Weekend Reading

2 February 2019 | by Ensemble Capital

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

The Futility of Market Timing (Albert Bridge Capital)

Albert Bridge Capital walks through the math of market timing to show that even if you are a genius at it, the pay-off is not that great over the long-term.  But the consequences of getting it wrong can be big.  Buying at the low of the market or the high of the market in a given year has very little impact on your rate of return over the following 30 years.  While Ensemble doesn’t try to time the market, we do try to be thoughtful about the economy and what that means for the companies we own in client portfolios.  Sean Stannard-Stockton recently wrote about why we might not have a recession for a long time.

American Railways Chug Towards Automation (Rhiannon Hoyle, @RhiannonHoyle, The Wall Street Journal)

Mining giant Rio Tinto has been working for the last ten years on a driverless train system called AutoHaul.  Rio Tinto is hoping to increase both efficiency and safety in the 200 locomotives they currently manage.  Rail-freight companies are known for providing high paying jobs with an average annual salary of $125,000 and around 5 million tons of goods are moved each day on the US network, generating over $70Bn in revenue annually.  This article explores some advantages of autonomous trains like eliminating inconsistent wear and tear by human operators as well as optimizing fuel consumption.

What Made the TV Show ‘You’ a Hit? Netflix (John Koblin, @koblin, The New York Times)

A television series by the name of ‘You’ began airing on Lifetime in September of 2018 with little success followed by a no-go for a season 2.  It wasn’t until the show debuted on video streaming service Netflix that it started really gaining traction.  ‘You’ is now on track to be watched by 40 million households within its first 4 weeks of streaming on Netflix and the show will begin filming their second season this February.  Ensemble Analyst Arif Karim, CFA wrote about Netflix and their pricing power here.

Silicon Valley’s Unbridled Optimism Gets Fresh Reality Check (Rob Copeland, @realrobcopeland, The Wall Street Journal)

Silicon Valley and environments at start-up companies are often glamorized with ideas of lavish offices and healthy salaries once a venture capital firm comes in but what if the days of optimism are coming to an end?  US Venture capital deals dropped to 882 in the fourth quarter of 2018, down from more than 1,500 three years earlier.  The attitude among technology investors is shifting, said venture capitalist Josh Wolfe of Lux Capital, “swapping ’fear of missing out’ for ’shame of being suckered.’ ”  It can be extremely challenging to identify a company to invest in sometimes within, but especially out of your core competence.  Ensemble analyst Todd Wenning, CFA wrote about core competence in his article Making Sense of Understanding.

Sneakers? Check. Mascara? Check. Makeup is the New Workout Gear (Anne Marie Chaker, @annemariechalker, The Wall Street Journal)

Makeup and a strenuous gym workout don’t sound complimentary at first blush, but that’s not what CoverGirl and other cosmetic giants are saying.  As apparel companies have successfully demonstrated that workout clothing can be worn both at the gym as well as fashion wear, makeup companies are taking cues for their next move.  Beauty brands like CoverGirl, Estee Lauder and popular drugstore brand Wet n Wild have all debuted makeup lines designed to be sweat proof, humidity proof, and wearable for 24 hours and they try to go after this untapped segment of the market.

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