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Wednesday, July 26, 2017

Amazon's Dominance

We have written before about Amazon's dominance in the retail sector (here) and as Amazon seeks to acquire Whole Foods and take on the grocery business, it seemed like a good time to revisit the company.  Amazon is gaining a tiny share of the U.S. grocery market through their Whole Foods acquisition, and yet all other grocery stocks trembled at the news.  Why?

Tuesday, July 25, 2017

Diversification to Mitigate Risk

A recent article from Ben Carlson provides a great overview of how diversification is used to mitigate risk in all facets of life (or in TV shows).  His simple explanation of diversification reminded me of the way I was introduced to the concept in school.

Monday, July 24, 2017

Initial Coin Offerings

Thomson Reuters recently published an article on initial coin offerings (ICO's).  These are truly the wild west of investing right now and the market is still being formed, but it is never too early to get a rudimentary understanding of new(ish) financial tools.  This market could be a large growth market for years to come, so I recommend that readers peruse the above linked article for an introduction.

Friday, July 21, 2017

Death of TV Advertising?

Could this be the end of advertisements as we know them?

Consumers are tired of advertisements. With the introduction of streaming services such as Netflix and Hulu more and more consumers are ditching cable for the more tech savvy options. With the growing cost of cable and satellite TV options consumers are growing tired of paying for these ad-filled services. For $8 a month they can watch ad free shows and movies through Netflix, or for $12 a month they can watch current cable shows, without ads, the day after they are released on television. The epidemic that is “binge watching” has changed the game of television. Consumers would rather watch episode upon episode rather than be subject to what a certain TV channel decides to play on any given day. Normal TV relies on advertisements to bring in more revenue for them but with these streaming services offering ad free options people are increasingly choosing them over cable or satellite. Cable and satellite subscriptions are declining while streaming subscriptions are growing at a rapid rate.

Thursday, July 20, 2017


This is a chart of Chipotle's stock price in the past two years.

The stock tanked after a food health scare in 2015 and has not recovered since.  A new recent health scare has caused the stock to continue its downward trajectory.

Since bottoming in Q1 2016, however, the company's revenue has begun to rise (though it is still well below the pre-food safety issue peak).

Net Income remains even further below the pre-fiasco highs.

Though the future of Chipotle's stock is unknown, the recent past serves as a great example of a comment that we made in our summer 2017 Investor Letter where we said, "Higher valuations are a lot like raising the height of a high-wire act; raising the height/valuation makes the performer no more likely to fall, but drastically raises the consequences if he/she does indeed fall."

Back in 2014-2015, Chipotle was an expensive stock that continually justified its price by growing revenue and earnings at a rapid pace.  Its unforeseeable food safety incident, however, caused the stock to fall off of its high wire (valuation), and as the first chart shows, the fall was a large one.

Wednesday, July 19, 2017

U.S. Consumer Debt

The consumer is the most important part of the U.S. economy.  Consumer spending is a significant part of GDP and without growth in the consumer sector, the rest of the economy suffers.  So, market participants pay a lot of attention to the health of the consumer in order to gauge the strength of the economy.  A very important component of consumer strength is household debt.

Tuesday, July 18, 2017

Amazon's Prime Day

Amazon had its famous "Prime Day" recently where items across the site are discounted for Prime users.  They have basically tried to create a retail holiday from nothing in the middle of July and have been relatively successful at doing so: Prime Day 2017 brought in $1 billion in revenue.