July 6, 2019
Our Q2 commentaries are available now
This quarter, portfolio manager Tye Bousada explains the most valuable thing about EdgePoint — its investment approach, while Frank Mullen talks about the futility of trying to predict interest rates and suggests what to do instead.
Fast food working to become faster
McDonald’s is testing voice-recognition software at a drive-through in suburban Chicago. Inside the restaurant, a robot also tosses chicken, fish, and fries into vats of oil. Both technologies are meant to shorten customer wait times. McDonald’s is working to speed up service as it faces tough competition from smaller burger chains and declining fast-food traffic in the U.S. overall.
Competitors are also investing in technology. Last year Domino’s Pizza Inc. began testing voice recognition to take orders over the phone. Other chains are testing self-operating ovens and dishwashers, along with robots that flip burgers and perform other rote tasks.
Technology increases comfort for farmers
For some Midwestern farmers, springtime now means two things: Netflix and farm.
Thanks to GPS-enabled guidance systems and high-speed planters, U.S. farmers can plant and harvest fields faster than ever before, often with minimal human involvement. Self-steering tractors and combines free farmers to monitor seeding rates, haggle on the phone over crop sales, watch the weather—and get bored.
Expanding cellular signal coverage and streaming video apps have helped some farmers to convert these mobile offices into after-hours living rooms on wheels, complete with climate control, leather upholstery and built-in refrigerators. In recent years, massage seats have become available.
One farmer said he didn’t have a Netflix subscription until he started farming full-time about seven years ago. Since his tractor’s already outfitted with wireless-enabled devices and monitors, he said, “it’s too tempting not to”.
Measuring bubbles throughout history
Most Speculative Bubble: If we had to choose the greatest bubble in history based on how speculative it was, the Tulip mania of 1637 takes the cake. No bubble in history has had an object of such low utility (a flower) sell for such a high price.
Largest Bubble: When it comes to BIG bubbles, the U.S. housing bubble of 2007 is the biggest on our list in terms of size. The U.S. residential housing market declined in value from $29.2 trillion at its peak to $22.7 trillion when it hit bottom in 2012. That is a decline of $6.5 trillion in the span of half a decade.
The greatest bubble of all time: At the peak, the Japanese imperial palace was considered to be worth more than all the real estate in California and the Japanese stock market had grown 10x over the prior decade. 30 years after the peak, both Japanese stocks and residential real estate have yet to recover.
Buy and hold: Simple, NOT Easy
The idea of buying and holding high-quality businesses over a long period of time is simple. Everyone knows that, and even those who don’t practice it appreciate that this works with most high-quality businesses as history has proven time and again.
It’s important to remember that the action of not doing anything over such a long period of time involves hundreds of decisions over months and years that lead to such inaction.
Businesses change, and so do emotions, the behaviours of other investors around us, and conditions in the stock market and our portfolios. And that’s why sitting on stocks – the ones that remain of high quality – is not as simple as it sounds, and why patience is one of the most important yet difficult skills one must cultivate while investing in the stock market.
A pianist's advice
Strategy #1: Avoid Flow. Do What Does Not Come Easy.
“The mistake most weak pianists make is playing, not practicing. If you walk into a music hall at a local university, you’ll hear people ‘playing’ by running through their pieces. This is a huge mistake. Strong pianists drill the most difficult parts of their music, rarely, if ever playing through their pieces in entirety.”
Strategy #2: To Master a Skill, Master Something Harder.
“Strong pianists find clever ways to ‘complicate’ the difficult parts of their music. If we have a problem playing something with clarity, we complicate by playing the passage with alternating accent patterns. If we have problems with speed, we confound the rhythms.”
Strategy #3: Systematically Eliminate Weakness.
“Strong pianists know our weaknesses and use them to create strength. I have sharp ears, but I am not as in touch with the physical component of piano playing. So, I practice on a mute keyboard.”
Strategy #4: Create Beauty, Don’t Avoid Ugliness.
“Weak pianists make music a reactive task, not a creative task. They start, and react to their performance, fixing problems as they go along. Strong pianists, on the other hand, have an image of what a perfect performance should be like that includes all of the relevant senses. Before we sit down, we know what the piece needs to feel, sound, and even look like in excruciating detail. In performance, weak pianists try to reactively move away from mistakes, while strong pianists move towards a perfect mental image.”
Nick’s and Frank’s anniversaries!