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Become a Better Investor Newsletter – 10 June 2023

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Noteworthy this week

  • 71% risk of a US recession
  • Gold outperforms stocks 2 years after yield curve inversion
  • 7 stocks have driven S&P 500’s YTD performance
  • Regulator bro goes after crypto bro
  • SEC is clamping down heavily on crypto

71% risk of a US recession: NY Fed gives recession a 71% probability. All recessions in the US since 1968 were preceded by an inverted yield curve. The average time from inversion until the recession started was about 1 year. Based on that, we should see a recession this month.

Gold outperforms stocks 2 years after yield curve inversion: History tells us that gold could outperform stocks in the 2 years following yield curve inversion. So, please remind me to revisit this in June 2024.

7 stocks have driven S&P 500’s YTD performance: Apple, Microsoft, Alphabet, Amazon, Nvidia, and Tesla have returned 53% YTD; the other 493 stocks have been flat.

Regulator bro goes after crypto bro: With an interesting quote, the US SEC announced they’re going after Binance.

SEC is clamping down heavily on crypto: The US SEC didn’t stop at Binance but has also sued Coinbase. SEC’s actions don’t appear to have had any major impact on the Bitcoin price.

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Weekly market performance

Click here to see more markets and periods.

Chart of the week

Discussed in the Become a Better Investor Community this week

“We have updated our asset allocation. Equities appear moderately attractive, and our strategies are positioned relatively defensive…”

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Podcasts we listened to this week

A Few Short Stories – The Morgan Housel Podcast

“Sometimes the best you can do when learning about any topic is to memorize a few short stories — quick, direct, and to the point, that you’re likely to remember forever.”

Listen on Apple or Spotify.

Readings this week

Paying Attention

“Deciding what to pay attention to is hard, overlooked, and most important, it’s a negative skill – it’s about what you willfully ignore as much as what you actively seek out.”

Read the article

ROIC and the Investment Process

“Return on invested capital (ROIC) provides insight into some important concepts in business. One is the old saying that you must spend money to make money.”

Read the article (PDF)

Book recommendation

Radical Uncertainty: Decision-making for an unknowable future by by Mervyn King & John Kay

“When uncertainty is all around us, and the facts are not clear, how can we make good decisions?”

Get the book on Audible or Kindle.

Audible is great; have you tried it? If not, click here to get 2 books for free.

Memes of the week

New My Worst Investment Ever episodes

Michael Howell Shares Why We Should Master the Liquidity Cycle to Predict Markets

Episode 689 of My Worst Investment Ever podcast, published on 24 May 2023, was such an interesting discussion with Michael Howell of Cross Border Capital that I tried to summarize below what he shared about global markets.

Understanding the liquidity cycle is crucial for investors as they navigate financial markets, with a focus on liquidity flow rather than interest rates. The global liquidity cycle has tightened, signaling a potential recession, but swift action and liquidity injections are easing strains. Collateral pools have overshadowed traditional credit availability in Eurodollar markets, and the transition from LIBOR to SOFR aims to improve transparency. US policymakers are vigilant in safeguarding Western markets and maintaining the dollar’s dominance. The Chinese yuan is unlikely to rival the dollar due to Saudi Arabia’s role, strengthening the dollar’s position.

Access the episode’s show notes and resources

Ep696: Neville Medhora – Hot Stock Tips Are Generally Unreliable

BIO: Neville Medhora has been starting businesses and side projects since high school and has learned a bunch about what works and what doesn’t work. He is an advisor to numerous software companies and teaches copywriting at his business, CopywritingCourse.com.

STORY: Neville started day trading in college and would try to get inside scoops to find cheap stocks that would explode. None of the scoops he ever got worked. Neville only made 5% return on his investment after a year of trading.

LEARNING: 99% of the inside scoop is unreliable secondhand information. Do your due diligence. It’s important to know when to sell.

Access the episode’s show notes and resources

Ep695: Jack Farley – Don’t Play in Markets You Don’t Know

BIO: Jack Farley is the host of the Forward Guidance podcast. He is interested in all things liquidity, macro, and central banking.

STORY: Jack bought a lot of put options on the markets and individual stocks, notably Tesla, in February 2020 when the market was bearish. When the market crashed in March 2020, Jack made so much money. But, soon, the market started going up, and his position dropped to zero.

LEARNING: Don’t view the market as a place to create wealth; view it as a place to grow it. Don’t confuse being lucky with being an intelligent investor.

Access the episode’s show notes and resources

Ep694: Carter Malloy – Valuation Is Not a Reason to Invest

BIO: AcreTrader’s CEO, Carter Malloy, grew up in an Arkansas farming family and has had a lifelong passion for agriculture and investing. Before founding AcreTrader, he spent five years as part of the founding team of a successful global equity investment firm.

STORY: Carter was super impressed by a healthcare software company whose stock was really expensive, and the valuation was crazy high. Carter decided to invest in the company. However, he lost most of the principal because the stock almost halved.

LEARNING: Valuation is not a reason to invest. Don’t bet against really good management teams.

Access the episode’s show notes and resources

Published on Become a Better Investor this week

In this third discussion in a series on the Role of a Manager, David and Andrew discuss how a manager should view, and treat, people. Deming wrote, “It’s just not ranking people, it is instead recognition of differences between people and an intent to put everybody in position for development.” David applies this to education: literally looking at how to support everyone with limited resources.

Listen to Optimizing Diversity: The Role of the Manager in Education (Part 3)

In this episode of Investment Strategy Made Simple (ISMS), Andrew and Larry discuss two chapters of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this fourth episode, they talk about mistake number 7: Do you confuse skill and luck? And mistake number 8: Do you avoid passive investing because you sense a loss of control?

Read ISMS 24: Larry Swedroe – Confusing Skill and Luck Can Stop You From Investing Wisely

Hefei Meyer Optoelectronic Technology Incorporated (002690 SZ): Profitable Growth rank of 1 was same compared to the prior period’s 1st rank. This is World Class performance compared to 1,250 medium Industrials companies worldwide.

Read Hefei Meyer Optoelectronic Technology – World Class Benchmarking

Land and Houses Public Company Limited (LH TB): Profitable Growth rank of 2 was same compared to the prior period’s 2nd rank. This is World Class performance compared to 220 large Real Estate companies worldwide.

Read Land and Houses – World Class Benchmarking

Sonata Software Limited (SSOF IN): Profitable Growth rank of 1 was up compared to the prior period’s 2nd rank. This is World Class performance compared to 890 medium Info Tech companies worldwide.

Read Sonata Software – World Class Benchmarking

DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.

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