A woman uses an iPhone as she passes the Apple store at Grand Central Terminal in New York City.MIKE SEGAR/Reuters
Hey there, Trade Secrets readers!
I hope you had a great long weekend. This is your weekly newsletter with updates on The Globe and Mail’s Trade Off stock-trading competition.
Along with our leaderboard update below, it’s a busy week for one of tech’s titans. We also have some investing lessons to share from a couple of legendary investors.
Was this newsletter forwarded to you? Be sure to sign up to receive the Trade Secrets newsletter in your inbox.
The Leaderboard
Before we dive into some actionable investing insights, here’s a quick leaderboard update on the Trade Off game.
The week in markets
Can a foldable iPhone lift Apple’s stock? A fun story to watch this week will be Apple’s first big event under its new CEO, John Ternus. The 25-year Apple veteran officially took over from long-time boss Tim Cook at the start of the month.
From an investing perspective, Mr. Cook’s shoes will be hard to fill. According to Bloomberg, Apple’s stock rose 2,258 per cent during his tenure. While Mr. Cook was often described as an operations genius, Mr. Ternus is a hardware guy, and we’ll get our first look at what he’s been working on. Apple is expected to unveil a foldable iPhone, among other things.
But being a good CEO in the eyes of investors may require a balance between growth and shareholder-friendly uses of capital. I thought I’d compare Apple’s current situation to that of Dell. The two aren’t rivals in the way they once were, but both will be competing for investor attention.
This year, Dell is winning and it’s not close. Dell’s focus on servers is delivering big growth in the AI era. It then uses lots of its cash to reward investors with things like dividends. Data from Bloomberg shows that Apple’s dividend is expected to grow 5 per cent in the next three years, whereas Dell is expected to see growth of 17 per cent.
We’ll see if long-time Apple investor and former Berkshire Hathaway CEO Warren Buffett takes note. More on Mr. Buffett below, by the way.
What it’s like to be a contrarian investor: How willing are you to go against market consensus? Michael Burry will tell you it can be a profitable approach, but also a lonely one. Mr. Burry made a fortune betting against Wall Street during the financial crisis. Now, he’s betting against Silicon Valley and the AI trade. We did a deep dive on some of his shorts (and buys) recently on Ticker Take.
How do you become a contrarian investor? For Mr. Burry, it has a lot to do with assessing whether an investment is mispriced. Something can be worth too much, which he sees being true with AI names. Stocks can also be underpriced, with most of his current holdings falling into that category.
The question, though, is how long are you willing to wait to be right? I remember doing an in-depth interview with Mr. Burry for Bloomberg in 2010, where he talked about fiscal irresponsibility as something that would benefit gold. That’s true today, but it took a while for the market to catch up to his thinking.
The truth about diversification: One of the benefits of this competition is that you get to see how certain stocks can power a portfolio. Legendary investor Warren Buffett celebrated his 96th birthday a couple of weeks ago and I shared a few of his investing lessons on social media.
One of my favourite quotes? “Diversification is protection against ignorance.” At first glance, it seems to go against Mr. Buffett’s recommendation that investors should consider parking their money in an S&P 500 index fund. His broader point, though, is that it pays to understand a few businesses really well. If you do, there’s no need to own dozens of stocks.
Trade Secret tips
I recently took a look at a list of companies that have only had three or less annual declines in the stock market over the past 15 years. One of the companies on that list? Copart. If you haven’t heard of the business, here’s an explainer of how Copart allocates capital to win over investors.
Finally, as you may know from some of my past writings, I’m passionate about the subject of financial literacy. If you’re looking for ways to get your kids thinking about money, read Globe investment reporter David Berman’s recent piece.
That’s all for now. Happy trading!
Jon
Jon Erlichman is the founder of Ticker Take on YouTube and a contributor to BNN Bloomberg.