Why investing in the future will require machine learning software which can learn and see through the distortion

I receive many questions every week about TerraManta’s future product roadmap and whether we plan to have a solution for the equity markets.

There is a reason why TerraManta selected crude oil futures as the first trading instrument to manage outside capital. Crude oil is the biggest commodity market and still operates as a market, where TerraManta machine learning software understands and learns from geo political / economic changes impacting crude oil fundamentals and how changes in fundamentals resulting in price actions.   

These three elements represent what we call a 3-way relationship or a reflection of reality and form the basis of the future price forecast when the same reality repeats itself again and again in crude oil markets.  At any given time, this 3-way relationship cannot be artificially distorted by any other major factor. This is the simple reason why our forecasting approach stood the test of time since early 2016.  

On June 11, Mohamed El-Erian said “Bad things happen when finance front-runs the economy” in https://www.ft.com/content/944c98f3-21aa-40dd-8b5e-a246e9fc444b

It’s valuable to take a look at Apple’s financial results since 2006 to explain why in the future TerraManta would be evaluating and looking for opportunities in equity markets by using the same approach: understand reality first and identify opportunities when reality repeats itself. 

• Between 2006 and 2012, Apple’s operating income went from less than 0.5B to $55B
• Steve Jobs sadly died in October 2011; with his death Apple’s innovation pipeline became dry 
• Between 2012 and 2019, Apple’s operating income growth has been largely flat, ranging between $55B and $65B
• On January 1, 2019: Apple stock was worth $145 per share
• On January 1, 2020: Apple stock was worth $293 per share; yet operating results have not changed 
• During the last 7 years, Apple used $338B (acquired via debt) too buy back its own shares 
• $338B in debt created $1T in value without any change in operating results, i.e. selling more iPhones 

Under the Securities Exchange Act of 1934, large scale share repurchases were considered a form of stock manipulation. In 1982, the SEC passed rule 10b-18 which made stock buybacks legal. 

To fully appreciate the challenge for any investor in equity markets not having an advantage of TerraManta like software to see through the distortion, its worth reading a recent Harvard Business Review article.

https://hbr.org/2020/01/why-stock-buybacks-are-dangerous-for-the-economy

“The 465 companies in the S&P 500 Index in January 2019 that were publicly listed between 2009 and 2018 spent, over that decade, $4.3 trillion on buybacks, equal to 52% of net income, and another $3.3 trillion on dividends, an additional 39% of net income. In 2018 alone, even with after-tax profits at record levels because of the Republican tax cuts, buybacks by S&P 500 companies reached an astounding 68% of net income, with dividends absorbing another 41%.”

“When companies do these buybacks, they deprive themselves of the liquidity that might help them cope when sales and profits decline in an economic downturn.”

Fast forward to the difficulties in global economy created by Covid-19 pandemic.

https://www.washingtonpost.com/business/2020/04/06/bailout-coronavirus-airlines/

“U.S. airlines want a $50 billion bailout. They spent $45 billion buying back their stock”

I believe TerraManta future will be even more brighter after we demonstrate success managing outside capital by trading crude oil futures. The foundation for incorporating reflection of reality as the basis for sound investment decisions will get only better.  This foundation will help achieve a sustainable, above average returns in volatile markets where distortion is now the true new normal.