The Wolf Den #1009 - The Investor Manifesto
Lessons From The Masters.
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In This Issue:
The Investor Manifesto
Bitcoin Thoughts And Analysis
Legacy Markets
Bitcoin ETF Reaches $16 Billion
Stripe Expands In The EU
A Rate Cut Is Coming Soon
Craig Wright Goes Even Lower
Buy Ethereum Now! | ETH ETFs Are Coming
The Investor Manifesto
“The Investor Manifesto” by William Bernstein is a phenomenal book that tends to be overlooked compared to mainstream investment books. This reading covers essential topics such as asset allocation, portfolio construction, risk management, and the importance of maintaining a disciplined approach to investing over the long term. The very principles this newsletter was founded on.
Without further ado, I want to share one of the most well-known quotes from the book.
“Having emailed and spoken to thousands of investors over the years, I have come to the conclusion that only a tiny minority will ever succeed in managing their money even tolerably well.
Successful investors need four abilities. First they must possess an interest in the process. It is no different from carpentry, gardening, or parenting. If money management is not enjoyable, then a lousy job inevitably results, and, unfortunately, most people enjoy finance about as much as they do root canal work.
Second, investors need more than a bit of math horsepower, far beyond simple arithmetic and algebra, or even the ability to manipulate a spreadsheet. Mastering the basics of investment theory requires an understanding of the laws of probability and a working knowledge of statistics. Sadly, as one financial columnist explained to me more than a decade ago, fractions are a stretch for 90% of the population.
Third, investors need a firm grasp of financial history, from the South Sea Bubble to the Great Depression. Alas, this is something that even professionals have real trouble with.
Even if investors possess all three of these abilities, it will all be for naught if they do not have a fourth one: the emotional discipline to execute their planned strategy faithfully, come hell, high water, or the apparent end of capitalism as we know it. “Stay the course”: it sounds so easy when uttered at high tide. Unfortunately, when the water recedes, it is not.
I expect no more than 10% of the population passes muster on each of the above counts. This suggests that as few as one person in ten thousand (10% to the 4th power) has the full skill set.”
I like this quote, but it's not perfect. Let’s start with what it gets right.
All four of Bernstein’s points are on the money: having a genuine interest, proficiency in probability, understanding historical context, and maintaining emotional discipline are crucial for investing success.
Even if someone excels in three out of the four characteristics, lacking just one could still prove detrimental to investors. For instance, without genuine interest, investors risk burning out from boredom and losing motivation. A deficiency in probabilistic thinking can lead to flawed decision-making based on incomplete information while lacking historical context increases the likelihood of repeating past mistakes. Additionally, a lack of emotional discipline, probably the most important of all four, will result in impulsive decisions driven by fear or greed.
It’s hard to disagree with Bernstein in this regard.
Now, where my thought process diverges: my first concern with this statement is that, while all four components are indeed necessary, having a modest degree of proficiency in one or two of them can still pave the way for success in investing. While individual definitions of successful investing may vary, success is generally perceived as outperforming the market. Some may consider matching the market to be a form of success as well. However, for the purposes of this newsletter, I will define success as achieving returns that exceed those of the market.
Let’s start with the first ability, having a genuine interest in finance. Of all four categories, this one has the least wiggle room in terms of how much you need to reach success. While the others, though no less important, can vary in their levels of proficiency. Without a genuine interest, success is almost guaranteed to be out of reach due to sheer boredom or lack of interest in the pursuit.
I would argue that the second skill allows for the most variability. I don't believe spreadsheets or formulas are essential for success. Warren Buffett, for instance, likely doesn't handle his cellphone, and I know several older individuals who might struggle with basic probability questions yet perform well in the market. Moreover, anyone who invests time in understanding the fundamentals of crypto, particularly Bitcoin, is proof that mathematical prowess is just one small sliver of achieving success.
I also believe that financial history, much like probability, can vary widely and still contribute to successful investing. As long as investors possess enough knowledge to compare current bubbles and cycles with a few historical precedents, they can navigate new territory. Is a deep understanding of the South Sea Bubble truly the determining factor for success? Doubt it.
As for emotional discipline, which I consider the most crucial of the four, it offers less room for variance, akin to genuine interest, because success requires fortitude and conviction. I have a quote from Buffett that delves deeper into this topic coming up.
Investors don't necessarily need a high level of proficiency in any of these skills to achieve success. While all four are crucial for managing a fund, Bernstein wasn't addressing prospective fund managers in his writing; he was speaking directly to you.
The other major issue I take with his statement is the conclusion, “I expect no more than 10% of the population passes muster on each of the above counts. This suggests that as few as one person in ten thousand (10% to the 4th power) has the full skill set.” While this may hold true for finding an individual investor at a very high level in these abilities, being proficient in all four of these categories is not as improbable as 1 in 10,000. This would imply that even Bernstein himself, given these odds, would unlikely possess proficiency in all four.
Below is the quote from Buffet I was referencing above. I think it’s valuable here because it shows that more people can be successful and goes deep into the most important ability of all four.
“I think the good news I can tell you is that to be a great investor, you don't have to have a terrific IQ. You know, if you've got a 160 IQ, sell 30 points to somebody else because you won't need it in investing. What you do need is the right temperament. You need to be able to detach yourself from the views or opinions of others. You need to be able to look at the facts about a business, about an industry, and evaluate a business unaffected by what other people think. And that is very difficult for most people. I mean, most people have a herd mentality, which can, under certain circumstances, develop into delusionary behavior. I mean, you saw that in the internet craze and so on. So, I would say that I'm sure everybody in this room has the intelligence to do extremely well in investments.”
At the end of the day, success in investing boils down to outperforming the market—it's as straightforward as that. Don't become overly fixated on mastering specific skills. Focus on what you know, strive to be balanced, and double down on your strengths. Successful investing will follow.
The market is starting to heat up; I would love to see more strength going into next week, it might be ELECTRIC.
Bitcoin Thoughts And Analysis
Zooming in on the 4-hour chart, we can see that there is reason for caution - RSI went well into overbought territory and is printing a potential bearish divergence. Right now we do not have the clear elbow down in RSI that would confirm this top signal, although a bit of a turn down has happened.
If it does confirm, I would expect retracement to support (maybe back to the range lows?) before heading back up. The daily is still not even overbought, so this is more of a trading signal than something to watch longer term.
Legacy Markets
Tech shares experienced a global slump, leading to Nasdaq futures dropping over 1%. This decline is due to concerns that the US may impose stricter trade restrictions on China, specifically targeting semiconductor technology. Companies like Nvidia, Intel, and Apple saw pre-market declines, while ASML Holding NV fell by 6%. The Biden administration is contemplating severe trade measures if companies like ASML continue providing advanced semiconductor technology to China. The S&P 500 reached a new all-time high, but stocks experienced a slight pullback. Investors have been moving funds from mega-cap stocks to small-cap stocks, with the Russell 2000 outperforming the Nasdaq 100 by nearly 12 percentage points over the past four sessions, a trend not seen since 2011. John Taylor of AllianceBernstein cautioned that the market might be overly optimistic about the Federal Reserve's ability to cut interest rates amid lingering inflation concerns and potential new tariffs.
In the currency market, the British pound rose above $1.30 as traders reduced bets on an August rate cut following unexpected inflation data. The yen gained 1% against the dollar, lessening the likelihood of Japanese market intervention. On the earnings front, Adidas AG's stock increased by 5% after it raised its annual profit target for the second time in three months, and Roche Holding AG saw a boost due to positive early-stage results for a weight-loss pill. Overall, the market's recent movements reflect a mix of optimism about potential Federal Reserve rate cuts and concerns over US-China trade tensions, with tech stocks bearing the brunt of the uncertainty.
Key events this week:
Eurozone CPI, Wednesday
US housing starts, industrial production, Wednesday
Fed Beige Book, Wednesday
Fed’s Thomas Barkin speaks, Wednesday
ECB rate decision, Thursday
US initial jobless claims, Philadelphia Fed manufacturing, Conference Board LEI, Thursday
Fed’s Mary Daly, Lorie Logan and Michelle Bowman speak, Thursday
Fed’s John Williams, Raphael Bostic speak, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.7% as of 5:23 a.m. New York time
Nasdaq 100 futures fell 1.2%
Futures on the Dow Jones Industrial Average fell 0.2%
The Stoxx Europe 600 fell 0.5%
The MSCI World Index rose 0.1%
Currencies
The Bloomberg Dollar Spot Index fell 0.3%
The euro rose 0.4% to $1.0938
The British pound rose 0.4% to $1.3030
The Japanese yen rose 1.2% to 156.40 per dollar
Cryptocurrencies
Bitcoin rose 1.2% to $65,454.25
Ether rose 1.6% to $3,496.04
Bonds
The yield on 10-year Treasuries was little changed at 4.16%
Germany’s 10-year yield declined one basis point to 2.41%
Britain’s 10-year yield advanced one basis point to 4.06%
Commodities
West Texas Intermediate crude was little changed
Spot gold rose 0.1% to $2,472.69 an ounce
Bitcoin ETFs Reach $16 Billion
Bitcoin’s ETF success continues to surpass all expectations, reaching $16 billion in net inflows in just 6 months and 5 days. For reference, Bloomberg predicted the ETFs would bring in between $12 billion and $15 billion in the first year, a target now on track to be doubled. Additionally, BlackRock has definitively pulled ahead of Grayscale with 318k BTC in AUM compared to Grayscale’s 273k, down from their original 619k. Fingers crossed that the market remains on track going into the ETH ETF launch; plus, we are still awaiting ETH marketing from BlackRock.
Stripe Expands In The EU
Mainstream adoption in the EU has taken a significant step forward as Stripe, a financial service provider, is now allowing customers in the EU to buy crypto with credit and debit cards. This expansion enables Stripe vendors to add a widget to their websites that facilitates crypto purchases, complete with KYC, charges, and dispute resolution functionalities.
The head of crypto at Stripe said the following about the development, “Now, merchants who rely on Stripe’s onramp for things like conversion optimization, identity verification, and fraud prevention can reach a more global audience. This lets them focus on growing their business and helping their customers.”
This expansion is significant because Europe leads the global market in cryptocurrency transaction value, accounting for 37.32%. Additionally, Europe's progress in crypto adoption could serve as a valuable guide for the U.S. on how to effectively implement regulations and frameworks.
A Rate Cut Is Coming Soon
It’s hard to imagine that a rate cut isn't imminent now, given that the FedWatch Tool is predicting nearly 100% odds of a cut at the September meeting. Specifically, the market forecasts a 93.3% chance of a quarter-percentage-point cut and a 6.7% chance of a half-percentage-point cut. Just one month ago, the likelihood of a cut stood at 70%, but it surged following the latest inflation report, which revealed a rate of 3%, the lowest in three years. If this cut materializes in September, it will mark the first rate movement since July 2023 and the first cut since 2020.
Craig Wright Goes Even Lower
In the most unironic way possible, there has never been a better time to visit craigwright.net and read the statement posted on the site. By court order, this statement must remain on the website for three months, for our collective pleasure.
“First, that Dr Wright is not the author of the Bitcoin White Paper.
Second, Dr Wright is not the owner of the copyright in the Bitcoin White Paper.
Third, Dr Wright is not the person who adopted or operated under the pseudonym Satoshi Nakamoto in the period between 2008 and 2011.
Fourth, Dr Wright is not the person who created the Bitcoin system.
Fifth, Dr Wright is not the author of the initial versions of the Bitcoin Software.”
To sweeten the deal, the complete judgment is linked for everyone to read the ruling directly from the source. Those familiar with the industry understand the significance of witnessing this moment.
Buy Ethereum Now! | ETH ETFs Are Coming
Dan Roberts, the veteran crypto journalist joins me to discuss the latest in crypto! Ethereum ETFs, massive Mt. Gox Bitcoin dispatch, Trump trade, etc. My friends from The Arch Public, Andrew Parish, and Tillman Holloway, are joining in the second part of the stream to provide an update on the $10K algorithmic portfolio.
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.
Hi Scott- I knew you when I bartended at Rock Lobster, great to see you are doing so well.
My email is skbenzio@hotmail.com I have a topic for your show. Please reach out.
Benz