Category: Missives

A Ticket to Purgatory

The Sherman Antitrust Act was created to stop our democratic republic from being ruined by “the concentration of capital in vast combinations.” The fear was that if too much of the success of industry went to too few people, our system would get disrupted.

The bad news is that the federal government has ignored the original purpose of the act. In our opinion, our society was first disrupted by the success of the FANG stocks and is now being disrupted by the Magnificent Seven. The good news is that the stock market has a history of solving problems on its own. What has happened over time to the largest and most popular stocks as measured by market capitalization? […]

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The Great Conflagration

We consider Ben Bernanke to be the father of 21st-century central bank policy. His work in dealing with the credit crisis in 2008-2009 was just the right policy at that time. The problem for economists is that they tend to fight the last war. The Great Financial Crisis was an economic problem where demand was dropping off from credit evaporating. The government tried to spend money to replace this destruction, but couldn’t politically equal the loss of economic output. The central banks could only pray that the most accommodative monetary policy would ease the fiscal belt that wasn’t loosening at that time. This was the last war for economists and has dominated economic research. Like anchoring or recency bias would tell us, this may have little to do with the problems in our future. […]

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Drivers and Stock Pickers

In studies, 90% of drivers think they are above average. We believe that 100% of the people who pick stocks for a living think they will be above average. Is being above average a worthy goal and is the generation of alpha or excess return something to strive for? […]

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Chronological Snobbery

C.S. Lewis coined the term ‘chronological snobbery’. According to Lewis, the definition of chronological snobbery is “the uncritical acceptance of the intellectual climate of our own age and the assumption that whatever has gone out of date is on that count discredited.” In our minds, it is how humans undercut the wisdom of a prior time by assuming that we are so much more advanced in our current day. […]

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Stock Market-Interest Rate Rhymes

Warren Buffett regularly reminds his shareholders that interest rates are a gravitational pull to stock prices. History shows that the movement of stock prices and interest rates don’t necessarily happen simultaneously but play out over time. Where are we now in this continuum between long-term interest rates and stock prices? […]

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70/20/10 Rule Redux

A friend of our stock picking discipline reminded us of a very important force in the stock market. It was called the 70/20/10 rule, and it was promoted by Roger Edelman, Richard Evans and Gregory Kadlec in an early 2013 Financial Analysts Journal article. We had written about this in 2016, but today’s circumstances beg for a reminder. […]

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Long-Term Puzzle Pieces

[…] First, the S&P 500 Index is likely to produce very poor inflation-adjusted returns for the next 10 to 15 years. Second, we believe money can be made in the shares of companies which benefit from inflation like oil and gas stocks. Third, the most common question we get is, “When does the incredible run end for the 10 stocks that have made most of the returns in the last ten years?” Our answer is that it doesn’t make any difference to us when it happens, because we won’t own them now or when they get their reckoning.

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Stepping on a Rake

The year 2008 and the subsequent Global Financial Crisis (GFC) stand as a watershed moment in the annals of our capitalist society. It was a bailout prompted by poor capital allocation, deficient risk management, and unchecked greed. More significantly, it marked a seismic shift, both financially and psychologically. Financially, it represented a substantial transfer of debt from corporate and private balance sheets to the balance sheet of the US Government. Psychologically, it sent a clear message to investors: if you are deemed systemically important, the degree of risk mitigation employed matters little in terms of being held accountable. […]

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Stock Market Psychology

As bottom-up stop pickers and long-term investors, sentiment indicators don’t rank very high on our list of important considerations. However, there are times when extremes of sentiment occur and can have an impact on which stock sectors we avoid or ones we get attracted to researching. […]

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Thankful For James Chanos

[…] Even though we are eternal optimists by nature as long-only value managers, we relished Jim’s thoughts and studied his logic. He attempted to do on the short side what we try to do on the long side. He sold short popular and unmeritorious common stocks with confidence that economics would win out over time. He did this even though there has been a strong positive bias to the performance of the stock market. […]

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