What We’re Reading (Week Ending 27 November 2022)

What We’re Reading (Week Ending 27 November 2022) -

Reading helps us learn about the world and it is a really important aspect of investing. The legendary Charlie Munger even goes so far as to say that “I don’t think you can get to be a really good investor over a broad range without doing a massive amount of reading.” We (the co-founders of Compounder Fund) read widely across a range of topics, including investing, business, technology, and the world in general. We want to regularly share the best articles we’ve come across recently. Here they are (for the week ending 27 November 2022):

1. CICERO: An AI agent that negotiates, persuades, and cooperates with people – Meta AI Blog

Games have long been a proving ground for new AI advancements — from Deep Blue’s victory over chess grandmaster Garry Kasparov, to AlphaGo’s mastery of Go, to Pluribus out-bluffing the best humans in poker. But truly useful, versatile agents will need to go beyond just moving pieces on a board. Can we build more effective and flexible agents that can use language to negotiate, persuade, and work with people to achieve strategic goals similar to the way humans do?

Today, we’re announcing a breakthrough toward building AI that has mastered these skills. We’ve built an agent – CICERO – that is the first AI to achieve human-level performance in the popular strategy game Diplomacy*. CICERO demonstrated this by playing on webDiplomacy.net, an online version of the game, where CICERO achieved more than double the average score of the human players and ranked in the top 10 percent of participants who played more than one game.

Diplomacy has been viewed for decades as a near-impossible grand challenge in AI because it requires players to master the art of understanding other people’s motivations and perspectives; make complex plans and adjust strategies; and then use natural language to reach agreements with other people, convince them to form partnerships and alliances, and more. CICERO is so effective at using natural language to negotiate with people in Diplomacy that they often favored working with CICERO over other human participants.

Unlike games like Chess and Go, Diplomacy is a game about people rather than pieces. If an agent can’t recognize that someone is likely bluffing or that another player would see a certain move as aggressive, it will quickly lose the game. Likewise, if it doesn’t talk like a real person — showing empathy, building relationships, and speaking knowledgeably about the game — it won’t find other players willing to work with it.

The key to our achievement was developing new techniques at the intersection of two completely different areas of AI research: strategic reasoning, as used in agents like AlphaGo and Pluribus, and natural language processing, as used in models like GPT-3, BlenderBot 3, LaMDA, and OPT-175B. CICERO can deduce, for example, that later in the game it will need the support of one particular player, and then craft a strategy to win that person’s favor – and even recognize the risks and opportunities that that player sees from their particular point of view…

…Past superhuman agents in adversarial games like chess, Go, and poker were created through self-play reinforcement learning (RL) – having the agents learn optimal policies by playing millions of games against other copies of itself. However, games involving cooperation require modeling what humans will actually do in real life, rather than modeling what they should do if they were perfect copies of the bot. In particular, we want CICERO to make plans that are consistent with its dialogue with other players.

The classic approach to human modeling is supervised learning, where the agent is trained with labeled data such as a database of human players’ actions in past games. However, relying purely on supervised learning to choose actions based on past dialogue results in an agent that is relatively weak and highly exploitable. For example, a player could tell the agent, “I’m glad we agreed that you will move your unit out of Paris!” Since similar messages appear in the training data only when an agreement was reached, the agent might indeed move its unit out of Paris even if doing so is a clear strategic blunder.

To fix this, CICERO runs an iterative planning algorithm that balances dialogue consistency with rationality. The agent first predicts everyone’s policy for the current turn based on the dialogue it has shared with other players, and also predicts what other players think the agent’s policy will be. It then runs a planning algorithm we developed called piKL, which iteratively improves these predictions by trying to choose new policies that have higher expected value given the other players’ predicted policies, while also trying to keep the new predictions close to the original policy predictions. We found that piKL better models human play and leads to better policies for the agent compared to supervised learning alone…

…While CICERO is only capable of playing Diplomacy, the technology behind this achievement is relevant to many real world applications. Controlling natural language generation via planning and RL, could, for example, ease communication barriers between humans and AI-powered agents. For instance, today’s AI assistants excel at simple question-answering tasks, like telling you the weather, but what if they could maintain a long-term conversation with the goal of teaching you a new skill? Alternatively, imagine a video game in which the non player characters (NPCs) could plan and converse like people do — understanding your motivations and adapting the conversation accordingly — to help you on your quest of storming the castle. 

2. Pressure on the Hong Kong Dollar Peg Keeps Building – Richard Cookson

The HKMA has a mandate to keep the currency trading in a range of HK$7.75 to HK$7.85 per US dollar. The current band was set in 2005 and has never been broken. When it gets too close to either end of the band, the HKMA intervenes, either by buying or selling the city’s currency. As the chart below shows, the currency has traded at the extreme weak end of the range for most of the year, pressured by the rising US dollar. That pressure has subsided somewhat recently as interest-rate expectations have eased a bit. But this is only likely to be short-term relief, because the social and economic costs of defending the peg are huge. The Hong Kong dollar peg is like being on the gold standard, and like the gold standard the frailties of such mechanisms are always social and economic.

Because of the peg to the US dollar, Hong Kong has no independent monetary policy; it has had to follow the Federal Reserve and tighten at a time when it should be doing the opposite. If the Chinese economy as a whole has struggled mightily due to its extraordinary “zero-Covid” policies and the mother of all debt-bubble hangovers, Hong Kong’s has done even worse, shrinking 4.5% in the third quarter from a year earlier. The benchmark Hang Seng Index is down by almost half since its high in 2018 even after a recent bounce.

With growth going in the wrong direction and the HKMA having to raise rates, Hong Kong has had to resort to the only option for countries on currency pegs: massive government spending. There is very limited room, though, for any country to ramp up fiscal spending without investors worrying about the accompanying increase in borrowing (debt) and sustainability of the peg. Small wonder, then, that fiscal policy has done little to soften the savage downturn.

Nor is this merely a cyclical problem. Hong Kong’s best days are behind it. China’s political interference has only risen. The working population, especially higher earners in finance, is shrinking. I doubt the weakness is merely cyclical and if it isn’t, Hong Kong’s tax base has been permanently eroded. Which is a problem, for Hong Kong is now a massively leveraged economy. 

That the government has very little debt is not really the point because private sector debt more than makes up for it. Andrew Hunt, an independent economist who has followed Asia closely for decades, points out that foreign debt is almost $500,000 for each person working in Hong Kong. Domestic debt levels have doubled since 2007, according to the World Bank. Property debt has grown especially fast, and despite a drop in prices that shows every sign of gathering momentum, Hong Kong property is still among the world’s most expensive.

It is that huge surge in debt, falling asset prices, and ever cloudier outlook for Hong Kong’s economy which makes defending the peg so much more problematic than during the Asian crisis of the late 1990s. You can see the effects of all this in the HKMA’s Exchange Fund, which, among other things, manages Hong Kong’s foreign-exchange reserves. Its assets have tumbled to $417 billion from $500 billion late last year, according to the HKMA, its largest drop ever. 

3. Estée Lauder: A Success Story – David Senra

[00:12:03] Okay. So I’m going to jump into the book. I will point out to you where I think the parts were Estée fits this methodology. There’s just a ton. Like there’s just a ton to learn from her. She talks about — this is very fascinating because one of the things is like you have to know the history of your industry. And she points out that she can build a business around things that are just not changing.

She points out that beauty is an ancient industry. This is going to — this is kind of an echo of the idea. One of my favorite idea is from Jeff Bezos about this idea, it’s like everybody talks what’s going to change in the next 10 years.

He’s like you should ask the opposite question. What’s not going to change in the next 10 years because those are the things that you can build a business around and then when you invest time and energy, like since they’re going to be around for 10 years, you can actually get like return on that investment.

So in Amazon’s case, he’s like I asked myself in 10 years from now, I knew that my customers would want — today and 10 years from now, they’re going to want a wide selection of products. They’re going to want low prices and fast deliveries. He’s like no customer 10 years from now is going to come to say, “Hey, Jeff, I wish you deliver the packages a little slower.” “Hey, Jeff, I wish you raised your prices.”

So he says I invested a lot of time and energy in those principles. So he says beauty has always commanded attention. In a perfect world, we’d all be judged by the sweetness of our souls. But in our less than perfect world, the woman who looks pretty has a distinct advantage. Beauty secrets have been passed on from mother to daughter through the ages. Primitive women painted their faces with berry juice. Nero’s Roman beauties widened their faces with chalk.

From Cleopatra’s fabled milk bath to the ancient Egyptians pot of black kohl, from the rouge flapper cheeks of the 1920s, you can clearly see she studied the history of her industry. That’s the point of this, to all the way to see Estée Lauder’s soft magic. Women have always enhanced their God-given looks. It has always been so. It will always be so. And so on the very next page, we see another Jeff Bezos idea.

[00:14:00] This idea that missionaries make better products. Beauty for her was a mission. It was not just a product. An interesting point, beauty is the best incentives to self-respect. You have — you may have great inner resource, but they don’t allow — but they don’t show up as confidence when you don’t feel pretty.

People are more apt to believe you and like you when you look fine. And when the world approves, self-respect is just a little easier. The pursuit of beauty is honorable. And she goes on about this for quite a while. This is more on the history of beauty and its universal appeal, which again, these are just — the way to think about this is the foundation on which she built her business or her empire is a better way to put it.

Beauty is a fine invention. The art of inventing beauty, which is what she does, transcends class, intellect, age, profession, geography, virtually every cultural and economic barrier. There isn’t a culture in the world that hasn’t powder, perfumed and prettied its women. Love has been planted, wars won and empires built on beauty. I should know, I’m an authority on all the three. Love, wars and empires have been woven into my personal tapestry for decades. I’ve been selling beauty ever since I could recognize her…

…So her father owned a hardware store. They have a gang of kids. There’s like 10 kids or something like that and they’re all having to work in the family business as well. And so she’s taking lessons that she learns in the hardware store and to apply them to her business. The Estée Lauder business later.

She says my father’s hardware store was my first venture into merchandising. I loved to help him arrange his wears. My special job was creating window displays that would attract customers, how I love to make those windows appealing. She’d work on gift wrapping and by covering a hammer or a set of nails with extravagant bows and papers, which really did seem to delight his customers. And this is something she talks about over ever.

She’s obsessed with packaging to an extreme degree. Wait until I tell you what she does. She spends weeks debating just the color of like the jars that hold her creams in. She’d go to extreme levels of detail. Again, this is not a job. This is a mission, a love affair is one way to think about it for her.

[00:20:04] So she’s packaging — this is the first time she mentions packaging in the book, but she talks about it a lot. So she says packaging requires special thought. You could make a thing wonderful by changing its outward appearance. Little did I think I’d be doing the same thing, multiplied billion fold in not too many years.

There may be a big difference between lipstick and dry goods, between fragrance and doorknobs, see how she’s talking about what she learned in the hardware store and applying it to later on. But just about everything has to be sold aggressively. I honed my techniques as I played with the wears at my father’s store. I wedded my appetite for the merry ring of a cash register. I learned early that being a perfectionist and providing quality was the only way to do business. I knew it. I felt it.

And so now we have Estée talking about the advantage that you have if you actually love what you do because so few people actually do that, go back to what Bill says, if you’re faking it, you’re going to get smoked by somebody that’s not faking it…

…It’s a fantastic maximum. So this is also one of my favorite ideas that I learned when the first time I read the book about a year and a half years ago. She calls it the sales technique of the century. Again, I would say Claude Hopkins had figured this out as well. Albert Lasker, a bunch of advertising people, but this is fantastic. Now the big secret. I would give — she was the first — Estée was the first one to use this technique in the beauty industry. Now you see all of them.

Now the big secret. “I would give the woman a sample of whatever she did not buy as a gift. It might be a few teaspoons of powder in a wax envelope. Perhaps I’d shave off a bit of lipstick and tell her to apply it to her fingers. Perhaps in another envelope, I would give her a bit of glow.” I don’t know what that is. “The point was this, a woman would never leave empty-handed” that’s her point. I did not — this is such a good idea, too. I did not have an advertising budget. She’s going to talk about this later. I did not — maybe she talks about it now. Let me not jump ahead.

I did not have an advertising department. I did not have a copyrighter, but I had a women’s intuition. I just knew even though I had not yet named the technique that a gift with purchase was very appealing. In those days, I would even give a gift without a purchase. The idea was to convince a woman to try the product. Having tried it at her leisure in her own home and seeing how fresh and lovely made her look, she would be faithful forever. Of that, I had not a single doubt. And so you see this. I think this is a well-known idea now…

…[01:08:10] Okay. So I need to choose — at this point in the company’s history, she starts to expand. She’s just in the United States, She’s going to expand to Europe and then she’s going to expand to Canada. I’m going to tell you great ideas or just crazy ideas about both experiences. This is how she does it. She always shot for the top. So she wanted to be — if she’s going to break into a new market, she wanted to be in the very best retailer in that country.

In America, she thought that was Saks; in London, she thinks that’s Harrods. I would start with the finest store in London, which was Harrods. And if I did that, all the other great stores would follow. So she talks to the buyer. Simply not interested was the unmistakable message. This is going to take a few years for her to do this. So okay. No one’s — not even wanting to talk to me.

A little media — so what she’s doing, well if I’m here, a little media attention was called for. I visited the beauty editors of various magazines. This is in London. She talks to the — she’d do the same thing, give them gifts, give advice, make them up, okay? Yes, they’d be happy to write a piece about my products. What store in London would be carrying them. My products are not available in London had to be my reply.

Well, she answered, I’ll write a piece saying that Estée Lauder’s cosmetics will be coming soon. Again, I went to Harrods. Again, the answer was no. There was no space at this time. There was no call for my products. This wasn’t the right time of year, maybe another time, et cetera, et cetera. I stayed in England for a month visiting every beauty editor to make my name known. I was getting write-ups, but no Harrods order. It was looking very bleak.

The next year, I went back to London and Harrods. So now she talks to the same buyer. This is a year later. She was not as quite as hostile, but she says, let me tell you, I have no room here, as I told you before, she said, but perhaps I could take a tiny order and put it in with the general toiletries. It won’t be next to the good cosmetics. That you’ll have to understand, Ms. Lauder. So she gets a tiny order, not in a place she wants. It’s not a victory yet. I visited every one of those beauty editors, again to remind them of me. Another round of makeups, another round of samples.

[01:10:05] Do you think you might write another piece I ask now that we’re in London at Harrods. The articles appeared. Customers also appeared. I was on my way. Women became — remember how it’s kind of like going up from getting the demand from the ground up. Just how she did with Saks, if you were to think about it. Customers also appeared. I was on my way. Women began asking for Estée Lauder. That’s why I just said what I said to you.

The Harrods buyer was reluctant to notice, but she had no choice. In the flush of a good week sales, I summon up the courage to ask if she could give me a more important counter. Oh, no, she said, “Other counter space is definitely not available.” About 6 months later, I made my third trip to London, Well, we seem to have many London women asking for your product. She grudgingly admitted. I think we’ll give you a small spot at a more prestigious counter. And that was how Estée Lauder came to Europe.

4. “Sokaiya”: Japan’s Corporate Racketeers – O-Tone

Defining “Sōkaiya” is as difficult as defining Geishas. They could be fixers for a firm, making bad press go away. Or extortionists, demanding money from a company to keep quiet.  

Originally, “Sōkaiya” were unconnected to organized crime. In literature “Sōkaiya” were first mentioned in the late nineteenth-century. A time when the majority of private enterprises in Japan were organized as unlimited liabilities. Entrepreneurs would frequently solicit assistance of “Sōkaiya” to protect their business and personal fortunes negatively impacted by rumours and scandals. In that respect “Sōkaiya” can be compared to corporate lawyers in the U.S.

During the post war period “Sōkaiya” remained useful for corporate Japan by turning into “general meeting specialists”. After Japan’s high growth era of the 1950’s and 1960’s the society became more politically engaged. Social activism was on the rise, for example criticizing pollution by Japanese companies. With the help of “Sōkaiya”, acting on behalf of the corporation, those protests were muted or silenced.

Chisso Corporation serves as a good example. The company had been polluting a river close to its factory with mercury for years (Minamata pollution). “Sōkaiya” were hired by the corporation at the AGM following the scandal. An aggressive mob shouted down environmental activists and the victims. Much to the liking of management the AGM ended quickly.

It is said that Yakuza started to realize the profit potential of “Sōkaiya” in the mid 1960’s, actively tying up with various “Sōkaiya” groups. The outcome was a hybrid “Yakuza- Sōkaiya”, specialized in racketeering corporate Japan. It is that hybrid that most Western observers refer to when talking about the phenomenon.

Their activities followed a standard procedure. Purchase the minimum number of shares to be eligible to attend a company’s AGM. Before the AGM contact executives threatening to troll them personally or the company in general at the shareholder meeting. Think: real/ imaginary facts about product liability claims, irregularities and payoffs and/ or pointing to personal misconduct, love affairs, etc. If the company had an interest in the AGM proceeding smoothly, they would have to pay off the racketeers by purchasing absurdly expensive subscriptions to useless magazines, paying rent for office plants, etc.

If companies refused, an armada of trolls would stir up the AGM like in aforementioned JAL case. Sometimes, racketeers even started vandalism: Spraying paint, lighting fires, throwing bottles at the chairman’s desk.

5. TIP497: Lessons From Billionaire Howard Marks – Clay Finck

[00:01:50] What is the most important thing in investing? This is the question that Howard Marks would be challenged with when investing for clients in developing a philosophy. Except there is not just one thing when it comes to investing. There is a multitude of different things that are really important, and if we misassess any of them as investors, then we run the risk of having suboptimal outcomes.

[00:02:13] In the end. As Marks states quote, successful investing requires thoughtful attention to many separate aspects, all at the same. Omit anyone and the result is likely to be less than satisfactory. Marks also states that his book isn’t a step-by-step guide for learning how to invest, but rather a book that covers the investment philosophies that he uses in his own process.

[00:02:37] The ideas presented in his book are intended to be timeless in a world that is constantly changing. Ironically, Marks goal isn’t to simplify investing, but rather make it clear just how complex it actually. Marks says that the most important key to his successful investment career has been an effective investment philosophy, developed and honed over time for more than four decades, and implemented consciously by highly skilled individuals who share his culture and values…

…Next I wanted to transition to talk about Marks’s comments on risk. The essence of investing consists of dealing with the future, and because the future isn’t certain at any point, then risk is inescapable.

[00:11:15] Thus, understanding risk and handling risk effectively is essential to being a successful investor. When you’re considering an investment, you shouldn’t just analyze the potential returns, but also the risk as well. Risk obviously isn’t preferred, so if two investments have similar return profiles, but one has more risk, then we’d obviously prefer the investment that has less risk.

[00:11:39] On the same line of thinking, the return of a portfolio doesn’t tell us whether the investment manager did a great job or not. If a fund manager achieved a 10% return, but only held two stocks, applied leverage, or only invested in Microcaps, then a 10% return might not be sufficient for the level of risk that was taken.

[00:11:59] This would mean that the manager actually did a poor job of allocating capital when taking into consideration the risk that was taken. The theory behind risk and return for an investment is that for a riskier investment to be deemed investible, it must offer prospects of higher returns. So those that believe they don’t mind taking on more risk, may think that the secret to receiving higher returns is just to simply increase your risk, and that’s really not the case either.

[00:12:28] If riskier investments reliably produce higher returns, then they wouldn’t actually be riskier. A better way to think about it is that the future is far less certain for a riskier investment, a high flying growth company that is growing at 50 or a hundred percent per year. The bull case says that there is so much upside it will be significantly larger many years down the road.

[00:12:50] That’s what happened to a company like Amazon. They just freely never quit growing. The Bear case for a high flying growth company is that because they are growing and there is a lot of money to be made, this encourages competition to come in and eat at those profits and try and steal market share. So eventually the growth slows and the optimistic prospect doesn’t pan out and the stock price really suffers.

[00:13:13] You know, the example here is a company like Peloton. Now let’s compare the high flying growth company to something like a 10 year US Treasury. The US Treasury is perceived as less risky because it’s extremely likely that you will get your coupon payments that you agree to over the length of that investment.

[00:13:32] The outcomes are very certain. Whereas with the high growth company, there is a wide range of potential outcomes. Either it does really, really well in gross for a long time, or the growth stalls and the stock price goes nowhere or way down or somewhere in the middle. Now when looking at a spectrum of all investments, we could put money in, you have the US Treasury on the very low risk, highly certain area, and then you have the high flying growth company, which is higher risk and you know, wide range of potential outcomes.

[00:14:00] And then you have all these investments in between where you know you have your value stocks, your deep value, and your regular growth stocks. So there’s kind of a spectrum of risk and return and how certain we can be about the future for all these investments. Marks states that when riskier investments are priced fairly, they should have higher expected returns, as well as the possibility of low returns, and in some cases the possibility of losses.

[00:14:26] I think a lot of people have been fooled on taking on more risk in their investments without recognizing the potential for really bad outcomes, such as what we’ve seen with many companies in 2022 in actually defining risk. Marks has the same view as Warren Buffet. While academics view risk purely as volatility, Marks views it as the permanent loss of capital.

[00:14:49] If you’re almost certain that a company is trading below its intrinsic value, then they don’t really care too much about the volatility of the investment, as long as you have a long time horizon and you’re certain that you won’t lose any money if your thesis is correct. Now, risk of loss does not necessarily come from weak fundamentals.

[00:15:07] Even the worst companies can make great investments as we know from studying the early days of Warren Buffet or Benjamin Graham. Another risk with investing is having psychological biases when making the decision to purchase a particular investment. For example, investors tend to believe that exciting stories and stocks that have performed well as of late will continue to be high performers of the future.

[00:15:30] Many times the investments that have had the best recent performance are actually the riskiest stocks or companies to own because of the potential irrational exuberance associated with the company or sector. I think the most difficult thing when it comes to risk is how we quantify it. If you ask 10 people what the risk of a particular stock was, you’d probably get 10 different answers.

[00:15:53] And I think this is a big reason why academia decided to define risk as volatility, and it’s because you can just put an actual number on it. While some investors might say, risk is your chance of losing money over the holding period, that’s practically impossible to quantify. Risk is subjective, hidden, and something we just can’t quantify, which can make investing really difficult.

[00:16:17] Marks says that quote, skillful investors can get a sense for the risk present in a given situation. They make that judgment primarily based on A, the stability and dependability of value, and B, the relationship between price and value. Other things will answer into their thinking, but most will be assumed under these two…

…[00:20:52] Cycles are so important to understand because when we recognize them, we’ll be able to take advantage of them as investors. Eventually, I’m going to be covering Ray Dalio’s work. Dalio’s someone who popularized the idea of the long term debt cycle. Marks has a chapter in his book dedicated to cycles because of the big role cycles play in our overall economy.

[00:21:16] markets don’t move in a straight line up or a straight line down. They move in cycles. Optimism is followed by pessimism. Companies rise and companies fall. People in human emotions are a big driver of cycles. When people are optimistic about the future, they spend more, they save less, they borrow more, and this all stimulates the economy.

[00:21:37] Thus, this can push up the prices of stocks, the price of homes, and the price of other assets. And this leads people to feeling wealthier. You know, it’s this idea of the wealth effect. This can be a reinforcing cycle, which pushes upwards and upwards and upwards and you know, creates bubbles because things can’t be perfect and good forever.

[00:21:56] Eventually the cycle reverses the other way. People become cautious, they start to save more money, spend less, borrow less. This decrease in spending can lead to the economy contracting and potentially even to a flow of bankruptcies as the economy ends up not being as strong as some anticipated. Marks states that cycles will never stop occurring.

[00:22:18] In that every decade or so people will decide that sick locality is over. They think either the good times will roll on without end, or the negative trends can’t be finished at such times. They talk about virtuous cycles or vicious cycles, self feeding developments that’ll go on forever in one direction or another where people will say, this time’s different.

[00:22:40] This bull market’s not going to end for quite a while, or This bear will never end. He also says that quote, ignoring cycles and extrapolating trends is one of the most dangerous things an investor can do. People often act as if companies that are doing well will do well forever, and investments that are outperforming will outperform forever in vice versa.

[00:23:02] Instead, it’s the opposite. That’s more likely to be true. All of this reminds me so much of 2020 and 2020. Stocks went up so fast after the Federal Reserve provided a massive boost to the markets that many people just assume that this could go on for quite some time and it really couldn’t be further from the truth.

6. Past Performance – Joshua Brown

Stocks have been the best asset class in terms of outperforming inflation over the last century. We know this for certain. Over the last seventy years, stocks are undefeated versus inflation, but only over the longest time horizons. Stocks have outperformed inflation 100% of the time over all twenty year periods.

Can this past performance fail to show up in any future twenty year period? Of course it can. Never say never. Will stocks always be the best asset class versus inflation? Maybe not. Maybe bonds end up working better over the next two decades. Maybe cash. Maybe commodities or real estate or gold or CrackCoin or whatever else. We know anything is possible, which is why investing involves risk.

But when something has consistently worked over seven decades, without fail, regardless of all other conditions and variables, perhaps it’s best to take that risk rather than not. Even with the full acceptance of the Past Performance caveat…

…How do stocks beat inflation? Allow me to oversimplify the story for the benefit of people who aren’t looking for a grad school-level dissertation the morning after Thanksgiving…

The stock market is valued on earnings (profits) and these earnings are reported in nominal terms. If Colgate sells you toothpaste for $2 in 2019 and then sells you that same tube of toothpaste three years later in 2022 for $4, the nominal revenue growth they are reporting to shareholders is 100%. Has Colgate’s cost to make, ship, market and sell that toothpaste gone higher? Yes. Is that cost higher by 100% thereby completely offsetting the revenue growth gain? Probably not. So revenue growth leads to earnings growth, even net of higher operating costs in an inflationary environment. This is how inflation actually helps companies grow their earnings up until a certain point where costs rise too much or demand destruction occurs.

7. The Most Important Skill in Finance – Ben Carlson

The most important skill in finance has nothing to do with math.

Creating the best discounted cash flow models in the world won’t help you raise assets from prospective clients. No one really cares about your Microsoft Excel skills if you can’t explain what they’re good for. Spreadsheets aren’t nearly as important as soft skills.

Warren Buffett once said, “The most important skill in finance is salesmanship.”

Everyone is in sales in some capacity. If you want to get married you have to sell yourself to a prospective spouse. If you want to get hired you have to sell yourself to a prospective employer. If you want to sell a product or service you have to convince people that it’s worthwhile. If you want people to buy into your ideas you have to sell them in a way that people understand them.

The best story usually wins outs.


Disclaimer: None of the information or analysis presented is intended to form the basis for any offer or recommendation. We currently have a vested interest in Amazon and Meta Platforns. Holdings are subject to change at any time.

Ser Jing & Jeremy
thegoodinvestors@gmail.com