Single-stock ETFs, Black Wednesday, Howard Marks and randomness - the best investing blogs and podcasts from the past week
With the Nasdaq trading down 27% this year (it’s down 3.4% this week) it’s fair to say we’re not really in the kind of ‘euphoric’ phase you tend to get with market manias.
Yet there are smoke signals out there that really give the impression that not everyone’s got the memo that shares can go down very sharply.
Over the summer American regulators gave the green-light to the first of what’s likely to be hundreds of so-called ‘single-stock ETFs’.
Sounds crazy? It sure is. In fact, these things are possibly crazier than anyone new to this would think.
To start with, the name is an oxymoron really, because ETFs - like them or not - symbolise the passive investment movement. In simple terms, regular ETFs buy you broad exposure to a market, index, sector or style. For those that don’t want to pick their own shares, these things can be wonderful. And because there’s no active management (just an underlying index to track) they’re also cheap.
Not so much with single-stock ETFs. While the ‘single stock’ element is intriguing, the main point of these products is they’re leveraged. And they’re relatively expensive too.
It means that investors in the States can now buy the likes of Tesla, Apple, Nike, Pfizer and others in wrappers that offer long or short exposure and outcomes that are magnified by perhaps 1.5 to 2.0 times.
One of the other ‘exciting’ things about single-stock ETFs is that the leverage resets daily. They are, in reality, a daily product (again veering away from how most people think about ETFs). That reset means that leveraged losses can compound against you if things go wrong. Basically, you can lose your capital really fast.
Now to be fair, single-stock ETFs have been available in Europe for a while. And let’s not forget that it’s perfectly possible to engineer similar leveraged exposures using spread betting and CFDs. But you have to know what you’re doing.
US regulators and the ETF firms themselves stress that these single-stock products are for experienced traders. But it’s hard not to think they haven’t just created a massive ‘easy button’ for just about anyone to take a big bet on which way Tesla shares will go on its next set of results. Sadly it seems like just another win for short-term thinking.
On a similar note, Robinhood, the US-based fee-free trading app, has started publishing its own Robinhood Investor Index.
Robinhood hit the headlines in the meme stock craziness around 2020 and 2021. It went on to list itself (the shares have slumped) and in between times got into a real tangle over how it makes money and whose side it’s on (its user base or the brokers it sells order flow to). It’s all very un-Robin Hood-like.
Anyway, the new index takes the top 100 highest conviction holdings across user portfolios. So whether their stocks are worth $200 or $20 million, all users are equally represented.
Source: Robinhood
GameStop and AMC, the original meme shares that caused so much excitement in early 2021, are still right up there. But more generally, certainly in the top 10 positions, there’s a big-tech feel to things.
So what’s the message here? This top 10 doesn’t look particularly surprising - they’re some of the biggest tech and entertainment names in the market. But perhaps that’s the point. Maybe Robinhood is wanting to show us that its user-base isn’t the wild, untamed mass of angry traders that some people made it out to be. At an average age of 32, I think there’s at least some suggestion here that this is where a new, younger generation of investors is hanging out. And they aren’t that different to everyone else.
But I also think, looking at the performance of some of these conviction holdings this year, that Robinhood is probably worried about customer churn. Nursing 25%-plus losses on so many positions is going to be painful. Letting them know that so many others are feeling the same pain might just buoy up the camaraderie a bit.
Top posts this week
A Long Time In Finance podcast - Remembering Black Wednesday: Part One
It was on this day 30 years ago (16 September 1992) that the UK finally stumbled out of the Exchange Rate Mechanism and Black Wednesday took hold. The history of this complete hash of a government policy and the heady mix of arrogance and idiocy that got us there (and what happened next) is the subject of this podcast series. Part one of three by the hosts - ex-City journalists Jonathan Ford and Neil Collins - is just over half an hour long. It’s a brilliant and funny tour of some of the thinking that went on, including interviews with some of those that were involved. Part 2 - out next Tuesday - can’t come soon enough.
Athenarium - The Drunkard’s Walk — Leonard Mlodinow on Randomness and Reasoning
I forget now, but I came across The Drunkard’s Walk by Leonard Mlodinow quite some time back, probably during a momentary phase of getting completely lost in issues of investor psychology. It’s very good if you’re into how randomness governs how so much of our lives unfold. This anonymously written post (which is normal for Athenarium) is a nice diversion into how probability wrong-foots even the smartest people sometimes. It’s a quick-fire tour through all sorts of thinking and observations. If like me you’re reading with an investing hat on, it offers some interesting pauses for thought. I think reminders about the importance of psychology in the stock market are always worthwhile - it’s something that doesn’t get enough attention but is essential in times of stress.
Round-up: Recent UK blogs on share ideas and updates
I mentioned Jamie Streeter’s Compound Income blog last week, but here it is again because this article is a neat little intro to an investment trust that offers a diversified all-cap exposure to UK shares. The trust itself is co-run by Premier Miton manager Gervais Williams. If you want to hear more about him, this recent LSE Investing Matters interview with Peter Higgins is well worth it: Episode 21, Gervais Williams, Head of Equities at Premier Miton.
Elsewhere, John Kingham covered the promo goods company 4imprint, which has been on a massive tear in recent weeks. It’s an interesting story of a British firm that’s cracked America, and you can read all about it here: John Kingham, UKDividendStocks.com - Is 4imprint a Good Choice for Dividend Investors? Incidentally, anyone with even just a passing interest in dividends should catch up with John’s previous article here: UK Top 40 High-Yield Blue-Chip Stocks: 2022 Q3
Finally, this caught my eye from diy investor (uk) - ITM Power - Full Yr Results… Disappointing! After such a blistering run through 2020, shares in ITM have been falling for months. Production delays and an outgoing CEO have cratered the price again, which is such an agonising blow for investors in a firm that once seemed to be in the right place at the right time.
Motley Fool Money - Aswath Damodaran on Valuation, Inflation, Bezos, and Musk
When it comes to value and valuation in shares and markets, Aswath Damodaran has achieved a kind of elite status (you can find his blog here). He’s a New York-based finance professor who runs his own money and has been writing for years, often in great depth about company valuations. This half-hour conversation with Tom Gardner of the Motley Fool is worth it for his views on inflation and what it really means for investors. It also covers some of his evolving thinking on the importance of listening to those in the market who don’t necessarily do things the same way as you. In particular, he talks about his affection for listening to traders and chartists, who, after all, have a major influence on price movements. The conversation also takes in Damodaran’s scepticism of ESG and his constantly shifting valuations of Tesla and what he thinks Elon Musk should do differently.
Howard Marks, Oaktree Capital - The Illusion of Knowledge (podcast), full text of the memo, Behind the Memo (podcast)
I recently embarked on an ambitious (but almost certainly short lived) routine of doing long, low-intensity spin bike rides. Just about the only benefit so far, as far as I can tell, is that it gives me time to smash out podcasts like this. Howard Marks is the boss of asset management firm Oaktree Capital and a closely followed voice on sensible investing. His once annual memos have increased in tempo recently, and now we get the memo, a podcast of it, plus a ‘Behind the Memo’ interview with him that deconstructs the main themes. This time around he tackles the idea of how futile it is to make macro forecasts - and he’s rightly not much of a fan of forecasts of any sort. This sounds like heresy, but on balance I found the podcast quite long and sometimes arduous (not unlike the bike ride I was doing at the time). So on reflection, I’d suggest starting with the Behind the Memo podcast, which is much snappier and gets in all the main points.
Thanks for reading,
Ben
PS. Catch up below with the best of the rest from the past week…
Thinking & Strategy (Blogs)
Testing the patience of value investors
The Evidence-Based Investor
Another tail wagging the dog
Klement on Investing
Successful Stock Speculation by J.J. Butler
Novel Investor
How to Earn Bond-Like Returns Without the Risk of Drawdowns
Compound Advisors
Equity Duration & Inflation: Lessons from the Nifty Fifty
Sean Stannard-Stockton, CFA, Intrinsic Investing
Why Do We Always Focus on the Bad Stuff?
A Wealth of Common Sense
Should You Invest More After the Market Declines?
Of Dollars And Data
Expected returns: Estimates for your investment planning
Monevator
Learning Through Play
Farnam Street
The AI Unbundling
Stratechery by Ben Thompson
Focus and Finding Your Favorite Problems
Neckar's Minds and Markets
Thinking & Strategy (Podcasts)
Episode #443: Kyle Bass on The Market, Energy Crisis & His New Big Bet For The Next Decade
Meb Faber Research – Stock Market and Investing Blog
Talk with CFA Society of Mexico - August 17, 2022
Chai with Pabrai
Whatever You Do, Don't Panic! ft. Sean Keyes
Stock Club
Show Us Your Portfolio: Darius Dale
Excess Returns
MI221: High Returns from Low Risk Investing w/ Pim van Vliet
Millennial Investing - The Investor’s Podcast Network
Episode 14 - The Coach
Behind the Balance Sheet
Gabriel Leydon - How Web3 Onboards a Billion Users - [Web3 Breakdowns, EP.37]
Invest Like the Best with Patrick O'Shaughnessy
Nick Gillespie — The Lou Reed of Libertarianism (EP.123)
Infinite Loops
#133 - Michael Gayed - Navigating The Macro Mess, A Potential Depression & Energy Price Shocks
Opto Sessions
Securities & Markets (Blogs)
Small Caps Live Weekly Summary
Small Caps Life
The young fund managers to watch
Trustnet
10-Chart Thursday (9/15/22)
Compound Advisors
Markets Get Slammed: Some Things to Remember By, D. R. Barton, Jr.
Van Tharp Institute
Dunelm Results and Pay at Safestore
Roger W. Lawson's Blog
Fundsmith Emerging Markets Trust shares up as Smith says it will close
Mail Online
Dividend Income Update August 2022
DivHut
Securities & Markets (Podcasts)
The Companies & Markets Show: ITM Power, Trussonomics and the challenges for UK healthcare and biotechs
Investors' Chronicle
Inflation, savings tax trap, Fundsmith fund closure and the great un-retirement
AJ Bell Money & Markets
Funds Fan: 10 fund buying tips, and why I left Baillie Gifford
interactive investor
The MoneyWeek Podcast: The Butcher, the Brewer, the Baker and Merryn Somerset Webb
The MoneyWeek Podcast
Part 2 of The Butcher, the Brewer, the Baker & Merryn Somerset Webb
The MoneyWeek Podcast
TIP476: How to Value Companies like Alphabet, AXON and FIGS w/ Brian Feroldi
We Study Billionaires - The Investor’s Podcast Network
Animal Spirits: Live From Future Proof
A Wealth of Common Sense
General Electric: Lessons from the Rise and Fall - [Business Breakdowns, EP. 74]
Business Breakdowns
E101 - Halfords, Genus, DS Smith, Barratt Developments, WHSmith & Build a Bear
The Investor Way
Weekly Investment Trust Podcast with Jonathan Davis - Bonus Edition (11 Sep 2022)
Money Makers
Weekly Investment Trust Podcast with Jonathan Davis (10 Sep 2022)
Money Makers
Small Caps Podcast with Paul Scott – Episode 11
Quality Small Caps