You Would Probably Make a Terrible Stock Picker

Mærsk_Mc-Kinney_MøllerYou would probably make a terrible stock picker. You really would. Why you ask? Because the world is big and complicated and its hard to hold on to more than a small piece of it at any one time.

Picking stocks isn’t exactly all the rage, but with the sheer volume of discount brokerages and online trading platforms there’s clearly enough interest in the DIY method of investing that it’s easy for people to either manage an entire stock portfolio or dabble in the occasional stock tip. Is this a good idea? Cost wise it’s hardly prohibitive, but from the standpoint of whether this makes for smart investing I have my doubts.

Why? Well, for one thing even the professionals get things wrong sometimes. But the investment industry is staffed with analysts that specialize in entire industries, looking to understand companies from different points of view that reveal opportunities for growth, value or misplaced market opportunities. These people spend their careers trying to understand companies and the industries they are part of.

By comparison the DIY investor tends to act on the things they think they know, and perhaps even the unknown knowns. All of this can lead to serious errors in judgement and costly mistakes in their investments. Are you right to think that Apple is on the decline because it isn’t innovative enough? Or that Microsoft has already lost because of declining computer sales. Is Tesla really worth as much as 50% of GM? Is that hot mining stock you heard about really as good a bet as you think?

In my time working at a mutual fund company I was most impressed when I spoke to portfolio managers who  talked about why they looked at companies and industries that no one else did. How much time did you think about mattress companies? How often were you reviewing currency trends between Mexico and India (yes that’s a thing)? How much do you really know about a company?

For example, have you ever heard of A.P. Moller-Maersk? It’s okay if you haven’t, but you might be surprised to learn just how big a company it is. Maersk is a Danish corporation that’s core business is global shipping. It’s so large a firm that it accounts for 20% of Denmark’s GDP. It owns and operates countless subsidiaries, including banks, energy companies and supermarkets. It’s full list of associated companies is 12 pages long (Company Overview), showing firms from Angola to Canada, the United States to  Japan, on the Middle East and through every Emerging and Developed market you can think of. Maersk commands a shipping fleet of six hundred vessels, making it the world’s largest. It’s revenues in 2011 were $60.2 billion, just shy of Microsoft’s. In 2005 it launched one of its biggest ships, called an E-class, that could carry 15,000 containers. In 2013 Maersk started using its Triple-E Class ship, so large it carries 18,000 containers.*

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I fully admit to knowing very little about such a large company, and it surprises me that a firm with such reach seems to fly just below the radar. But my job is to help people save for retirement and work with their individual financial situations. That’s why I trust professional analysts and portfolio managers to understand the nuances of the companies that make up the investing world. For the DIY investor all too often rumour and news reports substitute for real knowledge. The good fortune of a stock going up instills courage in stock picking prowess, while a declining market either confuses or robs an investor of their confidence and possibly their savings. Investing is a tricky business, and one where we should seek help when its offered.

*All the information regarding Maersk’s business comes either from their website or the excellent book Ninety Percent of Everything by Rose George, which I highly recommend. 

Apple May Have Just Won the Tablet Wars

Global Tablet Sales
In 2013 global sales of tablets reached just over 195 million. Of that Apple sold over 70 million tablets, growing their year over year sales.

As of today you can download and use Microsoft Office on your iPad. This news has hit my family with a yawn, but to me this is an excellent signal for the long term financial health of both Apple and Microsoft. In fact, I’d go so far as to say that Apple may have just won the tablet wars for the foreseeable future.

In case you don’t know Microsoft has been hurting. Not financially. It’s doing great financially, but as a company where being “with it” seems important, Microsoft is decidedly not. Steve Baumer, the recently retired (and Bill Gates hand picked) CEO made several attempts to broaden and improve Microsoft’s product offerings, but many of them fell flat. The most notable has been Windows 8 and the Surface tablet, the new operating system that was meant to take Windows into the mobile era. The reception to both the Surface and Windows 8 has been so negative that the cost has been extraordinary. Microsoft has already announced Windows 9 and it is expected that it will be a return to the things that people love most about Windows.

Part of the strategy for moving into mobile computing had been to withhold Microsoft Office from the iPad. Office is still the bread and butter of the business world and it drives much of the revenue for Microsoft. The thought had been that limiting Office to a Microsoft platform would make their tablets more desirable and would steer the mobile business world towards Microsoft products. How wrong they were. Apple accounts for 73% of mobile enterprise solutions (sorry Blackberry). Even without the Microsoft Office platform people and businesses preferred to use the iPad, using different apps and numerous work arounds to integrate the Apple product into their business life.

Some will assume that the availability of Office for the iPad signals some kind of death knell for Microsoft’s future in the mobile world. I doubt that. If anything it will make them stronger. It will help solidify Microsoft Office as both the preferred software for businesses, renew interest in its personal use, and ease the pressure to choose the “right” tablet knowing that software can be shared across multiple platforms. The bigger story here is for Apple. Apple’s mobile operating system (iOS) may lag behind the sheer volume of users of Google’s Android operating system, but Apple easily sells the most tablets of any one company. In fact in 2013 Apple sold nearly double the number of iPad’s compared to its nearest competitor, Samsung.

But with the arrival of Microsoft Office it seems clear that Apple is likely to retain the profitable sector of personal and business tablets. Whether this ends up being reflected in the stock price of Apple is yet to be seen.