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The Conservative Income Investor Profile picture
@TCII_Blog
Oct 15, 2021 • 8 tweets • 2 min read • Read on X
1/ We need to talk about the difference between "gambling" and "investing". Every market cycle has its risks. When times are tough, I remind investors that they own assets and have a perpetual claim on the *forever* future of the business absent insolvency. But....
2/ In bull markets, a different risk shows up. And that is the seduction of gambling. Right now, our culture makes it easier than ever to gamble. There are TV commercials, websites, and right now as I watch the Giants-Dodgers baseball game, gambling imprints placed on the mound.
3/ With investing, we now live in the Robinhood culture where almost two-thirds of the company's funds come from behind-the-scenes deals relating to options contracts that are...free to the user. The culture is presently begging you to abandon discipline at all turns.
4/ The problem is, there is a dark underside to all of this. The distinguishing characteristic of gambling is 100% loss. Whether it is a sports wager or a bet on a financial derivative, it is easy to take on the risk of 100% loss while discounting the possibility of occurrence.
5/ Guess what, stocks lost about a third of their value on a random, single day in 1987. Something analogous to that will happen again in our lifetimes and...the higher the market valuations, the more justified such a rapture-like market event.
6/ If you own large blue-chips with valuations between 15-25x earnings, this is not a big deal. Maybe means you go a year or two without gains under such a scenario. But if you are gambling on derivatives or stocks trading at prices divorced from value, the outcome can be fatal.
7/ To paraphrase a Warren Buffett quote, your ultimate outcome in life is going to be determined by your strength at your weakest moment. Well, if your weakest moment leads to justified 70-100% losses, that is not good! Decades can be lost!
8/ As a result, I wanted to offer a reminder that moderation is a market virtue. Hold cash, blue-chip stocks, take care of your health and relationships, and keep gambling to under 1% of your net worth. I offer this PSA when bad outcomes can be avoided entirely.

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More from @TCII_Blog

The Conservative Income Investor Profile picture
Jun 16, 2022
1/12 As the financial crisis was coming to an end in 2011, I visited a small boutique investment firm outside of Atlanta, GA that had generational clients. The families that had been wealthy for decades almost all had a huge block of Coca-Cola $KO stock in their accounts.
2/12 They mostly wanted the dividends to live off with the remainder invested as the professional saw fit. Many of the firm's Mississippi and Florida clients had the same disposition. The attitude was something like, "The coastal elites have their lofty real estate and economies
3/12 but we have this magic elixir investment that kept growing its dividend throughout his awful crisis and it keeps taking care of our family and is our secret to survival." In every investment and life plan, there is a "Final Back Stop." It's The Thing that keeps you afloat.
Read 12 tweets
The Conservative Income Investor Profile picture
Dec 12, 2021
1/ One of the major questions that you will have when you begin investing is this: What does it take to generate substantial money passively over a somewhat reasonable amount of time? The answer: $650 per month for twenty years.
2/ If someone in 1990 was earning the average income and wanted to generate $67k passively in 2021 (the US median household income), it would require setting aside a bit over $200 per month into Johnson & Johnson, Coca-Cola, and McDonalds stock.
3/ For someone earning the US median household income personally throughout this entire timeframe without any raises above what the US median household earned, this would require a 19% savings rate in Year 1 but only a 11% savings rate currently.
Read 14 tweets
The Conservative Income Investor Profile picture
Dec 10, 2021
1/ When it comes to successful investing, there is a substantial persuasion gap between what you hear from the value investors and those who invest in the newest thing that's supposed to take over the world. This has enormous consequences for the net worth of every American.
2/ Whenever there is talk of a new industry, the hypemeisters come out and tell you about the 1,000,000% returns that await the space. It takes the frontier spirit you have and tries to map on a form of Manifest Destiny to crypto, electric cars, and sustainable whatever.
3/ Someone was an early settler of Florida, New York, California, Texas, and so on and ended up with hundreds of acres of land now worth countless millions. "Buy this alternative currency and it will be you someday."
Read 13 tweets
The Conservative Income Investor Profile picture
Dec 10, 2021
1/ In a world where everyone seems to want to invest nearly all of their funds into tech, I thought it would be worthwhile to take a moment to reflect on the role of non-tech stocks in an investment portfolio and the advantage they bring to long-term wealth creation.
2/ The advantage of tech stocks is well known. Scalability with intangible goods can take you from 0 to 1,000,000 (or higher) in a matter of time. Successful full video games are one of the best examples of this - a couple of guys create code, pick a platform, and
3/ then can earn theoretically limited sales without encountering the limiting factors of property, equipment, labor, and the proportionality that characterizes most of the "real world." While this approach can support rapid growth, the prospect of going to zero always looms.
Read 13 tweets
The Conservative Income Investor Profile picture
Dec 5, 2021
1/ I want to reflect on several topics: Apple stock (which many own either outright or through many workplace 401k funds), stock market valuations and the future of returns, and Charlie Munger's comments this past week at the Sohn Conference.
2/ Charlie Munger offered a very profound observation when he said that the current market mania is crazier than the 1990s and "everyone who bought a stock at a P/E ratio 10 and now finds it at 35 thinks himself a genius" when criticizing the nature of current investment gains.
3/ That was clearly a veiled reference/synecdoche where he was Berkshire Hathaway's returns with Apple stock over the past five years (bought at an average price of 12x earnings and now trading at 28x earnings) as a shorthand for much of the market as a whole.
Read 13 tweets
The Conservative Income Investor Profile picture
Sep 22, 2021
1/ One of my favorite investing questions: How on earth did Monster Energy $MNST compound a total of 70,515% since 1985, turning a $10,000 investment into $7 million over that same time frame while the average American household generated total income of $1.8 million?
2/ As is always the case when it comes to the "supercompounders" of the investment world, Monster Beverage's long-term success is a combination of: good product, good structure, and good management.
3/ The first one, good product, is hard to define. We live in a world where everything is reduced to numbers, yet the reason we make a decision is very subjective. But if you throw sugar + caffeine + citric acid at consumers, they will respond enthusiastically.
Read 16 tweets

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