Two Ways to Skin a Tech Giant

by | Aug 2, 2021 | Archives

Two approaches to controlling big tech are in the works.  The winner will have a big impact of you.

ENR Asset Management is one of the very few SEC registered asset managers who can help investors et up accounts with Swiss and Austrian banks.  Each month we send our Purposeful Investing subscribers ENR’s Advisory Report that is only available to ENR’s largest investors.

The August 2021 issue touched on an aspect of  “Tech Policy” that will have a profound impact in the global economy over the next few years and maybe for decades.

This issue is so vital because for a society to thrive there has to be a balance between, government, big business and the consumer/voter.

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Benefits from new technology are wonderful!  Why would we want two ways to skin a a cat?

The ultimate control should be in the hands of the consumer/voter.  The consumer should have choices that allows them to vote not only politically on how bug tech affects their lives, but with their choices of where they spend their money.

Of course life rarely works that way.

Every era in the industrial revolution has created a new form of technology that has given big business so much power that consumers are at risk so government needs to intervene.  The breakup of AT&T when it became so dominant in telephone communications is an example.

This is a tricky proposition because big businesses are generally very rich and have enormous influence on the governing process.

There is risk that the government won’t do enough because of the power of the big business.

There is risk that government will do too much and stifle the benefits that the new tech brings.

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New technology can terrible if the providers gain too much power.

Two approaches to checking the powers of big business today are playing out.  The results will have a dramatic impact on the world.

The ENR Advisory said: China, not unlike what the United States is contemplating vis-à-vis its new FTC Chair, Linda Khan, has attacked its largest technology companies over the past several weeks and obliterated Chinese tutoring stocks this week. Technology will thrive in China, but evidently, under strict Communist party interpretation.

The recent IPO for cab-hailing giant, Didi Global Inc. (NYSE-DIDI), saw its stock crash 36% from its offering price. Last fall, Alibaba Group Holdings’ (NYSE-BABA) financial arm, Ant Financial, saw its anticipated IPO scrapped following Chinese government intervention. One proxy for investing in Chinese equities, the iShares MSCI China ETF (NASDAQ-MCHI) has tanked 30% since mid-February, hit by a wave of regulatory moves. The regulatory uncertainty will increase the risk premium of Chinese companies. Investors will find it harder to justify owning Chinese shares if there is no guarantee for a steady operating environment. This is a major negative for private businesses to raise capital, which could produce adverse implications for long-term economic growth.

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The Securities and Exchange Commission (SEC) is already looking into implementing recent legislation that paves the way for delisting Chinese companies not in compliance with U.S. auditing rules and the controversial variable interest entity, or VIE, structure that Chinese companies have long used to skirt foreign ownership rules has now caught the renewed attention of many U.S. lawmakers. The firestorm in China and its U.S.-listed companies probably will not end any time soon as both countries continue to jockey a hot relationship.

A recent article in the Economist, “Get poor quickly” provides more insights on China’s crackdown on big tech.

The article says: Less capitalism, more state.  To get rich is glorious, Deng Xiaoping supposedly said. “To get as rich as Jack Ma is clearly not so glorious,” quipped an investor last November when the initial public offering of Mr Ma’s Ant Group was cancelled on the say-so of China’s financial regulators. A lot of foreign investors interpreted it as a slap-down to China’s best-known billionaire and thus a warning to the country’s other plutocrats not to get too big for their boots.

New regulations bar any company that teaches subjects on the school curriculum from listing abroad, having foreign investors or making profits. When it comes to teaching schoolchildren, no one should get rich.

China’s preferences now seem clear. It wishes to see capital raised on its own exchanges, within its purview and on the terms that it dictates. The effects of this on financial markets are likely to linger. China itself may be the biggest loser. And the clampdown will indeed harm Chinese tech. Investors who piled in during recent years have this week been pummelled in public markets.

The United States is taking a different approach trying to gain greater oversight of big tech, by using  antitrust laws.  The approach in America is much slower and less aggressive as it takes place in a democratic legal context. The democratic system limits how far the authorities can go in overseeing the boundries of business.  This is currently good news for companies such as Alphabet, Apple, Facebook and Microsoft who are reporting record profits.  Their Chinese competition is mired in red tape.

Yet there is a risk that America’s approach will be too slow.  Big tech has so much influence that it has the ability to censor free speech, direct what news we see and don’t see and even distort elections.

The risk is that China will over control big tech and The United States won’t do enough.

As an entrepreneur and libertarian, I lean heavily towards the American approach.

Historian Yuval Noah Harari, wrote about the flaw in too much government control in his book Homo Deus: A History of Tomorrow:  “Capitalism did not defeat communism because capitalism was more ethical, because individual liberties are sacred or because God was angry with the heathen communists. Rather, capitalism won the Cold War because distributed data processing works better than centralised data processing, at least in periods of accelerating technological change.”

The political system has never been able to keep up with  advances in technology.  Too much government can well stifle the next waves of disruptive technology.  If so, the US will have a decided advantage over China.

However this is a really complicated issue because if America does,not do enough to rein in big tech, the big companies will depress the next wave of new technology or rather buy it out as it comes along, then stifle it.

We saw this happen in the auto era when big car manufacturers bought up (and shut down) public transport.

I have no clue how this will work out. For now I’m keeping my slight overweighting in the Chinese stock market.  The Chinese economy has such potential, such energy and such a huge potential.  Most important, the Chinese market offers better value than the US and this is my main reason for holding on (and maybe investing a bit more).

At the end of June, the US MSCI was selling for 4.83 times price to book, a 29.7 P/E ratio and an average dividend of 1.33.

The Chinese MSCI was selling at 2.28 times price to book, P/E ratio of 18.7 and and average dividend of 1.36.

I suspect with the correction in the market, the Chinese numbers will show even greater value this month.  I’ll have the end of July numbers from Keppler Asset Management shortly and will pass them onto the Purposeful Investing subscribers right away. (See how to subscribe below).

I doubt anyone really knows how these tensions will play out.  Gigantic forces representing trillions in money are at play.

Keep watching.

Your understanding of what’s at stake can help you thread your investing needle into a financial fabric that’s likely to withstand and prosper from the change.

Gary

 

Stress Less Investing

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The stock market has always been the best place of places to protect and increase wealth over the long haul.   Yet it’s also been the worst place to lose money, a lot of it, quickly.

There are only three reasons why we should invest.  We invest for income.  We invest to resell our investments for more than we had invested.  We invest to make our world a better place.

The goal of investing should be to stabilize our security, bring feelings of comfort and the elimination of stress!

We should not invest in social networked protests that guarantee loss.  This is like burning our houses down in protest.

If we want to change the world, we should invest in good equities that bring profit and use the extra wealth to create something beneficial for mankind.

We should not invest for fun, excitement or to get rich quickly. We should not divest in a panic due to market corrections.

This is why my core stock portfolio consists of 16 shares and this position has hardly changed in five years.  During this time we have been steadily accumulating the same Top Value ETFs  and have traded only a few times.

The study below shows how a value based model portfolio that dates back to 1969 has outperformed almost every stock market in the world.

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The US market has not been even close to the top performer over the long term.

The DQYDJ Dow Jones Industrial Calculator (1) shows that an investment in the Dow Jones (with dividends reinvested) has risen at an average of 10.74% over the last 50 (51 actually) years.

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That’s 10.74% is pretty good, but an analysis of 51 years performance of all the developed stock markets shows that (using country indices as hypothetical investments) investing in the top value (not top performing) markets would have returned 12.5%.

The chart below shows the analysis.

 

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An annual return of 12.5% compared to the 10.74% US return is a 1.76% per annum difference.  This may not seem like much,

In the long term the difference is huge.  Calculations from the investor.gov site (2) shows that $10,000 invested at the 10.74% compound rate turns $10,000 into $1,817,734.62 in 51 years.

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Wow, that sounds pretty good until you look at the results of the 12.5% rates.  $10,000 grows to $4,062,362.22!

Investing in the top value (not the top return) markets earned $2,244,627.60 EXTRA!

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$4,062, 362.22 means you would have $2,244,627.60 MORE by investing in good value markets versus $1,817,734.62  earned investing in the US market.  That almost 125% more money!

Here are the best value developed markets at this time (as of end of March 2021).

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No matter how we look at it, over time, value investing always wins!

Our portfolio is built around a strategy that’s taught in my Purposeful Investing Course (Pi).  I call these shares my Pifolio.  The course shows how to use the value analysis of Keppler Asset Management to create a portfolio of ETFs that cover undervalued stock markets.  I have combined my 50 years of investing experience with the study of the mathematical market value analysis of Michael Keppler, CEO of Keppler Asset Management.

In my opinion, Keppler is one of the best market statisticians in the world.  Numerous very large fund managers use his analysis to manage billions of dollars in funds.  However because Keppler’s roots are in Germany (though he lives and operates from New York) all of his funds are registered for the European Union citizens, Americans cannot normally access his data.

I was lucky to have crossed paths with Michael over 25 years ago, so I am one of the few Americans who receive this data so I can share it with Pi subscribers.

The Pifolio analysis begins with Keppler’s research that continually monitors 46 stock markets and compares their value based on current book to price, cash flow to price, earnings to price, average dividend yield, return on equity and cash flow return.  Keppler looks at these numbers and takes market’s history into account.

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Michael Kepler CEO Keppler Asset Management.

Michael’s analysis is rational, mathematical and does not worry about short term ups and downs.  Keppler’s strategy is to diversify into an equally weighted portfolio of the MSCI Indices of each good value (BUY) markets.

This is an easy, simple and effective approach to zeroing in on value. Little time, management or guesswork is required.  You are investing in a diversified portfolio of good value indices.

A BUY rating for an index does NOT imply that any one stock in that country is an attractive investment.  This eliminates the need for hours of research aimed at picking specific shares.  It is not appropriate or enough to instruct a stockbroker to simply select stocks in the BUY rated countries.  Investing in the index is like investing in all the shares in the index.  You save time and gain incredible diversification because all you have to do is invest in the ETF to gain the profit potential of the entire market.

To achieve this goal of diversification the Pifolio consists of Country Index ETFs.

Country Index ETFs are similar to an index mutual fund but are shares normally traded on a major stock exchange that track an index of shares in a specific country.  ETFs do not try to beat the index they represent.  The management is passive and tries to emulate the performance of the index.

A country ETF provides diversification into a basket of equities in the country covered.  The expense ratios for most ETFs are lower than those of the average mutual fund so they provide diversification and cost efficiency.

Here is the Pifolio I personally held at the beginning of 2021.   There have been no changes since.

70% is diversified into Keppler’s good value (BUY rated) developed markets:  Germany, Hong Kong, Italy, Japan, Norway, Singapore, Spain and the United Kingdom.

30% of the Pifolio is invested in Keppler’s good value (BUY rated) emerging markets: China, Brazil, Chile, Colombia, South Korea, Malaysia and Taiwan.

There is one trick Pi subscribers learn about China which is different from the rest of the funds.

iShares Country ETFs make it easy to invest in each of the MSCI indices of the good value BUY markets.

For example, the iShares MSCI Germany (symbol EWG) is a Country Index ETF  that tracks the investment results of the MSCI Germany Index. The fund invests at least 80% of its assets in the securities of its underlying index that primarily consists of all the large-and mid-capitalization companies traded on the Frankfurt Stock Exchange.

iShares is owned by Black Rock, Inc. the world’s largest asset manager with over $4 trillion in assets under management.

There is an iShares country ETF for every market in our Pifolio.

This year I celebrate my 53rd anniversary of writing about global investing. Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades. This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in our seminar.

How you can create your own good value strategy.

Stock and currency markets are cyclical.  These cycles create extra profit for value investors who invest when everyone else has the markets wrong.  One special part of your course looks at how to spot value from cycles. Stocks rise from the cycle of war, productivity and demographics.  Cycles create recurring profits.  Economies and stock markets cycle up and down around every 15 to 20 years as shown in this graph.

The effect of war cycles on the US Stock Market since 1906.

Bull and bear cycles are based on cycles of human interaction, war, technology and productivity.  Economic downturns can create war.

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The chart above shows the war – stock market cycle.  Military struggles (like the Civil War, WWI, WWII and the Cold War: WW III) super charge inventiveness that creates new forms of productivity…the steam engine, the internal combustion engine,  production line processes, jet engines, TV, farming techniques, plastics, telephone, computer and lastly during the Cold War, the internet.  The military technology shifts to domestic use.  A boom is created that leads to excess.  Excess leads to correction. Correction creates an economic downturn and again to war.

Save $124.50 If You Act Now

Subscribe to the first year of The Personal investing Course (Pi).  The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking that down to $174.50 in this special offer.  Plus I am reducing annual renewals from $299 to only $99.

I would like to send you, on a no risk basis, a 130 page basic training course that teaches the good value strategy I use.   I call this strategy Purposeful Investing (PI).  You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You get this course when you enroll in our Purposeful Investing program (Pi) with a triple guarantee.

Triple Guarantee

Enroll in Pi.  Get the 130 page basic training, a 46 stock market value report, access to all the updates I have sent in the past five years right away, plus numerous updates over the next year. 

#1:  I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy diversified investing.

#2: I guarantee to send you monthly updates that are based on a study of every share in 46 stock markets around the world.  These updates will show the values, the earnings of all these markets and categorize each market as Top Value (buy), Neutral Value (hold) or Poor Value (sell)

#3:  If you are not totally happy, simply let me know. I guarantee you can cancel your subscription within 60 days and I’ll refund your subscription fee in full, no questions asked.:

You have nothing to lose except the fear.   You gain the ultimate form of financial security as you reduce risk and increase profit potential.

When you subscribe to Pi, you immediately receive a 120 page basic training course that teaches the Pi Strategy.   You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.

You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last five years so you can back track if you desire.  Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.

Subscribe to a Pi annual subscription for $174.50 and receive all the above.

Your subscription auto renewal will only be $99 a year from now, if you renew, but you can cancel at any time.

Gary

(1) www.economist.com/leaders/2021/07/31/chinas-crackdown-on-the-online-education-business-marks-a-turning-point