Do You Deserve Equity Returns?

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In their latest episode of the VALUE: After Hours Podcast, Brewster, Taylor, and Carlisle discuss Do You Deserve Equity Returns?. Here’s an excerpt from the episode:

Tobias: Yeah, I think so too. The article from Intrinsic Investing, Sean Stannard-Stockton, those guys, I just thought it was an interesting idea. The idea is that there’s always this existential risk of equity going down. So, Buffett and Munger have said, “If you can’t endure a 50% drawdown, then you don’t belong in the market.”

Jake: With some equanimity, then you don’t deserve– [crosstalk]

Tobias: Yeah. Is that what he said?

Jake: Yeah. You don’t deserve equity returns.

Tobias: What if I can endure it, but I don’t have the equanimity?

Jake: Yeah. [laughs]

Tobias: What if I have like-

Jake: Tie yourself to the mast?

Tobias: Tie myself to the mast. Yes, exactly right.

Jake: That counts too, I think. As long as you didn’t sell, then I think you deserve it.

Tobias: Well, that’s a good point. We’ve talked about this a lot too that first two-thirds of the time of a drawdown, there’s not a lot of action and that’s the last third in terms of time that you see all the action. This is not to say that I think that we’re still in the bear market. This is not to say that I think we’re not in a new bull market. I have no idea whatsoever. I would just say that these conditions look like every other bear market ever. Particularly long bear markets, they have these big rallies. I remember writing about the 2000 bull market, the [unintelligible 00:09:13] bear market in one of my books and saying that it had almost rallied back to all-time highs 12 months after the peak. And it was there that you had– [crosstalk]

Jake: Then, it ran out of gas and then–?

Tobias: It crashed. Yeah. So, that could easily happen here. Nobody knows what’s going to happen. And there are lots of indicators that looks like we’re going into a recession. There’s been a lot of stimmy, hours worked rolling over all these things. So, there’s this constant drip of bad information, but that’s always the case. They say, “Bull markets climb a wall of worry.”

Jake: Yeah.

Tobias: Also, whatever that means, I have no idea. Maybe it’s exactly this. There’s always bad information hanging out there. The good returns are always most available when the bad information is out there. That’s why you get the discounts and that’s why you can buy stuff that– You’re not going to get Google at the peak on a good multiple. You get it close to the bottom on a good multiple.

Jake: I think that today’s world where there’s so much data, but there may only be the same amount of information that there was before, but this flood of data that’s available lets you support almost any narrative that you would ever want to draw. So, I think it’s a more dangerous world today now that it’s so easy to find supporting evidence to confirm any prior bias that you might have had.

Tobias: Yeah, that’s a good point. You’ve also got the-

Jake: We got to be careful about that.

Tobias: -leading and lagging indicators. So, I always quite hope the E, the employment indicator– [crosstalk]

Jake: [laughs] Housing, something, something.


Tobias: Orders, profits, employment. The funny thing is, every time I say it, I know I get a whole lot of emails telling me what it is. I have learnt from the emails now what it is. Thanks, guys. I appreciate it.

Jake: I think it’s funnier when you play dumb myself. You should just keep going with that.

Tobias: I didn’t know what the O and the P. I couldn’t remember the O and the P, because as far as I’m concerned, when the H goes, get ready. And when the E goes– [crosstalk]

Jake: It’s too late.

Tobias: When the H goes, get ready to go down. When the E goes, get ready to go up. That’s how I’ve figured it. So, we got an E that hasn’t rolled over yet. E, well, depending on how you dig into it. So, there’s some [unintelligible 00:11:28] on his site, aggregate hours worked and they have an index, and then he digs down into the actual hours.

Jake: Where did they get that from? Like ADP or something?

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