Happy Holidays,

We will be taking next week off from the weekend reading. Enjoy the break.

Robert Cialdini’s Influence: Science and Practice

Excerpt (Pgs 206-210) from Robert Cialdini’s Influence: Science and Practice.

  • This is one of the best books I’ve read about behavioral biases and how they impact the decisions we make.
  • Anyone looking to better understand behavioral finance should read this book. I highly recommend it.
  • In our current era of masks, vaccines, quarantines, and heightened rules, many policy makers are scratching their heads trying to understand why there is blowback against these policies & mandates. Is this really surprising or is there a pattern of human How could these policies be structured differently?

Wisdom Tree

U.S. Quality Still at Widest Profitability and Valuation Discounts since Launch

WisdomTree’s US Quality Dividend Growth Fund (DGRW) looks like an interesting core strategy. It looks at quality metrics like ROE/ROA, earnings growth, and then weights the companies by their dividend stream.

With these sort of metrics, this fund not only builds positions in high ‘quality’ companies but it also achieves exposure to earnings growth and income via growing dividends.

We need to do more diligence on this particular ETF but this strategy’s direction is broadly aligned with what we’re focused on in today’s market.

  • High quality companies with pricing power.
  • Companies that are growing earnings
  • Dividend-paying stocks to help offset low interest rates earned in the Fixed Income portion of portfolios
  • Companies trading at favorable relative valuations.

From a purely qualitative standpoint I believe it is easier to hold high-grade companies during bouts of market volatility and uncertainty. Maintaining conviction and not capitulating during precarious times is key to earning a reasonable investment return.

Wisdom Tree Graph

Japan and Chinese Demographics

In terms of birthrates and population trends, Japan is much further along than China. That said, both countries are relatively homogenous and derive almost no population growth from immigration unlike the US. This compounds the issue of demographic challenges.

In Japan, the birthrate dipped below replacement in the 1970’s. NB population replacement is considered 2.1 births/woman. Since the Japanese real estate bubble popped in 1991, the economy has completely stagnated.

In China, the birthrate dipped below replacement around the early 1990’s. For years, China enjoyed a tailwind from demographics as millions of citizens entered the workforce. Are we now witnessing a real estate bubble in China? Evergrande and the other over-extended property developers are being hit first because they were so indebted and vulnerable. But what happens to China when housing prices don’t increase?

  • “more than 60% of China’s total urban population lives in shrinking cities.”


Oaktree's Howard Marks

“I doubt most people could actually explain what a trillion is (that is, they likely have no idea that it’s a thousand billion, or a million million). And the scale of a trillion is almost incomprehensible. I was struck 30-40 years ago to learn that whereas a million dollars is $10 a second for 28 hours, a billion dollars is $10 a second for 38 months. Now let’s think about a trillion: $10 a second for more than 3,000 years. As I said, almost incomprehensible.”

Have a wonderful holiday season. I look forward to working with everyone in 2022.

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