* The Secret of Directional Investing begins with the basic point, The trend is your friend. That is, go with the directional flow of money. The challenge, of course, is know the trend, to see the direction.
* Directional Investing starts with the realization that cultural and political trends drive investments, and that those trends can be shaped, not just spotted. You can make money either way. This is outlined in the Introduction and detailed in Chapter Nine.
* For example, the red-blue, polarization, is a trend to be spotted. It’s happening out there. Ask Bud Light. But it’s more than just beer, it’s Disney, Target, Kohl’s, Planet Fitness, and BlackRock. All of these are companies that aim for a national market, and yet they went woke. And now that’s costing them, in terms of brand damage, even outright boycotts. Not in the whole country, but in parts of it. That’s the challenge companies face as they eye the national market: If they wish to be blue, that’s fine, but they’ll lose ground in red. Can they be purple, or gray, and appeal to the whole country? This conundrum is detailed in Chapters Six and Seven.
* So again, investors should be mindful—the stock price of Disney, for example, has fallen 40 percent in the last three years. If you knew about that trend, and had shorted the stock, you’d have made a lot of money. Sometimes the trends are counter-intuitive. For instance, despite all the talk about green energy, the stock price of Exxon is way up. Yes, the media coverage has been green, about the inevitability of green. And yet the consumer reality has been black—oil black. So the key is to figure out the trend—and now, amidst the red-blue rumble, what will happen to, say, electric vehicles? Chances are they’ll split regionally: the blue states will move ahead with EVs, while red states will move the other way. With that in mind, is the price of Tesla correct? Or GM? Or Toyota? Spot the trend, think it through, make money.
* And yet polarization is also a trend to profit from, because it will accelerate the process of building parallel market leaders. And so that means incumbent market players will fall (time to short!) and new market players emerge (time to go long!). In addition, as the central government weakens, states will try new things, creating new opportunities in the form of enterprise zones (think Nevada and gambling in the 20th century, as detailed in Chapter One) for everything from health care to rocketry. As with splitting the atom, the release of energy across the economy will be enormous. This is the point of Chapter Eight.
* One of the key themes of the book, as detailed in Chapters Four, Five, and Six, is that the states going their own ways—states as “laboratories of democracy”—opens up vistas for arbitrage. Hence Chapter Six is entitled “The United States of Arbitrage.” A state such as California might offer subsidies for green energy, which is bullish for that sector, while a state such as Texas has no state income tax, which is bullish for savers and investors.
* On the other hand, some trends can be shaped. Directional Investing features a history of how governments have created new environments that made money for investors. For instance, back in 1931, Nevada legalized gambling—and we all know what has happened since: Vega$. So now, what could a state do on its own? Could it be like Texas and Florida, enticing businesses and people with lower taxes? Or could it be like Wyoming, encouraging banking privacy and crypto? Or could it do something really daring, such as declare itself to be an FDA-free zone? For sure, that would be a fight with the federal government, but the feds haven’t exactly demonstrated their medical expertise, have they? In a country as big and diverse as this, do we really think some bureaucrats in Silver Spring, Maryland know what’s best for all 340 million of us? Shouldn’t there be more allowance for what Justice Brandeis, an historic liberal, called “laboratories of democracy”? Moreover, in these polarized times, when governors are routinely defying Washington, DC, there’s an excellent chance that a state could win its break for freedom. This point is developed in Chapter Thirteen.
* As Directional Investing points out, it’s likely that new federalism, or states’ rights, will necessitate the two colors, red and blue, forming blocs. That is, there’ll be a red bloc and a blue bloc. E pluribus duo. Same 50-state union, just a substantial subdivide. And out of that, of course, will come beaucoup arbitrage opportunities for investors. Go to California for your green energy subsidy, go to Illinois which aims to be a hub for transgenderism. And then go to Texas for your gun, and to Florida for your tax cut. Win-win!
* And yet at the same time, this book offers a plan toward the win-win reduction in polarization. That is, if the country splits, gently, while preserving the union, there’ll be room for experimentation, arbitrage, and greater prosperity. A win-win for investors, and for all Americans.
* In fact, the last chapter of Directional Investing, Chapter Sixteen, includes a discussion of a new model of politics, based less on pledges for specific issues. That is, new technology makes it easy to get granular if a voter wishes to bargain his or her vote for a specific cause. Nothing crooked, nothing coercive, just way for the voter to make it plain what he or she wants. So that’s how you really shape a trend.
* Using this approach, investors could shape trends on good investments. And why not think big? The bigger the delta, the bigger the alpha. Big returns come from big things. Making money any legal and ethical way is fine, but it’s also true: Fortune favors the bold.
* In U.S. history, we’ve seen this political frameworking of trends on behalf of the railroads, for cars and highways, and, most recently, the internet. In their respective eras, all were great investments. And now, as the book points out, we’re seeing on new transportation modes, such as bicycles, micro-mobility, and transportation-as-a-service (scooters, Uber). And we can see new trends to shape. For instance, as an alternative to wind and solar, burn more carbon fuels, along with carbon capture, being mindful that carbon capture can include not just trees, but also new kinds of manufacturing. So, as detailed in Chapters Eleven, Twelve, Thirteen, Fourteen, and Fifteen, a win such as water desalination, carbon capture, crypto, medical innovation, and space launching.
* This book argues that investors, and all of us, need liberty, because liberty is an economic bazooka. Only liberty makes room for our diversity—including the all-important diversities of imagination and energy. And yet at the same time, we need order, because our persons and property need predictability. There’s a tension between liberty and order, but there’s also an energy. The preceding pages have outlined ways of putting the two concepts together, building Frameworks for growth, jobs, national strength, human betterment—and, yes, greater investment returns. This is detailed in Chapters Two and Three.
* Imagining precedes investing, and yet historical perspective helps. History is a series of case studies, all of which offer lessons about what works, and what doesn’t work. Knowing that the trend is the friend, the investor will wish to spot trends and ride them upward. The trend might, for example, be an S-Curve. But where, on the S-Curve? The steep part? Or the flat part? It pays to be able to notice the difference.
* So yes, noticing is important. The 2024 elections are likely to be such a mess that no matter who is judged to be the victor, half the country will be furious. But Directional Investing says, Don’t get mad, get rich. See t anger coming from the election to spot the trends, starting with red vs. blue. For example, if BlackRock has become BlueRock, that suggests there’s an opportunity for a non-woke RedRock. So there’s an investment: to see the emerging financial hubs of Dallas or Miami. And if you’re not sure which stock to pick, just buy real estate! Same with a possible Health Freedom Zone that could emerge in a red state that cancels the FDA. Just own land nearby the local hospital, you’ll do fine!
*Yet at the same time, Blue has plenty of resources, too, such as Tech and AI. So there’s plenty of reason to think that in the coming red-blue split, Blue will do fine. More than fine. Each side of the divide can live and let live, and invest and grow rich.
* Everyone making money is the best alternative to the hard feelings that can come from politics. It’s the bridge over troubled troubled waters.
* Some will wonder: Is the polarization of the United States, red against blue, a bad thing? Let’s let others decide whether it’s desirable or undesirable. Maybe it’s simply inevitable, given the stark differences, Red and Blue, in the American population. But in the meantime: let’s take note of the upside for investors. And let’s further observe that capitalism and entrepreneurship offer the hope for a reconciliation that comes from voluntary market transactions, as opposed to political forces. That is, economics is more peaceful than politics. Make deals, not war.
* Started out writing on investment, and think larger about national peace. Thinking about a framework for investments, the way the railroads were done—and now, I’m thinking that if the goal is to stave off a civil war, the idea has to be that you’re creating two frameworks, two havens, for investment, albeit of different kinds, one red, one blue. Live and let live is, among other things, a good business model.
* Sometimes, in politics, peaceful compromise is not possible. That’s why Clausewitz defined war as politics by other means. So sometimes it helps to change the subject! Make money not war, is better. It’s a new kind of civics, based on capitalist win-win. Much better than hodgepodge rule by committee.
* Right now we have a national wet blanket, a kind of lowest common denominator—what we need are higher common denominators, one red, one blue—the competition will be good.
* America has been so successful, it’s time to split the stock! The answer is that two sizes fit all, one red, one blue.
* According to a 2023 Pew poll, only 16 percent of Americans have confidence in the federal government. At the same time, a 2023 Gallup poll shows that Americans have more confidence in local government. So what does that tell us about where the main governing effort ought to be?
No comments:
Post a Comment