Market Sentiment

Hey everyone, Happy Easter. Hope you have a great day. We just wanted to let you know that Twitter is now blocking all links to Substack and our traffic from Twitter has effectively gone down to zero overnight. So as a small favor to us, if you like our content, do tell one of your friends about us. This is the only way we can grow. Thank you so much :) Share Market Sentiment The irony in finance is that windfalls make great headlines, but such occurrences are rare.

By now, all of us know how SVB went bankrupt in the blink of an eye. But what most people don’t remember is that something very similar occurred in Orange County, California nearly 30 years back. Robert Citron was responsible for collecting and investing hundreds of millions of dollars on behalf of Orange County. In the wake of a new rule that dramatically reduced property tax revenue, Citron was under pressure to deliver more and more money for the local governments using his investments.

Ronald Read was born in rural Vermont. After serving in World War 2, Read returned to his hometown and worked as a gas station attendant for about 25 years. He then retired for one year before taking up a part-time job as a janitor at J.C. Penney. His life was unremarkable by all traditional metrics. Only when he died in 2014 did he make it into international headlines.

This is a special edition as Market Sentiment just made it into the bestseller list of Substack. We are so grateful to all of you for your amazing support and we couldn't have done it without you. Thank you so much :) We have started a private community for our paid subscribers on Slack where we deep-dive into investment strategies, analysis tools, and much more.

In the early 20th century, the paper clip was a complex and often frustrating tool. There were dozens of different designs, each with its own quirks and flaws. Some clips were too weak and would bend easily, while others were too strong and would damage the paper they were holding. Some clips were too difficult to insert and remove from the paper, while others were too easy to accidentally dislodge. In 1901, a Norwegian engineer named Johan Vaaler1 decided to simplify the design of the paper clip.

Morgan Housel came up with the idea that there are three distinct sides of risk: The odds you will get hit. The average consequences of getting hit. The tail-end consequences of getting hit. The first two are easy to grasp. It’s the third that’s hardest to learn, and can often only be learned through experience. Say you are not wearing your seat belt – The odds that you will be caught are low (1) and even if you are caught, the fines that you end up paying are not too much (2).

In the 1980s, the market for high-yield bonds (aka junk bonds) experienced a dramatic boom. This was fueled by new deregulations in the finance industry and an increasing appetite for corporate takeovers. The junk bond market grew exponentially from a minuscule $10 billion in 1979 to a whopping $189 billion by 1989 - with yields averaging around 14.5%! Unsurprisingly, given the market conditions and high inflation of the 80s, investors were drawn to these high-yield junk bonds.

We are sure you've heard of Murphy's law. Sometimes you spread peanut butter on a slice of bread and it slips from your hand – but it always has to fall buttered side down. You're waiting in a queue and you see the adjacent queue moving faster. You switch over after five minutes, and now the queue you left starts moving faster. Life always finds a way to give you the short end of the stick. Mostly this is a minor inconvenience, but it's frustrating when this happens with your money.

On March 27th, 2000, Cisco’s market capitalization touched $569 billion making it the most valuable company on earth. Cisco was at the center of the dot-com bubble and at one point, the average Cisco employee had over $250K in stock equity. Cisco pioneered the development of networking equipment and investors poured money into the company betting that the demand for networking equipment would grow exponentially with the internet.

Let’s start with a quick poll: In 1970, Eugene Fama published a paper titled "Efficient Capital Markets: A Review of Theory and Empirical Work" in The Journal of Finance which introduced the concept of the efficient market hypothesis (EMH). The basic tenet of EMH is that the financial markets are perfectly efficient and that the prices in the market fully reflect all available information about the company.