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