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Become a Better Investor Newsletter – 6 May 2023

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Noteworthy this week

  • Another 0.25% hike from Fed
  • JPMorgan is gobbling up failed banks
  • Blackrock–an extended arm of the US gov’t
  • US bonds are still below their peak
  • Buy now, pay later for groceries

Another 0.25% hike from Fed: As the market expected, Fed hiked another 0.25%. Weak US banks got slaughtered instantly, and we’re likely to see more failures. The market now expects the Fed to pause the hikes.

JPMorgan is gobbling up failed banks: The US bank consolidation has begun. The large banks are buying failing banks and getting guarantees from the gov’t. Not the last we’ll see.

Blackrock–an extended arm of the US gov’t: In 2020, Blackrock was a vehicle to intervene in the debt markets. It’s likely we’ll see the same in equity markets (which we also suggested in our global strategy report in September 2021).

US bonds are still below their peak: While US bonds have rebounded and shown good performance in recent months, they’re still 11.5% below their 2020 peak.

Buy now, pay later for groceries: Jack and Jill have a hard time just putting food on the table. One-fifth of respondents answered that they used BNPL loans to buy groceries.

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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

“So, Fed acted in line with market expectations yesterday and raised another 0.25%. The market expects a pause at the meeting in June. First impact was a downward shift in expectations.”

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Podcasts we listened to this week

Talking Billions – Adam J. Mead | The Complete Financial History of Berkshire Hathaway

 “Our conversation is a lesson in economic history seen through the experience of one company that changed and evolved and continues to flourish today.”

Listen on Apple or Spotify.

Readings this week

Are Some Prices in the CPI More Forward Looking than Others? We Think So.

“Some of the items that make up the Consumer Price Index change prices frequently, while others are slow to change. We explore whether these two sets of prices—sticky and flexible—provide insight on different aspects of the inflation process. We find that sticky prices appear to incorporate expectations about future inflation to a greater degree than prices that change on a frequent basis, while flexible prices respond more powerfully to economic conditions— economic slack. Importantly, our sticky-price measure seems to contain a component of inflation expectations, and that component may be useful when trying to gauge where inflation is heading.”

Read the paper

Book recommendation

Cynical Theories: How Activist Scholarship Made Everything about Race, Gender, and Identity—and Why This Harms Everybody by Helen Pluckrose & James A. Lindsay

“Have you heard that language is violence and that science is sexist? Have you read that certain people shouldn’t practice yoga or cook Chinese food? Or been told that being obese is healthy, that there is no such thing as biological sex, or that only white people can be racist? Are you confused by these ideas, and do you wonder how they have managed so quickly to challenge the very logic of Western society?”

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

ISMS 23: Larry Swedroe – Do You Allow Yourself to Be Influenced by Your Ego and Herd Mentality?

In this episode of Investment Strategy Made Simple (ISMS), Andrew and Larry discuss 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 five: do you let your ego dominate the decision-making process? And mistake number six: do you allow yourself to be influenced by herd mentality?

LEARNING: Don’t let your ego influence your decision-making. Stay disciplined and avoid becoming irrationally exuberant.

Access the episode’s show notes and resources

Ep681: Harvey Sawikin – Do Your Own Homework

BIO: Harvey Sawikin is the co-founder and co-manager of Firebird. Launched in early 1994, Firebird’s funds were the first dedicated to the stock markets of Russia and the former Soviet Union.

STORY: Harvey invested twice in a bank and a vodka company without due diligence. Instead, he believed that other companies who had invested in those investments had done the job of verifying their viability. Harvey lost huge amounts in both investments.

LEARNING: You’ll fail if you rely on someone else’s due diligence and work. The most dangerous time to invest is when it’s the easiest to invest.

Access the episode’s show notes and resources

Ep680: Paul Krake – Surround Yourself With Experienced People

BIO: Paul Krake is a global strategist focusing on mega themes of climate, China, digitization, and demographics.

STORY: Paul quit a prestigious job where he had seasoned mentors to start a hedge fund. After a few years, he realized he wasn’t mature enough or emotionally prepared to run a business on his own.

LEARNING: Surround yourself with people who are more experienced than you are. Think about all the scenarios where an investment can go wrong.

Access the episode’s show notes and resources

Ep679: Noel Smith – Always Have Risk Measurements in Place

BIO: Noel Smith is the Chief Investment Officer of Convex Asset Management and the Head of Options Trading at Tanius Technology.

STORY: Noel and his partner invested in Enron stock whose price kept falling. Every time the price dropped, Goldman Sachs would come in and buy like 50,000 out-of-the-money calls. This made the partners hold onto the stock, eventually riding it to zero.

LEARNING: Have risk measurements in place that you know you will not break. Have some percentage that you’re willing to lose.

Access the episode’s show notes and resources

Published on Become a Better Investor this week

Most people come into education familiar with classroom management and curriculum, but the concept of Profound Knowledge changes the way you view the entire field and your part in it. In the second episode of the Deming in Schools Case Study, Andrew and John talk about applying the System of Profound Knowledge to education.

Listen to Applying SoPK: Deming in Schools Case Study (Part 2)

Will the global CPI slowdown continue?

Download the PDF with all charts and graphs

Read ISMS 21: CPI Collapsing Across the Globe

Asian markets were down in 1Q23 except for Taiwan, Korea, Singapore, China and Indonesia in local currencies. Taiwan was the strongest performer in USD and local terms.

Read Taiwan Was the Best Performer in Asia in 1Q23

In April 2023, we published 22 new episodes of the My Worst Investment Ever podcast. Listen to all of them here.

Listen to My Worst Investment Ever April 2023

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 third episode, they talk about mistake number three: Do you believe events are more predictable after the fact than before? And mistake number four: Do you extrapolate from small samples and trust your intuition?

Read ISMS 20: Larry Swedroe – Do You Extrapolate From Small Samples and Trust Your Intuition?

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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