On April 19, 2020, I became convinced that over the next two days, prices of crude oil would drop below $0. The next day, April 20, oil opened at $17.73 a barrel and closed the day at negative -$37.63 a barrel.
To help us appreciate the magnitude of that epic collapse, the oil price chart below showing the past 25 years would be helpful. See that big plunge?
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The Social Mobility of Stock Markets
— A Historical Perspective into the U.S. and Chinese Stock Markets
My previous piece A Decade of Inequality focused on the concept of “market cap gains.” It reviewed the end results but paid little attention to how we got there — how did it happen that almost all the market cap gains were concentrated with the largest companies? Was it because larger companies started bigger so their gains over a decade’s time naturally became bigger? Or was it because smaller companies collectively never had a chance to grow big at all?
To put it differently, the question that my previous piece raised and that I am trying to answer in this piece is this: over the past few decades, have stock markets in the U.S. and China offered “social mobility” so that smaller companies can still achieve above-average returns relative to their larger peers?
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If one were to compile a list of the most abused words in finance and investing, “differentiation” (or “being differentiated”) will certainly occupy a top place in that list. Most money managers tell clients that their investment processes are differentiated; most businesses claim their products or services are differentiated. It has now become unusual if a business does not sprinkle its client-facing talks with the word “differentiation.”
Wait… common sense tells us a business can only be run in a finite number of ways… if most players in a particular business claim themselves to be differentiated… That is an oxymoron!
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For people who invest, their investment actions are usually guided by a philosophy of which investors themselves are consciously or unconsciously aware. It is like asking yourself to list out all items that are in your wallet now; unless you take a pause, open your wallet, one is usually not fully aware of what is in there. Similarly, it is a tall task to give a full answer to one’s investment philosophy. So, this blog piece is not meant to be a complete account, nor final or conclusive. As time goes by, as I age and gain more experience, I will likely abandon some beliefs that are stated below and form some that are new.
I first traded stocks when I was under 20 — I bought an A-share company listed in Shenzhen. Since then, I have invested in A-shares, Hong Kong–listed stocks, U.S. stocks, bonds, funds, real estates and other types of assets and financial contracts.
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My wife and I decided not to go anywhere on New Year’s Day. Instead, we spent the day at home. Bored, I decided to devote my first day of this new decade to examining something interesting of the past decade. One of the most distinctive features of the 2010s was America’s roaring stock market, which now is the longest bull market in history. Including dividends, $1 invested in the S&P 500 Index — a basket of some 500 companies — has turned into $3.6, a whopping 13.6% annualized rate of return. The stunning performance of America’s stock market invites the arrival of a very logical conclusion: over the past decade, American companies and people have fared well.
However, this rosy image does not square with reality. For the 19 years from 1999 to 2018, real median household income in the U.S. has only grown at 0.14% a year; from 2007 to 2018, the pace was only 0.32% a year.
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[The body of this piece was written by me in December 2018]
When I was still living with my parents, I used to read almost all the newspapers and magazines my parents subscribed. In college, I served a leadership role with the university’s reading club. Later at Yale University, forced by the teaching environment and enlightened by some elective courses that I chose to take, I discovered that I have a real passion for not only reading but also writing.
As I write more and more, gradually, I started to realize that writing has some kind of “superpower” with it. It is intangible and difficult to describe. But let me make an attempt here.
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As an MBA student, I admire successful bankers, consultants and asset managers and more importantly I admire the organizations that they lead. I hope that one day I will do something as great as they have. Yet sometimes I struggle to understand what it takes to be there – why are these organizations so successful? What are the traits that they uniquely possess? How have they managed their business and their people? Or simply put, how have these organizations achieved “Professional Excellence”?
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Before leaving Hong Kong for graduate school, I spent some time in Shenzhen helping a friend with their startup. Every morning, I commuted to Shenzhen from Hong Kong and at around 9 am I would try to hail a taxi on the street, but morning was the time when it was impossible to hail a taxi by just standing there. The only way to get a taxi or a private car was through a mobile transportation app. This is why millions of consumers in China, including me, use Didi and Uber.
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