How Would You Keep Jobs in the U.S.?
Don't Judge an Investor by Their System
A Semi-conductive Stock Pick
My theme today is conflict, and at the end of my first rant I have
a question to ask you. And I'd actually like to hear your response.
I'll even publish your answers next week.
I know it's risky to address hot-button political issues in a
Cabot Wealth Advisory
, but I feel compelled to write a quick word about China "stealing"
American jobs. This is one of my favorite themes, and I've written
about it before.
The run-up to this year's presidential elections has featured
innumerable debates, and the U.S. economy's failure to provide
adequate jobs for Americans is a consistent flash point.
Everyone enjoys bemoaning this failure, and everyone seems to know
exactly who to blame. Some candidates even have proposals for what
to do about it.
But they don't seem to make much sense.
Maybe it doesn't make sense to expect consistency from political
debates. American political discourse has become so polarized that
any debate about political principles, political practices and
political realities almost automatically turns into a name-calling,
crap-flinging shouting match.
That's exactly how many people like their politics. But not me.
Mostly I survive campaign seasons by resolutely ignoring what's
going on. I listen to books on CDs during my commute and get my
news online and from newspapers, where I don't have to hear the
spin, hype and fake outrage of the participants.
Yes, I keep up on the issues. But I'm not much interested in
listening to the newsmakers or commentators themselves. After all,
it's not like there are any difficult voting decisions to be made.
My voting choices have been scrubbed clean of any subtlety,
creativity or compromise. In a polarized process, it's not hard to
tell which pole you gravitate toward.
As someone who used to teach argumentation and debate in colleges,
the only real pleasure I usually get from the political climate we
have now is sneering at the logical contradictions that seem to be
baked into many political themes.
So, returning to the idea that American jobs have been somehow
hijacked (Shanghaied?) by China, what do we find? This charge has
become so common in American political discourse that it doesn't
even raise any eyebrows.
But just because we're used to it doesn't mean it's correct.
If you take it seriously, talking about China's "stealing" jobs
sounds like a nefarious and underhanded enterprise. The picture I
get is of Chinese factory managers sneaking into the U.S. and
bribing CEOs to compromise their principles and ship jobs to China.
Maybe hypnosis is involved ... or drugs?
My sense of how things actually work is that the CEOs of
international companies, including those headquartered in the U.S.,
are always looking for ways to make a buck (which stock investors
call "creating shareholder value"). So they seek out the most
cost-effective ways to get products to market. And if that involves
sourcing stuff from Chinese factories, that's what they do. If you
ask them about it, they will tell you that not doing so would be a
breach of their contract with the people who own stock in their
Yes, the result is that an American worker loses a job. But the
CEO's responsibility to his company's investors doesn't usually
have a patriotism clause.
So what's a CEO to do?
Here's my question: If you were given control of regulating U.S.
companies, what would you do to keep U.S. jobs in the U.S.? Tax
incentives for creating new jobs? Prohibitions or penalties for
sending jobs overseas? Rewards for employers who onshored jobs that
had been offshored?
I'm really curious to know what you think, and I'll publish the
most interesting responses on Monday, April 9. Just send your
thoughts to firstname.lastname@example.org.
The debate about the best way to manage your investments has
existed as long as there have been investors. And the controversy
isn't a polite tea-party affair, either. Indexers ridicule active
investors. Growth devotees deprecate value folks. Options traders
look down their noses at long-only types. Bond buyers roll their
eyes at stock investors. And, frequently, investors who are riding
a wave of success in any style shake their heads with dismay at
those who are not.
Myself, I'm a growth guy. I prefer to handle things myself, and I'm
looking for stocks that have the potential to deliver big returns
I know that I have to work hard to make money in this style. It
means paying attention to how both the broad market and my
individual stocks are doing, and making difficult decisions on buys
and sells. I have to absorb occasional losses when earnings reports
turn a stock sour. And I have to sweat out what to do with my
stocks when they have big gains, too.
All of this attention and micromanagement would clearly be too much
for someone who didn't enjoy it. And it can try even my patience at
times. But it's also the style that fits my personality, my
enjoyment of games and my desire to test myself intellectually and
improve my skills.
But here's the big story: it's not the only style of investing that
can make money.
In fact, at Cabot we believe that you can make money in any
if you follow the rules for that style!
For value investors, that means diversifying your holdings to
spread risk, buying stocks trading at attractive discounts to
future earnings and holding stocks for however long it takes for
them to appreciate to their true value.
For growth investors, it means buying stocks with a good story,
solid fundamentals and a chart that reveals strong (and growing)
interest from big investors. It also means being prepared to cut
loose unsuccessful picks without a backward glance.
The Cabot family of newsletters addresses a wide variety of styles,
and the most important decision you can make is to find the one
that fits your own temperament. Because if your investing
personality isn't right for the strategy you pick, you won't be
able to follow the rules, the same way someone with a taste for
poker may fail completely at chess (and vice versa).
So maybe everyone should cut people whose investment style differs
from their own some slack. They have to be who they are, and so do
My stock pick this week straddles the growth and value worlds. It's
Spreadtrum Communications (
, a Chinese designer of semiconductors that specializes in the
chips that power 3G phones. The company has carved out a nice niche
because its devices serve the unique 3G standard that's used on
many Chinese networks, including the biggest one, which is run by
Spreadtrum's baseband chips enable email, the Internet and all the
video, photos, texts, music, movies and other battery-intensive
applications that make modern mobile handsets such power hogs. And
they do it in a way that delivers high performance and excellent
Spreadtrum's fundamentals are very sound, with a 230% jump in
revenue in 2010 and 95% in 2011. After-tax profit margins have
topped 20% for the last seven quarters, which is a tribute to the
company's "fabless" strategy of designing, developing and marketing
semiconductors, but not manufacturing them.
SPRD is liquid (average trading volume is over a million shares per
day) and pays a dividend with a forward annual yield of 2.3% (10
cents per share, per quarter). Institutional sponsorship has
reached 164, its highest level ever.
SPRD was a penny stock back in 2008, but it roared to 24 in early
2011, then plunged to as low as 9 in June 2011 when a short-seller
raised questions about the company's inventory reporting and other
practices. Fortunately, that cloud passed quickly, and SPRD, unlike
many victims of short-seller accusations, made a new high at 30 in
November. Since then, the stock has bumped downhill, slipping below
14 in early March, before bouncing a bit in recent weeks.
The most impressive statistic about SPRD for many is its attractive
P/E ratio of just 6. That makes it the kind of bargain that value
investors like to discover.
SPRD won't really be back on my radar until it can clear resistance
at 17 and show a convincing breakout on good volume. That's the
momentum component of the Cabot growth investing strategy.
But Spreadtrum looks like a sound, profitable company trading at a
great price. It belongs on your watch list no matter what your
Don't forget to send me your suggestions for how you would approach
the problem of keeping jobs in the U.S. I'll let you know next week
what your fellow readers have to say.
Cabot China & Emerging Markets Report