Weekend Reading

29 July 2016 | by Paul Perrino, CFA

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

Is Active Management Dead? Not Even Close (Jason Voss, @TheIntuitInvest, CFA Institute Blog)

A good article dissecting the real reason so-called active funds tend to underperform the index. “The reason so many active funds end up underperforming is not for lack of skill, but is the result of subsequent portfolio management decisions. Among other things, funds that asset bloat (i.e., become excessively large), benchmark track, and over diversify, destroy the excess returns generated via superior stock picking.”

Apple: The Next Trillion Dollar Company? (Michael Lee and SumZero, @SumZero)

This is a good overview of an investment thesis for Apple. Apple is a quality company that provides incredible value to its customers. They offer such valuable products and experience that people line up down the block, across the country, to buy the latest release. As we discussed a few months ago (see article here), Apple’s iPhone sales can vary quarter to quarter, but the long-term trend is still positive. But, Apple does need to continue to be innovated or risk increases that “someone or thing will completely alter the paradigm in such a way that the iPhone goes the way of Palm, Nokia, Motorola and Blackberry, i.e., into extinction.”

Unilever Acquires Dollar Shave Club: Was The Rubicon Just Crossed? (Shai Dardashti, Latticework)

The acquisition of Dollar Shave Club shows the shift in power that large companies, such as Unilever and P&G once had on consumer products. The distribution network and shelf space was a strong competitive advantage and kept smaller players at bay, which protected their profits. Technologies like Amazon’s AWS are allowing small e-commerce companies to have a similar distribution network as the big players. “…on the Internet, shelf space is unlimited. More than that, an e-commerce model meant that Dollar Shave Club could not only be cheaper but also better: having your blades shipped to you automatically was a big advantage over going to the store.”

Be Uncomfortable While You Can Afford It (,  Mullooly Asset)

This is a good reminder that acknowledging and managing emotions are a big part of being a successful investor. It reminds us of a quote from MIT’s Andrew Lo “Economists often view the market as a machine, subject to a set of rules and predictive models used in physics. Think how complicated physics would be if electrons had feelings.”

Ensemble Capital’s clients own shares of Apple (AAPL).

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