Because Writing Stuff Down Helps Me Remember It
A higher price to earnings ratio means a country’s stock market is more expensive. A lower number is less expensive. It’s the price you are paying for the earnings of the companies.
Average of Foreign Developed Markets: 20
Average of Foreign Emerging Markets: 15
United States: 33
Source: Meb Faber – Cambria Funds
Being Content vs. Being Complacent. Complacency is when you lack or deny awareness of potential dangers. It prevents growth. Contentment is feeling satisfied — at peace with what you have today. But it doesn’t stop growth. You can be content while still wanting to be better.
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How Much Is Luck Involved vs. How Much Is Repeatable? In business and investing, you want to learn the big lessons about why things behave the way they do without assuming the past is a direct guide to the future, because it’s not – most of the details are not repeatable. History is the study of change, ironically used as a map of the future.
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Self-reflection is pointless unless the person in the mirror is you: not the person you wish you were, but the flawed and fallible person you are. Instead of relying on all available information, we jump to sweeping conclusions from fragmentary data. We think vivid events are more frequent than they are. We overestimate our own experience and expertise. We anchor on irrelevant numbers, exaggerate our successes and forget our failures.
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Q&A With Ed Thorp on diet, exercise and managing risks in life. Ed wrote the original book on beating blackjack at casinos (“Beath The Dealer”), then created one of the most successful hedge funds in history (he recently wrote a great book about his life called “A Man For All Markets”).
I read a great book last month called “Fluke” that goes into extraordinary detail on how much luck (or flukes) impact everything in the world.
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Bill Perkins wrote a book called Die With Zero that has had an enormous impact on my life over the last few years. In this video interview he provides a great analogy on trying to get the order of things correct in your life:
Life is like Tetris…Let’s say you’re in heaven and you’re about to be born and God is like, “Here is the infinite bucket of experiences. Choose what you would like on your adventure.” And you’re like “Okay. This sex thing seems interesting…okay I wanna ride a bike. I wanna get a job. I wanna graduate. I think I wanna get married and have kids. Strip clubs? That seems interesting. I’ll throw in a couple of those.”
God goes, “Okay you can have them all on one condition—you have to get the order right.” So the people that do the marriage thing and have kids and then put the strip club afterwards don’t kind of get the high score. Because it interferes with it…or they put the heliskiing Mt. Kilimanjaro at 86. It’s kind of in the wrong spot, right?
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Insurance companies are taking pictures of our homes from the sky. Nearly every building in the country is being photographed, often without the owner’s knowledge. Companies are deploying drones, manned airplanes and high-altitude balloons to take images of properties. The array of photos is being sorted by computer models to spy out underwriting no-nos, such as damaged roof shingles, yard debris, overhanging tree branches and undeclared swimming pools or trampolines. The red-flagged images are providing insurers with ammunition for nonrenewal notices nationwide.
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Rangan Chatterjee speaks with Laurie Santos on The Happiness Lab Podcast, and they discuss why (and how) physicians like him are making happiness a priority for health.
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Global Price to Earnings ratio for United States stocks (incredibly expensive) vs. everything outside the United States (inexpensive). My portfolio (heavily weighted toward foreign stocks) is betting that the alligator jaws will close at some point in the future:
Some additional context to the chart above from Cliff Asness this week in Barron’s:
“Since the early 1990s, about 80% of the U.S. dominance has come from relative price/earnings multiple expansion versus non-U. S. stocks. People were paying less for the U.S. at the beginning, and now they are paying considerably more. Maybe that is justified; maybe things like U.S. tech dominance are real. But justified doesn’t mean repeatable. Justified at best means something isn’t going to reverse in a big way. Looking to the future, the case that the U.S. will have permanently higher equity returns is pretty untenable. Even if U.S. companies are worth it, they are priced as such.”
It’s not just foreign stocks that are cheap relative to U.S. stocks. The ratio of commodity prices to the S&P 500 is at historic lows:
A snapshot of how expensive U.S. stocks are relative to the most expensive moment in history (2000), second only to 1929:
Why Good Sleep Fixes Most Things & How To Sleep Better
Not All Lifestyle Creep Is Bad – Spending More On Health Improvements and Buying Time
5 Insights From The Excellent New Book: “Look Again: The Power Of Noticing What Was Always There.” (The book is currently free to listen to if you have a Spotify subscription)
The Jobs Market Is Signaling Trouble If You Look Deeper Into The Numbers – Podcast With Chris Puplava
Pensford Finds Similar Jobs Data Trouble In Their Letter This Week
The U.S. Produces More Crude Oil Than Any Country, Ever
We always hear how the United States stock market capitalization is concentrated in the Magnificent Seven, but other countries have a far higher concentration:
A.I. has already begun to increase productivity for companies, a trend that will likely continue as we move forward:
The Anxious Generation: How The Great Rewiring Of Childhood Is Causing An Epidemic Of Mental Illness
40 Things Lessons At Age 40 (I Wish I Knew When I Was 20)
Succumbing To Recency Bias Can Be Dangerous When Investing
GMO Discusses Global Markets, Climate Risks and Chemicals:
We’re heading toward a world where couples all meet online:
Emerging Market Debt Significantly Outperformed Emerging Market Stocks Over The Last 30 Years
Why Smart People Can Make Dumb Decisions
Results From A Study On Zero Tolerance Alcohol Laws For Kids Under 21 – “We find that Zero Tolerance Laws led to significant improvements in later-life health. Individuals exposed to the laws during adolescence were substantially less likely to suffer from cognitive and physical limitations in their 40s. The health effects are mirrored by improved labor market outcomes. These patterns cannot be attributed to changes in educational attainment or marriage. Instead, we find that affected cohorts were significantly less likely to drink heavily by middle age, suggesting an important role for adolescent initiation and habit-formation in affecting long-term substance use.”
Lakers’ LeBron James is the first NBA player to score 40,000 points. James scored his first 10,000 points in the exact same number of games as it took him to go from 30,000 to 40,000 – 10K in 368 games – 10K to 20K in 358 games – 20K to 30K in 381 games – 30K to 40K in 368 games.
Using Dishabituation To Increase Happiness & Enjoy Experiences More
Lyn Alden’s Newsletter On The Economy, Inflation, Interest Rates, Markets & The Fed
Avoiding Burnout & A Mid-Life Crisis. Life tends to follow a U-shaped curve of happiness, bottoming in your mid 40s:
Bad Things Pile Up As The Years Go On
Why It’s Better To Book Early Morning Flights – Avoid Stress, Cancellations & Save Money
Due To Soaring Home Prices, Builders Are Creating Tiny 400-Foot Home Neighborhoods
Alcohol use has dropped for everyone, except middle-aged women.
ChatGPT Is For Doing, Not Searching, & Here’s What It Does Best Right Now: Writing, Summarizing, Recommendations, Mentoring & Projects
U.S. healthcare spending and the results.
One quick note on the graph above. I’ve read/heard that one of the biggest reasons America’s average lifespan is so low compared to other developed countries is due to the enormous number of young men that are killing each other (mostly with guns) in the United States. Those (young) deaths pull the average down significantly.
Some of the pandemic darlings are still down 76% or more:
Why Appliances Break Down More Often Than They Used To – When a complicated machine fails, technicians say they have a much harder time figuring out what went wrong. Even if the technician does diagnose the problem, consumers are often left with repairs that exceed half the cost of replacement, rendering the machine totaled. In the majority of cases, buying a new one makes more economic sense than repairing it.
I discussed valuations and the relationship to Japan’s 35 year bear market earlier this week. That discussion focused on Shiller CAPE Price to Earnings (P/E) ratios which look back 10 years and average earnings relative to the current prices of stocks.
The argument against a P/E ratio that looks backward is that companies can grow their earnings in the future in order to validate their higher price. This is obviously true, and it’s exactly what some of the higher growth companies, concentrated in U.S. technology, have done over the last 14 years.
The graph below looks at forward P/E ratios for different countries. Instead of looking backward, this takes current prices and projects them against future earnings. These P/E ratios are almost always lower than those that look backward because Wall Street analysts and companies (that make their money selling stocks) want them to look less expensive and more attractive. They do this by projecting strong future earnings growth. I do the same thing when selling commercial real estate (investors need to project income growth over the coming years in order to model returns).
Even using forward estimated P/E assumptions, this model gives you a view of countries that are expensive (red) and those that are inexpensive (green).
The problem comes when you’ve already priced in massive future growth (higher forward P/E ratios), and there is a speedbump along the way. The company has to deliver on the lofty projections.
The opposite occurs when you’re looking at inexpensive stocks or countries. If valuations are already low, and future earnings are projected to be low, any news that’s more positive to the upside can become a catalyst upward for prices.
I like to do the latter; buy companies and regions that are out of favor at low valuations. That may sound obvious, but that strategy has significantly underperformed over the last 14 years. The investors that purchased high projected growth expensive companies (technology) in expensive countries (the United States) have vastly outperformed almost everything else.
The Rise Of Dopamine Culture & The Anhedonia It Brings With It
Why Americans Suddenly Stopped Hanging Out
What Are We Assuming Today That Could Change Tomorrow?
Everyone Acts On Faith When It Comes To Investing
Survivorship Bias & How The Qualities That Drive People To Greatness Can Lead To Their Downfall
Will Bitcoin End Up Being Digital Gold Or Digital Pearls?
Investment Fads Eventually End: Remembering The Luxury Ostrich Feather Hats
Japanese Stocks At New All-Time Highs Are Still Less Expensive Than The U.S. & India Based On P/E Ratios:
The intro to John Hussman’s February 24 commentary on U.S. stocks:
“The failure of the general market to decline during the past year despite its obvious vulnerability, as well as the emergence of new investment characteristics, has caused investors to believe that the U.S. has entered a new investment era to which the old guidelines no longer apply. Many have now come to believe that market risk is no longer a realistic consideration, while the risk of being underinvested or in cash and missing opportunities exceeds any other.
– Barron’s Magazine, February 3, 1969
The S&P 500, having peaked a few weeks earlier, was down 36% by May 1970. Perhaps more importantly, the cumulative total return of the S&P 500 lagged the cumulative return of Treasury bills from November 1968 until December 1985.
Portugal Has Nearly Eliminated Drug Overdoes While U.S. Deaths Continue To Skyrocket Higher – Portugal has roughly the same population as the state of New Jersey. But while New Jersey alone sees nearly 3,000 fatal drug overdoses a year, Portugal averages around 80. What’s different in Portugal? In the late 1990s, the country faced an explosion of heroin use. The drug was causing roughly 350 overdose deaths a year and sparked a wave of HIV/AIDS and other diseases linked to dirty needles. Portugal’s leaders responded by pivoting away from the U.S. drug war model, which prioritized narcotics seizures, arrests and lengthy prison sentences for drug offenders. Instead, Portugal focused scarce public dollars on health care, drug treatment, job training and housing. The system, integrated into the country’s taxpayer-funded national health care system, is free and relatively easy to navigate.
At its peak, Nortel reached 38.6% of Canada’s stock market. The stock went to zero. In Finland, Nokia reached 76.8% of the stock market’s total value. Today, Novo Nordisk is 70.6% of Denmark’s stock market:
Tuna Thoughts 