Friday, October 25, 2019

This week's interesting finds

October 26, 2019

Staying the course: Even stars are underdogs at times
Active portfolio management can be like riding a roller coaster at times. Even highly successful active managers often underperform over periods of time.

The chart below shows the performance of active managers over a 15-year period. As you can see most active managers did not even survive and only 14% of them survived and outperformed over the 15-year period. However, if we take a closer look at these most successful managers that outperformed over the 15-year period, we find that 72% of them experienced at least one three-year period of underperformance.
More than one study has shown that the vast majority of successful managers have at times failed to exceed their benchmarks or their peers, particularly over periods of three years or less. And they’ve sometimes lagged by a wide margin, Of course, it’s easy to lose confidence in an investment after suffering through a negative period but selling (or buying) purely based on short-term numbers is one of the worst things you can do as an investor.

Do yourself a favour – after picking the right investment for you, stay loyal. After all, the longer you stay in the game, the greater your chances of coming out ahead. Don’t replace one fund with another simply because it has underperformed lately. Invest in a fund because you believe in the investment approach and understand how it can help you in the long term.

The Ongoing Battle for Pipeline Projects in Canada
Canada has the world's 3rd largest oil reserves and is currently the 7th largest producer of crude oil.  Canada's crude oil production has increased from 2.3M barrels/day in 2005 to 4.6M in 2018. With the proper infrastructure built, the National Energy Board estimates the production will grow to 6M barrels/day by 2030. The critical question facing Canada's oil and gas industry is whether the necessary infrastructure will be built.

Over the last decade, many of the proposed pipeline projects have been cancelled or delayed as a result of regulatory challenges or political decisions. If all of the export pipelines applied for since 2012, which have now been canceled or delayed, were instead approved and completed as per their original proposed in-service dates, 3.4M barrels/day of additional capacity would have been added by 2019. Instead, between 2013 and 2016, only 1M barrels/day in additional capacity was added, and since 2016 no additional capacity has been added. This has contributed to a widening price differential for Western Canadian Select (WCS) compared to Western Texas Intermediate (WTI).

For a review of some of the most high-profile pipeline projects in Canada in recent history click here.

High flying
The combined value of the five biggest companies in the S&P 500 -Apple, Microsoft, Amazon, Alphabet, and Facebook -- has reached 17% of the index's total market cap. That's the highest for the top five companies in any week since the burst of the dotcom bubble at the turn of the century.

Unprofitable IPOs

The percentage of companies going public that have yet to generate positive earnings has reached 70%. This is the highest since the peak of tech-industry excess roughly 20 years ago.

Friday Funnies