Weighing The Week Ahead: What Determines The Agenda For Investment News?

Lyn Alden Schwartzer takes a close look at investing in Thailand via the iShares MSCI ETF (THD). She has a nice historical description as well as an analysis of investment fundamentals.

Personal Finance

Abnormal Returns always provides interesting ideas on a wide variety of topics. I am a subscriber, and I read it daily. Each Wednesday’s edition includes a post focused on personal finance. This week I found Mike Piper’s (Oblivious Investor) post, Social Security: It is an Asset, But Not a Bond, to be especially valuable. This is a question I consider with many clients who are approaching retirement. Here is his basic conclusion, but please read the entire post for a complete analysis.

Social Security is an asset. It’s true that it is not a liquid asset (i.e., you cannot sell it). But even illiquid assets show up on balance sheets. Same goes for lifetime annuities. They are assets, even if they are not liquid.

And yes, Social Security is a fixed-income asset. So it’s more bond-like than stock-like.

But it’s definitely not a bond.

Gil Weinreich’s series (SA for FA’s) is ostensibly geared to financial advisers. The analysis is much broader than that. Most DIY investors will find it quite useful. This week I especially enjoyed the post, U.S. – China Prisoner’s Dilemma. Gil effectively builds upon my “stalemate” theme from last week, including a take from Lok Sang Ho:

Donald Trump does not understand the implications of his dangerous game of brinkmanship and the precarious state of the US economy. Let me explain.

And from Neuberger Berman:

Still, an escalation of tariffs does not necessarily mean an end to negotiations and any hope of a deal. Indeed, our view is that this is very unlikely. Both sides can make space to climb down into, but it will take more than a couple of days and it will likely be done against a background of higher tariffs.

Gil pulls this all together using the game theory classic, the Prisoner’s Dilemma.

Watch out for…

Companies with the highest trade war exposure. 24/7 Wall St. has a list to consider.

Also, Chinese stocks where the trade issue is but one challenge. 24/7 Wall St. observes that the Baidu Inc. (BIDU) business has become almost impossible to track. There is a danger in reacting to phrases like “the Google of China.”

Final Thought

Most importantly, investors should set their own agenda!

Do not get caught up in what others feature as important. It is usually not. I am working on a deeper analysis of how we can handle this issue, but here is the basic concept. We should focus on information that meets three tests:

  • Importance
  • Urgency
  • Actionability

We should avoid information that is sensational, bombastic, or lacking in evidence.

How does this work in practice?

  • Many important issues like worldwide debt are neither urgent nor actionable for the investor. The same is true for geopolitical stress.
  • Recessions are important and actionable. The urgency depends on where you are in the warning range.
  • The trade war is important and urgent. It is partly actionable if you know the sectors affected and how to interpret developments.
  • Your own financial preparations meet all three tests. If you do not have a plan in place, it is urgent.
  • Gossip, accusations, and threats grab headlines, but have little relevance for our investment plans.
  • Political debates are important for an eventual decision, but they do not raise matters of urgency or actionability.

I am still working on the framework and examples. Comments and suggestions are most welcome. My WTWA objective is to meet these criteria.

Another current project is the syllabus for a course in investment management. No one has hired me for this (and Mrs. OldProf doesn’t want me to keep adding new projects), but a question from a young colleague about what to read sparked my interest. I asked the question, “If I were teaching a new course next fall, what would I include?” I also welcome suggestions on that front. The resulting list is already looking much different from those of people who have a list of “classics.”

And that is how I will spend the week ahead. Join me in doing something you find useful, setting your own agenda!

And also, some longer-term items on my radar

I’m more worried about:

  • Potential conflict with Iran. (The Economist). And also the discussion (The Hill) with Gen. Joseph Dunford, chairman of the Joint Chiefs of Staff.
  • Short-term corporate debt held by low-rated firms. Investors face danger if they reach for yield with these companies. This is not a matter of aggregate debt, especially that held long-term at low rates. (Barron’s).

I’m less worried about

  • Corporate earnings. The earnings season has mostly confirmed expected future earnings, despite the cautions about outlook. That is the key driver for stocks.
  • Recession odds. We are closely watching the yield curve and other indicators, but not yet seeing the usual confirming signals. There is also no warning from the SLFSI.
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Dick Kaplan 1 year ago Member's comment

Always a pleasure to read this every week.