This is a new blog series where I’ll share brief thoughts on books, articles, videos or podcasts that have crossed my path. It may not be a full discussion of any one idea or topic, rather a highlight of key-takeaways from topics that interest me. I welcome continued discussion of these topics through either the comments section or on Twitter.
Keep It Simple S*****
Morgan Housel, a famous financial journalist formerly with The Motley Fool and The Wall Street Journal, and current partner at the Collaborative Fund gave a very insightful presentation at the MicroCap Leadership Summit that I highly recommend watching. In his presentation, Morgan Housel very plainly outlines what it takes to be successful at investing:
- “Spend less money than you make”
- “Save the difference”
- “Buy a diversified portfolio of great companies”
- “Be patient”
These are four very simple, yet essential tasks, but they seem to be the most difficult parts of investing. Behind all the suits, numbers and headlines, successful long-term investing comes down to discipline and the execution of these four simple steps over a long period of time.
Howard Marks of Oaktree Capital is well known for is thought-provoking periodic open memos that generally contain market commentary and his view on the condition of markets and the overall economy. Howard recently released his latest memo, which discusses market levels today as well as implications of the new US tax laws. For the purpose of this discussion, I’d like to highlight a couple passages from his notes on markets:
On the economic outlook:
“The U.S. economy is chugging along, and the recovery that started in 2009 has become one of the longest in history (103 months old at this point). The rest of the world’s economies are joining in for that rare thing, worldwide growth. Most economies seem to be gaining rather than losing steam, and they don’t appear likely to run out of it anytime soon.”
On what’s driving market prices:
“It appears many investment decisions are being made today on the basis of relative return, the unacceptability of the returns on cash and Treasurys, the belief that the overpriced market may have further to go, and FOMO. That is, they’re not being based on absolute returns or the fairness of price relative to intrinsic value.”
On Oaktree’s approach:
“Thus Oaktree will continue to invest on the basis of value and its relationship to price, and to refrain from trying to time markets based on predictions regarding economies, markets or psychology. The “melt-up” school says securities that already are highly priced may become more so. We’d never bet on whether they will or won’t.”
The takeaway here is to not let the “fear of missing out” drive your investment decisions. Although the economy currently appears to have sound fundamentals that indicate continued growth, high market prices appear to be considerably optimistic. Does that mean that there will be a crash? No. It simply means that you should continue to be diligent in where you invest your money. Howard’s point is that regardless of what economic indicators or investor psychology suggests, Oaktree will continue to base their investment decisions on value relative to price.
“Price is what you pay, value is what you get” – Warren Buffet
Fear of Missing Out & Cryptocurrencies
For those who loosely follow cryptocurrencies, you may have heard of the BitConnect Scandal. This Medium article provides a great overview of the issues surrounding BitConnect and also outlines how the fear of missing out on cryptocurrency prospective returns has led speculators to completely skip the due diligence process. Here are some concerning passages from the article:
“Some of the elements that you need for a successful ICO include:
- A complete White Paper
- Transparent Business Model
- Description of goods and services
- Good Community Management
- Bounties or good software practices measured by a third party
- No Profit Promises or Guarantees
- Giving full Access to the tokens to your customers
- Location and registration
- Use of funds
- Traction and legal documentation, such as incorporation and shareholder’s agreements
BitConnect had none of these, and their website heavily heavily obscured information surrounding how their product works and what it does.”
“If something promises incredible rewards, with very low risk, and does not make any effort to explain how it works, or why it works, a user should be extremely suspicious. The fact that multiple people were giving BitConnect money allowed them to profit while increasing their network of influence.”
Cryptocurrencies are already speculative in nature. When you add the deception and obscurity associated with BitConnect into the equation you can see how the relentless demand for Cryptocurrencies by investors has incentivized the creation of unethical organizations. This is a cautionary tale to anyone who participates in speculative markets and emphasizes the need to know all the risks associated with any investment.