Post Mortem

Based on my last post, I thought I'd do a post mortem of sorts... what happened?

 1. My inexperience in seeing the forest - I kept seeing the trees. Funnily, I thought I could see the forest and that these trees will figure out how to thrive through the storm.

The storm was more ferocious than thought; and the trees were weaker than thought.

 

2.Heavy capex implies heavier luck - A Deepak Nitrite executed wonderfully and lucked out.

My company executed well and got poor luck.

My other company executed wonderfully and navigated the bad luck very well

 

3. Conservative sounding confident management fooled me

I believed they knew how to steer - they didnt.

I believed they were monitoring risks - yes; but it exceeded their expectations

My big winners never promised much; guided for less and grew profits manifold. 

 

4. My low PE strategy with respectable ROEs tends to work

This is something that I am comfortable with; and the last 10 years hasnt seen a serious de-rating of heavily valued companies; hoping for schadenfreude

 

 

All in all - it looks like I need to be a lot more conservative.

When I started, promoters fooling me was a bigger issue - turns out; promoters fooling themselves is also a big issue.

A lot more conservative... ?

Goals

My best old investment seems to have done 16% compounding for 10 years and it remains terribly undervalued. It was a sizeable investment and hence, the metric matters. 

Smaller investments have done better and worse than this.

 And yet, where I stand now is on the shoulders of all those losers and winners and not just this one investment.

 My current learnings are taking me to an appreciation for businesses that dont need incremental capital as they grow; and I know now that there are all kinds of creatures that win at the game...

One of my more recent investments (and the result is shocking as I have just calculated it in this last minute) has done north of 40% compounding in the last 5 years; and this too seems undervalued to me. But more scarily, it looks peak-ily poised because that might be the nature of the business.

Of course, I leave out the 100% and 97% drops I have had in the past, and the 8 year 2x I have had... which have brought me to a respectable rate of wealth growth.

But these musings get me back to why I am playing this game...

Independence has been achieved. The safety cushion has been established. But the way here is the way forward; to feel the stones and keep walking along.

I need to remind myself that I'm here not to win.

I am here to play, and I will play this game on my terms. 

That, oddly, even a 10% CAGR is enough :|

That I better learn from the muddy puddles and broken stones from the past.

That my ego wants me to win, while my system 2 wants me to have fun.

And the risks I am cognisant of are those of health, family, politics, luck, society, war and natural disasters.

It's my fortune that I have to worry about little else.

Are things changing?

Things dont tend to change. People like sweet things, people like carbohydrates, people need materials like cement, steel, plastics, people like brands, people struggle for power and prestige and incentives tend to be strong influencers.

What are the changes I am seeing?

• Modes of transport
• Need to save the 'climate' vs the economic hardships of doing so
• Global engines of manufacturing
• Budget/ Economic deficits in the large economies

Modes of Transport

People dont need to commute as much - their entertainment can be at home and their work can be done from home.
When traveling, electricity seems to be powering more vehicles. Whether it will be hydrogen, LFP, aluminum; I dont know. But it seems fairly clear that oil based vehicles are going to decline substantially.

-   What these things do for oil, refining, mining, manufacturing, plastics, downstream industries, OPEC, Australia, Congo, etc - are quite uncertain. 

- What the advent of oil did for a lot of OPEC countries was unprecedented; but 100 years ago, nobody would have bet on UAE or Saudi' prosperity; and similarly, one would have thought Venezuela to be unimaginably rich

Climate

Life seems to be struggling against climate change - some life will thrive and others wont. The culprit seems to be too many humans caring single mindedly about convenience and economics.

Now, does that make the US a safe haven against climate change vs a Europe that's getting colder or coastal megapolises that might drown or get damaged? Could a mega-cyclone change the way Indians behave? Will there be a tipping point that leads to a mass movement of people away from certain countries?
Could there be a famine in a developing nation? 

And how should a family protect itself against something like that? 

Manufacturing

Apparently, its mad difficult to set up a new manufacturing facility in parts of Europe. Either its the people, or the local laws or the green police that makes things difficult. 

China seems to have been uneconomic in its manufacturing decisions over the last 10-15 years; will there be a resurgence? Doubt it. But will the South and South East Asia be the new manufacturers for the world? Seems quite likely - with the abundance of people, along with people with brains and people with capital to power it. 

Could this be the next 20 years of a non-China manufacturing powerhouse?

 

Budget/ Economic deficits in the large economies

I have often looked with disdain at poor European countries with people living cushy lives - I just cant figure out how they can afford it. As is said; there is no free lunch.

The US too seems to have a big crisis that has been in the making for the last 30 years or so - the Medicare, Medicaid, Pension, old people problem.

How do these things influence policymakers or central bankers? 

Canada, NZ, Australia seem to have realized that they need immigrants to power their economies - physically and economically. Will the US and Europe really awaken to that? 

Could we be facing a 20 year period of austerity?

All these are just musings. They are fun to ponder over but they dont seem to influence my big investment decisions.

But yes, they are influencing my backup/ insurance policies. 

I am trying to get ready for the 'what if?' scenarios.

 

ZIRP

 So, as predicted... people have forgotten covid.

And it almost feels like people are forgetting the Ukraine crisis; sure - Putin is now a villain.

To Recap:

• Covid's 5th wave and 18th variant are upon us!
• Russia attacks Ukraine! - oil will go to $200
• Fossil fuels are not relevant in tomorrow's world...
• Gas shortage in Europe! (and already Germany has enough stockpiles to ride out the winter...?)
• Interest rates will stay low

And today's headlines are:

• ZIRP is over - what happens next? 
• China and Russia are teaming up / what is China upto with Taiwan? 
• India is an unstoppable growth engine for the world

The more things change, the more they remain the same.

And yet, I wonder what the effects of higher rates will be...

• Will fracking's easy money stop?
• Will the rush to ETFs and private credit reverse, because investors will get an adequate return in safer bonds? 
• Will there be a US housing bust - The rates are going back to where they were in the 2004-2007 period where there was, incidentally, a housing boom...
  
•  
• And is the fed rate and the dollar's strength an attack on the Chinese and Russian economies in disguise?
•  

 What is up with the world?

I believe my 2 year old has the answer: 

Something.