Munger: ”Ignore the Macro”; Tesla $2000?; China’s Luxurious Rebound

Mental Maps; “Dirty Money.”

Today at a Glance:

·       One Quote: “Ignore the Macro”

·       One Prediction: Tesla @ $2000?

·       One Investment: Chinese Appetite for Luxury

·       One Mental Model: “The Map is Not the Territory”

·       One Documentary: “Dirty Money”

One Quote

Ignore the Macro

"We don't get into macro. It just doesn't make any difference. We do decide whether we think we know where that business in 10 years or 20 years, and we know what we'll pay in terms of valuation."

                                                                                        -Charlie Munger

Like many investors, I spend a lot of time thinking about macro-level events and how they impact investing.

These macro events are the big-picture factors that drive the global economy.

They include the oil price, the state of the U.S. dollar, U.S. Treasury yields, the level of the S&P 500, and the price of gold… to name a few.

Analyzing these factors makes for the three-dimensional chess game of “macro investing.”

And the players in the never-ending game are some of the brightest minds in finance.

But the question arises:

Is any of this analysis worth it?

That’s what I asked myself last week.

I had just finished listening to yet another episode of MacroVoices, a podcast targeted at sophisticated investors that – as the name suggests – tracks the macro events that drive global financial markets.

But this past week, I realized something…

Listening to Macrovoices was much like when I followed baseball as a kid.

I’d follow the progress of my home team’s players.

I’d collect baseball cards and dig deep into the weeds of statistics.

I’d debate which team was going to the playoffs with my friends.

As it turns out, my pursuit of market insights as an adult has been remarkably similar.

But what impact has this had on my investing?

Well, if anything, the impact has been negative.

In macro investing, so many confounding factors make it hard to make correct “calls” on anything.

Every decision is just an (overeducated) guess.

And once again, I found myself returning to the wisdom of Charlie Munger, who observed:

Microeconomics is what you do. Macroeconomics is what you put up with.

One Prediction

A 12x Opportunity in Tesla?

It’s been a lousy week for Tesla Inc (NASDAQ: TSLA ).

Elon Musk’s baby missed Street estimates for revenue and also took a sizable hit to its gross profit margin in the first quarter.

None of this bad news was sufficient to turn Cathie Wood – the ultimate Tesla Bull.

Last week, she doubled down and predicted that Tesla shares would most likely trade at $2,000 by 2027.

Wood’s chutzpah knows no bounds.

Here is some context to her head-scratching prediction

First, with Tesla trading at around $162, a target of $2000 implies a 12-fold increase over its current price.

And it works out to a predicted 71% annual return between now and the end of 2027.

Second, a $2000 share price translates into a market cap of about $6.2 trillion.

That’s more than Apple (AAPL), Microsoft (MSFT), and Google (GOOGL) combined.

And this high-tech triumvirate today represents over $10 trillion in annual sales.

Today, Tesla’s projected sales for 2023 are 1% of that.

Third, Wood's prediction is based on the potential of a to-date non-existent business- the robo-taxi.

CEO Elon Musk has said he expects Tesla Inc to be mass-producing robo-taxis in 2024.

That's a hard pill to swallow.

After all, Musk says a lot of things.

There are websites devoted to Musk’s broken promises- including a prediction of robo-taxis arriving in 2020.

To hang your hat on a timely Musk prediction seems naive at best.

Musk’s magic is fading.

And investors have sent Tesla stock tumbling 60% from its all-time high.

If it were a traditional automaker, Tesla would be trading at a multiple of 5x to 10x at the most. 

That implies a stock price in the $12 to $25 range. 

Tesla closed on Friday at $162.

I’ll leave you to draw your own conclusions.

One Investment

On China’s Recovery

The Chinese economy grew by an annual 4.5% in the first quarter of 2023.

That good news followed Beijing’s abrupt U-turn on its zero-Covid policy last December.

Driven by a robust expansion in exports and infrastructure investment and a rebound in consumption and property prices, China’s GDP growth exceeded analysts’ expectations for growth of 4%.

Xi Jinping wants more.

After all, the country’s GDP grew by just 3% in 2022- the slowest rate in decades.

As a result, China’s central bank “beefed up liquidity support” by cutting lenders’ reserve requirements.

Dozens of cities have also joined the effort by easing lending rules to boost the property sector.

An Indirect Bet

I’ve written before why I believe that China’s political risk makes the country uninvestable.

That said, there are other ways to profit from China’s rebound that avoids this risk.

It turns out that China’s reopening has triggered a shopping frenzy in luxury goods.

The Chinese ultra-wealthy are spending more than ever:  “A wealthy shopper who shelled out around €50,000 in designer shops in 2019” would typically have “spent €135,000 in 2022”, according to investment research group Bernstein.

Luxury conglomerates Kering, Hermès, L’Oréal, and Louis Vuitton owner-LVMH jointly account for almost one-quarter of France's CAC 40's total market capitalization.

No wonder the France Ishares MSCI ETF (EWQ) has rallied more than 20% in 2023.

LVMH Moët Hennessy Louis Vuitton S.E. (LVMUY) - up 37.5% YTD-maybe even better place to start.

One Mental Model

The Map Is Not the Territory

I am a big fan of mental models — the ways we organize our reality and understand the world.

Mental models offer you rules of thumb — psychologists call them heuristics — that help you to make better decisions in your daily life.

Many of the world’s top investors — including George Soros, Ray Dalio, and Charlie Munger— attribute their success to applying the right mental models at the right time.

The Mother of All Models

The following is a metamodel — a model that applies to all other models.

All investors have a map of the world — from little old ladies in Pasadena to the heads of the world’s most successful hedge funds.

But as Polish scientist Alfred Korzybski observed: “The map is not the territory.”

Think about it…

Even the very best street maps are imperfect. All maps are just representations of reality — snapshots of a point in time.

In the same way, there is no perfect “map” for investing. There is no single holy grail.

Each investment philosophy — whether it’s growth, value, or momentum — is just a map.

You can also think of each as a specific lens through which you understand your investments.

You’ll find that your investment philosophy must fit your personality.

And expect your map to evolve as your understanding of investing deepens.

Keep this in mind before you make your next investment.

Use maps as a tool -and not as a mental straightjacket.

One Documentary

“Dirty Money”

"Dirty Money" is a Netflix investigative documentary series on financial corruption, focused mostly on the United States.

Each story is different.

Topics include payday loans and drug cartels, clean diesel cars, hedge fund disasters, and the maple syrup battles in Quebec.

One episode of season 1 zeroes in on President Donald Trump's corrupt business practices.

Another episode in season 2 focuses in on the President's son-in-law Jared Kushner.

Whatever your political stripes, “Dirty Money” is a reminder that financial corruption is ubiquitous in the US.

To believe anything else is naïve.

“Dirty Money” is compulsively watchable TV.

You can see a preview of Season 2 here.