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[VIC - 170] Does proximity suggest complicity?

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October 4 · Issue #170 · View online
Jeremy Hurst
Business & Money
I’ve recently decided to formalize an investment checklist. A company doesn’t have to check every single box, but it should come pretty darn close.
I’ve done most of this most of the time, but I’ve never written it down. But froth and fragility now demand the quill and parchment (I rather enjoyed that phrase 🤣).
I’m sharing this now because I’ve recently made my first investment since the late-march bottom. Back then, I was betting on e-commerce (AMZN, SHOP, MELI). That turned out pretty well.
Conditions are very different now with those names trading near all-time highs. My recent investment is Chevron (CVX).
Before we get to the checklist, it’s important to note that I consider this to be more of a cash alternative than an investment. With anemic bond yields and the best interest rate for savings accounts just north of 1%, I’ve had a bunch of cash just sitting on the sidelines. So anything better than a 1% return on this will be a mark in the win column.
Ok, on to the checklist…
Have you spoken to at least one highly respected person?
Yes. And “spoken” has two meanings here. First, I like to pressure test my ideas against the sharpest finance minds in my friend circle. Second, there’s a shortlist of public market investors and commentators that I follow closely, two of which are Jesse Felder and Warren Buffet. While I have no direct contact, I consider them mentors from afar. Both seem to like what they see in energy markets.
Have you committed the idea to paper?
You’re reading it.
Is the business easy to understand? (have you tried to explain it to someone outside the relevant industry)
Yes. Chevron is an American multinational energy company, one of the successors of Standard Oil. They’re involved in all parts of the energy market, including upstream (exploration & extraction), midstream (transportation), and downstream (converting oil into finished products like gasoline).
This high-level understanding, when combined with the track record below, is good enough for me.
Is there a long (5-10) track record of demonstrated success?
Extremely long. I particularly love 33 years of increasing dividend payments.
What is the source of power?
Massive economies of scale, a strong balance sheet, and cash flow for days.
Is the price reasonable relative to historical levels?
Oil demand, oil prices, and oil stocks are all in the dumps, and it makes sense why (COVID-19). But sentiment seems to be outpacing the situation on the ground. One investment research firm posits that energy stocks, at current levels, represent the most hated sector of all time.
Don’t get me wrong, we’re in a secular trend toward more sustainable energy. But that transition will take time and require boatloads of capital, both attributes that point to the continued involvement of today’s oil majors.
Can you imagine holding it forever?
Not forever, but the medium-term outlook feels right, probabilistically.
Is this, in absolute terms, the best use of capital at the present moment?
As far as I can tell (as a cash alternative).
Human Progress
I’ve recently returned to The Daily Stoic by Ryan Holiday. I love this section from chapter 128.
Contemporary notions of beauty are ridiculous. Our standards for what’s attractive are incredibly unstoic in that we prize and extol things people have almost no control over. High cheekbones, complexion, height, piercing eyes. Is it really beautiful to win the genetic lottery, or should beauty be contingent on the choices, actions, and attributes we develop?
I found these sentences particularly noteworthy in the context of dating during COVID. I am happily married, but have plenty of single friends. Many of those are highly active on dating apps of late. With the limited opportunity to meet new people in real life, it’s no surprise.
The most distinct part of a dating profile, I imagine, is the picture. Further, with the swipe-based design of many apps, that’s often all you see.
I wonder if there’s space in the dating market for someone to innovate on a different vector. What if everyone had to write a short essay or article and you had to swipe right on that before seeing the picture. Or perhaps you do the same, but in audio format to bring another element, voice, into the equation. Of course, physical attraction is an important part of a romantic relationship, but I’m not sure it should be the primary filtering mechanism.
Philosophy
I proposed a thought experiment to a close group of friends recently, so I thought I’d share it here as well.
Murder is wrong. That’s pretty easy to say.
Let’s say you have a friend called John. John lives in New Jersey. There was a murder in New Jersey last week. Do you sever ties with John? Likely not. New Jersey is a pretty big place with lots of people, the vast majority of which John has no relation to. You continue interacting with John the same as always.
Ok, let’s say the murder was in John’s town. Does that change how you feel about John? Likely not, he’s still in the clear.
What if the murder was on John’s street?
Ok, John’s wife was murdered. And you know they had been getting in increasingly heated confrontations. Now things get dicey. The husband is always suspect number 1. But John seems very distraught. He’s devastated. You comfort and console him as any friend would, but do you invite him into your home the following week? Do you leave him alone with your children?
It’s a question that looms large. When, if ever, does proximity suggest complicity?
In reality, it’s two questions. One of proximity, and one of severity. How close is someone to the wrong, and how wrong is the wrong?
In a world of increasing upheaval and growing divisiveness (political, racial/cultural, etc.), it’s a question of growing importance. The grey areas are vast, but to avoid exploration feels irresponsible.
My Latest Discovery
It's A Wrap!
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