Mapping tech

1. Mapple

The blogosphere has erupted with piquant critiques of Apple’s decision to adopt a highly flawed map system in their new iPhone. Without knowing much at all, I’m about to speculate wildly on why.

As you’re probably aware Google has developed cars that drive driverless, one of those technologies that could be implemented tomorrow with huge benefits to all, but societal inertia – in this case from legal, legislative and technophobic hurdles, will make this take decades.

The positive impacts will be enormous. Far fewer will expire on the roads as all driver-caused accidents cease. Commute times will plummet as vehicles drive more efficiently – that highly irritating caterpillar of movement that kicks off in long queues when the lights change will be no more. In face, there’s every chance that traffic lights will no longer be necessary and at intersections lines of traffic will stream orderly through each other.

There are more transformative benefits. We’ll be able to get drunk and be driven home by google (changing laws to allow this would be one of the many ways to encourage people to adopt the technology – widely publicising the safety record would be another).

With a bit of luck one day in our lifetimes we’ll be able to summon our cars parked at home to wherever we are.

As ever there will be winners and losers – taxi drivers look likely to lose.

There will be some crazy start up possibilities. Imagine an app that allowed you to rent out your car, so for a fee anyone nearby could get a ride, after which the car would return to where you left it. The car owner gets extra cash, the user gets a ride when, where and where hither he wants it, and the enterprising start-up in the middle gets a tiny slice of the revenue. That would have fairly substantial first mover advantages as well, but I digress.

The layout of vehicles will be based on entertainment and comfort, rather than convenience for the driver, and here lies the goldmine for the company involved.

The technology driving the car will put a prime display in front of all of us where there used to be none. Forget the iPad – the search potential, advertising dollars and drastic lifestyle improvements will be completely framed by a the company that can put this screen in every vehicle – or maybe you would just plug in your smartphone and tell it where to go.

Apple has seriously dropped the ball by giving Google such an enormous head start, firstly by adding google maps to all iPhones previously sold giving an enormous market and allowing the global user base to improve the product, and secondly by allowing such a fierce competitor to steer driverless innovation in directions of its choosing. Perhaps Apple could do more than hoard it’s +$100 billion trove.

2. Market play

Anyone who’s let me bore them with talk about stocks knows I’ve been a big $AAPL fan for quite some time. The company has better products than anyone else, is more profitable than anyone else, has huge entry barriers to its markets, has a closed, completely controlled ecosystem, and more importantly has been far cheaper than the market for quite some time. While it is indeed a ‘tech’ stock, it is the closest thing to a Buffett company I can remember seeing.

You wouldn’t believe the retarded conversations I’ve had with people in the market who should really know better.

Once I had to explain to a hedge fund manager who targeted ‘cheap stocks with strong cash flow generation and defensive margins’ that Apple was the highest rated by not only all of his own arbitrarily chosen metrics, but also by a number of others, the inclusion of which into his decision making would make a lot of sense (for example, its ridiculously high earnings growth).

I sat with a rates trader who questioned the trade after the stock had risen to the then lofty levels of $400, arguing ‘we’ve just had a strong risk rally, the next sell-off I expect it to go to $200, [he gestured on a chart where it was pre-rally]. It might be a good trade then’. The guy hadn’t even bothered to consider the market implications of the fact that the company in question had literally more than doubled in size since then. Sure much of fixed income is by nature mean reverting – bond principal tends not to double – but the concept of equity isn’t that hard to understand.

Most frustratingly I had a kind-of-interview (one of those ones where you just meet someone but the unspoken possibility of employment is undoubtedly present) with another fund manager and, upon being asked for trade ideas provided Apple. I was treated to a two hour lecture on the various details (and I mean technical not financial details) of Apple’s mid 90s strategic blunders, apparently oblivious to the fact that investing at that time would have made an absolute fortune while simultaneously disregarding the fact that the events under discussion occurred 15 years ago. (Actually, I quite like most of this guy’s work – more on one of his other ideas in another post).

Right now the case is a lot more balanced. Apple’s existing products will continue to throw off billions of dollars, almost definitely for the next few years at least – and the company still makes sense as a low risk investment, particularly as it has no debt and is sitting on a mound of cash. But the process by which competitors catch up is quite clearly well underway.

Google on the other hand was always a little less exciting financially. That ruthless financial management exercised by Apple (as seen in their frugal-with-respect-to-revenue research budge) was completely orthogonal to Google’s don’t-be-evil strategy. GoogleX, with its driverless cars and who knows what else, has shown the incredible potential aggressive and imaginative research funding has to both dramatically improve our lives and summon huge revenue streams out of thin air. I’m going to sell some $GOOG puts, and if there’s a sell-off I’m going to take the stock.

Everyone knew the smartphone business was going to make a fortune, particularly once it was well underway. The wrong approach was to pick a winner: Blackberry bears witness to that (as does Nokia, but that was more obvious). The right approach was to pick a number of companies and recognise that a pie growing that fast was going to be hugely profitable for anyone who could nab a decent share. Apple and google were obvious choices then.

If Google’s driverless cars become standard, rather than a speculative possibility next decade, there is a good chance a number of players will harvest enormous profits. Fortunately with public equity markets, it’s possible for all of us to take a share.

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Turnaround Tuesday

But for the first time in a while, I feel like walking away for the market. Something’s not right..

Let me count the ways:

1. Chinese inflation figures where high, making monetary easing that much harder

2. No mention of QE3 from the Fed.. given their communication policies, I’d say that’s now looking quite unlikely

3. Germans are talking about fiscal discipline again – as if inflation has anything to do with anything right now, or their loose talk and inopportune rate rising didn’t screw things over last year

4. Rising spanish debt yields – predicator of the annual euro slump we’ve come used to

5. Expectations for a very good US jobs number which massively underperformed on Friday.

6. There has just been a stonking rally.

Finally, the Chinese market is getting dicked, and for the past five years that has meant stay the fuck away from risk.

There’s not much to be positive about, save to hope April is a wipeout and that sets us up for a ripping second half of the year. ‘Sell in may and go away’ can’t work every year.

I’d say copper’s looking pretty exposed from here (yes that is a head and shoulders pattern)

Image

In fact, the whole market is a head and shoulders pattern.

I’ve had a pretty good run since december (well, less good after the past couple of days) but now face the age old dilemma with all the tricks for the unwary and general mindfucks contained within: hold them or fold them.

Model Portfolio

An old friend recently challenged me to make some predictions. While I think he was referring to political and economic developments, I’ve decided to create a public model portfolio.

Looking back I’ve only ever really made money when a fundamental macro view lined up with excellent financials and valuations, and it can be explained to anyone in simple terms.

I restrict my trading these days to (mostly) such ideas.

I’m going to weight each idea 20% of the portfolio. Ill stick to a seven ideas, with a net portfolio exposure no greater than 80%. Perhaps I’ll get more funky with hedges later but this is simple enough for now, and a very responsible way of investing capital. Over the long term it would be very hard to lose a lot of money.

Idea 1: Tech. buy 20% apple, sell 20% amazon.
Idea 2: Autos. buy 5% ford, 5% BMW, 5% Volkswagen, 5% Tata motors (India)
Idea 3: Shipping. Buy 15% Box Ships, 5% Navios Maritime Holdings

Total exposure = 40%
Gross exposure = 40%

I’ll track this relative to various indices.