2022 started like every other year. Fireworks, resolutions, and engagement post all over social media. It’s all we can hope for as a society. But seriously, it’s another year, and I, am grateful. 2021 ended with the stock market reaching new highs. The famous S and P 500 returned around 28 percent. To put things into perspective, experts predict that this index should and probably might return just 10 percent per year annually. So, we had a good year. This was in part to the Federal government pumping money into the system through bond buying and stimulus checks. Both of which are necessary but has its unintended consequences. Lots of money chasing few assets. I will say, I’m not an economist but at some point we have to realize these actions can’t go on in perpetuity.
Over the past few weeks, I’ve been thinking about forecasting and investing. These two concepts keep floating around in my head as two things that are important to understand. All of the great investors had sharp acumen around knowing/predicting human behavior. It almost seems as though they were experts in praxeology. Of course, some believe this to be some type of pseudoscience but maybe they isn’t everything? Companies are just entities that interact with humans on a constant basis. They provide initially provide value and then iterate on that value provided to produce larger margins for the shareholders.
So, how do we become better investors and forecasters? We try to understand and find companies that are able to provide some sort of value. It is my personal opinion that companies that can find a way to provide value through the middle class’s discretionary income can scale and become very profitable overtime (i.e., Netflix and Amazon Prime). What are other qualities that make a company extremely lucrative? Making the transaction frictionless. Month after month or year after year, these companies find ways to make sure that they receive revenue from their customers. Having to constantly acquisition customers isn’t sustainable over the long term. It’s causes people to constantly reevaluate whether they would like to purchase this product or service.
I’ve also been thinking a lot about how this type of subscription service is now creeping into co-branded credit cards. Almost all of the major airlines now have co-branded credit cards. One of the most popular ones being the Southwest’s Chase Credit Card. The most card provides the customer with outsized value but also does something that’s very important. It keeps them within the eco system. Paying 149 a year helps to gate keep the consumer from different options and sometimes, that isn't a bad thing. One of my favorite Internet personalities (Scott Galloway) loves to say, the consumer doesn’t necessarily want more options but confidence in the option they are choosing. I’ve said it once and i’ll say it again, complexity is a tax on the poor.
Finally, no one knows what the future holds but trends can give you hints on where it is heading. I always believe it is imperative to sharpen your intuition in regards to thing happening within your surrounding. At the end of the day, your choice dictate your outcome and to make better choice/decisions, understanding the trends of the past and gauging for the future is our best bet.
la vie en rose,
Daviel