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Co/Report

Business-pickers

Co/Investor Club
Feb 26, 2023
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Investor Education: Alpha

In investing, the term "alpha" refers to a measure of a portfolio's performance that considers the risk the investor took. It is often used to assess an investment manager's skill or evaluate the performance of a specific investment strategy. 

Read our Overview of Alpha


Business-pickers

Stock markets saw downside volatility this past week, with the S&P 500 down 2.7%, and the Nasdaq down 3.3%. It was the market’s worst week of 2023.

Inflation numbers came in a bit hotter than expected (again), and investors seem to be worried that maybe the Fed will be forced to keep rates higher for longer to combat inflation. As we wrote a couple of weeks ago, whether or not inflation persists is too hard to predict. Still, it’s important to ask yourself how your portfolio is positioned should inflation re-accelerate.

But concern about inflation likely wasn’t the only reason for the decline. As far as we can tell, speculation tends to cause volatility. And speculation has become rampant in certain areas of the market, sometimes reminding us of what we witnessed just two short years ago. For example:

A surge in short-dated options trading, driven by risk-taking behavior from investors, is amplifying daily moves in the stock market, according to Peter Tchir at Academy Securities.

“People are really literally gambling,” Academy’s head of macro strategy told Bloomberg TV and Radio Thursday, adding “it’s almost like watching a horse race.”

…Market watchers have been drawing attention to the sudden madness for those contracts with shelf lives shorter than 24 hours, known in the industry as zero-day-to-expire options or 0DTE.

Taken up by retail traders in 2021 as meme stocks surged, these options have also gained popularity with big money managers — Goldman Sachs Group Inc. says that they made up more than 40% of the S&P 500’s total trading volume in the second half of 2022.

And as the popularity of these short-dated options contracts has continued to grow in 2023, so have moves in the stocks that get the most attention from the speculators that use them.

But speculation only lasts so long. Eventually, the house gets its money, and most gamblers go home with less money and more regret than when they started.

True, long-term wealth gets built in periods longer than a day. Warren Buffett, in the shareholder letter released this weekend, shows us one of those ways:

Our goal in both forms of ownership is to make meaningful investments in businesses with both long-lasting favorable economic characteristics and trustworthy managers. Please note particularly that we own publicly-traded stocks based on our expectations about their long-term business performance, not because we view them as vehicles for adroit purchases and sales. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers.

If you pick a good business and buy at a good price, you can focus on the long term—and pay little attention to the day-to-day moves in the stock price or the market.


Golf Society 319 Spring Invitational

Join 319 Golf Society and Dormie Club - Pinehurst, as we Swing into Spring with our first Member's Only Invitational! We are taking over the campus for a three-day, two-night exclusive golf getaway. As the days get longer and nights shorter, we're gearing up for post-round drinks by the fire pit and putting competitions after dark to kick off the 2023 golf season!

The 319 Golf Society Spring Invitational is our members-only luxury golf getaway. If you're interested in becoming a member to attend this unforgettable experience, please click here to join. 


Quote of the Week

Our friend Jimmy Frisch at Branded Strategic shared a great quote in their newsletter.

Mark Twain may have said it best with his quote that "when I was a boy of fourteen, my father was so ignorant I could hardly stand to have the old man around. But when I got to be twenty-one, I was astonished at how much he had learned in seven years." Tim Russert said it more simply, “the older I get, the smarter my father seems to get.” I agree with both of these great men.


Tweets of the Week

Twitter avatar for @wolfejosh
Josh Wolfe @wolfejosh
1/ Just released. New Lux LP letter. Q4 2022… (a few LPs have said it has ome of our boldest calls + positioning in a decade––based on what we believe happens next in MARKETS + MACRO—even as cutting-edge science + technology marches ahead…)
Image
4:45 PM ∙ Feb 23, 2023
496Likes46Retweets
Twitter avatar for @Invesquotes
Leandro @Invesquotes
1/ Last week, François Rochon, founder of Giverny Capital gave me an hour of his time to talk about investing. We talked about topics such as valuation, what makes a high-quality company... Giverny Capital has achieved a mid double-digit CAGR for a whopping 30 years
Image
2:26 PM ∙ Feb 22, 2023
515Likes86Retweets
Twitter avatar for @72types
Turtle Bay @72types
Warren Buffett's Salomon letters:
Image
6:54 PM ∙ Feb 21, 2023
368Likes69Retweets
Twitter avatar for @kejca
Kevin Carpenter @kejca
For the first time since late September, Occidental Petroleum $OXY has dropped under $60. That puts it right back into Warren Buffett's wheelhouse once again. $BRK.A $BRK.B
Image
4:53 PM ∙ Feb 21, 2023
120Likes8Retweets

In Case You Missed it…

Warren Buffett’s 2022 Annual Letter to Shareholders

Chris Bloomstran’s 2022 Annual Letter to Clients

Chris Pavese’s 2022 Annual Letter to Investors

How It All Works (A Few Short Stories) - by Morgan Housel

Acquired Podcast: LVMH

Infinite Loops Podcast: David Senra & Liberty RPF — Unleashing the Scenius (EP.148)

The Investor’s Podcast: TIP526: Quality Investing: Lessons from Terry Smith


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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!


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