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Tipping points and thank you notes – swisspartners – The art of finance

Tipping points and thank you notes

In respect of new practices or fashions, there comes a point where in order to remain in business you may well need to follow carefully what your competitors are doing. This is particularly the case when your competitor next door is able to drop their prices aggressively as they adopt automation into large segments of their manufacturing process.

Following major advances in the Cloud and greater awareness of how technology can help boost productivity significantly, we are mindful that we may well be only 2-3 years away from large scale adoption of robotics.

This is particularly relevant, within the Industrial sector as it seems that most groups are more than willing to place ‘bolt-on’ monitors, which cost very little, but which save a fortune on factory down-times. In essence, it may only take 2-3 large industrial conglomerates to adopt more technology into their manufacturing base and thereafter, we could witness a wide scale ‘me too’ response from both mid-sized and smaller competitors.

Accordingly, the best advice we could give to any family with a budding engineer on their hands is for them to ask the younger member to keep their IT skills constantly updated. This could easily result in a very fat pay-check one day for the young engineer and the only downside maybe that the thank you note may come in the form of a ‘deeply coded’ text message.

Autumn sun and sugar highs

There comes a point every summer when the major investors return from their extended break in the sun, the air starts to cool and stock market volumes begin to move up towards their normal monthly averages.

The ‘sugar high’ points for the market in recent weeks have included a startlingly low VIX, (so no fear on the fear index), some upward momentum in Commodity prices and a reasonably positive Q2 update from companies on both sides of the Atlantic. And let’s not forget that America and North Korea decided not to opt for full scale war.

In contrast, the list of downside worries is of course equally long and includes whether the new Trump administration can perhaps deliver on its plans to reduce red tape and cut taxes. Meanwhile in Europe, growth conditions seem set to improve further as certain leading economic activity indicators are picking up.

So faced with some Autumn sun and welcome cool air, the question is what should a rational investor do? The question is made a bit harder as we are all faced with so much news, opinion and sentiment during a normal day.

We think the short answer is that an investor should screen all new investments using pre-set filters and apply these rigorously over time. For example, a lot can be said of how easily a management team can still use some accounting tricks to mask a short term fall in profits. However, as in previous cycles it is still quite difficult to massage free cash flow per share. So we would suggest that investors should not let emotion take them into sectors in which they have a good gut feel. Instead, it is likely to pay to stay the course, maintain flexibility but focus on applying your accounting filters consistently.

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