Thomas Phelps studied past companies in existence from 1932 to 1971 that grew at least 100 times in size to see what they had in common. He shares the key characteristics found in compounding machines as well as the key traits investors need to invest for the long run.
Quarterly Reading – Winter ’23
Here’s what I’ve been reading for the past three months:
2022: A Year in Returns
Interesting things happen when market participants believe every new company will be a market leader over the next decade or two. We saw what that wild optimism looked and felt like over the last few years.
Over the three-year span, from 2019 to 2021, the S&P 500 doubled and the Nasdaq did over 1.5x better. It felt like you couldn’t lose. Yet, here we are.
Ben Graham spent a lifetime warning of the risk of eternal optimism priced into markets. Any price can be justified with enough of it:
The market action…throws an interesting sidelight on the hazards necessarily involved in buying issues on their expected future earning power. The theory that a low current rate of profit can be disregarded, provided there is strong assurance of steady future increase, has the peculiar weakness that it proves too much. For it could be used to justify any price, no matter how fantastic, merely by looking far enough ahead and making these remote profits the basis of current investment. The danger is of course that at any time the market may turn a little less far-sighted and look to the present or the near future for its measure of value.
If that doesn’t describe the market’s recent bout of optimism and the hazards incurred in 2022… And Graham wrote that in 1927! Continue Reading…
Lessons from the Best Posts of 2022
As 2022 comes to a close, it’s a great time to review some lessons from the more popular posts of the year.
Some of the broader lessons are tied to this year’s market decline and what inflated it.
The collection of posts below covers a range of topics. The posts are a product of things I’ve read or reread over the past 12 months and produced a larger-than-normal output this year. The blog grew by: Continue Reading…
The Great Crash 1929 by John Kenneth Galbraith
The Great Crash was a defining moment in market history. Galbraith breaks down the events that led to the speculative excess of the late 1920s, details the last wild year, and the market’s collapse. It’s a warning for when the next speculative bubble comes around.
The Benefit of a Bear Market in Everything
A bear market in everything best describes 2022. Stocks, bonds, real estate, used cars, crypto, sentiment, fraudsters…everything is going down this year.
Of the major market indexes, the Dow and S&P 500 each fell more than 20% before recovering to a 5% loss and 14% loss respectively. The Nasdaq faired worse, dropping more than 30% before recovering to its current 26% loss year to date.
The losses should be no surprise by now. The carnage in Nasdaq stocks, especially, has been covered extensively. Excessive hope and a great story can do wonders for stock prices but eventually, companies need to deliver. Many have not. Continue Reading…
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