Two wonderful interviews to share:
Interview with Simon Mawhinney from Allan Gray Australia. An ex-colleague and an intellectual giant of a man. I always felt like I'd run a mental marathon after any discussion with him!
Interview with the Jeremy Grantham. His views on market cycles is probably the best in the industry. His quarterly letter from 4/2007 (also in the link) is also excellent reading. Many nuggets of wisdom in the interview with a few points here:
25:15: volatility of market pricing doesn't reflect the stable intrinsic value of an asset. The extrapolation of near term conditions leads to double counting the positives (bull market) and the negatives (market panic) by the market voting machine
24:00-25:00 and 30:00: the business/career risk which dissuades big institutions (buy and sell side) from avoiding bubbles. The biggest danger is getting fired in a bull market (even irrational bubbles) - GMO lost 60% of their AUM pre-2000 tech bubble pop (though they later got back 5x in new monies)!
1:27: current bubble signs
1:40: end of the bubble signals from the market (the pattern from the 2000 tech bubble)
It seems strange to me that the market is still debating if inflation is coming or not. It's like investors need an official Fed confirmation for reality to be real even though evidence is piling up: continuing global liquidity injections (already the biggest in history), commodity prices spiking, structural supply side under-investment in many sectors, fundamental disruption of supply chains, rising China input costs, rising Chinese demand and a sharply appreciating RMB.
It seems crazy to me that market players are still debating if asset prices are elevated let alone whether or not we're in a massive bubble (or even if it matters). A rising tide lifts all boats so why is it so hard to imagine what happens when the tide recedes? Does Doge and meme stocks going to the moon seem normal? Look at the pictures of those millionaire and billionaire faces and listen to their stories - can you imagine these being the faces of the new 0.1%s of this world? Did the capitalist system suddenly change its reward system from the usual blood, sweat, tears, brilliance and perseverance stories to drunken roulette and gifs of moon apes?
There are few things in my favor:
I invest bottom up and the investment opportunities I've concentrated my portfolio in are cheap in any kind of market. The discount comes from intrinsic rather than extrinsic risk
All monies are my own and I can focus on the absolute risk/reward rather than worry about relative performance. Hopefully my fund (likely starting Aug 1, 2021) can ride this current market cycle alone and look for like-minded investors later
We continue to load up on Alibaba (very glad to recently learn Munger also joined this party) and top up some other high conviction ideas. Meanwhile we are closing out positions which have now become fully valued e.g. Mengniu, Ctrip, Loomis. Our high oil E&P exposure has performed like a dream so we're trimming some of those positions though certain areas such as natural gas and offshore oil rigs are still in deep value territory.
We are in a bubble of epic proportions today across multiple asset classes and it doesn't matter when or how it pops. Just know: a) it's highly unlikely anyone can time the top, b) there is plenty of downside from here. The new market norm is likely to be very different from what we've become accustomed to until now. So guard your capital carefully and only put money to work with a healthy fear for losses.
Comments