[VIC - 161] This time is (unlikely to be) different!





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February 9 · Issue #161 · View online
Jeremy Hurst
Happy Sunday!

Business & Money
Over the last decade, Warren Buffet, my favorite investor and arguably the best of all time, has slightly underperformed the market.
Carl Icahn, another legendary investor, has achieved less than half of the market’s return over that same period.
Ray Dalio, who runs Bridgewater Associates, the largest hedge fund in the world, has done worse still.
One thing to note is that these heavyweights rely on very different investing strategies (value, activism, and global macro, respectively).
I could continue rattling off names of storied money men, but I think you get the point. Basically everyone has under performed the benchmark.
The question that I frequently hear tossed around is, “have these legends lost their touch?”
I think a far more interesting question might be, “what information is to be gleaned from the fact that many of the greats have struggled of late?”
Perhaps we should focus less attention on the investors and more attention on the time period in question. After all, the last decade is an anomalous period. It is the period following the worst financial crisis since the great depression.
In my person personal portfolio, I’ve continued to aggressively increase my position in Berkshire Hathaway. I find it telling that Buffet is sticking to his guns, sitting on hoards of cash, and increasing investments in the energy sector (energy being one of the worst performing sectors of the last decade).
It’s important to remember that, just like the market’s performance following the last crash, the best bull markets always follow the worst bear markets. In other words, it seems that the probabilities would be in Buffet’s favor after a period of under-performance.
Perhaps this bull market goes on for another 1, or 5, or even 10 years. Who knows. But I’m skeptical that “this time is different.”
The chickens never fail to return to their place of birth.
Human Progress
Speaking of the energy sector, I’ve taken quite an interest of late.
Tree-hugging is in vogue. Every popular media outlet dedicates reams of articles, if not entire sections, to climate change. Tesla is now valued at more than Ford, GM, and Chrysler combined 🤣.
Don’t get me wrong, I welcome these developments and they are overdue. There is considerable evidence that would suggest that we’re careening towards a climate catastrophe sooner rather than later. And even if later wins out over sooner, reducing our greenhouse gas emissions and planetary destruction can only be a good thing for the progress of humanity.
However, this point doesn’t necessarily eviscerate the investment case for energy companies, particularly those in oil & gas. I know this isn’t the “Business & Money” section, but I can’t help it. I’m a dollars and cents kinda guy, and thus am interested in whether or not oil companies might offer attractive investment prospects.
On the surface, it would seem that they might. Oil majors like Chevron & Exxon Mobile are trading at 2008 levels. Dividend yields are hovering around 5 or 6%. Shares have been treading water building long bases.
Geopolitical issues notwithstanding (impossible to forecast), it would seem as though the real question is a basic economic one. What does the supply and demand equation look like? On the supply side, there seems to be plenty of black gold sloshing around. So much so that OPEC is discussing another output cut to prop up prices. On the demand side, it seems that global consumption continues to climb (please chime in here if I am mistaken).
I guess it comes down to whether the growth in supply will outpace growing consumption to create an environment of persistently low oil prices.
Or perhaps, when will EVs cause the growing consumption curve to turn downwards? I recently learned that the “road” sector (passenger and freight vehicles) accounts for about half of oil consumption.
So where does the market go?
On the product side, we need oil for lots of things and for moving people and things around. It seems likely that this will be the case for a good while longer.
On the financial side, depressed stock prices and oil prices mean many energy companies are struggling. The result is massive consolidation where majors that are flush with cash can scoop up distressed assets on the cheap. Therefore oil & gas majors should be well-positioned as a buyer of last resort, so to speak.
The jury is still out, but there might be something here…
A few weeks ago, I woke up on a Sunday to a conundrum. I had 4 loads of laundry to do, but only 2 dryer sheets. I guess it wasn’t so much a conundrum per se; I cut the dryer sheets in half and off to the laundry room I went.
This got me thinking though. How much of our consumption patterns are the result of sizing that is dictated to us by giant companies? I had never before considered cutting dryer sheets in half. But when I did, the smaller pieces seemed to do the job just fine.
I meant to turn this into a habit to get twice the mileage from a box of dryer sheets, but I unconsciously went back to using full sheets when the next shipment arrived.
Much of our consumption, whether considering consumer packaged goods, food, or alcohol, follow similar patterns. We do what we’re told, or what those around us have always done. And we give it all very little thought.
I have almost fallen asleep at the wheel while driving a few times in my life. That feeling when you jolt awake and correct the wheel right before careening off the road or into oncoming traffic is, quite possibly, one the most terrifying feelings imaginable.
If only falling asleep at the wheel of life produced a similar sensation?
It turns out that self-driving cars arrived ages ago…
My Latest Discovery
I visited an Amazon Go store last week for the first time. These are the convenience stores that use a plethora of cameras, sensors, and machine learning to obviate the need for cashiers and checkout lines. I walked in, scanned my Amazon app to enter through the turnstiles and was off perusing through the aisles. I grabbed a Cliff Bar, a banana, and a bottle of water, then headed for the exit. As I walked out slowly, I looked around to see if there was some gesture or scanner I was supposed to visit, or perhaps just someone close by that would acknowledge my departure.
Nothing. You just leave.
It felt like magic. It felt like the future.
It's A Wrap!
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