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The rich are getting richer? Maybe, but they're also getting younger! (Link)
A survey of U.S. investors with $25 million or more finds their average age dropped by 11 years since 2014, to 47. These fabulously rich Americans, whose ranks have more than doubled since the depths of the Great Recession, are younger than less wealthy millionaires. The finding suggests a vast generational transfer of wealth is just beginning.

Seth Klarman offers a warning. Davos should listen. (Link) 
Klarman argued that American capitalism has been damaged by the obsession with short-term stock prices. “Does anyone really believe that shareholders are the only constituency that matters: not customers, not employees, not the community or the country or Planet Earth?” he asked. In those remarks, Klarman challenged CEOs and fellow-investors to accept greater responsibility for the consequences of their actions. “It’s a choice to do things that ‘maximize profits,’ to pay people as little as you can, or work them as hard as you can,” he said. “It’s a choice to maintain pleasant working conditions or, alternatively, particularly harsh ones, to offer good benefits or paltry ones.” Also, without naming specific cases, he criticized the kind of buyouts in which private-equity investors saddled a troubled company with so much debt that it helped push the company into bankruptcy. “I’m convinced, as an investor, that the world I live in every day has gotten more short-term-oriented,” he said. “The pressure on the game changed the game.” Some investors, he said, are too quick to demand ephemeral fixes: “Why aren’t you restructuring? Why aren’t you doing a spinoff? Why aren’t you buying back stock?"

The world's biggest brands want you to refill your orange juice and deodorant $(Link)
Proponents of refillables say they can reduce greenhouse-gas emissions, waste and energy use. A bottle refilled five times as part of the project has an impact equivalent to five single-use bottles when accounting for the use of resources and the release of pollutants, estimates TerraCycle. Each use after that is incrementally better for the environment.

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Why we look for scapegoats after a market decline (Link)
Whenever stocks experience a large decline, it’s normal to look for someone or something to blame; The Fed, China, inflation, computers, etc. We can never determine exactly why stocks do what they do, especially when we’re searching for answers on a daily basis, and in the age of click bait and sensationalism, it’s unlikely that we’ll ever read an honest news update.
  
Survival is the ultimate performance measure of a business (Link)
Old companies are often the most innovative and adaptive companies. They have focused on an area for a long time. Many old companies aren’t large companies. They are small to medium sized companies that focused initially on an area that they ultimately ended up dominating. They wouldn’t have survived 50-100+ years if they weren’t innovative and adaptive.

How to invest for the long-term in a turbulent market (Link) 
There are three things that can allow you to use market volatility to your advantage: 1. The right structure 2. A long-term investment process 3. A behavioral checklist to allow you to remain rational when everyone else is being anything but.

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Putting in the reps (Link)
There’s no singular path to success in any endeavor so my advice to anyone looking to further themselves is to put in the reps, even when they seem meaningless.
- If you want to become a writer, start writing every single day, even if it’s terrible.
- If you want to become a better investor, start reading about the markets, and put some actual money to work.
- If you want to work in a specific company, start out as an unpaid intern or figure out how to provide value to someone who already works there.
- If you want to become an entrepreneur, quit reading hashtags on Instagram and actually try to start a business or sell a product.
- If you want to become something or someone you have to put in the reps.
There are no shortcuts...

Interview with Bob Rodriguez, the former CEO of First Pacific Advisors (Link) 
Q: In my Jan. 30, 2018, interview with you, you called the stock market “Alice in Wonderland” populated by a host of irrational “Mad Hatters.” Are they still in the Rabbit Hole?

A:The equity market was delusional and still is. All the excitement from the Trump tax cut has been washed away. And where did the corporate tax cuts go? Stock buybacks and dividends. Capital spending hasn’t occurred, which means that productivity is unlikely to improve appreciably. We’re substituting labor for capital. That’s part of the reason for lower unemployment rates.

Risk is where you're not looking (Link)
To date, the increase in supply of corporate bonds has partially been soaked up by the increase in corporate bond exchange traded funds (ETFs). Such passive funds have grown from an immaterial amount in 2008 to $600 billion today. A relevant trait of most such funds is that they transact indiscriminately with frequent, ratable purchases and sales – a function of ETF inflows or outflows, respectively – that can drive bond prices to both new highs and new lows. In a downturn, passive investment vehicles could be forced to indiscriminately sell those investment grade bonds that the ratings agencies have downgraded to junk. Given the huge size of the BBB market, downgrades could incite a large volume of selling that could then infiltrate the rest of the market and quite possibly exacerbate the negative price action. There is no bond exchange, unlike the many exchanges for stocks, so matching buyers and sellers of bonds isn’t always an easy task. Trading desks of investment banks used to facilitate markets by assuming risk and holding bonds on their balance sheets. Such market making represented about 10% of the overall corporate bond market a decade ago, but today, trading desks hold less than 1% of total corporate bonds in inventory.

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How open-source software took over the world (Link)
"By the time the open-source software gets to production it is rarely, if ever, displaced. Fundamentally, the software is never “sold”; it is adopted by the developers who appreciate the software more because they can see it and use it themselves rather than being subject to it based on executive decisions. The developers basically vote with their feet. This is in stark contrast to how software has traditionally been sold."

CPP takes bigger bite from Canadians (Link)
"Many expansion proponents assume that an expanded CPP will result in a net increase in savings for retirement. Both theory and empirical evidence indicate this is not the case. Instead, higher mandatory CPP contributions will likely result in less private savings in pensions and RRSPs. A 2015 study found that between 1996 and 2004, when CPP contributions were raised from 5.6 to 9.9 per cent, for every $1 increase in CPP premiums, the average Canadian household reduced its private savings by almost $1 because people have a preference for how they split their income between saving and consuming. Mandating an expanded CPP doesn’t change that preference. Thus the overall rate of savings will likely remain unchanged but the mix will change to favour more CPP and less private savings."

Buy high, buy low (Link)

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Don't have a crystal ball? Base rates are the next best thing (Link) 
"Obviously, it would be great if we were all psychic and could know how the future would turn out. But we aren’t. Knowing the base rate is the next best thing to psychic ability. How often something has occurred in the past is usually a good indicator of how often it will occur in the future. Base rates are like having a crystal ball. Seeking out the base rate in our decision process reminds us to not put so much weight on our own experience and own opinions. Always asking, “how often does this typically happen?” helps us view the decision from the outside in, rather than the inside out."

The paradox of uncertainty - Counter intuitively, being more uncertain leads to greater accuracy
"When we're aware of our own uncertainty, we're looking for why we're wrong. We're more likely to consider other opinions. We're less likely to be overconfident in whatever answer we find. When we're more uncertain and less confident, we're more likely to be open-minded, leading us to take the outside view. A study found that bringing uncertainty into a group increased the group's ability to correctly identify the perpetrator in a "Murder Mystery" scenario. They were both more likely to be right and, at the same time, more open to the idea that they might be wrong. That might seem to be a paradox, but there turns out to be a strong correlation between astute decision-making and a willingness to recognize—and even embrace—uncertainty. These findings echo the famous Dunning-Kruger effect from cognitive psychology, in which low-ability individuals have a tendency to overestimate their skills. Sometimes the easiest way to be wrong is to be certain you are right."

Investment grade bond returns

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Too busy during the week? Catch up with last week's articles and charts:

Investing

While investors display clear skill in buying, their selling decisions underperform substantially (Link) 

50 reasons why we don't invest for the long-term (Link) 

Forecasting - the attempt to predict the unknowable by measuring the irrelevant (Link)

Things I'm pretty sure about (Link) 

The Big Mac index shows currencies are very cheap against the dollar (Link)

Q&A with Daniel Crosby, the author of "The Behavioral Investor" book (Link) 

Other

CPP ads on one of the most expensive TV spots for Canadian TV. (Link)

With an aging population spurring an ongoing economic revival, Japan is proving demographics aren't always destiny $(Link)

We're hiring! We understand that extraordinary human ability is a scarce resource in high demand. If you know someone who would be interested in joining our investment team, please refer them to the posting above. (Link)

Charts

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Forecasting - the attempt to predict the unknowable by measuring the irrelevant (Link)
"The most important thing to know to accurately forecast future stock prices is what mood investors will be in in the future. Will people be optimistic, and willing to pay a high price for stocks? Or will they be “bummed out” and unwilling to do so? You have to know that. It’s the most important variable when predicating future stock returns. And it’s unknowable. So why do we bother with the forecasting game? Market strategists would say there is a demand for price targets and the like and that they have little choice but to cater to this demand. As for those forecasters who make especially eye-catching predictions, they know inaccurate forecasts will quickly be forgotten, while the occasionally correct one can be milked for years."

We're hiring! (Link)
We understand that extraordinary human ability is a scarce resource in high demand. If you know someone who would be interested in joining our investment team, please refer them to the posting above.

Friday humour