Investment Theses: Long-dated Gov’t bonds will no longer be an effective diversifier
Here are some of my thoughts on capital allocation post Covid-19. Inspired by Li Lu of Himalaya Capital book recommendation and annual investor newsletter.
While cash provides comfort during crisis, potentially more wealth can be “destroyed” through sub-optimal capital allocation during period of normalcy.
An interesting lense to look at is post 90’s Japan and perhaps the journey of what Bank of Japan (BOJ) has embarked on in present (i.e. BOJ owning 80%+ of all Japan-domiciled ETFs) and ultimately the implication of such on return %.
The post-bubble period of Japan can be characterized as “balance sheet recession” in which capital allocation can be sub-optimal.
The PRIMARY goal of the private sector shifts from profit MAXIMIZATION to liability MINIMIZATION…”…no matter how much currency is issued, the first thing the private sector and individuals do when they get money is not to invest and expand, but to pay off their debts.”
As of present, 14% of $SPY companies are currently net cash. For JP, the number is 53%. Keyence, a $90 B JP-based mcap factory automation co b, said it can survive 17 years without ANY revenue.
Not a typo. 17 years!!!!!
Though it’s worth noting it always difficult and challenging to draw direct comparison between two widely different economic structure and financial system (given the differences in reserve currency, currency market, capital flow, tax & bankruptcy law etc).
of which reminds of me of a few takeaways from a write-up I was reading earlier this morning at breakfast from @Collaboration Fund When You Have No Idea What Happens Next
- Read more history and fewer forecasts. When you pay more attention to history than forecasts you pick up on the patterns that guide how people respond to unforeseen events, which – given how stable behavior is over time – is the next best thing to knowing what will happen next.
- Have more expectations and fewer forecasts. Forecasts rely on knowing when something will occur. Expectations are an acknowledgment of what’s likely to occur without professing insight into when it will happen.
Intersection notepad 