Tag: business news

How the job of Amazon delivery has changed with Rivian’s electric vans and routing software

Post By Business , , , , , , , , , , , ,

For the 275,000 Amazon drivers dropping off 10 million packages a day around the world, the job can be a grind. But a lot has changed since drivers in 2021 told CNBC about unrealistic workloads, peeing in bottles, dog bites and error-prone routing software.

Among the biggest developments is the arrival of a brand-new electric van from Rivian.

Amazon was a big and early investor in the electric vehicle company, which went public in late 2021 with a plan to build trucks and SUVs for consumers and delivery vans for businesses. Since July, Amazon has rolled out more than 1,000 new Rivian vans, which are now making deliveries in more than 100 U.S. cities, including Baltimore, Chicago, Las Vegas, Nashville, New York City and Austin, Texas.

The partnership began in 2019, when Amazon founder and ex-CEO Jeff Bezos announced Amazon had purchased 100,000 electric vans from Rivian as one step toward his company’s ambitious promise of reaching net-zero carbon emissions by 2040.

″[We] will have prototypes on the road next year, but 100,000 deployed by 2024,” Bezos said at the National Press Club in Washington, D.C., in September 2019. Amazon has since revised the timeline, saying it expects all 100,000 Rivian vans on the road by 2030.

Rivian has faced several challenges in recent months. It cut back 2022 production amid supply chain and assembly line issues. Its stock price dropped so sharply last year that Amazon recorded a combined $11.5 billion markdown on its holdings in the first two quarters.

CNBC talked to drivers to see what’s changed with the driving experience. We also went to Amazon’s Delivering the Future event in Boston in November for a look at the technology designed to maximize safety and efficiency for delivery personnel.

For now, most Amazon drivers are still in about 110,000 gas-powered vans — primarily Ford Transits, Mercedes-Benz Sprinters and Ram ProMasters. Amazon wouldn’t share how it determines which of its 3,500 third-party delivery firms, or delivery service partners (DSPs), are receiving Rivian vans first. 

The e-commerce giant has been using DSPs to deliver its packages since 2018, allowing the company to reduce its reliance on UPS and the U.S. Postal Service for the so-called last mile, the most expensive portion of the delivery journey. The DSP, which works exclusively with Amazon, employs the drivers and is responsible for the liabilities of the road, vehicle maintenance, and the costs of hiring, benefits and overtime pay.

Amazon leases the vans to DSP owners at a discount. The company covers the fuel for gas-powered vans and installs charging stations for electric vehicles.

The company says DSP owners have generated $26 billion in revenue and now operate in 15 countries, including Saudi Arabia, India, Brazil, Canada, and all over Europe. 

What drivers think

In the early days of testing the Rivian vans, some drivers voiced concerns about range. An Amazon spokesperson told CNBC the vans can travel up to 150 miles on a single charge, which is typically plenty of power for a full shift and allows drivers to recharge the vehicle overnight.

As for maintenance, Amazon says that takes place at Rivian service centers near delivery stations or by a Rivian mobile service team, depending on location.

Julieta Dennis launched a DSP, Kangaroo Direct, in Baltimore three years ago. She employs about 75 drivers and leases more than 50 vans from Amazon. She now has 15 Rivian vehicles.

“It’s very easy to get in and out with all of the different handles to hold on to,” Dennis said. She said that some drivers were hesitant at first because the vehicles were so new and different, “but the moment they get in there and have their first experience, that’s the van that they want to drive.”

Baltimore DSP owner Julieta Dennis shows off a Rivian electric van at Amazon’s Delivering the Future event in Boston, Maryland, on November 10, 2022.

Erin Black

Brandi Monroe has been delivering for Kangaroo Direct for two years. She pointed to features on a Rivian van that are upgrades over what she’s driven in the past. There’s a large non-slip step at the back, a hand cart for helping with heavy packages and extra space for standing and walking in the cargo area.

“We have two shelves on both sides to allow for more space,” Monroe said, adding that she’d prefer to drive a Rivian for every shift. “And then the lights at the top: very innovative to help us see the packages and address a lot easier, especially at nighttime.”

There’s even a heated steering wheel.

Former driver B.J. Natividad, who goes by Avionyx on YouTube, says his non-electric van could get very cramped.

“I remember one time I had 23 or 24 bags and over 40 oversize packages and I had to be able to figure out how to stuff that all in there within the 15 minutes that they give us to load up in the morning,” said Natividad, who now works for USPS.

The Rivian vans have at least 100 more cubic feet than the Sprinter and up to double the cargo space of the Ford Transit vans Natividad drove in Las Vegas. Rivian vans are still small enough that they don’t require a special license to drive, though Amazon provides its own training for drivers.

One driver in Seattle, who asked to remain unnamed, was especially excited about the new Rivian vans. He offered an extensive tour of the new driving experience on his YouTube channel called Friday Adventure Club.

He said one of his favorite features is a light bar “that goes all the way around the back.” He also likes that the windshield is “absolutely massive,” the wide doors allow for easy entry and exit, and the cargo door automatically opens when the van is parked. There are two rows of shelves that fold up and down in the cargo area.

There’s also new technology, such as an embedded tablet with the driving route and a 360-degree view that shows all sides of the van.

Mai Le, Amazon’s vice president of Last Mile, oversaw the testing of the center console and Rivian’s integrated software.

“We did a lot of deliveries as a test,” Le said. “As a woman, I want to make sure that the seats are comfortable for me and that my legs can reach the pedals, I can see over the steering wheel.”

She demonstrated some of the benefits of the new technology.

“When we start to notice that you’re slowing down, that means that we can tell you’re getting near to your destination,” she said. “The map begins to zoom in, so you begin to find where’s your delivery location, which building and where parking could be.”

The new vans have keyless entry. They automatically lock when the driver is 15 feet away and unlock as the driver approaches. 

Workers load packages into Amazon Rivian Electric trucks at an Amazon facility in Poway, California, November 16, 2022.

Sandy Huffaker | Reuters

Cameras and safety

Above all else, Amazon says the changes were designed to make the delivery job safer.

A ProPublica report found Amazon’s contract drivers were involved in more than 60 serious crashes from 2015 to 2019, at least 10 of which were fatal. Amazon put cameras and sensors all over the Rivian vans, which enable warnings and lane assist technology that autocorrects if the vehicle veers out of the lane.

Dennis mentioned the importance of automatic braking and the steering wheel that starts “just kind of shaking when you get too close to something.”

“There’s just so many features that would really, really help cut back on some of those incidental accidents,” she said.

Amazon vans have driver-facing cameras inside, which can catch unsafe driving practices as they happen.

“The in-vehicle safety technology we have watches for poor safety behaviors like distracted driving, seat belts not being fastened, running stop signs, traffic lights,” said Beryl Tomay, who helps run the technology side of delivery as vice president of Last Mile for Amazon.

“We’ve seen over the past year a reduction of 80% to 95% in these events when we’ve warned drivers real time,” she said. “But the really game-changing results that we’ve seen have been almost a 50% reduction in accidents.”

As a DSP owner, Dennis gets alerts if her drivers exhibit patterns of unsafe behavior. 

“If something with a seat belt or just something flags, then our team will contact the driver and make sure that that’s coached on and taken care of and figured out, like what actually happened,” Dennis said.

That level of constant surveillance may be unsettling for some drivers. Dennis said that issues haven’t come up among her staffers. And Amazon stresses it’s focused on driver privacy.

“We’ve taken great care from a privacy perspective,” Tomay said. “There’s no sound ever being recorded. There’s no camera recording if the driver’s not driving and there’s a privacy mode.”

Amazon says the cabin-facing camera automatically switches off when the ignition is off, and privacy mode means it also turns off if the vehicle is stationary for more than 30 seconds.

Safety concerns extend beyond the vehicle itself. For example, an Amazon driver in Missouri was found dead in a front yard in October, allegedly after a dog attack.

Amazon says new technology can help. Drivers can choose to manually notify customers ahead of a delivery, giving them time to restrain pets. Another feature that’s coming, according to Le, will allow drivers to mark delivery locations that have pets.

Natividad said he had multiple close calls with dogs charging at him during deliveries.

“You customers out there, please restrain your dogs when you know a package is coming,” he said. “Please keep them inside. Don’t leave them just outside.”

Optimizing routes

Providing drivers with more efficient and better detailed routes could improve safety, too. Drivers in 2021 told us about losing time because Amazon’s routing software made a mistake, like not recognizing a closed road or gated community. In response, they sometimes tried to save time in other ways.

“People are running through stop signs, running through yellow lights,” said Adrienne Williams, a former DSP driver. “Everybody I knew was buckling their seat belt behind their backs because the time it took just to buckle your seat belt, unbuckle your seat belt every time was enough time to get you behind schedule.”

Amazon listened. The company has been adding a huge amount of detail to driver maps, using information from 16 third-party map vendors as well as machine learning models informed by satellite driver feedback and other sources.

One example is a new in-vehicle data collection system called Fleet Edge, which is currently in a few thousand vans. Fleet Edge collects real-time data from a street view camera and GPS device during a driver’s route.

“Due to Fleet Edge, we’ve added over 120,000 new street signs to Amazon’s mapping system,” Tomay said. “The accuracy of GPS locations has increased by over two and a half times in our test areas, improving navigation safety by announcing upcoming turns sooner.”

Tomay said the maps also added points of interest like coffee shops and restrooms, so in about 95% of metro areas, “drivers can find a spot to take a break within five minutes of a stop.”

In 2021, Amazon apologized for dismissing claims that drivers were urinating in bottles as a result of demanding delivery schedules. Natividad said he occasionally found urine-filled bottles in his vans before his shift in the mornings.

“As soon as I open the van, I’m looking around, I see a bottle of urine. I’m like, ‘Oh, I’m not touching this,'” he said.

Pay for Amazon drivers is up to the discretion of each individual DSP, although Amazon says it regularly audits DSP rates to make sure they’re competitive. Indeed.com puts average Amazon driver pay at nearly $19 an hour, 16% higher than the national average.

Natividad started delivering for Amazon in 2021 when his gigs as a fulltime disc jockey dried up because of the pandemic. He liked the job at the time, generally delivering at least 200 packages along the same route. However, during the holiday season that year, he once had more than 400 packages and 200 stops in a single shift.

“Towards the end of my day, they sent out two rescues to me to help out to make sure everything’s done before 10 hours,” he said.

Amazon is working to optimize its routes. But it’s an unwieldy operation. The company says it’s generated 225,000 unique routes per day during peak season.

Tomay said the company looks at the density of packages, the complexity of delivery locations “and any other considerations like weather and traffic from past history to put a route together that we think is ideal.”

There’s no one-size-fits-all solution.

“Given that we’re in over 20 countries and every geography looks different, it’s not just about delivery vehicles or vans anymore,” Tomay said. “We have rickshaws in India. We have walkers in Manhattan.”

In Las Vegas, Amazon held a roundtable last year for DSP owners and drivers. Natividad says he spoke for 20 minutes at the event about the need for Amazon to improve its routing algorithms.

“I think they should do that probably once a month, with all the DSP supervision and a few of the drivers, and not the same drivers every time. That way different feedback is given. And like seriously listen to them,” Natividad said. “Because they’re not the ones out there seeing and experiencing what we go through.” 

Natividad didn’t get to try out the routing technology in the Rivian vans before he left to deliver for USPS in July. He’s excited that the postal service is following in Amazon’s footsteps with 66,000 electric vans coming by 2028.

Amazon, meanwhile, is diversifying its electric fleet beyond Rivian. The company has ordered thousands of electric Ram vans from Stellantis and also has some on the way from Mercedes-Benz.

Correction: Julieta Dennis launched a DSP, Kangaroo Direct, in Baltimore three years ago. An earlier version misspelled her name.



Source link

#job #Amazon #delivery #changed #Rivians #electric #vans #routing #software

Top Wall Street analysts like these stocks amid easing inflation

Post By Business , , , , , , , ,

The logo of Alphabet Inc’s Google outside the company’s office in Beijing, China, August 8, 2018.

Thomas Peter | Reuters

Last week, December’s consumer price index reading showed that prices are cooling.

The index dropped 0.1% on a monthly basis, but the metric gained 6.5% from the prior year. Investors seemed to appreciate the news, as the three major indexes closed higher on Friday.

Nevertheless, investing in this uncertain environment can be tricky.

To help the process, here are five stocks chosen by Wall Street’s top pros, according to TipRanks, a platform that ranks analysts based on their track records. 

Alphabet

Google-parent Alphabet (GOOGL) is a frontrunner in every major trend in technology, including the growth of mobile engagement, online activities, digital advertising and cloud computing. Additionally, its focus on artificial intelligence is driving the development of better and more functional products.

Tigress Financial Partners analyst Ivan Feinseth recently reiterated a buy rating on the stock. His bullishness is attributed to robust trends in cloud and search, which “continues to highlight the resiliency of its core business lines.” (See Alphabet Blogger Opinions & Sentiment on TipRanks)

AI-focused investments and efforts to achieve cost and operating efficiencies should continue to drive Alphabet’s growth. Feinseth said that any weakness in the near term is a great buying opportunity.

The analyst is also upbeat about Alphabet’s financial health. “GOOGL’s strong balance sheet and cash flow enable the ongoing funding of key growth initiatives, strategic acquisitions, and the further enhancement of shareholder returns through ongoing share repurchases,” said Feinseth, who is ranked No. 229 among more than 8,000 analysts on TipRanks.

The analyst’s ratings have been profitable 60% of the time and each rating has generated average returns of 11.1%.

Hims & Hers

Another stock that Feinseth has recently reiterated as a buy is the multi-specialty telehealth company, Hims & Hers (HIMS). The analyst also raised his 12-month price target on the stock from $11 to $12.

Feinseth is confident in HIMS’s strong brand equity and customer loyalty, which he expects will continue to drive business performance. Moreover, new product innovations are supporting the company’s highly scalable business model, and they are expected to boost this year’s profits. (See Hims & Hers Health Hedge Fund Trading Activity on TipRanks)

The massive health-care market is always evolving and requires strong players with flexible business models to serve the growing demand. The analyst thinks that HIMS is well positioned in this area to be one of the top beneficiaries.

“HIMS’s scalable business model, expanding services, and rapidly growing customer base will drive significant revenue growth. Its asset-light business model of connecting patients to service providers and providing access to high-quality branded healthcare products will eventually drive a significant Return on Capital (ROC), grow Economic Profit, and increase shareholder value creation,” said Feinseth.

OrthoPediatrics Corp.

As the name suggests, OrthoPediatrics (KIDS) deals in the design, manufacture, and commercialization of products that are used in the treatment of orthopedic conditions in children. The company operates in more than 35 countries worldwide.

The pediatric orthopedic market is a niche market that is relatively underserved, which has worked to the company’s advantage. OrthoPediatrics has dominance in this market, giving it a competitive edge in the medical equipment industry. BTIG analyst Ryan Zimmerman notes that the company stands to benefit from this space as larger players have mostly overlooked the opportunity. (See OrthoPediatrics Financial Statements on TipRanks)

Last week, Zimmerman reiterated his buy rating and $62 price target on KIDS stock. In addition to the market opportunity, the analyst said that “with a leading brand among pediatric orthopedic surgeons and a concentrated customer base that performs the majority of cases at a limited number of hospitals, the model is scalable and defendable.”

Zimmerman has the 660th ranking among more than 8,000 analysts tracked on TipRanks. Moreover, 47% of his ratings have been successful, generating 9% average returns per rating.

Intuitive Surgical

Medical technology company Intuitive Surgical (ISRG) is a pioneer in robotic-assisted, minimally invasive surgery. The company is also one of Zimmerman’s favorite stocks for the year.

Recently, Intuitive Surgical announced preliminary 4Q22 results and growth guidance for procedures in FY23, which were as Zimmerman expected. Following the results, the analyst reiterated his bullish stance on the company with a buy rating and $316 price target. (See Intuitive Surgical Stock Investors on TipRanks)

“There continue to be headwinds entering FY23, but we think ISRG is poised to continue to see improving market dynamics coupled with the potential for the launch of a next-generation system. We would be buyers on today’s weakness,” said Zimmerman, justifying his bullishness.

The analyst is bullish on the company’s long-term growth potential in the area of robotic surgery, and sees ISRG as a “clear leader in the space.” Zimmerman said that the pandemic has increased the importance of computer-aided surgery, thanks to accurate clinical outcomes. This is expected to drive the adoption of Intuitive Surgical’s products over time.

The Chefs’ Warehouse

Another BTIG analyst, Peter Saleh, who has the 491st ranking in the TipRanks database, has recently reiterated his bullish stance on food distributor Chef’s Warehouse (CHEF). The company is a premier distributor of food to high-end restaurants and other expensive establishments. 

Saleh sees several upsides to share growth thanks to its “compelling business model as a niche foodservice distributor, more upscale and differentiated customer base, and unfolding sales recovery in key markets.” (See The Chefs’ Warehouse Stock Chart on TipRanks)

The analyst is upbeat about the reopening of markets in key regions and gradual recovery in serviceable areas like hospitality. These upsides are expected to drive sales this year. Saleh said that these upsides, combined with CHEF’s long-term opportunity to enhance market share, underpin his bullish stance on the company.

The analyst gave a “Top Pick” designation to CHEF stock, with a buy rating and $48 price target. “While the capital structure has changed and the technical overhang from the recent convertible issuance seems to remain, we view shares as simply too cheap given fundamentals,” said Saleh.

The analyst has delivered profitable ratings 61% of the time, and each of his ratings has generated returns of 10.9% on average.

Source link

#Top #Wall #Street #analysts #stocks #easing #inflation

Why we still like Coterra Energy despite the recent fall in natural gas prices

Post By Oil and Gas , , , , , , , , , ,

Pipes at the landfall facilities of the ‘Nord Stream 1’ gas pipeline are pictured in Lubmin, Germany, March 8, 2022.

Hannibal Hanschke | Reuters

Natural gas prices jumped Thursday following a multiweek swoon, providing a lift to shares of Club holding Coterra Energy (CTRA), which lately has relied on the commodity for more than half its operating revenues.

Source link

#Coterra #Energy #fall #natural #gas #prices

Inflation is expected to have declined in December, but it may not be enough to stop the Fed

Post By Stock , , , , , , , ,

A woman shops in a supermarket as rising inflation affects consumer prices in Los Angeles, California, June 13, 2022.

Lucy Nicholson | Reuters

The pace of consumer inflation is expected to have fallen slightly in December from the prior month because of a sharp drop in gasoline and energy prices, but the annual rate is still likely to remain uncomfortably high.

According to Dow Jones, economists now expect a decline of 0.1% in the consumer price index on a monthly basis, but inflation is still expected to climb at a 6.5% rate from the prior year. That compares to a gain of 0.1% in November, and a 7.1% pace year over year. However, the CPI is well off the 9.1% peak rate in June.

Core CPI, excluding energy and food, is expected to be up 0.3% in December, gaining 5.7% on a year-over-year basis. Core CPI rose 0.2% in November and 6% on a yearly basis.

“We welcome it with open arms. It’s good news,” said KPMG chief economist Diane Swonk of the expected decline. “It’s great and it helped to fuel consumer spending in the fourth quarter. … But it’s still not enough.”

The consumer price index is expected Thursday at 8:30 a.m. ET. It is the final CPI report before the Federal Reserve’s Feb. 1 interest rate decision. For that reason, the inflation number has become a major event for financial markets, and now some traders are betting it will show inflation slowing even more than economists forecast. They also point to weaker-than-expected wage growth in December’s jobs report, as well as other data that reflects lower inflation expectations.

Stocks rallied on Wednesday ahead of the report. “The market is looking at it as glass half full. Inflation is rolling over, and the Fed is almost done raising interest rates,” said Peter Boockvar, chief investment officer at Bleakley Financial Group. “I think they remember the last two months when you had numbers that were well below expectations. They’re just assuming that’s going to be the case again.”

Expected impact on the Fed

In the futures market, traders continued to bet the central bank will raise rates by just a quarter point at its next meeting. Meanwhile, some economists continue to expect policymakers will increase the fed funds target rate by a half percentage point. Market expectations are just 20% for a 50 basis point hike. A basis point equals 0.01 of a percentage point.

“It’s amazing how much reaction and overreaction there is for one single data point,” said Simona Mocuta, chief economist at State Street Global Advisors. “Clearly the CPI is very important. In this particular case, it does have fairly direct policy implications, which are about the size of the next Fed rate hike.”

Mocuta said a cooler CPI should influence the Fed. “The market has not priced the full 50. I think the market is right in this case,” she said. “The Fed can still contradict the market, but what the market is pricing is the right decision.”

Stock picks and investing trends from CNBC Pro:

Wilmington Trust chief economist Luke Tilley said a 12% decline in gasoline prices in December and other decreases in energy prices — for expenses like home heating — helped drive inflation lower.

“Shelter is the main focus because of the lag,” he said. Rental market data shows a slowing in rates, but the CPI has not yet reflected it. “Everyone is familiar with the lag that it takes for the data to show up in the CPI,” Tilley added. “We think there could be a sharper slowdown.” Shelter costs are 40% of core CPI.

Shelter is expected to be up 0.6% month over month. Tilley said with the decline in the real estate market, he is hearing from landlords that they are having a more difficult time raising rents. “We’re penciling in slower increases in January and February and March on that shorter lag,” he said.

A focus on inflation in services

Economists are watching closely to see how much inflation related to services rises in CPI, since goods inflation is expected to continue to come down now that supply chains are operating more normally.

“The headline monthly changes over the last two, three months overstate the improvement. We’re not going to get the same help from gasoline in the next report. I don’t want to see an acceleration in shelter. I want to see some of the discretionary areas show deceleration,” said State Street’s Mocuta. “I think right now the focus is very much on the services side.”

The market is laser focused on inflation since the Fed’s progress in fighting it could determine how far the central bank will go on its rate hiking path. The rate increases are slowing the economy, and how much more it chooses to do so could be the difference between a soft landing or a recession.

“The hope is that basically we are now in a position where you could envision a soft landing. That requires the Fed to not only stop raising rates but ease up sooner and that doesn’t seem to be where they’re at,” said Swonk. “The Fed is hedging a different bet than the markets are. … This is where nuance is really hard. You’re in this position where you’re improving. It’s like a patient is getting better, but they’re not out of the hospital yet.”

The fed funds rate range is currently at 4.25% to 4.5%, and the central bank has forecast a final high rate of 5.1% for this year.

“The Fed is also worried about a second round of supply shock, whether it’s China’s abrupt abandonment of its zero-Covid policy or something else from Russia. They don’t want to declare victory too soon,” said Swonk. “They’re making that very clear. They’ve said it over and over again and nobody listens.”

Economists expect another key metric — the personal consumption expenditure deflator — could show core inflation slowing even below the Fed’s forecast of 3.5% by Dec. 31. Some economists who expect a recession predict rate cuts before year-end, as the markets expect. But the Fed has no forecast for rate cuts until 2024.

Some strategists expect Fed officials to begin to sound more dovish and less at odds with the market view. Boston Fed President Susan Collins said in an interview with The New York Times on Wednesday that she was leaning toward a quarter-point hike at the next meeting.

“We think one of the changes in coming months is the Fed will soon realize it is cheaper to change the inflation narrative than reverse a recession leading to millions of lost jobs,” writes Fundstrat founder Tom Lee in a note Wednesday.

Source link

#Inflation #expected #declined #December #stop #Fed

Top Wall Street analysts pick these stocks to celebrate the new year

Post By Business , , , , , , , , , , , ,

Apple CEO Tim Cook poses in front of a new MacBook Airs running M2 chips display during Apple’s annual Worldwide Developers Conference in San Jose, California, June 6, 2022.

Peter Dasilva | Reuters

With the brutal 2022 behind us, we look ahead to a year of relatively predictable challenges. This calls for careful investing with a longer-term view. To help the process, here are five stocks chosen by Wall Street’s top analysts, according to TipRanks, a platform that ranks analysts based on their track record.

DoubleVerify Holdings

As its name suggests, DoubleVerify (DV) helps to improve the safety and security of online advertising. A pioneer in this area, the company’s services are employed by customers in the financial services, retail, automotive, travel, telecom, and pharmaceutical sectors. (See DoubleVerify Holdings Stock Chart on TipRanks)

Truist analyst Youssef Squali sees multiple growth opportunities, especially in the social media field. Interestingly, DoubleVerify’s social media client roster includes names such as TikTok, Microsoft (MSFT)-owned LinkedIn, Reddit, Amazon’s (AMZN) Twitch, Meta’s (META) Facebook and Instagram, and YouTube. Looking at this, Squali expects “social media as a channel has unlocked incremental spend for DV to attack within walled gardens, which advertisers value vs. letting these platforms ‘grade their own homework.'”

Moreover, the analyst pointed out that DoubleVerify’s sophisticated software solutions help client companies safeguard their brand reputation while maximizing their return on ad spend. This is particularly important as the digital advertising ecosystem is growing and so is competition. A safe, fraud-free, and appropriately targeted ad environment also helps companies draw traffic.

Squali is “incrementally bullish” on DoubleVerify, with a Buy rating and $36 price target. The analyst stands 92nd among more than 8,000 analysts tracked on TipRanks. Moreover, 57% of his ratings have been profitable, bringing 17.6% returns per rating on average.

Apple

Investors may be spooked by Apple’s (AAPL) weakening demand and production issues right now (as evident from the sharp decline in stock value). However, taking into account the value that the company has returned to shareholders in the past years, even through market downcycles, these headwinds seem to be mere hiccups in the company’s long-term journey.

Tigress Financial Partners analyst Ivan Feinseth agreed, adding that the “near-term production headwinds create a long-term buying opportunity, and its massive installed user base, increasing ecosystem, and growing Services revenue will continue to drive accelerating Business Performance trends, and greater shareholder value creation.”

Feinseth is particularly upbeat about the company’s foray into the metaverse with the launch of its mixed-reality headset this year.

Moreover, strong balance sheet and cash flow generating capabilities should enable Apple to continue to invest in growth-driving initiatives and enhance shareholder returns through share repurchases and dividend hikes. (See Apple Dividend Date & History on TipRanks)

The analyst reiterated a Buy rating on AAPL stock with a price target of $210. “AAPL is on our Research Focus List and in our Focus Opportunity Portfolio,” emphasized Feinseth, who holds the #269 position among more than 8,000 analysts on TipRanks.

The analyst’s ratings have been profitable 59% of the time and each rating has generated average returns of 10.5%.

Booking Holdings

Booking Holdings (BKNG) is an online platform for making travel and restaurant reservations, which, needless to say, has been benefiting lately from the easing of Covid-related travel restrictions. The stock joins Apple in Ivan Feinseth’s “Research Focus List” and “Focus Opportunity Portfolio.”

Continued travel demand has been transcending the current macroeconomic uncertainties, and that is a boon for Booking. Feinseth also points out that the reopening of China after a prolonged period of strict zero-Covid policy “creates a massive upside catalyst.” (See Booking Holdings Hedge Fund Trading Activity on TipRanks)

The company is also gaining increased penetration in the direct travel booking market thanks to its Genius loyalty program and its concept of travel integration. “BKNG’s ability to optimize its market reach and profitability through new technology, including machine learning and other forms of AI (Artificial Intelligence), enables it to expand its global reach, drive more competitive pricing, and increase profitability,” said the analyst.

Feinseth reiterated a Buy rating on Booking, with a price target of $3,210.

Bumble

The challenging economic environment has led to too many problems for the public to be thinking about love. This has left investors swiping left on online dating service provider Bumble (BMBL), leading to a sharp drop in share prices.

Nonetheless, Stifel Nicolaus analyst Mark Kelley maintains a solid relationship with Bumble. “We view Bumble as one of the most innovative companies in the global online dating space offering a compelling and differentiated value proposition for consumers, which we believe will lead to a long runway of paying user/ARPPU growth, and a multi-year operating leverage story,” noted Kelley.

In the last quarter, Bumble launched its message-before-match feature, “Compliments,” which is expected to boost user engagement and thus, support monetization efforts. (See Bumble Blogger Opinions & Sentiment on TipRanks)

Additionally, the analyst believes that Bumble’s mission to prioritize user safety, accountability, and control helps the company stand out in the crowd of competing platforms. Importantly, Kelley also believes that Bumble may be heading into its best days as users increasingly open up to real-life dating after the COVID-19 pandemic disrupted the dating ecosystem since 2020.

Despite reducing the near-term price target to $27 from $30, Kelley maintains a Buy rating on Bumble.

The analyst’s track record shows that his conviction is worthy of consideration. Kelley has a 103rd ranking among more than 8,000 analysts. Moreover, 70% of his ratings have been successful, generating 31.5% average returns per rating.

Perion Network

Global technology player Perion Network (PERI) is another stock that Mark Kelley has vouched for recently. The analyst’s optimism was reflected in the reiteration of his buy rating and higher price target ($34 from $29). Its recent quarterly results showed positive trends, which led to the renewed conviction.

The analyst views Perion as a “unique ad tech offering,” boasting a portfolio of technology for helping advertisers and publishers scale their business. Perion’s growth journey has been a combination of organic expansion and expansion through acquisitions. Together, they have built a suite of assets that serve the “three pillars of digital advertising” — search, social media, and display/CTV. (See Perion Network Financial Statements on TipRanks)

Kelley expects the global digital advertising market to reach $650 billion by the end of this year. Within that, the analyst estimates the exact opportunity of Perion in terms of TAM (total addressable market) to be around $190 billion, keeping aside the $460 billion TAM estimate for Google search.

Source link

#Top #Wall #Street #analysts #pick #stocks #celebrate #year

Land & Buildings spots a chance to build value in a real estate play with Six Flags

Post By Business , ,

Customers are socially distanced on rides like the Wonder Woman: Lasso of Truth at Six Flags Great Adventure in Jackson, New Jersey.

Kenneth Kiesnoski/CNBC

Company: Six Flags Entertainment (SIX)

Business: Six Flags is the largest regional theme park operator in the world and the largest operator of water parks in North America. They generate revenue primarily from selling admission to their parks and from the sale of food, beverages, merchandise and other products and services within the parks.

Stock Market Value: $1.9B ($23.25 per share)

Activist: Land & Buildings Investment Management

Percentage Ownership: about 3.0%

Average Cost: n/a

Activist Commentary: Land & Buildings is a real estate focused long-short hedge fund that will try to engage with management on a friendly basis when it sees deep value. It invests in deeply discounted real estate in the public markets and select corporate engagements. The firm’s positions are often under the 5% 13D reporting threshold. It’s prepared to nominate directors and has received board seats at American Campus Communities, Brookdale Senior Living, Felcor Lodging Trust, Life Storage, Macerich, Mack-Cali (now Veris Residential) and Taubman Centers.

What’s Happening?

On Dec. 21, Land & Buildings issued a presentation detailing a potential operational and strategic turnaround of Six Flags Entertainment, which includes monetizing the company’s real estate assets and considering a sale-leaseback.

Behind the Scenes

Land & Buildings (“L&B”) is a real estate focused investor, and this is primarily a real estate play. The firm is suggesting that Six Flags separate its real estate holdings, which L&B believes are worth more than the current enterprise value of the company. L&B has extensive knowledge and experience in this area. In 2015, the hedge fund commenced an activist campaign at MGM Resorts International, which ultimately led to the formation of an MGM real estate investment trust acquired by VICI Properties and significant margin enhancement at the operating company. Recent private transaction comps for gaming real estate, as well as public gaming REIT valuations, point to a 6% to 7% cap rate and mid-teens multiple for assets like theme parks. L&B believes there would be many interested acquirers.

In its analysis, L&B assumes a 7.25% cap rate and a $2.8 billion value for the real estate. A sale-leaseback of the real estate could decrease earnings before interest, taxes, depreciation and amortization from $520 million to $315 million and assuming a 7x EBITDA multiple (SIX’s current multiple is 8x), the operating company would have a $2.2 billion enterprise value. With $2.8 billion in cash and $2.4 billion in debt, that would equate to a $2.6 billion asset value or market cap. With 83 million shares outstanding, that would equal a $31.32 share price, or a 34% upside to Six Flags’ current stock price (47% upside from the company’s unaffected stock price prior to the L&B plan being made public). L&B performed the same analysis on 2024/2025 EBITDA goals, which led to a $6.8 billion value and a 150% upside. Moreover, the hedge fund’s analysis assumes the $2.8 billion stays on the company’s balance sheet. If it is used to buy back shares around where they are trading now,, the return would even be greater.

L&B believes that a sale of Six Flags’ real estate would allow the company to increase share buybacks, reinstate its dividend (which was eliminated at the beginning of the Covid pandemic) and pay down debt. Moreover, this is a shareholder base with many like-minded investors (HG Vora, H Partners, Long Pond Capital) and a relatively new CEO (November 2021) who may be amenable to a plan like this.  

Getting a plan like this done would give the CEO a lot of time and capital (both real and figurative) to do what really needs to be done – fix the operational issues. When Selim Bassoul was appointed as Six Flags’ CEO in November 2021, he embarked on a strategy of trying to enhance the guest experience and create a more profitable, higher margin business by migrating to a more affluent, family-oriented customer base. This new strategy, which included getting rid of several customer perks, led to a significant drop in attendance, alienation of many current customers and subsequent price underperformance to peers. However, the jury is still out on whether it is working. If it results in a higher attendance at higher prices in 2023, then it worked and nothing will need to be done operationally. However, if attendance continues to lag through 2023, Bassoul may have to start giving back many of the perks he had taken away, such as modified dining passes. He may even have to consider lowering prices to their prior levels. Without stabilizing operations, the real estate strategy can only create so much shareholder value. However, optimizing attendance and stabilizing operations will magnify any value created by the real estate strategy.

We would expect that Land & Buildings would want to have some sort of board representation to help with this strategy. Frankly, Six Flags should want the firm’s help if they choose to monetize the real estate. So, it would not be surprising to see an amicable settlement for a board seat or two. However, the director nomination window is between Jan. 11, 2023 and Feb. 10, 2023. If there is no settlement by then, L&B is almost certain to nominate directors, even if it is just to preserve the firm’s rights while it continues to talk with management. Should this go to a proxy fight, the like-minded investors mentioned above — H Partners (13.5%), HG Vora (4.2%) and Long Pond Capital (5.7%) — could be potential supporters of L&B.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and he is the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Squire is also the creator of the AESG™ investment category, an activist investment style focused on improving ESG practices of portfolio companies. 

Source link

#Land #Buildings #spots #chance #build #real #estate #play #Flags

Oil expected to stay volatile in 2023, but the price could depend on China reopening

Post By Oil and Gas , , , , , , , , , , , , ,

Source link

#Oil #expected #stay #volatile #price #depend #China #reopening

Why everyone thinks a recession is coming in 2023

Post By Stock , , , , , , , , , , , ,

People who lost their jobs wait in line to file for unemployment following an outbreak of the coronavirus disease (COVID-19), at an Arkansas Workforce Center in Fort Smith, Arkansas, U.S. April 6, 2020.

Nick Oxford | File Photo | REUTERS

Recessions often take everyone by surprise. There’s a very good chance the next one will not.

Economists have been forecasting a recession for months now, and most see it starting early next year. Whether it’s deep or shallow, long or short, is up for debate, but the idea that the economy is going into a period of contraction is pretty much the consensus view among economists. 

“Historically, when you have high inflation, and the Fed is jacking up interest rates to quell inflation, that results in a downturn or recession,” said Mark Zandi, chief economist at Moody’s Analytics. “That invariably happens — the classic overheating scenario that leads to a recession. We’ve seen this story before. When inflation picks up and the Fed responds by pushing up interest rates, the economy ultimately caves under the weight of higher interest rates.”

Zandi is in the minority of economists who believe the Federal Reserve can avoid a recession by raising rates just long enough to avoid squashing growth. But he said expectations are high that the economy will swoon.

“Usually recessions sneak up on us. CEOs never talk about recessions,” said Zandi. “Now it seems CEOs are falling over themselves to say we’re falling into a recession. … Every person on TV says recession. Every economist says recession. I’ve never seen anything like it.”

Fed causing it this time

Ironically, the Fed is slowing the economy, after it came to the rescue in the last two economic downturns. The central bank helped stimulate lending by taking interest rates to zero, and boosted market liquidity by adding trillions of dollars in assets to its balance sheet. It is now unwinding that balance sheet, and has rapidly raised interest rates from zero in March — to a range of 4.25% to 4.5% this month.

But in those last two recessions, policymakers did not need to worry about high inflation biting into consumer or corporate spending power, and creeping across the economy through the supply chain and rising wages.

Stock picks and investing trends from CNBC Pro:

The Fed now has a serious battle with inflation. It forecasts additional rate hikes, up to about 5.1% by early next year, and economists expect it may maintain those high rates to control inflation.

Those higher rates are already taking a toll on the housing market, with home sales down 35.4% from last year in November, the 10th month in a row of decline. The 30-year mortgage rate is close to 7%. And consumer inflation was still running at a hot 7.1% annual rate in November.

“You have to blow the dust off your economics textbook. This is going to be be a classic recession,” said Tom Simons, money market economist at Jefferies. “The transmission mechanism we’re going to see it work through first in the beginning of next year, we’ll start to see some significant margin compression in corporate profits. Once that starts to take hold, they’re going to take steps to cut their expenses. The first place we’re going to see it is in reducing headcount. We’ll see that by the middle of next year, and that’s when we’ll see economic growth slowdown significantly and inflation will come down as well.”

How bad will it be?

A recession is considered to be a prolonged economic downturn that broadly affects the economy and typically lasts two quarters or more. The National Bureau of Economic Research, the arbiter of recessions, considers how deep the slowdown is, how wide spread it is and how long it lasts.

However, if any factor is severe enough, the NBER could declare a recession. For instance, the pandemic downturn in 2020 was so sudden and sharp with wide-reaching impact that it was determined to be a recession even though it was very short.

“I’m hoping for a short, shallow one, but hope springs eternal,” said Diane Swonk, chief economist at KPMG. “The good news is we should be able to recover from it quickly. We do have good balance sheets, and you could get a response to lower rates once the Fed starts easing. Fed-induced recessions are not balance sheet recessions.”

The Federal Reserve’s latest economic projections show the economy growing at a pace of 0.5% in 2023, and it does not forecast a recession.

“We’ll have one because the Fed is trying to create one,” said Swonk. “When you say growth is going to stall out to zero and the unemployment rate is going to rise … it’s clear the Fed has got a recession in its forecast but they won’t say it.” The central bank forecasts unemployment could rise next year to 4.6% from its current 3.7%.

Fed reversal?

How long policymakers will be able to hold interest rates at high levels is unclear. Traders in the futures market expect the Fed to start cutting rates by the end of 2023. In its own forecast, the central bank shows rate cuts starting in 2024.

Swonk believes the Fed will have to backtrack on higher rates at some point because of the recession, but Simons expects a recession could run through the end of 2024 in a period of high rates.

 “The market clearly thinks the Fed is going to reverse course on rates as things turn down,” said Simons. “What isn’t appreciated is the Fed needs this in order to keep their long-term credibility on inflation.”

The last two recessions came after shocks. The recession in 2008 started in the financial system, and the pending recession will be nothing like that, Simons said.

“It became basically impossible to borrow money even though interest rates were low, the flow of credit slowed down a lot. Mortgage markets were broken. Financial markets suffered because of the contagion of derivatives,” said Simons. “It was financially generated. It wasn’t so much the Fed tightening policy by raising interest rates, but the market shut down because of a lack of liquidity and trust. I don’t think we have that now.”

That recession was longer than it seemed in retrospect, Swonk said. “It started in January 2008. … It was like a year and a half,” she said. “We had a year where you didn’t realize you were in it, but technically you were. …The pandemic recession was two months long, March, April 2020. That’s it.”

While the potential for recession has been on the horizon for awhile, the Fed has so far failed to really slow employment and cool the economy through the labor market. But layoff announcements are mounting, and some economists see the potential for declines in employment next year.

“At the start of the year, we were getting 600,000 [new jobs] a month, and now we are getting about maybe 250,000,” Zandi said. “I think we’ll see 100,000 and then next year it will basically go to zero. … That’s not enough to cause a recession but enough to cool the labor market.” He said there could be declines in employment next year.

“The irony here is that everybody is expecting a recession,” he said. That could change their behavior, the economy could cool and the Fed would not have to tighten so much as to choke the economy, he said.

“Debt-service burdens have never been lower, households have a boatload of cash, corporates have good balance sheets, profit margins rolled over, but they’re close to record highs,” Zandi said. “The banking system has never been as well capitalized or as liquid. Every state has a rainy day fund. The housing market is underbuilt. It is usually overbuilt going into a recession. …The foundations of the economy look strong.”

But Swonk said policymakers are not going to give up on the inflation fight until it believes it is winning. “Seeing this hawkish Fed, it’s harder to argue for a soft landing, and I think that’s because the better things are, the more hawkish they have to be. It means a more active Fed,” she said.

Source link

#thinks #recession #coming

Rooftop solar: How homeowners should do the math on the climate change investment

Post By Business , , , , , , , , , ,

Solar panels create electricity on the roof of a house in Rockport, Massachusetts, U.S., June 6, 2022. Picture taken with a drone. 

Brian Snyder | Reuters

When Josh Hurwitz decided to put solar power on his Connecticut house, he had three big reasons: To cut his carbon footprint, to eventually store electricity in a solar-powered battery in case of blackouts, and – crucially – to save money.

Now he’s on track to pay for his system in six years, then save tens of thousands of dollars in the 15 years after that, while giving himself a hedge against utility-rate inflation. It’s working so well, he’s preparing to add a Tesla-made battery to let him store the power he makes. Central to the deal: Tax credits and other benefits from both the state of Connecticut and from Washington, D.C., he says.

“You have to make the money work,” Hurwitz said. “You can have the best of intentions, but if the numbers don’t work it doesn’t make sense to do it.” 

Hurwitz’s experience points up one benefit of the Inflation Reduction Act that passed in August: Its extension and expansion of tax credits to promote the spread of home-based solar power systems. Adoption is expected to grow 26 percent faster because of the law, which extends tax credits that had been set to expire by 2024 through 2035, says a report by Wood Mackenzie and the Solar Energy Industries Association. 

Those credits will cover 30 percent of the cost of the system – and, for the first time, there’s a 30 percent credit for batteries that can store newly-produced power for use when it’s needed.

“The main thing the law does is give the industry, and consumers, assurance that the tax credits will be there today, tomorrow and for the next 10 years,” said Warren Leon, executive director of the Clean Energy States Alliance, a bipartisan coalition of state government energy agencies. “Rooftop solar is still expensive enough to require some subsidies.”

California’s solar energy net metering decision

Certainty has been the thing that’s hard to come by in solar, where frequent policy changes make the market a “solar coaster,” as one industry executive put it. Just as the expanded federal tax credits were taking effect, California on Dec. 15 slashed another big incentive allowing homeowners to sell excess solar energy generated by their systems back to the grid at attractive rates, scrambling the math anew in the largest U.S. state and its biggest solar-power market — though the changes do not take effect until next April.

Put the state and federal changes together, and Wood Mackenzie thinks the California solar market will actually shrink sharply in 2024, down by as much as 39%. Before the Inflation Reduction Act incentives were factored in, the consulting firm forecast a 50% drop with the California policy shift. Residential solar is coming off a historic quarter, with 1.57 GW installed, a 43% increase year over year, and California a little over one-third of the total, according to Wood Mackenzie.

For potential switchers, tax credits can quickly recover part of the up-front cost of going green. Hurwitz took the federal tax credit for his system when he installed it in 2020, and is preparing to add a battery now that it, too, comes with tax credits. Some contractors offer deals where they absorb the upfront cost – and claim the credit – in exchange for agreements to lease back the system. 

Combined with savings on power homeowners don’t  buy from utilities, the tax credits can make rooftop solar systems pay for themselves within as little as five years – and save $25,000 or more, after recovering the initial investment, within two decades.  

“Will this growth have legs? Absolutely,” said Veronica Zhang, portfolio manager of the Van Eck Environmental Sustainability Fund, a green fund not exclusively focused on solar. “With utility rates going up, it’s a good time to move if you were thinking about it in the first place.”

How to calculate installation costs and benefits

Here is how the numbers work.

Nationally, the cost for solar in 2022 ranges from $16,870 to $23,170, after the tax credit, for a 10-kilowatt system, the size for which quotes are sought most often on EnergySage, a Boston-based quote-comparison site for solar panels and batteries. Most households can use a system of six or seven kilowatts, EnergySage spokesman Nick Liberati said. A 10-12 kilowatt battery costs about $13,000 more, he added.

There’s a significant variation in those numbers by region, and by the size and other factors specific to the house, EnergySage CEO Vikram Aggarwal said. In New Jersey, for example, a 7-kilowatt system costs on average $20,510 before the credit and $15,177 after it. In Houston, it’s about $1,000 less. In Chicago, that system is close to $2,000 more than in New Jersey. A more robust 10-kilowatt system costs more than $31,000 before the credit around Chicago, but $26,500 in Tampa, Fla. All of these average prices are as quoted by EnergySage. 

The effectiveness of the system may also vary because of things specific to the house, including the placement of trees on or near the property, as we found out when we asked EnergySage’s online bid-solicitation system to look at specific homes.

The bids for one suburban Chicago house ranged as low as $19,096 after the federal credit and as high as $30,676.

Offsetting those costs are electricity savings and state tax breaks that recover the cost of the system in as little as 4.5 years, according to the bids. Contractors claimed that power savings and state incentives could save as much as another $27,625 over 20 years, on top of the capital cost.

Alternatively, consumers can finance the system but still own it themselves – we were quoted interest rates of 2.99 to 8.99 percent. That eliminates consumers’ up-front cost, but cuts into the savings as some of the avoided utility costs go to pay off interest, Aggarwal said. 

The key to maximizing savings is to know the specific regulations in your state – and get help understanding often-complex contracts, said Hurwitz, who is a physician.

Energy storage and excess power

Some states have more generous subsidies than others, and more pro-consumer rules mandating that utilities pay higher prices for excess power that home solar systems create during peak production hours, or even extract from homeowners’ batteries.

California had among the most generous rules of all until this week. But state utility regulators agreed to let utilities pay much less for excess power they are required to buy, after power companies argued that the rates were too high, and raised power prices for other customers.

Wood Mackenzie said the details of California’s decision made it look less onerous than the firm had expected. EnergySage says the payback period for California systems without a battery will be 10 years instead of six after the new rules take effect in April. Savings in the years afterward will be about 60 percent less, the company estimates. Systems with a battery, which pay for themselves after 10 years, will be little affected because their owners keep most of their excess power instead of selling it to the utility, according to EnergySage. 

“The new [California rules] certainly elongate current payback periods for solar and solar-plus-storage, but not by as much as the previous proposal,” Wood Mackenzie said in the Dec. 16 report. “By 2024, the real impacts of the IRA will begin to come to fruition.”

The more expensive power is from a local utility, the more sense home solar will make. And some contractors will back claims about power savings with agreements to pay part of your utility bill if the systems don’t produce as much energy as promised. 

“You have to do your homework before you sign,” Hurwitz said. “But energy costs always go up. That’s another hidden incentive.”

Correction: An earlier version of this story misstated the name of the Solar Energy Industries Association.

Source link

#Rooftop #solar #homeowners #math #climate #change #investment

Bob Pisani: Think you’re a rational investor? These biases make it harder to reach your financial goals

Post By Business , , ,

Bob Pisani’s book “Shut Up & Keep Talking”

CNBC

(Below is an excerpt from Bob Pisani’s new book “Shut Up and Keep Talking: Lessons on Life and Investing from the Floor of the New York Stock Exchange.”)

Most people like to think that they’re rational. But — at least when it comes to investing — that’s not always the case.

Way back in 1979, Daniel Kahneman and Amos Tversky noted that human beings did not act the way classical economics said they would act.

They were not necessarily rational actors. They did not buy low and sell high, for example. They often did the opposite.

Why? Kahneman and Tversky proposed a theory, which they called prospect theory. Their key insight was that individuals don’t experience gains and losses in the same way. Under classical theories, if someone gained $1,000, the pleasure they feel should be equal to the pain they would feel if they lost $1,000.

That’s not what Kahneman and Tversky found. They found that the pain of a loss is greater than the pleasure from a gain. This effect, which came to be known as loss aversion, became one of the cornerstones of behavioral economics.

In later years, Kahneman and Tversky even attempted to quantify how much stronger the loss was. They found that the fear of an emotional loss was more than twice as powerful as an emotional gain.

That went a long way toward explaining why so many people hold on to losing positions for so long. The opposite is also true: people will tend to sell their winners to lock in gains.

You have more biases than you think

Over the years, Kahneman and many others went on to describe numerous biases and mental shortcuts (heuristics) that humans have developed for making decisions.

Many of those biases are now a common part of our understanding of how humans interact with the stock market.

These biases can be broken down into two groups: cognitive errors due to faulty reasoning, and emotional biases that come from feelings. Loss aversion is an example of an emotional bias.

They can be very tough to overcome because they are based on feelings that are deeply ingrained in the brain. See if you recognize yourself in any of these emotional biases.

Investors will:

Come to believe they are infallible when they hit a winning streak (overconfidence).

Blindly follow what others are doing (herd behavior).

Value something they already own above its true market value (endowment effect).

Fail to plan for long-term goals, like retirement, because it’s easier to plan for short-term goals, like taking a vacation (self-control bias).

Avoid making decisions out of fear the decision will be wrong (regret aversion bias).

There’s also cognitive errors

Cognitive errors are different. They don’t come from emotional reactions, but from faulty reasoning. They happen because most people have a poor understanding of probabilities and how to put a numerical value on those probabilities.

People will:

Jump to conclusions. Daniel Kahneman, in his seminal 2011 book “Thinking, Fast and Slow,” said that: “Jumping to conclusions on the basis of limited evidence is so important to an understanding of intuitive thinking, and comes up so often in this book, that I will use a cumbersome abbreviation for it: WYSIATI, which stands for what you see is all there is.”

Select information that supports their own point of view, while ignoring information that contradicts it (confirmation bias).

Give more weight to recent information than older information (recency bias).

Convince themselves that they understood or predicted an event after it happened, which leads to overconfidence in the ability to predict future events (hindsight bias).

React to financial news differently, depending on how it is presented. They may react to the same investment opportunities in different ways or react to a financial headline differently depending on whether it is perceived to be positive or negative (framing bias).

Believe that because a stock has done well in the past it will continue to do well in the future (the gambler’s fallacy).

Overreact to certain pieces of news and fail to place the information in a proper context, making that piece of news seem more valid or important than it really is (availability bias).

Rely too much on a single (often the first) piece of information as a basis for an investment (such as a stock price), which becomes the reference point for future decisions without considering other pieces of information (anchoring bias).

What’s the takeaway?

People have so many biases that it’s tough to make rational decisions.

Here’s a few key takeaways:

It’s possible to train people to think more rationally about investing, but don’t expect too much. With all this brilliant insight into how people really think (or don’t), you’d think that as investors we wouldn’t be repeating the same dumb mistakes we have been making for thousands of years.

Alas, investing wisdom and insight remains in short supply because 1) financial illiteracy is widespread. Most people (and sadly most investors) have no idea who Daniel Kahneman is, and 2) even people who know better continue to make dumb mistakes because overriding the brain’s ‘react first, think later’ system that Daniel Kahneman chronicled in “Thinking, Fast and Slow” is really, really hard.

The indexing crowd got a boost from behavioral economics. Billions of dollars have flowed into passive (index-based) investing strategies in the past 20 years (and particularly since the Great Financial Crisis), and with good reason: unless you want to endlessly analyze yourself and everyone around you, passive investing made sense because it reduced or eliminated many of those biases described above. Some of these passive investments can have their own biases, of course.

Stocks can be mispriced. Psychology plays a large part in setting at least short-term stock prices. It is now a given that markets may not be perfectly efficient and that irrational decisions made by investors can have at least a short-term impact on stock prices. Stock market bubbles and panics, in particular, are now largely viewed through the lens of behavioral finance.

Behavioral economics wins the Nobel Prize

At least the world at large is recognizing the contributions the behavioral economists have made.

Daniel Kahneman won the Nobel Memorial Prize for Economic Sciences in 2002 for his work on prospect theory, specifically for “having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty.”

Other Nobel awards for work in behavioral economics soon followed. Richard Thaler, who teaches at the University of Chicago Booth School of Business, won the Nobel Memorial Prize in Economic Sciences in 2017. Thaler, too, had demonstrated that humans acted irrationally, but they did so in predictable ways, giving hope that some form of model could still be developed to understand human behavior.

Yale Professor Robert Shiller won the 2013 Nobel Memorial Prize in Economic Sciences (with Eugene Fama and Lars Peter Hansen) for his contribution to our understanding of how human behavior influences stock prices.

Bob Pisani is senior markets correspondent for CNBC. He has spent nearly three decades reporting from the floor of the New York Stock Exchange. “In Shut Up and Keep Talking,” Pisani shares stories about what he has learned about life and investing.

Source link

#Bob #Pisani #youre #rational #investor #biases #harder #reach #financial #goals