Welcome to my Friday thoughts. Let's get into it:
"Ladies and gentlemen, this is your Captain speaking"
I was on a plane yesterday (for the first time in a few years), and the Captain addressed the passengers over the cabin speakers.
"We're going to taxi to the end of the runway, then take off to the South. We'll take a sharp left turn, to avoid built-up areas and mountains, then a sharp right turn toward our destination."
Which is, if you think about it, completely unnecessary. He wasn't asking for a show off hands, or for different opinions. And it's not like we all had to lean left, then right, to make it all happen.
So why did he tell us?
Because he wanted us to know it was planned – to warn anyone who might have felt worried when it happened.
Which is both a pretty decent and a pretty reasonable thing to do.
So let me try it for investors:
"Ladies and gentlemen, this is your Advisor speaking.
"Welcome to the world of investing.
"History suggests that your destination is very likely to be a wonderfully enjoyable experience. To get there, however, we'll need to travel through some different conditions. Unfortunately, it's likely to include some turbulence, too.
"As your captain, I would strongly suggest not using the emergency exits during these times – not only will you not reach your destination, but you're likely to regret the experience."
"Please keep your seatbelt fastened, in case of unexpected turbulence. But we'll get you there. Now please sit back, relax and enjoy the flight."
Buy it like Buffett
The other great thing about a plane flight is the opportunity to get some reading done.
I'm sporadically making my way through The Essays of Warren Buffett. I highly recommend it, if you haven't read it (or if you haven't read it recently, I'd highly recommend you re-read it!).
Here's what he wrote:
"An irresistible footnote: In mid-2021, pension fund managers invested a record 122% of net funds available in equities – at full prices they couldn't buy enough of them. In 2022, after the bottom had fallen out, they committed a then record low of 21% to stocks."
Okay, he didn't quite write that.
Instead of 'mid-2021' he wrote '1971'. And instead of '2022', it was '1974'.
And no, I'm not suggesting Buffett would use those terms to characterise the current market.
But I do think it's worth considering the relative merits of share prices, now, versus 18 months or so ago.
When prices are high, euphoria takes over, and we can't imagine them falling.
When prices are low, so is FOMO, and we can find every reason under the sun not to invest.
Yes, even the 'professionals' suffer from the same thing.
Buffett's lesson is clear. I think it's one we should learn from.
Four simple steps to great investing
Speaking of Uncle Warren's letters, here's another little gem that I think is worth sharing:
"We select… investments on a long-term basis, weighing the same factors as would be involved in the purchase of 100% of an operating business:
1. Favourable long term economic characteristics
2. Competent and honest management
3. Purchase price attractive when measured against the yardstick of value to a private owner; and
4. An industry with which we are familiar and whose long-term business characteristics we feel competent to judge."
Now, each of those points can be unpacked and analysed in a lot of detail.
But it's also worth asking yourself how many points out of four you'd give yourself on each company you own in your own portfolio, don't you reckon?
My guess? Many people might score 1 or 2 points. I'm not sure that puts the investment odds in their favour.
(And a reminder: If you're tempted to dismiss those criteria, remember that only one of us is Warren Buffett. And it's not you or me.)
Another failure of governance
I've been a bit scathing of governments in this space recently.
No, I'm not resiling from it. But I do want to make the point that I'm both an optimist and generally recognise that governing isn't easy, given competing interests and electoral realities.
Now, with that out of the way, one more brickbat!
You will have seen in the news a lot of hand-wringing about the OPEC countries cutting supply to push up oil prices, just at the time the world is trying to pressure Russian oil and gas supplies.
Now, you're right that OPEC could actually take a more principled position, given what's happening in Ukraine. But they're not.
And it's worth remembering that OPEC's stranglehold on the world's oil price – and the massive economic and political impact that brings – has been known, now, for more than 50 years.
During that time, successive governments, the world over, could have done a lot to lessen the power of OPEC, by finding alternative energy sources, both conventional and renewable.
To that point, they could be doing a lot more right now, too.
That's something that both generally-left climate activists and generally-right national security hawks should be able to run a unity ticket on.
And yet, after 50 years of dithering, they seem more content to fight each other – almost as a matter of principle – than actually achieving real economic, political and environmental change.
Democracy's greatest Achilles Heel is, unfortunately, the impact that short political terms have on long term planning.
Quick takes
Overblown: The argument that we should abolish high(er) tax rates because people are using other structures to avoid them is like saying we should abolish speed limits because some people drive too fast. The exception doesn't justify removing the rule. We can argue about what tax rates are appropriate, but this isn't a valid argument for those changes.
Underappreciated: Speaking of tax, the burden of funding government programs does fall too heavily on the individual taxpayer, in particular on incomes. The range of potential alternatives is vast, but a combination of special interests and a lack of political will makes them no-go zones. Try: middle-class welfare, corporate subsidies and tax breaks, small business tax breaks, multinational tax collection, resource rents that don't give us the true value of our resources. And that's just for starters. Vision and political will required, and sadly lacking. And yes, there's something there for almost everyone to object to… which is why it doesn't happen.
Fascinating: Qantas Airways Limited (ASX: QAN)'s pending rebound to profitability has a little to do with air travel returning to pre-COVID levels, and a lot to do with careful limiting of available seats on flights. Mutual self-interest would see all domestic carriers carefully ration seats to secure ongoing high prices. Whether that's in the interests of travellers (or competition) is another thing, entirely.
Where I've been looking: Bank of Queensland Limited (ASX: BOQ)'s stark margin improvement shows how well banks can do when interest rates are rising. If other banks follow suit (and avoid defaults that could come from tougher economic times in the next twelve months), bank profits could go materially higher.
Quote: "Most of our large stock positions are going to be held for many years and the scorecard on our investment decisions will be provided by the business results over that period, and not by prices on any given day" – Warren Buffett
Fool on!
