The Weekend Bulletin (Vol. 1 | Iss. 24)
A digest of some interesting reading material from around the world-wide-web. Your weekly dose of multi-disciplinary reading.
Volume 1 | Issue 24 | May 02, 2020
Section 1: Investing Wisdom
A crisis is looming, lives are at stake, businesses are staring at losses, and investors are losing money (or are they?). Investors and industries are waiting for an economic bail out - a topic of many debates on whatsapp groups these days. Are businesses entitled to Government bailouts, or should they be left to face their destiny? This article takes one side of the argument and makes a compelling case:
“Just as death is a key part of life, so is the demise and reinvention of firms that can’t endure tropes. Covid-19 is no more historic than an 11-year bull market. With dangerous disregard for future generations we’ve decided that hundreds of thousands of people dying is meaningful, but the Nasdaq going down would be worse...We. Have. Lost. The. Script."
This article looks at how inventory can be manipulated by managements, and provides some pointers that can help identify such manipulations.
Lastly, here’s another article that furthers last week's 'investing is simple, but not easy' thesis. It looks at the relationship between macro-economic data points and the markets.
Section 2: Mental Models & Behavioral Biases
This hilarious narration by a father, an economist, about...umm....potty training his three children(!!)...is the simplest lesson in behavioural finance ever. Such good lessons on the power of incentives and unintended consequences.
Here is another story about the unintended consequences of incentives as they apply to the current situation in the market and the environment generally.
Section 3: Lessons From History
One of the things that comes up without fail in most of my interactions these days is the question: which sector will lead the next rally. My response to this has been that we don’t know, and we have failed miserably in the past at this exercise. Thankfully, someone put together a few of the popular predictions around past crises. A good read and a gentle reminder.
Section 4: Personal Development
There are two challenges that most of us face all the time, paraphrased below:
If time is the currency of achievement, why are some able to cash in their allocation for more chips than others? And in a world of rapid fire Slack messages, daily episodes of The Daily and Zoom calls up the wazoo - who on earth has the right to not feel rushed?
Productivity is fueled by raising attentional filters to keep unrelated or distracting thoughts out. But creativity is fueled by lowering attentional filters to let those thoughts in. How do you get the best of both worlds?
This well articulated article has the answers.
Section 5: Trivia
There is a popular saying on wall street about the month of May: "Sell in May and go away". But the significance of the month of May is far more than being a (false?) sell signal. Below are some defining moments that took place on the 1st of May (not in chronological order):
1792: One of the first U.S. IPOs is launched, as the Western and Northern Inland Lock Navigation Cos. go public at the Tontine Coffee House in New York City and Lewis' Tavern in Albany. (It is not that IPOs are expensive in the modern age; investors lost their shirts in the first ever IPOs as well)
1975: Wall Street cries "May Day" as brokerage commission rates are deregulated by the U.S. Securities & Exchange Commission. Despite dire predictions that negotiable commissions would cause a profit emergency, "May Day" ends up making Wall Street more lucrative than ever, as rising volume makes up for lower fees. (Falling brokerage rates are still being feared to cause a profit emergency)
1975: The Vanguard Group of Investment Companies, named after the HMS Vanguard, Lord Horatio Nelson's flagship in his great victory over Napoleon's fleet at the Battle of the Nile, begins operations, overseeing $1.8 billion in mutual fund assets. (This later led to the birth of indexing)
1976: An investment firm designed to acquire public companies and take them private is launched by three former investment bankers from Bear, Stearns & Co. Their firm, Kohlberg, Kravis, Roberts & Co., soon known as KKR. (Arguably the first private equity fund, the rise of an industry and the famous 2-20 fee structure)
And last, but to me, the most important - 1956: Seven local investors contribute $105,000 to an investment partnership that a 25-year-old is about to start running from his bedroom in a rented house on Underwood Avenue in Omaha. The name of the "kid" running the fund is Warren Buffett. (I cant image how different the world of investments would have been had this not happened)
Read about other such events here.
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Have a safe & secluded weekend!!
- Tejas Gutka.