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Ever felt that crypto isn't risky enough? Binance prepares to add margin trading for enhanced SFYL.

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Dimensions Network will bring enhanced trading options – like Shorting, Margin Trading and Options – to deliver greater diversity to cryptocurrency trading.

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Long Thesis - Progyny - 100% upside - High-growth, profitable company is the only differentiated provider in a large, growing, and underserved market. PGNY’s high-touch, seamless offering helps them stand out against large insurance carriers.

Link to my research report on PGNY
High-growth, profitable company is the only differentiated provider in a large, growing, and underserved market. PGNY’s high-touch, seamless offering helps them stand out against large insurance carriers. Covid-19 has shown the importance of benefits for employees and will continue to be the key differentiator for those thinking of changing jobs. According to RMANJ (Reproductive Medicine Associates of New Jersey), 68% of people would switch jobs for fertility benefits.
For employers, Progyny reduces costs by including the latest cutting-edge technology in one packaged price, thereby lowering the risk of multiples and increasing the likelihood of pregnancy, keeping employees happy with an integrated, data-driven, concierge service partnering with a selective group of fertility doctors.
Upside potential is 2x current price in the next 18 months.
Progyny Inc. (Nasdaq: PGNY), “PGNY” or the “Company”, based in New York, NY, is the leading independent fertility and family building benefits manager. Progyny serves as a value-add benefits manager sold to employers who want to improve their benefits coverage and retain and attract the best employees. Progyny offers a comprehensive solution and is truly disrupting the fertility industry.
There is no standard fertility cycle, but the below is a good approximation of possible workflows:

  1. Patient is referred to fertility center for evaluation for Assisted Reproductive Technology (“ART”) procedures, including in-vitro fertilization (“IVF “) and intrauterine insemination (“IUI”). Both can be aided by pharmaceuticals that stimulate egg production in the female patient. IVF involves the fertilization of the egg and sperm in the lab, while IUI is direct injection of the sperm sample into the uterus. Often, IUI is done first as it is less expensive. As success rates of IVF have increased, IUI utilization will likely fall.
  2. Sperm washing is the separation of the sperm from the semen sample for embryo creation, and it enhances the freezing capacity of the sperm. Typically, a wash solution is added to the sample and then a centrifuge is used to undergo separation. This is done in both IUI and IVF.
  3. Some OB/GYN platforms are pursuing vertical integration and offering fertility services directly. The OB would need to be credentialed at the lab / procedure center.
  4. Specialty pharmacy arranges delivery of temperature sensitive Rx. Drug regimens include ovarian stimulation to increase the number of eggs or hormone manipulation to better time fertility cycles, among others.
  5. Oocyte retrieval / aspiration is done under deep-sedation anesthesia in a procedure room, typically in the attached IVF lab. Transfer cycle implantation is done using ultrasound guidance without anesthesia. (Anecdotally, we have been told that only REIs can perform an egg retrieval. We have not been able to validate this).
  6. Many clinics house frozen embryos on-site, while some clinics contract with 3rd parties to manage the process. During an IVF cycle, embryos are created from all available eggs. Single-embryo transfer (“SET”) is becoming the norm, which means that multiple embryos are then cryopreserved to use in the future. A fertility preservation cycle ends here with a female storing eggs for long-term usage (e.g. a woman in her young 20s deciding to freeze her eggs for starting a family later).
  7. Common nomenclature refers to an IVF cycle or an IVF cycle with Intracytoplasmic sperm injection (“ICSI”). From a technical perspective, ICSI and IVF are different forms of embryo fertilization within an ART cycle.
  8. ART clinics are frequently offering ancillary services such as embryo / egg adoption or surrogacy services. More frequently, there are independent companies that help with the adoption process and finding surrogates.
  9. ART procedures are broken into two different types of cycles: a banking cycle is the process by which eggs are gathered, embryos are created and then transferred to cryopreservation. A transfer cycle is typically the transfer of a thawed embryo to the female for potential pregnancy. If a pregnancy does not occur, another transfer cycle ensues. Many REIs are moving towards a banking cycle, freezing all embryos, then transfer cycles until embryos are exhausted or a birth occurs. If a birth occurs with the first embryo, patients can keep their embryos for future pregnancy attempts, donate the embryos to a donation center, or request the destruction of the embryos.
The Company started as Auxogen Biosciences, an egg-freezing provider before changing business models to focus on providing a full-range of fertility benefits. In 2016, they launched with their first 5 employer clients and 110,000 members. As of June 30, 2020, the Company provided benefits to 134 employers and ~2.2 million members, year over year growth of 63%. 134 employers is less than 2% of the total addressable market of “approximately 8,000 self-insured employers in the United States (excluding quasi-governmental entities, such as universities and school systems, and labor unions) who have a minimum of 1,000 employees and represent approximately 69 million potential covered lives in total. Our current member base of 2.1 million represents only 3% of our total market opportunity.”
The utilization rate for all Progyny members was less than 1% in 2019, offering significant leverageable upside as the topic of fertility becomes less taboo.
  1. https://www.wsj.com/articles/fertility-treatments-are-now-company-business-11597579200
  2. https://www.nytimes.com/2020/04/19/parenting/fertility/fertility-startups-kindbody.html
  3. https://www.theglobeandmail.com/opinion/article-covid-19-will-make-the-global-baby-bust-even-worse-but-canada-stands/
  4. https://www.wbal.com/article/469564/114/post-pandemic-baby-boom-and-fertility-consults-via-zoom-how-covid-19-is-affecting-pregnancy-plans
Fertility has historically been a process fraught one-sided knowledge, even more so than the typical physician procedure. Despite the increased availability of information on the internet, women who undergo fertility treatments have often described the experience as “byzantine” and “chaotic”. Outdated treatment models without the latest technology (or the latest tech offered as expensive a la carte options) continue to be the norm at traditional insurance providers as well as clinics that do not accept insurance. Progyny’s differentiated approach, including a high-touch concierge level of service for patients and data-driven decision making at the clinical level, has led to an NPS of 72 for fertility benefits and 80 for the integrated, optional pharmacy benefit.
Typically, fertility benefits offered by large insurance carriers are add-ons to existing coverage subject to a lifetime maximum while simultaneously requiring physicians to try IUI 3 – 6 times before authorizing IVF. The success rate of IUI, also known as artificial insemination, is typically less than 10%, even when performed with medication. As mentioned in Progyny’s IPO “A patient with mandated fertility step therapy protocol may be required to undergo three to six cycles of IUI, which has an average success rate range of 5% to 15%, takes place over three to six months and can cost up to $4,000 per cycle (or an aggregate of approximately $12,000 to $24,000), according to FertilityIQ. Multiple rounds of mandated IUI is likely to exhaust the patient's lifetime dollar maximum fertility benefits and waste valuable time before more effective IVF treatment can be begun.”
Success Rates for IVF
IVF success rates vary greatly by age but were 49% on average for women younger than 35. The graph below shows success rates by all clinics by age group for those that did at least 10 cycles in the specific age group. As an example, for those in the ages 35 – 37, out of 456 available clinics, 425 performed at least 10 cycles with a median success rate of 39.7%.

Progyny’s Smart Cycle is the proprietary method the company has chosen as a “currency” for fertility benefits. As opposed to a traditional fee-for-service model with step-up methods, employers may choose to provide between 2 and unlimited Smart Cycles to employees. This enables employees to choose the provider’s best method. Included in the Smart Cycle, and another indicator of the Company’s forward-thinking methodology, are treatment options that deliver better outcomes (PGS, ICSI, multiple embryo freezing with future implantations).

As detailed in the chart above, a patient could undergo an IVF cycle that freezes all embryos (3/4 of a Smart Cycle), then transfer 5 frozen embryos (1/4 cycle each; each transfer would occur at peak ovulation, which would take at least 5 months) and use only 2 Smart Cycles. Alternatively, if the patient froze all embryos and got pregnant on the first embryo transfer, they would only use one cycle.
Before advances in vitrification (freezing), patients could not be sure that an embryo created in the lab and frozen for later use would be viable, so using only one embryo at a time seemed wasteful. Now, as freezing technology has advanced, undergoing one pharmaceutical regime, one oocyte collection procedure, creating as many embryos as possible, and then transferring one embryo back into the uterus while freezing the rest provides the highest ROI. If the first transferred embryo fails to implant or otherwise does not lead to a baby, the patient can simply thaw the next embryo and try implantation again next month.
Included in each Smart Cycle is pre-implantation genetic sequencing (“PGS”) on all available embryos and intracytoplasmic sperm injection (“ICSI”). PGS uses next-generation sequencing technology to determine the viability and sex of the embryo while ICSI is a process whereby a sperm is directly inserted into the egg to start fertilization, rather than allowing the sperm to penetrate the egg naturally. ICSI has a slightly higher rate of successful fertilization (as opposed to simply leaving the egg and sperm in the petri dish).
Because Progyny’s experience is denominated in cycles of care, not simply dollars, patients and doctors can focus on what procedures offer the best return. 30% of the Company’s existing network of doctors do not accept insurance of any kind, other than Progyny, which speaks to the value that is provided to doctors and employers.
For patients not looking to get pregnant, Progyny offers egg freezing as well. Progyny started as an egg-freezing manager, which allows a woman to preserve her fertility and manage her biological clock. As mentioned previously, pregnancy outcomes vary significantly and align closely with the age of the egg. Egg freezing is designed to allow a woman to save her younger eggs until she is ready to start a family. From an employer’s perspective, keeping younger women in the work force for longer is a cost savings. Vitrification technology has improved significantly since “Freeze your eggs, Free Your Career” was the headline on Bloomberg Businesweek in 2014, but we still don’t yet know the pregnancy rates for women who froze their eggs 5 years ago, but early results are promising and on par with IVF rates for women of similar ages now.
From a female perspective, the egg freezing process is not an easy one. The patient is still required to inject themselves with stimulation drugs and the egg retrieval process is the same as in the IVF process (under sedation). The same number of days out of work are required. Using the SmartCycle benefit above as an example, the egg freezing process would require ½ of a Smart Cycle. The annual payment required to the clinic is typically included in the benefits package but may require out-of-pocket expenses covered by the employee.
Contrary to popular belief, IVF pregnancies do not have a higher rate of multiples (twins, triplets, etc.), rather in order to reduce out of pocket costs, REIs have transferred multiple embryos to the patient, in the hopes of achieving a pregnancy. If you have struggled for years to get pregnant, and the doctor is suggesting that transferring 3 embryos at once is your best chance at success, you are unlikely to complain, nor are you likely to selectively eliminate an implanted embryo because you now have twins. There are several factors that are making it more likely / acceptable to transfer one embryo at a time, enabling Progyny’s success.

From the Company: “According to a study published in the American Journal of Obstetrics & Gynecology that analyzed the total costs of care over 400,000 deliveries between 2005 and 2010, as adjusted for inflation, the maternity and perinatal healthcare costs attributable to a set of twins are approximately $150,000 on average, more than four times the comparable costs attributable to singleton births of approximately $35,000, and often exceed this average. In the case of triplets, the costs escalate significantly and average $560,000, sometimes extending upwards of $1.0 million.”
“Progyny's selective network of high-quality fertility specialists consistently demonstrate a strong adherence to best practices with a substantially higher single embryo transfer rate. As a result, our members experience significantly fewer pregnancies with multiples (e.g., twins or triplets). Multiples are associated with a higher probability of adverse medical conditions for the mother and babies, and as a byproduct, significantly escalate the costs for employers. Our IVF multiples rate is 3.6% compared to the national average of 16.1%. A lower multiples rate is the primary means to achieving lower high-risk maternity and NICU expenses for our clients.”
An educated and supported patient leads to better outcomes. Each patient gets a patient care advocate who interacts with a patient, on average, 15x during their usage of fertility benefits - before treatment, during treatment and post-pregnancy. The Company provides phone-based clinical education and support seven days a week and the Company’s proprietary “UnPack It” call allows patients to speak to a licensed pharmacy clinician who describes the medications included in the package (which contains an average of 20 items per cycle), provides instruction on proper medication administration, and ensures that cycles start on time. The Company’s single medication authorization and delivery led to no missed or delayed cycles in 2018.
Previous conference calls have made note of the fact that the Company would like to purchase their own specialty pharmacy and own every aspect of that interaction, which should provide a lift to gross margins. This would allow PGNY to manage both the medication and the treatment, leading to decreased cost of fertility drugs. Under larger carrier programs, carriers manage access to treatment, but PBM manages access to medications, which can lead to a delay in cycle commencement.
Progyny Rx can only be added to the Progyny fertility benefits solution (not offered without subscription to base fertility benefits) and offers patients a potentially lower cost fertility drug benefit, while streamlining what is often a frustrating part of the consumer experience. The Progyny Rx solution reduces dispensing and delivery times and eliminates the possibility that a cycle does not start on time due to a specialty pharmacy not delivering medication. Progyny bills employers for fertility medication as it is dispensed in accordance with the individual Smart Cycle contract. Progyny Rx was introduced in 2018 and represented only 5% of total revenue in 2018. By June 30, 2020, Progyny Rx represented 28% of total revenue and increased 15% y/y. The growth rate should slow and move more in line with the fertility benefits solution as the existing customer base adds it to their package.
Progyny Rx can save employers 5% on spend for typical carrier fertility benefits or 21% of the drug spend. Prior authorization is not required, and the pre-screened network of specialty pharmacies can deliver within 48 hours. Additionally, PGNY has 1-year contracts, as opposed to 3 – 5 years like standard PBMs, but with guaranteed minimums, allowing them to purchase at discounts and pass part of the savings on to employers – another reason the attachment rate is so high.
Large, Underpenetrated Addressable Market
Total cycle counts are increasing (below, in 000s), including both freezing cycles and intended-pregnancy cycles. Acceleration in cycle volume is likely driven by a declining birth rate as women wait later in life to start a family, resulting in reduced fertility, as well as the number of non-traditional (LGBT and single parents). Conservatively, we believe cycles can double in the next 8 years, a 7% CAGR.

Progyny believes its addressable market is the $6.7B spent on infertility treatments in 2017, but these numbers could easily understate the available market and potential patients as over 50% of people in the US who are diagnosed as infertile do not seek treatment. Additionally, according to the Company, 35% of its covered universe did not previously have fertility benefits in place previously, meaning there is a growing population of people who are now considering their fertility options. According to Willis Towers, Watson, ~ 55% of employers offered fertility benefits in 2018.
A quick review of CDC stats and FertilityIQ shows a significant disparity in outcomes and emotions for those who are seeking treatment. While technology in the embryo lab is improving rapidly and success rates between clinics should be converging, there continue to be significant outliers. Clinics that follow what are now generally accepted procedures (follicle stimulating hormones, a 5-day incubation period and PGS to determine embryo viability) have seen success rates of at least 40%. There continue to be several providers that offer a mini-IVF cycle or natural IVF cycle. Designed to appeal to cost conscious cash payors, the on average $5,000 costs, is simply IVF without prescription drugs or any add-ons such as PGS. However, the success rates are on par with IUI and there is an abundance of patients over 40 using the service, where the success rates are already low. Additionally, success stories at these clinics frequently align with what is perceived as the worst parts of the process:
One clinic offering a natural cycle IVF has a rating at FertilityIQ of ~8.0 with 60% of people strongly recommending it. This clinic performed 2,000 cycles in 2018 (the most recently available data from the CDC), making it one of the top 10 most active fertility center in the US. Their success rate for women under 35 was 23%, as opposed to the national average of 50% for all clinics. For women over 43, the average success rate for the most active 40 clinics in this demographic was 5.0% this clinics success rate was 0.4%. The lower success rate is likely due to the lack of pre-cycle drugs and PGS, but the success rate and the average rating is hard to understand. Part of this could be to the customer service provided by the clinic, or the perceived benefit of having to go into the office less often for check-ups when not doing a medication driven cycle.
Reviews from other clinics with high average customer ratings, but low success rates include:
- “start of a journey that consisted of multiple IUI’s with numerous medications, but they were not successful.”
- After an IVF retrieval, the couple had two viable embryos, both were transferred the next month”
- “The couple started with a series of IUI treatments, three in total that were not successful.”
- “After a fresh transfer of two embryos, again another unsuccessful cycle”.
- “He suggested transferring 2 due to higher implantation rates, but there is increased rate of twins “
Progyny’s comps have typically been other high-growth companies that went public in the last two years: 1Life Healthcare (ONEM), Accolade (ACCD), Health Catalyst (HCAT), Health Equity (HQY), Livongo (LVGO), Phreesia (PHR), as well as Teladoc (TDOC). Despite revenue growth that outpaces these companies, PGNY’s revenue multiple of 4.4x 2021E revenue is a 40% discount to the peer group median. PNGY’s lower gross margin is likely limiting the multiple. However, Progyny is the one of the few profitable companies in this group and the only one with realistic EBTIDA margins. SG&A leverage is the most likely driver of increased EBITDA and can be achieved by utilizing data to improve clinical outcomes in the future, but primarily by increased productive of the sales reps, including larger employer wins and larger employee utilization.
Perhaps the best direct comp is Bright Horizons (BFAM). BFAM offers childcare as a healthcare benefit where employees can use pre-tax dollars to pay for childcare. BFAM offers both onsite childcare centers built to the employer’s specification (owned by the employer and operated by BFAM), as well as shared-site locations that are open to the public and back-up sitter services. Currently, PGNY is trading at 4.4x 2021E Revenue, in-line with BFAM’s 4.3x multiple. I would argue that PGNY should trade significantly higher given the asset-lite business model and higher ROIC.
Recent Results
Post Covid-19, fertility treatments came back faster than anticipated, combined with disciplined operations, PGNY drove revenue and EBITDA above 2Q2020 consensus estimates. Utilization is still below historical levels, but management’s visibility led to excellent FY21 revenue estimates (consensus is around $555M, a y/y increase of 62%.
2Q2020 revenue increased 15% to $64.6M, and EBITDA increased 18% to $6.5M, primarily driven by SBC as the 15% revenue was not enough to leverage the additional G&A people hired in the last 18 months. The end of the quarter as fertility docs opened their offices back up for remote visits saw better operating margin.
Despite the shutdown in fertility clinics during COVID-19, Progyny was able to successfully add several clients.
“The significant majority of the clinics in our network chose to adhere to ASRMs guidelines, and our volume of fertility treatments and dispensing of the related medications declined significantly over the latter part of the quarter. . . Through the end of March and into the first half of April, we saw significant reductions in the utilization of the benefit by our members down to as low as 15%, when compared to the early part of Q1 were 15% of what we consider to be normal levels. In April, the New York Department of Health declared that fertility is an essential health service and stated that clinics have the authority to treat their patients and perform procedures during the pandemic. Then on April 24, ASRM updated its guidelines which were reaffirmed on May 11, advising that practices could reopen for all procedures so long as it could be done in a measured way that is safe for patients and staff.”
Revenue increased by $33.8 million, 72% in 1Q2020. This increase is primarily due to a $19.0 million, or 47% increase, in revenue from fertility benefits. Additionally, the Company experienced a $14.8 million or 216% increase in revenue from specialty pharmacy. Revenue growth was due to the increase in the number of clients and covered lives. Progyny Rx revenue growth outpaced the fertility benefits revenue since Progyny Rx went live with only a select number of clients on January 1, 2018 and has continued to add both new and existing fertility benefit solution clients since its initial launch.
The only true competition is the large insurance companies, but, as mentioned previously, they are not delivering care the same way. WINFertility is the largest manager of fertility insurance benefits on behalf of Anthem, Aetna and Cigna and are not directly involved in the delivery of care. Carrot is a Silicon Valley startup that recently raised $24M in a Series B with several brand name customers (StitchFix, Slack) where they focus on negotiating discounts at fertility clinics for their customers, who then use after-tax dollars from their employers.
Risks to Thesis
Though there is risk a large carrier may switch to a model similar to Progyny’s, I believe it is unlikely given the established relationships with REIs at the clinic level, the difficulty of managing a more selective network of providers, and the lack of
interest shown previously in eliminating the IUI. It is more likely a carrier would acquire Progyny first.
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Your Pre Market Brief for 07/31/2020

Pre Market Brief for Friday July 31st 2020

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AEF - A Misunderstood Superannuation Fund

AEF - A Misunderstood Superannuation Fund
Although AEF uniquely benefits from the structural tailwinds of both superannuation and ethical investing, we believe it remains misunderstood as an expensive traditional fund manager.

The Opportunity
Australian Ethical Funds (ASX.AEF) is a public market superannuation fund manager. The perception of the company itself vs. the industry is nicely summarised by the two figures below. Herein lies the opportunity.

AEF is a renowned Australian fund manager that fits within the ESG trend. It represents one of the only pure play superannuation investments in the Australian public market, with 67% of funds under management (FUM) coming from superannuation. The stock bounced exceptionally from a low of $2 in March, reaching a high of $9 in June, and has since retraced towards the low $4s. Previously, the business traded at $6+ following its announcement of end of year FUM and expected earnings figures. On 8th August IOOF Holdings (ASX.IFL) – 19.9% shareholder – announced it was divesting 15% of its stake in AEF. IOOF is a peer and platform provider which offers AEF products to its clients. The investment was sold at $5.24 vs. market price of $5.90. IOOF disclosed it was selling its AEF investment (at a gain) to raise much needed liquidity. The block trade was viewed negatively by the market, with AEF immediately re-rating to below $5.24 and trending downwards (towards low $4s) ever since. The current share price of $4.17 (24 August close) implies the stock is trading at ~51x FY20 earnings guidance, which is slightly above historical levels despite substantially improved performance and outlook. We suspect that the FY20 results will be aligned with guidance (as demonstrated historically) provided in the quarterly FUM update and guided earnings figures. Results have also been positive across its peers throughout mid to late August (see ‘Roadmap’).

Company History
AEF began as Australian Ethical Investments (AEI) in 1986 and was owned by 600 insider shareholders before listing. It is a superannuation fund – so revenue is derived from fees on managing invested funds. By 2005, the business managed four unit trusts and a superannuation fund:
· Australian Ethical Balanced Trust (est. 1989)
· Australian Ethical Equities Trust (est. 1994)
· Australian Ethical Income Trust (est. 1997)
· Australian Ethical Large Companies Share Trust (est. 1997)
· Parent of Australian Ethical Superannuation (est. 1998)
The investments of the trust and super fund are guided by ‘The Charter’ – a series of positive and negative investment screens that must be taken into account when selecting securities for inclusion.

In July 2005, the government enacted policy that afforded more choice to individual employees with regards to their superannuation provider (marking the beginning of a positive era for the superannuation industry). In that same year, AEF registered for a superannuation license which it was granted in 2006. Back in 2005/06 the company did not split out superannuation FUM, but FUM increased from $311m in Jun-05 to $380m in September-05 following this policy shift – suggesting there was an existing demand for ethical investment products in superannuation.
From 2005 to 2011, AEF grew total FUM from $311m to $644m, despite muted FUM growth through the GFC-era. In 2012, the business began separating out its superannuation FUM-growth to improve its visibility. This era saw FUM increasing from $617m in 2012 to $4.05bn as at 30 June 2020.
From 2016-19 reduction in FUM-based fees has seen suppressed revenue growth vs. FUM growth. This has resulted in several step changes in FUM-based revenue margins (revenue / FUM) as a result of lower overall fees earned on products. We view this shift as a positive in the long-run since AEF has competitively priced its funds, entrenching their competitive advantages (discussed below) and reducing the temptation that fee-conscious members switch funds. Since AEF has ratcheted the cost of their funds downwards (often ahead of their peers and industry averages), we believe fee compression improves the durability of AEFs revenue compared to peers who are yet to compress their margins.

Business Model
AEF has a relatively simple business model – revenue is derived from fees on managing invested funds. The funds it manages includes retail, institutional and wholesale (non-super) funds, as well as superannuation funds. We are most interested in the superannuation business although the direct and indirect benefits associated with the funds management business are a noteworthy component to the brand and investment management infrastructure (i.e. ideation / performance fee generating / high performing ESG). Until 2012, AEF did not explicitly separate its super vs. non-super FUM. We believe this contributed to its (mis)perception as a traditional fund manager rather than a superannuation fund. Thankfully, since 2012 AEF has provided details relating to the composition of its FUM (below), and noticeably the growth in its superannuation FUM has been the driving force of the business.

Competitive Advantage
1. Superannuation Exposure: Superannuation FUM is higher growth and lower risk than traditional managed funds. Superannuation funds are regulated to grow at 9.5% due to the Superannuation Guarantee (the Australian Government mandated superannuation contribution). The regulatory framework could see this increase up to 12% in the medium-term and 14% in the long-term. For the purpose of our analysis, we have assumed a constant 9.5% contribution – so any increase would be additional upside. More importantly, excluding fulfilling conditions of release (i.e. death) an individual's superannuation cannot be withdrawn until retirement. Much like the Superannuation Guarantee, withdrawals are also mandated on a schedule that increases as a percentage of FUM with age (beginning at 4% and increasing to 14%). Consequently, the minimum inflows and withdrawals are predictable (and we note the vast majority of individuals do not deviate from these minimum levels due to inertia). Because of this mandated growth, Australia has the fourth largest pension sector in absolute terms and second largest relative to GDP (below). In 2020, the total superannuation pool is ~$2.1trn and growing. It is estimated that by 2040 superannuation assets could be as much as $9trn according to the Australian Treasury.

Alternatively, traditional managed funds are subject to redemption risk, caused (typically) by performance and myopic investor behaviour associated with general market movements. Therefore, FUM growth for traditional managed funds must be attracted through marketing and distribution channels. This inextricably links fund inflows and outflows to performance and marketing efforts, which in turn causes a clientele that is more expensive to acquire and retain, and a more volatile pool of assets. Alternatively, traditional managed funds may access capital through secondary capital raisings and the reinvestment of distributions; both of which are a country mile from a 9.5% government mandated contribution.
Logically, we wondered which (listed) asset could provide us with exposure to the exceptionally robust superannuation tailwind. We will not spend too much time detailing the industry dynamics and public market players as there is a lot of information to be found in various prospectus’ (see Raiz or OneVue prospectus). The main thing to understand is that superannuation funds can be separated into five buckets:

After screening for diversified financials and financials businesses on the ASX there were 53 players with at least some revenue linked to superannuation. The revenue exposure desired is revenue linked to superannuation FUM (explained further in the ‘Valuation’). However, it is important to understand that gaining access to this lucrative industry is difficult for several reasons:
· Private industry funds – the gems of the industry have been private superannuation funds such as CBUS, Hostplus, and ESTA. We cannot access them as public market investors.
· Conglomerate financials – it is possible to gain some retail superannuation exposure within the banking majors such as CBA, WBC, ANZ and NAB. However, they represent insignificant exposure by revenue and profit and the stocks are driven by other risk and growth factors.
· Fund managers – fund managers may directly manage retail superfunds or SMSF funds such as Magellan, Platinum and Perpetual. However, there is limited visibility over superannuation FUM exposure.
· Superannuation adjacency businesses – superannuation exposure can also be housed within wealth / platform advisers such as like HUB24, Netwealth and OneVue. However, to varying degrees, these businesses are not purely exposed to superannuation-FUM linked revenue.
· Pure play sub-scale – the final example can be found in Raiz, which is a sub-scale business that has ~$450m in FUM of which 85% is funds management. It is possible to envisage this business as an AEF in 10-15 years with larger superannuation FUM exposure. Although the superannuation exposure representing $70m in FUM currently (vs. AEF $2.72bn) is vastly inferior to AEF.
For this reason, AEF is the closest to a pure play (at scale) superannuation player.
Putting this together, we believe AEF is likely to continue to grow its FUM at 20% p.a. YoY. This is principally due to AEF's ability to acquire new members and retain existing members. Therefore, to monitor this continued FUM growth going forward we encourage readers to look out of the number of superannuation members added in these upcoming results and beyond. AEF has grown its member base YoY consistently in an industry which has, on average, been relatively flat in terms of member growth. In 2019 AEF was the highest growing superannuation business in Australia across the previous 5-years.

1. Ethical, Social and Governance (ESG): Beyond the obvious tailwinds in superannuation, AEF is also exposed to another important trend: ESG. Needless to say, ESG investing is becoming not only popular but almost mandatory for corporate money managers. Younger demographic investors are increasingly concerned with the ethical and social impacts of corporate activity. This report by Harvard and another by State Street provide some interesting commentary on the issue. ESG ETFs have been growing at a CAGR of >30%, and State Street forecasts that the global ESG ETF market will increase from US$170bn in 2020 to US$1.3trn in 2030. Momentum for ESG ETFs has been building specifically in Australia, where AUM surged almost 300% — from A$554.1m in 2017 to A$2.2bn in 2019.
Whilst the ESG-shift has been occurring since the 2010s, State Street argue that COVID-19 will only further catalyse this shift by highlighting the inherent inequalities in society and health care systems, in turn, spurring social conscience. We note the following data points as indicators of this more recent catalyst:
· Perpetual’s recent acquisition of Trillium, a US-based ESG fund, shows the desire of traditional asset managers to become exposed to this space.
· BlackRock has started publishing more frequently and consistently on ESG trends and continued rolling out ESG products.
· Forager’s investment blog received frequent commentary from investors talking about negative screening on their gambling holdings which has never been the case in the past.
The key insight is that a growing proportion of the investment community through time is becoming concerned with ESG issues and this will drive fund flow. Industry data is pointing to the fact that this is a prolonged structural shift rather than a short-term trend.
2. Performance: AEF has improved upon their exposure to structural industry trends in superannuation and ESG through excellent fund performance. AEF's performance (below) has been consistently strong across all of their strategies (we highly recommend reading page 4 of Sequoia's June 15, 2020 "Investor Day Transcript" to highlight how governance and performance are complimentary). Such strong performance not only disincentivises members from switching to competitors and assists member acquisition, but also significantly enhances earnings at the group level. For instance, FY20 guidance provided on 7 July 2020 vs. 22 June had a midpoint difference of ~$2m. Given the long track record of the managers it is expected performance will remain strong.


· FUM = funds under management
· FUA = funds under administration
· MA = managed accounts
· FU\ = total funds (FUM + FUA + MA)*
Valuing a Superannuation Member: Our valuation technique here will be somewhat unconventional. We will attempt to value the lifetime revenue per member (LRM) for AEF and for a traditional fund and then highlight the incongruity of their relative valuations.
The long-term nature of lifecycle retirement saving (and by virtue the true value of a superannuation fund) demands a long term perspective. Fortunately, the mandated nature of AEFs cash flows facilitates evaluating the lifetime value of a superannuation member. To estimate the LRM we consider the following: (i) life cycle expectations (i.e. retirement age and life expectancy); (ii) salary expectations; (iii) superannuation contribution rate; (iv) investment returns; (v) member "type;" (vi) fee structure; and (vii) a discount rate.
We begin by assuming a member makes $5,000p.a. at age 20, which grows to $130,000p.a. through the middle of their working life (35-50) and then declines to $90,000p.a. at 65 (noting these are gross values not inflation adjusted). Since the average member account balance for AEF is ~$60,000 (FUM of $4.05bn ($2.72bn of which is superannuation) / 43,000 members = $60,000 as at 30 June 2019), we can roughly assume that the average age of their member is between 30-35, which places them at the profitable end of this member acquisition cycle. Further, this member regularly contribute 9.5% of their earnings to their superannuation, which compounds at a rate of 6% p.a. Moreover, the prototypical member starts working / paying superannuation into AEF at age 20, retires at age 65, and redeems according to the minimum withdrawal schedule until age 85. However, how many members live according to this prescribed lifecycle; supported by an uninterrupted working life? What about people that take time off to raise children, either returning to part-time work or full-time work? We can model these archetypes also, which assumes much lower income growth and some years of earning no income. If we assume that society is roughly split into thirds by these archetypes (i.e. 1/3 uninterrupted, 1/3 interrupted and return part time, 1/3 interrupted and return full time), then we can calculate a weighted average LRM for the average member. Compressing fees by more than half to 50bps and assuming a 7% discount rate we arrive a weighted average discounted LRM of ~$18,000.
Whilst comparing this to the average member in another non-super fund is difficult for an array of reasons (i.e. average acquisition age, average income, average balance, average contribution, redemption allowance etc.), we can loosely estimate what this looks. Adopting the same framework as above, to estimate the LRM of an average managed fund member we must first define the managed fund member "archetype." First, we assume the average traditional fund member has a higher income profile (as lower income earners typically do not invest in managed funds). We tweak the income profile to peak at $180,000 between 35-50 and taper down to $120,000 by age 65. Second, we assume the acquisition age is 30 years rather than 20 to reflect that most individuals do not invest in traditional managed funds until later in life. Thirdly, we account for the non-compulsory nature of managed fund contributions. If we start with the marginal savings rate (10-year average of ~7%) as a proxy for available funds for investment and increase this to align with our ‘managed funds’ archetype who has higher income to 15%. We then assume that from this 15%, about 1/3 will be invested into a managed fun (or ~5%). Therefore, for our individual earning $180,000 during peak working years, this is an annual contribution of $7,200. Finally, we increase the discount rate to 9% since because redemptions are more likely in a traditional fund. Using these alternative assumptions, we arrive at a LRM of ~$5,000.
The significant difference in LRM helps explain why a superannuation business can command a much higher multiple of FUM or earnings. Further, we believe our estimate of LRM for a traditional fund manager is quite bullish (i.e. overstated) due to the following: (i) it assumes the individual works full-time for their entire life; and (ii) it assumes the individual stays with the fund from age 30 to 65 and makes uninterrupted and stable contributions. Although dollar cost averaging is touted as an eighth wonder of the world, we are doubtful it is applied as often as it is spoken.
Trading Multiples Valuation: Valuing AEF on a relative basis is difficult given the lack of peers. Against traditional fund managers (i.e. Magellan, Perpetual and Platinum), which trade between 5-20x earnings, and superannuation exposed platforms (i.e. Netwealth and Hub24), which trade between 25-40x earnings, AEF looks relatively expensive. We are acutely aware that AEF is currently (at ~$4.2) trading at 12.6% of FUM and ~51x earnings; and at its peak (~$9) was trading at 25% of FUM and 120x earnings. We believe the valuation difference is driven by the quality of the FUM managed and, therefore, the quality of the earnings growth.
Given their high alignment to superannuation, NWL and HUB are the two most comparable firms to AEF. As the trailing figures show, AEF appears to be trading on par with its peers. However, an important nuance is the trailing figure for AEF is based on 2019 earnings, whilst for NWL and HUB it is based on FY20 earnings given they have already reported. As such, on a like-for-like basis AEF’s ‘trailing’ earnings multiple (based on the mid-point of management’s guidance) is actually ~51x. This means it is trading below NWL and HUB, despite the fact that the majority of those businesses’ FU* is linked to FUA rather than FUM, which has a lower monetisation rate. Not to mention, the split between superannuation and managed funds is not as clearly delineated as is the case with AEF. What is also evident is limited analyst coverage of AEF and lack of forecast guidance assisting the market to predict growth (as is the case with NWL and HUB).
Relative to traditional fund managers (i.e. PPT, PTM and MFG), we note the substantial difference in FUM and business quality. AEF hosts the highest monetization rate (Rev/FUM), even whilst facing fee compression, with the highest FUM growth among its investment management peers. Furthermore, we expect EBIT margins will improve from ~30% toward its larger traditional fund managers peers due to economies of scale over time that we believe will more than offset any fee compression. AEF has also supported a very high ROE due to its sticky clientele and service-based business model. The combination of: (i) best in class monetization; (ii) high LTM and increasing membership base; (iii) improving margins; and (iv) high ROE will make for an incredible growth engine on earnings in the long term. Thus, AEF is a higher quality business with ~4x+ the LCM of a traditional fund trading at only a 2-3x premium using current ratios...

We note the following investment risks with AEF:
  1. Fee Compression – The funds management industry is subject to fee compression across both funds and superannuation funds. There has already been a lot of restructuring of AEF’s fees since 2016. The investment product(s) they advocate is also one that serves an ethical / moral dimension and can arguably be charged at a premium above market. Notwithstanding fee compression beyond that which we have considered would place downward pressure on margins.
  2. Member Attrition – The stickiness of AEF's membership base is a hallmark of their competitive advantage although this could be reversed over time due to poor performance or corporate mismanagement. We encourage the reader to keep an eye on member growth and net inflows over time.
  3. Product Reproduction – There is no official IP upon ESG investing and new products are increasingly being promoted to capture market share of this growing market. We believe AEF's early mover and strong brand serve to mitigate this risk.
  4. Regulatory Risks – Changes in the superannuation regulatory environment can be material. This has long been debated within the public domain although it has been viewed as politically unfavourable to change the superannuation system without a reasonably long lead time and grandfathering provisions, which we hope would make any changes unlikely and less meaningful.
Investment Roadmap
Peers’ Earnings Updates: In summary, the FY20 results of peers indicate that businesses with revenues dependent on investment funds have performed quite strongly during this period.

Earnings Announcement: Earnings release on 26 August 2020 should provide for the first catalyst to remind the market of the AEF's fundamental performance. The key figures here will be superannuation FUM, superannuation members and FY20 earnings. AEF will also provide ongoing quarterly FUM announcements, with the following update due in early October. We may also see a mid-August FUM figure in the most recent announcement. Finally, AEF has historically provided updated FUM in back-dated results announcements. Evidence of this occurring can also be found in HUB's most recent announcement:

Private Market Activity: Whilst we think that a private equity buyout is unlikely for AEF, further media exposure and transaction data points should help the public value these assets. There have been some recently executed and rumoured deal activity in the space through 2020. Notably, KKR – one of the largest US-based global private equity funds – bought a 55% stake in Colonial First State valued at ~$3bn from CBA. The implied valuation was ~16x EBITDA, despite the quality of business model and LTM of members being substantially weaker than AEF. There is similar PE interest in NAB’s MLC Wealth, with US funds CC Capital and FC Flowers on second round bids for the asset. NAB's MLC Wealth business caught the attention of Carlyle, BlackRock, and KKR earlier in the year although deals were not executed. The interest from KKR in Colonial is particularly notable, given Scott Bookmyer (KKR partner) who refers to Australian superannuation as the ‘the envy of the western world’. We believe AEF may benefit indirectly from private equity interest, which will confirm both the long-term value and viability of their business model.
submitted by Bruticus91 to ASX_Bets [link] [comments]

NKLA future price action: Bonus actionable intelligence. Plus I have been right so far!

First, I have a history of decent analysis of this equity, check my post history.
  1. I was correct about the timing of the S1 Effectiveness.
  2. I was correct about the price actions of the warrants.
  3. I was correct about the price action of the options.

First we must understand the implications of the 23 MM shares released by the S1 going effective.

There were ~160 MM tradeable shares of NKLA. Adding 23 MM adds ~13% to the TRADEABLE float. These 23 MM ARE NOT the VTIQ shares/warrants -or- the foundebanks/fund shares (I think there are 160 MM of those).

So while significant, IT'S NOT THE END OF THE WORLD!

This S1 effectiveness added less than 15% to the tradeable float PLUS these public warrants were bough at an average of ~$29 (Check the SMA for the last month on NKLAW). Therefore $29+$11.50 means these 23MM shares were bought for approximately $40.

Which is why we are currently trading around ~$40.

We are not gonna fall much because
  1. Beneath $40 those 23 MM would be selling at a loss. Some will eat the loss, but why if they don't have to.
  2. Further, the owners of the remaining 160MM shares (who cannot sell yet) will do what they can to prop the share price (positive news, hype news, analyst recommendation, news leaks, new interviews, etceteras).
  3. There are no shares available to short so Margin Calls will hit short positions regularly (You can actually see this in the 1st 15 minutes of trading. Most brokers give you the 1st 15 minutes to fix your margin before they fix it for you)
  4. There are no shares available to short. Which leads to the ridiculous borrow rate.
I made another post about how the ridiculous borrow rate allows anyone with a significant number of shares to effectively remove risk by lending out those shares and using the interest payments to purchase a Jan 2021 put.
This logic remains sound because the borrow rate is still at 300% with no shares available.
The Interest NKLA bears are paying to short the stock is one of the major props that is holding the stock price up!
This stock will not fall without a good reason to (like the S1 becoming effective or the 160 MM additional shares becoming sell-able, something drastic), regular trading will not cause a fall! Normal price action will drive the price up because short holders of the stock are paying 300% daily while long holders are not paying this!

Mathematically, If you are holding NKLA short the stock has to fall $0.40 per day JUST for you to make up the interest on the borrow. AND there are no shares available to SHORT! So there are a ton of people in this terrible position!

If the stock is NOT falling it must rise. Because the shorts position will be steadily degraded by Interest!

So.... how do you profit?
If you are long NKLA... wait...... there will be spikes caused by the combination of hype news and short squeeze that will cause the stock price to spike irregularly as high as $50 followed by a sharp drawback to the low 40's until the remaining 160 MM shares become available.
If you currently have no position in NKLA, BUY OTM CALLS NOW!!! They are cheap and this stock will spike. When it spikes sell the calls because it will fall immediately thereafter.
If you are short NKLA.. close your position (hopefully for profit). If you don't, interest rate on the borrow is gonna kill you AND until the additional 160MM shares come available until then there is literally NO reason for the stock to fall.

This is just my $0.02. Please point out flaws or enhance what I have written. Also, can someone who reads Greek, read that durn S1 and find out when the next big chunk of stock is scheduled to hit the market.

tl:dr If delta neutral buy NKLA calls as long as NKLA common is under 50. If delta positive sell or hedge before PIPE shares are released. If delta negative, close out take profit.
submitted by business2690 to NikolaCorporation [link] [comments]

LOW (Lowe's Companies Inc.); A dd

Disclosure; I DID NOT WRITE THIS, but why should I, what do you think I am, smart? No, no I am not, so that is why I used the words of people who actually went to college for this shit.
157.5c 8/28
Hello again fellow retards and autists, I have another fundamentally backed DD, which seemed to work for the last time to forecast if an earnings announcement will beat estimates.
Today, the DD is for LOW (Lowe's Companies Inc.)
Background; Lowe's Companies, Inc., together with its subsidiaries, operates as a home improvement retailer in the United States, Canada, and Mexico. The company offers a line of products for construction, maintenance, repair, remodeling, and decorating.
Home improvement should benefit from a significant shift in consumer spending, in our view, to the home from travel, live events, and restaurants. We think the new normal from Covid-19 could be households investing more in their homes, whether they be the backyard, or remodeling a kitchen or bathroom, or finishing a basement. The Do-It-Yourselfsegment showed strong sales in Apr-Q, and we think the PRO segment (contractors) is picking up. Another catalyst for LOW, in our view, is the housing market, which may have more substantial sales growth in the second half of 2020.
Risks to our recommendation and target include a severe recession, a decline in home improvement projects, and reduced consumer confidence.
LOW, with new management, is still in the middle innings of transforming the company with improved sales execution, inventory controls, better supply chain, and revamped stores, in our opinion. With better operational performance, we think LOW can deliver improved sales growth in FY 21 (Jan.). We see7.0%-9.0% same-store sales growth in FY 21, as we see LOW divest unprofitable stores, especially in Canada, and invest in its operations from supply chain to store operations. Same-store or comp sales for U.S.stores were up 12.3% in Apr-Q.
LOW is moving to staff outsourcing to reduce costs while improving new merchandising and investing in its supply chain system, which will likely boost sales with the PRO segment for local contractors. We expect FY 21 operating margins to widen to 10.5%-11.0%, from 9.1%in FY 20.
We believe LOW is executing better, especially on supply chain processes and store management. New investments for lowes.comis showing positive sales traction with digital sales up 80% in Apr-Q. The company is moving its decade-old platform to Google Cloud. DuringCovid-19, we think it has enabled LOW to compete as an omnichannel retailer with a user-friendly website.
CORPORATE OVERVIEW. Lowe's Companies, Inc. (LOW) is the world's second-largest home improvement retailer. As of January 31, 2020, Lowe's operated 1,977 home improvement and hardware stores, representing 208.2 million sq. Ft. of retail selling space.
CORPORATE STRATEGY. The company has brought on a new management team that is executing a new strategy with a sharper focus on its core business, divesting non-core units such as Orchard SupplyHardware stores with a $230 million non-cash charge, and aligning its goals with shareholder value. The market opportunity is to accelerate its progress to capture a healthy and growing home improvement market in the U.S. market, in our opinion.
COMPETITIVE LANDSCAPE. LOW is second only to the market leader, Home Depot. While it is never good to be behind, LOW has upside potential to regain market share with better execution on its business plan to improve customer service, store availability of the most widely sold 1,000 items; and efficiencies in purchasing, supply chain, and store management, in our view. LOW has a home center exclusive on Craftsman products, meaning you can't get them at Home Depot or other stores.
LOW's management acknowledges that the company has a disadvantage to Home Depot, the market leader, in real estate locations in the metro areas in the Northeast and West Coast markets. Besides the physical store locations, LOW will work hard on targeting the do-it-yourself customer and its Pro segment. From our perspective, LOW's operational outlook is tied more to better execution than the competitive dynamics it faces with Home Depot in select U.S. regions.
LOW can be a better omnichannel retailer, whereby it can connect and align its systems and processes to drive an improved customer experience via online and in-store shopping. In our view, the home improvement segment has been resilient to substitution by online providers such as Amazon, as professional and consumer customers prefer to shop or pick up items in the stores. LOW states that 60% of its e-commerce purchases are picked up at local stores.
MARKET PROFILE. The company serves homeowners, renters, and professional customers (Pro customers). Individual homeowners and renters complete a wide array of projects and vary along the spectrum of do-it-yourself (DIY) and do-it-for-me (DIFM). The Pro customer consists of two broad categories: construction trades; and maintenance, repair & operations.
The U.S. market remains LOW's predominant market, accounting for 95% of consolidated sales in FY 19. From a market tracking perspective, the company's revenues are included in the Building Material and Garden Equipment and Supplies Dealers Subsector (444) of the Retail Trade Sector of the North American Industry Classification System (NAICS). This is the standard used by Federal statistical agencies in classifying business establishments to collect, analyze, and publish statistical data related to the U.S. business economy.
Many variables affect consumer demand for home improvement products and services LOW offers. Key indicators to monitor include real disposable personal income, employment, home prices, and housing turnover. We also track demographic and societal trends that shape home improvement in industry growth. We are positive on home improvement spending with home equity increasing from rising home prices for 96% of U.S. households that do not move. Affordability of purchasing a new home or resale is becoming an issue for most families that are recognizing the value of staying put in their homes. With rising home equity values, the opportunity shifts to higher spending for home improvement, where LOW is a direct beneficiary.
MANAGEMENT. The new CEO has brought senior executives for the CFO, merchandising, supply chain, and store management, and continues to look for a new chief information officer (CIO). In progress is a new strategic focus that enhances its resources, performance, and return of capital. The risk with new management, in our opinion, is distilling its strategy and operational excellence to the store manager level.
FINANCIAL TRENDS. At the end of Apr-Q, LOW has total liquidity at $9.0 billion: $6.0 billion in cash and cash equivalents and $3.0 billion in undrawn capacity on its revolving credit facilities for any unanticipated liquidity risk. During the Apr-Q, the company raised $4 billion in senior unsecured notes, suspended the share repurchase program, and paid $420 million in cash dividends by quarter-end. In Apr-Q, total days inventory outstanding improved to 94.9 days versus 103.2 days in the same period a year ago, while average days payable declined to 59.0 days in Apr-Q versus 61.5 days in the year-earlier quarter. Total debt to total capital was 93.9% in Apr-Q compared to 87.2% in the year-earlier quarter, as the company undertook actions to boost corporate liquidity during uncertain market conditions due to Covid-19.
The revenue growth came in higher than the subsector average of 11.3%. Since the same quarter one year prior, revenues rose by 10.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
Powered by its strong earnings growth of 34.35% and other important driving factors, this stock has surged by 54.40% over the past year, outperforming the rise in the S&P 500 Index during the same period. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher even though it has already enjoyed nice gains in the past year.
LOWE'S COS INC has improved earnings per share by 34.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, LOWE'S COS INCincreased its bottom line by earning $5.47 versus $2.80 in the prior year. This year, the market expects an improvement in earnings ($6.89 versus $5.47).
The same quarter one year ago, the net income growth has significantly exceeded that of the S&P 500and the Building Material, Garden Equipment, Supplies Deal subsector. The net income increased by 27.8% compared to the same quarter one year prior, rising from $1,046.00 million to $1,337.00 million.
The company's current return on equity significantly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Building Material and Garden Equipment and Supplies subsector and the overall market, LOWE'S COSINC's return on equity significantly exceeds that of both the subsector average and the S&P 500.
TL;DR Although LOW has direct competition with HD (Home Depot), there are some upsides it has (see COMPETITIVE LANDSCAPE)
157.5c 8/28
🚀🚀🚀 and smd🌈🐻
Edit 1: With IV coming up in question a lot, it should be noted that, historically, around earnings, IV has crept to a high of ~70%, while with no news expected, the IV remains at a stable ~30%; so at most, a ~40% drop in IV wouldn't qualify it as a crush.
Edit 2: (shortened TL;DR) Recently (Aug. 12) Lowe's announced that they were adding fulfillment centers, large-appliance sites for faster delivery, meaning they have money to improve supply chain efficiency, which means they must be having more cash flown into the company 7 out of 3 stars deep for calls.
Edit 3: Completely forgot to mention a lumber shortage since early July that has been increasing in demand ever since, meaning increased revenue for LOW as LOW is a direct beneficiary of increased lumber prices - (sneaky edit here) The commodity ticker LBS for Lumber has had a nice run-up of 106.83% from 6/11 til now, and it is not showing signs of exhaustion.
Edit 4: My play(s); See where IV takes us and if it gets too high (70%+), I will close all my positions, if 50-60%+, will close 2/3 of my positions. After the earnings report, which they will beat (and that's a fact), I'll see where technicals stand, historically, if the stock is above the 200 and 21 MA after earnings, it moons to new highs, see 20 May '20, 20 Nov '19, 21 Aug '19 earnings, so calls are dirt cheap at the bottom of these post-earnings reversals, and buy back 8/28 or 9/4 calls and ride this train to tendie town.
Edit 5: Post seems ded now, but if you post something, at least be right or retarded.
submitted by Zentryl to wallstreetbets [link] [comments]

Walmart+ thoughts

So everyone is wondering about the new WMT+ model, revenue, and profit potential. I did some research and want to share it with you retards in hopes we can all make some tendies. Here goes nothing.
Jeffries analyst Christopher Mandeville said - "1Q21 was downright impressive as WMT's superior omnichannel approach to catering to the consumer on their terms shone brightly, with outsize comps helping to offset ... COVID costs," he said in a May 19 research note. "Given consistent market share gains, further evidence of a sustainable productivity loop, a strong financial positioning, and future e-commerce profitability enhancements to pair with already advanced omnichannel capabilities, we continue to view WMT as a core long-term holding."
Also, I don't know if you've heard about WMTs Data Café, but it's kinda insane. They pull data from 200 sources like meteorology, Nielson, Telecom, Econ data ect, and almost 200 billions rows of customer transactional data every few weeks, 2.5 petabytes an hour. They analyze all of this to make product placemt/pricing decisions across all 8k stores. This allows on the spot shifts, instead of monthly/weekly sales reviews. So allow E-commerce WMT+ access to this data, and you've got amazon level targeted ads and products.
"Walmart plans to save $60 million/year on shopping bags alone." -random quote about WMT+
That being said, have you ever met anyone or heard any one say they were "really frustrated with Prime?" I think WMT+ could help offset e-commerce costs to the consumer but wonder if those consumers would drop their Prime membership for the $20 savings, much less carry both.
Scott Galloway, Professor at NYU Stern, had the following to say about the new strategy:
"The most accretive action taken by any $10 billion or larger business is to move from a transactional model to recurring revenue. This exploits one of the fundamental flaws of our species, the inability to register time. Time flies — it goes faster than our estimated consumption of a product during a given time period. Only 18% of gym members go to the gym consistently.
In addition, the markets are a reflection of ourselves, and humans hate uncertainty. Waking up next to a stranger is exciting in the short run but exhausting in the long (see above: recurring revenue). Walmart interacts with American families transactionally, while Amazon lives in 82% of their homes. That could begin to shift with Walmart+."
As someone who long has advocated for subscription and auto-replenishment services that allow retailers to effectively compete with Amazon's Subscribe & Save, I totally agree with this but the keyword in Galloway's analysis is "could." Saying it and doing it are different things.
So since 2016, Walmart’s online sales are up 78%. Walmart’s online sales are also now growing twice as fast as Amazon’s. Walmart is already the world’s third-largest online store.
Another benefit to the costs associated with going online is warehouse space, which walmart has a lot of. They are using their stores as warehousing space for online sales, which is brilliant. Their distribution network is already set up, they already have storage, and delivery speed can be ramped up at lower extra costs because of this. That means Walmart will soon have the biggest and most effective “shipping network” in America. By the end of the year, Walmart plans to deliver stuff from 1,600 stores. For comparison, Amazon has only 110 warehouses across the US. And they can get this done, like I said, at little to no additional cost.
8/10 americans also live within 5-10 miles of a Walmart physical store, reducing shipping costs, which are the most cost intensive part of the e-commerce space. That means they are already beating amazon on profit margins for their service.
This turns into possible billions in savings.
I also like to look at the P/E for AMZN(2963.55) and WMT(131.77) which is 143 and 25 respectively. With so much room to grow, and WMT trading at .04% of this price of AMZN, I think it's a no brainier that there is almost unlimited potential upside to this stock.
Now getting the customers to use the service will be the hardest part, potentially garnering new/existing customers and stealing some from Amazon. But I think having physical locations as well as online services gives people the day to day access they need for "right now products" and the easy of comfort of the "need it soon/laterecurring deliveries products." This is a major advantage over AMZN, because customers can choose to drive to a store, or have something shipped depending on their needs and wants.
Last thing to mention, COVID economic security is built in to this new program. No matter how long it lasts, americans will always feel more safe getting things delivered, and same day grocery is going to slay down the competition like nobody knows. Could be a potentially huge upside to this stock.
TLDR; Buy WMT hold long term. Not sure about short term, but I think profit potential could be huge. Already winning against AMZN with profit margins(it seems) I know I'll be signing up for the service, to get all my groceries delivered the same/next day.
Anyways, positions for the autists in the crowd.
WMT: 135c 7/31, 145c 8/21 160c 3/19/21
Now go get those tendies.
Edit: added some words for clarity. And a position I'm considering because of you clowns. Thx
Edit: copy pasted quote and took some extra text with it. Oops. Thanks for the call out @notholdingbackcc. Walmart returns are not up 30% on amazon.
submitted by blakeastone to wallstreetbets [link] [comments]

Western Digital, Micron, and the Immense Promise of Edge Computing

Since at least 2018, it seems like analysts have postulated how next-generation technologies and widespread cloud adoption would help reduce the cyclical volatility for companies like Micron and Western Digital. Indeed, there has been a steady rise in enterprise data center spend over the past five to seven years. Investors who have followed these names over that same period, though, will likely be more than familiar with the boom-bust nature of the memory and storage markets during that stretch. And neither stock has revisited its previous 2018 highs or come close to a sustained breakout. Between ongoing trade tensions with China, soft guidance for FY21 Q1 from Western Digital and Micron, and industry projections for several quarters of demand weakness, it seems like these two remain subject to cycle-induced share price ceilings.
Calls for Western Digital and Micron to experience shorter upgrade cycles and longer boom periods may have been early, but that does not mean they were wrong. Data center expansions by major cloud vendors and the nationwide build-out of 5G networks have been underway for years. However, increased demand for server-related products occurred against a backdrop of declining or plateauing demand in PC and mobile. And while 5G networks will play an important role in providing internet connectivity to an impending wave of IoT devices, further improvements to internet infrastructure are required to truly achieve the potential of these technologies. Luckily that internet technology is here, and it is called edge computing.
With the potential of edge networks to form the backbone of next-generation computing and the Internet-of-Things, Western Digital and Micron may finally achieve the sustained up-cycles and shorter downturns to push both stocks to new all-time highs.
What is the edge and why is it so important?
According to Gartner, edge computing is “a part of a distributed computing topology in which information processing is located close to the edge – where things and people produce or consume that information.” Whereas previously computation and data transfers were largely processed at centralized locations like internet exchange points or mass-scale public cloud data centers, edge computing utilizes servers that are placed at a geographical proximity closer to the end-user or device.
By cutting down on the physical distance that data must travel, edge platforms greatly reduce application latency (the delay before data transfer begins), increase bandwidth availability, and save money for companies providing digital services. In short, the edge enables more real-time collection and provision of data.
Unlike public cloud adoption – namely Amazon AWS, Microsoft Azure, and Google Cloud – over the past ten years, the development of edge networks will not simply lead to demand for server storage. What is different about the edge is that it will likewise enable a magnitude of associated technologies to finally become economical and operational – technologies that will require significantly greater storage.
The major value proposition of IoT is that by distributing a vast array of internet-connected machines and sensors, companies will be able to collect zettabytes of data and manage their assets more efficiently. In fact, Cisco believes that by 2025 the number of IoT devices will reach 75 billion. As a result, the size of the global datasphere is expected to increase by roughly 300% over the next five years alone.
When you think of how much data is being generated in 2020, that is a staggering figure. And the edge networks that will process and transit these data are projected to grow at an even faster rate. In 2019, the size of the entire edge market amounted to only $3.5bn. It is projected to hit nearly $45bn by 2027. There have even been recent studies that suggest the rise in the edge computing market over the next ten years could rival the growth in public cloud over the previous decade, a level that would have it surpass $100bn by 2030.
The role of flash storage in edge computing
As large as the hardware and data opportunity presented by edge computing and IoT is, how will this lead to specific demand for flash storage solutions offered by Western Digital and Micron? Flash array, or more specifically NAND solid-state drives (SSDs), offer numerous advantages both to IoT device manufacturers but also edge network providers.
Because IoT devices will collect and process huge amounts of data at the edge, these applications require faster retrieval and higher capacity flash memory solutions. For companies producing IoT devices, NAND SSD can deliver those speeds while also integrating built-in module-level security features, remote management, and more power configurations. Collectively, these features will result in better performance at a lower cost with greater reliability.
For edge network providers, edge servers require high performance for startup operations and extremely reliable storage. This is because edge applications, like a content delivery network (CDN), are very heavy on data reads. And rapid startup times are critical for edge providers to quickly launch computing instances and deliver the lowest possible latency for their customers. Beyond this, improvements in flash technology can greatly shrink the physical storage footprint, reduce power and cooling costs, all the while improving the overall speed, flexibility, and failure rates.
These factors are a large reason why edge network providers are increasingly leveraging flash storage that utilizes the NVMe protocol. NVMe (Non-Volatile Memory Express) is a method of moving stored data that differs from the previous default standard called SATA. NVMe allows CPUs to talk directly to storage drives and attain significantly faster data transfer speeds relative to SATA SSDs. These drives also integrate system startup, caching, and storing. In addition, NVMe SSDs come available in a much smaller form factor called M.2. NVMe SSDs in the M.2 form factor can be plugged directly into the motherboard, saving considerable space, and making it easier to upgrade in the future.
Both the Western Digital CL SN720 NVMe SSD and the Micron 7300 NVMe™ SSD can deliver up to six times greater performance relative to SATA SSDs. Although Western Digital and Micron currently sell SATA SSDs, NVMe technology is much better suited for edge applications and provides a strong runway for demand growth over the next five or more years. The performance per dollar (measured in requests per second) between NVMe and SATA SSDs has more or less converged after years of a noticeable price premium for NVMe, making it a more viable replacement in today’s pricing environment.
Western Digital and Micron: a side-by-side comparison
While Western Digital and Micron should both benefit from growing flash demand from edge computing customers, Micron presently offers potential investors a stronger financial position through its higher gross margins (33% versus 29% for Western Digital), lower debt levels ($6.6bn versus $9.7bn), and superior liquidity ($11.8bn versus $5.3bn). Although Micron guided up for Q4, CFO David Zinsner noted on 13 August that the company’s revenue for FY21 Q1 will likely fall short of previous guidance of $5.4 to $5.6bn.
Western Digital also provided downbeat guidance for FY21 Q1 ($3.70 to $3.90bn on revenue versus consensus of $4.36bn). Importantly, the company forecast GAAP gross margins between 21% to 23%. With the company needing to lower leverage and pay down debt associated with its SanDisk acquisition, ongoing margin pressure may leave the stock more susceptible near-term to continued memory demand weakness or a deteriorating pricing environment. When comparing the two companies’ competitive positioning in the current economic climate, it seems reasonable that Micron would trade at more than 2x the P/S and EV/Revenue multiples relative to Western Digital.
Market Cap P/S EV/Revenue Forward P/E
Micron $50.36bn 2.58 2.46 8.83
Western Digital $11.20bn 0.64 1.03 8.33
In addition to its financial position, some may point to Micron’s 3D XPoint technology as a major advantage in the flash memory market. With up to 1000x lower latency than some NAND offerings, the potential of the technology is substantial. Last year, HPE’s 3PAR storage unit predicted that storage-class memory – the class of memory that encompasses 3D XPoint – will eventually take over NAND. However, HPE also stated that due to the high cost of storage-class memory (roughly four times more expensive on a per-byte basis) it may take ten years before that occurs (for its part, Western Digital does not believe storage-class memory will fully replace NAND).
As nice as speed is, it is far from the only consideration when selecting an enterprise SSD solution. Customers look at form factor, power configurations, error handling, remote management, and other specifications to assess total cost of ownership or potential hardware upgrades required in the future. For edge network providers who avoided purchasing NVMe SSDs when they were considerably more expensive on a performance basis compared to SATA SSDs, it is hard to imagine why the calculus would change relative to storage-class memory.
If anything, edge providers have demonstrated a strong preference for cost-savings and flexibility in favoring white box versus OEM servers for example. Therefore, further performance and cost improvements for NVMe SSD are likely to strike the right balance for the foreseeable future. And while Micron and Intel were the first to establish a commercially viable storage-class memory product, Western Digital has been working on their rival product for at least a few years, and they even hold the original patents on XPoint and 3D XPoint. With the end market for storage-class memory years away from taking shape, the Micron technology advantage may never actually materialize.
With 66% of Micron’s revenue coming from DRAM and Western Digital’s other major revenue segment coming from hard drives (48% of revenues), Micron may have more favorable near-term trends. Taken with a long view, though, Western Digital offers greater upside for investors willing to ride out some current challenges. Although Micron and Western Digital have roughly the same market share in SSD (13% as of 2019), Western Digital’s greater revenue mix towards SSD gives the company better relative exposure to the edge computing end market.
In Western Digital’s Q4 earnings call, CEO Dave Goeckeler noted “…we believe flash is the greatest long-term growth opportunity for Western Digital…” And the company is already showing momentum with enterprise SSD revenue increasing nearly 70% on a sequential basis this past quarter. With the potential for NVMe SSD to result in shorter upgrade cycles, in combination with the rapid proliferation of IoT devices and enterprise data over the next five years, Western Digital will have an opportunity to pay down debt, enhance its capital structure, and expand its multiples to align more closely with those of Micron.
An overview of the DRAM and HDD end markets was beyond the scope of the above analysis. Should Micron lose significant market share in DRAM, or Western Digital in HDD, growth in NAND products could be offset.
Currently, Seagate has an immaterial market share in SSD having only recently entered the space. Should Seagate dedicate more significant resources to capturing market share, this could become another competitive pressure for Micron and Western Digital.
Micron has significant exposure to the Chinese market at over 50% of revenues. Although Western Digital derives fewer than 20% of sales from China, trade tensions or future technology bans from either the United States or China could create a major headwind for both companies.
I hold January 2022 WDC calls.
submitted by bumblebear3012 to stocks [link] [comments]

Boxlight ($BOXL): why it’s a good investment opportunity.

Boxlight Corporation (NASDAQ: BOXL) is a leading provider of technology solutions for the global learning market. The company aims to improve learning and engagement in classrooms and to help educators enhance student outcomes, by developing the products they need. The company develops, sells, and services its integrated, interactive solution suite including software, classroom technologies, professional development and support services.
The most recent analyst activity for Boxlight Corporation [NASDAQ:BOXL] stock was on March 23, 2020, when it was Downgrade with a Neutral rating from National Securities. On October 22, 2019, National Securities Initiated a Buy rating and boosted its price target on this stock to $4.
In the past 52 weeks of trading, this stock has oscillated between a low of $0.33 and a peak of $3.06. Right now, the middling Wall Street analyst 12-month amount mark is $2.00. At the most recent market close, shares of Boxlight Corporation [NASDAQ:BOXL] were valued at $1.19.
Boxlight Corporation [NASDAQ:BOXL] most recently reported quarterly sales of 5.72 billion, which represented growth of 14.00%. This publicly-traded organization’s revenue is $485,741 per employee, while its income is -$138,266 per employee. This company’s Gross Margin is currently 26.50%, its Operating Margin is -21.60%, its Pretax Margin is -28.46, and its Net Margin is -28.46. Continuing to look at profitability, this corporation’s Return on Assets, Equity, Whole Principal & invested Principal is sitting at -45.05, -256.86, -97.41 and -209.91 respectively.
Remarks By CEO Micheal Pope
“We've gone through significant transition since our 2016 merger of Mimio in the Boxlight Group and our subsequent IPO in 2017. Since that time, we have attracted a tremendous management team, assembled a global channel partner network, closed acquisitions of Cohuba, Qwizdom, EOS Education, Modern Robotics, Robo3d and MyStemKits, continue to innovate with award-winning products and services, consolidated our operations and supply chain and organized our systems and accounting under one ERP system. We are proud of our progress, and I believe we are well positioned as a company for future growth. We had a slower-than-expected fourth quarter but we are pleased with our progress during the first quarter. For Q1 2020, we reported that revenues increased by 15% to $5.7 million, and orders increased by 85% to $7.6 million over the same period in 2019. Additionally, our adjusted EBITDA loss improved by 41% to $1 million, and our adjusted EPS improved by 51% to a loss of $0.08.”
CFO Takesha Brown speaks about earnings and new clients
“During the quarter, we delivered on several key contracts, including San Diego Unified in California, Montgomery County in Maryland, Jefferson County in Colorado, Frederick County in Maryland and Penn Manor in Pennsylvania. We were also selected by Shelby County Schools in Tennessee and Nederland Independent School District in Texas for our interactive displays and by Union County Public Schools in North Carolina for our Mimio MyBot robotics and coding system. During the first quarter, we introduced new channel partners, including JB&A as a national partner, IASIS in Texas and CT International in Mexico. We continue to win opportunities with strong partners, including Trox, Howard Technology Solutions, CDW-G, Visual Techniques, DHE Computer Systems, Central Knox and Digital Age Technology, among others. In March, we entered into an agreement with D&H Distributing, a 100-year-old technology distributor with warehouses across the U.S. and Canada. We expect this distribution relationship will allow us to better meet the needs of our reseller channel. During the quarter, we announced that Dan Leis had accepted the position as Senior Vice President of Global Sales and Marketing. With more than 25 years of experience, Dan is an accomplished business leader with global experience in sales and marketing. He previously led Boxlight's Global Services Business unit, which more than doubled in size in 2019. We also appointed Ryan Legudi as Senior Vice President of STEM Solutions and Braydon Moreno as Director of STEM Solutions. Ryan and Braydon previously led Robo3d and MyStemKits and now head our global STEM strategy. Although the education industry is experiencing a transition, our company mission and vision have not changed. We are committed to become the leader of innovative and effective educational technology solutions. We aim to improve learning and engagement in classrooms and help educators enhance student outcomes and build essential skills. We understand that we must be nimble and flexible and innovative to meet the demands for today's evolving education requirements.”
COVID-19 will help the company obtain more clients and will make them more revenue.
“Today's educational environment provides additional challenges with the COVID-19 crisis and the complications of distance learning and added safety concerns for students and educators. Throughout the U.S. and many countries globally, schools have shifted to a digital learning environment for the remainder of this current school year. Although some school systems have announced they will not return to the classroom in the fall, we believe most K-12 school systems will return with modified schedules and physical safety measures. Many will also adopt a hybrid model of both in class and distance learning. The initial data from digital learning has been concerning, reporting widening achievement gaps, especially for underprepared and disadvantaged students. Additionally, many students do not have access to digital devices or reliable internet access. As parents and guardians return to work, distance learning also presents logistical complications with students remaining home. Educators need effective strategies, technology solutions, professional development and training as they navigate this new environment and determine their approach to meet safety and educational needs. Our solution suite includes software tools for both in class and distance instruction. We also offer significant professional development resources, including customized consulting, educator courses and certifications to assist education systems and their distance learning or blended learning initiatives. We recently released the collection of multimedia resources to train K-12 teachers on tools to deliver distance learning during closures. We offer a series of live webinars, self-paced online professional development courses and access to our team of digital learning specialists for personalized support. Since mid-March, we have provided virtual professional development sessions to nearly 9,000 educators, including 1,200 for webinars, 3,800 for labs and playgrounds, nearly 1,400 for one-on-one coaching sessions and nearly 2,000 for online courses. I accepted the CEO role on March 20 of this year at an unprecedented time. We began working from home as a company and that same week due to COVID-19, which was escalating, we had reported historical operating losses and struggled with a limited balance sheet and declining stock price. As an executive team, we agree that we were at a point where we had to make some immediate difficult decisions. That first week, we budgeted to reduce our annual operating expenses by $5 million, including a reduction in our annual payroll expense by over $2 million or a 30% reduction in our staff. Although a difficult decision, we believe it was necessary to put us on a more conservative path to positive cash flow and profitability.”
The likelihood of schools around the country going to in person classes or staying that way throughout the school year is very slim. The idea of keeping kids in schools I going to go away especially with the concerns of the spikes and parents who aren’t going to feel comfortable yet. School are going to want to accommodate these concerns and the government is going to end up on the same page as they were in the spring this school year. The reason why I think it’s a good time to get in, the sole reason that the price is good right now and it will gain if this is to occur. Your losses would also be minimal if it doesn’t work out.
submitted by ericlrizo to pennystocks [link] [comments]

Moats, Barriers to Entry, and Returns

Moats, Barriers to Entry, and Returns

Most stocks are losers
Unfortunately, in the long run, most stocks are losers. Capitalism and competition work and bring down excess returns. Without significant barriers to entry, winners become losers over time.Since 1926, most stocks have had negative lifetime returns, which shows that holding stocks "forever" is incredibly risky.
Holding quality compounding companies for extended periods is a great way to generate large returns over time, but holding "forever" is a romantic view.
It also means that 60% of stocks do no better than Treasury Bills, showing that picking stocks is a worthwhile skill.

Moats and barriers to entry protect companies
Warren Buffett believes investors need to find businesses with economic moats. This is something that protects the business from other competitors. A moat can be something such as Apple's ecosystem, or Coca-Cola's branding. If you had £1m to hurt Coca-Cola - you wouldn't be able to do any damage.The problem is, investors find moats everywhere. 93% of us think we're above average drivers. How can that be?
The moat also is defined by different people as different things. Intangible assets, switching costs, network effects, cost advantages, efficient scaling, are all potential moats.
Despite me mentioning Coca-Cola earlier, brands aren't moats. It's what they have, or what they do, that is the moat. Coca-Cola owns almost everything bottled. Go to a vending machine and most of it is probably owned by The Coca-Cola Company. Their sheer size and scale is what makes Coca-Cola what it is, along with them selling syrup and not actually bottling themselves.

High market share isn't a barrier to entry
Think of Kodak who went bust because they preferred to rely on their cash cow of film. One of their engineers invented the digital camera but they left it. Eventually, Kodak went bust. Just because a business owns a large part of the market, doesn't mean that someone else can't just come in and take it. Blockbuster laughed Netflix out of the office when they pitched a buy-out. Netflix is now a FAANG stock. Blockbuster is history.
Dollar Shave Club made inroads against P&G's Gillette because the market leader was caught napping.
The P&G formula was basically:
  1. Spend huge amounts on R&D to come up with superior products
  2. Dominate finite shelf space
  3. Spend more than anybody else on marketing
Dollar Shave Club were able to fight back because
  1. They had viral marketing on social media - negative the marketing spend of P&G
  2. Razors were already good enough
  3. P&G could dominate finite shelf space, but not the internet
High market share is a good position to be in, but it does not prevent disrupters coming in and taking swathes of that share for themselves.

Low cost strategies don't prevent competition
Low cost is also not a moat. How many discount supermarkets are there? How many low-cost airline carriers? Low cost can be an effective strategy, but rarely a moat. Unless you are the low cost leader, being a discounter means very little.
Ryanair has a moat because it is able to price its sale price per seat below the operating cost per seat of many of its competitors. It is the ultimate low cost carrier, and benefits from scale in negotiating with suppliers. The other low cost carriers have an advantage too, but in a price war Ryanair will be the last person standing.

Network effects alone do not a moat make
Everyone lauds Facebook for its social media dominance and network effects. But MySpace, Bebo, Friendster, all had huge network effects back in their day.
Plus, network effects can be very weak. Why use Tinder if you can use Bumble too? Why use only Uber when you can have Lyft as well?
Both Tinder and Uber have no moat.
However, network effects can create highly profitable businesses. Rightmove is one of the most profitable companies on the London Stock Exchange, and benefits from a virtuous cycle of the more viewers, the more attractive a place it is to sell, and the more properties listed the more viewers will come.
But even Rightmove may see its business model come under pressure one day.

Barriers to entry can create defendable margins
Investors can profit from companies that have a high barrier of entry but also high returns on capital.The strongest barriers come from overlapping moats, as this fortifies the business.
For example, a pharmaceutical business has very high barriers to entry, and so they are able to price their products with a high margin.

One thing is also clear: Winners' profitability is persistent
If the market was efficient, then it would price in competition. But competition is slow, and many stocks have years where they can generate superior returns. As they are in an advantageous position, they can then use that position to generate further returns for shareholders.
Profitable firms are very different from low profitability firms.
Here's why:
  1. Past profitability is a good predictor of future profitability
  2. Highly profitable companies are generally less leveraged
  3. Highly profitable companies enjoy lower credit spreads, borrowing costs, and volatility
Only high barriers to entry along with moats can account for these.

Return On Capital Employed is a good measure
Companies tend to see their Return On Invested Capital revert gradually, but losers don't become winners overnight and vice versa.
Often, dominant companies can sustain their competitive advantage and find new businesses to rebuild their advantages and consolidate their strength.
Think of Rightmove, dominant despite competition. Think of Facebook acquiring instagram and Whatsapp.
A company that is able to invest in itself and receive a high rate of return (think of ROCE as the company's interest rate) is a company that can compound itself quickly.
FeverTree is not a bottling business. It's a brand, and therefore is capital light. Companies that require large amounts of capital expenditure (either maintenance or expansionary) tend to have lower ROCEs.
It's the scalable businesses with high ROCEs that can deliver the best returns for shareholders (though that's not to say low ROCE businesses can deliver high returns).

Avoid bad industries
Bad industries have poor returns. Even skilled CEOs will struggle here. 5-a-side football is very different to 11-a-side.
Pick a good industry over good management in the wrong industry.

Why do investing anomalies persist?
There are many reasons why these anomalies exist and why the market is not always efficient. Humans are not rational, therefore it is unrealistic to expect rationality.
Prospect Theory - humans prefer longshot payoffs (lottery tickets) over less exciting and safer investments. One only needs to look at AIM and the high amount of junior mining and resources companies.
Most investors feel underfunded - they take on higher volatility to enhance returns. Unfortunately, this goes against them often. Wanting to get rich quick rarely correlates to investing or trading success.
Unfounded optimism - people often hope and overestimate the future returns of low quality firms compared to high quality firms. As humans we are mostly optimistic. It pays to be optimistic in stocks, as the indices have tracked higher over time, but this optimism needs to be realistic.

High quality beats "cheap"
Time is your friend when you buy companies with high returns on capital.
This is because they are able to compound that capital further over time by investing in themselves.
As Warren Buffett said: "It's better to buy a great company at a reasonable price than a reasonable company at a great price."

You don't need to own many great companies to make a lot of money
I often say traders and investors should diversify. Putting all of your capital into one company is hugely risky. But picking too many companies is a mistake too.
Investors who own more than 20 companies are harming themselves due to over-diversity.
I'm not saying that one shouldn't own more than 20 companies, but if you want to compound your investments then you need to:
  1. be in great companies, and
  2. not be in too many!
That said, I believe putting all your eggs in one basket is a dangerous strategy. Going all in takes on a large amount of risk and not something I would ever be comfortable with - no matter how good an opportunity it seemed.
submitted by shiftingshares to UKInvesting [link] [comments]

Why we need to think more carefully about what money is and how it works

Most of us have overlooked a fundamental problem that is currently causing an insurmountable obstacle to building a fairer and more sustainable world. We are very familiar with the thing in question, but its problematic nature has been hidden from us by a powerful illusion. We think the problem is capitalism, but capitalism is just the logical outcome of aggregate human decisions about how to manage money. The fundamental problem is money itself, or more specifically general purpose money and the international free market which allows you to sell a chunk of rainforest and use the money to buy a soft drink factory. (You can use the same sort of money to sell anything and buy anything, anywhere in the world, and until recently there was no alternative at all. Bitcoin is now an alternative, but is not quite what we are looking for.) The illusion is that because market prices are free, and nobody is forced into a transaction, those prices must be fair – that the exchange is equitable. The truth is that the way the general money globalised free market system works means that even though the prices are freely determined, there is still an unequal flow of natural resources from poor parts of the world to rich parts. This means the poor parts will always remain poor, and resources will continue to accumulate in the large, unsustainable cities in rich countries. In other words, unless we re-invent money, we cannot overturn capitalism, and that means we can't build a sustainable civilisation.
Why does this matter? What use is it realising that general purpose money is at the root of our problems when we know that the rich and powerful people who run this world will do everything in their power to prevent the existing world system being reformed? They aren't just going to agree to get rid of general purpose money and economic globalisation. It's like asking them to stop pursuing growth: they can't even imagine how to do it, and don't want to. So how does this offer us a way forwards?
Answer: because the two things in question – our monetary system and globalisation – look like being among the first casualties of collapse. Globalisation is already going into reverse (see brexit, Trump's protectionism) and our fiat money system is heading towards a debt/inflation implosion.
It looks highly likely that the scenario going forwards will be of increasing monetary and economic chaos. Fiat money systems have collapsed many times before, but never a global system of fiat currencies floating against each other. But regardless of how may fiat currencies collapse, or how high the price of gold goes in dollars, it is not clear what the system would be replaced with. Can we just go back to the gold standard? It is possible, but people will be desperately looking for other solutions, and the people in power might also be getting desperate.
So what could replace it? What is needed is a new sort of complementary money system which both
(a) addresses the immediate economic problems of people suffering from symptoms of economic and general collapse and
(b) provides a long-term framework around which a new sort of economy can emerge – an economy which is adapted to deglobalisation and degrowth.
I have been searching for answers to this question for some time, and have now found what I was looking for. It is explained in this recently published academic book, and this paper by the same professor of economic anthropology (Alf Hornborg). The answer is the creation of a new sort of money, but it is critically important exactly how this is done. Local currencies like the Bristol Pound do not challenge globalisation. What we need is a new sort of national currency. This currency would be issued as a UBI, but only usable to buy products and services originating within an adjustable radius. This would enable a new economy to emerge. It actually resists globalisation and promotes the growth of a new sort of economy where sustainability is built on local resources and local economic activity. It would also reverse the trend of population moving from poor rural areas and towns, to cities. It would revitalise the “left behind” parts of the western world, and put the brakes on the relentless flow of natural resources and “embodied cheap labour” from the poor parts of the world to the rich parts. It would set the whole system moving towards a more sustainable and fairer state.
This may sound unrealistic, but please give it a chance. I believe it offers a way forwards that can
(a) unite disparate factions trying to provoke systemic change, including eco-marxists, greens, posthumanists and anti-globalist supporters of “populist nationalism”. The only people who really stand to lose are the supporters of global big business and the 1%.
(b) offers a realistic alternative to a money system heading towards collapse, and to which currently no other realistic alternative is being proposed.
In other words, this offers a realistic way forwards not just right now but through much of the early stages of collapse. It is likely to become both politically and economically viable within the forseeable future. It does, though, require some elements of the left to abandon its globalist ideals. It will have to embrace a new sort of nationalism. And it will require various groups who are doing very well out of the current economic system to realise that it is doomed.
Here is an FAQ (from the paper).
What is a complementary currency? It is a form of money that can be used alongside regular money.
What is the fundamental goal of this proposal? The two most fundamental goals motivating this proposal are to insulate local human subsistence and livelihood from the vicissitudes of national and international economic cycles and financial speculation, and to provide tangible and attractive incentives for people to live and consume more sustainably. It also seeks to provide authorities with a means to employ social security expenditures to channel consumption in sustainable directions and encourage economic diversity and community resilience at the local level.
Why should the state administrate the reform? The nation is currently the most encompassing political entity capable of administrating an economic reform of this nature. Ideally it is also subservient to the democratic decisions of its population. The current proposal is envisaged as an option for European nations, but would seem equally advantageous for countries anywhere. If successfully implemented within a particular nation or set of nations, the system can be expected to be emulated by others. Whereas earlier experiments with alternative currencies have generally been local, bottom-up initiatives, a state-supported program offers advantages for long-term success. Rather than an informal, marginal movement connected to particular identities and transient social networks, persisting only as long as the enthusiasm of its founders, the complementary currency advocated here is formalized, efficacious, and lastingly fundamental to everyone's economy.
How is local use defined and monitored? The complementary currency (CC) can only be used to purchase goods and services that are produced within a given geographical radius of the point of purchase. This radius can be defined in terms of kilometers of transport, and it can vary between different nations and regions depending on circumstances. A fairly simple way of distinguishing local from non-local commodities would be to label them according to transport distance, much as is currently done regarding, for instance, organic production methods or "fair trade." Such transport certification would of course imply different labelling in different locales.
How is the complementary currency distributed? A practical way of organizing distribution would be to provide each citizen with a plastic card which is electronically charged each month with the sum of CC allotted to him or her.
Who are included in the category of citizens? A monthly CC is provided to all inhabitants of a nation who have received official residence permits.
What does basic income mean? Basic income is distributed without any requirements or duties to be fulfilled by the recipients. The sum of CC paid to an individual each month can be determined in relation to the currency's purchasing power and to the individual's age. The guiding principle should be that the sum provided to each adult should be sufficient to enable basic existence, and that the sum provided for each child should correspond to the additional household expenses it represents.
Why would people want to use their CC rather than regular money? As the sum of CC provided each month would correspond to purchases representing a claim on his or her regular budget, the basic income would liberate a part of each person's regular income and thus amount to substantial purchasing power, albeit restricted only to local purchases. The basic income in CC would reduce a person's dependence on wage labor and the risks currently associated with unemployment. It would encourage social cooperation and a vitalization of community.
Why would businesses want to accept payment in CC? Business entrepreneurs can be expected to respond rapidly to the radically expanded demand for local products and services, which would provide opportunities for a diverse range of local niche markets. Whether they receive all or only a part of their income in the form of CC, they can choose to use some of it to purchase tax-free local labor or other inputs, and to request to have some of it converted by the authorities to regular currency (see next point).
How is conversion of CC into regular currency organized? Entrepreneurs would be granted the right to convert some of their CC into regular currency at exchange rates set by the authorities.The exchange rate between the two currencies can be calibrated so as to compensate the authorities for loss of tax revenue and to balance the in- and outflows of CC to the state. The rate would thus amount to a tool for determining the extent to which the CC is recirculated in the local economy, or returned to the state. This is important in order to avoid inflation in the CC sector.
Would there be interest on sums of CC owned or loaned? There would be no interest accruing on a sum of CC, whether a surplus accumulating in an account or a loan extended.
How would saving and loaning of CC be organized? The formal granting of credit in CC would be managed by state authorities and follow the principle of full reserve banking, so that quantities of CC loaned would never exceed the quantities saved by the population as a whole.
Would the circulation of CC be subjected to taxation? No.
Why would authorities want to encourage tax-free local economies? Given the beneficial social and ecological consequences of this reform, it is assumed that nation states will represent the general interests of their electorates and thus promote it. Particularly in a situation with rising fiscal deficits, unemployment, health care, and social security expenditures, the proposed reform would alleviate financial pressure on governments. It would also reduce the rising costs of transport infrastructure, environmental protection, carbon offsetting, and climate change adaptation. In short, the rising costs and diminishing returns on current strategies for economic growth can be expected to encourage politicians to consider proposals such as this, as a means of avoiding escalating debt or even bankruptcy.
How would the state's expenditures in CC be financed? As suggested above, much of these expenditures would be balanced by the reduced costs for social security, health care, transport infrastructure, environmental protection, carbon offsetting, and climate change adaptation. As these savings may take time to materialize, however, states can choose to make a proportion of their social security payments (pensions, unemployment insurance, family allowance, etc.) in the form of CC. As between a third and half of some nations' annual budgets are committed to social security, this represents a significant option for financing the reform, requiring no corresponding tax levies.
What are the differences between this CC and the many experiments with local currencies? This proposal should not be confused with the notion, or with the practical operation, of local currencies, as it does not imply different currencies in different locales but one national,complementary currency for local use. Nor is it locally initiated and promoted in opposition to theregular currency, but centrally endorsed and administrated as an accepted complement to it. Most importantly, the alternative currency can only be used to purchase products and services originating from within a given geographical range, a restriction which is not implemented in experiments with Local Exchange Trading Systems (LETS). Finally, the CC is provided as a basic income to all residents of a nation, rather than only earned in proportion to the extent to which a person has made him- or herself useful in the local economy.
What would the ecological benefits be? The reform would radically reduce the demand for long-distance transport, the production of greenhouse gas emissions, consumption of energy and materials, and losses of foodstuffs through overproduction, storage, and transport. It would increase recycling of nutrients and packaging materials, which means decreasing leakage of nutrients and less garbage. It would reduce agricultural intensification, increase biodiversity, and decrease ecological degradation and vulnerability.
What would the societal benefits be? The reform would increase local cooperation, decrease social marginalization and addiction problems, provide more physical exercise, improve psycho-social and physical health, and increase food security and general community resilience. It would decrease the number of traffic accidents, provide fresher and healthier food with less preservatives, and improved contact between producers and consumers.
What would the long-term consequences be for the economy? The reform would no doubt generate radical transformations of the economy, as is precisely the intention. There would be a significant shift of dominance from transnational corporations founded on financial speculation and trade in industrially produced foodstuffs, fuels, and other internationally transported goods to locally diverse producers and services geared to sustainable livelihoods. This would be a democratic consequence of consumer power, rather than of legislation. Through a relatively simple transformation of the conditions for market rationality, governments can encourage new and more sustainable patterns of consumer behavior. In contrast to much of the drastic and often traumatic economic change of the past two centuries, these changes would be democratic and sustainable and would improve local and national resilience.
Why should society want to encourage people to refrain from formal employment? It is increasingly recognized that full or high employment cannot be a goal in itself, particularly if it implies escalating environmental degradation and energy and material throughput. Well-founded calls are thus currently made for degrowth, i.e. a reduction in the rate of production of goods and services that are conventionally quantified by economists as constitutive of GDP. Whether formal unemployment is the result of financial decline, technological development, or intentional policy for sustainability, no modern nation can be expected to leave its citizens economically unsupported. To subsist on basic income is undoubtedly more edifying than receiving unemployment insurance; the CC system encourages useful community cooperation and creative activities rather than destructive behavior that may damage a person's health.
Why should people receive an income without working? As observed above, modern nations will provide for their citizens whether they are formally employed or not. The incentive to find employment should ideally not be propelled only by economic imperatives, but more by the desire to maintain a given identity and to contribute creatively to society. Personal liberty would be enhanced by a reform which makes it possible for people to choose to spend (some of) their time on creative activities that are not remunerated on the formal market, and to accept the tradeoff implied by a somewhat lower economic standard. People can also be expected to devote a greater proportion of their time to community cooperation, earning additional CC, which means that they will contribute more to society – and experience less marginalization – than the currently unemployed.
Would savings in CC be inheritable? No.
How would transport distances of products and services be controlled? It is reasonable to expect the authorities to establish a special agency for monitoring and controlling transport distances. It seems unlikely that entrepreneurs would attempt to cheat the system by presenting distantly produced goods as locally produced, as we can expect income in regular currency generally to be preferable to income in CC. Such attempts would also entail transport costs which should make the cargo less competitive in relation to genuinely local produce, suggesting that the logic of local market mechanisms would by and large obviate the problem.
How would differences in local conditions (such as climate, soils, and urbanism) be dealt with?It is unavoidable that there would be significant variation between different locales in terms of the conditions for producing different kinds of goods. This means that relative local prices in CC for agiven product can be expected to vary from place to place. This may in turn mean that consumption patterns will vary somewhat between locales, which is predictable and not necessarily a problem. Generally speaking, a localization of resource flows can be expected to result in a more diverse pattern of calibration to local resource endowments, as in premodern contexts. The proposed system allows for considerable flexibility in terms of the geographical definition of what is categorized as local, depending on such conditions. In a fertile agricultural region, the radius for local produce may be defined, for instance, as 20 km, whereas in a less fertile or urban area, it may be 50 km. People living in urban centers are faced with a particular challenge. The reform would encourage an increased production of foodstuffs within and in the vicinity of urban areas, which in the long run may also affect urban planning. People might also choose to move to the countryside, where the range of subsistence goods that can be purchased with CC will tend to be greater. In the long run, the reform can be expected to encourage a better fit between the distribution of resources (such as agricultural land) and demography. This is fully in line with the intention of reducing long-distance transports of necessities.
What would the consequences be if people converted resources from one currency sphere into products or services sold in another? It seems unfeasible to monitor and regulate the use of distant imports (such as machinery and fuels) in producing produce for local markets, but as production for local markets is remunerated in CC, this should constitute a disincentive to invest regular money in such production processes. Production for local consumption can thus be expected to rely mostly – and increasingly – on local labor and other resource inputs.

submitted by anthropoz to sustainability [link] [comments]

Desktop Access & Options Trading -- Two features that would take WS Trade to the stratosphere

WS Trade Team,
Making WS Trade accessible thru the web and integrating options trading would increase the user numbers substantially. I personally can't think of two more crucial features that would drive more users to the platform.
Obviously USD Accounts, fractional shares, DRIPs, and margin accounts would be awesome, but these are really more-so bonus features that would enhance the user experience, but wouldn't "change the game" so to speak.
As a customer, fan and daily user of your platform, options and desktop access are at the tippy-top of my feature wish list!
Just my 2 cents.
submitted by brettharvee to Wealthsimple_Trade [link] [comments]

Tips for options traders ("day-traders") PART C

For those who have not had a chance to read/see previous post(s) (let's call them PART A & B), here are the links to them:
PART A: https://www.reddit.com/options/comments/gqemtc/tips_for_options_traders_daytraders/
PART B: https://www.reddit.com/options/comments/gqi2h2/tips_for_options_traders_daytraders_part_b/
PART D: https://www.reddit.com/options/comments/hdftii/posting_to_answer_some_commonrepeated_questions/

- Climb your mountain at your own pace: All advice/information presented to you anywhere should only be used as such. It doesn't mean it's right or wrong because it works for some but not for others. When two mountain climbers decide to take on the biggest challenge they have yet to face, climbing the tallest mountain for instance, they each understand their risk and understand their own physical strength/endurance and (hopefully) weakness.
If you go too fast, you may run out of steam. If you go too slow, others may look at you in a weird way and/or perhaps even laugh at you. If you make a mistake because you let pressure build up on you by others, you may trip and fall to the ultimate demise of death (game-over).
Don't let that bother you one bit. Especially not in trading. Someone who can consistently take in profit from trading TSLA daily doesn't mean you need to give TSLA a go. That's why you should have your own selective stocks on your watchlist that you learn from and watch daily. There is no finish goal in this game. It is a slow and steady process that will teach you and give you the ultimate confidence to take the next step forward when the right time comes. You ultimately will "understand" and "know", when to take 2 steps, then 3 steps forward, and then perhaps even scale back again a little just to preerve what you've got. If you try to follow others, you will fail in this game.

- Hold yourself accountable (for your own actions): When you decide to enter your trading journey at some point in your life, you need to keep in mind that you have to hold yourself accountable. Every other profession/career out there usually comes with being yelled at by your colleague(s) at some point. You'll be scolded for doing the wrong thing (almost daily!). This is a positive thing.
In trading, however, there is no one out there to do that to you. You get to press BUY and SELL at your own leisure, and if you do the wrong thing by breaking your own trading rules, you don't get slapped in the face after having lost money from your trade(s).
Take screenshots after each trade. Journal them if you like. This not only allows you to quickly re-evalute, re-manifest and re-inforce your subconscious while everything's still fresh, but it allows you to share and discuss your trades with others. Doing this will make sure to not let this happen again.
There is a reason why I trade the way I trade. Being in a trade for ultimately 80 seconds or 3 minutes, will potentially reduce errors that /can/ happen outside of your control zone. Take your trading platform for instance. If it decides to take a crap on you after you have already entered a larger position, you are SOL. Does that mean it was your fault? Of course it was. When you point a finger at the trading platform, 3 fingers point back at you! It should "teach" you to trade small, trade often and understand money/risk management at all times.

- "Discipline" translates over to personal life/finance (for cash flow): I believe that once someone sets their mind to do something, they usually will get results. Someone who has been smoking for years, won't ever stop unless they truly put on their mind that smoking has no health benefits, let alone only wastes money. Why do you always hear that traders love to hit the gyms and exercise (more) in general? They have acquired the skill of discipline because to them, whichever activity they may embark on, they understand what has priority. It is a learned skill.
When I say it can translate to your personal finances, I would like to give you this one example: Instead of going out to pay a $4,000 down payment on a used car, what if you took that $4,000 and made $150 in a week from it (remember climb mountain at your own pace rule)? The average used car payment in the United States is anywhere from $300-350 last I checked. Wouldn't that allow you to have a "free" car, "free" insurance and "free" gasoline expense on top of all that? It still required the same capital, but you're doing it "properly" and utilizing trading to your advantage.
Disconnect your personal lifestyle from your trading lifestyle should always be practiced.
Do you have a job? Good. You need to keep cashflow at all times.
Transfer money out of the trading account to pay for lifestyle expenses? Good, that's what it's there for.
Have you just lost $400 from a trade, but it doesn't change your actual personal lifestyle in the slighest? Good!
Trade with money that you can afford to lose but that won't affect your typical day-to-day life.
- Cash account = no PDT: My style of trading prefers to trade in a cash account. I have anywhere from $2k - $4k in my account that I trade with typically daily. Why do I prefer to trade with a small account? Because it helps my emotions/psychology and proper mindset. I am not saying that having 25k+ in a margin account is wrong. I just know for myself that I prefer to trade this way. It has allowed and helped me to be become more consistent. I don't focus on the money part when I trade. I focus to trade properly with my personal rules on my mind at all times. It allows me to gain more confidence with each and every trade I take. It's nice to see a 20%, 30% or 60% gain in a week and you can carry that "happiness" over to your next week's trading. Having more money does not mean you'll make more. Period. You can, but that is not a guarantee, as your next 10th trade from this one, could be your big losing trade because you let greed get in the way and traded way too large on your position.
If you are not consistent yet in your trading, give it a try. Scale down on your account size, see what it does to your emotions/psychology and your trading performance in general. It might just be what you needed to finally start become more profitable.

With that said, I'd like to leave you with my trades from this week after I've made my two posts last weekend.
Hopefully you can get an idea of what I am trying to tell you that you should stick to a small trading account, and to trade only with what you're familiar with (basically my "basic guidelines" on how to trade properly already outlined through my 3 posts).

Keep in mind, confidence can be a great way to enhance your trading!
Conviction and luck usually follows a great mindset to top that all off.
Wish you all a great mindset and good luck on your trading journey.

Friday (yesterday)
Thursday (this week)
Wednesday (this week)
Tuesday (this week)
Monday (no trading) - Memorial Day

I traded 8 times this week. All trades combined lasted a total of 1,863 seconds which is basically 233 seconds for each trade on average. That's 3-4 minutes holding time (remember, less time held = less market exposure = less risk). Made $1,000 from my $2k cash account. 50% weekly growth in 4 trading days due to holiday on Monday with markets closed.
Most "capital" in any given trade was $1,510.
Least "capital" on any given trade was $151.

Would you be happy with an extra $1,000 for "working" for 31 minutes?

**2nd edit: adding this just in case people ask about it.
***3rd edit (06/05/2020): https://imgur.com/a/C6vUZa0

submitted by fearloss to options [link] [comments]

Leverage An easy way to make big trades Relief By Sebi  New Margin Rules By Sebi  Share market News latest news  In hindi 2020 How To Margin Trade Cryptocurrency on Liquid Can Using Portfolio Margin Enhance Your Returns? - Show #054

Smart Use of Margin Enhances Returns. When most investors hear the word margin, thoughts of wild speculation, terrible market crashes and people jumping out of windows fill their heads. Even the long time market patriarch Sir John Templeton has said that investors should never buy stocks on margin. Margin Trading: In the stock market, margin trading refers to the process whereby individual investors buy more stocks than they can afford to. Margin trading also refers to intraday trading in India and various stock brokers provide this service. Margin trading involves buying and selling of securities in one single session. Over time, ... So is margin trading good or bad. Well, margin trading is an incredible opportunity offered by brokers to trade large amounts of an asset in the financial markets with a small initial investment. Of course, this isn’t without any risks, but if managed well, you can amplify your profits while trading currencies. Margin and Day Trading . Buying on margin, on the other hand, is a tool that facilitates trading even for those who don’t have the requisite amount of cash on hand.Buying on margin enhances a ... Advantages . The advantage of trading on margin is that you can make a high percentage of gains compared to your account balance. For instance, let's assume that you have a $1000 account balance and you are not trading on margin. You initiate a $1000 trade that nets you 100 pips.In a $1000 trade, each pip is worth 10 cents.

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Leverage An easy way to make big trades

Liquid is a unified, globally-sourced trading platform that bridges the worlds of fiat and crypto. Liquid puts the power in your hands. Grow and manage your portfolio from a single dashboard. Yes, portfolio margin isn’t for everyone (you’ve got to have at least $125k in equity to qualify and three years of experience trading options), but the ability to upgrade your margin account ... Learn what is margin and leverage and how they can enhance your trading experience. Aimed at making the market safer for investors, markets regulator Securities and Exchange Board of India (Sebi) postponed the implementation of the enhanced margin requirements for trading in the ...