Advice to recent grads

Happy Friday!

Has inflation peaked? Hard to say, but I did my best to try to answer this question in the weekly (reach out if you want a copy). Just don’t confuse “peak” with a hard stop and/or return to sub-2% inflation. That’s probably off the table for a while.

Apple is big. 

It’s fun to compare Apple’s product revenue to other companies. For example, the iPhone generated $200 billion in revenue over the last 12 months. That’s more than 490 companies in the S&P 500 (excluding Apple). Here’s another amazing chart… From 2020…

From what I can tell, Apple does not appear to break out its wearable revenue, so analysts try to back into these numbers when companies don’t disclose them. It’s not always perfect, but they’re rarely too far off.

Handing over your keys

Here’s an interesting article from the WSJ. The short version is that wealthy investors are increasing allocations to private equity to “escape” the volatility of public markets.

I find this to be misleading. It’s not that private equity is less volatile and/or uncorrelated to public markets, where it’s some amazing diversifier. It’s more due to two characteristics of private investments.

First, you can’t sell. There is rarely a market for private investments, and many funds don’t allow Limited Partners (LPs) to get out unless very specific conditions are met. Investors can’t make stupid decisions during times of extreme panic. 

Some may argue the ends justify the means. If you can’t sell, that’s the same as being diversified, and I agree with this in principle. But it’s also not the same as saying when stocks go down, PE goes up. That’s not how it works.

Second, they don’t “mark” their investments every millisecond of every day. Pull up the price of a stock during market hours, and there’s a bid. Stocks trade throughout the day, so you always know the price at any time. 

Most private funds will “mark” or assess the value of their investments a few times a year. I’m talking at best quarterly because it’s a lot of work, and they usually invest for multi-year periods, so the short-term is less relevant to the General Partners (GPs) and their anchor LPs.

Oh, and since there’s no real “market” for private investments, these marks are totally arbitrary and have an error of margin wide enough to drive a semi-truck through. It’s my cynical opinion that 98% of these marks follow a somewhat less rigorous process than licking a finger to test the wind.

To be clear, I’m not trashing private equity. In fact, I’m a huge fan and invest personally when I can. But to say that investors are running to PE to avoid public market volatility isn’t much different than handing over your car keys to a trusted friend before joining the Century Club on Budweiser.

Bees are fish

This week, the Third Court of District Appeals handed the world a doozy of a reason to hate the People’s Republic of California that much more. The short version is that a court has ruled that bees are now fish.

You may think it’s some progressive gender/identity movement, but it’s not. It has to do with conservation, but frankly, I didn’t read the full release from the court. Threw in the towel after a few minutes, but in that short amount of time, I was able to ascertain the following:

First, it’s 35 pages long (albeit double-spaced). Think about that. Some judge had to write this, which implies that the pinnacle of any legal career is presumably this – writing some court decision on why bees should be classified as fish under existing legal precedents. 

As in, all that work in law school and fighting to climb the legal ladder to become a prestigious appellate judge ends here. It doesn’t get better than this. How this judge and so many others haven’t gone full Jim Jones and ritualistically laid down in the path of a raging Napa Valley fire is beyond me.

Second, this is an appellate court. Meaning this is not the first time this case has been tried. It reminds me of Thank You For Smoking, which was that movie about a lobbyist for big tobacco. In one scene, the main character’s son is working on a project for school, and he asks his dad why the American government is the best government. He answered…

“Because of our endless appeals system.”  

That’s funny because it’s true, and my limited experience with the legal system has taught me three indisputable conclusions:

  1. Anyone can sue anyone at any time for any reason.
  2. It’s impossible to spend less than $500,000 on any case that ends up in court.
  3. The one with the most money wins.

My point here is that I can’t imagine how much money was spent on both sides of this case. Millions by this conservation society and who knows how much more by the government. That being said, there’s a silver lining and lesson to be learned by recent high school graduates…

People aspire to be rich for a variety of reasons. It might be a big house, a cool car, and/or private jetting to lavish vacations. But the real value in accumulating real wealth is the ability to buy your way out of any situation you put yourself into. That’s the true definition of “making it.”

Enjoy the weekend…