Fisher Investments on Telecom E-Book

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Fisher Investments Press
• Sprache: Englisch

Seitenzahl: 186

Veröffentlichungsjahr: 2011

Beschreibung

The Fisher Investments On series is designed to provide individual investors, students, and aspiring investment professionals the tools necessary to understand and analyze investment opportunities--primarily for investing in global stocks. Each guide is an easily accessible primer to economic sectors, regions, or other components of the global stock market. While this guide is specifically on Telecom, the basic investment methodology is applicable for analyzing any global sector, regardless of the current macroeconomic environment. Following a top-down approach to investing, Fisher Investments on Telecom can help you make more informed decisions within the Telecom sector. It skillfully addresses how to determine optimal times to invest in Telecom stocks and which Telecom industries have the potential to perform well in various environments. Divided into three comprehensive parts--Getting Started, Telecom Details, and Thinking Like a Portfolio Manager--Fisher Investments on Telecom: * Explains some of the sector's key macro drivers--like interest rates, regulation, and risk aversion * Shows how to capitalize on a wide array of macro conditions and industry-specific features to help you form an opinion on each of the industries within the sector * Takes you through the major components of the industries within the global Telecom sector and reveals how they operate * Offers investment strategies to help you determine when and how to overweight specific industries within the sector * Outlines a five-step process to help differentiate firms in this field--designed to help you identify ones with the greatest probability of outperforming Filled with in-depth insights, Fisher Investments on Telecom provides a framework for understanding this sector and its industries to help you make better investment decisions--now and in the future. With this book as your guide, you can gain a global perspective of the Telecom sector and discover strategies to help achieve your investing goals.

Leseprobe

Contents

Foreword

Preface

Acknowledgments

Part I: Getting Started in Telecom

Chapter 1: Telecom Basics

Telecom 101

A Defensive Sector

Inelastic Demand

A Capital Intensive Sector

Regulation

Chapter 2: A Brief History of the Telecom Industry

The Early Years

Recent History

Chapter 3: Telecom Sector Composition

Global Industry Classification Standard (GICS)

Global Telecom Benchmarks

Industry Breakdown

Same, Same, but Different

Part II: Next Steps: Telecom Details

Chapter 4: Telecom Sector Drivers

Economic Drivers

Political Drivers

Sentiment Drivers

Chapter 5: Consumer Demand

Emerging Markets

Developed Markets

Chapter 6: Challenges and Opportunities

Wireline

Wireless

Advertising & Publishing

Part III: Thinking Like a Portfolio Manager

Chapter 7: The Top-Down Method

Investing Is a Science

Einstein’s Brain and the Stock Market

The Top-Down Method

Top-Down Deconstructed

Managing Against a Telecommunications Benchmark

Chapter 8: Security Analysis

Make Your Selection

A Five-Step Process

Telecom Analysis

Chapter 9: Telecom Investing Strategies

Strategy 1: Adding Value at the Sector Level

Strategy 2: Adding Value at the Country or Industry Level

Strategy 3: Adding Value at the Security Level

Appendix: Additional Resources

Notes

Glossary

About the Authors

Index

FISHER INVESTMENTS PRESS

Fisher Investments Press brings the research, analysis, and market intelligence of Fisher Investments’ research team, headed by CEO and New York Times best-selling author Ken Fisher, to all investors. The Press covers a range of investing and market-related topics for a wide audience—from novices to enthusiasts to professionals.

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Copyright © 2011 by Fisher Investments Press. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Sinton, Dan.

Fisher investments on telecom / with Dan Sinton and Andrew S. Teufel.

p. cm. — (Fisher investments press; 20)

Includes index.

ISBN 978-0-470-52707-8 (hardback); ISBN 978-1-1180-6409-2 (ebk); ISBN 978-1-1180-6410-8 (ebk); ISBN 978-1-1180-6411-5 (ebk)

1. Investments, Foreign. 2. International finance. 3. Investment analysis. 4. Telecommunication—Economic aspects. I. Teufel, Andrew S. II. Title.

HG4538.S4935 2011

332.67’22—dc22

2010052435

Foreword

I’m pleased to introduce the tenth in a series of investing guides from Fisher Investments Press. This imprint—the first ever from a money manager—was launched in partnership with John Wiley & Sons to bring the accumulated investing wisdom of my firm to you, whether you’re an investing enthusiast, student, or aspiring professional.

This isn’t meant as a technical guide on the nuts and bolts of telephony. Rather, it’s an investing guide. Like the other books in the Fisher Investments On series, it aims to help you make better, forward-looking forecasts on the sector, its industries, and its individual stocks. Each book in the series can stand alone—read one or just a few on topics that interest you. But together, they can be a comprehensive, do-it-yourself training program for capital markets analysis—done from the comfort of your couch. The series will eventually cover all the standard investing sectors (Energy, Materials, Consumer Staples, Health Care, Utilities, etc.—just Financials remains after this) as well as other investing regions and categories.

Telecom (official name: Telecommunication Services Sector) is currently about 5 percent of total world stocks (as measured by the MSCI All Country index). It’s a small sector—globally, only Utilities is smaller. In the US, it’s just 3 percent of the S&P 500—smaller than Utilities (as of 12/31/2010). But in capital markets, “small” never means “unimportant.” Telecom firms don’t manufacture the super cool, itty bitty but powerful computers we now call smartphones. Rather, they provide the service—fixed line, wireless, even some cable and satellite. Try making a phone call without that.

Besides the vital services Telecom firms sell, the sector can play an important role in a larger portfolio strategy. These firms are heavily regulated—because they provide a vital service. Demand for them doesn’t stretch much in good times or snap back much in downturns. They are also very capital intensive—laying new fixed line and launching new wireless networks are very expensive. These features (and others described in the book) help make it a relatively less volatile sector and therefore classically defensive—it tends to do best in a bear market.

But not always! If you accurately forecast a bear market (never easy and difficult to repeat), you may not always want to overweight Telecom. There are traits to learn that sometimes make it fail. And always remember stocks look forward, not back, so it’s seemingly perverse but perfectly normal for Telecom stocks to start outperforming just when sentiment seems particularly rosy and few foresee a bear market. This book describes what can help drive Telecom over- and underperformance in a variety of market environments—critical to building a well-diversified portfolio.

Regional analysis matters too. In developed nations, Telecom isn’t (typically) seen as a growth industry. But in some Emerging Markets, penetration rates are still low and rising. Knowing if local regulation and trends favor fixed line versus wireless or some combination is key. Plus, unlike many other sectors, most Telecom firms typically don’t sell services across country lines—though increasingly, progressive deregulation is starting to move the needle for international firms. Local regulation and politics can matter—a lot. The book shows you what to look for and gives you resources for staying on top of ever-changing global regulations.

What this book and others in the series won’t do is give you hot stock tips or a set “formula” for finding them. In my third of a century-plus investing money for private clients and big institutions, I’ve never run across such a thing. Someone telling you otherwise is telling you more of what they don’t know than what they do. Rather, this book provides a workable, repeatable framework for increasing the likelihood of finding profitable opportunities in the Telecom sector. And the good news is the investing methodology presented here works for all investing sectors and the broader market. This methodology should serve you not only this year or next, but the whole of your investing career. So good luck and enjoy the journey.

Ken Fisher

CEO of Fisher Investments

Forbes “Portfolio Strategy” Columnist

Four-time New York Times best-selling author

Preface

The Fisher Investments On series is designed to provide individual investors, students, and aspiring investment professionals the tools necessary to understand and analyze investment opportunities, primarily for investing in global stocks.

Within the framework of a “top-down” investment method (more on that in Chapter 7), each guide is an easily accessible primer to economic sectors, regions, or other components of the global stock market. While this guide is specifically on Telecom, the basic investment methodology is applicable for analyzing any global sector, regardless of the current macroeconomic environment.

Why a top-down method? Vast evidence shows high-level, or “macro,” investment decisions are ultimately more important portfolio performance drivers than individual stocks. In other words, before picking stocks, investors can benefit greatly by first deciding if stocks are the best investment relative to other assets (like bonds or cash), and then choosing categories of stocks most likely to perform best on a forward-looking basis.

For example, a Telecom sector stock picker in the late 1990s probably saw his picks soar as investors cheered the so-called New Economy. However, from 2000 to 2002, he probably lost his shirt. Was he just smarter in the late 1990s than he was in 2000? Unlikely. What mattered most was stocks in general, and especially Technology and Telecom stocks, did great in the late 1990s and poorly entering the new century. In other words, a top-down perspective on the broader economy was key to navigating markets—stock picking just wasn’t as important.

Fisher Investments on Telecom will guide you in making top-down investment decisions specifically for the Telecom sector. It shows how to determine better times to invest in Telecom, what Telecom industries are likelier to do best, and how individual stocks can benefit in various environments. The global Telecom sector is complex, covering different industries and countries with unique characteristics. Using our framework, you can be better equipped to identify their differences, spot opportunities, and avoid major pitfalls.

This book takes a global approach to Telecom investing. Most US investors typically invest the majority of their assets in domestic securities; they forget America is less than half of the world stock market by weight—over 50 percent of investment opportunities are outside our borders, and even more when you include emerging markets. While a relatively large proportion of the world’s Telecom weight is based in the US, there remain many investment opportunities overseas. Given the vast market landscape and diverse geographic operations, it’s vital to have a global perspective when investing in Telecom today.

USING YOUR TELECOM GUIDE

This guide is designed in three parts. Part I, “Getting Started in Telecom,” discusses vital sector characteristics and the history of the sector since Alexander Graham Bell invented the first practical telephone.

Part II, “Next Steps: Telecom Details,” provides an overview of the sector’s two industries and walks through the next step of sector analysis. We discuss the most important economic, political, and sentiment factors that drive Telecom’s relative performance. We also explore some of the most influential consumer trends driving demand for Telecom services and products and the resulting challenges and opportunities.

Part III, “Thinking Like a Portfolio Manager,” delves into a top-down investment methodology and individual security analysis. You’ll learn to ask important questions like: What are the most important elements to consider when analyzing wireline and wireless service providers? What are the greatest risks and red flags? This book gives you a five-step process to help differentiate firms so you can identify ones with a greater probability of outperforming. We also discuss a few investment strategies to help determine when and how to overweight specific industries within the sector.

Fisher Investments on Telecom won’t give you a silver bullet for picking the right Telecom stocks. The fact is the “right” Telecom stocks will be different in different times and situations. Instead, this guide provides a framework for understanding the sector and its industries so that you can be dynamic and find information the market hasn’t yet priced in. There won’t be any stock recommendations, target prices, or even a suggestion of whether now is a good time to be invested in the Telecom sector. The goal is to provide you with tools to make these decisions for yourself—now and in the future. Ultimately, our aim is to give you the framework for repeated, successful investing. Enjoy.

Acknowledgments

This book is a collaboration of many people that deserve thanks and praise. We would like to thank Ken Fisher for providing the opportunity to write this book and Jeff Silk for his encouragement—without them, the concept and execution of the book would be impossible. Our colleagues at Fisher Investments also deserve thanks for continually sharing their wealth of knowledge, insights, and analysis. Special thanks to Jessica Wolfe, Matt Schrader, Brian Kepp, Mike Hanson, Saied Ezzeddine, Evelyn Chea, and Leila Amiri.

We owe innumerable thanks to Lara Hoffmans for her assistance and considerable editing contributions. Her encouragement and wit guided the book from inception to print.

Marc Haberman, Molly Lienesch, and Fabrizio Ornani were also instrumental in the creation of Fisher Investments Press, which created the infrastructure behind this book. Of course this book would also not be possible without our data vendors, so we owe a big “thank you” to Thomson Reuters, Global Financial Data, and Standard & Poor’s. We’d also like to thank our team at John Wiley & Sons, for their support and guidance throughout this project, especially Laura Walsh and Kelly O’Connor.

Dan Sinton would also like to express gratitude to Sabrina “Pookie” Soulis for her unwavering encouragement through the book-writing process.

PART I

GETTING STARTED IN TELECOM

Chapter 1

TELECOM BASICS

How we communicate today is largely a direct result of the transformation of the Telecommunication Services (i.e., “Telecom”) industry. Drums, smoke signals, semaphores, and carrier pigeons are out. Mobile phones, e-mails, and tweets are in. Today, even remote campsites have wireless Internet connections. In developing countries, many people without electricity and running water in their homes still have cell phones! This dramatic increase in access to information has changed the way we live, to say the least. Thanks to modern telecommunications, we now know what is going on globally in real time. So much information can be overwhelming, however, especially when it comes to investing in the stock market. What is noise and what is actually important?

The purpose of this guide is to create a structure and process for investing in the Telecom sector. Also, note this is an investment guide to Telecom, not a technical guide. We’re not going to scrutinize the differences between CDMA2000 and CDMA2000 1xEV-DO. Instead, you will learn what questions to ask and the critical thinking required to understand what makes Telecom likely to perform better or worse than the overall market in the period ahead—over the next 12, 18, or 24 months at the outset. By learning the process for forming a forward-looking opinion, you’ll also learn to pick what types of Telecom stocks are likely to be best for the prevailing economic conditions, political environment, and market sentiment.

A Little Bird Told Me

People have always sought timely and superior telecommunications to prosper. In 1815, the British surprised the world by defeating Napoleon’s army at Waterloo. The news spread slowly from the battlefield, but in London, Nathan Rothschild learned the outcome before anyone else. How? By employing cutting-edge telecommunication—carrier pigeons. When he received the news, Mr. Rothschild bought British government debt securities (which subsequently shot up when the public learned the result of the battle) and added to his family’s legendary fortunes.

TELECOM 101

These days, the term telecommunication often refers to an electronic transmission of signals via telephony, radio, television, etc., but for our purposes, it primarily applies to telephony companies (more on why in the Sector Composition chapter). Telecom firms traditionally sold just landline phone services, but have now expanded their offerings to wireless phones, Internet access, and even television. Providing such services requires tremendous capital investments—just think of the incredible web of phone lines and cell phone towers connecting the whole world. Because of the high costs involved, Telecom firms have historically been either government owned or monopolies and are therefore heavily regulated. However, with time comes change—the speedy pace of innovation and new technologies has driven progressive deregulation in the Telecom sector. Ma Bell (a term referring to the Bell System organization, formerly led by the American Bell Telephone Company and AT&T) is no longer the only player in town, and many firms now compete to provide customers a variety of services.

Thank the French

For millennia, humans have communicated over distances, but it wasn’t until the 1930s that the French coined the word télécommunication, from télé- “at a distance” + communication, obviously, “communication.” Although the French typically refuse to tarnish their language with foreign words, the world demonstrated greater tolerance and added the word to its lexicon.

Despite such change and greater diversity in the types of Telecom companies, they all share general characteristics. Typically, firms in the Telecom sector:

Have defensive characteristicsProvide services with relatively inelastic demandAre capital intensiveAre heavily regulated

A DEFENSIVE SECTOR

When the broader market rallies, the Telecom sector has traditionally underperformed, but when the broader market falls, Telecom often remains relatively resilient—this is the sector’s defining characteristic. And as a typically defensive sector, Telecom:

Typically performs better than the market during bear marketsHas lower volatility relative to the marketUsually pays a dividend

Best in a Bear

One could say that in any given year, the stock market can do only one of four things: It can go up a lot, up a little, down a little, or down a lot—a bear market. During a bear market, most sectors, if not all, will fall—even those generally considered defensive (such as Telecom, Health Care, Consumer Staples, and Utilities, for example). Though a defensive sector, like Telecom, may be down on an absolute basis, it’s also more likely to outperform the market on a relative basis. As an example, the broad market might fall 30 percent in a bear market, but a defensive sector might be down 10 percent—which is a positive 20 percent relative spread.

Table 1.1 shows annualized returns for the S&P 500 and the S&P 500 Telecom Sector during the last nine bear markets. (Though we generally encourage you to think globally, we are using US stock data here because we have more historical sector-specific data. Also, because the US stock market is large and well diversified, it can at times serve as a useful proxy for global stocks.) Telecom has underperformed the broad market only twice during a bear market—in 1962 and the 2000–2002 bear market. Most times, Telecom outperformed during a bear.

Table 1.1 S&P 500 Telecom Versus S&P 500 Composite in Bear Markets

Source: Global Financial Data, Inc., S&P 500 Index Total Returns, S&P 500 Telecom Index Total Returns. Closest month-end price from 12/26/56 to 8/30/89; daily data from 9/11/89 to 3/9/09.

However, Telecom’s limited sensitivity to a booming economy means Telecom has underperformed in six out of the eight last bull markets (shown in Table 1.2). Again, note that in a bull market, Telecom can rise too, but probably not as much as the broad market. Here, we are focusing on the performance relative to the broad market. And there have been notable periods when Telecom has significantly outperformed, even during a bull market. Understanding the Telecom sector can help investors identify those periods and determine how to optimally position their portfolios.

Table 1.2 S&P 500 Telecom Versus S&P 500 Composite in Bull Markets

Source: Global Financial Data, Inc., S&P 500 Index Total Returns, S&P 500 Telecom Index Total Returns. Closest month-end price from 12/26/56 to 8/30/89; daily data from 9/11/89 to 3/9/09.

Bear Market Telecom Bets

Telecom has fairly consistently outperformed during bear markets and underperformed during bull markets. Consider this: Absent taxes and trading costs, if you’d invested $1 million in the S&P 500 Composite in 1962, you’d have earned approximately $72 million by the end of 2009.1 However, if you’d played defense by putting your entire portfolio in the Telecom sector during every bear market, you’d have approximately $122 million. That’s a whopping $50 million more!2

Sounds great! Except such a move is likely foolhardy for most investors. It’s extraordinarily difficult to call the top and the bottom of a bear market precisely and even more difficult to do so with any degree of consistency. Plus, putting your entire portfolio in one sector is a massive bet that, should you be wrong, could seriously harm your relative performance for years to come. (For more information on forecasting bear markets, see Ken Fisher’s The Only Three Questions That Count.)

Because bull markets tend to be longer and stronger than bear markets, the Telecom sector has often lagged the market for considerable periods of time. But its value as a defensive sector is reason enough to not ignore Telecom.

Low Volatility

Another characteristic contributing to Telecom’s defensive nature is the sector’s historically lower volatility relative to the market.

Why is understanding volatility so important? When investing, it is paramount to understand not only potential returns or rewards, but risks too. If we take more risk, we expect to earn a higher rate of return. But how best to assess risk? Although the best method for computing risk is fiercely debated, the most common method and the one we will use is an investment’s historical volatility, or beta