Weekend reading: Hubris on hold
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This latest crisis has encouraged me to do something I have argued against. I check the status of my ISA daily (as a proxy for all my holdings).
It has been bouncing around since this whole thing started. Up, down and sideways. Different components moving in different directions.
Further demonstration, if I needed it, that I understand nothing and probably never will. Of course, smart people can rationalise what has happened after the event, and other smart people appear to be operating on inside information, but for the average passive investor of the buy-and-hold persuasion, there is no logic. And certainly no predictive logic.
That’s OK, I never planned to take any action anyway. It is just another data point in my large collection of – if you think you know what’s going on, you haven’t understood the situation.
Some new equilibrium will briefly establish itself, or it won’t, but no action I can take beyond that diversified portfolio will do anything to stave off disaster if it is heading my way. To quote Lazarus Long, “It’s amazing how much ‘mature wisdom’ resembles being too tired.”
Good weekend all!
On the SpaceX (and other massive ipo’s) thing this is an excellent explanation by Ben Felix https://youtu.be/iOyFja87uyw?si=j_nUPIDr-nTMSTBg
Distressing as it is to find reason in anything the Don says or does, the world and the non-proliferation treaty does not need a nuclear armed theocracy. There will never be a good time, let alone a right time, to stop them, but as with the Democratic People’s Republic of Korea there will come a point where we run out of time.
Oh, and two wrongs don’t make a right so inaction against one regime does not justify giving up on the NPT.
@old_eyes — Very true. Ultimately there isn’t a lot one can do as a private investor facing regime change, except own a bit of everything and look for peace where one can best find it.
@Azamino — I agree, and if this had been a properly planned operation with a credible end game and sensibly forged global alliances (in the absence of any imminent threat to the US) I wouldn’t be considering it pointless.
As it is though the regime looks even more embedded as a result, and I’m skeptical that bombing alone can fully ameliorate the nuclear threat. (For one thing, by degrading the infrastructure around refined uranium it raises the greater possibility of it ending up elsewhere). Remember just last year we were told the nuclear facilities had been completely ‘obliterated’.
This is why I’m so skeptical about the motives behind this operation, as well as the execution.
@Grouty — I rarely watch videos but will try to give it a spin. I saw the valuation is now getting estimated nearer to $2trillion, so it’s going to be germane for all of us…
Betting against America apparently continues to be a poor investment policy for investors
As Jack Bogle often said “All you need is American stocks” -(admittedly addressing his American investors) -seems to be still very true
Personally I have continued to hold my global equity and global bond index trackers (which have predominantly American assets of course ) through thick and thin -another Bogle mantra ie stay the course
It seems to have worked for me -so far!
xxd09
“The super rich… – A Wealth of Common Sense
…and how they make the rest of us miserable – Of Dollars and Data”
The latter article doesn’t say anything about the super-rich making us miserable at all. .
It says that because many of us in the same economic class want to same thing, prices are driven up.
Lots of interesting stuff here-
Visual Capitalist- It’s surprising how low real wages are in places like Japan and South Korea. Not much growth here since 2010 but a 6% fall in Ireland for example.
Canalside homes – I remember the Grand Union Walk houses being built as I was working my first job in London at the time. They were very influential then, and seem to be aging quite well judging by the photos. £1.65m though, I couldn’t find a price history back to the 80s but that one was sold for £210k in 1996.
The Guardian link on older workers earning a pittance training AI models is illuminating, as is the picture of life in the US, if you happen to have a bit of bad luck.
Cato – I wonder is Hungary under Orban the logical outworking of a potential Reform government? It’s certainly been a disaster for them. There’s an aside in the article where it mentions the confiscation of private pension savings. Could never happen here?
@Grouty #2. Thanks for the video link. I watched it on fast (too many words to justify a very simple poistion), but it was interesting in part. Particularly, the idea that these mega-IPOs can cause markets and indices to bend their own rules so as not to be on the outside looking in. However, the conclusion seems to be (as far as I can tell) that any effect will not be dramatic and will fade quite quickly. Perhaps that is just me being optimistic through ignorance.
PS I should have added -rtd 23 years ago-now aged 80
Walked the walk?
xxd09
@Azamino. “the world … does not need a nuclear armed theocracy”. Totally agree but are we talking about Iran or the US? Under Hegseth, the US “Dept of War” (still actually Dept of Defence) is making proclamations that sound increasingly like calls for a new Crusade against the heathens.
We will get a big uptick in nuclear proliferation. Ukraine could argue giving up nukes was an error. Any rogue state need them as a priority, as Libya and Iran show. Japan, South Korea, Taiwan will want them. Even NATO members, with article 5 is worthless under Trump.
@Larsen. I’ve traded Hungary for over 25 years. Since 2010, Orban Mk II has been an economic train wreck. Basically no FDI. Higher inflation, worse fiscal, worse growth. Total state capture from a small number of oligarchs. Corruption at every level, all the way down to the local policemen and councillors. Incompetance is rife. They wasted almost 6% of GDP on trying to make the fertility rate go up but actually caused it to fall to even lower levels!
This is now the model for MAGA and will be the model for Reform. They wrap it up in terms of culture war, nativism, racism, always blaming the “other”. They know they can sell that to an eager population that wants anybody to blame but themselves. Fundamentally though, it’s about self enrichment and self dealing.
@Grouty #2
Would a way around this SpaceX business be to:
1. Buy SpaceX soon after IPO, and
2. Replace any global tracker with something which excludes the USA (eg EXUS)
3. Then, some time after the global tracker has been forced to overpay for SpaceX and the share price hopefully resembles market value, swap back to the global tracker.
I meant to say also, that Which article on value protection for annuities was a completely new thing to me. Thanks for that.
There are some silver linings from the MAGA chaos too.
It pushes Europe to unite, and the UK closer to Europe. (And thus may undo some of the 100 bn/year Brexit damage.) The choice is, form a global power as a block or become vassal states to a predatory US, Russia or China.
Voters may yet realise that Trump’s lackeys aren’t to be trusted to run the UK either. That’s how the elections in Canada and Australia played out. Still, with the polls as they are, it’s a major risk to gilts. Profligacy, corruption, unfunded tax cuts for the rich, attacks on central bank independence, and without the privilege of the reserve currency – it’s a recipe for disaster.
1. Re Dalio: He does though say that he hopes for a win-win scenario and adds that WW3 is not pre-ordained. Proxy wars? We’ve been there since the 70s. While good at summarising the past, he doesn’t prescribe to us what a possible WW3 will look like. Because he can’t. His views of the future are shaped by the knowns of the past but not the unknowns of the future. At times like this I do miss the brilliance of Henry Kissinger (with all his undoubted faults eg Vietnam and Cambodia) and Gromyko.
2. Regarding ‘guns or butter’ from Economics 101: I hate to say it but Trump has a point. We have had a good standard of living (generous welfare states) post ’45 thanks to the US’s military support and nuclear umbrella. Their troops were on the line for us if the Soviets had rolled over the plains in Germany. It was high time we increased our defence budgets so that the US can spend more money on their own infrastructure. It’s called growing up and facing reality if we are serious about confronting those who wish us harm.
“Such talk seems to give men of a certain ilk a vigorous feeling below the waist.”
Here’s what I don’t get: You compile a list of the week’s news, with commentary on the current affairs which you think are interesting or relevant, especially with respect to economics and finance.
You have a bit of a go at people who think that more should be spent on defence, ridiculing them and to some extent “othering” them, fine.
Nowhere do you mention that this week the two-child benefit cap has been lifted, leading to a permanent increase in every year’s welfare costs. Taxes have risen, and the proceeds are now being handed out to those who have the expense of a larger family.
Yet, the nation’s navy seems to have next to no serviceable vessels available to deal with threats of foreign aggression, or to join international initiatives to protect merchant shipping. The nation’s army is one fiftieth the size of Finland’s, on a per-capita basis.
I don’t really get how you can ridicule those who suspect that the UK might have cut its defence expenditure a bit too far, while silently accepting a (relatively unpopular) broadening of the welfare state at a time of sluggish economic growth.
Re: My comment #11
I should have added:
2a. Sell SpaceX after the tracker funds have been forced to overpay for it.
While your summary of the BBC thing on birds agrees with my aunt’s observation ‘it makes them lazy’
> Don’t feed garden birds in summer, says RSPB
the RSPB themselves are a little more nuanced – stop feeding seed and peanuts in summer, as this appears a finch thing, and Nature sees to it that there are seeds in rural environments in summer. This embargo is ‘twixt Beltane and Samhain
> You can continue to offer [year-round] small amounts of mealworms, fatballs or suet.
I will enjoy the increasing wheeze of greenfinches on the heathlands and follow their advice, while offering the pugnatious robins and timid titmice fatballs
@xxd09 — Perhaps, though ironically the past year or so Americans have (were?) remembering the case for global diversification, as non-US markets were finally putting in a good stint in their portfolios. Albeit some of that was a currency headwind.
@Larsen — I agree about those Camden flats. I was nearby a few weeks ago and they still look somehow almost futuristic. Would love to take a sneak peak inside one. The vibe looks like a sort of retro-sci-fi Barbican mash-up in the photos! The annuity wrinkle was new to me too.
@old_eyes — There were a few other links in the past couple of Weekend Readings on the index issues re: these mega IPOs. A lot can get lost in the noise with trackers, admittedly, just due to the sheer scale/breadth of what they hold, but the impression I got was that tracker fund investors would get a slightly worse deal in the short-term at the benefit of existing holders.
@ZXSpectrum48K — Indeed, Trump literally threatened on Wednesday to bomb Iran “back to the Stone Ages where they belong.” While I have no doubt some of the Iranian leadership would love to be making similar threats (or even enacting them, based on past rhetoric and actions) the whole horror of our present moment is that the US is no longer even pretending to be ‘better’ than that.
@Gareth Ghost — That might work if you could buy SpaceX before the IPO…
@Sparschwein — There will certainly be better and worse ways things can go. But except in a sort of creative destruction sense, I don’t see any benefit coming from these populist lurches and the dismantling of international norms and cooperation that couldn’t have been achieved in another way. (Similar to how angry poorer Brexit voters might have voted for Labour if they were genuinely more motivated by class/wealth distribution issues etc).
@Gil — I think it’s hard not to argue that the world is more dangerous than in the recent-ish past. One thing that returns to me very forcibly is the huge kerfuffle that Bush sought following 9/11. Endless trips to the UN, widespread diplomacy, dodgy dossiers, all the rest of it. Compare that to Trump just shooting from the hip and doing whatever the hell he likes. Of course any strongman can run on the legacy of the system he inherits, but who thinks the world would be better/safer even for Americans after another ten years of breaking down all that careful work and relationship building previous generations put in. Who knows if we’re on the track to WW3, but it certainly looks more likely than 20 years ago? As for the Americans, as I’ve written many times, the major winners from Pax America were the Americans. They reached the status of sole superpower, and until September 11 without barely a scratch to American soil. Yes they were set on defending Europe — they also had a continent sized crumple zone between them and the USSR. (Consider the battlefields of WW1 and even WW2 in France, and then add tactical nukes…) The MAGA move away from this isn’t driven by a cold recalculation of the benefits. It’s driven by a complacent and largely factually erroneous ideology IMHO. Of course we will have to spend more on arms as a result, but I wouldn’t say net it’s a good thing.
@ermine — The actual story is about not feeding birds in summer in the quest to halt the spread of avian bird flu. (The nuance is you can feed bits of fat etc, but avoid seed dispensers and the like that tend to spread disease to particularly susceptible finches as I understand it). The Guardian had much the best free story on it, but every week it’s a battle not to include too many Guardian links…
@Jonathan — Perhaps you don’t realise you’re doing it (your moniker suggests otherwise) but do you appreciate you’re leaving a negative comment of some sort or another on every post me and TA write? I’m all for a bit of constructive criticism, but when this is such a striking pattern it doesn’t exactly encourage engagement with your points. In this instance, I am not critical of the need to rearm so much as the certain brand of editorial / bloke in the pub who genuinely seems to get a visceral thrill from the idea we need to, even as they shake their head sadly at the snowflakes who thought we’d reached the End of History. That’s what my comment was directed at, and as a bit of editorial colour I don’t think it was very strong. As for the two-child benefit cap, we had a huge debate when it was all kicking off a few months ago. Now it’s here, and I’d imagine not especially directly relevant to a majority of Monevator readers. That said I agree I equally could have included a link. This is a subjective and human curation, not an exhaustive list of links. Finally, from what I’ve read it seems capping the benefit didn’t achieve the sociological aim (smaller families for those who couldn’t afford them) and while you might say it achieved the State the aim of saving money, plenty of research shows growing up poor leads to worst life outcomes, to the detriment of wider society. Not to mention the kids themselves were thus born into it, and don’t seem to me the ones who should be first in the line for cutbacks. You may believe differently, which is of course fine.
@all — Mostly enjoying the conversation free of the (minority of) snark and chaff when the comments are open to all. *ponders*
@TI > in the quest to halt the spread of avian bird flu.
Eh? I will read the RSPB stuff again but I believe the attempt is not to spread Trichomonosis. To wit:
I’m not averse to finding out I am wrong, I came to the conclusion I should STFU about self-driving cars in cities last time because I was apparently wrong, but bird flu was sure as heck isn’t what I read in the RSPB article. Ctrl-F for flu returns nothing, and I’ve done a Ctrl-F for flu on the BBC article you linked to and returned nothing. So I have to respectfully disagree in this case 😉
@TI #18.
“ …the impression I got was that tracker fund investors would get a slightly worse deal in the short-term at the benefit of existing holders”.
That’s what I heard, but also the effect was unlikely to be massive unless you indulge in a tightly focused tracker. In addition, I understood him to say that we are already getting this ‘slightly worse deal’, so it appears to be factored in to what we are already doing. I saw no solution offered except to use these Dimension Funds that seem to have all the benefits of an index fund with none of the downside. Not sure I believe that on the say so of a salesman.
So for me it was – thank you for the analysis, no further action required.
@ermine — Yes, sloppy word use on my part — you’re right. ‘Avian diseases’ says the Guardian here:
https://www.theguardian.com/environment/2026/apr/10/rspb-bird-feeders-nuts-seeds-summer-parasitic-avian-disease
My point was that this particular guidance isn’t related to the availability or desirability of foods, more this John Snow pump type issue.
@old_eyes — Agreed, seems a reasonable conclusion. 🙂
@The Investor- #19 Agreed. And definitely re your last sentence.
@Jonathan – As far as I see it, TI did not criticise those who think more should be spent on defence at all. He simply suggested that civilisation tends to be more of a thing when people get along and show a little respect rather than trying to knock each other’s lights out all the time. However, technical developments do generally accelerate during wartime. People seem to work harder during war. If only we had such focus on sustainability outside of such times of crisis.
Re: value protected annuities
The slightly lower income seems like a good trade off, but I’m sure there’s a catch in there.
On the US bogleheads forum they seem to favour SPIA (fixed annuity) and buying more when income insufficient. Personally I think this is probably the best value option in the U.K. as well but would be interested in better options.
@marc1485153 (25)
We had an extensive discussion on phased annuitisation (using level annuities) vs RPI-linked annuities about 18 months ago. I made various comments in the thread presenting the outcomes of various analyses, but my overall conclusion is contained in this comment:
https://monevator.com/how-to-buy-index-linked-gilts/comment-page-1/#comment-1841120
Re Dimson’s conundrum (more things can than will); as @TI titled it (26th August 2015): “You need a plan, not predictions or platitudes”. But that plan can’t just be equity index B&H (or Bessembinder’s folly of single stock selection). Per Michael Platt (BlueCrest HF, Schwager interview, 2011): “If you use a fixed system continuously, it will eventually fail” (often misquoted as ‘an investment is a failed trade’). There’s now twenty billion reasons (dollar wise) why he’s right. Shame there’s not more interest in TF & dynamical TAA systems.
@Delta Hedge #27
> Shame there’s not more interest in TF & dynamical TAA systems.
I think you nailed it with your opening sentence
> Re Dimson’s conundrum (more things can than will);
Is TF & dynamical TAA a feedback system dealing with the can or will?
We have the problem of the hundred monkeys on a typewriter with anything on t’internet these days. You have to sift through all the dross and non-works of Shakespeare, how do you recognise the diamonds in the dross? Many narratives can be true but not actionable, in which case you enjoyed the story but that’s about it. A story doesn’t even have to be true to be enjoyable 😉
Then there’s the age old question has this good story got any useful/actionable content. A narrative that xxx is going pear-shaped is of limited practical use if you can’t call the timescale. As an example, I switched off anything to do with climate change ever since the berks of Extinction Rebellion (who?) started calling it a climate emergency. I am child-free, so my time horizon is 30 years, tops. This is not actionable for me, sure, I try not to be a wasteful git on the environment, I don’t run a SUV, and being child-free probably reduced my climate footprint. And I’m not particularly denying it is happening. But I can’t call the timescale, there’s nothing I can do about it, other than avoiding living on low ground and clifftops. So as soon as it comes up on the radio or TV or website, click the off switch. That one change, ‘climate emergency’ did it for me. And to repeat, before World + Dog jumps down my throat, I am not a CC denialist. It is my response to all this that I am choosing to change, because I become more discriminating in what I allocate effort and headspace to as I get older. Because: tempus fugit what’ left is more precious
Same with Bessembinder etc. FWIW I absolutely agree with you that equity index B&H is unlikely to be as successful in future as it was since the GFC. It may be the best people can do given the resources/attention span and there may well be no useful/practical alternative but a more volatile world with more resources allocated to things that don’t necessarily add to quality of life, as TI eloquently moaned in the first part of this post, or allocated to hedge volatility/nasty edge cases, will probably throw off less income. Is it actionable? If you take the passive mantra as gospel then no. You will simply get less return, 4% SWR becomes 3%, 2%, 1%, and eventually you get return-free risk on the way down.
I made a similar point and was called a nihilist. One man’s nihilism is anothers realism. I’d love to see some globally coordinated approach to climate change but it just isn’t happening. It will take some disaster arriving at the front door before action is taken, and that action will constitute having a fight with someone else over whatever scarcity has been produced. That is how we seem to roll. I don’t like it, but that’s what I’m seeing. I know two people who have been involved in xR. One was slightly crazy, spent a night in prison as a result and thought it was the most exhilarating thing they’d ever done, the other was pretty sensible and just quit as they weren’t getting anything done, joined some steering committee instead.
@ermine
“.. I switched off anything to do with climate change ever since the berks of Extinction Rebellion (who?) started calling it a climate emergency. ..”.
Interesting viewpoint. My switch clicked on when, round about 2019, I noted that CO2 in the atmosphere had doubled in less than 30 years. Also, round about then, checking over my 2002 Golf diesel, I happened to be underneath the rear ( favourite spot for rust) when my head got rather close to the engine runnng exhaust. The fumes were disgusting, and this from a car that never burnt oil or been remotely near failing an emissions test.
Prior to the 2019 General Election, I drove up to Bristol to attend an electoral hustings organised by Extinction Rebellion. My experiences of hustings has been that they tended to display the worst of politics in action. Cynical, backbiting, snidey asides, dog-whistle references, planted questions. A bit like Parliament. This hustings was very different. It was well organised, and most of all, respectful. Personal attacks absent. The whole experience was like a breath of fresh air.
@Trufflehunt I respect your different experience, and I’m not claiming universality. I do query
> I noted that CO2 in the atmosphere had doubled in less than 30 years.
Hopefully KOTUS has not falsified this (which sort of brings up the diamonds/dross issue)
But from a rough eyeball, you two data points are ~1990 and ~2020 and I observe ~350ppm for the former and say ~420ppm in the latter. when I went to school 2*350 was 700, so could you show me where I am thinking about this wrong?
I’m not saying it’s great, but doubling in 30 years, no.
My only personal experience of XR was at some conference where some lovely young folk talked about their passion for XR. While acknowledging they had just come back from holiday in Bali 😉
I am not particularly advocating everybody switch off, FWIW. It’s my response, given the limited timeframe, and the desire to conserve headspace.
@ermine – it’s funny how small things can serve as tipping points for ones view on matters. My equivalent to your xR ‘climate emergency’ was Eastleigh borough council deciding on the strapline ‘tackling climate change’ for all their merch (Eastleigh is a small Hampshire town). So every time you drive in and out the road signs say ‘Eastleigh – tackling climate change’. It’s so patently ridiculous, I kind of lost hope when I read it.
Sorry for the delay in replying @ermine #28.
Having to give my time to The Man to earn the crust. Can’t wait for that Pete Fonda moment as Captain America, taking off the wrist watch and then casting it down onto the desert floor before setting off to the strains of Steppenwolf.
Stocks are stories and stories are, by degrees, entertaining, educating and enlightening; but they ain’t real.
It’s Plato’s Cave. We see the shadow of reality in the narrative about what’s been, what is, and what will become of the business.
But every word, every phrase, every argument and every idea in a narrative is a variable or an assumption.
Variables change and assumptions prove wanting.
That’s why Occam’s Razor does not lie forgotten as High Medieval theology, but instead now stands elevated to an epistemic principle.
Rightly so.
Fewer assumptions and fewer variables means more robustness and explanatory power, and, therefore, more (dare I say the word out loud here in the Passive Temple; yes I do 😉 ) ‘predictiveness’.
If a story has a 100 elements (think Tesla since IPO or Peleton and Zoom in the bat*h*t crazy year of 2021) then the combinatorial phase space of ideas that it occupies has a size of the factorial of 100, which, IIRC, is a number with some 157 digits (for comparison there are ‘only’ about 10^81 protons and 10^90 photons in the currently observable (visible) part of the universe, which is 93 bn light years across).
The chance of most of those 100 elements working out just as per the stock’s story line is, well…..slim.
And the story is a mere snapshot in the here and now of one version of ‘truth’, one perception (with a h/t to Inverentum Capital’s substack here): “Investing in individual stocks is a lot like trying to guess if it’ll rain in a week based on the cloud you see today. Sure, you might get it right once in a while, but if you make a habit of it, you’ll often find yourself standing in the rain without an umbrella.”
But why not instead take a model with just the one variable based on one past correlation, say between trend momentum (200 day simple moving average) and volatility (materially lower above, higher below).
Now you’ve got yourself a leverage rotation system if you chose an appreciating asset class (equities) over a mean reverting one (commodities).
And a system that’s likely not overfitting the data and not one discovered by torturing the data until it confesses.
Likewise with global liquidity.
Liquidity increasing, stocks tend to rise. The riskiest rise most. Liquidity falls, stocks sell off, the riskiest the hardest. So, is liquidity rising, or is it falling?
Just the one question to get right.
Not 100 variables, not a 100 poorly defined points in a narrative about a snapshot of a company.
Of course, you can still screw up answering one question.
But it’s a hell of a lot easier than trying to answer every possible combination of 100 questions and issues.
So why make life harder than it needs to be?
As for TAA,TF and B&H; from where I sit B&H 100% global equities is just a simple (undoubtedly) low frequency trade (low cost, low friction), hopefully somewhat robust, constant 1x leverage asset allocation system (with 1 asset) and no risk on/off trigger.
It has substantial merit (albeit mediocre returns, given the historical drawdown severity and length); but it’s not privileged epistemically or ontologically.
It’s ultimately just another system. Assess it on the same footing as any other. There are no exceptions to ‘don’t believe the hype’. Judge one as you judge all.
The trick is to aim for more reward with less risk not less for less or more for more
Given compounding effects over long periods of time, a higher risk/return position using a TAA system can be sized with a modest allocation of initial capital, not rebalanced (let winners run) whilst the risk of the rest of the portfolio is reduced commensurately (e.g. by moving from 100% global equities to Dalio’s AWP / Harry Browne’s PP or AQR Risk Parity, or some combination thereof).
Barbelling beats all in on anything.
Stocks are stories. That may be the case but stocks also have an editorial board that chooses from the many courses of action that are available. The investor can simplify the investment decision by deciding on the quality, tenacity and intended direction of the editorial board. Compare and contrast as well as barbelling.
@ermine (#31)
You’re quite right, even since the 1750, atmospheric co2 has ‘only’ risen from about 280 ppm to 420ppm. However, the rate of increase has nearly doubled since the 90s – from 1.5ppm per year in the 1990s to 2.6ppm per year in the last decade.
Re: Value protection for annuities
It must be remembered that value protection is nominal and will be decreased not only by the amount already paid out, but also inflation.
For RPI annuities, it may be that a long(ish) guarantee period is a better way to protect from early death (5 year guarantees are often quoted, but they are available for much longer periods, depending on age). I note that a long enough guarantee reduces the payout rate to close to that of an ILG ladder (as a play with the moneyhelper annuity tool can demonstrate).
@Bassavoce #34: Price and volume don’t lie, but narratives do.
@oldeyes #8 & 21 yes that was my conclusion, I decided that I can’t do much about it and I don’t use trackers to get perfect returns but reasonable returns in line with the market so *shrug*. It did settle some slight concerns though.
Separately I’m not sure I’d describe him as a sales person, I’ve followed his stuff and his podcast ‘rational reminder’ for a number of years and always found his content balanced and well researched.
@TI #19 well said, in particular the third paragraph, a trend I’m glad you picked up on.
Another foundational problem with narrative investing (themes and shares) is that narratives are slow to update to changing evidence (narrative momentum is strong, even when it diverges from earnings’ momentum and price momentum, see Cathy Wood for a prime example).
As Keynes put it, you should change your mind when the evidence changes.
A story takes too long to die. And a bad idea is a return killer.
Not being anchored to narratives reduces the sunk intellectual ‘costs’ of stock story credence.
It’s not about being proved right.
It’s just about making a return regardless.
I do find the tone, especially in some quarters, of the “Climate Change” discussion in the UK to be a strange mix of ideology and oversized view of our own importance.
https://www.worldometers.info/co2-emissions/co2-emissions-by-country/
It quite literally doesn’t matter what our domestic policies are so I’m dubious that reducing economic growth as Net Zero policies clearly are doing is morally justified. There’s never any acceptance of the negative outcomes associated with that lower growth/activity.
Add up the emissions of all the countries in your source that contribute sub 2% and collectively they account for 35% of the total. We’re one of the biggest members of that group – our footprint matters.
That’s aside from the fact that we:
– Outsourced our emissions through deindustrialisation.
– Bear a huge historical responsibility for the situation.
– Show other countries how to make the transition by leading the way.
Climate change is a huge collective action problem so we can’t duck out of it.
“There’s never any acceptance of the negative outcomes associated with that lower growth/activity.”
This is blatantly untrue. It’s why the transition has been a huge political slugfest ever since climate change became a public issue in 1989.
We’re not prepared to sacrifice our lifestyles to decarbonise. That’s obvious.
However, many people are prepared to sacrifice some jam today to invest in new tech / save the planet tomorrow.
Seems to me there’s a spectrum:
– Those who are happy to invest in new technology – once affordable – that presents clear benefits for the future. (Relatively mainstream view.)
– Primarily driven by environmental concerns. (Pretty niche.)
– Content to ignore the problem until the wheels start falling off. (Quite widespread)
– Completely in denial. (Hopefully quite niche by now.)
Seems to me that there’s not enough acceptance of the negative externalities of burning carbon and hoping to get away with it.
Have you ever totted up the impact on growth of the various negative outcomes associated with frying the planet?
Its the nature of the problem that is the sticky point with climate change.
If you imagined a hypothetical situation where the source of the CO2 was it being pumped in by an external Vogon destructor fleet I would wager you would see near instant, perfect global collaboration in tackling the problem. Its so easy to envisage we’ve made a ton of hollywood blockbusters on the subject.
Humans are great at collaboration when its based around in-group/out-group tribal type competition. Absolutely terrible at global collaboration. We need a ‘bad-actor’ to muster against. If that isn’t there, then you’re fighting against millennia of darwinian evolution of the human brain when trying to sort the problem out. And as we can see it playing out, its not really happening.
Steve B and TA both have a point. UKs contribution *is* important *if* we think leading by example is likely to result in others following suit, but that is a huge if. Otherwise, not so much.
Climate change is a huge collective problem, and yes, we are pretty much all ducking out of it (for now).
The IPCC reports are very impressive and useful (as you would expect at 3,500 pages each and the product of hundreds of rigorous studies by hundreds of subject area experts).
If anything, it leans cautious so as not to be alarmist.
When they started the reports they decided most people couldn’t or wouldn’t conceptualise beyond 2100, hence their projections stop there.
This was understandable for presentational reasons but perhaps, in retrospect, a mistake in terms of giving the best information to policy makers as anthropogenic global warming does not stop in 2100.
Far from it.
On the main Representative Concentration Pathways (RCPs 2.6 to 8.5) we’re looking at at least 1.5 degrees to 4 degrees warming by 2100.
But temperature increase continues until at least 2300 if not 2500 (and stay on an elevated plateau for at least 10,000 years before slowly returning to the pre industrial level over 100,000 years as natural processes remove excess carbon dioxide from the atmosphere).
Unfortunately, there are very few studies going out that far, but there is one each which I’ve seen for 2300 and 2500 and they’re suggesting it could well top out at 5 to 6 degrees warming by then, as compared to 2000, with a not so outside chance of as much as 8 degrees warming.
So, if we don’t get wiped out by ASI, by global nuclear war and winter, or by genetically engineered bioterrorism, first then (given shrinking, and already on the cusp of below replacement, fertility) the likely not much more than 2 billion remaining people in 2300, or far fewer in 2500, will inhabit a world where great swathes of Asia, Africa and the Americas will be functionally uninhabitable during the summer months.
@Rhino – You don’t have to believe leading by example makes a difference. You only need recognise that collective action problems are solved by, well, collective action i.e. that a group co-ordinates so long as positive actions are reciprocated and free-riding is minimised.
The collective footprint of the smaller players according to Steve B’s source is 35%. That is bigger than China’s.
Saying we make no difference is like me walking into Currys, shoplifting a TV, and claiming, “It’s only one TV, what difference does it make?”
I don’t think everyone is ducking their responsibility. To take one example, China is playing its part. Frankly, it’s a miracle.
However, the Chinese are also betting that electric technologies will play a critical economic role in the decades to come, irrespective of the environmental advantages. (See some of the electro-state / electric tech stack analyses that are doing the rounds.)
The costs of key technologies are falling rapidly. Plus we can stop our energy supply being held hostage by authoritarian states and madmen.
Why wouldn’t we invest in that?
Yes that is a good example. To be brutally utilitarian about it, you going into Curry’s and robbing a TV makes bugger all difference. I mean, you may go to prison, but Curry’s lives to trade another day. Now if everyone goes into Curry’s and robs a TV then no more Curry’s. That is the point. I’m not seeing everyone going into Curry’s and stealing tellies. That’s what needs to happen. I have no disagreement with you on what should happen. I’m just observing a disparity between what should happen and what is happening. And trying to offer up an explanation for why that might be the case.
To completely contradict myself we (the UK) are doing a pretty good job on wind power. What we don’t have is a proper grid or enough BESS. What’s going on in China in solar is truly mind blowing. But I agree that their motivation for doing so has very little to do with collective global action against climate change.
In terms of ducking out, well Russia, US.
@Rhino – Yes, I agree with your analysis and the Vogon destructor fleet reference did make me smile. I can’t remember if it was you earlier in this thread, or in another, who said it’ll take a massive crisis to wake everyone up. I think that’s right. The Vogon destructor fleet will arrive at some point in the shape of an unnatural disaster that shocks the world. We’ll pass a tipping point and spend our old age being asked by our children and grandchildren why we didn’t do anything.
Final thoughts on stock narrative and selection.
60% of all stocks listed on US exchanges since 1995 have delisted.
If you wait for confirmation on a stock you’re already too late.
And Price’s Law from the 1960s demonstrates that competence scales linearly at the square root of the number of participants whereas incompetent grows exponentially with the number of participants.
So, half of all music streams come from just 3,300 out of 11 million artists on streaming platforms (0.03%).
Half of all stock returns come from the square root of the number of stocks (Bessembinder).
And by parity of reasoning, half of stock picking returns come from the square root of the number of stock pickers.
So, if you use a system, it has to be one which works in the hands of an idiot as we are overwhelming likely to each fall into the incompetent idiot bucket that into the tiny thimbleful of competent pros with genuine edge.
Stock picking, and it’s proxies, don’t fall into the even an idiot could do it successfully category.
Basic rules based TAA and TF does.