Interest Rates, Some Books etc.

Interest Rates and the Stock Market

Long time, no see. One thing we older people can tell you younger folks is that time really flies. A month as a teen feels a lot longer than a month as an adult. Doh. Anyway, all sorts of things have been going on, and I have been busy with various distractions so didn’t get around to posting here, even though I always intended to. Don’t worry if I don’t post in a while. I have no plans of going anywhere.

Anyway, let’s get to the most important thing first. The markets are tanking on higher interest rates, which is not surprising. It’s doing what we would expect. But, am I really worried about this? Not really. Go back and reread this old post I made about interest rates and valuations, and I discuss what happens when interest rates are in the 4-8% range, for example.

Here is a link to the post: Market Valuation / scatter plot

So judging from this, an interest rate of 5% is not something to freak out about at all. Yes, I always used 4% to illustrate the ‘zone of reasonableness’ of the market level as my ‘normalized’ level. We can just as easily use 5% and the valuation would be around 20x P/E. So for me, this interest rate movement is not an issue at all.

I hear people say all the time, rates are higher now so market valuations should be lower. True. But where I disagree is that when rates went down to 1% or sub 1%, the stock market didn’t follow it. The market did not get to 100x P/E. So the stock market does not need to correct as much as bond prices. Not even close.

Now, some of you will look at my old post (from 2015), and say that I am anchoring to a certain period. Yes, I do admit that. But I have no problem looking at the 1%, sub-1% era like I do above, an era where the stock market maintained it’s rationality and refused to chase valuations up while bond prices kept on going.

Anyway, I am not trying to change anyone’s mind or assert that I am correct and others are wrong. I am just telling you why I am not all that freaked out about interest rates, and my reason is all that stuff in my other post. Outdated and irrelevant? Am I completely wrong? Of course, that is possible.

Macro / Geopolitical Stuff

And other than interest rates, we have all this geopolitical stuff going on, and what’s happening in the Middle East is a tragedy. I don’t think I can say anything without pissing someone off, lol… So I won’t say anything. We can all agree that it’s a mess and we wish it weren’t so.

Not to be insensitive, but for investing purposes, for me, it’s not an issue. As I always say, go look at the 100 year chart of the Dow, and I can barely tell where the big wars were. So we just keep doing what we do, stay focused on what we can know, and things should be fine. Can things spiral out of control and plunge us into WWIII (some say we are already in WWIII but just haven’t realized it yet), and the end of the world? Of course this can happen. But what am I going to do about it? I don’t have any actionable ideas in that case. No, I am not going to buy guns and gold and move into the mountains. I will go down with the rest of humanity and I am fine with that (for now. Maybe I will change my mind some day, lol…)

Theme Stocks

Not often, but sometimes I get into extended conversations about stocks and the market with non-industry people. I remember right before Covid, I was talking to a young guy, and it was an interesting conversation. He was smart enough to have started investing, so I give him that. But his stock picks were things like Impossible Foods, Oatly, Beyond Meat, Warby Parker and other similar, new agey names. I told him I love the ideas and products, but that most of them are losing money hand over fist, and that these things tend to really have no moat; where is the moat in these businesses? I told him I tend to like strong moats, good margins, good returns on capital, real earnings, and decent valuations. So I told him I stick to the proven, like GOOG, AMZN, MSFT etc…

This is not to pick on this kid, good for him to start investing early. But my kid also sent me a list of stocks that he bought recently, and I was baffled. I asked him to explain to me these businesses, but he wasn’t really able to. I think he was also investing in themes.

So I told him, don’t invest in themes. The only thing you should invest in are good businesses. On-theme businesses can often be horrible investments. Look at the wasteland in biotech, green energy and many other areas where ideas may have been exciting but business models horrible.

If you browse a corporate presentation and you see all the great things about the industry, the idea, the theme, the future, but very little about the economics of the business, it’s usually a no-brainer to stay away. It reminds me of gold company presentations… Many of the crappy gold mining stocks would give you a Powerpoint presentation that tells you why gold will go up over time in 50 pages, but then have like one map and a balance sheet at the very end of the presentation. It convinces you that gold might go up, but tells you nothing about the company. That’s the idea. It makes you want to buy something gold-related, and they hope you will buy that stock. They sold you gold, but made you buy their stock.

So anyway, sometimes money-losing businesses is fine to invest in (Amazon lost money for years; but this has been used as an excuse for many money-losing companies; they say AMZN lost money for years too!), but most of the time, especially if you can’t identify a strong moat, you should stay away. It’s not hard to avert total disasters like this.

Books

Despite not having time to post here much, I do still try to read a lot. And I’ve read a bunch of good books recently. One of them is this one: Apple After Steve

It’s a fascinating book about what has been going on at Apple after the passing of Steve Jobs.

But first, to put all of this into context, here is a long term chart of AAPL. I labelled the various major milestones that investors may be curious about.

The first such mark is the passing of Steve Jobs, of course. This happened back in 2011 and you can see how well the stock has done since then. Another one that investors often look at is when AAPL moved into their new headquarters. In the old days, we used to see these massive new headquarters as signifying major tops in the businesses (be cautious of any company that builds and moves into a massive new HQ building). And we all know how important Jony Ive was for AAPL, and he left in 2019 with AAPL around $50. He did have a consulting agreement, though, which he ended last year. And yet, the stock kept going up.

Anyway, it’s a fascinating read. I assume there may not be much new to close followers of AAPL, but for me, it was very interesting.

Does this give you an insight to the future of AAPL? Well, not sure. It does confirm that Tim Cook is an operations guy and not at all a product guy. So this may be an issue if the iPhone upgrade cycle peters out (like the PC upgrade cycle sort of reached its end a few years ago).

One thing I realized is that the Apple car is only going to happen if they can get a fully self-driving one. The book implies that they had no interest in building a regular, drivable car, but will only develop a fully self-driving car with no steering wheel. This is why they are not any closer to releasing a car. This sort of makes sense.

Another book is Facebook: The Inside Story

This book, too, was a fascinating read for me. Maybe nothing new to some, but very interesting. Much of what’s in there doesn’t surprise me at all. But what was interesting is how intense Zuckerberg is and has always been. I tend to love that. Even when he was a kid, and in college, he was always writing code and building stuff, solving problems with technology. Some will disagree, but I think these guys are often driven by curiosity and the strong need to solve problems with the tools they have, building new tools, learning new tools etc. (many believe he is driven just by money)

It is very inspiring in that sense. I tell young kids these days to just build stuff. Learning stuff is good and important. Reading books and taking classes to learn stuff is important. But in order to really learn, you have to just constantly be building stuff and doing things. Apply things you learned and make use of them as soon as you can. Or plunge into things and figure it out as you go along. That’s how you really learn.

I’ve dealt with so many people, especially adults, that just want to learn things. And when I say let’s do this or let’s do that, they want to wait until they think they are ready. They want to get this degree or that degree, or take this test to get that qualification or that certificate. Even when I worked in a company, some people would refuse to do anything that wasn’t written in a book. I kid you not. They needed to validate facts from an official source before trusting it. That is total nonsense. It’s no surprise that those people tend to not get anything done. There is so much information and ‘facts’ that will never be published, ever, as they are often proprietary ‘secrets’ of various hedge funds and banks.

The book also gets into all the privacy issues that FB had over the years. One thing that made me scratch my head was that they were surprised at how accurately they can identify people’s genders, sexual preferences, political parties, hobbies and whatnot, from the their own data. Stuff that even family members don’t know about someone. And I was like, well, of course they can identify that sort of thing, if people are ‘liking’ certain things. That doesn’t strike me as anything special. But I guess that nobody has ever had that sort of data on people before. On the other hand, my personal feeling is, do I care? I still say my credit card company knows more about me than any social media. They know how much I paid for what, which hotels I’ve stayed at, which restaurants I’ve eaten at, what I have purchased in the past, going back decades. That is a lot scarier to me than someone knowing that I ‘liked’ this or that post, which is public anyway.

But again, that may be because I don’t share much on social media. My use of it is probably around average, no more or less than anyone else.

I don’t own FB, and don’t really plan on owning it any time soon. Does the book give you insight into its possible future? Not sure, but it does give a lot of detail about the company, so it is great reading either way.

I am also reading (but not finished) the new Musk book. And it’s a similar thing to Zuckerberg. The same sort of obsession and need to solve problems, to figure stuff out, to forge ahead even without everything you need in place (Steve Jobs was like this too). It is all incredibly inspiring. Of course, I would not want to work with or for Musk, and it doesn’t make me want to invest in TSLA. But, whatever you think of him (and many people judge him based on his posts on X, which is a big mistake), he is an amazing person and has done some amazing things.

Bill Gates’ book was also really good. I am not some hardcore environmentalist, but I do believe global warming is a problem, and that it is human-caused. But I also admit to saying (half-jokingly), well, gee, we had the ice age, right? And we came out of the ice age, so are we not just warming up naturally as a part of some long, natural cycle? This book was really good at sorting out a lot of the facts about global warming, and Gates puts all this together in an easy to understand way for total beginners on the issue. A couple of takeaways from this is first, again, I am just amazed at how all the greatest people are just constant learners. He has a book list from 2008 (when he was 50+; this is from his website, not the book) that he says he had his assistant order for him; math, science, physics, chemistry, all these text books, so he can learn enough to try to understand what is happening in the world. And he did this stuff at a late age too. I hear all the time from people, even in their 40s, that they are too old to learn this or that. Nonsense!

The other thing, other than learning a lot about climate issues, is that now I see why Gates’ investments don’t perform all that well. Well, I don’t know this for sure as I don’t track performance. But I used to follow his private investments a long time ago, but stopped following it years ago after seeing stuff that was not so interesting to me…

In the book, he explains that he makes investments based on where he feels more investments are needed. Unlike Buffett, he doesn’t evaluate a business on whether it is a good business at a good price and therefore a good investment. (Or he may do that for some investments, and not for others) Instead, he looks across the energy landscape, for example, and if he feels that not enough is being invested to develop safer nuclear power, or wind energy, he will make investments in that area. And the purpose would not be to make money, but more to put more dollars into R&D where he feels not enough is being done. It’s like, no wonder.

That’s actually a very good thing for the world and for society, but maybe not for people trying to optimize their return / risk.

Other books

Some other books I read recently are books about Stew Leonard and Service merchanise. New Yorkers will know Stew Leonard as a really great supermarket. It is a great story about how this store (now a small chain) started as a milk delivery business, and how they successfully evolved. I remember Service Merchanise from when I was a kid, and it’s a story about that company. They are both quick, easy reads. I love reading about great companies from the past (well, Stew Leonard is still doing very well).

Knowing Stew Leonard probably saved me some time and money from when Fairway Market did an IPO. New York City folks know Fairways because of it’s famous store on the Upper West Side. I used to be jealous of people who lived up there because of it (and some other great shops up there).

But having been to Stew Leonard’s and other supermarkets outside of NYC, I understood that Fairways was popular and did well in NYC because other chains in the city were just terrible. Things are better now (due to competition from Trader Joe’s, Whole Food etc.), but supermarkets in the city were (and many still are) just terrible.

When Fairways said it was going to start expanding outside of NYC, my first thought was, uh oh… and they are going to go up against the Stew Leonard’s of the world? It was easy to see that in NYC, competing against the crappy chains was not hard, but to go out and compete against better stores, I knew, was going to be a challenge.

Everyone was talking about this book a few months ago, Chip Wars, and it is a great book. I really enjoyed it. It gives you a good history and background of why the chip industry is the way it is today, with Taiwan Semiconductor an untouchable chip maker. Chips today, I guess, is the oil of the past (well, they also say information / data is). It is a great read and probably required reading for people to understand the modern economy.

One disappointment was Unscripted, the book about Viacom/Paramount (but not really; that was my mistake as I assumed it was). I am really interested in business history and people, but this book had very little about business, and mostly about how poorly Sumner Redstone was treated by terrible people in the last few years of his life. It is really sad, and there is drama there for people who like that sort of thing, but it was not for me at all. I am not really interested at all in those kinds of gory details. I am more interested in the bad business decisions that led to the implosion and destruction of that business… Of course, there is some of that, but to me, very little. It didn’t really read like a business book at all, but more like some sad family drama (which it no doubt is, but that’s not what I want to read, so my fault; as they say, it’s me, not you, lol..).

Anyway, this is sort of a random post without a lot of focus, but I thought I’d drop by and at least restart the clock so I don’t let too much time lapse without posting.

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