Most investors, including me, have limited experience of inflationary risk.
This paper, from 2021, is an excellent guide – looking at passive/active strategies across asset classes over the past 95 years.
As we have seen it is tough – unexpected inflation is bad for traditional assets (bonds, equities). Commodities do well but depends which ones. Trend following and active equity are the best protection.
It may seem simple but often the main thing that makes stocks go up is defying the fade in forecasts.
This is true of mega-cap tech stocks.
Despite consistent forecast for deceleration they have maintained 20-30% growth for over a decade now.
NB solid line is actual revenue growth average for AMZN, AAPL, CRM, FB, GOOG, MSFT, NFLX and the dotted lines are average sell-side forward forecasts at those points in time.
Jim Grant has been publishing the Interest Rate Observer since 1983 (that is nearly 40 years!).
He is a noted contrarian, who has witnessed market booms and busts and all manner of human folly in-between. Always armed with a sharp mind, a wonderful network and a skilled pen.
This was a nice recent interview with him on his views especially on the impact of rising interest rates.
“That’s what we try to do at Grant’s. We try to imagine how a hardened consensuses of opinion could change—how people think that there’s no alternative but the way things are, and how that could change. So yes, there will be trouble ahead, but also a lot of interesting things to do.“
Minsky cycles are a concept that has seen its star rise since the financial crisis.
The idea, often summarised as “stability breeds instability”, is now incorporated into policy maker playbooks around the world.
This was a brilliant piece bringing the concept to venture.
“The key Minsky idea is that increasing capital inflows reduce perceived risk“.
Venture is going through this, driven by “shortening time” which boosts IRR, and the key question is whether true risk has actually decreased, or, we are in classic cycle.
How did the model portfolios on which ETFs are built fare five years after launch when compared to three years before? measured relative to the benchmark selected by the managers themselves.
The results aren’t pretty.
Thematic strategies that added 3-5% a year pre-launch, lost 4-5% a year in the five years after.
It seems that hype in various areas, leads to a launch of ETFs which then don’t add any alpha.
So be careful when you invest in the next hot thing via ETF.
Note this is just the model portfolio performance (e.g. index) and NOT the ETF itself (though it should track very closely after costs).
Nice fun piece from the Guardian on 100 ways to easily slightly improve one’s life.
Highlights include:
“If you’re going less than a mile, walk or cycle. About half of car journeys are under two miles, yet these create more pollution than longer journeys as the engine isn’t warmed up yet.“
