Some Interesting Recent Headlines
The profit bonanza driven by mega-tech AI cap-ex spending feels a lot like the earnings boost many companies saw during Covid due to stimulus. Will be interesting to see how this one plays out.
The profit bonanza driven by mega-tech AI cap-ex spending feels a lot like the earnings boost many companies saw during Covid due to stimulus. Will be interesting to see how this one plays out.
Just a few charts to capture Mr. Market’s current mood.
Who knows how long this keeps going, but as they say, Caveat Emptor.
The other day I was going through the meditative process of…washing my car. Anywho, while in my flow-state, a thought popped into my head. You see, somewhere along the line I was taught that drying a car required a leather chamois, and until recently, I had dutifully followed this edict.
But you know what? I recently switched to a micro-fiber towel and let’s face it, it’s just better. Which got me thinking. Most people intuitively understand that learning new things is key to making progress, getting ahead, etc. But what if un-learning things is just as important? Is there something you should be un-learning today?
It’s pretty remarkable that despite what our society has endured over the past year or so, greed is running rampant (e.g., crypto, segments of the equity market). Anyone that has studied history knows that a statement like this doesn’t mean we are close to the end, or that things can’t get crazier. The only real point of this short post is to memorialize the zeitgeist. Stay safe out there (literally and figuratively).
I’ve been investing for many years now and there have been countless lessons learned along the way (more to come as well!).
One interesting thing I’ve realized is that it’s possible to go too deep when researching an idea. Not only is it difficult to internalize mountains of information, too much research tends to lead to overconfidence.
Striking the right balance means going as deep as needed, but no deeper than that. This is purposely vague because one size doesn’t fit all. Experience seems to be especially helpful in refining this skill.
Like many people, I spend a lot of time trying to figure out what my purpose is. What am I here for? What should I do? How should I live? While it’s still a work in process, a few sentences I recently wrote down in my journal have continued to resonate with me the past couple days. I thought it would be fun to share these thoughts with the world.
In time, we will all be forgotten no matter how successful or wealthy. And even if you are remembered, why does that matter? You aren’t here to bask in the “glory” anyway. Therefore, the goal of life is to maximize the enjoyment of the short window of time we are all blessed with. This is easier to do with ample financial resources. Hence you should strive to do well, but only to the point where you do not detract from the holistic “experience” we call life.
The investment world can be surprisingly generous when it comes to offering up good advice (if you know where to look and whom to ask). Two of my favorite snippets of wisdom include:
1. Be patient; have conviction in your decisions.
2. Cut your losses early.
Unfortunately, while there is truth behind both of these phrases, they conflict with each other, which makes them difficult to apply in practice. The simple reason being, you’re never really sure which applies in any given situation. While there isn’t a “formula” to solve this problem, I do think there are a couple of things investors can do to tilt the odds in their favor.
First, while investing is inherently subjective, it is crucial for an investor to be as objective as possible. Instead of “going with your gut”, you should back up your thesis and valuation models with as much data as possible. In statistical terms, you should focus on getting to the right “base rate”. If your conclusions are based in reality, it’s much easier to deal with the psychological stress and remain patient when things go against you.
Another helpful way to approach this issue is to understand the “other side” of the bet as well as you understand your own. If you can refute the other side with data, it’s probably best to “stick to your guns”. If not, it’s probably time to move on. Going through this process can be especially helpful in highlighting when a secular change has rendered historical data obsolete (i.e., the base rate has changed). On this note, I think it’s important to remember that changing your mind isn’t a sign of weakness, but rather a sign of strength and intelligence.
I would be lying if I said I have mastered the art of knowing when to hold ‘em vs. when to fold ‘em. That being said, it’s hard to argue that the tactics laid out above have not improved my decision making.
Like many people, I find extreme swings in opinion fascinating. Perhaps the best example of this today is the narrative surrounding e-commerce, and more specifically, Amazon. Don’t get me wrong, these are a HUGE deal with big implications for retail. That being said, the popular narrative out there feels like it’s getting into “silly” territory. Like most crowded trades, there is a grain of truth (probably more than just a grain in this case) behind this narrative. However, as so often happens, the essence of truth snowballs into something so large, that it is destined to disappoint.
In any case, this topic has been something I’ve been pondering over the past few months. Here are some thoughts on why I think the “brick-and-mortar retail is dead” meme is overdone.
1.) The Value of Curation: In some ways, E-commerce and Amazon’s greatest advantage, is also its greatest weakness. You can find practically anything. But that’s also the problem, to find something, you have to sift through everything. Obviously this isn’t relevant if you know what you are looking for. But, if you only have a vague idea, shopping on the Internet can be daunting. Just try searching for “brown men’s shoes” on Amazon; good luck sorting through the 400 pages! When you don’t know exactly what you are looking for, the curation of a good brick-and-mortar retailer can be refreshing.
2.) The “………” Killer Narrative: Based on the articles I’ve been reading, Amazon is essentially going to kill all the competitors in every industry it enters. In fact, this view is becoming such “common wisdom” that the mere mention of Amazon sends stock prices in an industry tumbling (e.g., Whirlpool’s 7% decline because Amazon agreed to sell Kenmore appliances; grocer stock prices crashing after Amazon agreed to buy Whole Foods). Jeff Bezos is a super star, but it seems like a stretch to assume that any one person - or company - can dominate so many different industries.
3.) Benefit of the Doubt Gone Haywire: When it comes to Amazon, it sure feels like people are forgetting to check their work. For example, if you read the articles written on Amazon’s purchase of Whole Foods, they make it sound like Amazon has “figured out” the online grocery business, and buying Whole Foods was all part of the plan. However, if you read the background in the merger proxy filing, it becomes very clear that Whole Foods approached Amazon, not the other way around. Amazon may very well figure out the online grocery business, but it’s disingenuous to say this is a foregone conclusion.
4.) Low Prices Are All That Matters: While Amazon often (but not always) has the lowest prices, it’s funny that people assume that low prices are all that matters to shoppers. If price were the only thing people cared about, popular concepts like 7-Eleven wouldn’t exist. The needs of shoppers are wide-ranging, and these needs will likely be met through many different formats.
5.) Millennials Don’t Shop at Malls: Today, according to the press, “millennials” don’t shop at malls. But believe it or not, these same publications were saying the exact opposite a couple years back. Don’t believe me? Check this out: https://www.cnbc.com/2014/05/28/millennials-prefer-the-mall-to-online-shopping.html Or this: https://www.usatoday.com/story/money/business/2014/11/08/ozy-end-of-brick-mortar/18664797/. I’m not sure what the truth is here, but I’m willing to bet it’s not as black and white as many seem to believe. Maybe recent weakness in the retail sector has been driven more by a sluggish economy than dramatic shifts in consumer behavior. It’s certainly possible.
6.) Wall Street Getting On Board: Perhaps one of the greatest signs that this “anti-retail trade” may be on its last legs, is that Wall Street has started creating products to exploit Main Street’s enthusiasm. Thanks to creative bankers, investors can now “take advantage” of the carnage in the retail sector via leveraged short ETFs. Call me crazy, but I won’t be putting a dime into “ProShares UltraShort Bricks and Mortar Retail fund”. Thanks, but no thanks.
Bill McBride is one of my favorite bloggers, and it’s hard to find someone that has done a better job opining on the economy over the past decade. On top of that, he is a good person that calls it like he sees it.
In addition to agreeing with his views on the economy, I also agree with his stance on the ‘16 Presidential Election. More specifically, I think he is right that people should make it clear where they stand, and for the record #ImWithHer
http://www.calculatedriskblog.com/2016/11/tuesday-election-day-job-openings.html
FOMO - short for “fear of missing out” - is one of my favorite acronyms. I believe it is also a powerful contrarian indicator.
When FOMO is rampant, it’s usually a good sign of excess. When you are jealous that even your cabbie (Uber driver for you youngsters) is getting rich in the stock market, there is a good chance that the market is overvalued. When cocktail party conversation involves “chest beating” over who has made more in the housing market, it’s probably time to sell and become a renter.
Today’s environment is interesting. It’s hard to argue that investments are “cheap”, which can often be a sign of FOMO. However, today you primarily see an interesting permutation of FOMO. That is, the fear of missing out on “calling the top.”
I have no idea what this means for asset prices. However, it’s enough to make any contrarian think.