Spooky

Has anyone put together or found any good checklists for an investment process? Ideally I am looking for an exhaustive list of tail risks / risk factors. There is a good article in Poor Charlie's Almanac on Charlie Munger's investment process. I've uploaded a summary of the article I made here (not sure if I can add word files). Munger's Investment Evaluation Process (PCA).docx

Called it last year!

This. All my friends and a lot of podcasts are still only talking about big tech. A friend of mine is talking about now being a good time to buy Apple and Microsoft and I keep telling him that the biggest companies now won't be the biggest ones 30 years from now. It's possible but the odds are against you. I think Howard Marks is correct in calling the changing environment a sea change and I hope the days of zero / negative interest rates don't come back.

Something I refer to a lot is the following chart which shows all possible states of the world. I still think it is important to come up with a range of probabilities for each scenario and have your portfolio allocated to cover all the bases.

Amen. This is something I have been thinking about for a while that there are a number of large deflationary forces out there (i.e. the impact of technology, slowing rate of population growth or decline, etc.). Obviously high duration assets like long-term bonds / tech companies will high terminal values will do well (similar to the environment after the financial crisis). I've been also trying to identify other opportunities that will still grow in a deflationary world - things like the amount of information out there is still growing at exponential rates, especially going to be so with the huge amount of AI generated content, so that brings me back to ideas like Google whose mission is to organize this information. I've been thinking a lot about emerging markets recently as well - the developing world's growth doesn't look too hot and the debt levels are quite high (with more and more debt being required for each unit of GDP / output). All this being said I hope that we don't go back to a world of zero interest rates since that is very distorting. We could be in for a period of structurally lower growth / higher interest rates going forward given the macro environment.

Definitely a reasonable case for things to go lower in the short term. I hope that they do so that I can deploy more funds at attractive prices. Agree that the Fed is not yet done and they will come out and talk a big game at the next meeting to put a damper on positive sentiment. At a minimum they are going to keep rates / posture more restrictive than most people expect for longer than expected. There were a few pockets of panic / forced selling earlier in the bear market - when Druckenmiller was doing his latest rounds of interviews a lot of commentary was that the sky is falling and when the UK pension funds became forced sellers due to their liability driven investment products - those are the times to jump in and buy.

I read most of this book, it was pretty interesting. WB was influenced by Keynes.

I agree with most of this - but my point is that almost everyone in the mainstream is seemingly only focused on the risk of further declines from here and consensus is for a recession / further pain which is potentially under weighting the probability to the upside. One thing that you are overlooking in your analysis are psychological factors such as optimism and pessimism that affect prices in the short term. It is not necessarily the fundamental data that moves things in the short term but people's perception of these factors. For instance, we saw a total 180 from euphoria to despondency with sentiment reaching lows not seen since the financial crisis (when the financial system was on the verge of collapse). This extreme pessimism was not warranted based on the facts available at that time - that is they key: is to figure out when sentiment / markets have diverged significantly from the underlying facts. Now, you have seen some things recover to a more reasonable posture - it looks to me that what is being priced in is a mild recession which does not seem that out of line. I'm also not blindly advocating buying the market overall - need to pick your spots. It was clear for a while that a segment of the market was in a bubble (talked about by Grantham and Dalio). This is my view as well - I am trying to find the handful of wonderful companies out there, buy them at a reasonable price and then sit on my ass and do nothing. In the presentation from Swensen he talks about how from 1925 until the time of the speech if you held small cap stocks you would have made 12,000% returns. However, during that timeframe your holdings would have declined by 90% at one point so you have to be able to hold on through those periods.

Correct as long as you have a longer time horizon of 5 or more years or are not at retirement age where the short term volatility can kill you. This is basically my investment philosophy - 95% always invested in a concentrated stock and real estate portfolio with 5% in bonds and money market funds. As Gregmal pointed out above, it's all about asset allocation and position sizing. This lines up with David Swensen's philosophy at the Yale endowment fund from whom I have taken a lot of inspiration - it's all about asset allocation:

Here is the distribution of annual S&P returns over 151 years. Just going by history as a proxy the baseline probability that the S&P will be up in any given year is 68.9%. Obviously, history doesn't necessarily repeat. If you start looking at multi-year periods the probability that the S&P is up at the end is even higher. Source: https://themeasureofaplan.com/us-stock-market-returns-1870s-to-present/

All this doom and gloom still. Sure, another big draw down is possible from here if something breaks but this is always a possibility in the market. Even another down year is possible. However, based on historical annual returns data the odds that the market will be higher in 12 months is greater than 50%. Just keep patiently accumulating equities and in the long run you will outperform those who flee the market to bonds or other assets.

From the WSJ today… goldilocks has entered the room!

Totally agree. The US continues to post very robust job growth numbers each month so it seems that outside of the tech sphere the overall economy is still humming along. Once people start to realize that inflation is moderating (and could even flip negative) stocks are going to rip.....

Exactly - we need to reduce the cost / red tape around building more supply of homes. Really this is a supply and demand problem where all the zoning laws, nimbyism etc. prevent much of any affordable / new housing to be built. Preventing foreign buyers of real estate doesn't make sense in an open capitalistic society. If they are buying homes and not renting them, impose a tax on vacant homes. I was just down in Mexico City and could see myself living down there. It's a big world out there and younger Canadians have more options than ever with the growing prevalence of remote work.

I'm happy things are taking a turn down, I keep just averaging into some high quality companies I like that I plan to hold long term. I've been buying Constellation Software and the Vanguard Total Canada ETF each paycheck and building up a cash pile to make some bigger moves if prices / sentiment drop significantly again which I hope they do. Where the market goes from here who knows. I think we are in for choppy waters / more volatility ahead for a while and can't count out a second round of tightening from the Fed if inflation is stickier than expected.

Fusion energy will still need transmission lines. Bet on BRK

Small starter position in NU to track it.

Thanks for the post Dealraker - I'm also just trying to find and hold great businesses and as Charlie would say sit on my ass. Do you have any candidates for smaller businesses that are wonderful businesses? I've also been thinking that buying the big techs, given their size, doesn't give you as big of a runway in the future... need to find some smaller companies with lots of room to grow.

This has been going on for a while now and is getting pretty boring. Can we move on to the next narrative please?

I don't see the point of holding a medium of exchange (Bitcoin, dollars, etc.) over the long term. As we've seen throughout history the medium of exchange can change over time. People saying that Bitcoin will replace or be an alternative to USD - the same thing can happen to Bitcoin in the future as well. As we've seen, there are no barriers to entry to create a cryptocurrency. What you want to own are real productive assets (companies, real estate, farmland, etc.) that have value to others regardless of what medium of exchange is used. Better if the assets are scarce and increase their value over time.

Same. BRK and Constellation Software - companies with low debt and cash flow to deploy in volatile times.

New Howard marks memo just dropped, talks about the effects of declining interest rates over the last 40 years on investment returns and how there is a sea change happening: https://www.oaktreecapital.com/docs/default-source/memos/sea-change.pdf?sfvrsn=a69a4066_7 Ends on the note that his base case is rates in the 2-4% range and doesn't see them dropping back to 0-2% any time soon and the investment strategies that worked best over the past 13 years may not be the ones that outperform in the years ahead. I think he is correct.

Interestingly enough there has recently been some pretty heavy insider buying of Amerco, Uhaul's parent company, to the tune of ~$48M.

It would be relative depending on what other central banks are doing. If BoC stops raising or starts slashing rates while the Fed is still raising then CAD will suffer.

Agree 100%. Most of the "smart" money is just playing short term zero sum games against each other and trying to see into the future which is basically impossible. Reflexivity has also been prevalent, people believe in outcomes so much they will them into being. This creates opportunities for long-term investors that don't put weight into forecasts and can look objectively at the fundamental data. Have to say BRK has put on another capital allocation masterclass between significant share buybacks, splashing some of their cash pile (which is also now generating decent interest) on energy stocks like Chevron + Oxy as well as borrowing more in Yen at multi-decade lows to the USD to up the stakes in the Japanese trading houses. BABA has also been buying back a lot of stock with their free cash flow up (although it seems like they should have / could have bought more) but the situation in China is pretty difficult. Also, shout out to Constellation Software since this kind of environment plays right into their hands since they have the problem of too much cash flow to deploy while the PE firms will find it harder to use leverage to acquire software companies.