New Conditions
Concerns about slowing employment and a slowing economy seemed to be the trigger that caused stock market indices to have a bad week. The S&P 500 was down 4.3%, and the Nasdaq fell 5.8% during the holiday-shortened week.
Much of the data that gets the headlines today is macro-related and based on the past. It can help assess where we have been, is a little helpful in assessing where we are, and is far less useful in telling us where we are going.
In a speech given in 1963 titled “Securities In An Insecure World,” Benjamin Graham discussed some of the difficulties in dealing with the past and the future:
“Unfortunately in this kind of work, where you are trying to determine relationships based upon past behavior, the almost invariable experience is that by the time you have had a long enough period to give you sufficient confidence in your form of measurement, just then new conditions supersede and the measurement is no longer dependable for the future.”
The “value factor” worked for a long time until it suddenly stopped working—especially compared to certain growth stocks and the broad market indices—during the last 10-15 years (or so).
The “growth factor” has had significant boom and bust periods during the last several years.
You think one thing is working, and then things change.
One of the most accurate statements about investing is Charlie Munger’s remark that “All intelligent investing is value investing—acquiring more that you are paying for. You must value the business in order to value the stock.”
Valuing businesses in an ever-changing world is the hard part. But as Mr. Munger also said, “It’s not supposed to be easy. Anyone who finds it easy is stupid.”
Tweets of the Week
In Case You Missed it…
The Price of Greatness - by Sean Iddings
The Power of Expectations: Nvidia’s Earnings Report and Market Reaction! - by Aswath Damodaran
Founders Podcast: #363 Li Lu and Charlie Munger and Warren Buffett
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