blakehampton

We desperately need an undo button. I just accidently deleted a long written response and I now want to kms. Anyway, my response was formed around how there is currently a spread between bank reserves and the recorded assets on the FED's balance sheet. I believe that this is cash that has made its way into the economy through asset inflation. By buying bonds and injecting cash, the FED essentially made owning assets more attractive relative to fixed-income and cash, especially when you consider how low rates were and for how long they stayed there. I do agree though that it ultimately comes down to bank reserves. I think that the biggest focus during QT is gonna be watching reserves as they let the bonds run-off. I'm sure they don't want to put banks in a precarious situation.

GDP growth has averaged around 2% over the last 10-20 years and 3% preceding that. I think 2% is a good average for growth going forward. I recently listened to an interview with John Bogle in 2017 where he explained his valuation model using dividends. He used the S&P500's dividend yield and 5% growth going forward. Funnily enough, the dividend for the S&P is approximately its net earnings - capex, so it's almost the same as owner earnings. Anyway, I redid his recommended model for dividend growth and got nearly the same results as my model with earnings. Sources: S&P500 Results - it's a spreadsheet btw John Bogle Interview

I believe that the valuations for almost everything are simply absurd right now. The median home sale price is 6x the median household income. The S&P500 is set to return approximately 5-5.5% at current prices. This is assuming 2% earnings growth and that corporate taxes stay at 21%. A higher growth rate is certainly possible but so are higher corporate taxes, arguably more so. The point here is that you can get this same yield with cash, and this is without any of the added risk.

My idea of the two options at the FED: Shrink the balance sheet and cripple markets Or don't and we see runaway inflation Please correct me if I'm wrong

Isn't QE simply an asset swap of long-term bonds for cash, with QT being the reverse? The Federal Reserve's balance sheet has shrunk by around $1.2 trillion in assets since last year and is continuing, and I don't see how this doesn't affect asset prices. The system is currently tightening and we'll almost certainly see higher long-term rates in the near future. It's interesting to me because when I talk to anyone about the value behind both stocks and real estate, it seems they believe that prices just have to continuously go up. Looking at past data, this seems somewhat more true for real estate but certainly not equities.

Why?

Does anyone here think that QT will have a big effect on markets? I would think higher long-term rates might cause a lot of damage.

I saw the threads about movies and podcasts, and thought it might be interesting to create a thread centered around any business reading material. If you find anything interesting that you would like to have others read and discuss, drop a link or pdf with a title, and possibly a description, so that others might know what they're clicking on. I'll list a few that I've found lately: Transcript of Interview With Warren Buffett, May 26, 2010 - Interview detailing Buffett's reflection on the financial crisis The Truth About Diversification by the Numbers.pdf - Diversification study Global Wealth Report 2023.pdf - Title Long-Term Asset Return Study 2020.pdf - Title

Approximate % Change From 2019 - Price of the S&P 500: 58% - M2 Money Supply: 36% - Earnings of the S&P 500: 34% - Median home price: 28% - Inflation: 21% - Median household income: 12% I thought to make a list of these items, and their respective changes before money printing, to lay out a picture of how the economy has responded since the pandemic. In my mind, all of these items should match the increase of the money supply but I also understand that the dispersion isn't going to be equal. Shouldn't we see them equal out over time though? Wont we see a reversion to the mean? This data tells me that we haven't seen the end of inflation and that household incomes haven't kept pace with really anything else. I also thought it might be interesting to think about company earnings and if they are generally quicker to revert than incomes. It seems unfair but so is the world.

This is my crude valuation of the S&P500. I took the TTM dividend and put in a long-term average of 5% for dividend growth. Funnily enough, the S&P500 dividend is roughly the difference between its net earnings and capital expenditures. My discount rate is debatable, but I did a lot of thinking and concluded that 8% was a solid number. Please destroy it and prove me wrong.

Also curious on which steps in the process you guys find to be the most important

I'm trying to conceive of a mental model for investment, my overall goal being to build my strategy around it. I've already thought of a simple model for personal finance that is earn, save, and invest. I like to occasionally break down things further so that I can focus more on specific concepts within each group. So far for my invest group I've come up with Idea generation, research and valuation, position sizing, and monitoring, I've laid them out in their general order of operations. I was curious if you guys have any similar models and also if I'm missing anything on the ones I'm working with so far. Rest in peace Mr. Munger

What an incredible response

Thought this was interesting and that you all might like to look at it: https://www.ubs.com/global/en/family-office-uhnw/reports/global-wealth-report-2023/_jcr_content/pagehead/link2.0466322293.file/PS9jb250ZW50L2RhbS9hc3NldHMvd20vZ2xvYmFsL2ltZy9nbG9iYWwtZmFtaWx5LW9mZmljZS9kb2NzL2dsb2JhbC13ZWFsdGgtcmVwb3J0LTIwMjMtZW4ucGRm/global-wealth-report-2023-en.pdf

Buffett wrote in an annual letter to shareholders that “Our satisfactory results have been the products of about a dozen truly good decisions.” Does anybody have a good list of these 12? I can think of a few but I’m missing some: Apple Coca-cola Gillette Amex GEICO Cap Cities/ABC The Washington Post Wells Fargo See’s Candies National Indemnity I also think it might be interesting to rank them by impact but it sounds like quite the challenge. Also I'm just now realizing that not all 12 are investments, some are decisions regarding people.

These are Apple’s figures 3 years prior of when Buffett started buying the stock in Q1 of 2016. Back then, Apple’s market cap was roughly $500-600 billion and 30 year bonds were yielding about 3%. Current 30 year bonds are yielding 4.3%. Buffett is the GOAT and this was obviously an amazing investment. It just seems to me that Buffett doesn’t like to sell even when something is sitting at a crazy price. Hasn’t he been in the same situation before with Coke? I’m not saying that this is a bad trait, and it might actually be a great one over the long-term, especially in his situation with the amount of money that he has to manage. However, I just can’t fathom why people think Apple is a good investment right now. I also found the research on Buffett’s past purchase interesting, so I thought I’d share.

That was a rough read

This is my main concern and the reason I haven’t decided on it. I really like the extra return but I don’t quite understand the risk, if any, of principle loss.

Saw it in a recent write-up in Money Stuff and definitely think it’s interesting. It scares me though how complicated it is.

I read an article in the WSJ this morning that was interesting: Link It basically talks about the two gauges of inflation, both CPI and PCE, and states “One place where price-weight differences have mattered a lot lately is housing. In the CPI, shelter costs for homeowners and renters account for about 34% of the index’s weight. They account for only about 15% of the PCE.” This makes me feel like CPI is more indicative of the average American’s experience of inflation. So why then does the FED use PCE as their benchmark? Thoughts?

It’s pretty easy to find a mean but I think that median is more representative. The issue being that finding a reliable figure for the median is harder. I’ve looked at a lot of data and I’m assuming that the median hourly wage in the United States is somewhere around $22 dollars an hour.

I’m deciding on whether to stick with my Fidelity money market or switch over into BIL. I’m curious on what you guys do with your cash.

Indeed, it’s a great interview. I have heard people in the past mention that they don’t like Ackman and I never understood why. I know at least he’s a great investor, not quite sure as a human being though.