Welcome to The Enduring Investor. A weekly-ish letter focused on investing, finance and economics. We discuss capital markets and share lessons learned from investing and operating private companies.
Key notes from this week’s letter:
Essay: Short term vs long term thinking
Links: Jamie Dimon’s letter to shareholders
Tweet: how a DTC startup bootstrapped from $10K to $30M
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“Quarterly earnings are a function of the weather for many companies; commodity pricing, competitor price changes, volumes, etc. all impact the business in the short term.” - Jamie Dimon
Short term thinking yields knee-jerk reactions to micro and macro events in life. It creates zero sum games between people, minimizes long term value creation and amplifies corner-cutting.
It focuses on today and tomorrow, not on 5-10-20 year horizons. As a result, a bank may not open up a new branch, a clothing company may cut its marketing budget or heavy up on promotions, a restaurant may reduce kitchen staff, a technology company may not invest in R&D, and so on. All of those actions improve the bottom line but are net-negative for long term health and growth of the business.
Warren Buffet is not the greatest investor. Jim Simons from Renaissance Technologies takes the throne there. Jim has achieved 66% gross annual returns (before fees) since 1988 (and trading gains in excess of $100 billion). Stan Druckenmiller is up there as one of the greatest.
What Buffet has going for him is time and consistency. His returns are good, but not superior to other investors. Consistency to buy when others are fearful and allowing that growth to compound with time is Buffet’s secret sauce.
More than 99% of Buffet’s net worth was generated after the age of 50. He buys businesses that he can hold onto (theoretically) forever. He doesn’t focus on quarterly forecasts set by Wall Street. As Jamie Dimon would say, quarterly forecasts are a function of the weather. Buffet lives by that principle.
We’re in a late cycle economy now. With impending recessionary risk in 2022 or 2023, inflationary pressures, and price shock in commodities. Even though the consumer base in strong, these pressures will compress demand.
In late cycle markets, we’ve historically seen investors flock to earnings stability and operational efficiency when buying securities. Sectors like energy, utilities, healthcare and consumer staples can do well.
In a rising interest rate environment, tech and growth stocks don’t perform as well; albeit this latest rally in tech is a head scratcher. Either it’s “dead cat bounce” or perhaps institutional exhaustion.
Regardless of market cycles, an average investor should focus on long term success versus short term gains. Allow time and consistency to work for you like it has for Buffet. Buying individual securities can be risky, so when in doubt, just buy low cost index funds and allow it to compound on your behalf.
Links Worth Sharing:
Jamie Dimon Annual Letter (long read)
Contributions to Inflation (5 min read)
First time homebuyers are losing (7 min read)
Cash for building wealth with stocks, not homes (2 min read)
Economic impact of rising gas prices (3 min read)
Great resignation is beginning to reverse course (4 min read)
Jobs From My Network:
Head of Partnerships at Rockerbox
Marketing Director at William Murray Golf
Head of Biz Ops at AdQuick
Senior Engineer / Architect at Handsome App
Head of Partnerships at Fable Pets
Tweets Worth Sharing:
Click on each tweet to view Twitter threads.