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TIP486: Macro Investing w/ Cullen Roche

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Oct 23, 2022

Guest

Cullen Roche

Cullen Roche, author of 'Pragmatic Capitalism' and founder of The Discipline Funds, delves into the world of macro investing. He argues why understanding the macro landscape is crucial for investors and compares the economy to the human body. Cullen critiques the traditional buy-and-hold strategy and discusses why homes aren't always great investments. He emphasizes the importance of global diversification and explains yield curve control—a key concept in today's economic discourse. His insights on money creation in a digital age are particularly thought-provoking.

01:21:20

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Episode notes

insights

INSIGHT

Macro Environment Importance

Understanding the macroeconomic environment is crucial for investors in today's interconnected world.
Government policies and global events play a larger role, making macro analysis essential.

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ANECDOTE

Cullen Roche's Investing Evolution

Cullen Roche's investing journey began with Graham and Dodd's value investing principles and Buffett's letters.
He emphasizes understanding both individual securities and the broader macroeconomic currents.

insights

INSIGHT

The Economy as a Human Body

The economy functions like a complex machine, with inputs and outputs influenced by human behavior.
Understanding economic flows and psychological responses is crucial for accurate predictions.

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Evolving Perspectives on Macro Investing

04:18 • 23min

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Understanding Bonds and Listener Engagement

26:59 • 2min

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Rethinking Investment: Homes, Stocks, and Bonds

29:12 • 24min

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Understanding Bonds: Tailoring Investment Strategies

53:28 • 6min

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The Power of Diversification in Investing

59:00 • 21min

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Pragmatic Insights and Future Endeavors

First published in 1934, Security Analysis is a seminal work in the field of finance that lays the intellectual foundation for value investing. The book, written by Benjamin Graham and David L. Dodd, distinguishes between investing and speculating, emphasizes the importance of thorough financial analysis, and introduces key concepts such as the 'margin of safety. ' The sixth edition includes commentary from leading Wall Street money managers and a foreword by Warren E. Buffett, who has praised the book for its enduring relevance in modern markets.

Capital in the Twenty-First Century

Thomas Piketty

In this book, Thomas Piketty examines the historical dynamics of wealth and income inequality from the 18th century to the present. He argues that when the rate of return on capital exceeds the rate of economic growth, it leads to a concentration of wealth and significant social and economic instability. Piketty's analysis is based on extensive historical and comparative data from over twenty countries, challenging the notion that free market capitalism naturally reduces inequality. He proposes a global system of progressive wealth taxes to mitigate these inequalities and protect democratic values. The book is a groundbreaking work that reorients our understanding of economic history and the inherent contradictions of capitalism.

How the Economic Machine Works

Ray Dalio

In 'How the Economic Machine Works', Ray Dalio provides a detailed analysis of economic systems, focusing on debt cycles, productivity, and the role of credit in economic growth. The book explores historical economic events like the Great Depression and offers insights into the dynamics of economic expansions and contractions. It is particularly useful for those interested in global finance and economic policy.

The intelligent investor

Jason Zweig

Benjamin Graham

Written by Benjamin Graham, 'The Intelligent Investor' is a seminal work on value investing that has inspired millions since its original publication in 1949. The book emphasizes the importance of distinguishing between investing and speculation, calculating the intrinsic value of companies, and maintaining a margin of safety. The revised edition includes updated commentary by Jason Zweig, who provides modern examples and insights to help readers apply Graham's principles in today's market. Warren Buffett, a disciple of Graham, has praised the book as 'the best book about investing ever written'.

Thinking, Fast and Slow

Daniel Kahneman

In this book, Daniel Kahneman takes readers on a tour of the mind, explaining how the two systems of thought shape our judgments and decisions. System 1 is fast, automatic, and emotional, while System 2 is slower, effortful, and logical. Kahneman discusses the impact of cognitive biases, the difficulties of predicting future happiness, and the effects of overconfidence on corporate strategies. He offers practical insights into how to guard against mental glitches and how to benefit from slow thinking in both personal and business life. The book also explores the distinction between the 'experiencing self' and the 'remembering self' and their roles in our perception of happiness.

Pragmatic capitalism

Cullen Roche

Pragmatic Capitalism offers insights into personal finance, financial market behavior, and portfolio construction. It introduces 'Monetary Realism,' a macroeconomic framework that challenges common myths in economics and finance. The book emphasizes understanding the modern monetary system and applying a pragmatic approach to investing.

IN THIS EPISODE, YOU’LL LEARN:

01:22 - Why and how do we need to understand the macro environment when we invest
07:18 - Why we should think of the economy as we think of the human body
19:02 - Why the traditional buy-and-hold equity strategy is flawed
26:20 - Why a house we live in is typically not a good investment
35:16 - How has the stock market performed after inflation and taxes?
40:38 - Why investors are not globally diversified when they invest in the S&P500
48:27 - Why bonds bear markets are different from bear markets in stocks
55:58 - Why diversification is about hating some of your portfolio all of the time
1:03:49 - How money creation will change with a digital currency by central banks
1:11:53 - What is yield curve control, and how is it exercised?
1:16:08 - What is the third mandate of the FED?

Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences.

BOOKS AND RESOURCES

Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members.
Stig's first part interview with Cullen Roche about Inflation.
Cullen Roche's website, The Discipline Funds.
Cullen Roche's website, Pragmatic Capitalism.
Tweet directly to Cullen Roche.
Email Cullen at cullenroche@orcamgroup.com.
Cullen Roche's YouTube channel.
Cullen Roche’s new research paper, All Duration Investing.
Cullen Roche’s book, Pragmatic Capitalism – Read reviews here.

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