Goldman Sachs is a pretty massive bank. They all are. JP Morgan, the list goes on. They do a lot of financial things. They all have large analyst teams that cover everything across global markets. Stocks, bonds, crazy derivative products only a few of us can understand.
The kind that bring down an entire global financial system. This joke never gets old.
These banks and their analyst teams are clearly good at their jobs. They’ve managed to keep money flowing in. They are even better at getting press and attention from everyone whenever they do something. Especially mainstream media networks. Somehow they continue to move markets with their research. I don’t know how they do it, but it happens over and over.
Wall Street analyst downgrades a stock, stock tumbles. Upgrade a stock, stock rises. Rinse and repeat.
*In a massive boardroom on the 488th floor, walls lined with gold, bankers and analysts sit in giant leather chairs with New York City skyscrapers floating behind them in the windows.*
One of them reaches for a phone and turns on the conference line. A number is dialed. It rings. It’s answered.
“You won’t believe what our analyst team researched about a stock today! Whoa baby! Get ready for big news! We moved our price target down.”
*In a bustling media Room with TVs, webpages, and headlines open from around the world a team waits for news.*
One team member ,who writes headlines, answers a ringing phone. “Hello… Wow! Did you say “Downgrade”!? Ground breaking. Can you come on TV and talk about it in 30 minutes? “
*Scene cuts back to the boardroom…*
I await the day this cycle finally ends.
Philip Elmer-DeWitt is probably the greatest Apple analyst alive today. And he works for no bank. Have you heard of him?
He’s a blogger. He has followed Apple his entire career from a perspective only a few can relate to – the Internet, bloggers, underground communities, hyper focused groups of people, connecting online at any location in the world.
Spend 20 minutes exploring his blog, community, and the data he has crafted about Apple. It’s truly next level. He might be the smartest Apple analyst on the street. Yep, a blogger.
I am going to let you in a on secret… in 15 years, this is how all the best thinkers and leaders of any one industry or company or business will do it. They will run their own ship. They will have their own community. It won’t be centralized to a bank or anything of that sort. It will revolve around the person, the face, with actual skin in the game.
Some of you know Ben Thompson and Stratechery. He has changed the game for strategy in tech and how it’s delivered to anyone, anywhere. I wonder if, in certain circles of tech, he’s valued higher over even the biggest consulting houses.
Shane Parrish has changed the game for how people think and leverage their own wisdom. He has 170,000 followers on Twitter. He has almost 300,000 subscribers to his newsletter.
The other day, while looking at some Apple data, I was shown a unique chart showing the team at Goldman Sachs and their predictions for Apple’s stock price over the last year. What you will see on this chart is two lines – a red line showing Goldman’s price target and a dotted line showing Apple’s actual share price at a given moment in time.
You probably could have built a trading system that took the opposite of the analyst’s predictions and made some nice coin. Like printing cash. But what’s really mind-boggling about all of this is that the analyst team changed their price target more than 10 times in about 12 months. Who does that besides day traders playing with 3x leveraged ETFs? We’re talking about a company that has a market cap of $950 billion today and can generate revenue of $50+ billion in just three summer months. I’m not sure how anyone could have more than 10 different price targets on a company of that size in such a short amount of time.
But yes, Goldman f’ing Sachs sold that to all of you.
This is the shift. The institutional trust and clout previous generations have come to know will fade. And as it fades, the acceleration of diverse opinions will increase. More and more people have a voice and presence online. More and more people can share their own research. This all feeds into a bigger and better idea meritocracy. A place where the best and most dedicated to any one subject, even if they are bloggers, will rise to the top despite any non-traditional background or affiliation with a corporate name.
These will be the new smartest people on the street.
I like to say everybody flies on airplanes, but nobody knows what that actually means. In an airport in New Jersey, I had a conversation about that.
“How does the plane fly?”
“Well, I think… uhhh”
“Hey you, how does an airplane fly?”
Imagine walking onto 40,000 pounds of steel with 36,000 gallons of gas travelling at a speed of 500 miles per hour and never thinking once about how or why it’s working. Because, a lot of people actually do that. I might be one of them.
In financial markets, there’s a measure for everything. A few terms come to mind. I immediately think of the unemployment rate. I also think of the P/E ratio, LIBOR, and the national debt. These numbers are quoted, cited, and debated like religion.
It’s overvalued! It’s overheating! We’re hitting a bottom!
Everyone has something to say about every number, yet I’m not sure everyone actually understands what these numbers mean. They are seen, they are heard, and suddenly they are. Like an abstract piece of art an opinion is formed, a story created. But numbers are not meant to be abstract pieces of art. It’s easy to forget there’s actually a formula behind each number, statistic, or ratio. And it was created by another person who uses the bathroom just like you.
The unemployment rate is a personal favorite. It’s one of the most cited economic numbers in the financial lexicon. It sounds fairly simple. Duh.
No, not quite:
Unemployment Rate = Number of Unemployed Persons / Labor Force
I find myself double checking what it means to be an “Unemployed Person.” The exact definition of an unemployed person states you have no job, you have been looking for at least 4 weeks, *AND* you’re readily available for work. How many “experts” do you think can actually tell you that?
LIBOR is another example. It’s a bit more obscure, but the story is still fascinating.
LIBOR (the London Interbank Offer Rate) is just an interest rate average calculated by using interest rate estimates from various banks and their analyst teams. It’s estimated that $400 trillion in various products are tied to the rate. For example, maybe I sold a bond to a few British gentlemen with an interest rate tied to whatever the banks are predicting and that’s called LIBOR. People have done this for years. And years. Without ever questioning the rate or its calculation.
Dude, it’s LIBOR.
In 2012, Barclays was fined $300 million for working with other banks to move LIBOR rates the direction they wanted. It took 20 years to figure out that if you really looked into it, a few banks were making LIBOR move like South American cartels.
Oscar Wilde, the Irish playwright once created a character described as, “a man who knows the price of everything and the value of nothing.” He wrote that more than 120 years go — the price of everything and the value of nothing.
From the unemployment rate to LIBOR, we cite, quote, and talk about numbers daily. We make decisions based on them and often times with our own money. Yet only a few really take the time to understand them. And only a few people are actually willing to admit that.
Some talk about going to the gym at 5 AM. Or running 10 miles daily. Or doing yoga while listening to a podcast at 2x speed.
Others drink super powered coffee with coconut infusions and brain power additives.
The power! The energy! The bio hacks!
I just started putting my socks on standing up. You should try it. Seriously, next time you find yourself sitting down to put on your socks, even your shoes, stop! Remember this.
But why? What type of sorcery is this? Why would you drop such profound confusion on us @scheplick?
If you put your socks on standing up for the next year your balance might see a slight benefit. Or maybe your flexibility. Try it yourself. I really don’t know. But I’m going to try with the theory that something will improve compared to always sitting down.
I like this idea of doing realistic things that are far below any idea of over achieving or over reaching, the things that take not much time, that potentially add up over a lifetime. Put your socks on standing up. For example.
The little things. The incremental daily activities that potentially add up, little by little, over time. Here and there. Less than two minutes.
I think anyone who works in markets gets more jaded and more skeptical at a faster rate than those who don’t. Like old man jaded. A get-off-my-lawn-grandpa kind of way.
Lately, I’ve taken a new approach to all the things people say in markets. The adages and phrases that have been passed down for generation after generation. Netflix is down and Disney is up. Obviously that’s a big money rotation from Netflix’s streaming service to Disney’s streaming service.
“Just wait until the institutions start buying Bitcoin.”
That’s my favorite. “tHe InStItUtiOnS.” As if a little ferry dances around markets and taps her wand on an asset and suddenly the magical institutions start buying.
There are countless examples. Even a trendline break in technical analysis comes to mind. I am a chartist myself and regularly mark down levels I see as important on a chart. But I’m never not amused when people see a trendline break and suddenly, “it’s going to ZERO.”
As if it were that easy.
There is no easy saying that always makes money. There is no phrase that even outperforms just 51% of the time. Buy the rumor, sell the news. I love that phrase and joke about it all the time with friends. But really? I have seen people sell the rumor and sell the news. Or buy the rumor AND buy the news.
“Sell in may and go away!” Another classic.
The other day I was chatting with a few friends about the recent rise in gold. Gold is breaking out of a five year base. Meaning it has essentially gone nowhere for five years. Now, today, it’s nearing its highest price in five years. We’re taught through adages and phrases that gold is a safe haven asset. If it’s moving we must be worried. Someone must know something scary we don’t.
That’s what we hear. And somehow it just becomes believed. Maybe because it sounds good, it rings in the ears. So we take it as truth without much scrutiny. But the market does not work like that. It is not that easy. I am often reminded of an Abe Lincoln quote,
“You can fool all the people some of the time and some of the people all the time, but you cannot fool all the people all the time.”
I think Abe had that right in terms of inspiration. It’s great for such a figure to say that you cannot fool all the people all the time. But after the financial crisis, hedge fund overlord David Einhorn wrote a book. He titled it, Fooling Some of the People All of the Time. That’s more like it. That’s what markets do. They just fool people all of the time, day after day, week after week. Abe can ditch the rest of his quote.
For the recent run in gold, what if it has nothing to do with an impending bear market. Or recession worries. What if it’s entirely based on inflation fears. Maybe inflation is about to turn the f up and people want to preserve their money in an asset like gold. One that isn’t dependent on the Fed. Well, in that case, technically you could have rising stocks and rising gold. Voila.
I guess what I’m trying to say is that phrases and adages are fun, but they are also lazy. There is so much more analysis and thought to be had. Every time I hear a generic phrase related to markets or investing, I visualize all the reasons why that phrase is wrong in that moment. There are so many ways to spin a story, a correlation, a connection. Forgetting that is how you get fooled.
The other day a friend and I were talking. We were walking outside Bryant Park in New York City. The humidity was high. Imagine stretching your hand out and grabbing warm lake water out of thin air. That’s what it felt like.
While talking with my friend, a cool dude with artist style vibes and a burlap bag, I noticed something in the middle of our conversation. He was borderline obsessed with the wrong in the world. Wealth inequality! Exploitation! Greed! Politics! What else am I missing?
I tried to explain.
Over the years, I have noticed an increasing number of people like him. Nothing will ever be good enough. Nothing will be right.
But what I’ve come to learn is that he is actually helping. I’ve come to learn that this is what progresses things forward. Things progress because of his discontent.
The discontent leads to criticism, the criticism leads to feedback, and the feedback is what pushes the do’ers to build better and work harder. Your outrage, your dislike, and your pushback is what actually feeds the progress.
In financial markets, I was reminded that, “bull markets climb the wall of worry.”
And so while many have complained this entire time, the stock market, by which you could buy with a few Dollars and a mobile app, has been doing this:
Virtual reality in its retail form is 7 years old. Or less.
Autonomous driving on a mass appeal is barely 5.
It’s easy to lose sight of how young these products really are. We see emerging tech daily in the news or in conversation with friends. Their constant presence makes it feel like it was always this way. But the reality is they have been around for less time than almost 80% of the world’s population.
Coca-Cola is 127 years old.
Multiple generations have consumed it. Grandma, grandpa, Uncle Joe and little Timmy.
Most have not thought anything of this. Sure the dangers of sugar in excess are becoming more prevalent on today’s national stage, but for the last 75 years, it’s been somewhat smooth sailing for the overlords of soda. Produce the drink, sell it, go about your day.
It wasn’t always like that, though.
In 1909, when Coca-Cola was still a young company, boisterous, successful, and breaking onto the scene like nothing anyone had seen, the United States seized 40 barrels and twenty kegs of it. Men in suits with badges and guns stormed in. They seized all the soda they could find.
But why? How could a fizzy drink cause such outrage?
Everyone was worried about a mysterious added ingredient: caffeine. It was suspected to cause serious health problems. Could it be a drug? Should it be legal? Why is everyone drinking and raving about this new drink?
This happened more than 100 years ago. Imagine armed guards today storming into a building and seizing soda. “Everybody down!”
Today, the trial is known as United States v. Forty Barrels & Twenty Kegs of Coca-Cola. That is really the name of the trial. Newspaper headlines everywhere, outrage, and suspicion. Must sound familiar. At Thanksgiving, families gathered.
Grandma: “They need to get that off our streets!”
Grandson: “I can feel the boost! This is the future!”
The characters in this story are different, but the theme seems to repeat itself. Autonomous driving, crypto, social media, the list goes on. Still in debate, still quick to form an opinion even with only a few years of real history or data to work with. Steve Ballmer, the co-founder of Microsoft, once fell victim to such rushed judgement.
“Who would use such an expensive product without a keyboard.”
“People want to email!”
That’s what Ballmer first said about the iPhone. Before he had yet to truly use it, study it, or give it time to unfold. Imagine how different the world would be if he instead slowed down and actually studied it. He probably would have built one similar. We probably would have Microsoft phone.
There’s a reason why quotes like, “history favors the bold” are widely cited and why quotes like, “history favors the critics” or “history favors the pessimists” do not exist. Bold inventions have repeatedly pushed forward productivity and standards of living. There aren’t many examples in history where the opposite is true – stop building, keep doing the same, and that will lead to better lives for all.
In 1950, only 2% of people had a dishwasher. Today, nearly 80% have a dishwasher. In 1970, only 31% of people had a color TV. Today, more than 90% have a smartphone that does 100x more than that color TV. If autonomous driving becomes a thing, an estimated 80 million people will have an extra two hours in their day to read, watch, write, or sleep while their car drives them from point A to point B.
The rate of technology is increasing. It’s compounding. It will only get more uncomfortable as we race to understand its progress. But before the pitchforks and torches come out, whether right or wrong, remember we’ve been here, in some fashion, and there are lessons to help to make the right decisions that go as far back as United States vs Forty Barrels & Twenty Kegs of Coca-Cola.