Downturn Value Generation, Pumpkin Spice Power, 'Fossil Fuel' Invention, iPhone 14: Made in India
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"The disciplined pursuit of bargains makes value investing very much a risk-averse approach. - Seth Klarman (Margin of Safety)
Generate Value in Market Downturns
In this latest post, Joshua Brown explains why you should think longterm and resist well intentioned, yet shortsighted, actions to shield yourself from volatility and losses.
He puts it this way... "If you are under the age of 50 years old and selling stocks now, having ridden the market down 25% from last Thanksgiving, well, I hope you have a damn good reason for doing so. Besides the immediate relief you might feel for getting off the roller coaster. Because from where I sit, everything about the current market environment has now gotten better for investors than the environment one year ago today."
Value is created from the opportunity that is mispriced securities. Right now, as Brown says, "We’re trading at a 15x forward PE ratio (below the five year average of 18)." In September 2021, stocks were at 24 times earnings.
He finalizes, "...market environments like this one are where all of the value creation resides. With today’s lower prices and falling valuations, we are laying the foundation for tomorrow’s success. It may not feel that way in the moment, but that’s why not everyone gets to succeed."
It's up to you to decide after doing your own research. Is the company's current stock price justified? Has there been irrational selling? Have the fundamentals of the business changed? With extreme decrease/increases in price, comes the responsibility to dig for the truth again.
- 20 Timeless Lessons for Young and Old Investors (Safal Niveshak)
- Can we use heuristics to analyze a business? (Nuggets of Investing Wisdom)
- The Paradox of Time (Sahil Bloom)
- More than 90% of investors lose their money every day (DataDrivenInvestor)
- Invest Easier By Better Defining Money (The Integrating Investor)
Emotionally Powered Purchases
For consumers, the diminishing return of the pumpkin spice latte (PSL) is real, the fervor never lasts. Yet, Starbucks sold over 600 million of their PSL drinks since 2003, the year of inception. Consumers want what they can't have. And that's how this works. The availability of pumpkin spice products is generally limited to a short period each autumn. Would so many people rush to grab a PSL if it was available year-round?
Two economic principles are at work: "marginal analysis" and "diminishing returns." Marginal analysis is when a consumer weighs the benefits with the cost. If the benefits outweigh, the purchase is made. Diminishing returns are triggered when the benefits decrease due to increased consumption of the good.
That frothy emotional appeal of the first PSL is a real high for consumers. But with each subsequent drink, the novelty and emotion fades. And hence, the motivation for purchase crumbles. And at a certain point, for the company, the costs outweigh the benefit of selling the drink beyond the season.
Then what? Peppermint mochas.
- British pound plunges to all-time low against US dollar (Markets Insider)
- The Dollar Continues To Soar! (Daily Pfennig)
- US Housing Due for a Correction? (Armstrong Economics)
- The Fed made a 'policy mistake of historical proportions' (CNBC)
- Monthly Mortgage Payments Up Record Year-over-year (CalculatedRISK)
Apple will manufacture iPhone 14 in India
With mounting geopolitical tension, never-ending pandemic lockdowns and persistent supply chain issues, many manufacturers are moving production away from China. The latest announcement from Apple will see their iPhone 14 manufactured in India. This is a bigger deal for India since the iPhone SE started production there in 2017. Apple will start with 5% of iPhone 14 production in Chennai, by Foxconn, and increase to 25% by 2025.
- Gucci, Burberry Join Booming Secondhand Luxury Trade (WSJ)
- Gulf+Western Founder Charlie Bluhdorn: The Conglomerate Boom's Tragic Hero (Neckar's Minds and Markets)
- New minimum tax could hit Amazon, Berkshire the hardest (FOX Business)
- Why A Recession Is The Best Time For Outsourcing (Forbes)
- The Billionaire Hedge Fund Manager Disrupting NFL Analytics (WSJ)
- Small Businesses Get Creative as They Struggle With Hiring (WSJ)
Fletcher Prouty Explains Invention and Use of Term "Fossil Fuels"
- What is the Cost of Europe's Energy Crisis? (ValueWalk)
- The “Inflation Reduction Act” is a 4-step recipe for destroying American energy (Energy Talking Points)