Life Update, Druckenmiller Sees Nifty Fifty Similarities, The Secrets of John Templeton, & Luxury

Market Talk, Edition 74, May 14th 2023

May 14, 2023

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Recent posts: Memos I have shared since the last Market Talk.

How the Small Investor 'Could' Beat the Market (here)
(LON: MEX) Running Before They Can Walk (here)
Infinite Replay Value (here)
Third Wave (here)
The Winner’s Game (here)
(NASDAQ: SBUX) Life's Smallest Luxury is not Lost on India (here)

Comments from Me

Market Talk is back after a four-week absence. Apologies for the radio silence; I had a lot on my plate. Towards the end of my trip to India, I had a lot of social commitments, I was sick for a little while and then unexpectedly made a big change in my career. Things have settled down now, thankfully.

5x Must Reads

Here are 5 pieces that I found particularly enjoyable or insightful. Note, that these articles are not listed in order of perceived value.

1) Druckenmiller at USC

Length: Moderate

Source: (USC Marshall, YouTube)

“I’m sitting here staring in the face of the biggest and probably the broadest asset bubble, forget that I’ve ever seen, but that I’ve ever studied.”

Last week, Stanley Druckenmiller presented a keynote speech (audio here) at the USC annual meeting to talk about US exceptionalism. Forewarning, the outlook is scintillatingly doomeristic, but if there is one person to listen to on these matters, it’s Druckenmiller. The conversation centres around the demographics of the US, and how issues that have been looming for decades might be about to bite the country in the not-so-distant future. Outside of predicting the end of the world, the presentation’s Q&A is littered with solid insights into Druckenmiller’s investment process, his thoughts on topics like generative AI and China, and his current positioning.

One individual asks if its harder to invest in the current climate than before, to which Druckenmiller responds by noticing the likeness to the Nifty Fifty Era:

“Yes, because I have never seen a roadmap for the current situation. I have never seen this movie before. I read that 7 stocks are responsible for 85% of the S&P rise this year. It reminds me very much of the Nifty Nifty era”.

I’d recommend listening to the audio while having the slides open, otherwise, you’ll miss 95% of the context. He also appeared at the Sohn Conference this month too, for which there is a video version available.

2) Confronting Investment Challenges

Length: Moderate

Source: (Charles D Ellis)

Following up on the themes I discussed in The Winner's Game, if you enjoyed the concept of winner’s and loser’s games presented by Charles D Ellis, then I am sure you’ll enjoy this interview he had with AQR management. The paper Ellis wrote back in 1975 is more relevant today, but this discussion adds some modern-day nuance to the conversation.

The theme of the discussion is wrapped around the idea of how to comfort investing challenges; covering topics like governance, assessing management character, private wealth investing, and asset allocation.

3) The Secrets of Sir John Templeton

Length: Light

Source: (William Green)

A short profile of John Templeton conducted by William Green, author of Richer, Wiser, Happier. Templeton, known for his work on market cycles, was a hunter of busted stocks at what he referred to as the "point of maximum pessimism" when no one else would touch them. He was an unorthodox person; later in life, he devoted his charitable work towards investment in research for ascertaining the scientific healing power of prayer. But his abnormalities served him well as an investor; for he had the willingness to be lonely. This was true during the outbreak of the second world war when Templeton borrowed $117,000 in today’s money to bet on the electrification of the US economy.

In Green’s words he, and a select few famed investors, possess the “willingness to take a position that others don't think is too bright” as a result of their self-confidence in ability. The profile also covers why Templeton believes “it's okay to make money so long as you don't enjoy it”, why he was such a stickler for being punctual, and his secret weapon; which largely boils down to emotional discipline.

4) All Hail King: How Rolex Exemplifies a True Luxury Brand Like No Other

Length: Moderate

Source: (Sleepwell)

I apologise if my own exploration into the luxury industry is biasing my article selection, but that’s what you signed up for. Sleepwell Capital has awoken from their creative hiatus and shared a spectacular write-up on one of luxury’s most well-known, but least-written-about brands; Rolex.

The narrative building around Rolex’s own stumbling into the luxury domain is interesting enough, but the complimentary comments about the meaning of true luxury are the good sauce. Clear distinctions between aspirational luxury and true luxury are made that will help the reader understand the nuances between the alternate realities of luxury.

5) Hermes: 186 Years of History

Length: Moderate

Source: (Best Anchor Stocks)

Similarly, this breakdown of Hermes offers another great read on luxury. While much of the public discourse of luxury centres around LVMH, Hermes offers an arguably superior luxury brand. While many favour LVMH because of its diversification across luxury brands, it goes without saying that several of LVMH’s brands are not strictly luxury; and are instead in the realm of aspirational luxury.

Not a day goes past that I fail to see a regular pedestrian sporting an LV bag or brush past someone wearing the distinguishable scent of Dior. Bottles of Moët maybe be considered prestigious, but they are well within the budget for modern family expenditure, even if it is for a treat. Brands like Hermes and Ferrari, however, are truly out of reach for the average household.