Rapid growth of the Internet and online services has spawned a whole new array of threats to governments, corporations and private individuals. Data breaches and identity theft are growing. The type of cyber attacks has evolved from early blunt instrument, denial-of-service attacks — where co-opted servers are used to overload the target with bogus traffic — or destructive viruses, to more sophisticated penetration of security networks using phishing, worms and trojans.
Growth of cyber attacks and data breaches has established a niche for specialized security software and consultancies to protect client networks from external threats.
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Their top 10 holdings are not a comprehensive list of companies in the industry but offer a good start. All industries are vulnerable but Trend Micro identifies the most targeted industries as:. Serious security breaches are capable of destroying shareholder value as with the September Equifax EFX announcement of a major data breach.
Social media giant Facebook FB dominates social networks with three of the top five networks ranked by number of users: Facebook, WhatsApp and Facebook Messenger. Social media is dominated by mobile users. Social media growth is expected to continue over the next three years but is then expected to slow as saturation increases.
Proliferation of fake news and misinformation threatens the industry. But previous efforts have failed.
Reaction from major advertisers and governments is likely to impose greater responsibility on online media to restrict publication of misleading information on their platforms, or face onerous penalties. But Amazon operates on a lower cost structure than traditional bricks-and-mortar retailers and their margins are bound to come under pressure.
Online retail is expected to grow significantly as a percentage of total retail sales over the next few decades. Medium-term: Bricks-and-mortar retail margins are likely to shrink. Medium-term: Shopping center vacancies are expected to rise. Adoption of electric battery-powered vehicles is accelerating in Europe, with several countries targeting zero sales of internal combustion engines in the next decade. Huge amounts of money are being poured into battery research and development but there are no clear winners as yet.
Bank Stocks Offer Stability For The Patient Investor
The rewards will be massive. Australia lags far behind in the adoption of electric vehicles but the long-term threat to automotive groups is diminishing revenue. Not only from new vehicle sales, with manufacturers like Tesla selling direct to the consumer, but also falling service revenue as electric vehicles have far lower service requirements. The telecommunications industry typically requires massive capital investment to deliver low marginal costs, whether that be for mobile phone calls or Internet connections. It is dominated by a few large players, whose size delivers cost advantages over competitors.
In Australia, the natural order has been disrupted by the government-funded National Broadband Network NBN which delivers fiber-to-the-home in some areas of the country and fiber-to-the-node to the rest where fixed line copper or co-axial cable Foxtel is used to bridge the last meters to the home.
The NBN supplies broadband Internet connections at the same basic cost to large and small telcos alike, allowing smaller players to undercut large competitors such as Telstra, who have traditionally dominated fixed line and broadband, eroding industry profit margins. Growth in numbers of broadband subscribers has slowed but download volumes are growing exponentially.
Already there are complaints of slow download speeds on NBN as telcos overload purchased bandwidth to compensate for narrow margins. Telstra and Optus have announced plans to commence the roll-out of 5G mobile broadband in At 10 Gigabits per second, speeds are expected to be up to times faster than the existing 4G network and 10 times quicker than the fastest NBN plans.
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Growth in the number of mobile handset subscribers But download volumes increased The telecommunication industry faces a profit squeeze in the medium-term say 3 to 5 years as the NBN disrupts profit margins but the long-term future looks bright as data downloads in both broadband and mobile are expected to grow exponentially. Naive investors are likely to automatically pursue the asset classes that offer the highest yields. Recent performance is more likely to attract our attention than more stable longer-term performance. Josh Brown highlighted last year that mutual funds that attracted the most new investment tended to underperform funds that attracted the least new inflows.
I suspect that the same applies to asset classes. If we consider each of the asset classes highlighted, it is clear that performance over the next 10 years is likely to be substantially different from the last decade. Australian Shares endured a hopefully once-in-a-lifetime financial crisis in Prices of Defensive stocks, on the other hand, have since been inflated by record low interest rates. Residential property prices boomed on the back of low interest rates and an influx of offshore investors.
But growth is now slowing. REITS were smashed in years is 7. But before contrarians leap into this sector they should consider the impact of low interest rates, with many trading at substantial premiums to net asset value. Global Shares also weathered the financial crisis year performance unhedged is 6.
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It may be a case of settling for the cleanest dirty shirt, and the least smelly pair of socks, in the laundry basket. This should be blindingly obvious, but amazing how often it is ignored. Great post from Josh Brown at Reformed Broker :. How do most investors and many advisors select funds or strategies to allocate to? And then mean reversion shows up — outperforming managers subsequently underperform, hot themes become over-loved, winning strategies become too crowded to offer excess returns.
Research Affiliates has an interesting pair of charts demonstrating this phenomenon in a new note from Rob Arnott, Jason Hsu and Co. They illustrate that increasing fund flows are a decent predictor of subsequent underperformance and that performance-chasing is destructive to returns across all types of investment products:. And no wonder.
Colin Twiggs – the patient investor
Over the past one, three, five and 10 years, only one-fourth to one-third of all stock funds have beaten the index for their category, according to investment researcher Morningstar. Meanwhile, index funds effectively match the returns of those market benchmarks at fees that often run only one-tenth of those of active funds. Skeptics have pointed out that if individual investors — those Wrong-Way Corrigans of the financial world — are rushing into passive funds, then active funds might be due for a resurgence….
But the net supply of outperformance always is zero; one fund manager can beat the market only at the expense of another who must lag behind it. Not quite true. Active management is not a zero-sum game. Zweig is ignoring individual investors who, as a body, consistently under-perform the benchmark index. Nothing is broken—value is simply out of favor at the moment, as we would expect periodically.
The best thing we can do is be thoughtful and consistent in making decisions about things we can control, like diversification. Warren Buffett stuck to his beliefs in buying underpriced stocks, while many people wondered if he was too old fashioned. Some went so far as to fire him as their manager.
After the tech bubble burst, Buffett went on to become one of the most successful investors in history. In retrospect, those individuals who fired him may now regret that decision. Just like Warren Buffett, we still see the benefit of investing in value as a thoughtful and evidence-based approach.
Was this a short-term move that will pass quickly or did it signal the start of value outperformance over growth? Only time will tell. Two great pieces that explore evidence-based investing in light of the current market environment:.
In US dollars. July, Based on rolling annualized returns using monthly data. Rolling multiyear periods overlap and are not independent. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results.
Are we becoming more impatient?
Welcome to my blog and thank you for checking it out! My vision is to periodically share ideas that our investment committee has been discussing. I wanted to set the stage with thinking about how we approach stock market events and in a larger sense, our lives. When you boil down why an event turned out the way it did, it is typically not productive to waste time and energy focusing on things outside of your control. In investing, what we can control and manage is the quality of our decisions. How do we make decisions? Is our decision making process objective or based on our emotions?