Neil's Notes

Disneyland, part deux

When my family went to Disneyland almost a year ago, I played the spoil sport. Hell was breaking loose in the stock market. The fourth quarter of 2018 saw a ratcheting up of the trade war, a (misplaced) fear that the Federal Reserve would tighten interest rates too aggressively and choke off the economy, and a mid-term election. The market dropped 20% rather suddenly and brutally in a little over two and a half months’ time—something not experienced even during the Financial Crisis.  I spent most of that trip holed up in our hotel room as my understanding wife and kids enjoyed their first Disneyland experience.  Thankfully for the kids, no spoil sport can defeat the joys of the Happiest Place on Earth.

As I write, wife and two of the three kids are currently in line for Space Mountain. This trip was my idea, a guilt-driven re-do with a realization these are the last months that all three kids are…kids. The oldest is 11, and it’s only a matter of weeks or months until his voice drops and he becomes too cool for a lot of things, including his parents. Where has the time gone? This trip hasn’t gone to plan, though. I’m stuck in the hotel room again, this time with a sick eight year old. So I get to work a little, reflect on now versus a year ago, think about investment mistakes and missed opportunities. Markets are fine and even higher than before that big drop last year, and yet trade and geopolitics have worsened and economic growth has slowed. (Lots of lessons here.) So why are investors paying more for stocks? I suspect it’s mostly the collapse in interest rates globally, including the Fed changing course and lowering rates and the presence of negative interest rates in Europe and Japan. More cheap money and credit (and the confidence our monetary overloads are here to help) means anything with income or growth becomes more attractive. One lesson from the Crisis is playing out today: Assets can go higher by driving the value of money lower.

Of course, when talking markets one is talking about complex, even chaotic systems with multiple, interdependent variables. There are almost no perfect or simple answers. Trade, Brexit, politics, price, history, and other factors are all at work currently. And how much the market cares about one or all factors changes constantly.  

Suffice it to say we are confused because we are paying attention. There are many binary factors at work today (like trade), and so it is not the time for forecasts. We think being defensive, balanced, and liquid is prudent. We will see…

On negative interest rates
I’ve been dwelling a lot on negative interest rates since they appeared a few years ago and planned to write about it. Low and behold, the great Howard Marks recently put out something on the subject. He says all that can be said on what’s a historic and mind-twisting phenomena.  

The last time I’ll mention WeWork (I hope)
Years from now, when scholars analyze the 2010s, they’ll no doubt focus on, among other things, (1) how the internet really began to change everything, and (2) an era of cheap and endless capital. Some will explore their absurd intersections, including the story of WeWork. 

I thought this was perhaps the most insightful and humorous take on the WeWork saga. 

I can’t wait to read
Ben Horowitz’s What You Do Is Who You Are: How to Create Your Business Culture. This book goes right to top of my pile.  I read his previous book The Hard Thing About Hard Things recently and was floored. Honestly, most business books should be just ten pages long, but I enjoyed Hard Things until the end and even re-read some chapters. Ever since I heard the expression, “Culture trumps strategy every time,” I’ve been more interested in learning more about corporate culture. I have many questions on the subject.  I’ve also noticed over the years many long term winners have unique and valuable corporate cultures, including Costco, Google, Berkshire Hathaway, and Danaher to name some. 

Tim Ferriss’s podcast with Horowitz will also be in my ear pods Saturday when travelling.