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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.
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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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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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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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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