Announcements: If you like the content (books, podcast, Substack) submit a review (Amazon, Apple, this page). Also, I want to do a podcast on US health insurance. I am looking for a guest who knows these organizations from the inside out and can explain how they are incentivized to reject claims. If you know of someone, please let me know.
“There were no salaries …we were given pounds of grain or even given a goat …that was it.”
Gao Xiqing, on the 1949 Chinese Revolution on the podcast, here.
“I won twenty-six thousand dollars in twenty-two hours of play. There was four thousand dollars in the last pot, three of us in. Two boys from Houston. I won the hand with three natural queens.”
All the Pretty Horses, Cormac McCarthy, 1992
“My well-laid plan of buying in the auction was preempted. I had to run after a moving vehicle and climb aboard the best I could.”
The Alchemy of Finance, George Soros, 1987
THESE POSTS ARE NOT INVESTMENT ADVICE. INVESTING IS RISKY AND OFTEN PAINFUL, YOU CAN AND WILL LOSE MONEY. DO YOUR OWN RESEARCH. YOU GET TO SEE WHAT I AM UP TO FOR YOU TO TAKE OR LEAVE.
Today I want to look backward and forward. Backward regarding what went well and what didn’t and forward in terms of what may happen next.
In these pieces, I share frameworks to help both me and you understand the world as accurately as possible. For instance, one key lens is to observe which way the bread is buttered. Cash flows drive economics. Economics in turn drives politics. Thus, to understand Trump you need to understand how a tech economy disrupts communication (Twitter) and income (yellow cabs vs Uber), making many confused and anxious. Similarly, Putin’s ability to slaughter Ukrainians derives from his ability to sell oil and gas we can’t live without. I tie my broad observations to specific investment choices. While views on countries can’t be measured, views on asset markets can.
Below is my track record.
My goal is to avoid losses and compound, not to outperform any particular stock index. Risk mitigation matters as much as opportunity because I treasure my freedom more than the incremental dollar. These returns are unaudited, meaning no third-party accountant can vouch for them. It’s a spreadsheet I’ve been carrying around for 17 years. You can, however, track my calls on this Substack, which began 2 years ago. You might not remember the calls, but I do.
Below are some that were prescient, some that were not.
Short bonds, February 24, 2021. Fathers Sons and Money. “I’ve sold bonds (what’s known as going short)..in the US.” Below is the yield on 10-year US bonds.
When I initially made the call, yields rose, then fell back down. Ultimately, however, yields rose about 4% (from 1% to 5%) and while I didn’t capture the entire move, I got chunks of it.
Avoiding Bitcoin, April 12, 2021. Man’s Search for Money. “When it comes to saving and investing, I am attracted to assets that are simple and whose characteristics are understandable. For me, bitcoin doesn’t meet that test.” Below is the price of bitcoin.
Sometimes making money is less about what you own than what you avoid. This was a case of not getting involved.
Short US stocks, March 23, 2022. Policy Error Vortex. “We are going to see a very rapid withdrawal of liquidity…if real interest rates normalize or even partially normalize stock and real estate prices can fall a lot.” Below is the S&P 500. Over time, stocks go up. But at moments in time, they can fall a lot.
The US stock market lost about 20% last year. Getting out of it and avoiding a long-only asset allocation was the key to survival. I came out of the year low positive, a lesson in me not being aggressive enough.
A few other calls,
“I suspect we may get a soft landing. That means inflation falls further without unemployment spiking sharply higher.” A Soft Landing, June 8, 2023. That’s what’s happened and why stocks and bond markets have rallied sharply in recent weeks.
“Owning high real yield bonds—which I do in the US, Australia and Brazil…is likely a winning formula for the next 18 months or so.” Modernity Mindset, Nov. 7, 2023. The picture of US real yields below shows what happened.
Misses
Identifying opportunities is easier than capitalizing on them. Figuring how much risk to put on each idea, and when exactly to get in and out is hard. That’s what the Soros quote at the outset is about and he is hardly a dummy. I’ve also just been plain wrong at times. In the last twelve months, not once but twice, I shorted the US stock market and added to the short as the stock market fell, only to have the market reverse and be wrong! While my core view was of a soft landing, I kept hedging my bets which, in retrospect, was wrong.
On October 17, ten days before the stock market bottomed, I wrote “Where does this leave me? …still wanting to own cash and hold onto my stock hedges but being a little more hopeful in terms of asset prices.” The correct answer was “stocks are close to a very attractive entry point, I am buying!”
I am also allergic to loss. I lost over 2% in November and it felt like I had the flu all month. Charlie Munger said in a podcast recorded shortly before his death that with a little more leverage he could have had much higher returns. That’s true for me as well. My average returns would be 12% rather than 8% if I levered up my decisions by 50%. I need to think on that one. I might begin to do that a little more. The trick is, when leverage is working against you, i.e. you are levered to losing trades, the pressure and feeling of being stupid crushes a man. I’ve seen it and felt it.
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Going Forward
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