Companies Haven’t Been Under-performing Stock Market Expectations at This Rate Since The dot-com Boom

When the dot-com boom was in full effect you could just see the skepticism in investor’s eyes. The widely ignored signs of distress in the markets and a lack of quality companies led to an unprecedented rate of  failing companies and eventually a disastrous crash that led to even the almost demise of now gigantic Amazon.

It’s important to recognize what led to the boom and crash cycle that was the dot-com boom. You could hope to be able to say that it was the research and view of smart investors that knew what they were dealing with. However we all know that that’s just not true. In practice it was the total lack of knowledge of these investors that led to a huge rise and the formation of a bubble around these companies that would eventually lead to the infamous crash.

Investors had no idea what they were dealing with at the time and for the time being they had absolutely no knowing or research on the companies and their expectations for the future of these companies. With antiquated investors having no idea about what the advent of the internet or what it meant in the long term they instead focused their efforts pumping money into these companies that they believed were on the bleeding edge of technology and a changing world.

What they did not know or simply did not want to know because of the massive returns that these companies seemed to be able to provide was that many if not most all would fail. Weather to poor leadership or an inadequate plan, these companies were doomed to fail from the start.

Now with the internet in full effect and technology seeming to grow at an unheard of rate these companies that seemed to at one point to just be pipe dreams are popping up all over the place. Because of the ability of anyone to be able to create an online company and pump content into the pipes added with the seemingly never ending amount of time that we spend online sites can catch fire quickly and burn forever.

Social media and the complete online presence of most of our lives have led companies to grow quickly. With this generation being so easily moved to another product or service the same companies that were shot up, can also be shot down.

Mainly in the Tech industry now do we see these companies popping up claiming to be the next big thing? With great numbers of users and somewhat of a fan base they get popular with investors quickly. The next thing that happens is they go public. With seemingly no way to make money these companies truly believe that they can figure it out as they go. Face book did it, why can’t I? Many people ask.

Here is the problem. When you go public and have a large fan base and increasing users, as well an entire generation of people that seem to use your service, you attract investors. For a time they will let you use the money to expand and grow, but eventually they expect you to be able to perform. When month after month you fail to bring in any form of revenue, people get less exited. Investors pull out and you fail to make any kind profit and maybe even go under.

Is Apple worth Buying?

Apple will have you think that it is doing great. If you just went off of what Tim Cook would have you believe he would make you think that all is good and Apple is as strong as it ever was. He even said this in a press release outlining the earnings and some of the more “advertise-able” numbers that they currently have that and I quote “We are proud to report a strong March quarter, with revenue growth accelerating from the December quarter and continued robust demand for iPhone 7 Plus,” he also said “We’ve seen great customer response to both models of the new iPhone 7 (PRODUCT)RED Special Edition and we’re thrilled with the strong momentum of our Services business, with our highest revenue ever for a 13-week quarter. Looking ahead, we are excited to welcome attendees from around the world to our annual Worldwide Developers Conference next month in San Jose.” According to Tim Cook all is good in the world of Apple, nothing fishy at all. Apple’s CFO Luca Maestri went on to quote in the press release “We generated strong operating cash flow of $12.5 billion and returned over $10 billion to our investors in the March quarter.” Looks like a strong quarter, I guess were done here.

NOPE!!! We’re going to dig a little deeper into Apple’s numbers so that you can decide whether or not you should consider investing. First let’s go over the numbers that Apple has clearly stated in the press release. They report $52.9 billion dollars in quarterly revenue vs. the $50.6 billion in the same quarter last year. They also report the quarterly earnings per diluted share are 2.10 vs. last year’s 1.90. With an increase of $50 billion in capital return to investors and a $210 billion increase in share repurchase not to mention the 10.5% increase in the company’s dividend which brings up the dividend up to 0.63 cents per share, it seems like all is good for the tech giant. But is when you dig a little deeper into the numbers where it gets interesting.

On Apple’s website under the investment tab and the newsroom page, you can see the basic outline used to get investors exited, calmed, convinced or otherwise to ultimately get people to invest, or for people to increase their investments they already have. If you scroll down and click on the PDF that they have listed, they have an unaudited report of their basic numbers. Here’s what they said. For one Apple has a revenue of $21,157,000,000 in the Americas down from $31,968,000,000 last year in the same quarter, this represents a 33.8% loss in revenue in the Americas. With total quarterly revenue at $52,896,000,000 down from $78,351,000,000 last year, that’s a $25,455,000,000 loss from last quarter representing a 32% mark. But here are the scary numbers so buckle up. 34% quarterly loss in Americas, 31% quarterly loss in Europe, 34% quarterly loss in greater China 22%, quarterly loss in Japan and a 35% quarterly loss in rest of Asia pacific. Ok we got through that part together, now we can move on to equally maybe even more scary numbers but with more insight.

As we have known for a while Apple is a major one product company. We all know what that product is so say it with me, iiPPhhoonnee. With Apple’s dependence growing on the iPhone even more and its sharp decline in sales it does not spell good for Apple. They currently have 68% of total revenue coming from the iPhone. That’s a lot, it represents $33,249,000,000 in quarterly sales with all other products listed including iPad, Mac, services and other products only equating to $19,647,000,000. And that may be fine if the iPhone was continuality growing in revenue and units sold, but it’s not. The iPhone’s sales were down 35% this quarter and even though that can be justifiable with the aging product and anticipated release of the iPhone 8 it is to be expected that the units go down but 35% is far more than expected. You cannot rely on a single product so much if you experience fluctuations that hefty regarding that product. In China and much of Asia new, cheap and good phones are starting to pop up everywhere to compete with the much more expensive iPhone. In the Americas Samsung is becoming more of a competitor in the market with the Galaxy 8 out and many people very impressed with the results and performance as well as features that it has that Apple has arguably been lacking behind in.

Apple needs to diversify their product line and lean away from the total dependence that they have with the iPhone. They also need to innovate more to keep cheaper more accessible options out of the market share for the cell phone market. If not it could lead to a disaster, if phone sales become less and less prominent in the future with the advent on a new technology Apple could have a hard time catching up to its competitors

What the Wells Fargo Scandal Means 8 Months Later

The well know and vastly publicized Wells Fargo scandal of September 2016 was massive news in the financial world. The scandal even made an appearance at the Berkshire Hathaway annual shareholders meeting last week. Although the scandal was initially published about on September 8th of 2016 its effects are long lasting. Wells Fargo has been followed by this scandal for 8 months and is still feeling its effects. Let’s break those down

The scandal was about Wells Fargo, more specifically its employees creating 2 million fake accounts in their customer’s name. This led to an imamate investigation 8 days after the scandal was revealed. Stumpf, the then CEO went to a hearing by the senate banking committee September 26th. There, Senator Warren called for the immediate resignation and even criminal punishment of Stumpf.

Wells Fargo was forced to pay $185 million in fines for its actions and 5,300 employees were laid off. Their credit card applications were down 43% in the first quarter and checking account openings were down 40%. To add insult to injury their losses were 4.1% or $29.5 billion and 2 employees even filed a lawsuit. However there credit and debit card spending was indeed up. Although Wells Fargo admitted that the losses were more than expected they claimed that it was due to minimize fluctuation value of debt holdings.

What they really lost in this entire was the loss of client and investor trust. In a report Moody’s called the event “extremely disturbing”. Warren Buffet said that the “CEO must take action” and “once it reaches the CEO it must stop” (paraphrasing) and called it a “huge mistake”. Warren then claimed that it was due to the incentive system in the company. Stumpf was later to step down as CEO due the incident.

Loss of investor trust is huge for the company and when Warren Buffet calls it a “huge mistake” you know people listen. Major losses impact the company more on the investor side of the equation and that can be fixed, but on the consumer side they lost trust. Trust in the world of banks and major financial institutions are vastly important to a good customer company relationship. People would rather buy a car that has a chance to explode than put their money in a bank that they cannot trust. This is tough to regain and limited consumer trust leads to lack of investor trust and a combination of little consumer trust and unwilling investor’s leads to disaster. An odd and disturbing situation leaves a permanent mark on the company and it will be very tough for them to erase that mark. It is very obvious that they will need to make sweeping changes across the company and without a doubt it will take time for them to regain their reputation. The new CEO Timothy J. Sloan better have some tricks up their sleeve when it comes to regaining this trust and reputation if he wants to succeed or at the least keep his job.

Berkshire Hathaway Annual Shareholders Meeting, What You Need To Know

Berkshire Hathaway’s annual share holders meeting was held on Friday. This a time where fans and shareholders come to meet to watch Warren Buffet and Charlie Munger speak regarding Berkshire Hathaway, companies, the economy, and various other things regarding investment and finance. Warren Buffet has a lot of influence in the finance world, as one of the most well known and powerful investors in the world today you can imagine that e gets quite the following from fans and finance enthusiasts alike. At the annual meeting many things were discussed from the state of Berkshire Hathaway to Donald Trump and his presidency. We will be outlining a few key details from the meeting, these are things that you should know and things that are important to the world of finance and that could affect your investments.

The size of this meeting is very substantial with an estimated 40,000 visitors attending the event. With book stores dedicated to Charlie Munger and Warren Buffet as well as Jell-O made in special molds in the face of Warren and Charlie. With Bill Gates in attendance it is truly an investor’s paradise. Most of the festivities that take place during the event bring more of a party feel rather than an annual event outlining the company, economics and current relations in the world of finance. There is even the very popular newspaper toss which featured Buffet and Gates. No surprise in the fun and excitement this year however in an event known as the Woodstock of finance. So what did the oracle of Omaha, Mr. Warren Buffet and his partner Charlie Munger have to say this year? Let’s find out.

Following the very well known and publicized Wells Fargo incident in which employees created 2,000,000 fake accounts in order to boost themselves in Wells Fargo’s “incentive” program. Buffet had to said that Wells Fargo made a “huge error” regarding the incident, he said that “the CEO has to act” being that the fact that Timothy J. Sloan the CEO failed to act right away when he got wind of the incident. He also said that “it has to stop when the CEO hears about it” (paraphrasing). Warren also was not thrilled with Wells Fargo’s incentive system. Warren believes that an incentive system is good but it is very important not to incentivize the wrong things.

On autonomous vehicles Buffet said that they have the capability to pose a huge threat to Geiko. If in fact autonomous cars and other forms of non-driver cars do become the norm then that has the capabilities to really influence Geiko. Since the majority of incidents are the result of human error, take the human out and now there is less accidents meaningless need for large coverage plans. Despite this Warren reported that Geiko had a good year with 700,000 new policy owners. With driverless technology still a ways away until widespread adoption in the free market it is to long away to estimate what will happen to the majority of car insurance policies following the full adoption of driverless cars.

Buffet touched on the healthcare system saying “healthcare costs are the tapeworm of the American economy”. He believes that the cost of healthcare on the American people is burdening American economic growth. With less spending in the free market due to costs of healthcare and prescription drugs, less money is being used to buy goods and spend in the economy.

On the issue of IBM in which Berkshire Hathaway sold 1/3rd of his stake in the company Buffet said that IBM did in-fact not perform to the standards of expectations that Buffet and Berkshire had in mind. He also said that IBM and Apple are two very different companies when comparing the two. Warren had said that Apple was much more of a consumer technology company while IBM was not. This may have contributed to IBM’s misfortunes. Being a company that is less focused on the average consumer and more on the business aspect of the market there is sure to be major hurdles regarding sales that the IBM must get over.

They touched briefly on the topic of artificial intelligence, paraphrasing that it will be a major job killer and disrupt the job market massively. However he also stated that artificial intelligence would make the world a better place. Without a doubt AI would disrupt the job market and kill jobs. This is an issue that we must solve without stallion innovation. It would though make the world a much better place with ease of learning machines could solve much more complex problems in a much quicker fashion.

One aspect that Buffet and Munger disagree on is the issue of coal, renewable energy and railroads. On the issue of coal Buffet believes that the coal industry will be significant down by 2020 with little being transported by railroad, Munger believes that it will still be in widespread use being transported by railroad. For renewable energy Buffet believes that we are quickly phasing out fossil fuels while Munger believes that we will use “every last drop” of fossil fuels and coal, more specifically ‘hydrocarbons’.

A question that they briefly answered was one of Chinese Markets. Buffet said that “Chinese will have lots of speculation in markets. Meaning that with the new markets investors will be wary of investing causing price fluctuations and very cautious trading. This can be good and it can be bad, for one this can possibly lead to lots of money flowing into then directly out of the markets. It can also according to Buffet “pose more opportunities to investors” by riding price fluctuations and taking advantage of the cautious investing with the ability to buy cheap rather than in the US markets with are currently in my opinion over-priced.

I urge you to go and watch or listen to the entire event using the link above. What they talk about can be majorly beneficial to investors and enthusiasts alike. I know 7 hours is a long time but 30min here and there and boom you’re through it. We just outlined a few key points in the event, in no means did we go into detail about everything that Warren and Charlie touched on.