Weekend Reads for Global Investors: Alibaba, Apple Pay, and Asset Allocation

Alibaba and Apple were in fierce competition this past week . . . for the headlines.

The two tech giants picked the same day for their long-awaited events. Alibaba’s IPO went exceptionally well for the company and its bankers. Apple sold over 10 million sets of its new iPhone 6 in the first few days — an  astonishing record.

The Alibaba story is interesting in multiple ways. The company’s sheer size is almost mesmerizing. Its sales (and now market cap) are larger than those of Amazon. Its growth is faster than Google’s. Its margin is higher than Apple’s. So it’s no surprise that its IPO got all the attention you could imagine and then some. From there, the story then built on itself: the world’s largest IPO, the richest man in China, the number of gazillionaires it created, and so on and so forth. Despite the media frenzy, many did not lose sight of the company’s history.

As it happens, this is not the first time Alibaba has been around the block. It went public in Hong Kong in 2007 when the market was red-hot only to fold five years later, after the shareholders lost a significant chunk of their investments in the stock. It came back a year later seeking an IPO on the Hong Kong Stock Exchange, but eventually balked when their wish of having dual-class shares was not granted. My colleague Matt Orsagh, CFA, CIPM, voiced his concerns about the dual-class shares.

Amid all the fanfare surrounding the iPhone 6 launch, a little something called Apple Pay probably escaped most people’s notice. It’s basically a credit card embedded in your iPhone 6. At the reportedly 200,000 businesses accepting this new form of payment, all you need to do is touch your iPhone 6 screen next to the receiving device in the store and you’ll be all set. For details on how this works and much more, read Forbes contributor Michael Thomsen’s article “Apple Pay and How Computers Became the Cocaine of the 21st Century.”

In the slower-moving world of asset allocation, the California Public Employees’ Retirement System, or Calpers, quietly dropped a bomb recently by announcing that they are exiting hedge fund investments. Yale’s endowment, which is known for its exposures to private equity and hedge fund investments, continues to best its Ivy League rivals, however. So the jury is still out on which is a better way to go. While you ponder that question, feel free to glance over other readings I’ve listed below on asset allocation and other topics.

Alibaba

• For a contrast of the first and current Alibaba IPO: “Jack Ma Times Market Selling Second Alibaba IPO in Rally” (Businessweek)
• John Cassidy provides a nice summary of the concerns some investors have: “After Alibaba’s IPO: The Big Picture” (The New Yorker)
• “Dual-Class Shares: From Google to Alibaba, Is It a Troubling Trend for Investors?” (Market Integrity Insights)
• “How Alibaba Boosted Its IPO Size by Taking a Walk in Greenshoes” (Bloomberg)
• “What’s Yahoo Worth Now That Alibaba Is Public?” (Fortune)
• And no story about Alibaba is complete without a solid treatment on variable interest entities (VIEs). Read it so you don’t weep later. (Wall Street Journal)

Apple Pay

• “Apple Pay and How Computers Became the Cocaine of the 21st Century” (Forbes)
• PayPal founder Peter Thiel knows a thing or two about the payment business: Peter Thiel Q&A: The Billionaire Investor Talks Apple Pay, Microsoft’s Lack of Innovation, and Why We’re Not in a Tech Bubble (Business Insider)
• It may not match the wildfires that started in many of its other product lines, but if anyone can pull this mobile payment gig off, it’s probably Apple. So for the tech geeks among you: “Apple Pay vs. Google Wallet Features Compared” (Tech Times)
• Deep insights into an issue that has not really crossed my mind: “Why Apple Didn’t Use Sapphire iPhone Screens” (Time)

Investments

• “How Often Do Stocks and Bonds Decline at the Same Time?” ( A Wealth of Common Sense)
• “Too Big to Be Saved: Systemic Risk Alive and Well in Europe (Naked Capitalism)
• “We Have to Hope Smart Beta Is Not Another Example of Dumb Alpha” (Financial Times)
• “Expect Indian Markets to Be at Much Higher Levels a Year from Now: Mark Mobius” (Economic Times)

Asset Allocation, Retirement

Wade D. Pfau, CFA, a professor at the American College of Financial Services, and Michael E. Kitces, of The Kitces Report and Nerd’s Eye View, ran some interesting tests on whether investors should adjust the asset allocation of their retirement portfolios based on market valuation at various stages. The authors each explained the article in a blog post recently as well. Below are links to both blog posts and the original article posted on the Social Science Research Network.

• “Valuation-Based Tactical Asset Allocation in Retirement and the Impact of Market Valuation on Declining and Rising Equity Glidepaths” (Nerd’s Eye View)
• “Retirement Risk, Rising Equity Glidepaths, and Valuation-Based Asset Allocation” (Wade Pfau’s Retirement Research Blog)
• “Retirement Risk, Rising Equity Glidepaths, and Valuation-Based Asset Allocation” (Social Science Research Network)

The two authors previously ran some similarly thought-provoking tests: instead of reducing equity allocation as we get older, what if we actually increase it? I have attached a link here as well.

• “Reducing Retirement Risk with a Rising Equity Glide-Path” (Social Science Research Network)

Climate Change

• “Investor Heavyweights Call for Clear Action on Climate” (Climate News Network)
• “Funds Join with Mercer to Study Climate Change Effects on Asset Allocation” (Pensions & Investments)
• “Two Forces Moving Business Closer to Climate Action” (Harvard Business Review)

And Now for Some Truly Weekend Readings . . .

• “This Flowchart Tells You When to Worry About Anything” (Lifehacker)
• “Very Few Companies Offer Unlimited Vacation Days, but These Do” (CNNMoney)

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Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

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