So much for the Santa Clause rally we hoped for, or perhaps Santa got his months mixed up. After a very strong November, all markets are trading lower this month. However, as was the case in November, international and emerging market (EM) indexes have been materially stronger than their North American counterparts. This is a trend to keep an eye on, as international markets and EMs trade at much lower valuations than American stocks, and many, myself included, believe U.S. stocks may lag for some time.  

Commodities, as always seems to be the case, continue to do their own thing. Canadian energy stocks have fallen 9% below last month’s prices, while the price of gold (priced in loonies) has risen a few percentage points.

A quick thought on the recession everyone expects in 2023. Markets don’t react to what happens. They react to what happens in relation to our expectations. If a mild recession occurs, it likely won’t be a big deal. However, it will be a big deal if a recession fails to materialize or if it’s harsher than expected. These would likely produce market rallies or declines, respectively. 

Investing isn’t hard because we need to react to what occurs. Investing is hard because humans have expectations and react emotionally when those expectations aren’t met. These factors create unexpected results, which lead to new expectations, which, in turn, lead to new emotions and expectations. It reminds me of the famous Richard Feynman quote: “Imagine how much harder physics would be if electrons had feelings.” Almost makes you envy physicists.

Lastly, I’d like to wish everyone very happy holidays! I’d also like to thank all my clients for your trust and faith. Without you, I don’t know what I’d be doing, but my life would be considerably less fulfilled than it is. Thank you, and all the best for 2023!

As always, feel free to reach out if you have any questions, and if you’re looking for more timely information on the markets, you can find them on the research section of my website, or on my Twitter, Facebook, and LinkedIn feeds.


First principles (an undeniable basic truth that cannot be deducted from something else) are among the most effective mental models. They have two key benefits: they provide a clearer understanding of how the world works and they can enable you – with some work – to re-imagine how things are done, as opposed to merely adopting or improving existing methods. The more I learn about how to use them, the more I believe they can often be used to dramatically improve our thinking.


The following are among the best articles and videos I’ve found on what first principles are, how to use them, and how others have harnessed them to great effect.


First Principles Explained - How First Principles Affect All of Us by Dreamlet: Short video on what a first principle is and how to recognize when something is and isn’t a first principle.


First Principles: The Building Blocks of True Knowledge by Farnam Street: Best article I’ve seen on first principles. It gives a clear definition while providing four examples of how they can be used.


The Importance of First Principles for Invention and Innovation by Farnam Street: This Twitter thread contains a lot of the same information as the previous article, but with less detail.


The First Principles Method Explained by Elon Musk: Elon has harnessed the power of first principles to revolutionize two very technical and conservative industries (space and automotive), while having much less funding than his competition. In this video, he describes what first principles are and one of the ways he used them.


A Gentleman in Moscow by Amor Towles: I took a course where the professor said something to the effect of: “Literature has three lives. The first is when you’re reading it. The second is when you think about it. And the third is when you read it again.”


This was my second read of A Gentleman in Moscow, and I loved its third life as much as the first two! I’d even be comfortable saying it’s now my favourite book. If you enjoy rich characters, elegant prose, and a story that saunters slightly more than it strides, A Gentleman from Moscow is well worth your time.


Know Your TFSA Contribution Limit by MoneySense: Good news! Our annual TFSA limit is increasing from $6,000 to $6,500 for 2023. As always, once the calendar turns, check with the CRA (your online account is likely the best way) to determine the amount you contribute as you may be able to use some carry-forward room.

What Really Matters by Howard Marks: More timeless advice from Howard Marks! In this letter, he discusses the folly of being too concerned with short-term thinking and hyper-activity.


Sea Change by Howard Marks: The second letter from Howard Marks in about a month. This one was a doozy. When the “Warren Buffett” of the fixed income market, with more than 50 years of experience, says, this looks to be the third major market shift he’s seen in his investing lifetime, we should pay attention!


The British Empire Was Much Worse than You Realize by Sunil Khilnani: Thought-provoking article on the British Empire. The author argues the British Empire, in taking cover behind its proliferation of liberal thought, has historically received less criticism than it deserves.


As the author writes: “Yet oversimplified theories are themselves prone to bury other histories. The ungainly truth is that liberal thought has been a resource for repression and resistance alike, and theories of imperial power impatient with this ambiguity may not withstand the scrutiny they deserve.”


The Rise and Fall of Peer Review by Adam Mastroianni: Psychology researcher Adam Mastroianni believes the practice of peer review in research has been a failed experiment. In this essay, he provides examples (i.e., in three separate studies, planted errors were discovered by less than 30 per cent of peer reviewers) of how the process is flawed and doesn’t work. He also believes the annual 15 years of combined labour to maintain the peer review process could be used elsewhere to better effect.


ChatGPT: Why Everyone Is Obsessed This Mind-Blowing AI Chatbot by Stephen Shankland: ChatGPT is a recently released AI program that allows you to ask it questions, write you an essay, and iterate (as per your instructions) on its prior attempts. I spent a few hours trying it out. It felt like what I’d imagine a Google 2.0 search would be. It still needs work, but it already provides a richer experience than your traditional web search. With a few more iterations, I can see this, or something similar, becoming an indispensable personal research tool.


For a better explanation, the article’s author writes: “For example, you can ask it encyclopedia questions like, ‘Explaining Newton's laws of motion.’ You can tell it, ‘Write me a poem,’ and when it does, say, ‘Now make it more exciting.’ You can ask it to write a computer program that'll show you all the different ways you can arrange the letters of a word.


“Here's the catch: ChatGPT doesn't exactly know anything. It's an AI that's trained to recognize patterns in vast swaths of text harvested from the internet, then further trained with human assistance to deliver more useful, better dialog. The answers you get may sound plausible and even authoritative, but they might well be entirely wrong, as OpenAI warns.”


My Crypto Confession by Derek Thompson: The implosion of trading platform FTX and its now disgraced Founder Sam Bankman-Fried has been a huge business story this year. Aside from the billions of lost wealth, financial mismanagement, and likely theft and deceit that led to this collapse, the story caught fire for another reason. It lies at the heart of two movements, each having a cult-like following – crypto and effective altruism. Derek Thompson of the Atlantic discusses each movement and how this scandal has affected both.


Andrew Luck finally reveals why he walked away from the NFL by Seth Wickersham: When Andrew Luck, one of the best NFL Quarterbacks of his generation, unexpectedly retired in his prime before the 2019 season, it was a huge shock. This article explains the deeper reasons behind his decision. But, more interestingly, it’s also an exploration of what it takes to be one of the best at something, the cost of that pursuit, and the journey one man took to find himself.


If you’re a football or sports fan, you’ll want to read this. But it’s also a window into other worlds that demand excellence and the odyssey many take – or choose to avoid – in order to survive those realms. 


Spirited: There are few things I like more than a good musical. This adaptation of A Christmas Carol is a great holiday movie. The songs are fun, the dancing is great, and, despite not being trained singers, Ryan Reynolds and Will Ferrell did better than you’d expect. 

The Sandman (Season 1): I’ve read – and loved – most of The Sandman graphic novel series (hoping to be done soon). So, when I saw they were turning it into a live-action series, I was intrigued – bringing the written word to the screen is very hit and miss. But wow! Tanya and I were hooked in the first three minutes. We absolutely loved it. If you’re looking for a good story, or rather, a good story about stories, I’d highly recommend it. As a word of caution though, there are a number of scenes with a degree of gore and violence.


Georges St-Pierre, John Danaher & Gordon Ryan: The Greatest of All Time | Lex Fridman Podcast #260: Great interview with three giants of their field. I particularly found the advice they’d give young people insightful, but also applicable for those of us a little longer in the tooth.


“The highest form of wealth is the ability to wake up every morning and say, 'I can do whatever I want today.' 

– Morgan Housel


“What you're supposed to do when you don't like a thing is change it. If you can't change it, change the way you think about it. Don't complain.”  

– Maya Angelou


“Faced with a choice between changing one’s mind and proving there is no need to do so, almost everyone gets busy with the proof.”    

– J.K. Galbraith


“Security prices are determined by events and how investors react to those events, which is largely a function of how the events stack up against investors’ expectations.” 

– Howard Marks


“Treat what you don’t have as nonexistent. Look at what you have, the things you value most, and think of how much you’d crave them if you didn’t have them. But be careful. Don’t feel such satisfaction that you start to overvalue them—that it would upset you to lose them.” 

– Marcus Aurelius

Matthew Lekushoff
Subscribe to My Newsletter
Twitter  Linkedin  Facebook  
This provides links to other Internet sites for the convenience of users. Raymond James Ltd. is not responsible for the availability or content of these external sites, nor does Raymond James Ltd endorse, warrant or guarantee the products, services or information described or offered at these other Internet sites. Users cannot assume that the external sites will abide by the same Privacy Policy which Raymond James Ltd adheres to. The views of the author do not necessarily reflect those of Raymond James. This article is for information only. Raymond James Ltd. Member-Canadian Investor Protection Fund. Unless otherwise mentioned, all market returns are sourced from Thompson One.