How many ideas are you exposed to in a year? Dozens? Hundreds, maybe a thousand? but how many really stick once the presentation is closed or the call is over.
In the year dominated by US exceptionalism, booming markets, interest rate cuts and no recession, here’s what really stuck for me:
- We’re not early or late cycle but post-cycle.
The Compound and Friends with Dr David Kelly (web | apple)
“We aren’t early or late cycle we’re post-cycle”. Post WWII recessions used to occur every 6-7 years on average but now they don’t – haven’t really seen a recession since 2008. Could be driven by the shift from a traditionally manufacturing driven economy that is hit by the ebb and flow of inventory cycles to more of a services and intangible economy.
2. Valuation multiples have lost relevance
Mauboussin paper [link]
tl;dr “Multiples have lost informativeness because of how accounting works and the nature of investment being more intangible. Earnings are less informative than they used to be.”
Multiples have lost relevance because of the widening gulf between earnings and what they are trying to reflect.
Adjacent idea – the Present Value of Growth Opportunities – piece on shareholder return including the concept of Present Value of Growth Opportunities
3. the Deep challenge
The global challenges of our time are trying to advance prosperity for billions of folks around the world while also trying to stay within the physical boundaries of our planet. The DEEP challenge is the fact that the prior century of thinkers and policy makers didn’t face these challenges so concepts and institutions aren’t helpful. Says Kate Raworth on the long now podcast.
4. Stock market has got less not more efficient
Cliff Asness (link)
He offers three explanations –
- Indexing broke the market
- Blame low interest rates
- We have the effect of technology backward (speed doesn’t equal accuracy) – in his view the biggest one
5. Tennis lessons from the Fed (link to video)
This Roger Federer Dartmouth speech is a wonderful watch and just a real pleasure to listen to with some very deep life lessons thrown in! A recommend.
One of the striking snippets from it which has done all the rounds on social media is this stat that out of 1,500 professional tennis matches Federer won close to 80% of matches, but just 54% of points within those matches. The stats for the stock market being up on any given day vs in any given year are similar. Some important lessons flow from that. Taking each point serious in the moment but then moving straight on. But have a listen as Roger says it best.
6. Markets put a long term multiple on a short-term surplus
Modest Proposal with Patrick O’Shaughnessy (apple | web)
One thing the market gets wrong is the market routinely puts a long term multiple on a short term surplus that has materialised when increased demand meets inelastic supply . But not a sustainable position , causes noise in market pricing . Prices a temporary surplus. Saw it in commodities in mid-2000s, saw it during Covid. Maybe seeing now in chips and in power consumption. Might be right on growth rate over 2-3 years, but not permanent but gets priced
US vs rest of world was thought of as a cyclical wave but that’s being challenged . “We were all brought up to be mean reversionists” US big tech a little over long term average valuation pricing but not instantly obvious that people are losing their minds.
7. Be more precise about responsible investing
(Alex Edmans | WEF) [link]
- “In order for responsible investing to have meaning, we must be clear about its objectives.
- Some of its objectives are in harmony, others are in conflict – leading to trade-offs between them.”
(chaser – Tom Gosling on how universal owners can use modest objectives to achieve more. (link))
8. “The enemy of knowledge is not ignorance it’s the illusion of knowledge . The fallacious belief that you know , which stops you inquiring “ – Howard Marks
“Don’t just be contrarian for the sake of going against consensus . Needs to be a deeper thinking process than that . Why is our view different . What does the consensus have wrong , how could this be exposed.” Investors should seek to “take the temperature of the market”.
Because this list is never complete without a Howard Marks quote or two.
9. Panels are rubbish (and how they could be better) – Alison Taylor on Linkedin
Fix them by thinking deeper about who should be on the panel, making it more coherent, and working together to uncover the story to be told while entertaining the audience.