3 August 2018
Question: According to MSN|Money, Motley Food, what are four times when diversifying your portfolio may not make sense?
Apple becomes first company to break through $1tn value barrier – Pg. 1
– …beating old foes such as Microsoft and younger tech rivals Amazon and Alphabet to the milestone
– Tracking Apple’s rise to the $1tn milestone has been complicated by the company’s enormous share buybacks, including $20bn in the past quarter alone. The company’s latest regulatory filing showed a share count of 4.83bn shares as of July 20
– Market capitalization is only one measure of a company’s success. Amazon’s enterprise value, which takes into account debt, is already ahead of Apple’s by about $50bn
– …11-year-old iPhone, which still accounts for about two-thirds of annual revenues….
– The company’s share price rally in recent months has been attributed, at least in part, to its plan to repatriate overseas profits and return most of its more than $100bn in net cash to shareholders, under new US tax rules
White House push to cut taxes for rich faces thorny obstacles – Pg. 2
– The hurdles would include challenges to the legality of the move, on top of political criticism and doubts over the economy benefits
– The Treasury has been examining the merits of adjusting capital gains taxes for inflation – in effect a tax cut that would confer large benefits on well-off Americans
– ….as much as 90% of the benefits would go to the top 1% of households
– Presently, when assets are sold the tax is calculated on the nominal difference between the initial cost and sale price
– ….the Treasury could redefine what is meant by “cost” without the need for new legislation, meaning only returns in excess of inflation would be subject to tax
German government debt falls below $2tn – Pg. 4
– Debt fell last year by 2.1%…
– The debt ratio is expected to fall to 58.25%, down from 61% this year. As recently as 2012 it was at 81% of GDP
– Germany passed another important symbolic milestone in January when its “debt clock” started running backwards for the first time in more than 20 years
BoE interest rate increase to 0.75% is highest level in nine years – Pg. 4
– The BoE raised interest rates to their highest level in almost a decade yesterday, ….
– …central bank’s benchmark interest rate to 0.75% – the highest level since 2009 in the aftermath of the financial crisis
– The BoE is the third major central bank to meet this week, and has joined the US Federal Reserve in signaling further interest rate rises are on the way
Passive investing is storing up trouble – Pg. 9
– A fundamental shift in market structure towards rules-based, passive investing over the past decade means a lot of trading is no longer based on fundamentals
– …only about 10% of US equity investment is now done by traditional, discretionary traders
– Passive investments, such as ETFs and index funds, similarly ignore fundamentals. Often set up to mimic an index, ETFs have to buy more of equities rising in price, sending those stock prices even higher
Answer: (1) If you’re investing with a relatively small amount of money (Prof Note: A MAJOR criticism I have with academia is that it prepares everyone to manage someone else’s $100.0m portfolio and not their own $500,000 retirement savings.); (2) If you’d have to dip into margin in order to diversify; (3) If you ‘re struggling to keep up with the headlines of what you already own; (4) If it reduces the quality of your investment holdings