Happy Easter, Passover, and Ramadan!
Wishing you and your family a happy holiday weekend and happy spring!
Preparing for Extremes
“In all things success depends on previous preparation, and without such previous preparation there is sure to be failure” —Confucius
The S&P 500 was nearly flat on the week, losing 0.1%, while the Nasdaq fell 1.1%.
Jamie Dimon, Chairman and CEO of JPMorgan Chase, also published his Annual Letter to Shareholders this week. In the letter, Dimon commented on economic forecasting:
We usually don’t worry about typical economic fluctuations and often compare economic forecasting with weather forecasting: It is extremely complicated, easy to do in the short term and far more difficult to do in the long run. It is particularly hard to forecast true longer-term inflection points in the economy. Although we don’t want to waste time on “normal” fluctuations, we do want to be prepared for economic extremes – we look at multiple possibilities and probabilities and manage our company so that we can handle all of them, whether or not we think they actually will happen.
And he also listed many of those potential extremes worth being prepared to handle, as well as some current economic realities, in the following chart:
So things are still fairly healthy now, according to Dimon, but the number of storm clouds remains plentiful. The main effects from the shift in Fed policy and higher interest rates still seem like they’re in front of us, and the consumer surplus seems like it’ll be taking a major leg down in the opposite direction in the second half of 2023. And while it’s too hard to predict the outcomes of war and potential crises in food and energy, the risk of volatile outcomes seems higher than average.
And we’ll add one more risk to the worries at hand: valuations. Stock markets, especially in the U.S., are still priced to reflect near all-time high profit margins and a future of sustainably low interest rates. Sentiment, via market surveys, doesn’t reflect that, as people have started to become more worried.
But their market positioning doesn’t reflect those worries. As much as the general public seems to be worried about layoffs, inflation, and other macroeconomic factors, they’re still buying stocks in their 401(k) plans.
We can’t predict when, or even if, that will change. But we do know that the price you pay for an asset eventually determines the return you will get. And paying attention to price and valuation now, when so few still seem to be doing so, is a process that can sow the seeds for future profits.
“More important than the will to win is the will to prepare.” —Charlie Munger
Tweets of the Week
In Case You Missed it…
Three Golf Stories About Investing - by Ian Cassel
The Boyar Value Group’s 1st Quarter Letter 2023
The Tim Ferriss Show: #665: Danny Meyer, Founder of Shake Shack
The Investor’s Podcast: TIP542: The Crisis is Bigger Than Banks w/ Jeremy Grantham
Excess Returns Podcast: Enduring Investing and Life Lessons with Guy Spier
The Knowledge Project Podcast: #163 Jason Karp: Live A Healthier Life
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