I Hate Bonds

Warren once said that bonds that were once "priced as risk-free return were now return-free risks." Yes, he might have changed his mind with the recent increase in yields to combat inflation by the Fed, but that statement has always poignant in my mind. I have always abhored bonds as "safe." I try not to be risk-averse or risk-loving, but risk-neutral. I think one day when I need to transtion to have some stability to anchor the portfolio, it will not be in bonds. It will be in stalwarts, but the downfall of UNH and PEP leads me to ask are they just like the bonds in the past. Risk is not knowing what you are doing. Maybe there will be a stalwart, but every portion of the portfolio should be a well-priced risk.

Scaled Economics Shared

Just finished a Greenwald piece on local strategy in HBR and he details how the two best advantages a business can have are customer captivity and scaled economics shared. Another way of saying it would be scaled economics shared. A bit nicer way to put the network effect/switching cost with scale. Strategy is how to respond to competition and what separates one from its competition with barriers to entry. I prefer to think of it as choices of what not to do as a way of inverting. https://archive.is/53ru5#selection-1585.577-1585.970

Just a Little Bit

Margins are very thin and not just with it being the Bezo's opportunity. In the 8 years from the start of 2017 to the end of 2024, the SPX compounded at 14.85% leading to 1 dollar becoming 3.03 dollars. The SPX is now down 13.54% after Liberation day and if you take away that performance from the previous 8 years, you will be left with 2.62 for a CAGR of 12.79% return. Nearly 2 percent of performance a year for 8 years wiped away. You still have to build that lead for the inevitable downswings at times. SPX had 5 days of >5% loss in 2008 and 2020. We have one this year, but Thursday was a 4.8%. All arbitrary, but inside the human minds, there are certain hurdles that mark milestones. Larry Fink claims in his annual letter that in a 30 year, the average pension outperforms a 401k by 0.5%. Compounded over 30 years, you will get returns of 17.45x instead of 19.99x assumming a 10% vs. 10.50% rate leading to 14.5% less in the retirement fund or 9 years of retirement. Charlie Munger always illustrated with 15% compounding for 30 years and paying 35% tax once or 15% each year and taxed 35% before investing again. It's the difference of 13.3% vs 9.75% return and over 30 years, what 3.5% does is a lot. Little things. On the Margin. A little late or a little slow.