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What We’re Reading (Week Ending 3 May 2020)

The best articles we’ve read in recent times on a wide range of topics, including investing, business, and the world in general.

We’ve constantly been sharing a list of our recent reads in our weekly emails for The Good Investors.

Do subscribe for our weekly updates through the orange box in the blog (it’s on the side if you’re using a computer, and all the way at the bottom if you’re using mobile) – it’s free!

But since our readership-audience for The Good Investors is wider than our subscriber base, we think sharing the reading list regularly on the blog itself can benefit even more people. The articles we share touch on a wide range of topics, including investing, business, and the world in general.

Here are the articles for the week ending 3 May 2020:

1. 68 Bits of Unsolicited Advice – Kevin Kelly

It’s my birthday. I’m 68. I feel like pulling up a rocking chair and dispensing advice to the young ‘uns. Here are 68 pithy bits of unsolicited advice which I offer as my birthday present to all of you…

…Gratitude will unlock all other virtues and is something you can get better at…

…The more you are interested in others, the more interesting they find you. To be interesting, be interested…

… Perhaps the most counter-intuitive truth of the universe is that the more you give to others, the more you’ll get. Understanding this is the beginning of wisdom…

…Hatred is a curse that does not affect the hated. It only poisons the hater. Release a grudge as if it was a poison…

…Anything real begins with the fiction of what could be. Imagination is therefore the most potent force in the universe, and a skill you can get better at. It’s the one skill in life that benefits from ignoring what everyone else knows….

… Over the long term, the future is decided by optimists. To be an optimist you don’t have to ignore all the many problems we create; you just have to imagine improving our capacity to solve problems.

2. The Simon Abundance Index 2020 – Gale L. Pooley and Marian L. Tupy

The time price denotes the amount of time that a person has to work in order to earn enough money to buy something. To calculate the time price, the nominal money price is divided by nominal hourly income. (We got the former from the World Bank and the International Monetary Fund, and the latter by combining the World Bank’s GDP figures with Conference Board’s estimate of annual hours worked.) The average time price of 50 commodities fell by 74.2 percent. That means that for the same length of time that a person needed to work to earn enough money to buy one unit in our basket of 50 commodities in 1980, he or she could buy 3.87 units in 2019. In other words, the average person saw his or her level of abundance rise by 287.4 percent. That amounts to a compound annual growth rate of 3.63 percent and implies a doubling of abundance every 19.45 years (see Figure 1)…

…Simon’s revolutionary insights with regard to the mutually beneficial interaction between population growth and availability of natural resources, which our research confirms, may be counterintuitive, but they are real. The world’s resources are finite in the same way that the number of piano keys is finite. The instrument has only 88 notes, but those can be played in an infinite variety of ways. The same applies to our planet. The Earth’s atoms may be fixed, but the possible combinations of those atoms are infinite. What matters, then, is not the physical limits of our planet, but human freedom to experiment and reimagine the use of resources that we have.

3. How I Helped to Make Fischer Black Wealthier – Jay R. Ritter

By December of 1983, Donald Keim, Jeremy Siegel, myself, and many other academics (and nonacademics) took long positions in the March Value Line 1984 futures, with a short position in the March 1984 S&P 500 futures (to hedge against market movements) in order to capitalize on the turn-of-the year effect. As usual, the Value Line index outperformed the S&P 500 in early January of 1984, and we made money…

… The rest of the summer, I lost lots of money on the March-December spread as it fell from +1.80 to -1.60, but made up most of it on the September-December spread. In December, I made lots of money when the basis on the March contract was bid up by speculators anticipating the turn-of-the-year effect. But for the year as a whole, 1986 was a bad year. I lost more in the futures market than I made from my academic salary. And I decided that maybe I wasn’t an informed trader after all, but instead was one of those traders who think that they are informed, when in reality they are providing the profits to the truly informed investors.

Years later, I found out who was on the other side of the trades in the summer of 1986. It was Goldman Sachs, with Fischer Black advising the traders, that took me to the cleaners as the market moved from one pricing regime to another.

In the first four years of the Value Line futures contract, the market priced the futures using the wrong formula. After the summer of 1986, the market priced the Value Line futures using the right formula. The September 1986 issue of the Journal of Finance published an article (Eytan and Harpaz, 1986) giving the correct formula for the pricing of the Value Line futures. In the transition from one pricing regime to the other, I was nearly wiped out.

[Ser Jing here: The author (Jay R. Ritter) and Jeremy Siegel are both finance professors. Siegel, in particular, is a high-profile finance professor and the author of prominent investment books, including Stocks For The Long Run.]

4. The excess burden of death from coronavirus COVID-19 is closer to a month than to a year – Michael Levitt

The Medium post by David Spiegelhalter from the Winton Center at Cambridge University is well written and reassuring ((see https://medium.com/wintoncentre/how-much-normal-risk-does-covid-represent-4539118e1196 and attached). It concludes that if infected with COVID-19, your risk of dying is the same as the risk of dying for the coming year from natural causes. This is true for all age groups. The article is fine except it is totally wrong. The correct conclusion is that “your risk of dying is the same as the risk for the coming MONTH from natural causes.

5. When You Have No Idea What Happens Next – Morgan Housel

Accepting that forecasts have little use doesn’t mean you become a blind fatalist. When you pay more attention to history than forecasts you pick up on the patterns that guide how people respond to unforeseen events, which – given how stable behavior is over time – is the next best thing to knowing what will happen next.

I don’t know when this recession will end, and I’m not interested in your forecast. But I am interested in the historical observation that progress happens too slowly for people to notice but setbacks happen too quickly to ignore, which causes most people to recognize when a recession ended only with considerable hindsight, which requires maintaining investing optimism even when the economy around you feels broken.

6. The Coffee Can Portfolio – Budget Babe

“The potential impact of this…was brought home to me drastically as the result of an experience with one woman client. Her husband, a lawyer, handled her financial affairs and was our primary contact. I had worked with the client for about 10 years, when her husband suddenly died. She inherited his estate and called us to say that she would be adding his securities to the portfolio under our management.

When we received the list of assets, I was amused to find that he had secretly been piggy-backing our recommendations for his wife’s portfolio. Then, when I looked at the total value of the estate, I was also shocked. The husband had applied a small twist of his own to our advice: He paid no attention whatsoever to the sale recommendations. He simply put about $5,000 in every purchase recommendation. Then he would toss the certificate in his safe-deposit box and forget it.

Needless to say, he had an odd-looking portfolio. He owned a number of small holdings with values of less than $2,000. He had several large holdings with values in excess of $100,000. There was one jumbo holding worth over $800,000 that exceeded the total value of his wife’s portfolio and came from a small commitment in a company called Haloid; this later turned out to be a zillion shares of Xerox.”

7. The U.S. Needs Way More Than a Bailout to Recover From Covid-19 – Barry Ritholtz

When the stock market crashed in 1929, the Federal Reserve was a young institution with limited authority. Reviving the economy was the job of the White House and Congress. Programs such as the Works Progress Administration, in which the federal government hired workers to build more than half a million miles of streets and 10,000 bridges, along with airports, dams, highways, and sanitation systems, helped alleviate mass unemployment. However, the lasting economic gains came not from temporary work programs, but rather from the Reconstruction Finance Corp., a public-private entity better known as the RFC…

… The RFC was an enormous economic multiplier. Start with the Depression-era breakdown of the banking system. That institutional collapse wasn’t caused by a lack of capital; larger national banks such as National City Bank and Bank of America had idle cash. But low potential returns, combined with post-traumatic stress lingering from the stock crash, made bankers so risk-averse they wouldn’t even lend to each other.

The RFC’s solution in 1934 was for private bank employees to work with its subsidiary, the Federal Housing Administration, to create insurance for pools of mortgages. This led to a resurgence of financing for home purchases. Another RFC subsidiary, the Rural Electrification Administration, worked with farm cooperatives and banks to issue low-interest 20-year loans to run thousands of miles of electrical wires to rural farms and ranches—something the private sector had said would be too expensive.

During the years before World War II, the RFC created the Defense Plant Corp., offering loans and tax benefits for the manufacture of tanks, planes, and other weapons used by the Allies to fight the Nazis. The DPC helped add 50% to the country’s manufacturing capacity by the war’s end, according to Hyman. In 1940 it was responsible for 25% of the nation’s entire gross domestic product. Hyman noted that it remade the U.S. aerospace and electronics industries, turning them into some of the largest sectors in the economy.

Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.

What We’re Reading (Week Ending 26 April 2020)

The best articles we’ve read in recent times on a wide range of topics, including investing, business, and the world in general.

We’ve constantly been sharing a list of our recent reads in our weekly emails for The Good Investors.

Do subscribe for our weekly updates through the orange box in the blog (it’s on the side if you’re using a computer, and all the way at the bottom if you’re using mobile) – it’s free!

Here are the articles for the week ending 26 April 2020:

1. The first modern pandemic – Bill Gates

Melinda and I grew up learning that World War II was the defining moment of our parents’ generation. In a similar way, the COVID-19 pandemic—the first modern pandemic—will define this era. No one who lives through Pandemic I will ever forget it. And it is impossible to overstate the pain that people are feeling now and will continue to feel for years to come.

The heavy cost of the pandemic for lower-paid and poor people is a special concern for Melinda and me. The disease is disproportionately hurting poorer communities and racial minorities. Likewise, the economic impact of the shutdown is hitting low-income, minority workers the hardest. Policymakers will need to make sure that, as the country opens up, the recovery doesn’t make inequality even worse than it already is.

At the same time, we are impressed with how the world is coming together to fight this fight. Every day, we talk to scientists at universities and small companies, CEOs of pharmaceutical companies, or heads of government to make sure that the new tools I’ve discussed become available as soon as possible. And there are so many heroes to admire right now, including the health workers on the front line. When the world eventually declares Pandemic I over, we will have all of them to thank for it.

2. Charlie Munger, Unplugged – Jason Zweig and Nicole Friedman

If I have to be a little bit more cheerful about things, then I say to myself, ‘I’m lying, but I’m going to do it anyway.’ [Pause.] I had a son [Teddy] who died [of leukemia in 1955]. I told him he wasn’t going to die. When he started his thing, I lied. It just killed me, but I just lied to him. [Long pause.] He was 9 years old. [Extended pause.] I’m sure I did the right thing, but it hurts. [Clears his throat.]

3. It’s Time To Build – Marc Andreessen

You see it in housing and the physical footprint of our cities. We can’t build nearly enough housing in our cities with surging economic potential — which results in crazily skyrocketing housing prices in places like San Francisco, making it nearly impossible for regular people to move in and take the jobs of the future. We also can’t build the cities themselves anymore. When the producers of HBO’s “Westworld” wanted to portray the American city of the future, they didn’t film in Seattle or Los Angeles or Austin — they went to Singapore. We should have gleaming skyscrapers and spectacular living environments in all our best cities at levels way beyond what we have now; where are they?

You see it in education. We have top-end universities, yes, but with the capacity to teach only a microscopic percentage of the 4 million new 18 year olds in the U.S. each year, or the 120 million new 18 year olds in the world each year. Why not educate every 18 year old? Isn’t that the most important thing we can possibly do? Why not build a far larger number of universities, or scale the ones we have way up? The last major innovation in K-12 education was Montessori, which traces back to the 1960s; we’ve been doing education research that’s never reached practical deployment for 50 years since; why not build a lot more great K-12 schools using everything we now know? We know one-to-one tutoring can reliably increase education outcomes by two standard deviations (the Bloom two-sigma effect); we have the internet; why haven’t we built systems to match every young learner with an older tutor to dramatically improve student success?

4. What’s Different This Time – Morgan Housel

We are medically more prepared to fight disease than ever before. But, psychologically, the mere thought of a pandemic has never felt so foreign, so unprecedented. What was a tragic but expected part of life 100 years ago is now a tragic and inconceivable part of life in 2020.

Compared with other pandemics even as recent as the 1960s, it’s different this time because so few people today had the slightest expectation that an infectious disease would ever impact their lives. Even if covid-19 ends up medically less impactful than what happened in 1957 or 1968, the shock and surprise effect may be greater.

What We’re Reading (Week Ending 19 April 2020)

The best articles we’ve read in recent times on a wide range of topics, including investing, business, and the world in general.

We’ve constantly been sharing a list of our recent reads in our weekly emails for The Good Investors.

Do subscribe for our weekly updates through the orange box in the blog (it’s on the side if you’re using a computer, and all the way at the bottom if you’re using mobile) – it’s free!

Here are the articles for the week ending 19 April 2020:

1. Coronavirus Case Counts Are Meaningless* – Nate Silver

The number of reported COVID-19 cases is not a very useful indicator of anything unless you also know something about how tests are being conducted.

In fact, in some cases, places with lower nominal case counts may actually be worse off. In general, a high number of tests is associated with a more robust medical infrastructure and a more adept government response to the coronavirus. The countries that are doing a lot of testing also tend to have low fatality rates — not just low case fatality rates (how many people die as a fraction of known cases) but also lower rates of death as a share of the overall population. Germany, for example, which is conducting about 50,000 tests per day — seven times more than the U.K. — has more than twice as many reported cases as the U.K., but they’ve also had only about one-third as many deaths.

2. Who Pays For This? – Morgan Housel

We’re all just guessing, but when this is all over – however you want to define that – it would not surprise me if the direct federal cost of Covid-19 is something north of $10 trillion.

I’ve heard many people ask recently, “How are we going to pay for that?”

With debt, of course. Enormous, hard-to-fathom, piles of debt.

But the question is really asking, “How will we get out from underneath that debt?”

How do we pay it off?

Three things are important here:

(1) We won’t ever pay it off.

(2) That’s fine.

(3) We’re lucky to have a fascinating history of how this works.

3. Knowledge of the Future – Howard Marks

The market seems to have passed judgment with regard to the future. U.S. deaths have reached 23,000 and continue to rise. Weekly unemployment claims are running at 10 times the all-time record. The GDP decline in the current quarter is likely to be the worst in history. But people are cheered by the outlook for therapies and vaccines, and investors have concluded that the Fed/Treasury will reduce the pain and bring on a V-shaped recovery. There’s an old saying that “you can’t fight the Fed” – that is, the Fed can accomplish whatever it wants – and investors are buying it. Thus, the S&P 500 has risen 23% since its bottom on March 23, and there’s little concern about the retrenchments that typically have been part of past market rallies.

But Justin Beal, my artist son-in-law, is mystified. “I don’t get it,” he told me on Saturday. “The virus is rampant, business is frozen, and the government’s throwing money all over the place, even though tax revenues have to be down. How can the market be rising so strongly?” We’ll find out as the future unfolds.

4. The Stock Market is Not Your Benchmark – Ben Carlson

If you’re upset that the stock market isn’t getting killed every day even as the news gets worse you don’t really understand how the stock market works. Everyone is confused during a bear market as investors are recalibrating expectations on the fly. Right or wrong, this is how the stock market operates at times. It doesn’t always make sense.

This doesn’t mean the stock market is always right in its forward-looking assessments of the world. But the stock market moves quickly (in both directions) and sometimes doesn’t match the sentiment of the world at large.

This is a good reminder that the stock market is also not a benchmark for economic success (or lack thereof).

Think about it — the top 5 companies make up 19.3% of the S&P 500. The top 10 companies make up more than 26% of the index. And the top 20 names comprise 36% of the S&P.

Those 20 companies don’t control 36% of the economy. They don’t employ 36% of workers. They don’t produce 36% of the products and services or profits or revenues.

So why should we compare this market-cap-weighted basket of stocks directly to the economy at large?

Throughout the remainder of the crisis there will be times when the stock market seemingly moves in lockstep with the economic data. Other times (now for instance) the stock market will seem utterly detached from the economic reality on the ground.

Get used to it.

5. Charlie Munger: ‘The Phone Is Not Ringing Off the Hook’ – Jason Zweig

In 2008-09, the years of the last financial crisis, Berkshire spent tens of billions of dollars investing in (among others) General Electric Co. and Goldman Sachs Group Inc. and buying Burlington Northern Santa Fe Corp. outright.

Will Berkshire step up now to buy businesses on the same scale?

“Well, I would say basically we’re like the captain of a ship when the worst typhoon that’s ever happened comes,” Mr. Munger told me. “We just want to get through the typhoon, and we’d rather come out of it with a whole lot of liquidity. We’re not playing, ‘Oh goody, goody, everything’s going to hell, let’s plunge 100% of the reserves [into buying businesses].’”

He added, “Warren wants to keep Berkshire safe for people who have 90% of their net worth invested in it. We’re always going to be on the safe side. That doesn’t mean we couldn’t do something pretty aggressive or seize some opportunity. But basically we will be fairly conservative. And we’ll emerge on the other side very strong.”

What We’re Reading (Week Ending 12 April 2020)

The best articles we’ve read in recent times on a wide range of topics, including investing, business, and the world in general.

We’ve constantly been sharing a list of our recent reads in our weekly emails for The Good Investors.

Do subscribe for our weekly updates through the orange box in the blog (it’s on the side if you’re using a computer, and all the way at the bottom if you’re using mobile) – it’s free!

Here are the articles for the week ending 12 April 2020:

1. Message from Ser Jing’s friend

Last week, Ser Jing’s friend shared a list of wholesome activities we can all do to add more meaning to our lives during this difficult Circuit Breaker period. It bears repeating:

– Picking up a book that you have been wanting to read
– Taking this period of time to rest and re-calibrate yourself
– Spending quality time and doing stuffs for your loved ones
– Taking up online courses. Think Coursera and etc
– Starting up your own side line business
– Developing a new skill or hobby
– Practicing meditation, yoga and journalism to master your inner thoughts and emotions (Ser Jing meditates regularly)
– Spending some time alone in nature
– Getting in touch with your friends
– Spend time reflecting

2. The places that escaped the Spanish flu – Richard Gray

“Although they knew about the flu and did what they could to prevent it from coming, it arrived anyway,” says Katherine Ringsmuth. “The disease struck so quickly, most people didn’t have a chance to respond.” A fall in salmon stocks may have ultimately helped the Egegak village. “It was a terrible year for salmon as they had been producing so much canned salmon for the war effort in Europe, it caused the fish numbers to decline.

“It might have meant no one had any reason to visit the area. It was just chance.”

Survival, it seems, can sometimes come down to blind luck.

3. What Next? (Two Questions) – Morgan Housel

Covid-19 has separated workers into two clearly defined buckets: Those who can work from home and those who can’t.

You can break it out further into those who work for companies that can do business online and those that can’t.

In human terms, there are now flight attendants and waiters whose careers vanished overnight, and lawyers/bankers/consultants/programers who continue earning their nice salaries and benefits while in their pajamas.

That’s generalizing. There are exceptions on both sides. But it’s directionally accurate. And it’s a big deal because a key income inequality characteristic over the last three decades has been the disparity between those who work with their hands and those who work with their heads. That trend just sped up exponentially.

4. FUNDSMITH Annual Shareholders’ Meeting 25th February 2020 [link goes to video] – Fundsmith

Ser Jing here: Fundsmith is one of the best fund management companies I know of. Its founder, CEO, and CIO (chief investment officer), Terry Smith, is one of the best fund managers I know of. In late February 2020, Fundsmith held its annual shareholders’ meeting for the investors in its funds. Smith gave a presentation and answered questions from his investors together with his team. The entire meeting was recorded on video and it is 1 hour and 30 minutes of pure investing goodness. One of my favourite parts of the video is when Smith talked about investing during recessions and the current COVID-19 crisis (watch from 34:20 onwards).

5. My New Theory About Future Stock Market Returns – Ben Carlson

Said another way — if stocks don’t have the risk of a Great Depression-like crash on the table, does that mean expected returns should be lower going forward?

Looking at valuations over the long-term, you could make the case that the market has been pricing this in for some time now. Robert Shiller has pieced together U.S. market data going back to 1871 to calculate his cyclically-adjusted price-to-earnings ratio.

This valuation measure is far from perfect but it is telling to see how the averages have changed over time:

There is an obvious upward move in the average over time. There are a number of explanations for this increase — interest rates and inflation have fallen over time, accounting rules have changed on corporate earnings, the underlying structure of the market has changed (think more tech companies), the U.S. economy and markets are more mature, etc.

But another reason for this is the Fed now plays a larger role in the economy and management of the financial system, and thus, financial assets. If the stock market is “safer” over time, in that the Fed will do its best to smooth economic cycles, it would make sense that valuations should rise over time.

6. I Became a Disciplined Investor Over 40 Years. The Virus Broke Me in 40 Days – James B Stewart

At least I didn’t commit what Mr. Murtha considers the most serious error, which is to sell into a steep decline. “That’s where people really get hurt,” he said. “Once you’re out, the emotional leverage works against you. Either the market drops further, which confirms your fear. Or it goes up, and you don’t want to buy after you just sold. Then it gets further and further away from you. People don’t realize how hard it is to get back in.”

7. Calibrating – Howard Marks

The old saying goes, “The perfect is the enemy of the good.” Likewise, waiting for the bottom can keep investors from making good purchases. The investor’s goal should be to make a large number of good buys, not just a few perfect ones. Think about your normal behavior. Before every purchase, do you insist on being sure the thing in question will never be available lower? That is, that you’re buying at the bottom? I doubt it. You probably buy because you think you’re getting a good asset at an attractive price. Isn’t that enough? And I trust you sell because you think the selling price is adequate or more, not because you’re convinced the price can never go higher. To insist on buying only at bottoms and selling only at tops would be paralyzing…

…The bottom line for me is that I’m not at all troubled saying (a) markets may well be considerably lower sometime in the coming months and (b) we’re buying today when we find good value. I don’t find these statements inconsistent.

What We’re Reading (Week Ending 5 April 2020)

The best articles we’ve read in recent times on a wide range of topics, including investing, business, and the world in general.

We’ve constantly been sharing a list of our recent reads in our weekly emails for The Good Investors.

Do subscribe for our weekly updates through the orange box in the blog (it’s on the side if you’re using a computer, and all the way at the bottom if you’re using mobile) – it’s free!

Here are the articles for the week ending 5 April 2020:

1. Message from Ser Jing’s friend

Ser Jing’s friend recently sent a wonderful text message on a list of wholesome activities we can all do during these difficult times to still add grace, beauty, purpose, and meaning to our lives:

– Picking up a book that you have been wanting to read
– Taking this period of time to rest and re-calibrate yourself
– Spending quality time and doing stuffs for your loved ones
– Taking up online courses. Think Coursera and etc
– Starting up your own side line business
– Developing a new skill or hobby
– Practicing meditation, yoga and journalism to master your inner thoughts and emotions [Ser Jing meditates regularly]
– Spending some time alone in nature
– Getting in touch with your friends
– Spend time reflecting

2. A Coronavirus Fix That Passes the Smell Test – Michael Lewis

Encourage everyone in the world with access to the internet to report whether they can or cannot smell. Make it easy for them to do so. Find widely admired people with big social-media followings to make short videos on the subject — at the bottom of which there’d be a simple button that allows anyone watching to report their sense of smell. Go viral with the virus [COVID-19]. Before long you’d have a pile of data that smart analysts could use to map it, and evaluate its risks. The results might not be perfect, but they were far better than what we have now in any rich country and far better than what they might ever have in countries with fewer resources.

I love this idea. Hancock is well on his way to building an organization to make it happen — the website is sniffoutcovid.org. He is in the market for both widely admired people and data scientists. Here’s to hoping he finds them before my father calls me to say that he can no longer smell his Burgundy.

3. Great Love & Great Suffering – Josh Radnor

I have noted in myself a kind of reflexive optimism (i.e. “This is going to be okay,” “We’ll get through this,”) of which I’m becoming suspicious. Do I just feel that way because I’ve been inoculated by my privilege? Surely this is going to be calamitous for many people – far beyond the sick and the dying – and I don’t want to turn a blind eye toward that suffering: the suddenly unemployed and homeless, the relapsing addict and those that love them, those trapped in abusive and unsafe homes, etc.

It feels like this moment is asking me to grow up, to stop relying on false-hope granting platitudes and accept that pain, suffering, and grief are part of the birthright of being a human being. I say that with the full knowledge and deep belief that love, joy, laughter, and art are also part of that birthright. Light and shadow are inextricably bound up with each other and it’s naïve to think that darkness can be vanquished or banished in favor of everlasting light. That’s magical thinking of a kind to which I refuse to subscribe.

4. The Greatest Investment Quotes of All Time – Nick Maggiulli

“If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century, you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get.”
-Charlie Munger, Interview with BBC

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”
– Paul Samuelson

“I tell my father’s story of the gambler who lost regularly. One day he hears about a race with only one horse in it, so he bet the rent money. Halfway around the track, the horse jumped over the fence and ran away.”
-Howard Marks, The Most Important Thing

5. The Corona Crisis vs. The Great Depression – Ben Carlson

However, there are a number of differences between 1929-1932 and its aftermath and the current situation.

The Fed. The Federal Reserve was still relatively new during the Great Depression, having been founded just 16 years prior. Not only did they pour gasoline on the fire during the speculative period leading up to the crash, but they did next to nothing in trying to stop the crisis as it was unfolding.

John Kenneth Galbraith once wrote, “The Federal Reserve Board in those times was a body of startling incompetence.”

In the current crisis, the Fed has acted fast and they’ve gone big. Central banks around the globe have pumped liquidity into the system to make sure the plumbing of the financial markets continues to function.

This was not happening during the Great Depression and it’s one of the reasons there was a run on the banks and a huge number of bank failures.

Government Spending. During a severe economic contraction, individuals and corporations spend less money so it’s typically up to the government to make up for this shortfall.

During the Great Depression, they did the opposite. Republicans and Democrats alike sought to balance the budget and cut spending. Even in 1932, at the depths of the depression, they wanted to shrink government spending by 25%.

Today, we’re getting $2 trillion in fiscal stimulus rescue funds plus another $4 trillion in loans from the Fed. It’s likely we’ll need even more government spending depending on how long it takes to beat the virus.

6. Why does Covid-19 get the blame when Eagle Hospitality Trust’s woes predate it? – Marissa Lee

UC’s fixed payments were supposed to account for 66 per cent of EHT’s projected rental income in 2020, though the US lodging market began to weaken in the second half of last year. EHT’s revenue for 2019 came in 10 per cent lower than forecast. On Feb 17, 2020, a week before the US confirmed its first case of local Covid-19 transmission, UC amended the master lease agreements to allow EHT to receive more rent from any hotels that produce excess cash ow, to make up for shortfalls in any underperforming hotels.

The master lease agreements also formed the basis for EHT’s adopted valuations of its hotels.

According to EHT’s oer document, UC was required to hand over a US$43.7 million security deposit to EHT during the IPO, equivalent to nine months of fixed rent. UC funded US$23.7 million in cash, and indicated in the offer document that it would provide the balance of US$20 million by way of a letter of credit on or around EHT’s listing on May 24, 2019.

After EHT’s IPO, most investors assumed that the full US$43.7 million was safely in escrow, until they were told differently on March 19, 2020.

What they learnt is that UC had used US$5 million in cash to top up its security deposit to US$28.7 million, though it still had not managed to procure a letter of credit for the remaining US$15 million of the US$43.7 million.

7. The Shock Cycle – Morgan Housel

Then you ignore good news because you’re once bitten, twice shy. Avoiding further downside becomes such a focus that you lack the mental bandwidth to even recognize good news.

Then you deny good news. You’re so attuned to risk that you reflexively think good news must be wrong or out of context. Anyone promoting good news is criticized by the masses, who enjoy safety in numbers.

Then you realize you missed the good news. In hindsight you realize things turned a corner while people were most certain about how bad it was. You look back and can’t believe how obvious it was that people were too pessimistic, and can’t believe clear the signs of improvement were.

What We’re Reading (Week Ending 29 March 2020)

The best articles we’ve read in recent times on a wide range of topics, including investing, business, and the world in general.

We’ve constantly been sharing a list of our recent reads in our weekly emails for The Good Investors.

Do subscribe for our weekly updates through the orange box in the blog (it’s on the side if you’re using a computer, and all the way at the bottom if you’re using mobile) – it’s free!

Here are the articles for the week ending 29 March 2020:

1. Wounds Heal, Scars Last – Morgan Housel

When people feel the correlation between their decisions and their outcomes is high, there’s less desire for a strong social safety net. But when something impacts everyone at once, and can ruin the careful as much as the reckless, there’s a history of people coming together to support a public backstop. We saw that Wednesday, when a $2 trillion rescue package passed the Senate 96-0. I suspect we’ll be seeing more of it for years to come.

2. Why the Stock Market Rallies on Bad News [link goes to video] – The Compound

Michael [Batnick] and Barry [Ritholtz] discuss the latest record-breaking unemployment numbers and why the market is rallying on this bad news? What is going on?

3. What we learn from the past – Samuel Rhee

The markets were down almost 50% and everybody had lost their shirt. We worried we wouldn’t have any money to manage when all was said and done. And more importantly we thought we would all soon be out of a job. We were desperate for some guidance and sage advice from Barton. I asked him, “Barton – is this the worst thing you’ve ever seen?” He paused and thought for a moment, then he slowly opened his mouth. His answer was completely unexpected to everybody in the room. He said, “to be honest, I think 1974 was much worse.” We all turned to each other and looked around the room and asked. Wait what? 1974?

4. Stock Market Commentary: Confront the brutal facts, yet never lose faith – Chuin Ting Weber

So we keep the faith amidst the brutal facts in the short term, because the faith in our long-term destiny is ultimately our faith in humanity’s ability to overcome, as we have done in the past. Once again, our economies will grow on the back of human innovation, industry and our collective and relentless pursuit of a better life. Together, or probably preceding this, the stock market will go up again. We do not know exactly how long the pain would last or when the upturn would come, but come it definitely will!

5. How Did We Ever Get to The Roaring Twenties? – Ben Carlson

It’s also hard to believe the U.S. was ever able to pick itself up off the turf to make the Roaring 20s happen in the first place. Let’s go through a list of what occurred in the lead up to one of the biggest boom times in our country’s history:

World War I (1914-1918)… Influenza Pandemic (1918-1919)… Post-War Recession (1918-1919)… The Depression (1920-1921)… This 8 or so years looks like hell on earth:

And yet…look at what came during the aftermath.

6. What If You Buy Stocks Too Early During a Market Crash? – Ben Carlson

I know of a professional trader who foresaw the Great Recession, went to cash in the summer of 2008 before things got crazy and came up with a wonderful plan to put his money back to work at the lows.

He planned on putting his cash into a simple S&P 500 index fund in 25% chunks when the S&P hit 650, 600, 550, and finally 500. It was a generational buying opportunity and I was jealous he had such a wonderful plan of attack.

The only problem with this plan is the S&P never got to those levels, even though plenty of people were predicting it at the time.

The S&P hit an intraday low of 666, he put his cash to work and ended up never getting back in. He assumed the initial bounce was of the dead cat variety and a double-dip recession would give him another opportunity to buy but stocks never looked back.

I’m not sure many investors sitting in cash or bonds at the moment are worried about being too late. Those with dry powder left are far more concerned with being too early, as most assume things will only get worse.

What We’re Reading (Week Ending 22 March 2020)

The best articles we’ve read in recent times on a wide range of topics, including investing, business, and the world in general.

This is the first time we’re publishing on The Good Investors the best articles we’ve read in recent times. We’ve constantly been sharing a list of our recent reads in our weekly emails.

Do subscribe for our weekly updates through the orange box in the blog (it’s on the side if you’re using a computer, and all the way at the bottom if you’re using mobile) – it’s free!

Here are the articles for the week ending 22 March 2020:

1. Coronavirus: The Hammer and the Dance – Tomas Pueyo

When you’re done reading the article, this is what you’ll take away:

Our healthcare system is already collapsing.
Countries have two options: either they fight it hard now, or they will suffer a massive epidemic.
If they choose the epidemic, hundreds of thousands will die. In some countries, millions.
And that might not even eliminate further waves of infections.
If we fight hard now, we will curb the deaths.
We will relieve our healthcare system.
We will prepare better.
We will learn.
The world has never learned as fast about anything, ever.
And we need it, because we know so little about this virus.
All of this will achieve something critical: Buy Us Time.

If we choose to fight hard, the fight will be sudden, then gradual.
We will be locked in for weeks, not months.
Then, we will get more and more freedoms back.
It might not be back to normal immediately.
But it will be close, and eventually back to normal.
And we can do all that while considering the rest of the economy too.

Ok, let’s do this.

2. Common Enemies – Morgan Housel

Fritz’s theory was that modern society has gravely disrupted the social bonds that have always characterized the human experience, and that disasters thrust people back into a more ancient, organic way of relating. Disasters, he proposed, create a “community of sufferers” that allows individuals to experience an immensely reassuring connection to others.

As people come together to face an existential threat, Fritz found, class differences are temporarily erased, income disparities become irrelevant, race is overlooked, and individuals are assessed simply by what they are willing to do for the group. It is a kind of fleeting social utopia that, Fritz felt, is enormously gratifying to the average person and downright therapeutic to people suffering from mental illness.

3. The world after coronavirus – Yuval Noah Harrari

In this time of crisis, we face two particularly important choices. The first is between totalitarian surveillance and citizen empowerment. The second is between nationalist isolation and global solidarity…

…The coronavirus epidemic is thus a major test of citizenship. In the days ahead, each one of us should choose to trust scientific data and healthcare experts over unfounded conspiracy theories and self-serving politicians. If we fail to make the right choice, we might find ourselves signing away our most precious freedoms, thinking that this is the only way to safeguard our health…

… Humanity needs to make a choice. Will we travel down the route of disunity, or will we adopt the path of global solidarity? If we choose disunity, this will not only prolong the crisis, but will probably result in even worse catastrophes in the future. If we choose global solidarity, it will be a victory not only against the coronavirus, but against all future epidemics and crises that might assail humankind in the 21st century.

4. The Power of the Human Spirit – Ben Carlson

World War II was the first war where airplanes would play a major role and [Winston] Churchill was worried the Germans would bomb London. The population of the city at that time was something in the range of 8-9 million people.

Churchill was convinced as many as 3-4 million people would take shelter in the countryside, thus more or less completely shutting down the city. Others predicted mass panic in the streets, refusal by many to continue working and hundreds of thousands of deaths.

Churchills warnings proved prescient but not necessarily the outcome of the bombings.

Germany did bomb London mercilessly in 1940 and 1941. The blitz included targeted airstrikes on supply chains, industrial targets, and the city at large. The plan of attack for the Germans was to demoralize the British population, bombing them day and night for 8 months, including 57 days in a row at the outset.

Tens of thousands of bombs were dropped. Forty thousand people were killed and another forty-six thousand injured. Buildings all across the region were damaged or destroyed. Entire neighborhoods were decimated. More than a million people lost their homes.

The British government had set up psychiatric hospitals outside of the city in preparation for the toll these bombings would take on their citizens.

They sat empty.

In the face of a war that was literally brought to their doorsteps, the majority of the people in London never panicked.

5. Random Thoughts on the Crash As We Catch Our Breath – Ben Carlson

There are 156 companies that are down 40% or more this year. Eighty-six stocks are down at least 50%. And 40 have fallen 70% or worse this year alone.

You’ll recognize many of the industries represented here — airlines, cruise companies, casinos and energy stocks — as being the hardest hit. These companies are in the midst of a once-in-a-lifetime downturn.

Michael and I have received a number of questions from podcast listeners about the max amount they should keep in their company’s stock when it comes to retirement. There’s no perfect number but the answer is probably a number low enough that a 70%-80% decline doesn’t ruin your entire retirement plan.

Boeing is down roughly 70% in 2020.

United Airlines has fallen nearly 76%.

MGM is down 77%.

Royal Caribbean is down more than 83%.

The first quarter isn’t even over yet.

I’m sure there are plenty of employees who held all or most of their retirement assets in their company’s stock. They’re now living through Great Depression-level losses and who knows if these stocks are ever going to fully recover.

For every Amazon that makes their employees wealthy beyond their dreams, there are always going to be situations like this where companies get destroyed.

6. How to Fight Hindsight Bias – Michael Batnick

The situation worsens in terms of the virus spreading and its effect on the economy. This seems like fait accompli at this point, but maybe the market, even down 30%, still has not properly discounted what’s to come. We’ll look back in amazement at the levels of complacency and in some cases outright denial.

The virus passes through our system quicker than expected, and the market has already discounted the worst case scenario. Stocks recover most or all of their losses over the next few months, quarters or possibly years. We’ll look back in amazement at the time when stocks fell 30% in a few weeks because of a temporary slowdown in the economy.

At this point, I wouldn’t be surprised if either scenario plays out. The problem is that whatever comes to pass will appear obvious after the fact.

“Well so what?” you might be wondering. Why is it a problem? Hindsight bias is a problem because it leads to overconfidence, which leads to more risk taking, which leads to bad decisions, which leads to lower returns.