Tech didn’t just stumble into layoffs in 2022 - it was shoved.

A buried line in Trump's tax code quietly detonated America’s innovation model.

And we're still feeling the effects today.

It’s not AI. It’s not over-hiring. It’s a tax rule you’ve never heard of - until now🧵 It all traces back to Section 174 of the U.S. tax code.

Since 1954, companies could immediately deduct 100% of R&D costs, including salaries for engineers, software tools, and contractor fees.

This helped build Microsoft, Apple, Google, and the broader startup ecosystem.

Morgan Stanley just released the most important charts in finance.

I’ve pulled the 30 most important ones - grouped into 5 categories every investor needs to watch.

This is the best investor cheat sheet:

(Save this thread) 1. Macro Trends & Policy

a) Hard vs. Soft The Great Divergence in Economic Signals:

While Claude Shannon is known for his work on Information Theory, he was also an extraordinary investor.

In the 1960s, during one of his historic lectures at MIT, he posed an investing exercise now known as Shannon’s Demon — a strategy that could make a positive return even in a zero-sum game.

Let’s dig in🧵 Consider a coin-flip game to simulate an asset with zero long-term returns.

If you get heads, you win 50% of your bet amount; if it’s tails, you lose 33.3%. Even though the arithmetic return is positive, this game has a long-term expected return of zero.

You start with $100 and play a coin toss game.

If it’s heads, you win 50% of your bet amount; if it’s tails, you lose 40%.

Would you play this game? We would have, as the expected value of each toss is positive.

For the first toss, you have a 50% chance of winning $50 (50% gain on heads) and a 50% chance of losing $40 (40% loss of tails) => bringing the expected value to $5.

Newton, Cigarettes, and Hype.

3 stories about herd mentality in markets: Bubbles work – until they don't.

Even Newton wasn't immune to the South Sea Bubble that washed over England.

He lost inflation-adjusted £1.5MM in total by getting in at the top.

But that's because the stock made him a lot of money just before that.

5 charts of U.S. exceptionalism and 5 charts of U.S. non-exceptionalism.

[Via Goldman Sachs Research]

1/ The U.S. has the largest equity market capitalization in the world (5x larger than the next largest one) 2/ U.S. ranks second in the global innovation index.

My 9 favorite insights from J.P Morgan's Guide to Retirement:

1/ If you are a non-smoker in excellent health, you must plan for ~35 years in retirement. 2/ ~10% of 75+ year olds are still working. But, most do it to stay active and actively enjoy working.

From 1964 to 1981, the Dow Jones Industrial Average (DJIA) only grew 0.1% compared to the 373% growth in GDP.

However, over the next 17 years (1981 to 1998), DJIA increased 497% vs. a 177% growth in GDP.

This mismatch led Warren Buffett to create the Buffett Indicator: The Buffett Indicator is the ratio of the market value of equity (MVE) to the gross domestic product (GDP).

Buffett claimed this to be “probably the best single measure of where valuations stand at any given moment”.

On average, the S&P 500 returned only 4% in the next 12 months if you invested when the consumer sentiment was at its peak.

But, if you invested when the sentiment was at its lowest, your return was 24.9%!

Does data back Buffett's "be greedy when others are fearful" maxim? 🧵 It's well proven that consumer confidence predicts economic activity.

But can investor sentiment predict stock returns?

Since we are now going through a market of extreme fear, it’s the right time to dig into whether we can use investor sentiment to our advantage.

The latest SPIVA research is out, and 92% of large-cap mutual funds have underperformed the S&P 500 over the past 15 years.

Here are the key takeaways:

• A majority of large-cap managers outperformed the S&P 500 only thrice in the last 23 years.

• Growth is king — 90% of large-cap value managers underperformed the index vs. only 13% of large-cap growth managers (H1’23)

• If the time period is more than 15 years, there were no categories (small cap, mid-cap, value, etc.) where a majority of active managers outperformed.

• The S&P 500 growth index has posted its best first-half performance since 1998 (+21.2%)
Regarding short-term trends, last year's worst-performing sector (Communication Services: -22%) was among the best performers in H1’23 (+19%).

But energy and utilities had a massive trend reversal.

94% of active fund managers do not beat the market.

Even Warren Buffett's Berkshire has now underperformed the S&P 500 over a 20-year period.

Here’s why it's so hard to beat the market: The fundamental problem with picking stocks is it's not a 50/50 chance as most investors think.

80% of all stocks generated 0% return and the remaining 20% of stocks accounted for all the gains.

If you randomly pick a stock, you only have a 20% chance of turning a profit.

NVIDIA ($NVDA) is now trading at 37 times its revenue (P/S) and 202 times its earnings (P/E)!

Now's the right time to remember what Scott McNealy, CEO of Sun Microsystems told Bloomberg just after the dot-com collapse 👇 Call it irony or foreshadowing, Sun Microsystem's campaign was "We put the dot in dot com".

At its peak in 2000, the company was valued at $200 billion.

By 2001, the stock price had dropped by 80% and Oracle bought Sun for $7B in 2010.

A 96% drop from its peak valuation.

12 important charts every investor must know:

1. Over the past ~200 years, the U.S. dollar has lost 95% of its value whereas stocks are up 70,499,600%. 2. Staying invested in the market is the best way to make money.

A concerning trend is on the rise – using leverage to invest.

A recent survey found that 40% of individual investors take on debt to invest. Half of them borrow $5K or more.

The problem is that leverage is that magical thing that works until it doesn't! 🧵 The idea of leverage is simple. Compounding takes time to work - but you can accelerate the process by using debt.

If you have high conviction in a directional bet, you can use equity as collateral to borrow more money.

If you use 2x leverage, you could 2x the returns!

We are living through historic times. The Fed is hiking rates faster than ever before.

But what is the Federal rate and how does it work? How is the rising rate crashing the market?

Here's a 101 on Fed Rates and how they affect the stock market. 🧵 The Fed funds rate is the interest rate banks charge each other to lend Federal Reserve funds overnight.

To put it simply, it's the lowest rate at which a bank can legally lend.

Henry Singleton had the best operating record in American Business.

He turned a $450k investment in Teledyne into $60M net income in 9 years.

But when the conglomerate bubble popped in the 60s, the stock crashed from $40 to $8.

His comeback was even more impressive. 🧵 A lot of Teledyne's rapid growth had been due to acquisitions.

In the 60s, Singleton had acquired more than 150 companies. After the stock crashed, he needed to consolidate.

But he used an unconventional tool to convert this situation into a windfall - Stock buybacks.

1/ Only 6% of actively managed funds managed to beat the S&P 500 over a 20-year period.

If you look at it closely, the S&P 500 strategy is as simple as "buy big stocks".

Let’s dive into why this simple strategy works - and what it takes to outperform it 🧵: 2/ A company can get into the S&P 500 if it passes these three basic conditions:

1. The company should be from the U.S and shares should be highly liquid

2. Market cap > $8 Billion

3. Positive earnings in the recent quarter and positive total earnings in L1Y

Stanford University conducted a famous experiment in 2005.

They gave 41 participants $20 and asked them to make 20 rounds of $1 investing decisions based on a coin toss.

The catch - some of the participants had emotional brain damage. And they outperformed all others!🧵 In every round, the participants had two options - invest or don't invest.

If they didn't invest, they got to keep the $1 from the round.

If they invested, the researcher would take the $1 and do a coin toss - Heads they would lose the money, Tails they would get $2.5!

"It's different this time".

The go-to motto for everyone who buys into a new and overvalued asset class and wants to justify it.

Here's how the British South Sea trading bubble in the 1720s had the exact same playbook as the Crypto bubble we are in - three centuries later 👇 Ironically, the South Sea bubble also began with irresponsible spending - by the British Govt.

The newly founded South Sea Company was granted exclusive rights by the Parliament - To trade with South American colonies and to reduce govt debt.

The new world held untold riches..

1/ Warren Buffett always recommends buying into the S&P 500 over picking stocks.

But in 2005, he raised the stakes with a $500k bet: "Nobody can select a set of at least 5 hedge funds that would match the S&P500 over ten years."

Only one person took up the bet - Ted Seides. 2/ Hedge fund managers only had to deliver on their promise. The $500k would just be a bonus.

Buffett was confident of winning because he believed fees would cancel most of the gains.

But the result of this bet has a personal impact for you - On your retirement savings.

1/ FTX's bankruptcy filing report is incredible 🚨🚨

John Ray, the new FTX CEO, is the same person who restructured Enron after its scandal.

His take on FTX under penalty of perjury - "Never in my career have I seen such a complete failure of corporate controls" 2/ The company did not have any cash management system.

- Expense reports were approved by emojis over chat

- Corporate funds were used to buy real estate and personal items for employees

- Loans were issued without keeping any records