The Edge of Glory
When I think about the current trials and tribulations of the global economy, I often force myself to put things in perspective.
Even now, after this brutal year for the NASDAQ 100, down 28% YTD, the index has STILL doubled over the course of the past five years.
From the 2009 lows, the index is up 776% and since the December 2018 lows, the index is up 95%.
The day the world changed, on February 21st 2020, when the panic over Covid-19 commenced, the QQQ index was priced for 234 points, so we’re STILL above that, with a 2.5-yr compounded return of 23%.
In all honesty, if one has been in the markets for more than a couple of years, 2022 is uncomfortable, but certainly not a back-breaker.
When I purchased my last batch of 50 Gold Eagles in September 2018, I paid $1,200/ounce, so even with gold trading at 2-yr lows, I’m perfectly fine with this position.
When considering what the global economy has been going through, with the aggressive rate hikes, I must say that unless one was concentrated in the type of securities that derive most of their value from speculators, not from their fundamentals, all we’re seeing is a healthy re-rating of companies and their value, in a world of normal interest rates.
There are many who bought altcoins, cryptocurrencies and hyper-growth, pre-earnings companies with a big dream, but little to show for it in terms of actual results. They are now suffering from dismal returns, if their position sizing, stop-loss strategies and hedging tactics were amiss, but otherwise, let’s not kid ourselves – this was a long time coming.
Zero interest rates generated historically-high P/E ratios and all that’s happening is mean reversion, which is a good thing.
In times like these, we must remember that hardship is part of the concessions each one of us makes, when we choose to participate in the global chess match of equities investing.
When Jesse LeRoy Brown, the first black navy pilot, finished his training in the late 1940s, he was considered a highly-skilled airman and was deployed to North Korea, where over 100,000 Chinese soldiers were closing in on about 15,000 American soldiers, during one of the worst winter blizzards in modern memory.
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As a pilot of small aircraft myself, visualizing the risks taken by navy pilots flying in formation into the harsh terrain of Korean mountains in freezing conditions, in order to provide air support to the men on the ground, I’m amazed at the mental and spiritual development and depth of such warriors, many of them family men, who go up in the air, knowing the immense fatality statistics and hearing about their fallen friends.
Jesse Brown’s plane suffered gunshots from guerillas hiding in the snow, and his fuselage began leaking in earnest and he had to crash-land on the snowy peaks.
He survived, but his legs were trapped. His wingman, Thomas Hudner, literally volunteered to crash-land his own plane, in order to save Jesse.
This was one of the most controversial decisions of his career – should he risk his own life, instead of waiting for helicopter rescue?
Landing just roughly 100 yards from Jesse’s crash site, it took him close to half an hour to walk through the deep snow and get to Jesse, who, by this point, was losing the battle to stay alive.
Hudner couldn’t get Jesse out, trying everything possible for hours, under the most severe weather conditions, suffering from hypothermia, frostbite and chilly winds to save the life of his friend.
I cannot imagine the trauma and helplessness felt by Hudner, as Jesse’s legs were trapped under the unyielding metal of the plane.
Unfortunately, Jesse died, the first black pilot casualty of the war.
I tell you this story because we have to keep in mind that risk is a concept we must all study and obsess over; risk, for lack of a better word, is the great enigma of life.
Acquiring minority ownership in companies, via share purchases, is a risk we all take, betting on the management’s ability to navigate the competitive landscape and the prevailing trends of our times.
What the Federal Reserve is doing, via rate hikes, is increasing the risk that some management teams will make mistakes in overcoming the reset, but the glass-half-full is that the winners of this reset will be very strong, capable, battle-tested and CHEAP businesses.
Remain patient and risk-obsessed, and you may rise out of the ashes owning some of the best stocks for the next decade!
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