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Insights January 2021

Insights: January 2021

Home   |   2020-21   |   2019-18   |   2017-16


Figures showing returns from 1995 when the first warnings of a market bubble emerged, to the peak in 2000.

This chart serves to remind us how difficult timing the market actually is.

The figures shown are the returns from 1995, when the first warnings of a market bubble emerged, to the peak in 2000. The individuals singing the chorus of caution over this period included Ray Dalio/Peter Lynch (1995), Howard Marks/Seth Klarman(1996), George Soros (1997), and Warren Buffet (throughout). It was a painful period, but many of those investors rose to significantly greater stature by ultimately being right.

This is what leads to our mantra of participating with caution. Timing the market is impossible, so one needs to be invested. However, the more evidence of rampant speculation you see, the more defensive those investments should become. Be comfortable rejecting greed and capturing a smaller portion of the upside at times so you can truly prosper when volatility strikes.


‘Success Addicts’ Choose Being Special Over Being Happy

Trying to constantly achieve new levels of success is something that may be familiar to you given the overachieving nature of many recipients of this letter. There are costs to this feeling of being “special” as we all know. We are hoping this piece provides some food for thought:

Success in and of itself is not a bad thing, any more than wine is a bad thing. Both can bring fun and sweetness to life. But both become tyrannical when they are a substitute for—instead of a complement to—the relationships and love that should be at the center of our lives.

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The Ten Surprises of 2021

We feature Byron Wien’s 10 surprises each year as there are always some thought provoking ideas hiding within his writing. The ideas are by definition out of consensus as “the Strategy Team defines a surprise as an event which they believe has a better than 50% chance of taking place, but professional investors would only assign a one out of three chance of happening”. This fact makes the ideas much more valuable. A sampling from this year’s piece:

We begin the longest economic cycle in history, surpassing the cycle that lasted from 2010 to 2020.

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Peter Lynch: How to Invest When Stock Prices are at All-Time Highs

Another mention for Peter Lynch which ties into our opening chart. The quality of the interview tapers off later in its runtime, but hearing what one of the greats was saying through the tech bubble has particular resonance at this time.

If the market goes too high you discounting are earnings 7, 8, 10 years out – and that doesn’t help anyone.

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Inflation Truthers

An excellent breakdown of the components of inflation over time, and what has led to a suppressed overall inflation level despite some goods and services (think food, tuition, healthcare, etc.) that have clearly had material inflation.

There are certainly households that feel the sting of rising prices more than others. And there are those households where people don’t realize how much their standard of living has improved over time because we become accustomed to the deflationary forces of technology.

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Home   |   2020-21   |   2019-18   |   2017-16
 


SHIFTING SANDS
graph shows rise in Canada of mortgages with high loan-to-income ratios

This chart continues a theme we have touched on a few times – what does work look like post-pandemic? It is admittedly a small sample size, but the data is also reflective of the anecdotal evidence we are hearing from business owners. White collar workers want flexibility; lower wage workers want their share of the economic pie.

We continue to believe it will be many months before a true “new normal” surfaces. Knowledge-based businesses are still working to find the right balance of flexibility vs. the reality of their particular operating environment, while service businesses are striving to balance automation and efficiency with economics and worker demands (not to mention ever-changing rules).

 

 

 

 

 

 

 


How Big Is Your Frying Pan?
 

A quick hitter on eliminating negative beliefs and self-imposed restrictions to attain performance.

…another angler just upstream was pulling in fish after fish.

Saban noticed he was releasing the big fish and keeping the small ones.

Curious as to what was going on, he approached the angler asked him why he was only keeping the smallest fish. The angler replied with a straightforward explanation: he only had a nine-inch frying pan at home.

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Inflation for Whom?

An interesting, if somewhat technical, explanation of the complexities in measuring inflation. The article focuses on the discrepancies in inflation between high- and low-income households. One can only assume that recent price increases have also changed behaviours in such a way that stressed households are seeing less inflation due to shifting lifestyle choices (which is likely still a bad thing).

…there is not, even in principle, a true inflation rate. Pick any basket of goods and measure their prices over time; that is an inflation rate. The “all urban consumers” basket used by the BLS for the headline CPI inflation rate is a useful benchmark, but it’s just one basket among others. Any individual household or subgroup of households will have its own consumption basket and corresponding inflation rate.

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The Unbearable Summer

We have found that many of our deckside summer conversations inevitably turn to climate change, or more specifically, a particular ongoing fire, flood, or other extreme event. We get a strong sense that through 2020/21 the world has finally awakened to the scale of the risk we are facing. This article is a good summary of some of the recent events and trends.

From a business perspective, we are spending more and more time on sustainable investment themes, a trend we do not expect to reverse in the near future.

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The Mystery of the Missing Workers, Explained

A different angle on the current state of the workforce. This is less about individuals considering leaving their job for another, and more about the decline in overall labour force participation.

The labor force participation rate—a measure of the share of working-age Americans who are employed or looking for work—which has been stuck near its lowest level since the 1970s for almost a year.

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