🎙️ A Legend Is Gone

November is almost over, and it’s been the best month for the S&P 500 and the Nasdaq 100 in 16 months.

And in the fixed-income world, bonds are soaring at the fastest pace globally since 2008. 

💭 Will the rallies continue? If corporate America is any indicator, then yes — the ratio of insider buyers to sellers is at its highest in six months.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the three biggest stories in markets:

• Remembering Charlie Munger

• How Reno could be a model to solve homelessness

• The big drama in commodities markets

All this, and more, in just 5 minutes to read.

CHART OF THE DAY

According to a survey by McKinsey’s Kelsey Robinson, 66% of consumers rank better prices and promotions as their top consideration this holiday season, far outpacing product availability, convenience, and better quality.

Worries about prices are most pronounced among baby boomers, followed by Gen X and millennials.

IN THE NEWS

🙏 Remembering An Icon: Berkshire Hathaway’s Charlie Munger

Tributes are pouring in after investing legend Charlie Munger died Tuesday at 99. Warren Buffett’s right-hand man helped build Berkshire Hathaway into a giant, and his way with words has left impressions on generations of long-term investors. 

Invert, always invert. 

Become a learning machine. Read all the time. 

It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait. 

Buy truly wonderful businesses: Munger was a sounding board, confidant, and dear friend to Buffett. But he was also a very good investor himself with big bets on the likes of Costco.

• In 1971, Munger talked Buffett into buying See’s Candy for about three times the stores’ net worth, much more than Buffett was used to paying for a business. But See’s generated over $2 billion in earnings for Berkshire.
  

• “This purchase ended my pursuit of ‘cigar-butt’ investments—mediocre companies at ‘bargain’ prices—and set me in pursuit of splendid businesses selling at [reasonable] prices,” Buffett wrote in 2015. “Charlie had been urging this course for some years, but I was a slow learner.”

Forging ahead: Munger, a billionaire, lived in the same house for 60 years and earned a modest $100,000 salary. 

• At 31, he was virtually broke, divorced, and burying his 9-year-old son, who had just died of leukemia. At 52, he developed cataracts, and a failed surgery left him blind in one eye. Yet Munger kept forging ahead, helping Buffett turn Berkshire into a $784 billion powerhouse.
  

• Munger often said that reading “all the time” and becoming a “learning machine” drove his success in business, investing, and life.

Under Buffett and Munger, Berkshire averaged an annual gain of 20% from 1965 through 2022, roughly twice the S&P 500. The pair posted a remarkable 3,800,000% return, per Bloomberg.

Why it matters:

Munger’s investing principles and wisdom have been studied and emulated for decades, and it’s hard to see that changing anytime soon.

Financial independence: He emphasized the importance of living below your means and argued that large companies like Costco did more good for society than big-name charities. 

• Munger loved buying cheap stocks, as evidenced by his large investments in beaten-down stocks like Wells Fargo during the 2008-09 financial crisis.
  

• “Like Warren, I had a considerable passion to get rich,” Munger said in 1995. “Not because I wanted Ferraris — I wanted independence. I desperately wanted it.”

Read some of our favorite Munger quotes

TOGETHER WITH THE AVERAGE JOE

The “IKEA Instructions for Investing”

Assembling IKEA tables got you feelin’ like the Steph Curry of furniture?

The Average Joe will turn you into the Marie Kondo of investing. Organized, calm and ready to conquer the markets.

Their newsletters are the “IKEA instructions for investing” — short, simple and concise — filled with market trends and insights.

But you don’t read IKEA manuals on your spare time and you wouldn’t read financial publications for fun. Until now…

🏠 Reno, Nevada Beats the Odds in Solving Homelessness

Could Reno, Nevada be a model for mitigating homelessness in America?

The number of unsheltered residents dropped by more than half after the city built a large tent to house its homeless population. 

• Many large American cities, particularly in the West, have struggled to get large numbers of the homeless off their streets.
  

• Reno built a giant tent that could accommodate more than 600 people, driving the number of homeless living on the street to just 329 from 780, according to The Wall Street Journal.

A good model: That 58% decline is a stark contrast from other Western cities like Seattle and Los Angeles, whose homeless populations have either grown or stagnated since the pandemic amid soaring drug addiction. 

• The problem isn’t easy to solve, which makes Reno’s success striking. California has spent over $20 billion since 2018 to address homelessness, yet the state still has half of the nation’s homeless population.
  

• Once people are safe in tents, Reno offers assistance with finding a job, transportation, and more permanent housing.
  

• The mayor of Anchorage, Alaska said “the Reno model is a good model,” and “we need a building that can be stood up as cheap as possible.”

Teamwork makes the dream work: In 2020, Reno had a problem. Its number of unsheltered homeless had tripped amid pandemic-related job losses and soaring housing costs. Its shelter could hold only 158 people. 

• “We as a community felt like if we didn’t get ahead of this, we would fail like San Francisco,” said one local real-estate developer and business leader. “So we on the public and private side put our heads together on what we could do about it.”

• Reno and neighboring counties teamed up to build a fabric structure about the size of a football field east of downtown. It cost about $17 million to develop, money raised from Covid-19 emergency funds and donations.

The campus will include a healthcare clinic and homeless-care buildings at a total cost of roughly $80 million.

Why it matters:

Downtown Reno businesses have seen increased sales. Tourists feel more comfortable walking the streets. And the city believes that it will, in turn, generate more tax revenue, part of which can get reinvested into the homeless, continuing the cycle. 

But not everyone loves the idea. One nearby commissioner said the shelter is a waste of money and only a band-aid solution. “I think they are just warehousing people,” he commented. 

• The shelters still don’t solve the growing nationwide problem of affordable housing shortages. The median home price in Reno jumped 30% to $570,000 in 2020.

Said one homeless person who lives in the tent: “It feels like a prison sometimes, but we’re safe and no one can harm me.”

Read more

MORE HEADLINES

🐶 The startup trying to help dogs live longer

👀 Billionaire donor Charles Koch pledges support for Nikki Haley in GOP primary

🛍️ Cyber Monday shoppers spend a record $12.4 billion online in 2023

🏀 Mark Cuban selling majority stake in the NBA’s Dallas Mavericks

✈️ The first green transatlantic flight on “sustainable aviation fuel” lands safely

⭐ Rare six-planet star system discovered in Milky Way

😵‍💫 Resolution to Last Year’s Nickel Market Crisis Finally Arrives

We’re finally getting some resolution to one of the biggest market dramas in recent years that most people don’t even know about.

Last year, following Russia’s invasion of Ukraine, which spurred a global panic over commodity supplies, the London Metal Exchange (LME) — a key cog in commodities markets — nearly “broke.”

• A short squeeze in nickel prices, in particular, launched the LME into the spotlight after it suspended nickel market trading and reversed some $12 billion worth of trades.

What’s happening: This week, the hedge funds Elliott Investment Management and the trading firm Jane Street, which both lost out on the trade cancellations, saw their lawsuits dismissed by judges.

• Elliott claims the trade reversals cost it over $450 million, and its lawsuit sought to have the LME’s actions declared unlawful. Despite the ruling, the hedge fund plans to continue the fight by appealing the court loss.

While the drama isn’t totally over, it’s one that’s gripped the attention of many institutional investors since the crisis had little precedent in modern financial history.

• The LME hopes the ruling restores confidence in its services as an exchange for commodity traders and validates its emergency decision.

Why it matters:

The LME sets benchmark prices worldwide for many key industrial metals.

Nickel prices jumped last year on worries about supply shortages due to sanctions on Russia and conflict in Ukraine as a few large investors were forced out of their short positions (betting nickel prices would go lower).

How it went down: With casualties mounting for short sellers, like Tsingshan Holding Group, which quickly accrued billions in losses on its short bets, firms raced to close out their short positions.

• To do this, they had to buy back the same quantity of nickel futures contracts they had sold short, balancing out their short trade by going equally long.
  

• Ironically, this demand only further bids up nickel prices, magnifying losses on short bets against nickel prices. Nickel prices surged more than 250% in just 24 hours.

As Bloomberg puts it, “The LME’s decision to cancel trades on March 8th, 2022, effectively served as a bailout for the world’s top nickel producer (Tsingshan) and other holders of short positions.”

• But the LME has defended its actions, saying that canceling trades fueling the nickel “squeeze” was necessary to prevent a “death spiral” that could’ve bankrupted itself and dozens of banks and brokers across the financial system.

Read more

QUICK POLL

Yesterday, we asked: How often do you order products on Amazon?

— One “never” responder added, “Cannot support a business that mistreats its employees.”

— Another said, “I try not to consume too much, but the convenience of online ordering is addicting.”

See you next time!

That's it for today on We Study Markets!

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