Investor Education
The current ratio is a liquidity ratio that investors can calculate when looking to invest in a company. This ratio takes the company's current assets and divides them by the current liabilities to tell investors how well a company could pay their liabilities due within 12 months.
Read our overview on Current Ratio here.
The Unthinkable
“Surprise is endemic in the financial world.” —Peter L. Bernstein
This week, we once again return to the wise and rational Peter Bernstein to help us think through these markets. We’ve quoted him before in our pieces on ‘Risk and Expectations’ as well as our piece on ‘Survival’ which may be of interest to new readers.
In a 2003 Bloomberg article written by Maggie Mahar that featured both Bernstein and Nassim Taleb, Mahar writes:
Financial history is studded with surprises that defy our efforts to find formulas, Bernstein observes. As an example, he points to that period in the ’50s when low-risk, high-grade bonds offered a higher yield than stocks. Previously, stocks always paid higher dividends than AA-rated bonds. But abruptly, in the ’50s, “for the first time in history,” Bernstein notes, the old rules were turned on their heads: bonds paid the higher yield. “A relationship sanctified by more than 80 years of experience suddenly came apart.”
Similarly, he points out, “in the early ’70s, long-term interest rates suddenly rose above 5 percent for the first time since the Civil War.” Again, what had seemed improbable to the point of being nearly impossible had occurred. “These paradigm shifts may not have been unpredictable,” says Bernstein, “but, at the time, they were unthinkable.” And in May 2003, Bernstein noted, with the yield on 30-year Treasuries hovering just a hair below 4.8 percent, the paradigm has now been breached in the opposite direction.
In the 19 years since that article was written, the paradigm shifts have continued to occur. Those who were surprised that the 30-year Treasury dipped below 4.8% in 2003 might have been just a little surprised to see the average rate over the last decade come in under 3%—including a 2020 low of about 1%—and rates in other parts of the world go negative.
Many unthinkable but possibly predictable things seem to be happening again. We have European countries unsure if they will be able to heat their homes in the winter. We have food shortages in some parts of the world creating chaos, as we just saw in Sri Lanka, and which threaten to send more countries into a similar situation.
And the world is experiencing a level of inflation that many would have thought was unthinkable a short while ago, and which many people, including most central bankers, it appears, still doubt will last for long.
We hold no opinion on inflation’s duration. But we think it’s worth thinking about whether the paradigm may have made a lasting shift. Mark Spitznagel, the founder and CEO of Universa Investments, is one investor that seems to think this is the case:
“I do think that we're going to probably see it [inflation] come down a little bit, but I think we should expect it to be elevated. Frankly, I think we should expect it to be elevated forever, like basically forever.”
While all the above may sound a bit grim, we should remember that there are always bargains and positive real returns to be found somewhere. And we should invest and behave in a way that allows us to be wrong about a lot of things—because the odds are that we, and the people we read and follow, will be wrong about a lot of things. Returning to Mahar and Bernstein:
What does all of this mean for the individual investor? First, managing risk involves recognizing that “we don’t know what is going to happen—and we have to act as if we don’t know,” says Bernstein. “This is the theme I think about every day. I know that if I have a choice between more than one possibility, I am likely to be wrong in any choice I make.” For that reason, when making a decision, investors must worry, not about the probability that they will lose, but about the size of the risk. Just how steep is the downside?
…“We can assemble big pieces of information and little pieces,” says Bernstein, “but we can never get all the pieces together. We never know for sure how good our sample is. The uncertainty is what makes arriving at judgments so difficult and acting on them so risky.”
Think about downside. Examine your diversification and make sure you’re leaving margin for error. And keep moving forward, one way or another, because there will always be headlines that try and sway you from your process. As we wrote in ‘Hindsight,’ and think is worth repeating here:
There are always things to worry about. There are always things to keep you from investing if you let those worries dictate your actions. But that worry can be a major detriment to your long-term returns if you let it guide how you invest. As Warren Buffett said at the 2007 Berkshire Hathaway Annual Meeting:
“You can freeze yourself out indefinitely. So any time we find something that we think is intelligent to do, we just do it, and we hope we can do it big.”
Keep moving forward. Keeping looking for intelligent places to allocate your capital. Stocks are cheaper than they were at the beginning of the year, and there are substantially undervalued companies out there to be found.
NFT Expoverse Los Angeles
One of our partner companies, NFT IQ just announced that they partnered with DeLorean Motor Company. They are combining forces to make automotive history on DeLorean’s Alpha 5 with its digital twin and first of its kind NFT.
In addition, the companies will be unveiling the Alpha5 “Digital Twin” live and in person at the NFT Expoverse in LA July 29th - July 31.
The unveiling will take place in the private access 88 Lounge at the LA Convention Center.
If you are interested in getting tickets to the Expo as well as VIP access to the DeLorean lounge you can check it out here.
If you’re an entrepreneur, artist, collector, gamer, or digital enthusiast, you won’t want to miss this event , no matter your level of expertise. There is something for everyone to learn and enjoy at NFT Expoverse, a highly ambitious, yet affordable blockchain event.
In Case You Missed It…
Little Ways The World Works - by Morgan Housel
Horizon Kinetics’ 2nd Quarter Commentary
Alluvial Capital Management’s Q2 Letter
On the origins of Krispy Kreme
Better-For-You Wine Market Presents Opportunity for Independents
NFTs are coming for the loyalty perks programs at brands like Budweiser
Podcasts
The Rational Reminder Podcast: Prof. Ludovic Phalippou: Private Equity, Under the Hood [Book by the guest: Private Equity Laid Bare]
The Investor’s Podcast: Value Investing in the Digital Age w/ Adam Seessel [Book by the guest: Where the Money Is: Value Investing in the Digital Age]
Invest Like the Best with Patrick O'Shaughnessy Podcast: Matthew Ball - A Manual to The Metaverse [Book by the guest: The Metaverse]
Watch List and Earnings Under $250M
The Co/Investor Club is launching a watch list for premium members. These companies have been profiled by investors we follow, The Co/Investor Club team internally, or by our premium members. We may or may not own the names on our watch list. We heavily encourage all members to do their own due diligence as this is not investment advice. If you would like to discuss any of the names or share a name you believe needs more attention, please feel free to reach out to sam@avenelfinancial.com.
We understand how much our premium members enjoy staying up-to-date on the small and microcap markets. Given that most investors know when the companies in their portfolio and larger companies are reporting earnings, we have decided to keep our members up-to-date on companies reporting earnings that have a market cap of under $250 million. You can log into the premium member portal each week to see which companies that have a market cap of $250 million and under are reporting in the upcoming week.
To have access both of these, please sign up for the Co/Investor Club Premium Membership.
If you have not already upgraded your membership…
Avenel Financial Group, a merchant banking and advisory firm located in Charlotte, NC, launched a new business venture called the Co/Investor Club. The Co/Investor Club is a community of value-oriented investors that collaborate on investment opportunities and ideas. You are receiving this newsletter because you are a Free or Premium Member of the Co/Investor Club!
Chat with Mike
Whether you’re an executive with investment opportunities or a college student looking to network, we would love to chat with you!
Email our Founder, Mike Pruitt, at mp@coinvestorclub.com with questions and ideas or schedule a meeting.
Don’t forget to follow us on social media too!
Twitter: @coinvestorclub1
LinkedIn: Co/Investor Club
For our disclaimer, please visit our website
Have friends that want to join? The Co/Report is public, so feel free to share! Thank you for reading. Co/Report grows through word of mouth. Please consider sharing this post with someone who might appreciate it.