Sunday Finds + 3 Things I Thought About Last Week
Wise, Boston Omaha, and U-Haul
3 Things I Thought About Last Week:
Reviewing the Enron 2000 Annual Report. I had a look at the 2000 annual report for Enron, which I linked to last week. A few thoughts. First, if you just read the first few pages and financial highlights, you might think this company was doing remarkably well, even though they were about to go bankrupt in a year or so. It highlights why it is important to read through the entirety of the 10Q/K before investing in a company (or at least one as complicated as Enron), as even the worst business in the world can put up a good earnings presentation. Second, if you actually read the full annual report, there are plenty of red flags that would have put Enron in the “too hard pile” so to speak. Some of the definitions of the business segments were incomprehensible, and the multiple related party transactions speak for themselves. With few people out there that actually read SEC filings, doing so can give you a big advantage when deciding what stocks to avoid for your portfolio.
2021 returns all coming from a few stocks. Plenty of stocks, especially in the mid/small-cap growth category, have gotten hammered the past few months. There have been a few different data points given out on this, but Gavin Baker (tweet linked below) decided to have his team go through the math from scratch, and they found some interesting results. If you look at the Nasdaq, it is up 21.17% year-to-date (YTD). However, if you exclude Apple, Nvidia, Tesla, Microsoft, and Google, the index is only up 5.79% this year. This tells me two things. First, if you don’t own any of those stocks, you are likely trailing the returns of the Nasdaq this year. Second, if any of these stocks falter in the coming years (looking at you, Tesla and Nvidia), they could have a significant impact on index returns. It is similar to how the FANMAG companies (and increasingly Tesla/Nvidia) have driven the majority of growth within the S&P 500 over the last five years. A lot of return expectations are resting on these few large companies.
Can we officially close the book on Gold? I know this will never happen because the commodity is a religious experience for a lot of people, but the narrative that “Gold is an inflation hedge” really hasn’t held up so far this year. The SPDR Gold Trust is down 6.6% YTD, and significantly off its highs from the summer of 2020. Inflation, on the other hand, just hit a high not seen since the early 1980s. It’s almost like gold is just a random piece of metal, with minimal ties to the economy, and only goes up and down based on what price people are willing to pay for it (i.e. it is a greater fool game).
See you next week,
Brett
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