Snake bite effect, Greggs, Stanley Druckenmiller and analyst picks - the best investing blogs and podcasts from the past week
One of the ‘top posts’ I’ve mentioned this week is a podcast interview with Stanley Druckenmiller. He’s a successful ex-hedge fund manager and one-time employee of George Soros. So it’s fair to say this guy is very smart, super competitive and has been generally pretty ruthless during his career. But half way through the conversation he recounts his experiences of the dotcom bubble in 2000.
At the time, the younger, less experienced traders on his team were crushing it day in, day out. But Druckenmiller wasn’t convinced. He’d spent months resisting the blistering returns that were being had from unknown, unproven tech stocks, until he finally folded and bought into the frenzy. The trouble was it was literally the day before the market top. In the weeks that followed his returns cratered and he became an emotional wreck.
For what was an otherwise hard-hearted investor without a down-year to his name, the whole thing was totally debilitating. He needed a four-month sabbatical, completely isolated from the market, to get over it. Bear in mind his losses were actually other people’s money. It was the psychological blow, more than the financial one, that really hurt.
The bear market we’re enduring today is not yet (and hopefully won’t be) on the same scale of the dotcom bust, or indeed the collapse that came with the financial crisis 10 years later. But there’s no doubt the really big drawdowns that are happening in places right now are hurting badly.
I was listening to an interview with Morgan Housel this week (again mentioned below) where he talks about the impact this kind of event might have on investors who are fairly new to the market.
There is some thinking that those whose investing journey begins with a brutal bear market actually become much more risk-averse in the years ahead. This is called the snake bite effect. But worse than that, there’s a risk that many will see this and think the whole system is stacked against them and give up on the stock market completely, perhaps for many years.
Meg Jerrard
Housel mentions in particular the fact that 20 years ago, if you wanted to trade a stock, you had to call a broker and it was relatively much more expensive than it is now.
It wasn’t obvious at the time, but that bureaucracy was an antidote to the natural instinct to take action in the face of uncertainty. You really had to want to sell (or buy) that share.
Today, not so much. Dealing fees have fallen. There are apps that let you trade for free. There’s no friction, no cost or inbuilt discipline, to buying and selling shares depending on how you feel. And the fact is that apps like Robinhood and Freetrade are targeting younger demographics. These are precisely the people that are having to navigate a bear market for the first time - and their experiences may well stick with them
But on a brighter note, some research suggests that for those who are hands-on with their investments, a bad stock market experience leads to a sharper learning curve. Far from fleeing from the market, bearish conditions can deliver a bruising but effective lesson about risk, which will help those investors stick around for the long term.
If you want to read more about that, this article from Joachim Klement (there is also another one from him below) is worth a look: Has 2022 made investors shy away from stocks?
Top posts from the past week
How Leaders Lead Podcast with David Novak - Stanley Druckenmiller, the #1 investor in the world – See the future differently
I’m not sure whether Stanley Druckenmiller really is the #1 investor in the world (perhaps he is), but there’s no doubt he’s up there with the elite in recent decades. That said, one of the interesting things that comes out in this conversation is his admission of some weaknesses. I guess when you’ve been so successful - multi-year outsize returns as a hedge fund manager - it doesn’t really matter. He wasn’t really an overachiever in college and the dotcom bubble completely beat him up emotionally. But then there are the strengths: he’s ultra competitive, rode his luck and swung very hard at some big trades and came good. Look beyond the alpha male and there’s clearly a human in there, passionate about his work, self aware and very focused on family. There are a few interviews with Druckenmiller around, but this is good and it takes in his thinking on the current economic conditions, which absolutely ring true.
Motley Fool Money - Morgan Housel on Inflation, Incentives, and Investing through Bear Markets
In many ways Morgan Housel has cornered the market on financial common sense. The book he released in 2020 - The Psychology of Money - has sold a huge number of copies all over the world. It holds a mirror up to the ways in which people are their own worst enemies when it comes to money and investing. He writes a lot, but if you’d rather listen to him then this interview with Motley Fool (where he once worked) is a great half-hour tour of this thinking. He’s got some interesting ideas on how everyone really has their own inflation rate, the problem with instinctive trading and Robinhood, long-term investing and the power of incentives. It’s always going to be worth listening to this guy.
Maynard Paton - Podcast - Greggs with Mark Atkinson and Maynard Paton
There are moments in this conversation that are really funny. Not only was I taken aback to hear Greggs doesn't sell bread anymore (I don’t go there too often, but I do remember it selling bread once), but apparently there is also a Greggs clothing line. I was so intrigued that I looked it up, and there is indeed a Primark x Greggs range! If that wasn’t all, apparently Greggs have superfans, one of which is spending £300 a month on a mission to buy a sausage roll from every Greggs store in the country. Thankfully they only weigh eight stone seven, despite having eaten an estimated 10,000 sausage rolls. All that aside, Greggs has a really stunning growth record and the shares reflect it. But with a new CEO comes a massive new plan for store expansion that looks like capex is going to soar. Is this good news? It’s hard to say. Overall, Mark likes it but Maynard has concerns about the valuation.
Klement on Investing - Analyst Top Picks work
Some of the work I’ve been doing this week (my 12-year-old daughter would describe it as ‘actual work’) has led me back to all the academic research into what, if anything, works when it comes to using analyst forecasts. While many investors are addicted to forecasts, the genuine alpha always seems to lie in big conviction. Whether it’s earnings forecast upgrades, recommendation revisions or something else, the momentum rocket fuel tends to be found at the extremes. So this article from Joachim caught my eye this week. Top picks from analysts (whether it’s a house stock or otherwise) do actually outperform on average. But you have to be careful. Analysts like to have house stocks in their top picks (and those house stocks don’t perform as well as non-house stocks). So bias in the selections definitely exists. But that aside, analysts seem to take pride in their top picks, and that means they’re a good measure of their analytical ability.
Have a great weekend,
Ben
PS. Catch up below with the best of the rest from the past week…
Thinking & Strategy (Blogs)
Temple Bar’s Lance: Investors have over-reacted in the past few days
Trustnet
Storms continue to batter global markets
Fundamental Asset Management
The Behavioural Lessons of Gilt Market Turmoil
Behavioural Investment
Narcissists and conspiracy theories
Klement on Investing
Surviving a Bear Market When You’re Done Saving
A Wealth of Common Sense
Don’t currency hedge your equity portfolio
Monevator
Wise Words on Surviving Bear Markets
Novel Investor
It’s the borrowing, stupid
Crow Knows
October has been a midterm bear killer
Almanac Trader
This is Not 2008
The Irrelevant Investor
Why You Shouldn’t Optimize Your Life
Of Dollars And Data
Do recency bias and loss aversion lead to mispricings?
The Evidence-Based Investor
Something Has to Hurt
Behavioural Investment
Reaping the Whirlwind: A September 2022 Inflation Update!
Musings on Markets
Thinking & Strategy (Podcasts)
The Value Perspective Podcast episode – with Bethany McLean
The Value Perspective
Episode #445: Jeff Currie, Goldman Sachs – Why ESG May Make This Commodity Supercycle Different From Past Cycles
Meb Faber Research – Stock Market and Investing Blog
The Companies and Markets show: A week of Budget fallout
Investors' Chronicle
Britain's Energy Mess
A Long Time In Finance
Andrew Hollingworth on Investing in Mavericks
In the Company of Mavericks
Show Us Your Portfolio: Brent Kochuba
Excess Returns
Kyla Scanlon — Cultivating Vibes (EP.125)
Infinite Loops
#135 - Caroline Cai - Finding Deep Value in Emerging Markets
Opto Sessions
Julio Vasconcellos & Mate Pencz - Investing in Latin America - [Invest Like the Best, EP.296]
Invest Like the Best with Patrick O'Shaughnessy
Securities & Markets (Blogs)
Bluefield Solar - Full Yr Results
diy investor (uk)
What are the interest rate increases doing to banks?
Oddball Stocks
‘I’d never seen anything like it’: how market turmoil sparked a pension fund selloff
Investing | The Guardian
Dividend Kings In Focus: Genuine Parts
Sure Dividend
All Danish Shares part 11 – Nr. 101-110
value and opportunity
Value Investing Letter Recaps: Q2 2022
Macro Ops: Unparalleled Investing Research
Knorr Bremse AG: German Mittelstand”Hidden Champion” with a few issues
value and opportunity
SMALL CAP SHARE IDEAS: Jubilee Metals
Investing | Mail Online
Securities & Markets (Podcasts)
Episode #446: BlackRock’s Rick Rieder on the State of the Markets
Meb Faber Research – Stock Market and Investing Blog
Chris DeMuth's State of the Markets September 2022 (podcast #127)
Yet Another Value Blog
Animal Spirits: Powell Wants You to Lose Your Job
A Wealth of Common Sense
930: Paul Hill: We will see a positive fourth quarter plus some stocks to follow
The Vox Markets Podcast
The Desert Island Stock Special
Stock Club
How the falling pound, rising gilt yields and higher interest rates affect consumers and businesses
AJ Bell Money & Markets
Trader Joe’s: Grocer to the Overeducated and Underpaid - [Business Breakdowns, EP. 76]
Business Breakdowns
EMIS Group (EMIS) 2022 half year results presentation – September 2022
PIWORLD
E103 - City of London Investment Trust, JD Sport Fashion, Haleon, Keyword Studios, PZ Cussons & Costco
The Investor Way
Small Caps Podcast with Paul Scott – Episode 13
Quality Small Caps
The Challenge and Risks of Managing Inventory in Light of COVID-Related Demand Swings
This Week in Intelligent Investing