The Well Tempered Investor

AI’s Profitability Questioned – How It will Affect Tech Stocks

Economics, in simple terms, is an aggregation of demand and supply. In a free market economy, if there is enough demand for a product, there will be companies that supply it. If the demand is high enough that signals a potential for high profitability, companies will be competing intensely to gain a share of the market, including making significant amount of investments in research and development and infrastructure however profligate it may appear to be.

A Forbes’ article by Beth Kindig reports that all big-tech companies including Microsoft, Goole, Meta, and Amazon have been spending hundreds of billions of dollars in AI infrastructure due to high demand for this technology. They are not only meeting this demand, but also investing beyond it. Big-tech CEOs unanimously say that failing to do so comes with the risk of falling behind their competitors. Google CEO Sundar Pichai is quoted as saying: “The risk of under-investing is dramatically greater than the risk of over-investing for us here, even in scenarios where if it turns out that we are over investing.” While these CEOs seem optimistic about AI’s profitability, from another perspective, they have no choice but to continue to allocate their capital towards AI.

Cycles of Democratic-Republican Presidencies and Economic Performance – Why do Democrats Perform Better?

Presidents often like to take credit for stock market performance. During his term, President Trump, a Republican, frequently highlighted the rise in stock prices. The Trump administration achieved notable economic success, boasting annualized returns of 13.7%, placing him among the top performers compared to past presidents. However, one may be surprised to find that it is an anomaly for a Republican president to achieve high economic success, since Democratic presidencies have historically shown a pattern of significantly higher performance compared to Republican administrations.

This article discusses a 2020 research on stock returns and presidency conducted by the University of Chicago professors Lubos Pastor and Pietro Veronesi. It delves into the reasons behind the economy’s stronger performance under Democratic leadership, and discusses the research’s implications concerning the 2024 presidential election and beyond.

Knowing What’s Enough – Economic Lessons from Tolstoy’s War and Peace

As Napoleon’s army approached Moscow in 1812, the city’s residents hastily evacuated, taking with them whatever belongings they could manage. Leo Tolstoy’s masterpiece, War and Peace, vividly captures Russia’s tumultuous struggle against the invading French army. Its key characters are inspired by the Romanovs, the ruling family of Russia, and one of the wealthiest in the world. In one scene, Natasha Rostova, the central heroine, shows a keen discernment amidst chaos, selecting only the most valuable fine china, while relinquishing those of lesser value.

What makes this seemingly trivial action from Tolstoy’s epic notable today, more than 200 years after the Napoleonic Wars, is that our post-industrial society has an abundance of items of all kinds, making consumption a significant part of the economy. While we need to purchase goods that are indispensable in conducting our daily lives, we are inundated with non-essentials, the majority of which are imports that substitute domestic counterparts. There is a danger in the continuation of this trend, as it greatly undermines the integrity of maintaining manufacturing capacity at home, and foster a culture of mindless consumption.

Devil’s Tactic – How Influencers Deceive Their Audience

As social media became widespread, some users have gained a large following, sometimes in the millions. As they often appear accessible, such as broadcasting from their homes and personally responding to their audience’s comments, people tend to trust them relatively easily. Consequently, companies have started to see these influencers as a valuable channel through which to promote their products.

I used to watch videos on men’s style regularly on Youtube when I was learning about classic clothing like suits. Unlike programs on television that appear over-produced, those on YouTube appeared more genuine and personable. Naively, I believed YouTube personalities were creating videos solely for the benefit of viewers. One such influencer recommended a belt with micro adjustments on its reverse side, promising the perfect fit at all times. After learning useful men’s style rules and tips from him, I didn’t hesitate to purchase this belt, thinking, “If this influencer is recommending it, it must be a great product.”

Can Actively Managed Funds Outperform the Market? Study Shows They Cannot Most of the Time

The stock market in 2023 recovered much of the losses from the downturn of 2022, before it reached its record highs in 2024. The S&P 500 had a 26% return in 2023, rebounding from an 18% loss from the previous year. More impressively, the largest 50 companies within the S&P 500, rose by 38%. Having seen such performance in the past year may cause investors, particularly newcomers, to expect consistently high returns.

Recently, I engaged in a conversation with a prospective investor who was targeting a 10-20% return on investment. When we consider the historical performance of the S&P 500, it has delivered an average annualized return of approximately 9% over the last two decades. Some other fund categories, including the large-cap growth stocks yielded more, reaching as high as 10.5%. Consistently achieving 10-20% annual returns would thus entail surpassing these already excellent market average. Since my approach is building and preserving clients’ assets with the movement of the general market, I informed him that it was not something I was able to deliver.