Catch up on this week’s top stories around bouncy global markets, Elon Musk’s space race, and Amazon’s next venture. Plus, what it all means for you and your investments.
1. Global markets are bouncing around
Stock markets globally have been volatile in February – stocks have soared, dipped and bounced around after an incredibly long period of gains/relative calm.
Experts, as per usual, are divided as to whether markets might be set for much greater falls. Or whether the recent falls are merely a short-term setback, with markets set to come back even stronger.
What does this mean if you’re invested in the stock market?
Investors are often tempted to “time” the markets by selling out of some, or even all their investments when the market starts falling.
They tend to hold cash until they think the market has stopped falling, and will then buy in again.
Sounds like a good strategy in theory, but in practice, it’s nearly impossible to implement because no one is that great at predicting short-term movements in the stock market.
What usually ends up happening is investors don’t buy back into the stock market soon enough, and they end up worse off than if they had simply remained invested.
We think the best way to invest long term is to regularly invest money rather than trying to “time” the markets.
Over the long term, successful investors tend to be the ones who have their money in the stock market for long periods of time, rather than those who are actively trading in and out.
One of the world’s largest investment managers, JPMorgan Asset Management, did a study on this several years ago.
The study found that between 1995 to 2014, an investor in the S&P 500 – the 500 largest stocks in the US – would have made a 9.85% return per annum if they remained invested over the entire 20-year period.
However, an investor who tried to “time” the markets and inadvertently missed out on every one of the 10 best performing days over the 20-year period, would have seen their returns drop to 6.1% per annum.
2. SpaceX leads the space race
It’s been a good week for Elon Musk and SpaceX. They not only made history by launching a Tesla Roadster into space, the Falcon Heavy also became the most powerful commercial rocket in the world.
The successful launch brought the space industry to the forefront of global conversation, with Bank of America Merrill Lynch forecasting it will grow to be worth at least $2.7 trillion over the next 30 years.
What does this mean if you’re interested in investing in the space industry?
Just like SpaceX, other purely aerospace companies are privately owned and are therefore not listed on a stock market.
However, there are some listed companies that do have activities in the aerospace sector like Boeing. But these companies typically have a number of non-aerospace businesses as well.
For those interested in a getting space launch exposure, you may have to get acquainted with one of the three billionaires involved in the space business and offer to buy some shares from them – Elon Musk (SpaceX), Jeff Bezos (Blue Origin) or Richard Branson (Virgin Galactic).
While SpaceX’s launch doesn’t have any direct impact on AtlasTrend investors, it’s a great example of how differently Australia and the US approach innovation. It’s also partly why our managed funds have large investments in the US.
Remember: SpaceX nearly went bust early on when its first three rocket launches failed, but they persevered and are now thriving.
From my experience, many large, Australian-listed companies typically shy away from funding high risk-reward research and innovation projects. They fear one failure may result in less short-term dividends for shareholders.
Amazon CEO Jeff Bezos sums this up quite well:
“I’ve made billions of dollars of failures at Amazon. What really matters is, companies that don’t continue to experiment, companies that don’t embrace failure, they eventually get in a desperate position where the only thing they can do is a Hail Mary bet at the very end of their corporate existence. Whereas companies that are making bets all along, even big bets, but not bet-the-company bets, prevail.”
3. Amazon shakes up the shipping sector
Speaking of Jeff Bezos, Amazon is gearing up to launch its own delivery service “Shipping with Amazon”.
Amazon’s latest industry takeover follows a similar format to those preceding it – lower prices, greater efficiencies and share price drops for any major players in the sector they’re revolutionising.
In this particular case, FedEx and UPS bore the brunt of the news.
What does this mean if you’re invested in the online retail industry?
The logistics component of e-commerce is highly complex, and difficult to get right. The speed of delivery and simplicity of returns is absolutely critical to the overall customer experience.
Given Amazon is already the world’s largest online retailer, it makes sense for the company to offer its own delivery services to help third-party sellers that sell on Amazon’s marketplace.
The online retail industry continues to experience rapid growth worldwide, so logistics giants like FedEx are still set to be major winners as there are plenty of orders from other online retailers to fulfil.
FedEx’s share price dropped when Amazon announced its third-party logistics services, but has since started recovering. In the near to medium term, we don’t believe Amazon will have a major impact on FedEx’s business.
Firstly, Amazon is not a major FedEx customer; they don’t stand to lose a lot of business if Amazon switches entirely to its own logistics network.
Secondly, and perhaps more importantly, it’s will likely take Amazon a very long time to build a truly global logistics operation to rival FedEx. For a quick reference, Amazon reportedly has 40 planes on lease while FedEx has 659.
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Kent Kwan is a co-founder of AtlasTrend. He was formerly a Chief Investment Officer of an ASX listed company and prior to that was an international equities fund manager with JPMorgan.