Introduction
In our modern lives we are inundated with information. To avoid chaos we organize information in silos and give each of the silos a label. Unfortunately we (the universities, the governments, media) rarely ever examine whether we have misfiled the information or whether those informational relationships have changed. If so, the current label on the current fact is often misleading.
One of the few benefits
of long plane rides is that I get to read the news of the day more thoroughly and
from many different sources. As I read these pieces, different relationships
between the elements of information and some important investment implications occasionally
come into focus.
How
and where do we shop?
On October 18 in the London edition
of the Financial Times there was a front page article headlined “Retailers Shut 20 Stores Each Day.” The
article was based on research conducted by the accounting firm PricewaterhouseCoopers.
In a study of
500 UK cities/towns, PwC found that in the first half of the current
year some 953 stores were closed, compared to 174 in a similar period in 2011.
(While I don’t have data on the US and other countries, I
suspect that the trends are roughly parallel.) Computer game stores, toy shops, clothes
shops, gift shops, jewelers, card/poster shops and furniture stores were hit
the hardest. Places offering check-cashing, pawnbrokers, discount and
convenience stores, coffee shops, currency changers (and wire sites) and charity
shops were far less effected. After reading the article, the analyst in me had
three different thoughts that bumped heads with the traditionally-labeled
silos.
First, did the UK
statistical offices note the change in the mix of retail activity? Second, the realization that we are seeing marked changes in behavior. Trading down from higher-priced
merchandise and conversion of assets to various forms of money, replacing
merchandise spending for service spending are all important changes. Third, the
data is incomplete, I am guessing a good bit of the store traffic has
been lost to the Internet.
In my recent discussions with
UK portfolio managers, no one directly discussed these changes, however
many held Internet-oriented stocks as long as they were moving higher in price.
National governments do not seem to be aware of these changes. Local
governments around the world are very conscious of disappearing storefronts and
therefore employment, but seem powerless to stimulate sales on their High
(Main) Streets.
Does
the US have the same labeling problem?
The labeling of various
stocks as consumer staples or consumer discretionary is misleading. These are terms from outmoded economists based
on the goods and services once sold, not how they are bought today. Amazon and
similar online merchants have changed the world and both investors and policy
makers need to catch up.
Another
example of mislabeling
In a recent
conversation with a very intelligent mother of children who are now in the
workplace, I was told that she educated her children as they were growing up
at various ages by the stocks she bought for their accounts. At an early age
she bought McDonald’s for them, as it was the place they went to get rewards
for good behavior and good marks. I am delighted that it worked out well for
the family. She followed that thinking and at some point bought shares in Apple
for them. (I suggested that now as they are in the workplace she might look to
buying some of the recruiting firms. In the past they have not been big winners
as stocks but are very much leveraged to mid to high-income employment growth.)
All of the stocks
mentioned appealed to her and her lucky children because they knew of the
companies and their products. But in each case these are globally-oriented
companies. It would probably surprise her and many Americans to learn that
McDonald’s has more sales in Europe than it does in the US. (Interestingly there are more Burger Kings in Barcelona than McDonald’s even though McDonald’s has
the Airport location beyond security.) In a similar fashion, Apple’s future is
very dependent upon both production in China and whether the iPhone 5 will
increase the potential market from 17 million users to 200 million users.
The fastest growth for
many recruiters is their foreign placements. Not only are local offices around
the world filling local needs with local talent, they are searching for
qualified US talent to work overseas. These are examples of stocks that are
labeled as US domestic because they are legally domiciled here. Most portfolios
owned by US institutions and individuals need to recognize the global nature of
their holdings and adjust to the world not as it is, but how it is likely to be.
Fidelity
has come up with some very important numbers
Following the trail of
the now grown up children mentioned above, they and their cohorts need to start
to think about their retirement capital needs NOW! In an article
in the October Financial Advisor magazine, Fidelity Investments has laid out the math for meeting a working
person’s retirement needs which I have outlined below. (Bear in mind that Fidelity
is the largest factor in the 401(k) market.)
1. To
reach 85% of final salary level at age 67 retirement, including social
security, one needs retirement capital of eight times the ending salary. They assume the age at death is 92.
2. To
reach this goal one needs to enroll in a 401(k) at age 25 and make continuous
contributions beginning at 6% and raise it 1% each year until it reaches 12%.
(This plan presumes an employer contribution of 3% p.a.)
3. The
intermediate benchmarks would be an account equal to one year’s income by age
35, three times by age 45, and five times by age 55.
4. The
underlying investment assumptions are a 5.5% rate of return, the employee’s
income grows by 1.5% p.a. more than inflation and no breaks in employment or
savings.
There are very few
people that I know that are on this track (excluding those who have access to outside
capital) and most workers won’t get to these numbers. Thus, we need to come up
with a new label for the period of our lives beyond our primary employment.
Can we discuss your
retirement planning?
______________________________
Did you miss Mike Lipper’s Blog last
week? Click here
to read.
Posts
No comments:
Post a Comment