#164 - Naval on Putins Incentive, Canadas New Business Booster Grant and Warren Buffets Trick To Spotting Trends
Earnings Season Has Begun - What to look for
Midterms impact stock returns
Naval On Putin and Ukraine’s Nuclear War
How Warren Buffet Spots Trends
When Should You Buy a Car - It’s coming and coming quick
Boost Your Business - Canadian Technology Grant
Sports Topics - Tyreek Hill and Pomp on EPL
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👉 For specific investment questions or advice contact Joel @ Gold Investment Management.
“The sillier the market’s behavior, the greater the opportunity for the businesslike investor.” — Warren Buffett
Political Seasonality Reminder: “the S&P 500 has risen in the year after every single one of the 19 midterm elections since World War II, with not a single instance seeing a negative return." DB
Some Notes From DataTrek’s Nick Colas:
The upcoming US Q3 earnings season will tell us how close the Fed is to getting wage inflation under control. Companies fire workers when they miss earnings, not exceed them.
The typical large US bank stock trades for 8.9x and has beaten the S&P 500 YTD. JPM, BAC and C are all large under-performers, however. How they trade post-earnings will say a lot about investor confidence.A look at all the Fed’s emergency rate cuts back to the 1990s shows the FOMC only changes policy quickly when large macro risks are present. Equity market volatility alone is not enough.
Equity investors would very much like to believe Fed rate hikes will end this year. Fed Funds Futures and 2-years are saying that’s a 50/50 shot. A week ago, these markets thought no hikes in 2023 was almost a lock. That’s why equity markets have become more fragile recently.
We still want to see the VIX close above 36 before believing there is a trade to the upside in US equities.
US gas consumption is picking up as prices decline, good news for near-term economic activity.
Disruption: What topics are gaining/losing the attention of American retail investors during this volatile period? US Google queries show they aren’t yet paying as close attention to the recent low in US equities versus the prior low in June, but interest is building. They are increasingly focused on ESG investing, and currently searching more for value stocks and bond funds over growth/tech names or gold.
Regional Banks are making new 6-month highs relative to the S&P500.
Usually before major market crashes, we see the exact opposite:
While people panic and tell me about all the wars and the fed and inflation and whatever they're scared about today… I’m paying attention to the stuff telling a story different from the common narrative…
How Warren Buffet Spots Trends:
The first time they met, Warren Buffett introduced Bill Gates to his favorite critical thinking exercise Buffett uses it to spot long-term trends and investments.
The idea is simple: Choose a random year, say 2000, and identify the 10 companies with the largest market capitalization. Then you fast forward 10 or 20 years and see how those companies fared over time.
This will help spot:
what types of companies create enduring success
how technology advances and
how cultural norms shape businesses.
IBM was the biggest company back then, closely followed by AT&T. What’s incredible is that the next 7 companies were all Oil & Gas. The key factor driving the valuation was the high Oil Price - over US$35 per barrel (equivalent to $115 in 2021, adjusted for inflation).
But this did not last long. The 1980s Oil glut caused oil prices to drop below $10 by the end of 1986. By the beginning of 1990, only one oil company (Shell) was in the top 10. Shows you the importance of avoiding cyclical companies as a long-term investment.
Jumping over to the 2000s, we were at the peak of the dot-com bubble. But, no single industry dominated the top 10. It was a good mix of tech, pharma, consumer staples, and industrials. What’s surprising is that only two companies (Exxon & GE) from the 80s made it to 2000.
The last 4 decades have brought spectacular changes to the markets and trying to predict the next few decades does look like a fool's errand. But looking at the data, we can spot some trends.
Oil & Gas has lost its sheen as we move towards alternative energy sources.
Cultural changes can bring down empires (e.g Tobacco maker Philip Morris)
Monopolistic and agile companies tend to survive longer (Eg. Microsoft in enterprise computing)
"The inability to forecast the past has no impact on our desire to forecast the future" - @morganhousel
If you have to bet on one company that will still be in the top 10 list in 2040, which one would it be?
Best Twitter Thread From The Week
💸Reformed Millennials - Post of The Week
How To Think About IPOs As An Employee or Investor:
If you sold all of your Google stock at the IPO, you would have missed out on a 3,957.20% return
If you sold all of your Opendoor stock at the IPO, you would’ve avoided a -89.77% return
It’s hard to time the public market – if you hold company stock at IPO, what should you do?
What would your returns be if you:
Sold all your shares immediately?
Sold all your shares after 1 year?
Held all your shares until today?
Below are the most high-profile IPOs and the performance of their stock since they’ve been public.
Keep in mind tech companies can be a long-term game and the below snapshots represent a point in time.
IPO price (12/9/20):
Price 1 year later:
Price today (1.8 years later):
IPO price (12/10/20):
Price 1 year later:
Price today (1.8 years later)
IPO Price (8/19/04):
Price 1 year later:
Price today (18.1 years later):
IPO Price (5/18/12):
Price 1 year later:
Price today (10.4 years later)
IPO Price (5/10/19):
Price 1 year later:
Price today (3.4 years later):
IPO Price (4/18/19):
Price 1 year later:
Price today (3.5 years later):
As these examples show, 1-year and long-term performance of companies that IPO varies greatly.
Other sources have aggregated larger data sets, but even these individual examples show that picking individual stocks is hard.
If you’re a tech employee whose company went public, you likely have a large position of a single company.
Yet you might not feel comfortable timing the market (of which many folks are not).
Here are a few things you can do to figure out what actions to take:
1. Evaluate how much money you need now
Think of yourself as a business.
Calculate your personal balance sheet, roadmap, runway, and burn. This can include an emergency fund, short-term expenses (wedding, car, etc.), tax liability, or other investments that require cash (buying a house, etc.)
These short-term needs will be treated differently.
2. List your possible strategies
THESE COULD BE:
Selling all of your stock 1 year after IPO
Selling a portion every quarter
Writing covered calls to earn income and set a limit price
There are many ways to diversify or hedge a concentrated stock position.
3. Run a cash flow model
Input some basic assumptions to understand a best case, base case, and worst case scenario for your stock.
Reminder that taxes can influence these calculations.
This will help you get a feel for how good or bad things could get.
4. Pick a strategy and follow it
Once you’ve evaluated your options, choose one and execute it consistently.
Writing a memo to yourself on your strategy often helps minimize regret.
This is easier said than done as many factors can influence you to change your plan on a whim.
5. (Optional) Work with an expert
Working with a financial advisor not only helps you understand your scenarios (and outsources the work to build them) but also helps you actually stick to your plan and not let your emotions dictate your financial future.
Joining a startup and helping build it into a company that goes public can be rewarding (financially and personally)
Small Business Topic: CDAP Program - Boost your Business
The Boost Your Business Technology grant offers support to Canadian-owned small and medium sized enterprises (SMEs) who want to adopt new digital technologies.
Eligible businesses will have access to a marketplace of experts to help them develop a digital adoption plan tailored to their needs.
Eligible businesses can leverage the grant to pay for the services of a digital advisor. These advisors will work with companies to recommend digital pathways and strategies that will help them achieve their business goals and increase their competitiveness in the digital economy.
The grant covers up to 90% of the eligible cost of retaining the services of a digital advisor, up to a maximum grant value of $15,000 per SME, to develop a digital adoption plan.
Businesses also have the opportunity to secure a 0% interest loan from the Business Development Bank of Canada (BDC) to facilitate the acquisition of new technology. In addition, applicants can leverage the help of talented post-secondary students and recent graduates through subsidized work placements.
Only an owner or a director (listed in the articles of incorporation) can complete the application form. If you are not listed in the articles of incorporation, unfortunately your application will be rejected automatically.
Before applying, your business must meet all of the following eligibility criteria:
Be incorporated federally or provincially, or be a Canadian resident sole proprietor
Be a for-profit, privately owned business
Have between 1 – 499 full time equivalent employees
Have at least $500,000 of annual revenues in one of the previous three tax years (no more than $100M)
“If the world ever started resembling twitter it would end, and it’s starting to look more and more like that.” - Naval Ravikant
WE ARE SLEEP WALKING INTO WORLD WAR 3
A really interesting conversation between objectively small people about the risks we all face. Important points listed below:
Putin has escalation incentive to use nukes
We are not fighting a nuclear war for Ukraine and Zelenskyy Needs to know that
Senate needs to vote on adding Ukraine to Nuclear Umbrella (treaty ratification)
Russia has largest nuclear military in the world - > 6,000 warheads (strategic rocket forces)
Give Putin a Small Victory
The Hope for Diplomacy
Ukraine is free to do what they want and the group is pro Ukraine
High Risk of Nuclear War in Ukraine w Naval, Friedberg & Sacks - All In Podcast
🔮Best Links of The Week🔮
Legendary Investor Steve Cohen with Glenn Fuhrman: On Investing, Philanthropy and Art - Youtube Interview
📝 Bang Energy’s parent company files for bankruptcy - Food Dive
🤖 Elon Musk commissioned a bot analysis in his fight with Twitter. The results are in - KSL.com
Joe Rogan interviews Steve Jobs - Podcast Artificial Intelligence