David Jackson

Long/short equity, tech, etf investing
David Jackson
Long/short equity, tech, ETF investing
Contributor since: 2004
Company: Seeking Alpha
Total market ETFs are really large-cap ETFs, because they are dominated by their large cap holdings. The key metric to look at when comparing this ETF to an S&P 500 ETF is the % of the total market cap of this ETF accounted for by the top 500 holdings. Because this is a market cap weighted ETF, the smaller stocks in aggregate have negligible impact compared to the large stocks. This explains why this ETF, and total market ETFs generally, track the S&P 500.
Once you view this as the same as the S&P 500 ETFs, it has one compelling advantage -- a lower expense ratio.
Thanks for the article. I also find these screens, which are slightly different from those in the article, to be helpful:
1. One year ranking of all country ETFs:
http://bit.ly/1Np7Uxu
2. Comparison of global and regional ETFs:
http://bit.ly/1UJvGEp
3. Ranking of emerging market ETFs:
http://bit.ly/1NZ22Hd
32881815, When I used the phrase "listen to the market", I wasn't advocating technical analysis or momentum investing. I was talking specifically about when news is released. When news is released, and you're wondering whether the news is materially positive to a stock, the reaction of the market (ie. the stock price) can tell you a lot. If the stock doesn't move, it means the players in the market do not in aggregate believe that the news is materially positive.
You see this when people claim that a company's earnings results were great, but the stock doesn't move. That usually shows that the earnings results were already priced in, or the results weren't as good as the person claims.
My point was that if you ignore the market's reaction to a piece of news, you do so at your peril.
Actually, the opposite -- SA editors aren't allowed to consider their personal views on a stock when deciding whether an article meets our quality standards. And all SA editors sign a compliance agreement.
As an aside, my experience is that allegations that authors or commenters (or even editors) are biased are almost always a deflection from discussing the stock itself.
My comment was actually a reflection of bitter experience. I personally owned OMEX for most of the way down. I now don't own the stock, but follow it because it was such a disaster for me. I pinned too much hope on optimistic analysis, and didn't listen enough to what the market was telling me.
Clearly the market's verdict was that these weren't meaningfully positive developments.
I was quoting from the article. But the number roughly matches IBM's own press release:
"Diluted EPS from continuing operations:
Operating (non-GAAP): $3.34, down 9 percent;
GAAP: $3.02, down 13 percent"
See:
http://bit.ly/1Nm4FnS
Questions:
1. It's hard to put much meaning on the trailing P/E ratio when EPS fell 12% y/y. And although IBM gave guidance on its earnings call, there's no discussion in this article about future earnings and revenue. All the numbers discussed here are entirely backward looking. What is your estimate of the *forward* P/E ratio, one and two years out from here?
2. "The company has reduced its diluted share count by 2%, or 18 million shares, over the past year." This means the company was buying back shares at a higher price than the current stock price, and those buybacks boosted EPS. Do you view this as a positive, and how much stock do you think the company will buy back over the next year?
3. Given that IBM's EPS is shrinking, do you view this as a long term dividend growth stock?
Thanks for the feedback, and input on how and why you switched to ETFs. One thing to look out for: leveraged ETFs can be brutal in a market with daily volatility but which trends flat over time. For example, see: http://seekingalpha.co...
Excellent point. One of the things I've noticed is that men are happy to carry their phones with them at all times because they usually have pockets. But that's often not the case for women. So as iOS and Android build fitness tracking into phones, this threatens Fitbit's male customer base more than its female customer base.
There's an *excellent* article by Ploutos which explains why IJR outperforms IWM:
http://seekingalpha.co...
Dave Dierking,
You don't need to defend yourself against accusations of bias, because they're a diversion from the substantive issues you raised in your article, and they undermine open debate.
See:
http://seekingalpha.co...
and
http://bit.ly/1JDgKBs
Agree that 5 years may be too short. Having said that, the conclusions match the longer term data, from the last time I researched this:
http://bit.ly/10z6cls
I just wanted to share my personal experience with a Fitbit. I'll leave it up to others to decide how typical my experience is, and whether it implies anything about Fitbit's future prospects. Full disclosure: I have no position in Fitbit, long or short.
When I became interested in tracking my walking, I started by using the Health App in the iPhone 6. It tracks steps, but has disadvantages:
- only tracks my steps when I'm carrying my phone
- the app is fairly rudimentary. For example, it's impossible to see the exact number of steps I walked yesterday (you have to estimate it from a chart).
So when I was given a Fitbit, I was excited to try it. What I found was:
- I don't like wearing anything on my wrist (I stopped wearing a watch a while ago);
- The fitbit tracks steps in the office or at home, but these aren't actually steps I care about as they are not real exercise. (It separately reports "Active Minutes".) So, for me, it turned out that the steps tracked by my iPhone are actually the ones I care about.
- I didn't use any of the social features. Maybe it's just me, but I don't want to compare myself to people I know.
The net result is I've stopped wearing the fitbit, and have gone back to using my iPhone.
As I said at the start of this comment, I'm not claiming that I'm typical, and I'm not making any arguments against Fitbit. I'm just describing my personal experience and preferences. Draw your own conclusions.
I wrote my own thoughts in the notes underneath the excerpt from Mark Suster and Chris DeMuth.
Here's another damning article that appeared from (the wife of) an ex-Amazon employee:
http://bit.ly/1NHge8x
And here are the thoughts I wrote -- from an entrepreneur's perspective -- about why many of Amazon's reported work practices are unnecessary and counter-productive:
http://bit.ly/1MxM7l6
I thought this was interesting -- excerpt from My name is Brittan, and I'm an Amazonian (
http://bit.ly/1TVnT4X ):
"My final narrative is about the time I saw Jeff Bezos at a Seattle restaurant. I would be lying if I said I wasn’t (embarrassed about being) slightly star struck. I was sitting at a table adjacent to him, and my sad attempts at subtlety afforded me an opportunity to observe him and his wife eating dinner. Forgetting how creepy the previous sentence reads – they were attentive to each other, they talked and they laughed, and they were discernibly warm and kind to their server. I am not pretending to make judgments about Jeff’s character based on a solitary encounter, but I do want to remind people that there is a real person with real emotions behind this behemoth of an organization. I imagine this NYT article struck a personal chord with that man – a man who eats dinner with his wife without once looking at his phone, and is kind and gracious to people around him. And I have long believed you can tell a lot about a person by the way they treat a server."
What was this a reply to? Would you repost it, using the "reply" link below the relevant comment?
Looking at the table: Does anyone know why the Dividend Aristocrats outperformed so massively in 1994?
Thanks tmow. Would be very interested to see how Plutos rebalances and re-allocates over time; that's what I'd pay for.
Quick question: Do the numbers in the performance table at the end use the ETFs, or the indexes which exclude the expenses charged by the ETFs?
This was a superb series of articles. Thank you!
If you offered an ETF Portfolio with commentary in the Premium Marketplace (http://bit.ly/1Gfvwi5), I would pay for it (as long as the price wasn't crazy).
DRstem, I was with you until the last two sentences. If "the notion that a person should spend $30,000 (or more) on a vehicle that spends most of its life sitting idle will seem like a dumb idea in the future", why do you think you'll still own a car you drive?
MAUs is not the right measure of user engagement. The right measure is DAUs / MAUs. When you look at that number, it's clear why FB is crushing Twitter. See:
http://tinyurl.com/qjn...
Tim,
Ultimately everything must be valued on real earnings or cash flow. There are various ways to do that, eg. discounted cash flow model, project future earnings and apply a P/E ratio etc.
Most sophisticated investors who own FB or TWTR try to calculate their earnings potential, and then value the stocks accordingly.
Excellent question.
I'm not sure that the issue is that the relationships in Twitter are one-sided, and in FB they're two-sided. Perhaps the key distinction is that you friend someone in Facebook because they're already your friend, and marketing and the volume of their Facebook activity doesn't play a role in that.
This doesn't mean there's no potential for relationships built entirely online. The key point I wanted to make as that content creators on a crowdsourced platform have to be incentivized to maintain a high signal to noise ratio.
In SA, we do that with editors. We reject a lot of articles (to the chagrin of many contributors), and we won't publish something we don't think is actionable and convincing. But we know that using editors has limitations in scale, cost and expertise.
One way to solve this is if the relationship is a paid one. If you're paying for someone's content, investors won't put up with a low signal to noise ratio. So once the relationship is paid, you can remove the editors from the equation.
Twitter's key challenge is that people are used to a high liquidity stream of content, and accept that it has an exceptionally low signal to noise ratio. That means they don't penalize people who tweet a large amount of junk and a small amount of genuine insight. The solution to that has to be that they find a way to measure and reward quality.
The key question (for Twiter and SA) is: How to do that?
john, Piptief, quickcard and others -- thank you for the kind comments.
I hope readers will forgive me for the format. I originally wrote this as a series of StockTalks, and George, our managing editor, decided it was good enough to publish. He'll now get a pay rise :-)
I also want to thank Selig Davis, who runs mobile at Seeking Alpha, for compiling the data and generating the chart of Facebook's user engagement. The simple read of that chart is this:
Facebook users on average now use Facebook for about 18 days per month, up from about 13 in mid-2009. The level is remarkable and the increase is an astonishing accomplishment.
Unfortunately I don't have data for Twitter's DAU to MAU ratio, but it's clearly dramatically lower. If anyone has that data, please post it in a comment.
Shelby,
Quick thoughts:
1. I'm skeptical that the auto majors have the capabilities to transition to a world of driverless cars. You argued, for example, that the auto majors will eventually become network operators. However, GM, Ford and Toyota do not have the core software capabilities to compete with Google and Uber. Remember how Nokia failed in the transition to smartphones, and lost its market to Apple and Google? And Nokia, in contrast to GM, F and TM, was a technology company!
2. One of the key challenges for the auto majors will be the reduction in new car sales, because driverless car technology will lead to an increase in car utilization rates, requiring far fewer cars per capita. Car production exhibits strong economies of scale; that's why there's been so much consolidation in the auto industry during the last 50 years. As a result, a decline in new car sales volumes would strongly impact the auto majors, possibly pushing them into bankruptcy. Your section on The Future of Car Companies didn't address that threat to the auto majors.
3. You argued that the auto majors will successfully transition the majority of their sales from individuals to network operators. However, we know that fleet sales have far lower profit margins that sales to individuals, because fleet buyers have stronger bargaining power. This implies that the auto majors will face downward margin pressure, even ignoring the separate impact of lower sales volumes.
Separately, I just published an instablog post in which I listed your article:
Driverless / Autonomous Cars -- Resources For Investors
http://seekingalpha.co...
Logical Thought wrote:
">>it is unlikely that major automakers like General Motors (NYSE:GM), Ford (NYSE:F), and Toyota (NYSE:TM) will survive the leap.<< This is pure silliness. Most of the majors are EXTREMELY advanced in their self-driving car capabilities (just search out the youtube videos) and if they need to shrink capacity they can always close plants and lay people off, as they've done many times in the past."
Two thoughts about that:
1. The fact that the majors are advanced in their self-driving car capabilities doesn't address Zack's core point that self-driving cars will lead to a huge reduction in demand.
2. The auto industry exhibits strong returns to scale. You can see that from the reduction in the number of players over the last 50 years. Ergo, if you think there will be a a large decrease in demand, that would lead to reduced margins for the auto majors. Whether that would lead to bankruptcy would depend on the exact economics.
Fascinating article (and really well written). Thank you, Zack.
Thinking about which stocks might benefit from driverless cars, I just did a search on Seeking Alpha for "driverless cars", and then limited the result to transcripts only by clicking on the Transcripts tab. This gives you the companies which mentioned "driverless cars" on their investor conf call:
http://bit.ly/1KOfBeV
Fascinating article (and really well written). Thank you, Zack.
Thinking about which stocks might benefit from driverless cars, I just did a search on Seeking Alpha for "driverless cars", and then limited the result to transcripts only by clicking on the Transcripts tab. This gives you the companies which mentioned "driverless cars" on their investor conf call:
http://bit.ly/1KOfBeV
Not sure how happy the value investors who own YHOO will be to hear that it's considering this sort of acquisition.