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Welcome back to another week with Renaissance. The newsletter equivalent of a Kendall scene from Succession. We’re dishing out alpha and it always plays here at Renaissance. And this week is no different!

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Today at a Glance:

Howard Marks' Memos - Billion Dollar Investing Wisdom

XRP - We Called A 100% Return Again! Using Howard Marks' Strategy (A Textbook Lesson)

FAT FIRE: FAT Investing

- And remember guys we don’t do this all for free…..well we do, but still. Honour our gentlemen’s agreement and refer a friend. 🤝 

- We’ll give you some free tailored advice to set you on your journey to financial independence. What are you waiting for!

You are: 1 referral away from a free personal financial consultation!

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The Renaissance Over-Under

Business, Money Markets & Financial News

$2.2 Billion Worth of Howard Marks’ Memos On Investing 🤝

- Money is no different from anything in life. You get what you focus on. The more you focus on it, the more it rewards you.

- And yesssss, sometimes it’s at the detriment of personal relationships and blah blah blah, but we’re not your therapist so get that shit somewhere else! We’re not your wealth advisor either in case anyone asks……..👀

- So if you want to get wealthy you need to focus on your dollars, or better yet…someone else’s dollars. 💵💵💵

- Set the scene: April 23, 1946, a particularly cold Tuesday in New York. Howard Marks is born.

- Flashforward to today: Howard Marks is the largest investor of distressed assets in the world, and ranked No. 1365 on the Forbes list of billionaires. He’s worth a cool $2.2 Billion.

- He’s famous for not only this, but also his investment memos. And we’re going to break these down for you and show you …….howie did it 😉 please keep reading. *audience shivers

1 Risk

- Marks’ is a risk management LEGEND. Obsessed with delivering average returns on the up, and minimising downside risk.

⚡ He claims investors should ask themselves - do you worry more about the risk of losing money or the risk of missing an opportunity? And then they should adjust their investments purely based on risk alone.

⚡ Forget volatility. Risk is the probability of losing your initial investment. This is especially true when you’re dealing with distressed assets, so you can see exactly how Marks’ mindset is tailored to risky outsized returns.

- A risky investment is obviously one where the distribution of returns is wider. We all know the well known adage I tell myself before telling risky jokes at work ‘higher the risk, higher the reward.’ 👀 

⚡ ‘Trees don’t grow to the sky, and things rarely go to zero.’ This is Marks’ ideology on risky investments. The selling pressure from scared shitless investors actually make the price drop that low that it’s not that risky at all!

2 Bubbles & Cycles

⚡ “People should like something less when its price rises, but in investing they often like it more.”

- This is the core piece of advice Renaissance fam, in bubbles people mistake attractive for attractive at any price! And make no mistake, when you think any of the following you’re investing at the riskiest point in the stock and/or the cycle:

- “FOMO, I’ve got to get in on this”, “it’s expensive but it’s gonna keep going up anyway so I need to get in on all this liquidity”, “earnings growth is killer and the economy is printing money etc”

Investment markets follow a pendulum swing, a back and forth between:

- Euphoria and depression;

- Excitement and boredom;

- Over-priced and under-priced;

Rule number one: Most things will prove to be cyclical.

Rule number two: Some of the greatest opportunities for gain and loss come when other people forget rule number one.

⚡ Investment success doesn’t come from “buying good things.”

It comes from “buying good things well.” 

⚡ Here’s a great excerpt from one of his famous memos on how he thinks about buying vs selling:

3 Contrarian - Slap My Ass & Call Me Peter Thiel

- Intuitively enough, you don’t make outsized returns investing in what everyone else is.

⚡ You make the most money when you’re right and others are wrong, i.e. if everyone is buying you should stay away as most gains have been missed and risk is high, and when prices are low this when you should buy what you like.

4 Probability

- Risky investments do not always lead to risky outcomes. You need to weigh up logically how probable the various outcomes are.

Probable things fail to happen, and improbable things happen all the time.

⚡ The efficient market hypothesis: Broken down this assumes that participants in the market have equal access to information and that we’re all educated and hard-working, i.e. that the public markets are an even playing field of information and talent!

- Marks’ then assumes that assets are priced fairly. From here the only thing you can do is ask what outcome is most probable and who doesn’t know about it yet?

Here’s a thought exercise checklist when screening a good investment, Howard Marks style:

 ✅ Little known and not fully understood

 ✅ Fundamentally questionable on the surface

 ✅ Controversial, unseemly or scary (e.g. Peter Lynch's funeral company)

 ✅ Deemed inappropriate for respectable portfolios

 ✅ Unappreciated, unpopular and unloved

 ✅ Trailing a record of poor returns

 ✅ Recently the subject of disinvestment, not accumulation.

- Renaissance readers, this is all easier said than done. This is clear from Marks’ investing history and his memos - only making big market timing moves 5 times in 50 years!

1: Memo - bubble.com

He released it in Jan 2000, 2 months before the dot.com bubble burst, which he said was easy to predict based on the enticing easy profits and people leaving their jobs to invest full time in these companies.

The S&P 500 fell 46% and the NASDAQ fell 80% in the months and years (2000 to October 2002) after his warning!

2: Memo - It’s All Good - 2007

I think we all get the picture that it’s sarcastic. The 2007/08 global financial crisis gives flashbacks to many. He didn’t have insider knowledge or even look at subprime mortgages, instead he did what he always does and he took the temperature of the market and saw people were overconfident in prices only going up - and so he bet against it!

3: Buying The 2008 Dip

Even Marks the contrarian had to spot the buying opportunity in 2008, and he went on to make billions on the back of picking up distressed assets. The S&P has ripped 500% since that point! “Will the world end or won’t it? What other choice but to invest is there?”

4: 2020 Buying The COVID Dip

His team saw forced selling of company bonds to get cash during the crisis and this was his perfect contrarian buy signal! The thesis was simple - this meant the worst of the pandemic pressure was likely over. And he bought. The S&P 500 has climbed 90% since the March 2020 low!

LITTLE BITS 😎

Taking the temperature: Howard Marks’ latest memo: https://www.oaktreecapital.com/insights/memo/taking-the-temperature

How it started vs how it’s going: Bitcoin 👇

⚡Michael Burry (The Big Short) called another 100% winner - On 5/15, Burry disclosed a new stake in the online retailer $REAL.

Since that date the stock is up 97.8%. 🔥 If you’re not following the stock trackers of insiders and proactive traders then you’re doing it wrong. https://twitter.com/burrytracker

Surreal cereal using ChatGPT to make ads is masterful, well played. 👏 And actually the use of the out of home ads make them impossible to ignore. Take note!

This guy’s old horse trailer he bought for $600 was converted and it now makes a killing on Airbnb: https://www.businessinsider.com/photos-airbnb-tiny-home-old-horse-trailer-renovation-rent-horsebox-2023-2?r=US&IR=T

NOSTALGIA OF THE DAY

Crypto Market & NFT News

XRP Wins Their Legal Trial: It Is Not A Security For Investors. The Price Then Jumped 100% 🎉🎉

- Well well well, if it isn’t another expertly called shot from the Renaissance team. 😎 Many weeks ago we called it and did the write up on XRP with its shaky ground as a distressed asset. Noting that the reward was far higher than the risk of your initial investment.

- Thematic……that’s the word we’re left with. Go back and read the Howard Marks section - because this is a play straight out of his strategy checklist!

⚡ If you’re new to investing or you missed this, this really isn’t the time to invest. It was when we called it. But it’s important that you take note of either your differing opinion that was wrong and why; or more likely your inability to take action on time on the investments you believe in, due to risk and the friction that uncertainty creates.

- This was a textbook 101 distressed asset purchase and whether you won, lost, or didn’t invest at all - it’s an amazing opportunity to learn and apply Marks’ methodology on top of this investment. This will help your pattern recognition and investing discipline for the next opportunity.

- But if you didn’t take our calls and follow our investment thesis, then once again you just missed out on a 100% banger. But maybe that miss is the best investment for you right now to get better for next time……….did that help? Do you feel better? 👀

Wealth Building, Personal Finance Hacks & FAT FIRE

- The step-by-step guide through FAT Fire continues. 💪 Last week we covered the importance of high income and the paths to take to achieve this.

- But once you’ve got it, what do you do with it? Leave it sitting in a bank account collecting dust? Inflation will eat it alive and you’ll end up making fires to keep warm rather than FAT Fires. 🔥

- This takes us to the next crucial step. Investing. It makes the difference between doing well and having ‘fuck you’ money.

⚡ What to start investing in? When you’re young you’re going to want this to all be equities. All “risk-on” all the time. I don’t even want to hear the word bonds.

- Fundamentally you are compensated for this additional risk with additional return. You’ve also got plenty of time until retirement to weather the volatility. Remember stocks only go up people! (……over the long term 👀).

- I mean what way is this chart going?

- You will live through many crashes and recessions. Just accept this. On average there is a recession every 7 years.

⚡ But the key is to never sell. EVER. Tell yourself this and make sure you get it through your head. When the sky feels like it’s falling, time to turn off the computer and touch grass. Someone needs to make a Lo-fi hip hop playlist to chill to while the market is crashing and you’ve lost 50% of your net worth.

⚡ You can stay in 100% equities and weather the storm as long as you’re well diversified. This could be in the S&P 500 or other indices which track the general market. If you’re picking individual stocks you better know what you are doing. It’s not to say don’t ever do this, but make sure you know what you’re investing in, and what your edge is. What are you seeing that everyone else isn’t?

- A happy medium if you’ve got itchy fingers is a satellite approach. Keep the core majority of your investments in an index and a minority in more active plays.

- This could be in individual stocks or sectors you think are going to outperform. This lets you use your smarts to get ahead, but without the complete risk of crashing and burning. A NASA-esque satellite portfolio over a Space X rocket launch.

- Then once you’ve generated some serious capital a lot more options open up. This is when you can start considering private equity and other more exclusive investing options. These are more restrictive, requiring large minimum investments and will have lock up periods etc. but the juice is worth the squeeze. 🍊 The more capital you get, the better the opportunities become.

⚡ Should you then consider bonds? This is the common line of thinking, to de-risk into bonds as you approach retirement to reduce risk and volatility. You’ve hit your target, now coast. Bonds are seen as moving in inverse relation to stocks so holding both reduces fluctuations in your portfolio.

⚡ But have you seen bonds recently? Does this ‘safer’ approach belief still hold true? Stocks have fallen as a result of rising yields, but as yields rise bond prices fall too. There is some evidence of this inverse relationship falling away, and then you’re screwed. You’d have given up additional return to reduce volatility and ended up with neither.

- I can see why some people may do this, but here at Renaissance we’re all about the best.

- When you’ve got the sort of capital you can FAT Fire this is generational. Dynasty building. Keep this in the best returning asset classes. The compounding growth just gets larger and larger. Why would you interrupt this while it is at it’s fastest?

⚡ And weathering the storms and downturns? You’ve now got enough wealth to be well and truly diversified and resilient if you play your cards right. We’re talking property, owning defensive and cyclical businesses so you’re protected no matter the economic cycle.

- Just don’t overleverage and you’ll easily have enough money to live through any recession without having to sell up and go bust. Proper risk management is key but by this point diversified and cashflow generating investments are the answer.

Meme of the Day

That’s a wrap for this week! Meet us on Twitter to talk all about it. Where we’ll send you jokes, tips, and all important news from the world of money, business and crypto and more! (@RenaissanceDly)