadsheet always wins.” Sutherland is the Vice Chairman of the O&M advertising group and has pioneered the use of behavioural science in advertising. The above quote shows his preference for words and ideas over numbers.

Do such ideas have a place in investing? As a first reaction, many people would say no, they don’t. In investing, numbers play a central role. ‘Data-driven’ is the buzzword in everything, including investing. According to this ideology, the way to judge an investment— in fact, the only way to judge an investment— is to look at the numbers. However, in practice, what one might call the human factor plays just as important a role. Qualitative factors such as management competence, company culture, and industry trends can significantly impact a company’s growth and success. These factors may not be easily quantifiable in a spreadsheet, but they are key to investing.

Think of great companies like HDFC Bank, Asian Paints, Infosys, TCS, and so many others. Each of them is in a business with a dozen or more other companies. There is nothing unique about their businesses. What sets them apart is management quality. It’s not about the line of business but what the company’s management will make of it, how they will finetune it and how they will execute it. Almost all successful investment analysis is essentially a search for quality people. You may think that you are looking at financial numbers, but those are just clues to what actually matters. By incorporating qualitative factors, investors and analysts may be able to make more informed choices and potentially uncover opportunities that purely numerical data might overlook.

I’m not arguing that the numbers do not matter. Numerical analysis is the bedrock of investment analysis and planning. It’s important to be aware of both sides of the story. Unlike qualitative factors, quantitative data offers a clear and objective basis for making investment decisions. Financial ratios, historical performance, and other numerical data help investors by providing concrete evidence of a company’s financial health and growth prospects. Moreover, numbers are standardised, so to speak. Comparing diverse investment options, whether in stocks, mutual funds, or even fixed income, is impossible without numbers. In fact, there is no way to track and compare the performance of investments without using quantitative data.

There’s yet another layer of complexity to this question. While judging the human factor in corporate management is important, the quality of this judgement itself matters. When you bring the human factor of corporate management or an investment manager into the picture, the human factor of the analyst and the investor also comes in. I mean, anyone who is minimally knowledgeable can build a spreadsheet that sorts stocks by EPS or valuation. If the data and the formulae are correct, it works. In contrast, sorting companies by management quality takes years of experience and good judgement; even then, there’s a lot more room for error. Or rather, there’s a lot more room for self-delusion.
We’ve often heard the advice, “Just invest in a set of good stocks, monitor them closely and hold for years.” Good advice, right? And so simple, isn’t it? Actually, this advice is pretty useless, and I say that even though I have given it myself a few times. In fact, it’s not really advice but mere rhetoric. This old Wall Street joke is a favourite of mine: The newcomer asks a market veteran, “How do I make money on the stock market?” The old master replies, “Why, that’s very simple. Just buy low, sell high.” So the young man asks, “Yes, but how do I do that?” The reply comes, “That’s very difficult. It takes a lifetime to learn.”

(The author is CEO, VALUE RESEARCH)

Source link

Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

3 days ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

Source link

Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

3 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

Source link

Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

4 weeks ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

Source link