Interesting too that Cathie wood of the ark fund believes inflation will decline soon (she warns of deflation) because of the high levels of inventory that large US companies are holding. Of course she has her own axe to grind etc and may well be doubling down on a call re growth companies that went bad. However, the point is the future is cussedly hard to predict sometimes and who knows, maybe she is right about inflation? Right now might not be the best time to tumble out of growth stocks.In my long-made observations, the quality of investment outcomes have a very close inverse correlations with the human foibles that are evident in areas such as emotion, dogma and ideology.
From both the written and verbal utterances I see and hear Cathie Wood making, there are very strong ideologies and dogmatic influences at work in the way she plies here trade.
Which works fine when the market is of a similar emotional mindset, but the market's emotional mindset is as fickle as it is unpredictable. As we all know.
But it comes a cropper when the season of the market changes and you are a single-season investor.
But you are right, correctly calling the changes of the market's seasons is devilishly difficult to do on a sustainable basis, and trying to do so ends up bringing into play those human emotions, and with them, the attendant poor investment outcomes.
Which is why I always hark back to the cold, mechanistic investment framework centered around
VALUATION. Because that removes the influences of the human failings and allows the investor to ignore the noise.
And on that note, and in relation to REA; don't get me wrong, I'm not saying that REA is a roaring buy; all I'm saying is that it is - for the first time in probably three years, no longer unambiguously expensive.
So fairly priced.
And when an excellent business becomes fairly priced, then that's a good time to start building a position. Which is what I'm doing.
PS. On the matter of inflation vs deflation, Ms Wood is clearly way out of here depth on that score, for the simple reason that she demonstrates a fundamental misunderstanding of the critical determinant causing global inflation to begin with, a scarcity of energy. Not too long ago Ms Wood was quoted as saying the oil price was going to go to $12/bbl
View attachment 4443091There is an absolute vast body of information circulating within the public domain at the time which very easily debunked Ms Wood's thinking.
So, no.
Because it is energy-induced, and energy takes many years to develop, inflation will embedded at a high level for some time to come. For a few years, probably.
But where the investment opportunity arises is the view that central banks will not be able to get anywhere close to the level needed to tame inflation. Just the start of the rate tightening process is currently causing all manner of hysteria and problems.
So, a situation of high inflation but accompanied by mere modest levels of interest rates.
That's an attractive backdrop for growth companies with strong pricing power, enabling them - in the event of rising input costs - to easily re-price to their customers.
There are not many such businesses in existence.
REA is such a business
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