Weekend Reading

26 August 2016 | by Paul Perrino, CFA

A summary of this week’s best articles. Follow us on Twitter (@INTRINSICINV) for similar ongoing posts and shares.

World’s First Self-Driving Taxis Debut in Singapore (Annabelle Liang and Dee-Ann Durbin, @deedurb, AP via Bloomberg)

nuTonomy beat Uber out of the gate by launching their self-driving, ride-hailing fleet (6 cars to start) in Singapore on Thursday. The service will initially cover the “one-north” section of the city via limited specified stops, but they hope to expand soon. The company was started by Iagnemma and Emilio Frazzoli of MIT. To implement their vision, they partnered with Renault Zoe and Mitsubishi for the cars. According to the COO, David Parker,  “…autonomous taxis could ultimately reduce the number of cars on Singapore’s roads from 900,000 to 300,000. ‘When you are able to take that many cars off the road, it creates a lot of possibilities. You can create smaller roads, you can create much smaller car parks,’ Parker said. ‘I think it will change how people interact with the city going forward.'”

Be Mindful of Rich Valuations in Low-Volatility Stocks. If history is any guide, investors should expect future returns to be muted at best. (Ben Johnson, Morningstar)

Exploring a similar topic to our recent post WD-40: A Case Study of the Bubble in “Safe” Stocks, Morningstar observed that funds have been flowing into low volatility ETFs. Flows into these type of companies have caused their valuation metrics (P/E, P/CF, etc.) to reach higher than average levels. If you look at the history of subsequent 3-year fund performance for funds that have high valuations, they tend to be “muted at best.”

The Housing Market Is Finally Starting to Look Healthy (Niel Irwin, @Neil_Irwin, NYT)

Several years after the housing crisis, the housing market is starting to look healthy. There were more new homes sold in July than any other month in the previous ~100 months. The price of these new homes fell by almost $16,000 from the previous month. This could indicate that the new homes being sold are on the lower end of the market. Since the housing crisis, new home ownership by first-time home buyers has lagged the historical average, but the population of potential first-time home buyers continued to grow. This backlog is finally being filled. The percent of GDP in residential investment is still about 20% below the historical average (since 1947), indicating that there is still more room for improvement.

Wireless: the next generation (The Economist)

If you thought the jump from 3G to 4G was impressive, wait until you see what’s in store for 5G. It’s estimated that download speeds will be about 10 times faster, with a latency of less than 1 millisecond. This makes streaming services (Netflix) and online gaming (Playstation) much more enjoyable and easier to access. The execution of the 5G network may look different that previous versions. Stephane Teral of IHS, a market-research firm, said there could be a shift from a single, large antennae servicing a cell to many smaller antennae scattered throughout the cell, so it can send out a more direct, concentrated beam. There is also a push, mainly from the largest network in the world – China Mobile, for a “green and soft” network, “meaning much less energy-hungry and entirely controlled by software.” Countries, such as South Korea and Japan, are leading the push for 5G networks. They both want to have their networks upgraded in time for their respective Olympics (2018 and 2020).

Ensemble Capital’s clients own shares of Netflix (NFLX).

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