Weekend Reads for Investors: Merger Mania, Peak Profits, and Value Investing
General Electric’s (GE) recently announced plan to repurchase $50 billion of its stock, the second largest such plan ever authorized by a US company, suggests that buying back shares remains one of the preferred ways for companies to boost shareholder value.
And while the buyback binge shows no signs of abating, CEOs have fully embraced mergers and acquisitions as another outlet for their cash and an avenue for growth. Thomson Reuters recently reported that the value of worldwide mergers and acquisitions activity during the first quarter of 2015 was up 25% from the same period in 2014 and at its fastest pace since 2007. It was the strongest first quarter in the United States in 15 years and the best start for Asia Pacific since record keeping began in 1980.
The burgeoning market for mergers is reflective of a lack of organic growth opportunities, cheap capital, and flush corporate coffers. Additionally, elevated stock prices provide buyers with a strong currency and sellers with a reason to cash in, which helps explain why mergers and acquisitions activity has tended to peak around market tops, most recently in 2007, and before that in 2000. So while the pace of deals may be a sign that CEOs and their boards are more confident about their prospects for growth, investors should be aware that their timing of late has been less than prescient. For those investors tempted to pick the next takeover target, the safer bet may be on the Wall Street bankers who are doing the matchmaking and financing. They always get paid.
Below are some other stories that caught my eye in recent weeks.
- BlackRock’s Larry Fink on the scourge of short-termism. (McKinsey & Company)
- “Profit Margins — Is the Ladder Starting to Snap?” (Hussman Funds)
- Yale’s “David Swenson on the Fossil Fuel Divestment Debate” (Enterprising Investor)
- Warren Buffett is as good a manager as he is an investor. (Fortune)
- “Fact, Fiction, and Value Investing” (Social Science Research Network (SSRN))
- “The Fed Is the New Value Investor” (Kaleidoscope Capital)
- Best practices for a new era of investment management. (Focus Consulting)
- “Bond Investors Grumble at Buyback Bonanza” (Financial Times)
- Janus Capital’s Bill Gross, CFA, calls German 10-year Bunds “the short of a lifetime”:
Gross: German 10yr Bunds = The short of a lifetime. Better than the pound in 1993. Only question is Timing / ECB QE
— Janus Capital (@JanusCapital) April 21, 2015
- But if he’s right, it may mean “financial Armageddon” (Bloomberg View)
- “Gimme Shelter: The US Dollar Trade and Its Risks” (Research Affiliates)
- The case against currency hedging international equity investments. (GMO)
- “Can Bankers Behave?” (The Atlantic)
- “Is Wall Street Really Robbing New York City’s Pension Funds?” (The New Yorker)
- “The Wolf of Wall Tweet” (Slate)
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
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