Memo Thoughts – The Illusion of Knowledge

Dear Readers,

Let me confess and say that I am a huge fan of Howard Marks’s writings. For those of you who have never heard of him, Howard Marks is the co-founder and co-chairman of the Oaktree Capital, a firm that is considered to be one of the largest investors in distressed securities worldwide. Marks is famous for his expertise in investing in high-yielding bonds and, through Oaktree, made a name for himself by generating stellar returns during the Great Financial Crisis (GFC) in 2008-09.

Marks is famous for his memos that he publishes for free on Oaktree’s website. In the investing community, his memos are considered to be a must read. I have heeded to this advice and been binge-reading his memos for the past several weeks. In a world that is so focused on news/ breaking news/ current affairs, his memos help me take a step back and deeply introspect about my own investing strategy and mindset. This is such a crucial aspect of investing that, unfortunately, receives so little attention in the community that I am a part of.

Each memo is a treasure trove of information and there is a lot to unpack. Therefore, to reinforce the learnings, I thought of creating a new series on my blog that would be dedicated to my reflections from reading these memos. I may or may not choose each and every single memo, but instead choose the ones that really resonated with me.

To kick things off, I will start with the most recent memo titled The Illusion of Knowledge(published Sep 8. 2022).

All Economic Forecasting is Flawed

The memo starts off by discussing how there is a strong human tendency to attempt to forecast about just about any subject. Marks argues that the premise of forecasting itself is flawed. According to Marks, all forecasting assumes that the environment around us can be modeled, in some shape or form, with some notion of deterministic behavior i.e. for a given set of inputs, these are going to be outputs.

Marks states that modeling an economy is simply impossible. He writes:

The U.S., for example, has a population of around 330 million.  All but the very youngest and perhaps the very oldest are participants in the economy.  Thus, there are hundreds of millions of consumers, plus millions of workers, producers, and intermediaries (many people fall into more than one category).  To predict the path of the economy, you have to forecast the behavior of these people – if not for every participant, then at least for group aggregates.

Is it possible to do this?  Is it possible, for example, to predict how consumers will behave (a) if they receive an additional dollar of income (what will be the “marginal propensity to consume”?); (b) if energy prices rise, squeezing other household budget categories; (c) if the price for one good rises relative to others (will there be a “substitution effect”?); or (d) if the geopolitical arena is roiled by events continents away? 

This is a sound argument with some merit. If an economy could be modeled as a mathematical model, the richest people on the planet would have been statisticians and mathematicians. And while the community at large is obsessed with questions about “Will there be a recession? Has inflation peaked? What will be the course of the Ukraine war?”, the truth of the matter is that none of these are predictable because the number of variables involved is far too large to account for in a simplistic model.

So why do people forecast then?

Clearly, forecasting is futile. Forecasting about economy is even more sillier. And yet if you browse around the CNBC, social media and/or your favorite news medium, these avenues are full of people making bold predictions.

To give an example:

Here is a certain famous YouTuber who shall not be named (but you can easily figure out who he is) who goes on to predict how “China’s ENTIRE Economy Is About to Collapse”. And what is better is he has even given a time frame that this is going to happen within 29 days. Now how on earth can someone predict this with such precision? Consider some other factors: we are talking about the collapse of one of the largest economies of the world with a incredibly complex political structure, predictions being made by someone who is NOT a reputed economist, or political strategist, or an expert in China, and someone who is sitting in some other corner of the globe with no sense of ground realities in China.

I could this dismiss this as laughable buffoonery, but when I actually see the number of people following this account and taking this as serious advice and consider this as part of their “research” to base their financial decisions, I SHUDDER to think of the consequences.

What is worse is that this does not appear to be a one-off and we have such predictions being made from this account and other such similar accounts with such regularity and at around the same time. One cannot help but think that there is something else at play here.

Enough about YouTubers. Lets get back to the topic of forecasting.

I somehow get a sense that these forecasters are enamored with the thought of getting one of these predictions right, so this could be their “Haha, I told you so.” moment. Or maybe it is our society’s craze with placing such forecasters at a higher pedestal if they happen to get one prediction right. For instance, the media is obsessed with following Michael Burry’s stock market moves, especially given that he was one of the first forecasters of the GFC and subprime mortgage crisis. Thoughts being: surely Michael Burry knows what he is doing, he got it right once, and he might get it right again. Right? I really don’t know. But there is one glaringly obvious flaw in this reasoning: it makes the assumption that all previous recessions or bear markets have some common characteristics making it easy to predict its onset. Again it is the falling into the same trap of trying to predict the onset of a complex situation through a simplistic model.

Do we really need to care?

Marks ends his memo with the question of what should the average investor focus on as far as forecasting. I share his opinion in that the average investor will be better served by resigning to the notion that all forecasting in general, and economic forecasting in particular, is futile and more importantly unnecessary.

Instead, it is far better to play this game by working out the probabilities. In my valuations, I use a standard project management technique called building a three-point estimate. This is a fancy name to a rather simple concept. The idea to come up with three scenarios: best-case, worst-case and most-likely estimate and work out our valuations based on these estimates. Of course, fundamentals with each business could change depending on new inputs at which point we may have to re-asses our valuations accordingly. In summary, it is better to be reactionary than to speculate (with some false notion of certainty).

What are your thoughts on forecasting? I am really curious to know.

Lets talk about : 3M

In my last post, I mentioned that I was closely looking at my position in 3M especially in light of all the negative news surrounding the company. I had a similar post last month about another company, Intel, whose stock has been slaughtered after a disastrous earnings report. In fact, I am planning to make both these articles part of a series called “Lets talk about”, with the general theme being discussions around what is going wrong with the companies being discussed and how that impacts my outlook for them.

While I would always like to own companies that would be high-flying winners with no negative news, this is simply not practical. In fact, the bigger the company, the greater the risks as they always seem to have a target on their back for one or the other reasons.

3M at a glance

I have not had an opportunity to do a deep dive post on 3M on this blog as yet. But this is a well-known company to the general public and one of the darlings of the dividend investing community. The origins of the company can be traced back to five businessmen who started this company as a mining venture to mine corundum in Minnesota back in 1902 (hence the name Minnesota Mining and Manufacturing Company, and hence 3M). Since then, the company has grown leaps and bounds and expanded into so many fields that it is impossible to keep track of the progress. Per 3M’s website, they have a portfolio that is more than 60,000 products and acquire more than 3000 new patents annually on an average!

As far as dividends, the company has been paying a dividend since the last 100 years, of which they have managed to increase their quarterly dividend for 64 years!! No wonder this dividend king is a darling of the investing community!

I remember reading a quote somewhere (could not trace the source for this) that stated that you are never more than 10 minutes away from a product manufactured by 3M. It would be hard for me to dispute this given their vast portfolio.

My first introduction to 3M was oddly through a floppy disk. There is a good chance some of you may be wondering what does a floppy disk mean? Looking at this image here:

Remember these? Yes! this were not “3D printed Save Icons”, these were actually a thing! Back in the mid 90s, some of the kids from my generation used to use floppy drives to save files and carry computer data. Yes, the capacity was just 1.44MB. If you are laughing, I don’t blame you. Computers and storage media have come a LONG way since then.

Recent trends

Unfortunately, since about 2019, 3M has been struggling to record meaningful growth. The pandemic kind of threw a spanner in the wheels as Industrials as a sector has been struggling since then. Supply chain issues have not helped them as well. This is further evidenced in the dividend increases for the last two years, which have been lousy 1c increases, much to the disappointment of several dividend investors who have invested in this company.

In my case, although I was disappointed with the dividend increases, I had faith in this company and my investment. As far as fundamentals, the company, even during these times, was generating enough free cash flow. Here is the FCF/share for the last 5 years:

Year20172018201920202021
FCF/share$8.15$8.26$9.31$11.45$10.11
Dividend/share$4.70$5.44$5.76$5.88$5.92
FCF dividend payout %57%65%61%51%58%

As one can observe, aside from 2021, 3M managed to increase its FCF/share and the dividend payout w.r.t FCF was also hovering around the 50-60% mark. This ensures that the dividend is safe and that management could slow down increases in what is a very difficult economic environment.

Also, if one were to look at the company’s R&D expenses for the last few years:

Year20172018201920202021
R&D expenses (in mill)18701821191118781994
% of net sales5.95.65.95.85.6

Here again, the company was spending a fairly significant portion of their revenue towards R&D. This is a pretty important consideration to retain competitive advantage.

While all of this was good, I wanted to see something more from the management as far as company direction in what they were anticipating to be turbulent times. While they were silent for most of 2021, to their credit, they announced their decision to spin-off their food safety business towards the tail end of 2021.

The “Sh*t hitting the fan” moments

As 3M were navigating these uncertain waters, they are now also facing legal trouble from two different lawsuits:

  1. 3M’s PFAS chemical production allegedly leading to ground water contamination: While there have been cases related to these in the US, these have now also been reported in parts of Belgium.
  2. Allegedly defective ear plugs produced by Aearo Technologies, a 3M subsidiary.

The second litigation has received a lot of coverage in the news since it involves nearly 230,000 separate cases from affected army veterans. 3M, in response, has since decided to also spin-off its health care business, while also placing Aearo Technologies under bankruptcy per Chapter 11. This is eerily similar to a strategy J&J used to deal with their talc powder lawsuits. Unfortunately for 3M, the bankruptcy judge has struck down the case and refused to temporarily halt the ear-plug lawsuits. 3M and Aearo have since claimed that they will appeal this decision.

So what does all this mean?

Well, there is a lot to unpack here. Firstly, if the earplug litigation goes through, 3M is believed to be facing up to $100 bill in damages. And this is just with the defective earplugs lawsuit. I am still not sure what the PFAS related lawsuits would result in, in terms of damages.

At the time of writing this, 3M has a market cap of $68 bill.

I do not foresee 3M being able to raise their dividends by any meaningful margin. Add to this, the economic environment that we are in and the possibility of a recession, this is not looking good at all!

Lessons

Phew!! Well this is looking horrible for 3M. But I wanted to take a step back and see what this means to me and my portfolio:

  • 3M is listed as one of my Core positions with a target allocation of 4%. While the stock has tanked, I am not selling at this time. I am instead choosing to hold and watch this situation to see how it evolves. I will also need to go ahead and downgrade this to one of the lower tiers during these times. I will not be buying at this time as I see better opportunities elsewhere.
  • I have written previously about the importance of diversification and this situation reemphasizes that notion. If I had a concentrated portfolio with 3 stocks like Warren Buffett and/or Charlie Munger recommend, with one of them being 3M, that would be a disastrous situation. No matter how well I know the company, I simply could NOT have seen these lawsuits coming.
  • These are testing times for both me and the businesses I own. It is easy to own stocks when life is all song-and-dance and the stock price can only go upwards. The real test of patience as an investor is when the businesses you own are navigating troubled waters.

3M has been an iconic company, one that has rewarded its shareholders for several decades. Its consumer products have been used the world over. I genuinely hope this is nowhere near the end of the road for this great company. We shall see how this situation evolves in the months ahead.

Monthly Income Report – August 2022

Dear Readers,

Everything in the world around my family seems expensive, right from buying a some good take-out dinner to shopping for daily groceries to paying for gas. The finance community may argue about whether we are in a recession or not, but one sure sign that something in the economy is not quite right is when you start seeing big companies either announce hiring freezes or announce layoffs. Well, I saw news flashes that both Google and Microsoft were in the process of laying off some of their workforce. That is never good news.

In the midst of all this negativity, the “ka-ching” sound of dividend checks hitting my mailbox is one that will allow me to rest easy. Let us get into the numbers to see how this month went.

Dividend Income Received

Sl. No.Company / ETF (ticker)Amount
1Apple (AAPL)$2.54
2AbbVie (ABBV)$20.34
3Albertsons (ACI)$1.21
4Caterpillar (CAT)$1.22
5Clorox (CLX)$52.46
6Costco (COST)$2.71
7Procter & Gamble (PG)$12.03
8AT&T (T)$1.17
9Texas Instruments (TXN)$78.86
10Verizon (VZ)$28.7
11Realty Income (O)$15.91
12JP Morgan Equity Premium ETF (JEPI)$3.48
13STAG Industrial (STAG) $3.79
Total$224.42

So a total of 13 companies/ETFs contributing a total of $224.42 towards the monthly income. I did not write any option contracts for this month, as I was expecting wild swings in the market for the positions where I typically sell covered calls. At this same time last year, I had earned a total of $61.23 in monthly income. While I have been aggressively buying during this year, I have had meaningful increases from most of my dividend payers in the list above, except for T.

Buys and Sells in this month

It was generally a quite month for me as far as investment activity. I don’t know about you guys, but I was struggling to make up my mind about what to buy during this time. I did do some cursory “staying in the game” purchases, especially for positions where I had exceeded a pre-determined threshold since my last buy. This resulted purchasing small tranches in JEPI, PG, SCHD and O. While I was at it, I also decided to add to my VZ position. VZ’s stock dropped after its last earnings report and is currently yielding above 6% in dividends. While I am expecting very slow growth with this telecom giant, I see this as a safe bet and consider this as a good time to add to what is essentially a “bond-like” position in my portfolio.

No sells again during this month.

Even though I was quiet as far as investment activity, I spent most of time deeply contemplating about my MMM position. 3M has been in the news a lot, and that is generally never a good sign for any company. They are being sued by military veterans who claim to have suffered hearing impairment due to the use of faulty earplugs manufactured by Aearo Technologies, a 3M subsidiary. And if that was not bad news as it is, they are also being dragged to court for another lawsuit surrounding harmful chemicals (called PFAS) contaminating ground water.

I think this subject deserves its own post as there is a lot to say here and learn from this experience. So I’ll reserve my thoughts for now.

Summary

We are into the last quarter of the year already! And while work has been hectic, I have been trying to focus some of my time towards my health as well, going out on regular walks/runs, spending some more time looking after my yard etc. It has actually helped me stay away from all the negativity in the news and keep my head space clear.

Until next time…

Random Thoughts on Financial Freedom

Dear Readers,

I wanted to step away from the market news, discussion on investing and talk about the topic of “financial freedom”. This subject evokes a lot of interesting responses from the community. After all, everyone’s background and life experiences are not the same.

Financial Freedom = Retirement

The first common theme/variation of a response equates financial freedom to a point in life where you do not have to worry about making ends meet. Lot of folks simply think of this as retirement and this eventually leads into a pretty picture of a relaxing next to beach, sipping your favorite drink or whatever. I’ve got to admit, this sounds fantastic.

But after thinking about this a lot, to me this sounds just like a…..vacation.

I enjoy vacation time and some “do nothing”/”chill out” time. But if the same situation would extend over a long run, it would drive me nuts. I would probably just get sick of myself after a few days of “doing nothing”. Retirement or not, I think I would still be involved in some form of activity to keep myself engaged and mentally challenged. This drive to work on something cool and rewarding is what fuels me, and I do not think that is going to change in retirement.

Indeed, my work schedule as I get closer to retirement might change substantially. I might consider during more “consultant” like roles during the later half of my career. I might also consider stepping away from the tech industry altogether and going towards academia. I have always enjoyed teaching young students whatever I have learned from my experiences and I might even consider doing it for free. The gift of educating a young child, especially from a financially challenged background, can not only setup that child for life but can benefit a whole generation to follow. I find that thought very captivating.

Financial freedom = Escaping the 9-5 cycle

The second theme around any financial-freedom discussion is centered around of escaping the 9-5 work cycle. This has an implied assumption that almost everyone who works in their present day job, hates it for one or more reasons. They are pursuing the path of financial freedom so that they can escape this “monotonous” cycle and “use their time doing something that they actually love”.

I can understand folks hating their day jobs if they are stuck doing something that they are not really passionate about, but are doing it because pursuing other income options is not a viable option. This is indeed a difficult situation.

What I have a problem is with the broad assumption that everyone who is in a 9-5 job is expected to hate it. I am in the (supposed) minority who does NOT hate their day job. I think I was fortunate enough to realize very early in my education that I would end up with a career in engineering. And I ENJOY doing what I do. I cannot explain the thrill of seeing people using products which potentially is running a piece of software that I designed and/or contributed towards. I can actually take a bet with you that if you do a quick scan around your house, you might find atleast one such electronic product where this is true. And I am not saying this to brag or anything. I think this is largely true for large number of engineers who work with me on products or other such solutions.

Add to all this, I find the predictability around getting a periodic paycheck extremely useful. This actually helps me plan a budget and also determine how much to invest etc. In a world that is full of chaos and unpredictability, THIS one aspect is probably the biggest advantage of the 9-5 job. It helps me sleep better at night.

I also feel that a lot of the 9-5 job haters are exaggerating some of the downsides. Some common criticisms might sound something like…

  • But, you are working to fulfill someone else’s dream, aren’t you?
  • You are being told about what you need to do.
  • There is no freedom…your time is not your time…
  • You are not an owner. You are just a modern-day slave.
  • And who likes working in a cubicle anyway?

I honestly feel this is a slightly myopic perspective of the world. If one were to open up their mind a little more, they would see that most of these concerns were just hollow statements with no real substance. Let me try debunking these..

Working to fulfill someone else’s dream

Not really. Like I said, I enjoy working on engineering problems that are ultimately related to products that common people use in their day-to-day lives. This is as much my dream as it is the CEO/upper management’s dream. Great products are built by great teams of people all working towards a shared dream.

You are being told about what you need to do

Ok? So what? First of all, why is this such a bad thing? Second of all, I have always been encouraged to ask questions regarding the tasks being assigned to me to get a better context of the larger problem it is trying to solve. There have been several occasions where my immediate boss has welcomed me bringing up these questions and we have either re-scoped the task, eliminated it if it was deemed unnecessary or kept it as-is since I have understood it well. In all three cases, it has helped everyone concerned.

There is no freedom…your time is not your time…

There is some truth to this argument. This largely depends on the kind of industry you are in and the work you do. Thanks to the WFH dynamics in the post-pandemic world, I have been able to have a largely flexible work day where I can plan my personal activities and appointments around my work schedule without either one being impacted. I have been pretty lucky to have worked for bosses who were mostly hands-off and did not believe in micro-management. But I can understand that not everyone might have the same experience.

You are not an owner. You are just a modern-day slave.

This is kinda related to the “me working to fulfill someone else’s dream”. Again, good corporations will make each and every member feel like a co-owner. Sure, there might be some cases where you might not agree with the approach to solve a given problem. But usually the opposing parties, in any given discussion, also have a sound argument. And this argument about being a modern-day slave…well if you are in stuck in that mindset, then no amount of talking is going to convince you to look at it some other way.

And who likes working in a cubicle anyway?

Thanks to COVID and WFH dynamics, you no longer need to work from an office! And even if you had to work out of a office, most workspaces now have enough flexibility to allow you to take your laptop and sit anywhere you want in a building and work from there.

Granted, I might be a bit biased in that not all 9-5 jobs are like mine. There might be certain types of 9-5 jobs which are indeed terrible because of bad working hours, bad management and vitriolic work environments. But what is stopping you from quitting and finding a job where such a situation does not exist?

This is perhaps a FAR MORE important step than anything else. You need to put yourself out of toxic work environments and go find a job that is personally and professionally rewarding. In my opinion, focusing on being kick-ass at your job should be a higher priority and thinking about stock markets and investing. This allows you to command a very competitive wage, which in-turn improves your savings rate. Once you have a solid base i.e. your day job, you can then focus on long-term financial plans as well.

So what does “Financial freedom” mean to me?

I have grappled with this question a lot and it has not really led to any clear answers. But one thing is certain, I want to be in a position where I have a periodic stream of income coming into my bank account. That cash is going to give me the ability to pay my bills and live my life. This is perhaps the SINGULAR most important reason why I have chosen dividend growth investing as my investing strategy. It is perhaps the only strategy that helps in stay invested in the market, generates a passive income stream while I can focus on my day-job and do my best on that front.

If my calculations are right, I will have enough money in retirement to live life king-size. But I will continue living well below my means. Why? Because I am not envisioning a king-size life next to the beach, sipping a margarita or whatever. Personally, I find that such a life to be boring and meaningless. I might consider traveling for a bit, but I am pretty sure I will find that sickening and tiring after some time as well.

Maybe the choice to live your life your own way in retirement is what financial freedom really means? I really don’t know.

Lets talk about : Intel

Dear Readers,

I have been taking my own sweet time to process the quarterly earnings of a few companies that I wanted to give some more close attention. Typically, I only try and focus on annual earnings reports and go back several years to try and look for interesting trends. However, if there are some companies that are in the news a lot for all the wrong reasons, I decide to study the quarterly earnings as well to try and detect a trend as early as possible.

Intel (ticker: INTC) is one of the companies whose stock tanked after its recent quarterly earnings report. As an engineer who works in the semiconductor industry, I would like to believe that I have an advantage in understanding companies like Intel. With the previous management at INTC headed by Bob Swann, I could detect BS in the earnings calls and/or interviews. I could also see a management team that was just sitting on their backsides and doing nothing of significance and losing market share in the process at an alarming pace.

With Pat Gelsinger, a former engineer who learned his trade at Intel, coming in as CEO about an year ago, I was (and still am) hopeful that things would change. Obviously, with INTC so far behind the 8-ball, this turn-around is not going to be an easy task. And so that was it, I was happy to own a beaten-down company that was turn-around play.

So with all that background out of the way, let us get into the earnings report. You know that you are not going to like reading the report when it begins with the following statement from the CEO.

“This quarter’s results were below the standards we have set for the company and our shareholders. We must and will do better. The sudden and rapid decline in economic activity was the largest driver, but the shortfall also reflects our own execution issues.”

Ouch! I was thinking to myself “Gosh, just how bad is it going to be?”. I scroll down towards the financial statements and the numbers said it all. The Client Computing Group (essentially the processors used in the PCs) business segment’s revenue was down nearly 25%. The Data Center and AI group’s revenue was down nearly 16%. The operating income for both segments were down by 73% and 90% respectively. Furthermore, they went on to slash their full year guidance with a nearly 9-13% reduction in revenue (around $65-68B) and a 9.1% YoY decrease.

I wanted to probe each of these points a little further and so some digging around in the earnings report and the earnings call which led me to the following conclusions.

PC business

The slowdown in the PC business was attributed to OEMs reducing their inventory, per Pat, “at a rate not seen in the last decade”. I wanted to test this assumption a little bit, and so I dug around the earnings reports for AMD and Microsoft. Each of them, in one form or another, attributed to similar slowdown in OEM revenues. Some of these were due to COVID related shutdowns in China and some were due to an overall deteriorating demand during the month of June. None of this is particularly surprising. With inflation rates being sky-high, lot of consumers will be focused around cost cutting and reduced spending wherever possible.

Data Center business

The part that surprised me quite a lot was the Data Center business and the associated shortfall. One of the analysts probed Pat on the same question during the earnings call and Pat’s response was rather interesting:

The DCAI point, as I said in my formal comments, we were disappointed. Some of that was driven by the macro; it was also match set issues that we’ve been struggling with as well. And Ethernet components, power supply components, et cetera have been challenged. But as we also said, we had some of our own unique execution issues and we kept the quality bar high on Sapphire Rapids and thus we did another stepping, which was a forecast, which put some inventory and reserve issues in front of us as opposed to high ASP new product revenue.

Pat noted that NVIDIA had selected Sapphire Rapids to pair with NVIDIA’s Hopper GPU chips in their new DGX-H100 enterprise AI architecture.

So what does all this mean?

With a disastrous earnings report and the negative news all around this company, I thought it was important to step back and put things into perspective:

  1. My reasons for adding Intel to my portfolio still remain intact. I knew going in that this is a turn-around play and this turn-around is going to take a few years to play out. This intermediate period is going to be rough. What I am seeing is a manifestation of the same thesis.
  2. I have factored in the risks of this bet going “south”, and there is a good chance that this might not turn out the way I imagine. But the opportunity cost is significant and I am willing to take the risk.
  3. I cannot stress the importance of quality management. A decent company in the hands of incompetent management can push the company back several years. Unfortunately with Intel, this is exactly what happened under the previous leadership group under Bob Swann. Undoing all this and getting this ship back on track is not going to be a trivial task.
  4. My general sense speaking to a few friends who work at Intel currently is that the overall mood with Pat Gelsginer at the helm is positive and there is a lot of confidence in the current senior management. Unfortunately though, Intel is a dinosaur of a company and things move rather slowly. Obviously, this culture needs to change and this change will not happen overnight.
  5. As a person and an engineer, I like Pat. He is a good guy and he means well. I actually appreciate him coming straight to the point and acknowledging that his company has their own internal execution issues. This is far better than some other CEOs who beat around the bush and BS around. However, as an investor, ultimately I will need to see past all the smooth-talking and look at the results on the ground. I am sure Pat understands this and is attempting to correct this. Perhaps, he should take a leaf out of his own suggestion to the Congress and relay some of that dynamism to his engineering staff.

For what it is worth, I think the overall strategy of investing the $60-70 bill towards fabs is the right approach. And while this will increase capital expenditure over the next few years, it should place Intel in a good position over the long-term. I also believe that PCs are not going to go anywhere. In-fact, Satya Nadella had something very interesting to say regarding PCs in Microsoft’s last quarterly earnings:

We’ve seen a structural shift in PC demand… More than ever, people are turning to PCs to exercise their agency and unleash their creativity, whether it’s meeting in virtual reality or for remote work, writing code or collaborating in documents, livestreaming video or playing games, or for graphic design and engineering design…As new use cases are born every day, and existing ones see a resurgence, we’re experiencing a PC renaissance, with increases in time spent on PCs, and PCs per household.

Indeed as an engineer, I cannot imagine not using my PC for my development/work activities. Intel is going to be a huge beneficiary if we are to believe this trend.

There was a statement in the earnings release from the Intel CFO that read as follows:

We remain fully committed to our business strategy, the long-term financial model communicated at our investor meeting and a strong and growing dividend.

While this might be a cursory statement that management is required to make to assure shareholders, I would honestly hope that Intel does NOT focus on increasing the dividend over the next few quarters and instead focus on carefully spending their cash and be very cautious. While this might sound counter-intuitive, I think this would be beneficial for both the company and the long-term shareholders in the long run.

I will continue to watch this company and hope that things turn out well over the next few quarters.

Monthly Income Update – July 2022

Dear Readers,

We are almost at the end of the summer and our family is looking forward to the start of the next school season. Work has been incredibly busy. And while all of that was going on, I was keeping a close eye on the earnings reports of certain companies that are on my watchlist. Some of these earnings reports were brutal. Several companies have gone the route of slashing their full year guidance. I also read media reports from Meta and Google that they were freezing hiring for certain positions. There is a lot to talk about as far as Q2 earnings from certain companies, so I will dedicate a separate post for that.

This post though is about my monthly dividend income earned for the month of July 2022. This was expected to be a slow month. How slow? Lets go find out.

Dividend Income Received

Sl. No.Company/ ETF (ticker)Amount
1.JP Morgan Chase (JPM)$32.31
2.Realty Income (O)$15.86
3.JP Morgan Equity Premium Income ETF (JEPI)$4.35
4.Orion Office (ONL)$0.3
5.CareTrust REIT (CTRE)$6.61
6.STAG Industrial (STAG)$3.78
Total$63.21

So a total of 6 companies/ETFs contributed a total of $63.21 in dividend income. The highest contributor was JPM, who in their recent earnings release decided NOT to increase their quarterly dividend. More on this in a future post.

A quick point that I wanted to bring up here: the dividend income I received this month is considerably lower than that of last month. In fact, last month was a record. I know a lot of dividend investors try to spread out their investments such that they can get consistent dividend payments every month of the year. This is not something that concerns me one bit and I do not want factor that it when I choose which company to invest in. I instead choose to focus on high-quality companies that have stable cash flows, thereby ensuring a consistent dividend back to me. These dividends could come in annually, semi-annually or quarterly, it really does not matter at this point. Will it matter once I am in retirement? Maybe. But I am hopeful that by that point the snowball would have grown so much that a slow month really does not matter that much in pure dollar amount.

In any case, to supplement my dividend income for this month, I also wrote a covered call against some stocks, these stock units I earned as part of performance appraisal from my previous employer. I earned another $49.31 in option premium. While I was expecting the supply chain and inflationary pressures to impact the semiconductor industry, I was proved wrong. Intel (INTC) aside, most of the semiconductor companies that I am tracking came out with surprisingly great quarterly earnings results. This also meant that I very nearly got assigned on my covered call (yikes!). Luckily, there was some pull-back late last week. But even if this changes and my covered call gets assigned, I am not too worried as I would be selling these units at what I believe is a good value.

So, my total monthly income from all my investments was a grand total of $112.52. At the same time last year, I had earned $35.63 from my investments. Not bad for what is a slow month, eh?

Buys and Sells during the month

No sells during this month, again.

As far as buys, I decided to small tranches to my JPM position and Snap-On (SNA). It was disappointing to not see a dividend increase announcement from JPM. SNA delivered solid quarterly results once again. Following VZ’s quarterly earnings release, the stock market went crazy and the stock dropped from a cliff. This gave me an opportunity to add more shares at a very attractive dividend yield. VZ and T both suffered similarly as far as stock price, but my take on both companies is very different. This topic truly deserves a post of its own, so I will cover my thoughts there.

Summary

So a slow month, but a steady month. And that is really the mantra of this game we are playing here. Dividend growth investing is NOT a get rich quick strategy. But if you stick with the strategy long enough, the strategy will soon pay its…dividends 😉

Common Stocks and Uncommon Profits – Book Review

When Warren Buffet was asked for his top book recommendations, his list included the following four books (in no particular order of importance):

  1. The Wealth of Nations by Adam Smith
  2. The Intelligent Investor by Benjamin Graham
  3. Security Analysis by Benjamin Graham & David Dodd
  4. Common Stocks and Uncommon Profits by Philip Fisher

Buffet has admitted that his own investing style is a mix of teachings from Ben Graham and Philip Fisher. I have already read the Intelligent Investor and Security Analysis multiple times and I am sure to read these several more times in my investing journey. However, I have never read Philip Fisher. The book was first published in the 1950s, so before even picking up this book, I had a sense that some of the observations may be dated. But I wanted to take a look anyway.

Before we get into the book itself, I wanted to first explore a little more about Philip Fisher, the person behind the book.

Who is Philip Fisher?

Fisher made his humble beginnings as a dropout of the then newly created program/school Stanford School of Business Administration in 1928, to start working as a security analyst. He started his own investment firm called Fisher and Co. in 1931 and remained at the helm till his retirement in 1999. Immediately after starting his firm, due to the advent of World War II, he was forced to take up several desk jobs at the US Army Air Force. He used this opportunity to research and refine his own investment philosophy which he later put into practice after the end of the war.

I could not find a whole lot more information about him through the interweb beyond what he mentioned in his book and also what his son, Kenneth Fisher, has mentioned in the preface. He was known to a very private person, not known to give a lot of interviews. However, after publishing this book, he rose to prominence. Per what I have gathered reading around the internet, Fisher and Co. had a very small number of selected clients who were able to secure attractive returns using Phil Fisher’s approach. Today, he is widely regarded as a pioneer of growth investing and recognized by Morningstar as one of the greatest investors of all time.

Phil Fisher was one of the early proponents of the “buy and hold” strategy. To stress this point further, one of his most successful investments was a purchase of Motorola, which he bought in 1955 and held until his death in 2004. His other investments were Texas Instruments, a stock that I currently hold in my dividend portfolio, Dow Chemicals and so on.

During the later half of his life, he began suffering from dementia and/or Alzheimer’s disease and he ended up selling all of his holdings except for Motorola. Per his son Kenneth Fisher, he would never have sold his investments had he been of sound mind or his younger self and his investment returns would have looked much much better as a result. Fisher was known as a strong supporter of companies that would invest in research and development and a master at evaluating companies in the tech sector. This was a good 50 years before the advent of Silicon Valley.

Lets get into the book itself.

Book Dedication

The book starts of with a rather interesting dedication. Let me quote it here:

This book is dedicated to all investors, large and small, who do NOT adhere to the philosophy: “I have already made up my mind, don’t confuse me with facts.”

I paused after reading that statement because there is an interesting paradox. At times, as investors (and perhaps as individuals) we can be very closed-minded and not as receptive to opposing viewpoints. Maybe it is with the understanding that having a conflicted mind can impact our investing philosophy and mess with our heads. This trait can be good but it can also be bad as it stunts our learning process. It takes a strong mind to be open to counter viewpoints and somehow let that organically grow one’s own investing mindset.

Scuttlebutt technique

One of the strategies that Fisher repeatedly uses to evaluate businesses before deciding to buy them is coined as “scuttlebutt”. What does this mean?

Fisher recommends that in addition to studying a company’s financial statements, a wise investor can learn a lot more about any given company through the following avenues:

  1. By going to five companies that are competitors and asking them intelligent questions about the strengths & weaknesses of the other four. Fisher claims that, more often than not, this approach will give the investor a surprisingly detailed and accurate picture of the overall landscape of the sector and the business itself.
  2. By questioning vendors and customers that directly interact with the company.
  3. By questioning research scientists who rely on products manufactured by this said company.
  4. By questioning former employees of the company. Although, Fisher cautions about using this input with a pinch of salt as there could be bias in opinions here.

Fisher admits that while a typical retail investor may not (or cannot) have the leverage to go on such fact-finding missions, he/she can use these as a yardstick when choosing a professional advisor that can help them with such analysis.

With the scuttlebutt technique as the baseline, Fisher recommends the following 15 principles to look for in a stock before investing in them:

  1. Does the company have products or services with sufficient market potential to make possible a sizeable increase in sales for atleast several years?
  2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?
  3. How effective are the company’s research and development efforts in relation to its size?
  4. Does the company have an above average sales organization?
  5. Does the company have a worthwhile profit margin?
  6. What is the company doing to maintain or improve profit margin?
  7. Does the company have outstanding labor and personnel relations?
  8. Does the company have outstanding executive relations?
  9. Does the company have depth in its management?
  10. How good are the company’s cost analysis and accounting controls?
  11. Are there other aspects of the business, somewhat peculiar to the industry involved, which will given the investor important clues as to how outstanding the company may be in relation to its competition?
  12. Does the company have a short-range or long-range outlook in regard to profits?
  13. In the foreseeable future will the growth of the company require sufficient equity financing so that the large number of shares then outstanding will largely cancel the existing stockholders’ benefit from this anticipated growth?
  14. Does the management talk freely to investors about its affairs when things are going well but “clam up” when troubles and disappointments occur?
  15. Does the company have management of unquestionable integrity?

For a book that was published more than 60 years ago, I am amazed to see that so many of these principles are timeless and very much applicable even today. Fisher admits that it is unlikely that one would find a company that would meet all 15 of these principles, but he recommends to avoid companies that do not pass several of the above.

Selling Out of Positions

After going through all the research and investigation on what to buy and when to buy, an investor would naturally be curious about when to sell to gather profits. For this, Fisher states the following:

If the job has been correctly done when a common stock is purchased, the time to sell it is – almost never.

Evidently, Fisher is a supporter of the philosophy or buying and holding. He goes into several reasons why investors choose to incorrectly sell out of their positions. I particularly liked the discussion on selling out when the investor believes a stock is overvalued/overpriced:

This brings us to another line of reasoning so often used to cause well-intentioned but unsophisticated investors to miss huge future profits. This is the argument that an outstanding stock has become overpriced and therefore should be sold….Before reaching hasty conclusions, let us look a little below the surface. Just what is overpriced? What are we trying to accomplish? Any good stock will sell and should sell at a higher ratio to current earnings than a stock with a stable rather than an expanding earnings power…All of this is trying to measure something with a greater degree of preciseness than is possible. The investor cannot pinpoint just how much per share a particular company will earn two years from now…As a matter of fact, the company’s top management cannot come a great deal closer to this .. Under these circumstances, how can anyone say with even moderate precision just what is overpriced for an outstanding company with an unusually rapid growth rate?

I found this discussion particularly interesting and revealing. Valuing growth stocks, especially the ones that are early in their growth trajectories, is incredibly hard. Even top-investors like Warren Buffet, Mohnish Pabrai and the likes in various interviews have stated how they have tossed such opportunities in the “too hard” basket.

Dont’s for investors

Fisher goes into several dont’s for investors. I will cover some of the ones that I thought were interesting:

  1. Don’t buy into promotional companies.
  2. Don’t overstress diversification.
  3. Don’t be afraid of buying on a war scare.
  4. Don’t fail to consider time as well as price when buying a true growth stock.
  5. Don’t follow the crowd.

Again, several of these dont’s are just as applicable today as they were when this book first came out. I wanted to expand on the second point regarding diversification here. Fisher states the following:

The horrors of what can happen to those who “put all their eggs in one basket” are too constantly being expounded. Too few people, however, give sufficient thought to the evils of the other extreme. This is the disadvantage of having eggs in so many baskets that a lot of eggs do not end up in really attractive baskets, and it is impossible to keep watching all the baskets after all eggs get put into them.

So clearly, Fisher believed in having a concentrated portfolio rather than diversifying among several sectors/industries. I have previously written about this subject stating why I disagree with this philosophy. There is a sea difference between the business acumen that the likes of Fischer, Buffet and Munger possess in comparison to an average retail investor such as myself. Diversification is a protection against this shortcoming and if performed as a part of a specific strategy, also provides a great defense in a various economic environments. A risk-averse investor would want to safeguard his invested capital and diversification is one way to achieve this.

Other writings

Part 1 of this book covers the subject of Common Stocks and Uncommon Profits. Parts 2 and 3 cover some of Philip Fisher’s other writings dealing with subjects regarding “Conservative Investment” and details on how Fisher went about developing his investment philosophy over the course of his life. I will cover the other two parts in greater detail in a future post on this blog as they are very important topics by themselves.

Overall thoughts regarding this book

Peter Lynch, another investing legend, once stated that investing needs to be a fine mix between science and art and that an astute investor will ensure that there is a proper balance maintained between both facets. If this balance is lop-sided in either direction, it could lead to a bad decision. I get a sense that while Buffet relies on Graham’s teachings for the “science” side of his investment philosophy, he chooses to rely on Fisher’s teaching for the “art” aspect of his investments.

In comparison to Graham’s books, I found the writing style in this book was very easy to follow. In that regard, I found the book to be more amenable to a beginner investor. Although the subject is mostly focused around picking growth stocks, I could see the same principles being used for evaluating dividend growth stocks and/or value stocks as well.

Some of the techniques mentioned in the book are just as well applicable to this day and age. I use an “indirect scuttlebutt” strategy in my analysis, where I look at the interviews of the CEOs (or other members of the board/management) for companies that I am interested in. If I can see consistency in responses and clarity of thought, that is usually a good sign. But if I detect BS in the responses, that is a massive red flag. I also read through forums, talk to technicians/consumers to see what they think of the products coming from a company which I am considering to invest in.

My only critic is that the writing at times appeared to be very dry. I could see some interesting parallels with the ideas discussed in Peter Lynch’s books, but in comparison Peter Lynch has a knack of keeping the reader engaged with his humor. I would have also liked to see more examples, potentially with graphs to accompany the discussion surrounding profit margins, cost of research vs size of the company etc. But some of these are very minor critics.

Overall, this is a great book and something I will re-read in the future.

Have you read this book? What were your takeaways? Please drop a comment below.

Update – 7/28/2022

Dear Readers,

I hope you are all doing well, staying safe and healthy and making progress on your individual journeys towards financial independence. As I write this, we are in the midst of a hectic earnings season. We are seeing record high inflation numbers and this is having a telling effect on the earnings reports from several companies, many of whom have slashed their forward guidance.

I am yet to fully digest the quarterly earnings report from several of these companies as work has been very busy as well. But I do plan to do so in my free time over the next few weeks.

In order to keep myself occupied, I am reading an investment classic and I should be posting a book review for this shortly. Stay tuned for that.

One thought that was circling in my head is that THIS is a fantastic opportunity to learn as an investor as we have all kinds of trends influencing the macro economic environment: War situation in Eastern Europe, Record high inflation, Pandemic that does not seem to be going away anytime soon and also supply-chain issues a result of one or more of these earlier reasons. Let me state that everyone appears to be a “genius” in bull-market situations, but real learnings are when you get to invest in a bear market scenario.

I wish you all the very best! See you in the next post.

Monthly Income Update – June 2002

Dear Readers,

It is that time of the month again. We have yet another month in the books, so it is time for me to write a report on how the month progressed. The stock market saw yet another tough month with a nearly 6.7% drop, including a drop of nearly 9.88% during the week ranging from Jun 7th to Jun 13th. Of course, I did not even know that any of this was transpiring. Why? Simply because I was not even looking at the stock market for most of the month! Work is pretty busy. It is summer time, with my kid not having to go to school. So there is really very little time to do anything else.

So I was actually curious about how my portfolio was faring up in this turmoil. I was mentally prepared to see a LOT of red and the portfolio having gone down in value. And I did see a LOT of red and some of my outstanding buy orders got triggered which made me super happy. What this meant for that I grabbed some very high-quality companies at some very attractive values. And when I then hovered over to the dividends tab in my portfolio, my joy knew no bounds. We will get into the numbers here shortly.

Let me reiterate: THIS is one the best times to be buying as a dividend growth investor. And quite honestly, this is a fantastic environment to be living through to promote my learnings as an investor.

Lets get into the numbers then!

Dividend Income Received

Sl. No.Company / ETF (ticker)Amount
1Aflac (AFL)14.97
2Church & Dwight (CHD)2.11
3Duke (DUK)5.02
4The Home Depot (HD)13.43
5Intel (INTC)7.30
6Johnson & Johnson (JNJ)39.64
7Lockheed Martin (LMT)47.09
83M (MMM)50.45
9Microsoft (MSFT)12.42
10NextEra Energy (NEE)2.15
11Pepsi Co (PEP)11.67
12Snap-On Inc (SNA)4.26
13Southern Co (SO)11.11
14Target (TGT)2.19
15T. Rowe Price Group (TROW)72.51
16UnitedHealth Group (UNH)3.33
17Visa (V)10.01
18Whirlpool Corp. (WHR)49.21
19Waste Management (WM)0.66
20Exxon-Mobil Corp (XOM)2.70
21Schwab US Equity Dividend ETF (SCHD)36.17
22iShares Core Dividend Growth ETF (DGRO)5.50
23Realty Income (O)14.77
24Digital Realty Trust (DLR)38.55
25STAG Industrial (STAG)3.76
26JP Morgan Equity Premium Income ETF (JEPI)2.58
Total$463.56

So a total of 26 companies/ETFs contributing to a total of $463.56 in monthly dividend income. This has been yet another record-breaking month with my monthly dividend income breaching the $400 mark for the first time since its history.

Here is what the overall chart looks like since when I started this portfolio.

So if you look at the year over year comparison compared to last year, where I earned $88.20 in June 2021, this is a massive 370% YoY increase! At a time when the stock market is plunging and in bear-market territory, my portfolio is setting record numbers in terms of earned dividend income. THIS is the power of dividend growth investing and a message to the critics of this strategy. It is the stability and power of dividends that makes this strategy so much attractive to me. And all of this is about as passive as passive can get.

For context, take a look at who is my highest dividend payer for this month. It is our beloved TROW. And while the stock is getting crushed in the current market conditions, I cannot overlook the fact that this has been one of my solid investments as far as dividend income. In good times, management has done their part by rewarding its shareholders with very attractive dividend raises and special dividends. This is yet another learning for me. Remember who your winners are and do not lose faith in them by just looking at the stock price.

Buys and Sells during this month

No sells during this month. This is time to be buying, not selling!!

As far as my big purchases, I continued buying and adding to my TROW position as the stock touched new lows. I also added some more Home Depot (HD), Texas Instruments (TXN) and JPMorgan Chase (JPM). Also added some more Intel (INTC) as it dropped into the late 30s. I did read in the news about the stress tests for banks and how most of the banks passed that. And while a dividend increase from JPM was expected, the management decided against the increase. This was an interesting decision which makes me wonder about the management’s outlook about the near-future economic environment.

I took the opportunity to add into my Target (TGT) position. Other than that, I also added some small tranches to my Apple (AAPL) and Visa (V) positions. In my tax-advantaged accounts, I continued adding to my positions for SCHD, Realty Income (O) and JEPI.

Summary

So there you go! I am pretty happy with the overall performance of my portfolio and I seem to be well on track to achieve the projected annual dividend income goal. I am more convinced than ever about the viability of the dividend income growth strategy and will be sticking with this regardless of the overall market conditions.

Which sectors will dominate the next 10 years?

I am regular listener of Dividend Talk. IMHO, it is one the best podcasts out there on the subject of dividend growth investing. Both the hosts, European DGI and Engineer my Freedom are pretty active on social media and maintain blogs/youtube channels. European DGI, in particular, has been very supportive since the early days of this blog and provides a lot of inspiration. If you are looking for good investing podcast to listen to in your free-time, ride to work, early morning run/walk, I highly recommend this podcast.

In Episode #103, the hosts discussed the subject of which of the 11 sectors will dominate the next decade in terms of performance. Listening to this episode got me pondering on the subject. Quite frankly, this was a lot harder to answer than what I originally thought. So I wanted to pend down my thoughts as a blog post.

For context, the 11 sectors of the stock market, as per the Global Industry Classification Standard (GICS), as are follows:

  • Energy
  • Materials
  • Industrials
  • Utilities
  • Healthcare
  • Financials
  • Consumer Discretionary
  • Consumer Staples
  • Information Technology
  • Communication Services
  • Real Estate

I wanted to list out some of the challenges I faced when trying to think about this subject.

Which sector?

The first approach that anyone takes while answering this question is to think of companies that belong in this sector and think about the future of these companies. Surely, if we think that these companies would outperform the broader market, we have a reason to believe that the corresponding sector would also dominate the next decade. However, it is not always straightforward to classify a company into a given sector.

To illustrate my point, take Amazon (ticker: AMZN) for example. This is such a giant of a company that it is hard to classify it one sector alone. Is it purely a Consumer Discretionary business? Is it also a tech company? What about its Whole Foods business? Does that also make it it a consumer staples? Not convinced? Take Visa (ticker: V) for another example. It is easy to see this as a company that belongs in the Finance sector. However, they are classified in the “Information Technology” sector, and rightly so, because they are heavily into technology that facilitates digital payments.

The interplay between sectors

It would be hard to argue against the notion that Information Technology would be one of the top performers (if not the top performer) in the next decade. The industry is abuzz with new advancements/research in Artificial Intelligence, augmented reality, self-driving cars etc. A lot of this is going to require enormous amounts of data crunching, which ultimately means that data storage and retrieval in an organized fashion is going to be of paramount importance.

If you stick with this thought alone, you could see a potential bull case for real estate ventures that will lease out space for data centers (eg. Digital Realty Trust (ticker: DLR)). For certain applications, data availability is going to be highly critical, which would mean the load on power grid lines around the world to provide stable power at all times would be crucial. This could also bring companies from Utilities into play.

If you could look at self-driving electrical vehicles, apart from the aspect of artificial intelligence here, there would also need to advancements in battery technology. This would mean companies from the Materials sector, involved in mining Lithium (eg. Albemarle Corp. (ticker: ALB)) could be potential winners. Here again, if the world gradually moves to electrical vehicles, the load on electrical power lines to support charging stations to consumers all throughout the world would be a non-trivial business venture, which could bring Utilities into play again.

Who are the Losers?

Pondering over which sectors are going to underperform is even more harder. Lets pick one. Lets assume that we will make significant advances in the EV technology such that owning an affordable EV for an average middle-class family would become a reality. So would this be a death knell for the Energy sector? But what about all those other modes of travel that continue to rely on fossil fuels? Do we think that our advancements in technology are going to progress fast enough that we can completely avoid relying on these sources for our transportation needs?

Thanks to cryptocurrency, the Financial sector has been in the news a lot over the last couple of years. I have seen and heard several commentaries about how the banking industry is “waiting to be disrupted” and that “it is a matter of time”. Yet, somehow, none of the major central banks around the world have given that much importance to cryptocurrency, and continue to prefer fiat currency. Is that going to change in the next decade? IMHO, no. But I could be wrong.

Ok Enough…So what do I think?

You get it. This is not a straightforward question to address. But if I had to venture a guess, my top performers would be: Information Technology, Healthcare and Communication Services.

Information Technology being on the list is self-explanatory. As an engineer, I am hopeful that the major tech giants use their engineering prowess to solve some really hard technical problems that could impact future generations in a positive manner. If I were to be very honest, over the last decade, most of our collective engineering talent around the world is focusing on solving problems that are rather useless. As an example, trying to grab people’s attention through algorithms, serving them ads and curated content are not worthwhile endeavors. If we could instead focus on problems such as managing global pollution (low-cost self-driving electric cars), countering global terrorism, space exploration, preventing natural disasters etc. this is far better use of everyone’s time. I am hopeful that research and development in fields like Artificial Intelligence, augmented reality etc. are directed towards such pursuits. However, I do realize that I am being an idealist here.

We are still living in the times of a pandemic and coming to some sense of normalcy, so it would be hard to argue against Healthcare being on the top-performers list. Due to the very nature of this sector, there will be no shortage of research work in new drugs to fight various diseases. I cannot see how this field will suddenly lose relevance in the coming decade.

Communication Services as a sector is somewhat of an interesting pick. My thesis here is that Internet communication, as it stands, would need to improve manifold in order to support all the advancements in online gaming, streaming media and overall network traffic in general. I presume that the WFH/remote work dynamic is not going to go away in a hurry.

As far as the losers, this is a hard one to guess. But my picks would be: Industrials, Materials and Real Estate.

The Industrials sector is highly cyclical as-is. I think the supply chain issues we have right now will take a few years to resurrect and this is going to hurt the Industrials sector the most. With Materials, who knows how the geo-political scenario in Eastern Europe is going to evolve in the next few years. I think this will impact the Materials sector. With Real Estate booming right now, it is getting to a point where I could foresee a “reversion to the mean” like scenario playing out sometime in the next 10 years.

Again, these are just random guesses and I could be completely wrong about this. This is perhaps yet another reason why I choose to diversify among sectors and ensure that I am not overweight in one sector.

So, what are your picks?