MARKET WATCH

After a terrible September and a weak October, global markets strongly rebounded in November. Correction: Very strongly! How strong? Well, emerging markets are almost 5% higher on the month, Canada and international markets have risen more than 6%, and the U.S. index has surged more than 8%.

On the other hand (cue the “One of These Things” music), commodities, once again, are “doing their own thing”, with gold marginally higher and Canadian energy stocks 2% lower since the end of October.

As you know, it’s always hard to ascertain why something happens, especially in finance and economics, where dozens of factors are at play. Having said that, it appears this month’s strong market performance is primarily due to two factors: a rebound from the prior market weakness, and the lower-than-expected inflation numbers that dropped a few weeks ago.

Weaker inflation numbers make future interest hikes less likely, which, in turn, should be better for the economy. Companies will spend less to service their debt, leading to higher profits, while lower interest rates will also save consumers money with lower mortgage and debt payments, potentially allowing them to spend more money in the economy.

Despite the positive inflationary news, it’s unlikely we’ll return to the historically low interest rates we’ve enjoyed for over a decade. And the geopolitical situation remains delicate. Two wars continue to be fought, with the potential to spill over to other countries, and, given the regions involved, could dramatically affect the price of oil.

I remain cautiously optimistic that our portfolios, being balanced with low correlation investments (fixed income, commodities, REITs, emerging and developed markets), will remain resilient to the most probable scenarios - as well as many of the less probable ones.

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.

THE PASSING OF A LEGEND

Investment legend and vice-chairman of Berkshire Hathaway, Charlie Munger, passed away this week. His 100^th birthday would have been on January 1. Though not nearly as well-known as Warren Buffett, it’s commonly accepted that Berkshire Hathaway wouldn’t have been nearly half the company it is without Munger.

However, what made Charlie so special wasn’t just his business success. He cared deeply for society, resulting in vast philanthropic contributions over the years. Together, he and Buffett believed that businesses should act with integrity, and often exposed immoral or greedy behaviour.

Charlie was also a teacher. There was always something to learn when Charlie spoke. His most notable contribution in this area was his popularization of mental models and the other principles laid out in his excellent book, Poor Charlie’s Almanac.

Personally, only a handful of people have changed the way I look at and show up in the world. Charlie Munger is one of them. His take on the principle of inversion, for example, has made a huge difference in my life. It made me realize that a considerable part of being smart is to avoid being foolish. Or, to use Charlie’s words, “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be intelligent.”

Charlie will be missed, but many of us are better off for the life he lived!

BOOKS

Principles for Dealing with The Changing World Order: Why Nations Succeed and Fail by Ray Dalio: One of the best books I’ve read on the history of geopolitics. Ray Dalio outlines the life cycle of recent empires by walking the reader through the histories of the Dutch, British, and American Empires, as well as a number of Chinese dynasties.

Dalio makes it apparent that the era we’re living in is consistent with the late stages (Stage 5 of 6) of empire (American). This includes high levels of income inequality, government debt, internal strife (political animosity), external threats (China), as well as low levels of trust. The bad news is that most of the time, the fifth stage bleeds into the sixth, which is civil war. Having said that, things could stay this way for some time. And if the right decisions are made, the situation could improve, but we would need our leaders to start acting like, well…leaders.

The Chancellor: The Remarkable Odyssey of Angela Merkel by Kati Marton: I’ve long considered Angela Merkel one of the most responsible leaders of her generation. So, when this biography on her came out a few years ago, I made sure to add it to my list. I wasn’t disappointed. The world needs more politicians like her. She is incredibly smart, hard-working, didn’t take cheap shots at rivals, and made decisions using a scientific approach (she was a former physicist).

One factoid that caught me off guard was her estimation that two-thirds of leaders at international events either didn’t read their dossiers or weren’t adequately prepared for their meetings. Although this disgusted her (and rightly so), it also enabled her to take advantage of them during negotiations. Being prepared at that level should be table stakes, not a competitive advantage.

Although I really enjoyed the book, it felt like the author had a favourable bias towards Merkel. For this reason, I’ll likely read other Merkel biographies to ensure I’ve gained a more complete measure of her as a leader.

Keeping At It: The Quest for Sound Money and Good Government by Paul Volcker & Christine Harper: With interest rates higher than they’ve been in some time, I thought a read of Paul Volcker’s memoir to be prudent. For those not familiar, he was chairman of the Federal Reserve during the late ’70s and early ’80s. In an attempt to fight historically high inflation rates (13.3%), he took the unprecedented, and unpopular, decision to raise the fed rate to 20%! Fortunately, it worked, but it was hard medicine.

It’s unlikely we’ll live through a scenario like that again, but, with the geopolitical climate as delicate as it is, there are scenarios where the price of oil - one of the main drivers of the inflation in Volcker’s era - could rise dramatically. Best to be more acquainted with that era, just in case.

ARTICLES

5 Key Updates in GPT-4 Turbo, OpenAI’s Newest Model by Wired: GPT is getting an update. For my purposes, the most relevant features are the larger input prompts (300 pages!), being better at understanding questions and prompts, and updates to the information GPT is trained on, from September 2021 to April 2023.

And if you’re curious, here are some of the incredible things you can do with GPT now.

Here's a timeline of the OpenAI saga with CEO Sam Altman by Matt Binder: But lest you think it’s all sunshine and roses at OpenAI, the company behind ChatGPT, this article details the drama that unfolded a little while ago.

Wild Minds by Morgan Housel: A good reminder that people who achieve unbelievable things, often behave in unbelievable ways.

The World is Becoming More African by Declan Walsh: The continent has made some progress, but many challenges remain.

Black Monday: The Improbable Crash, Its Causes, And Timeless Lessons For Investors by John Jennings: If you’ve ever wondered why investing can’t properly be considered a science - where predictions can be made with a high degree of certainty, if not precision - the following paragraph should be explanation enough. I bolded the last section for emphasis:

“Before Monday, October 19, 1987 (now known as Black Monday), such a massive drop in the market wasn’t considered possible because statistics put such a decline at an impossibly rare twenty-two standard deviation event. How rare is a twenty-two standard deviation event? Writing about the drop in his 2000 book When Genius Failed, reporter Roger Lowenstein of the Wall Street Journal noted, ‘Economists later figured that, on the basis of the market’s historical volatility, had the market been open every day since the creation of the Universe, the odds would still have been against it falling that much in a single day. In fact, had the life of the Universe been repeated one billion times, such a crash would still have been theoretically ‘unlikely.’”

Adam Grant’s Favourite Venn Diagram: And now mine, too.

TD Doubles its Forecast for Home Price Correction: The Canadian housing market looks to be weaker than originally expected.

PODCASTS AND VIDEOS

NVIDIA CEO Interviewed by Acquired: Great conversation with the CEO of one of the hottest companies on the planet, NVIDIA. A couple things stood out for me: 1) Too many companies have generic structures. They should reflect the organization more. 2) If Jensen Huang had a chance to found and build NVIDIA again, he wouldn’t do it. It was just so hard!

And for fun, here are four more from my AI buddy, Claude 2. I often copy/paste transcripts into Claude to see if there is anything I missed. The whole process takes 30-40 seconds. It still blows my mind that we have free access to this technology…and it will only get better.

1. Prioritize and focus your time. Don't let your calendar control you. Make time for what's important.
2. Build a supportive network. Huang attributes much of his success to surrounding himself with talented people who never gave up on him or the company.
3. Stay hungry. Keep thinking, "How hard can it be?" to take on new challenges and re-imagine opportunities.
4. The market opportunity determines your potential size. NVIDIA realized it was no longer a chip company, but an AI company with a much bigger market.

And, fun fact, the background, which looks like an office lobby, was actually three walls of LED screens.

Ray Dalio & Bill Belichick on Building Great Teams: Great conversation between two of the greatest in their fields, discussing what is involved in building great teams.

Jamie Catherwood on The Idea Exchange: Really interesting conversation with my friend Tyler Cho, host of The Idea Exchange, and financial history buff, Jamie Catherwood.

Dog Ball: That’s one talented dog!

SELECTED INSIGHTS

“I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than when they got up and boy does that help—particularly when you have a long run ahead of you.”           

- Charlie Munger

“A sign of character is the ability to learn from people you might not like.”

- Shane Parrish

“The chief gain is in the effort to change yourself, in the struggle with yourself, and it is less in the winning than you might expect. Yes, it is nice to end up where you wanted to be, but the person you are when you get there is far more important.”

- Richard Hamming