Begin To Invest - August 2nd - This Week on BTI
Aug 02, 2020 4:31 pm
New Giveaway!
Starting this month, we will be having a monthly giveaway for all Begin To Invests subscribers. This month, we're giving away an Amazon gift card, but in the future look for books, software, and more.
Visit: https://www.begintoinvest.com/giveaway/ to sign up, and learn how to earn additional entries. Look for the link to future giveaways in the first email of each month.
This Week in Stock Market History
“There is no better teacher than history in determining the future... There are answers worth billions of dollars in a $30 history book.”
― Charles T. Munger, in Poor Charlie’s Almanack
It comes as a surprise to most that the stock market had very little reaction early on to the escalation between Austria and Serbia after the assassination of Franz Ferdinand. In fact, in the month after Ferdinand's assassination, the Dow had just 1 day where it declined more than 1% (and it was only a 1.01% decline!).
But after Austria invaded, panic rapidly set in. After steep declines on the 28th and 30th, on the 31st panic was so bad that the NYSE was unable to even open. It would remain closed until December.
Warren Buffett has a famous quote: "Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.”
And while there is no precedent for the market to be shut for a decade, the onset of World War 1 is a great example of how quickly panic, and a long stock market shutdown, can happen. It may sound far fetched, but there were even rumors of the NYSE shutting down just a few months ago during the height of the COVID panic!
The lesson from this event in history? Be confident in what investments you hold, because if you think there will always be time to sell your investment if the stock market turns south, or signs before a big drop, you could be in for a rude awakening!
Speaking of the potential for sudden large drops, this week saw the 2 year anniversary of the largest single day loss in a company's market cap in history.
On July 26th, 2018, Facebook shares suffered one of their worst days in history, falling 18%. The decline stripped nearly $120 billion of value, the largest single day decline that any company in history had experienced.
Weekly Wisdom
In last week's newsletter, we linked to a new book that was released just a couple weeks ago - Capital Allocation: The Financials of a New England Textile Mill
The book does a great job taking a look through the eyes of Buffett decades ago as he was making his now famous investments.
We have a popular blog post looking at the history of Coca-Cola at the time Buffett made his first investment in 1988. And while it may have been cheap on some metrics, I think you might be surprised that, despite it being one of Buffett's most famous investments, he was hardly bottom fishing! For example did you know Coca-Cola had more than tripled in the 7 years prior to Buffett's investment?!
What We Are Reading This Week
(Podcast) Richard Koo Explains Why the Recovery Will Be So Difficult - Bloomberg Odd Lots
The Odd Lots podcast is one of my favorites, but this podcast from a month ago was one of the best in my opinion. For those not familiar with Richard Koo, he is an economist at the Norma Institute, and was former an economist for the Federal Reserve Bank of New York.
I was first introduced to Koo's idea of a "balance sheet recession" from his book, The Holy Grail of Macroeconomics, published in 2008. He is an expert in Japan's bubble in the later 1980s, and relating some of the aspects of Japan's 30-year struggle to our crises today.
He explains his philosophy is a very easy to understand way, even if you are not an economist, and provides you with a great new lens (or mental model) to view the world.
A (Long) Interview with Peter Bernstein - Jason Zweig, Wall Street Journal
This is not a new interview, but it is old enough where I'm willing to bet most have not seen it.
Peter Bernstein is one of my favorite authors (Against the Gods: The Remarkable Story of Risk has to be on many investors' top 10 list). This interview he did is full of excellent information for investors of any skill level.
Q: What investing and personal advice do you offer your great-grandchildren?
A: ...I would teach them Pascal’s Law: the consequences of decisions and choices should dominate the probabilities of outcomes. And I would also teach them about Leibniz’s warning that models work, but only for the most part. I would remind them of what the man who trained me in investing taught me: Risk-taking is an inevitable ingredient in investing, and in life, but never take a risk you do not have to take.
Virus Wipes Out 5 Years of Growth - New York Times
It's not so much the story (though if you missed the news this week, this might be a good article to read), but more so this picture:
We are living in unprecedented times.
Stay safe, and happy investing!
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