Financial innovation has opened a new and more efficient avenue to connect investors with borrowers. One of the technologies evolving since the mid 2000's has been the Peer to Peer (P2P) marketplace. Since their inception a decade ago they have grown from $0 to $54 Billion.
When studying finance in preparation for the Series 65 exam there was an emphasis on specific investment objectives. The "safest" investment objective was "Preservation of Capital" and its primary goal was to prevent loss. Preservation of capital investments include Treasury Bills (T-Bill), certificates of deposit (CD), savings accounts, and money market accounts (MMA). These holdings are classified as the “safest” investments and are often insured against absolute loss. In industry lingo, they generate a “risk-free” rate of return. But before we take it as so, and solidify the link between "Preservation of Capital" and "risk-free" in our brains, let's see [...]
Benjamin Graham, the forefather of fundamental value investing once taught Warren Buffett, “Price is what you pay. Value is what you get”. Since Benjamin Graham wrote Security Analysis in the 1930’s, more academics, quantitative analysts, and Warren Buffett, have made strong cases that value investing outperforms the general market over the long term. In one example, Buffett’s firm Berkshire Hathaway employs value investing, and their track record outperformed the S&P 500 by 1,586,929% over the last 51 years. (1964-2015 Berkshire Hathaway gained 1,598,284% while the S&P 500 gained 11,355%) As we like to build upon our predecessor’s learnings, HIT Investments [...]
Our natural human condition is to know and communicate the price of a product while ignoring the product’s value. Oscar Wilde once said “Nowadays people know the price of everything and value of nothing.” This is a fundamental flaw in how we think and it has played a part in strengthening the consumerism culture we live in today. An everyday example of a marketer taking advantage of this flaw is the marking up of an item by 50% to only then place it on sale for an equivalent 50% off. If we were a value based society, that would be [...]
Global oil production has been outpacing demand for over two years. This oversupply has pushed oil prices to lows not seen in more than 10 years. For consumers this is a welcomed reduction in fuel prices; but for the independent producers the price decline is causing extreme pain. According to Haynes and Boone, 42 energy companies filed for bankruptcy in 2015 and Deloitte believes 35% of the remaining energy companies are at risk of declaring bankruptcy in 2016. Our in-house analysis found 38 of the 91 independent producers to be at risk of bankruptcy if financing dries up and oil [...]
In the last newsletter we discussed a few of the inherent consequences of dividends. This article compares the dividend to one of its alternatives, the stock buyback. Stock buybacks, otherwise known as share repurchases, occur when a business purchases shares of its outstanding stock from the shareholders. Importantly, the fundamental value of the business does not change. The result is an increase in the ownership percentage of each remaining share. For example, if a company has 100 shares and is worth $100, each share is worth $1 and has a one percent ownership interest. If the company buys back 50 [...]