Bullshit generators
The Tipsheet
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We are long term investors, until the next quarter
Let’s say you are the CEO of a listed company. When you wake up on Jan 1st of every year, you are expected to have a view on everything from your company’s growth prospects to why the GDP of Burkina Faso is falling. But at the end of March when your company has to disclose its earnings, you’re supposed to have a whole set of new views. This time on whether the elastic straps in Jockey underwear are causing a population crisis or if the ”Pawri Ho Rahi Hai” meme will affect your gross margins. You have to have 4 sets of views every year. But luckily for the CEOs, there are several good Bullshit generators. But it still may not be enough.
These quarterly earnings releases and calls have to be among the most pointless things in finance. Here’s Anand Sridharan on these pointless quarterly rituals and the short-termism
Third, no one knows sh*t. There’s no precedent or playbook to what’s happening now. People don’t know how to handle it, how it will pan out in the near-term and what longer-term consequences will be. Since management are usually polite, their reply to questions on such lines are unlikely to involve telling the questioner to buzz off. However, beyond some live commentary on the present, any assessment is simply an uninformed guess. We’re better off not hearing it than hearing it.
Here’s Haresh Sapra, Professor of Accounting at the Chicago University
My research demonstrates that quarterly reporting creates all sorts of distortions in how managers allocate capital. They tend to overinvest in the wrong types of projects—those that produce short-term returns. What gets underfunded? The big, bold, innovative value-creating projects that will make a bigger impact but only in the longer run.
Good bubbles
The moment people utter the word bubble, your stupid brain automatically makes a judgment that bubbles are bad. Sure, bubbles are bad for investors in speculative stocks or asset classes. But on the positive side, bubbles are catalysts for innovation. But a lot of the consequential human innovations are the result of bubbles.
Every financial mania requires suspension of disbelief, but sometimes that’s entirely rational. Early twentieth-century progress in cars and late-twentieth-century progress in computers were both literally unbelievable to anyone who watched them happen at the time. As it turns out, sometimes the intersection of finance and technology implies a double negative: when two industries producing complementary products embrace a shared irrational delusion, the delusion comes true.
This paper titled Bubbles and the Value of Innovation comes to the same conclusion:
A historical episode offers an illustration of our model. In 1686, William Phips secured funding in England from the Second Duke of Albemarle and his syndicate to search for sunken Spanish ships in the Bahamas.4He found 34tons of treasure, yielding large returns to his investors. This successful expedition generated considerable speculation around treasure-hunting technology.The speculation was accompanied by a large spike in patenting activity for the time, with 17 patents for ways to recover underwater bounty registered between1691 and 1693. Based on these innovations, numerous firms were introduced on equity markets and raised large amounts of capital despite competing for what was clearly a small pool of treasures. These high valuations were consistent with our notion of high market-based value that is unaffected by competitive spillovers in the presence of speculation. The boom was so large that it is sometimes credited for the emergence of developed equity markets in England
Having said that, don’t get cocky read this and start investing in speculative stocks. Because 99% of the time, you’ll end up with worthless delisted stocks in your demat. And the worst part is, you can’t even close your demat account even if you delisted stocks. So you’ll end up paying AMC charges.
This ain’t that kind of movie, bruv
Remember this dialogue from the movie Kingsman? This article reminded me of that. When people take on a huge corporation, they mostly end up dead in the movies. But killing people who take on corporations is a little, just a little hard in real-life. I mean, corporations probably do kill people who cross them but not as many as the movies, or at least I hope.
But, if you make life tough for giant evil corporations, they have to retaliate, it’s a matter of principle for them. Because if the CEO of the company goes to a cocktail party, he can’t look like a pussy in front of other CEOs who’ve probably killed people who crossed him when they have a conversation about the total body count. Also, the bigger problem is if they don’t retaliate, we wouldn’t get movies like Erin Brockovich or The Constant Gardener. Look, don’t get me wrong. I am not proposing that companies murder people so that we get good movies. Hey evil corporation, if you’re reading this – DON’T KILL PEOPLE! KILLING IS BAD! But I’m not going to apologize for the good movies.
Here’s the profile a poor chap who won a huge case against the Oil giant Chevron which was ordered to pay $9.8 billion. Chevron probably couldn’t kill the guy, so they decided to make his life a living hell. He’s not convicted yet, but he’s been on house arrest for 589 days.
Basically, since we won the case in Ecuador, I’ve been targeted with probably the most vicious corporate counterattack in American history involving dozens of law firms, 2,000 lawyers, probably a billion-plus dollars in professional fees. All with the express purpose by Chevron to demonize me, rather than pay the Ecuador judgment that the company owes to the Indigenous peoples of the Amazon.
A gaggle of links
Personal finance
Money is only one aspect of retirement planning (½)
Money is only one aspect of retirement planning (2/2)
One year after stock market crash: lessons learned. “stay invested” is not wisdom. It is hindsight bias
Investing
Myth-Busting: Earnings Don’t Matter Much for Stock Returns
The relationship between equity returns and economic growth is more illusion than reality. It may make logical sense, but there is little actual data to support it.
EVs, The Dot Com Bubble, and what happens when hype emerges around entire verticals
190 pages of investment checklists from famous investors
Crypto
NFTs Are a Pyramid Scheme and People Are Already Losing Money
What ails gold?
Startups
We are all status-seeking monkeys. What is the real appeal behind Clubhouse
Signs the Creator Space is Maturing. Here is How.
Oddities
Would you like some fries with that
Playlist
Listen to this episode from The Rational Reminder Podcast on Spotify. How do your perceptions of time influence your long-term decision-making and financial well-being? Today we speak with psychologist and UCLA Associate Professor Hal Hershfield to answer this abstract question. We open our conversation with Hal by exploring the concept of well-being. After chatting about the factors that impact financial well-being, Hal unpacks the balancing act that’s required to live in the present while safeguarding your wealth to support your future self.
Videos
Will a flood of liquidity sink the ARKK?
Finance in the Cloud V -- "Bubbles and the Value of Innovation"
Visuals
Quartz
Tweets
Still amazed at how many correspondents remain sure that printing money always causes inflation. It's like the govt debt is the same as household debt thing; too plausible to check against the facts https://t.co/pLrxJfUbqk
I love this - Druckenmiller on Soros 🔥🔥 https://t.co/lx06QLomrp
Social Finance, David Hirshleifer
1/ All-in investors and bubbles: "some [investors] are all in and buy up to their margin limit ... . A higher price of the asset increases all-in investor wealth and they borrow against this wealth to buy more shares. All-in investor demand for shares is therefore upward sloping" https://t.co/lMt7KYliu5
Due to inertia, forecasters do more or less OK, looking ahead several quarters. Two or three years ahead, macro forecasts ain’t so good. So, how much attention should be given to 30-year-ahead doom and gloom? https://t.co/Lc6Qnz2d2Q
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