Weekly River Finds #2
Some interesting finds ranging from articles, podcasts or videos for your reading pleasure
(1) Further Thoughts on Sea Change by Howard Marks
The declining and/or ultra-low interest rate environment distorted the behavior of economic and market participants
If this really is a sea change – meaning the investment environment has been fundamentally altered – you shouldn’t assume the investment strategies that have served you best since 2009 will do so in the years ahead…
…Everyone who has come into the business since 1980 – in other words, the vast majority of today’s investors – has, with relatively few exceptions, only seen interest rates that were either declining or ultra-low (or both)…
Importantly, this distorts the behavior of economic and market participants. It causes things to be built that otherwise wouldn’t have been built, investments to be made that otherwise wouldn’t have been made, and risks to be borne that otherwise wouldn’t have been accepted…
The higher interest rate environment calls for significant capital reallocation
It’s very notable that almost the entire history of levered investment strategies has been written during a period of declining and/or ultra-low interest rates. For example, I would venture that nearly 100% of capital for private equity investing has been put to work since interest rates began their downward move in 1980. Should it come as a surprise that levered investing thrived in such salutary conditions?...
Will asset ownership be as profitable in the years ahead as in the 2009-21 period? Will leverage add as much to returns if interest rates don’t decline over time or if the cost of borrowing isn’t much below the expected rate of return on the assets purchased? Whatever the intrinsic merits of asset ownership and levered investment, one would think the benefits will be reduced in the years ahead. And merely riding positive trends by buying and levering may no longer be sufficient to produce success. In the new environment, earning exceptional returns will likely once again require skill in making bargain purchases and, in control strategies, adding value to the assets owned.
Lending, credit, or fixed-income investing
Lending, credit, or fixed income investing should be correspondingly better off…
…thanks to the changes over the last year and a half, investors today can get equity-like returns from investments in credit.
…expected pre-tax yields from non-investment grade debt investments now approach or exceed the historical returns from equity.
And, importantly, these are contractual returns.
(2) Eastern philosophy says there is no “self.” Science agrees by Chris Niebauer
The western view looks at the self as a pilot; while the Eastern view looks at the self as an illusion. Eastern schools of thought views the concept of the self as the result of the thinking mind. The thinking mind reinvents the self from moment to moment i.e., the process of thinking creates the self, rather than there being a self having any independent existence separate from thought. In the same way that walking only exists while one is walking, the self only exists while there are thoughts about it
The left side of the brain acts as an interpreter for reality by creating explanations and reasons to help make sense of what is going on around us. And the left side of the brain excels at this, even if it isn’t correct
Mistaking the voice in our head for a thing and labeling it “me” brings us into conflict with the neuropsychological evidence that shows there is no such thing. This mistake - this illusory sense of self - is the primary cause of our mental suffering
(3) Drawdowns by Chris Mayer
The rational mind hunts for reasons for drawdowns so our brains find reasons or create reasons
Drawdowns are part of the life of every investor; they are a feature and not a bug
There’s no defense against drawdowns if you are committed to a long-term, ownership approach to stocks. Instead, the ability to withstand drawdowns with equanimity is a source of outperformance
(4) Rich and Anonymous by Morgan Housel
The more money people have, the more “social debt” they tend to be burdened with. “Social debt” is defined as friends, family, and strangers who feel entitled to ask, beg and exploit money from you
Money can be an important tool for happiness, but as you become richer, the goal posts constantly evolve. You tend to want nicer things, often comparing the nicer things to your social group. Further, the social group you compare yourself to shifts, since wealth and luxury is relative. As Theodore Roosevelt once said, “Comparison is the thief of joy”
Reducing or eliminating social debt can maximize your enjoyment of wealth
Disclaimer: Please note that none of the information provided constitutes financial, investment, or other professional advice. It is only intended for educational purposes.