Category: Missives

As we have been holding calls with prospective and current investors of our firm, we have been arguing that the stock market is underwhelming the success of the economy. The lift off in economic activity could be far more troubling to stock market investors than their giddiness merits. The song that continues to come to my mind is David Bowie’s “Space Oddity” as we believe that today, unlike the past 10 years, is an economic oddity.

[…] Warren Buffett and Charlie Munger emphasize that the key to investment success is weak competition. Recently, two sets of investors, newbie investors through Reddit (and other chatrooms) and hedge fund managers running non-transparent portfolios of immense size, were both blessed and cursed by unusual success at the same time. One of the worst things a market can do to you is reward you for bad behavior and that has happened way more than normal. A quick review is necessary. […]

[…] A classical education and the texts that form its base have lasted because there is truth that has been tested time and time again. The reason value has lasted is because it has truth that has been tested time and time again. We may not quote stocks in eighths or quarters like John Maynard Keynes or Benjamin Graham did, but we think in congruent terms. Our work is “done to last forever.” Our clients benefit from the permanence of this. The public will be a victim In Sententia Tempore. We applaud our investors for having the gumption to stick to dead, but timeless thinking. They fear stock market failure and the opinion of the times.

Lina Khan is being appointed to the Federal Trade Commission by President Biden’s administration. There are rumblings of resistance from Republican Senators like Mike Lee from Utah. This missive is devoted to helping our investors understand these matters and the impact this could have on stock market returns over the next ten years. Remember, the key to success in common stock ownership is avoiding stock market failure.

[…] A classical education and the texts that form its base have lasted because there is truth that has been tested time and time again. The reason value has lasted is because it has truth that has been tested time and time again. We may not quote stocks in eighths or quarters like John Maynard Keynes or Benjamin Graham did, but we think in congruent terms. Our work is “done to last forever.” Our clients benefit from the permanence of this. The public will be a victim In Sententia Tempore. We applaud our investors for having the gumption to stick to dead, but timeless thinking. They fear stock market failure and the opinion of the times.

[….] We are asking you to use your “head” and “forget” owning stocks at enormous price-to-sales ratios or ones which are massively over-owned by indexes and other passive vehicles. We know your “heart is sayin’, don’t let go!” Most investors in financial euphoria episodes “intend” to “hold on to the end” and suffer the consequences. We call the consequences stock market failure.

Warren Buffett’s annual letter was great in all the easy ways and disappointing in the ways that matter the most to his shareholder partners. Last week, Charlie Munger reiterated the idea that successful investing is “an unusual combination of patience and aggression.” The communication of the May 1, 2020 Annual Meeting and this letter tell us that the aggression was absent in the spring and appears to be in hiding in January of 2021.

[…] We sit at a juncture where we tell clients that the S&P 500 is likely to make 2% compounded over the next 10 years, including dividends re-invested. We are excited for our clients and as investors ourselves because of these problems. We believe the secret of life is staring at us in the S&P 500: weak competition. We plan to take advantage of this by playing Bobby Fischer in any game except chess.

[…] Our research shows that most of the investable assets in the U.S. are in the hands of baby-boomer investors, who are looking for income in retirement. Your opportunity cost is skipping the 1.53% dividend yield in the S&P 500 Index or the 1.15% yield on the ten-year Treasury Bond. Long-term bonds and the S&P 500 are what Warren Buffett would describe as “the secret of life”. This is because on an income basis they are, in his words, “weak competition.” We would say it is a ticket to stock market failure. The rebound in the mall REITS could bring them back into favor as a source of retirement income and lay some serious capital gains in the laps of those who step when Simon says!

[…] we find this environment to be the opportunity of a lifetime. Humans do one thing extremely well: they buy high and sell low. The majority of investors suffer stock market failure. In a Charlie Munger approach, you would invert today’s circumstances to recognize that there is a myriad of businesses that don’t require you to look into the future like the zero-coupon bond or the company that will someday produce free cash flow. In fact, you can buy many businesses for less than the value of their assets and not have to worry about the cash flow in the near-term or long-term.