What You Should Be Reading #24: August 2022

Disinflation in the US

After riding through the storm and witnessing some real hazardous sea monster-like numbers, it seems like things are looking towards calmer seas. Consumer prices increased 0% from June to July (given that they had been increasing at almost 16% annually🤯).

A lot of factors are kicking in here; a decline in the prices of gasoline and the slight decline in food prices amongst others. These are probably two of the most volatile commodities. Well, what’s most important is core inflation has also fallen. Heck yes. Fed rate hikes, fiscal austerity, increased food and energy production in response to the Ukraine war, and supply chains recovered from the pandemic.

What I love about this paper is how the author cautiously warns readers about the noisy monthly data considering all the easy-breathable facts we’ve had so far. Median inflation is used as a reference point here which ignores the outlier items with big monthly price moves.

The Fed has increased rates just enough to restrain price increases without causing noticeable damage to the real economy. The author clarifies the Twitter debate on Biden’s comment about 0% inflation. Labour markets, the fed’s next move, and more…


The stock market can be an emotional roller coaster. It shouldn’t be

Investing is supposed to be boring, it can be intimidating, especially the thought of losing money, but investing long-term with a plan is the best bet you can take.

Markets are like a yo-yo, it goes up and down but eventually, it ends up on the top. But is this uncertainty something you’re willing to risk?

Inherently investing is risky, and not everyone can handle it equally, most of the time your feelings lead you to make decisions you’ll later regret. One of the basic ideologies is that we should think about our goals, and how much risk we’re willing to take to achieve these goals.

There’s a difference between risk capacity and risk tolerance, and different people are better off with different investments depending on age and financial goals.

There is no formula to determine how much risk we can and should take on in investing, but we can think about how much potential opportunity we’re comfortable with losing out on if we’re super risk averse.

If you tend to get emotional about your investments, it’s easy to get anxious and forget that in all likelihood market falls will later be compensated. It’s best not to panic and sell at lows because you could be out for some big losses in the future. Likewise, when your investments are going well, it’s important to keep your emotions in check. So… should we do nothing? The fact is, sometimes learning to do nothing is good for us, maybe just check in on your investments once a quarter and consider if you want to make any changes.

We often tend to believe that we can time the market and beat it, even though the chances really aren’t that good. How we think about risk in investing is something that’s probably going to change over time and this article here provides some ideas on how to think about measuring investing risk in our own lives.

Like being prepared for tough times by writing a policy for when things get tough. Looking at a five-year horizon when making investment plans, asking yourself how you would feel if your portfolios went down, and more.


Four charts that make the case for value investing

“The more things change, the more they stay the same”.

When it comes to value investing nothing can be more true than this. There are profoundly two investing styles that are always talked about, Value investing and Growth investing.

The growth investment strategy focuses on identifying companies that can substantially grow their revenues and profits compared to their competitors. So, growth stocks have the potential to witness a sharp rise in stock prices within a short time. On the other hand, value investing is a slower and steadier investment approach. Value investing focuses on identifying and investing in companies whose stock prices are lower than their intrinsic value. This strategy focuses on making investments in undervalued stocks that can deliver high returns when the stock prices move closer to their intrinsic value.

This article makes the case for value investing. These four charts are based on book equity (book value) and market equity (market capitalization).

The tendency of humans to make emotionally-driven investment decisions means that markets are cheap when we’re fearful, and expensive when we’re greedy. This creates a market backdrop against which value investing as a style has consistently delivered.

Do make sure to check out these charts and their results in below article by Simon Adler.


What to listen: