TFTLR: Applying math to bear markets, media deep dive, interest rates impact on equities, and building a learning machine
Thoughts for the Long Run, July 10th, 2022
Welcome back to TFTLR! Took a break for the 4th of July - I hope all had a chance to spend time with loved ones.
Mental Model 1 - Making Friends with Bears Through Math (Hussman): In the short-term, security pricing is based on psychology, and in the long-term, it's based on math. One useful math equation is the ratio of non-financial market capitalization to gross value added, which has a remarkable inverse correlation to S&P returns and illustrates a concerning multiple rich environment.
Mental Model 2 - News in the Age of Abundance (Perell): Amazing deep dive into the media industry and analogy to the food & beverage industry, incentives have shifted such that media outlets have the incentive to overload consumers with immediately gratifying, unhealthy junk (McDonald's, Red Bull, etc.), and consumers have to be surgically precise with managing their intake.
Mental Model 3 - Divergent Interests - Interest Rate Sensitivity in the Cross-Section of Stock Returns (DE Shaw): There has been a marked increase in the dispersion of the sensitivities of US stocks to interest rates, which is particularly acute since the Fed increased the size of their balance sheet.
Personal Development - How to Build a Learning Machine (Every): I have begun to pair my Readwise (and broadly Kindle highlights) with a Zettelkasten (I just use OneNote) model to connect all of the information I consume and add annotations. In general, investing in a personal tech stack to upgrade my OS has been huge.
Have a great Sunday evening!
Aimun