Podcast Summary
Markets and historical context: Despite solid fundamentals, Cisco, Dell, and Microsoft took over a decade to recover from the 2000 market correction. Today's market may face further declines, but focusing on long-term fundamentals can lead to success.
Key takeaway from this conversation with Vitali Katzenelson on The Investors Podcast is that markets, like the current one, which has seen a 14% decline from its high, can be compared to past market corrections, such as the one in 2000. In 2000, the market was already expensive due to the dotcom boom, and when the bubble burst, many technology companies experienced significant declines in stock prices that took years to recover. Vitali emphasized that Cisco, Dell, and Microsoft, despite their solid fundamentals, took 13 to 14 years to return to their previous highs. This historical context suggests that today's market may have further pain ahead, but investors should focus on the long-term fundamentals of the companies they own. Additionally, Vitali shared insights on the importance of developing better habits, learning from stoicism, and honing one's art and craft in various aspects of life, including investing. These themes are explored in depth in his latest book, "Soul in the Game." Overall, the conversation offered valuable insights for investors seeking to navigate today's market and live a meaningful life.
The pandemic's impact on digital companies and potential stagflation: Digital companies faced layoffs and cost-cutting due to slowed growth and earnings decline, reminiscent of the Dotcom bubble. Inflation from rising costs could lead to a stagflationary economy, requiring cautious investing and focus on strong fundamentals.
The pandemic accelerated growth for many digital companies, but this assumed continuation of fast growth led to over-hiring and over-investment. Now, as growth slows and earnings decline, these companies are facing layoffs and cost-cutting measures. This situation recalls the Dotcom bubble of the late 1990s, where beloved companies became hated and abandoned when growth assumptions proved incorrect. Additionally, significant inflation from rising fertilizer, food, energy, and housing costs is putting pressure on consumers' budgets, potentially leading to a stagflationary economy. Investors should remain cautious and look for undervalued companies with strong fundamentals.
Economic uncertainty leads investors to reconsider portfolio allocations: Investors are shifting away from consumer discretionary stocks and buying undervalued tech stocks in anticipation of a potential market downturn, but concerns about the housing market and a potential 'lost decade' market add complexity to the economic landscape.
The economic uncertainty caused by various factors is leading investors to reconsider their portfolio allocations. Some are moving away from stocks that rely heavily on consumer discretionary spending, while others are looking to buy undervalued tech stocks in anticipation of a potential market downturn. However, there are also concerns about the housing market, as institutions continue to buy properties and rent them out, potentially driving up prices and increasing rents for consumers. Additionally, some investors are warning of a potential "lost decade" market, citing examples like Microsoft and Qualcomm, which saw long periods of stagnant stock prices despite strong earnings growth. Overall, it's a complex and uncertain economic landscape, and investors will need to carefully consider their strategies in the coming months and years.
Focus on companies with strong earnings power and pricing ability: Invest in stocks with strong pricing power like McDonald's, Mastercard, or Visa to offset inflation and maintain earnings growth
The current market environment is uncertain and potentially challenging for investors, with high valuations and the likelihood of higher interest rates and inflation. The economy's accustomed low-interest rate environment may slow down growth, making it important for investors to focus on companies with strong earnings power and pricing ability. Stocks can still be a good asset class, as companies can raise prices to offset inflation and maintain earnings growth, but it's crucial to own stocks with strong pricing power, such as McDonald's, Mastercard, or Visa. These companies can collect fees or a percentage of every transaction, allowing their revenues to grow with inflation while their costs remain relatively stable. Overall, increasing the margin of safety by buying stocks at lower prices is a prudent strategy in this uncertain economic climate.
Companies with long-lived assets and price hike ability thrive during inflation: Identifying companies with long-lived assets and the ability to raise prices with inflation can lead to significant revenue growth and improved margins. Buying unwanted, undervalued companies during market corrections can also yield attractive investment opportunities.
During periods of inflation, companies with long-lived assets and the ability to raise prices with inflation can experience significant revenue growth while keeping costs relatively stable. A prime example of this are pipeline companies, which have mostly fixed costs and can increase revenues through price hikes. However, it's important to note that maintenance capital expenditures for such businesses are typically small in comparison to their operating cash flows. When these companies' revenues increase due to inflation, even a modest increase in maintenance capital expenditures can lead to substantial margin improvements. Another key insight gained from past market corrections is that it's crucial to identify when the market sentiment towards certain sectors or companies shifts from love to hate. Buying companies when they become radioactive and unwanted can lead to attractive investment opportunities. Additionally, focusing on absolute valuations based on current cash flows, rather than comparing valuations to historical levels, is essential in the current environment. It's important to determine a company's intrinsic value by assessing its earnings power and valuing its cash flows, while also taking a margin of safety into account.
Building relationships in the investment community: Investing and living a meaningful life involve continuous learning, collaboration, and staying informed to make informed decisions and live a fulfilling life.
Investing and living a meaningful life go hand in hand. The host of the show emphasized the importance of building relationships within the investment community and learning from like-minded individuals. They shared their experience of creating the TIP Mastermind community to foster growth and collaboration among investors. Additionally, they highlighted the significance of staying informed about market trends and news through tools like Yahoo Finance. Moreover, when it comes to active value investing, the experts advised that there is no one-size-fits-all approach. Instead, investors should strike a balance between buying and holding stocks with high growth potential and actively buying and selling undervalued companies during sideways markets. Furthermore, the discussion touched upon the ancient Greek roots of philosophy, which translates to "love of wisdom." The hosts emphasized the importance of seeking knowledge and wisdom not only in investing but also in living a meaningful life. Overall, the conversation emphasized the importance of continuous learning, collaboration, and staying informed to make informed investment decisions and live a fulfilling life.
Embracing Authenticity and Finding Passion: Staying open to new experiences, being true to oneself, and continuously seeking opportunities for learning and growth can lead to personal growth and success.
Discovering a passion and embracing authenticity can significantly impact personal growth and success. Martin Lawrence's "TiVo moment" served as a turning point in his life, leading him to become a writer and thinker. Writing daily not only helped him develop a unique voice but also encouraged concentrated thinking. Additionally, sharing personal stories alongside professional content attracted a larger audience. Ultimately, this experience demonstrates the importance of staying open to new experiences, being true to oneself, and continuously seeking opportunities for learning and growth.
The Importance of a Writing Routine: Consistently dedicating time to write, even if unproductive, can implant seeds for future ideas and is essential for growth as a writer.
Having a consistent writing routine, even if it's just for a set amount of time each day, can be beneficial for the creative process. Stig Brodersen emphasizes that he writes for 2 hours a day without a hard stop, but views it as a sacred space where he allows his subconscious to work. He believes that even if he doesn't produce anything during those 2 hours, the time spent writing implants seeds for future ideas. Trey Lockerbie shares that he admires Seinfeld's approach to writing, which includes a defined time limit and a commitment to showing up every day, even if the writing isn't always enjoyable or productive. Both writers agree that having a routine and a commitment to the craft is essential for growth and development as a writer.
Using tech tools to build good habits: Using 'if this, then' framework from coding can help enforce good habits or replace bad ones. Create systems to make maintaining habits easier.
Developing good habits and systems can significantly improve various aspects of our lives, from daily routines to hobbies and even investing. Using the "if this, then" framework from coding can help enforce good habits or replace bad ones. For instance, drinking too much coffee can be countered by doing push-ups for each cup consumed. Creating a system, like preparing skiing equipment the night before, can make it easier to maintain habits that are only practiced seasonally. When it comes to writing, the key is to focus on showing up every day and persisting, rather than waiting for inspiration to strike. As Charles Bukowski's poem "Between Races" illustrates, the act of writing itself is important, and success often comes from putting in the effort consistently.
The power of passion and understanding what we can control: Passion and control are crucial for overcoming challenges and finding happiness. Stoicism teaches us to focus on what we can control and reframe external events for greater peace and joy.
Passion and willingness to suffer are key to overcoming challenges and finding happiness. Vitaly discusses how he found inspiration through writing, but failed to become passionate about playing the piano. He also emphasizes the importance of understanding the difference between wanting to do something and wanting to have it done. This concept is closely related to stoicism, which Vitaly discovered through the works of philosophers like Epictetus and Marcus Aurelius. Stoicism teaches that we have control only over our thoughts and reactions, and that external factors are beyond our control. By focusing on what we can control and reframing external events, we can reduce the impact of negative experiences and find greater peace and happiness.
Control your reactions and perceptions: Practice reframing situations and looking at them objectively to neutralize negative thoughts and emotions. Learn from others' struggles and failures to manage imposter syndrome.
We cannot control other people's actions or words, but we have the power to control how we react and perceive situations. As Trey Lockerbie mentioned, if we allow someone to upset us, we are giving them control over our emotions. Instead, we should practice reframing situations and looking at them objectively, as an outside observer. This concept, known as mindfulness or self-awareness, can help neutralize negative thoughts and emotions. Additionally, learning about the struggles and failures of other creators, like Tchaikovsky, can help us manage our own imposter syndrome and remind us that everyone faces challenges on their creative journey. As Polina Pompliano noted, "every creative person struggles to become good or to create something that's worth listening to, worth looking at." By focusing on the controllables and practicing self-awareness, we can better manage our internal reactions and overcome imposter syndrome.
Overcoming imposter syndrome through faking confidence: Imposter syndrome can be tackled by pretending to be confident, which can eventually lead to genuine self-belief. This concept, known as 'fake it till you make it,' is essential for those who want to accomplish great feats despite feeling inadequate.
Imposter syndrome, the feeling of being a fraud despite accomplishments, can be overcome by faking confidence and deceiving oneself. This concept, known as "fake it till you make it," is not about deceiving others but rather creating self-confidence. This was a valuable lesson for Trey Lockerbie, who wrote his first book, "Active Value Investing," just a few months after starting to write for the Financial Times. He expressed gratitude for his cluelessness at the time, as he believes many people today would not be able to accomplish the same feat. Stoicism, which is often perceived as an emotionless state, can be beneficial in investing by helping individuals weather different market environments. However, an excessive amount of stoicism can be detrimental, much like a snowball at its absolute maximum.
Focus on intrinsic value, not market opinion: Invest in companies based on their intrinsic value, not temporary market fluctuations. Balance investing with personal relationships for long-term success and fulfillment.
While the opinion of the market can cause temporary declines in stock prices, it's essential to focus on the intrinsic value of a company rather than getting overly emotionally attached to short-term market fluctuations. Additionally, having a balanced perspective on investing and prioritizing personal relationships can lead to long-term success and a fulfilling life. Warren Buffett's story serves as an example of the importance of spending time with loved ones and setting personal boundaries in the pursuit of financial success. The art of investing meets the craft of making informed decisions, and having a meaningful life involves striking a balance between the two. Guardrails, such as setting aside time for personal relationships and establishing a routine, can help investors maintain focus on their goals while preventing them from neglecting important aspects of their lives.
Being mentally present with your children matters: Focus on quality time and conversation with kids, prioritize family over work, remain open to learning, and explore classical music for personal growth.
Being physically present with your children is not the same as being mentally present. It's essential to focus and spend quality time talking to them, as this is what truly shows attention. Moreover, it's important to remember that work should not take over your life, and you must consciously make time for your family. This idea resonated with Trey Lockerbie, who switched careers to be more present for his children after reading the same book. Another valuable lesson comes from Charles Ferri's relationship with his father, an accomplished painter. Ferri learned the importance of being a "student of life," which means remaining open to learning and being willing to change your mind. This mindset can be applied to investing and writing, as well as parenting. Lastly, Stig Brodersen encourages listeners to explore classical music and its composers, not only for their beauty but also for the challenges they present, which can lead to personal growth.
The profound impact of great figures in music and investing: Great figures in music and investing can influence others to avoid certain areas or give up, but everyone's circle of competence is unique and what may be a challenge for one can be a strength for another. The creative process involves suffering and setbacks, necessary for growth.
The influence of great figures, whether in music or investing, can have a profound impact on those who follow in their footsteps. Beethoven's impact on composers during his time caused some to stop composing or never publish their work due to the fear of not measuring up. Similarly, Warren Buffett's influence on investing led some to avoid certain sectors, like technology, due to their lack of understanding. However, it's important to remember that everyone's circle of competence is different, and what may be outside of one's circle for one person may be their strength for another. Additionally, the creative process, whether in music or investing, often involves suffering and setbacks, which are necessary for growth and progress. The stories of Beethoven and Schubert, as well as Buffett and lesser-known composers and investors, serve as reminders that creativity and success often come from challenging the status quo and pushing past adversity.
Embrace change and learn from mistakes: Be open-minded, let go of precious beliefs, learn from others, and embrace change for growth in art and investing
Being open-minded and willing to learn from mistakes, even if it means going against previously held beliefs, is essential for growth in both art and investing. This idea is encapsulated in the concept of "killing your darlings," which refers to letting go of precious ideas or beliefs when it makes sense to do so. By learning not just what others think but how they think, we can discover new perspectives and approaches that lead to meaningful progress. This idea is exemplified by Warren Buffett's decision to buy Apple, despite initially not understanding technology, and Van Gogh's evolution from traditional landscape paintings to his distinctive, groundbreaking style. Ultimately, this mindset of embracing change and learning from mistakes is key to living a meaningful life, as encapsulated in the equation "art plus soul in the game equals meaningful life." Art represents the discovery of one's unique style and creative processes, while soul in the game refers to being passionate and committed to something worth suffering for. Together, these elements contribute to a life filled with purpose and growth.
The importance of finding and pursuing what's meaningful to us: Finding what's important and meaningful can be challenging, but leads to personal growth and fulfillment. Dedication and personal investment can lead to a sense of soulfulness and financial returns become secondary.
Finding and pursuing what is most important and meaningful to us, or our "Sol," can be a challenging and painful process, but it is worth it. This idea is exemplified by individuals like Jiro, who dedicated his life to perfecting the art of sushi, and artists or craftsmen who start with a heavy emphasis on art but over time turn their craft into a more routine process. This concept can also be applied to investing, where expanding your circle of competence and taking on new challenges can introduce more uncertainty and art into your investments. Additionally, having "skin in the game" and making your work or investments a deeply personal endeavor can lead to a sense of soulfulness and making the financial returns secondary.
Investing with a soul: Approach investing with passion, creativity, and a focus on positively contributing to society. Look for opportunities that align with your values and stay true to yourself despite challenges. Seek inspiration and resources to enhance your journey.
Having "soul" in investing means approaching it with passion, creativity, and a focus on positively contributing to society. This involves looking for opportunities that align with your values and are worth the effort, even if they come with challenges. The speaker emphasizes the importance of staying true to yourself and not being discouraged by industry titans. He also suggests seeking inspiration and resources, such as his own writings and podcast, to enhance your investing journey. Overall, the conversation highlights the importance of finding meaning and enjoyment in the investing process, rather than just aiming for financial gain.
