Hanjin’s Bankrupt — What Now?

Tyler Linsten Longshore

Hanjin_container_ship

This week we learned Hanjin Shipping Co. has filed for receivership, capping off months of decline for Korea’s largest shipping company.

What does this mean and what’s the longshore investing angle?

  1. We can finally settle the “debate” about industry employers being fat-cats flush with cash. This is not a healthy industry. Healthy industries are rising tides which, pardon the pun, don’t let ships sink. Despite the constant negative newsflow about the finances of shipping companies worldwide, this the-employers-are-so-rich claim has been a constant refrain. Let’s put that to rest.
  2. Consolidation will continue. All signs point to Hyundai picking at the healthy Hanjin pieces while other weak hands are likely to give way to takeover offers, allowing the few strong operators (Maersk, MSC and CMA-CGM) to be left with more power as an effective oligopoly. It will be much easier for a small, concentrated committee of employers to remain coordinated in the fight against labor
  3. While it’s not easy to see right now, a Hanjin bankruptcy is a reminder to each remaining surviving shipping line and terminal operator that liabilities are very real, and they carry consequence. What else is a liability to these employers? A union pension. It’s even more important now for holders of those pension benefits to further ratchet expectations lower as it would be unwise to believe one industry can forever survive what is the slow eradication of pension promises nationwide.

Summary: Hanjin’s troubles are a reality check for all parties involved. Remaining employers will eventually have stronger bargaining power, with cross hairs set on financial liabilities like pension plans. These events are transpiring amidst a major economic expansion – the BLS reported the 78th straight month of job growth today – but it’s a scary thought to imagine industry health if we were slowing or already in an economic recession.

It’s now up to members to react accordingly, which means making sure their individual financials are in order in case overall industry deterioration does continue. The time to plan for unknowns is when things are going relatively well, not when they’ve already turned bad.  (If only there was a resource to learn about how the longshore 401(k) plan is designed to hinder those efforts. Or maybe even a calculator)

Ten Miscellaneous Truths for Each and Every Investor

Tyler Linsten Investing

Alternate title: 10 Things I Wish They Taught in Finance 101, but Don’t. I include this list in every client’s Investment Policy Statement, but I think it’s also worth sharing here!

  1. Save more. An increased savings rate is the single best thing you can do to improve your financial outlook. Relying on high short-term investment returns is not something you ever want to do. Save early and often and time will take care of the rest. Investing is geological — a study of time and pressure — which is boring, but produces amazing results.
  1. Low-fee investment products are superior. If it costs a lot, BE WARY. Picking the lowest-fee investments is a surprisingly effective strategy, if given only cost information.
  1. Take the free money. If you aren’t maximizing “free money” from your employer’s retirement plan via employer match or employer contribution, you’re doing yourself a serious disservice. Future You really likes when Today You gets free money.
  1. Simplicity wins — always, forever and ever. I’ll say it again: SIMPLICITY. WINS. If something in your financial life is complex, ask yourself “why?” because there’s probably a way to make it better by reducing complications.
  1. Automate. Allowing yourself to make less financial decisions is a big benefit in the long-run, whether it’s selecting “auto-pay” for your bills or for setting up automatic contributions to an IRA. You are much more likely to stick to a plan if you allow automation to be a smart autopilot for your financial life.
  1. Debt should be treated as an emergency. Distinguish it early and often and you’ll have much more financial freedom. The benefit of just one extra payment per year is astounding.
  1. You are your own worst enemy. It’s a difficult subject to quantify, but humans are emotional beings who rarely make purely rational financial decisions (especially when distressed). Forcing yourself to wait a specified period of time (three days, a week, or two months — your call) before acting, will set up a buffer between you and a destructive decision.
  1. Financial markets are mostly efficient. You may be able to “outsmart” other investors once, but many smart investors have been completely steamrolled by forgetting to just get in line and take what the markets give. It’s cheaper, and brings better results, to patiently invest.
  1. Ignore pundits, prognostications and predictions. Anyone who claims they know what’s going to happen in the economy or financial markets is trying to sell you something other than advice.
  1. It always pays to wait. Whether it’s delaying the start of a pension or waiting on Social Security until age 70, the concept of delaying consumption today for a higher rate of consumption tomorrow is generally a very good bet – especially because it reduces your chance of running out of money. Unless you’ve been given an expiration date, having the discipline to wait is always a highly compensated activity (or should we say “non-activity?”).

Q2 Client Letter

Tyler Linsten Client Letters

This letter contains absolutely no information about the second quarter of 2016. It does, however, touch on Google Docs, Elon Musk, trade and immigration, the topic that shall never be discussed (politics) and the Statue of Liberty. These nouns (you know, “people, places or things”) are all connected to something very important to you if you’re reading this: your money. Feel free to skip to the very bottom for a summary.

[gview file=”https://aldercovecapital.com/wp-content/uploads/2016/08/Q22016ClientLetter.pdf” save=”1″]

Skynet Has Become Self-Aware

Tyler Linsten Uncategorized

Screenshot 2016-07-20 at 1.41.49 AM

This story at Bloomberg (courtesy of the Seattle Times) is absolutely amazing.

Here’s the rundown: Google purchased an Artificial Intelligence company, Deepmind, and recently told its new system, “save us money on our power bill.” The AI software followed suit and saved Google a ton of money on electricity by intelligently controlling over 100 variables in selected data centers. The software viewed saving power as a game where saving electricity is like scoring points. It learned this system after being taught how to play Atari video games.

I couldn’t help but wonder about the implications for investing and financial technology. Isn’t investing just like saving electricity, where “scoring more points” comes from improving a person’s chance of financial success? Is this kind of software already in place? How would it change the future? Well, we do have TLH+, Betterment’s algorithmic tax-loss harvesting, which is a good start for investors, but the real potential likely lies in financial planning. It’s really, really hard to automate away the judgment calls of a planner/advisor but we will probably get close, and likely close enough for it to work for most people.

I can imagine a scenario where the planning process starts with an extremely intelligent on-boarding questionnaire and the advisor is there to answer questions of the AI, and not necessarily the client. In the future, will the advisor jump in when the AI sends the alert “human intervention needed”? It can easily be argued the #1 job of an advisor is on the psychological support side of investing anyway, so it makes a lot of sense. We’ll see….

 

“It’s a Good Investment”

Tyler Linsten Investing, Personal Finance

For those considering purchasing a home – or for those who already have – this article by Robert Shiller in the New York Times is a must-read. (Bonus: It’s an easy read and it’s not very long!)

We need to reconsider the foregone conclusion that buying a home is a sound financial investment. Does it bring value in other ways? Absolutely – but when compared to other asset classes, the act of buying a home or land has historically barely kept up with inflation. Compared to stocks and bonds, or even simply GDP, the results are not even close.  Buy for privacy, for security, or for numerous other reasons, but don’t buy it because you believe it has a high expected return on investment.