What You Should Be Reading: #11 April 2022

Trickle-Down Euphoria

What do a BNPL financer, stock exchange, crypto exchange, food delivery service, cybersecurity provider, and foreign language educator program have in common?

1. They all went public in the last year or so
2. They’ve all gotten wrecked over the last eight months

2020 was an interesting year in the stock market. The fastest decline in history was immediately followed by the fastest recovery to all-time highs in history, and every single growth stock was a rocket ship. By early 2021, some tech stocks were trading at 100x revenues, and investors didn’t bat an eye. No price is too high for a company growing sales 300% year over year, after all.

When the whole market is overvalued, expensive companies look fairly priced compared to each other. The problem is that when valuations come back to reality, everything gets pulled down equally.

This is a nice read on the euphoria that we saw in the markets;

A Brief History of Trading Technology

Thanks to all the technological advances like fast internet connections, high-speed computers, etc. today, trading is as easy as it gets. We are all accustomed to fast price updates on trading platforms and instant buying and selling of shares.

But once upon a time, the best technological advantage a trader could have was owning a telescope and high-frequency trading meant owning a pigeon. A nice read on the history of trading technology.

You’ve Been Thinking About Inflation All Wrong

Inflation has been a hot topic of late and why not, In India, the inflation figure has almost hit 7%, the highest in the past 17-months. While in the US it is at 8.5%, the highest in over 40-years. There are many factors contributing to this rise such as supply-chain disruptions to Russia’s invasion of Ukraine

And the biggest effect inflation has is on our finances, purchasing power of our money. To keep up with inflation, if prices increase by 8.5%, then your pay has to go up by 8.5% in order to be the same off. Which is a pretty well-known fact.

But this article explores a different approach to look at this. Since everyone consumes different things in different quantities, we all have our own personal inflation rates. Someone who earns more than they spend and saves the excess is less affected by the inflation, while it hurts those the most who aren’t able to. Deep dive :point_down:

The Invisible Hand’s Visible Swarm

Individual actions matter deeply, but given enough time, the free market is shockingly good at directing those individuals’ actions and money at tackling the right really hard problems. And we’re getting better at it as we improve our technology and grow our accumulated knowledge. Everything that we take for granted today seemed nearly impossible once before the swarm got to it.

Companies come and go, technologies get hyped up and fade away, but eventually, the swarm smooths out problems until the sexiest, most challenging things are just boring, normal industries.

The Freakishly Strong Base

*More than 2,000 books are dedicated to how Warren Buffett built his fortune. But few pay enough attention to the simplest fact: Buffett’s fortune isn’t due to just being a good investor, but being a good investor since he was literally a child. *

$80.7 billion of Warren Buffett’s $81 billion net worth was accumulated after his 50th birthday. Seventy-eight billion of the $81 billion came after he qualified for Social Security, in his mid-60s.

It is tempting to look at an outlier – a company, a brand, a net worth – and study the most recent things that added to its success. But to appreciate why these things grow to the size they do, we have to study the initial small bases. The bases that no one paid attention to, because they seemed so quaint.

What to listen

So what have you been reading, listening, watching to? Share below :point_down:

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