What You Should Be Reading #22: July 2022

I Beg To Differ

Howard Marks’s memos are full of insights and worth reading. Earlier this week, Marks released his latest memo, titled “I beg to differ’’. In it, Marks emphasizes how investors looking for outsized performance have to stand out from the herd, even at the risk of being wrong. Thinking differently and better than others is key to outperformance because in investing, it’s not enough to be right. You have to be more right than most. This means being able to tell when the investment crowd is focused on all the wrong things.

Check it out here :point_down:


Related Reads:

Vishal Khandelwal of Safalniveshak has shared some really good insights on the memo:


The Most Important Sector in the Universe is having an upset stomach

Of late, we have been hearing quite a lot about how things are not going on that well in China. We are also reading and watching some clips about massive protests, many people boycotting their EMIs and people attacking banks as some of the banks (although smaller in size) were not able to pay back the money to their depositors.

And that would have been extremely problematic in most countries. But will it be the same for China? That remains to be seen.

The author here goes on to explain in detail the most important sector in the world. The biggest sector by far. I.e., The Chinese property sector

So, how did this issue crop up?

So when the biggest star in the most important sector in the universe burns out, you’d think it would have ramifications. That star is Evergrande, which we discussed here a year ago. One of the largest property developers in China, it found itself on the wrong side of three “red lines” that Chinese authorities had drawn to curb leverage in the sector. Having grown aggressively using borrowed funds, it buckled under the new guidelines and creditors began to take fright.

And that started the trend of an extremely fragile real estate market:

Against the backdrop of a slowing real estate market, other developers got squeezed, too. In the first half of 2022, property sales dropped by 29%, land sales plummeted by 50%, and average home selling prices fell by 5%. New home prices have now slid for 10 consecutive months and sales have fallen for 12 straight months, the longest slump since China created a private property market in the late 1990s.

The author then elaborates on the chain of events that are happening after a year of extremely slowing real estate market. If we look back in history, sh*t actually hits the fan after giving a lot of warning signs and in this case, it seems like we are already getting a lot of 'em.

They say when US markets sneeze, the world catches a cold. It needs to be seen what happens if the Chinese markets have an upset stomach, We can only hope the rest of the world doesn’t puke :smiley:


The Reality of Realty.

‘Wealth effect’ often measured by household net worth is when people feel wealthier and spend more money, even if they don’t make any excess disposable income.

When things like housing prices and stock prices rise, consumers and businesses spend more money even if they don’t make any more money. Why is that?

Today’s borrowers are perceived to be more creditworthy and banks are much better capitalized subsequently, housing is also the most expensive item that consumers purchase on credit. Consumers use home values to gauge their wealth more than any other asset. Homeownership is a symbol of “The Dream” and for many, the single greatest store of wealth over a lifetime.

But, through sale or repossession, if it loses value, it becomes a major problem. So when home prices decline, people pull back on spending. With the decrease in home sales, only implies that buyers are stepping back from the market as higher mortgage rates and home prices make ownership less affordable.

The chart shows how household net worth increased almost constantly over the last decade, with a small downturn in 2019 and 2020. Today, household net worth is declining as the stock market drops and real estate values rise.

Homeowners may have higher-valued properties, but it doesn’t do them much good when buyers are scarce. These higher-valued properties are merely just “paper wealth”; until they can actually sell their home and realize those gains. So yeah, you might see yourself as a millionaire because you’ve invested in a lot of real estates now, but are you really rich though?



How technology will influence women’s wealth in the years ahead

A very intriguing piece by Barbara Stewart gives us a lot of insights into three dynamics of the future of women’s wealth and technology. I wholeheartedly agree with the author’s views on these 3 pillars:

  1. The Shift from a Male-Centric to a Female-Centric Investing Environment
  2. Technological Tools Are Propelling More Equal Wealth Distribution
  3. Female Entrepreneurs and Leaders Are Transforming the Tech Industry

Very interesting to see how this will pan out, keeping the things established in the paper.


What to listen:

Is the crypto crash affecting me?

In the most recent years, the crypto surge made it one of the most talked about asset classes, and in recent months, we are witnessing a major crypto meltdown. If you look at the big cryptocurrencies like bitcoin, Ethereum, Litecoin, and doge, you’ll see that their valuations have dropped by around 50 to 60% year to date from their inflated peaks.

Here’s a Capital Minds podcast on how the crypto crash impacts you: