程序代写 MARCH 2020 – APRIL 2021

THE IRRATIONALITY
OF THE HERD AND THE INEFFICIENCY OF THE MARKET
DR GARY BOWMAN

Copyright By PowCoder代写 加微信 powcoder

 Market (in)efficiency
 Herd behaviour
 Social amplification
 Dominantlogics
 Dominant‘illogics’  Insurgent logics
 Back to basics: some simple strategic analysis

MARKET EFFICIENCY?
 No investor can out perform the market?
 Prices reflect all available and relevant information
 More information leads to greater efficiency
 Weak (past prices do not predict future prices)
 Moderate (only insider knowledge leads to arbitrage)  Strong (all information is accounted for in prices)

HERD BEHAVIOUR
 In herding, an individual follows the crowd
 A form of social conformity and means of acceptance  The belief that the collective knows more
 History of rallies and sell-offs
 Self-fulfilling:
 price increase+ve news coveragespeculators buyprice increase
 price decrease-ve news coveragespeculators sellprice decrease
 Groupthink (harmony or conformity over rationality)

SOCIAL AMPLIFICATION
 Explains the emergence of herd phenomena
 Two key aspects:
 Informationtransference(andspeed)  Response mechanisms
 Rational
 Dominantlogics
 Illogical (or inconsistent)
 Dominant illogics (e.g. groupthink)
 Irrational
 Insurgent logics

DOMINANT LOGICS: AUTOMOBILE INDUSTRY*
 Growth: -7.2% in 2019 (-16% in 2020)
 Size: c.70m cars sold in 2019 (c. US$2tr revenue)
 Profitability: US$65.9bn (2.1% margin)
 China 30% of global market  Rapidgrowthstalledin2019
 Battery Electric Vehicle Disruption:
 2019:4.8mcarssold(+46%increasefrom2018)  2025:12mdemandvs20msupply
 2030:22mdemand(vs35msupply)
 Oversupply concerns
*TO MAKE IT EASIER, WE’LL FOCUS ONLY ON PASSENGER CARS

AUTOMOBILE COMPANIES: UNITS SOLD

AUTOMOBILE COMPANIES: REVENUE
$32 billion
c.$1,600 billion

AUTOMOTIVE COMPANIES: MARKET CAPITALISATION
c.$800 billion c.$900 billion

NASDAQ: TSLA

WHY SUCH A HIGH PRICE?
 Mass appeal, a simple concept, and the classic entrepreneur
 Classic herd story:
 True believersEnthusiastsInvestorsTradersRetail investors
 The power of FOMO (ride the wave for even a little while)  Another disrupter from California
 What makes Tesla a good investment?
 Revenueandprofitgrowth
 Million-milebattery&significantdecreaseinbatterycost  Mass market growth & China’s appetite for EVs
 Prospect of autonomous vehicles

ONE IMPORTANT THEORY (AND TWO MAJOR CAVEATS)
First Mover Advantage  The power of disruption
 Creates instability in dominant industry
 The need to look after your established base
 Establish the ‘rules of the game’; benchmark for:
 Customerexpectations
 Sales Process
 Supplier and resource relationships
 Pioneering costs
 R&D spend early
 Enthusiasm vs Delivery  Customereducation
 Acceptinglosses
 Primary demand vs Selective demand  Create demand for a new area
 What kind of demand?

PRIMARY DEMAND?

…SELECTIVE DEMAND?

SO DOES TESLA’S SHARE PRICE MAKE SENSE?
 Or…is there efficiency?
 Is Tesla’s past price indicative of its future?
 Do we think all the information is accounted for in the price?
 Is it logical to assume rapid growth for Tesla and minimal
growth for everyone else?
 There have been a price rallies and corrections
 YTDlow$563.00  YTDhigh$883.09
 So when does buy become sell?

DOMINANT LOGICS: AUSTRALIA’S GLOBAL DISRUPTOR (ASX:APT)

(ANOTHER) IMPORTANT THEORY (AND TWO MORE CAVEATS)
Platform power
 Platform-as-a-serviceBank-as-a-service
 Utilisation of network benefits  Same-sidebenefits
 Cross-side benefits
 High user, low margin – transaction oriented
 The value of consumer data
Platform threats
 Platform envelopment
 Power of Apple, Google, Amazon
 Endogenous and exogenous risk
 Default risk on small margins increases
 Regulatoryrisk
 An additional transaction cost for sellers
 The actual value of consumer data?

SO DOES AFTERPAY’S SHARE PRICE MAKE SENSE?
 Would you buy at $118 per share?  Again…is there efficiency?
 Is Afterpay’s past price indicative of its future?
 Do we think all the information is accounted for in the price?
 There have been a price rallies and corrections  YTDlow$101.30
 YTDhigh$158.47
 Were those corrections connected to any significant release of information?
 The adjustment of the market highlights a difference between continuous and continual adjustment

DOMINANT LOGICS SUMMARY
 Cult-like status is attained and underlying value becomes less important
 The spread of buyers perpetuates demand; people want the price to rise
 Dividends become irrelevant
 Common aspect of behaviour finance (bubbles persist)
 EMH suggests more information should help to detect and adjust (i.e. minimise bubbles)?
 Price affects behaviour inside the company as well

DOMINANT ‘ILLOGICS’
 Opinion and activity are illogical but prevalent
 What happens when the dominant logic doesn’t make any sense?
 Is there an underlying mechanism (e.g. optimism) that defies logic and evidence
 Growth during COVID?
 Acorrectiontotheperceivedovercorrectionatthestart
 Oldfashioned,head-in-the-sanddenial
 Liquidity boom: a combination of disposable income and boredom
 Presumption of post-covid boom (so much so that the boom happens early)
 Two examples: i) Company value in an industry in crisis; and ii) an index on the rise

DOMINANT ‘ILLOGICS’: TOURISM INDUSTRY  2019 (pre-COVID)
 1.5billioninternationaltourists  US$2.9trindirectcontribution  3-4% annual growth predicted
 2020 (during COVID)
 1.2billion fewer international travellers
 >US$1,000,000,000,000decreaseinrevenue  Post-COVID?
 Erm…that’s a long way off!  Backtonormal?

TOURISM IN TURMOIL
CRUISESHIPS
HOTELS & RESORTS
 60% decrease in passengers  >$885bn revenue in 2019
 <$500bn decrease in 2020  30m passengers in 2019  $27bn revenue in 2019  $7.4bn revenue in 2020  $1.2tr revenue in 2019  $800bn revenue in 2020 TOURISM IN TURMOIL RENTAL CARS  >$60bn revenue in 2019  <$40bn revenue in 2020  Expedia 2019 revenue = $12.1bn  Expedia 2020 revenue = $5.2bn BUT WAIT... NASDAQ: EXPE SO DOES EXPEDIA’S SHARE PRICE MAKE SENSE?  Why do people value Expedia more now than ever before?  Is it their strategic change?  Is horizontal integration appealing? Does it minimise or spread their exposure?  Is the their cash capacity to acquire fuelling growth estimates?  Is there room in the market for an intermediary?  Willtherebeademandincreasefordirectbookings(directtoairline,hotels,rentalagencies)?  Will people save their money for a couple of more years (and invest in cryptos?)  Or is this name recognition in a booming index? NASDAQ VS DJIA VS S&P500 UK COVID LOCKDOWN TIMELINE: MARCH 2020 – APRIL 2021 UK Lockdown begins March 2020 Restrictions end (except for mask wearing & social distancing) New restrictions eased for Christmas period Restriction ease 2/3 population receive vaccinations April 2021 September 2020 December 2020 January 2021 Restrictions ease Second wave begins, new restrictions in place Full lockdown in place BUT WAIT... FTSE 100 & FTSE 250 & FTSE ALL DOES THE GROWTH OF THE FTSE MAKE SENSE?  Compared to the US growth, perhaps  Heavy resource weighting  What about months of reduced economic activity?  Not all online retail? No restaurant / bar spending?  11.4 million jobs on furlough  AUD$200bntourismrevenuelost(againstreductionin$50bnoutboundtourism)  Upside: vaccinations rates are among the highest in the world  Does the equity market match the economy?  Is the equity market itself driving the economic prosperity and confidence? INSURGENT LOGICS  Response to the dominant force in the market  Insurgents seek to exert agency on:  Thedominantforces  Thepopulation  Thedominantforcescontroloverthepopulation  Dominant forces seek to exert control on:  Thepopulation  Theinsurgents POPULATION INSURGENTS DOMINANT LOGICS LONG-TERM OUTLOOK?  Do we think this will result in anything other than failure?  GameStop has assets but the future is bleak  SocialamplificationhasmadeGameStopmainstream  Facing a long-term correction in value  Dogecoin?  Price is based on supply and demand  How much do we pay to breath air? SO WHAT IF THE MODELS DON’T MAKE SENSE?  Better models?  Better modellers?  Back to basics  Whatbiasesexist?  What does the company do?  How does the industry perform? “Uncertainty today is not just an occasional, temporary deviation from a reasonable predictability; it is a basic structural feature of the business environment” - (HBR 1985) THE SIMPLE VERSION OF STRATEGY: THE COMPANY  What does the company do?  Compared to the rest of the market, is it:  Different?  Cheaper?  What is valuable?  What is rare?  Can it be copied?  Is the organisation performing well? THE SIMPLE VERSION OF STRATEGY: THE INDUSTRY  Can new companies enter the market?  How competitive is the industry?  How engaged are customers?  How much leverage do suppliers have?  What are the (non-industry) substitutes? COMPARISON: COMPANY Something better? Something different? ? (new strategy) Something cheaper? Valuable resources Inimitability Organisational effectiveness Superior returns Temporary CA* Above avg. returns Temporary CA* Average returns Competitive parity Poor results No CA* *CA = COMPETITIVE ADVANTAGE COMPARISON: INDUSTRY Threat of new entrants Competitive rivalry Power of buyers Power of suppliers Availability of substitutes Industry competitiveness Moderate - High Moderate - High Margin expectations DOES THIS AFFECT YOUR PERCEPTION OF VALUE? SOME CONCLUSIONS & TAKEAWAYS  Social amplification is becoming more significant  Volatility is increasing...so is the flow of information hindering market efficiency?  It’s getting easier to join the herd...and easier to join the insurgents  Share prices & Market cap are abstractions  Company...made up of people  Rational models solve and create problems  The model (or our interpretation) is right and the price/value is wrong  The model (or our interpretation) is wrong and the price/value is right  Remember the underlying principles 程序代写 CS代考 加微信: powcoder QQ: 1823890830 Email: powcoder@163.com