Thinks 444

Economist: “The mix of sky-high valuations and rising interest rates could easily result in large losses, as the rate used to discount future income rises. If big losses do materialise, the important question, for investors, for central bankers and for the world economy, is whether the financial system will safely absorb them or amplify them. The answer is not obvious, for that system has been transformed over the past 15 years by the twin forces of regulation and technological innovation.” More: “The proximate cause for the boom in valuations is more than a decade of all-but-free money. Central banks slashed interest rates after the financial crisis, then took monetary and fiscal support to new levels in response to the pandemic. This lit a rocket under asset prices. The average stock in the S&P 500 cost 40 times its earnings in early January, as measured by the cyclically adjusted price-to-earnings, or CAPE, ratio, a level so high it is only topped by the period which preceded the stockmarket crash of 2000.”

Alexandra Marshall: “When civilisation gives up on moral principle and decides to try out ‘moral outcomes’ it leads the government to view individuals as subservient to the collective. Their rights and safety can be ignored so long as the ‘greater good’ is being served. Once the individual is no longer sovereign, any group desire can justify the abuse of rights until citizens become nothing more than depersoned identities. This is the idea that sits at the heart of every collectivist regime and we have seen it quietly gaining popularity within a range of activist movements…For thousands of years, Western Civilisation has rejected the ‘greater good’ in favour of individual supremacy. It is only through enshrining the safety and liberty of each member of society – rich or poor – that society has flourished. Respecting the individual, by proxy, creates respect for society at large. While it is not a perfect solution, it has proven enticing enough that people run from collectivist regimes toward the safety of Western democracy. Even liberty’s critics must admit that whatever is going on here is desirable when compared to alternative systems.”

Saurabh Mukherjea: “We are generally investing in companies which continue to be producing great results and if the results are mediocre over an extended period, obviously we will underperform and that is the reason I focus on the business rather than focusing on the stock price. The stock price tells us nothing. It is one of the biggest ironies of investing. The stock price has zero information value…If a business is growing conservatively 10x in 10 years, 25% cash flow compounding means 10x growth in 10 years, even if the PE multiple moves a little bit here and there, we are not going to lose sleep. Our focus is on businesses which can do 10x in 10 years in terms of free cash flow compounding.”

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.