"What gives you opportunities is other people doing dumb things ... In the 58 years we’ve been running Berkshire, I would say there’s been a great increase in the number of people doing dumb things, and they do big, dumb things.”
- Charlie Munger, 2023
We’ve spent 10 years studying asset class returns. From private equity, starts, international stocks, US stocks, high-yield markets, and many more. We’ve lived through zero interest rates, the Covid-19 era of rapid economic change, and now, through the transition to this next cycle. There has been carnage everywhere, from our grocery bills, and home insurance, all the way up to two of our nation's largest banks collapsing, with more likely to come.
And through the entirety, of these events, we’ve studied what strategy works best for people looking to build and maintain above-average balance sheets.
And here’s what learned. There’s no silver bullet.
There is not one strategy that works well through all of the economic cycles.
Here are the last 7 years*
2022 – Commodities – 22%
2021 – Commodities – 38.5%
2020 – Chinese Equities – 29.7%
2019 – US Equities – 31.6%
2018 – Cash – 1.9%
2017 - China Equities – 54.3%
2016 – High Yield Debt – 14.3%
Good luck picking the winner at the start of each year. It’s impossible really.
So with that out of the way, what are the best things we’ve found?
Quality growth, at a reasonable price.
I can hear you say it now, what does that mean?
We are avid hunters for growth, where capital is flowing, and what companies, sectors, and markets are moving up and two the right. We love growth. It’s probably the best business advice one can receive, just grow. Growth works in your personal financial life as well. Growth almost always fixes financial problems.
But, don’t overpay for it.
And that is the key.
We have found that while growth is imperative, there must be a reasonable price tag associated with it.
Case in point, we avoided the IPO craze of 2021 like the plague. Why? The growth was crazy, some of these companies were growing at 50% per year. The stuff of an entrepreneur's dream. But so was the price that people paid for these companies. They bought the growth at ridiculously high prices.
It didn’t end well.
Let’s take Bark Box for example – They IPOd in December of 2020, reaching a high point of $18.50 cents a share, fast forward to today, and the stock is trading at just over $1.
I think you get the point.
As you allocate, consider the growth and the price of the investment.
This middle ground has been what we feel is a great way to take advantage of growth while maintaining discipline on the valuation that we are paying for companies.
This is technical stuff but I can’t tell you how many conversations I’ve had with people of the years who chased the “hot” investments only to get burned. They bought growth and forgot about the valuation.
Don’t let this be you.
You only need to become financially independent once in your life.
As you read this, I am sitting on an airplane from New York where I just spend a day with one of the best investors in the world. I look forward to sharing my learnings next weekend.
Stay nimble friends.
Appreciate each one of you.
Tom
Fights from where you are to Iceland are on sale.
If you are reading this knowing you need to take your financial life to the next level. Please reach out. Simple as that.
How can we serve you? We invite you to contact us today so we can help answer any questions you may have about your financial situation.
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