Klement on Investing

Klement on Investing provides insights on global financial markets, combining empirical data analysis with an exploration of human behavior in economics, investment strategies, and the impacts of geopolitical tensions and policy decisions on markets. It challenges conventional wisdom and promotes understanding of complex financial dynamics.

Financial Markets Human Behavior in Economics Investment Strategies Geopolitical Tensions Policy and Economic Impact Market Analysis Inflation and Deflation Commodity Prices Supply Chain Vulnerabilities Investor Psychology

The hottest Substack posts of Klement on Investing

And their main takeaways

We all deserve to be rich

1 implied HN point • 21 Feb 25
💰 Finance Wealth Taxation Income Economics Social justice
  1. Rich people often believe they deserve their wealth and should pay less taxes, while poor people think wealthy individuals should pay more. This shows a big difference in attitudes based on personal wealth.
  2. When people become wealthy through effort, they feel they earned it and support lower taxes. Surprisingly, even those who get rich by luck, like winning a lottery, also argue for lower taxes on their wealth.
  3. After people become wealthy, they often stop considering ideas about sharing wealth or paying higher taxes. They tend to seek out information that supports their own views, ignoring arguments for helping those less fortunate.

Ambiguity is worse than risk

3 implied HN points • 19 Feb 25
💰 Finance Investing Risk management Market behavior Economic Policy
  1. Ambiguity can be more stressful than known risks. When people face uncertain situations about their jobs or income, they tend to invest less in risky assets.
  2. Financial insecurity leads to lower risk-taking in investments. People who feel financially unstable often shy away from stocks, choosing safer options like bonds.
  3. On a larger scale, countries with high financial insecurity may save less, which can worsen their economic situation. Improving financial security could help boost savings and reduce deficits.

Higher bank capital requirements work

1 implied HN point • 20 Feb 25
💰 Finance Banking Regulations Capital Economic Growth Risk management
  1. Banks now have to keep more money in reserve, which helps prevent risky behavior and protects the economy. This rule came after the 2008 financial crisis.
  2. Even though higher capital requirements may lower banks' profits, they do not slow down overall economic growth. The economy remains stable without large drops in growth.
  3. Overall, increased capital requirements reduce the chances of serious economic downturns, which is a big win for financial stability. It seems like this regulation is working well.

The anti-climate lobby is winning

2 implied HN points • 17 Feb 25
🇺🇸 U.S. Politics Lobbying Climate Policy Corporate Influence Environmental advocacy
  1. Anti-climate lobbying is heavily funded, with US companies spending more on opposing climate efforts than supporting them. This shows a strong influence from these companies on political decisions.
  2. On average, each US firm spends $277,000 on anti-climate lobbying, which is 50% more than the $185,000 spent on pro-climate lobbying. This spending difference highlights a significant imbalance in support for climate action.
  3. A few companies are leading the anti-climate efforts, outspending and outnumbering those in favor of pro-climate policies. This concentration of lobbying power makes it harder for the pro-climate side to compete.

Private equity: Resilient, but not immune

1 implied HN point • 18 Feb 25
💰 Finance Investing Private Equity Venture Capital Market Trends
  1. Private equity and venture capital can bounce back from economic shocks over time. If you hold these investments long enough, you are likely to recover any losses.
  2. Shocks in stock and bond markets can affect private equity returns more than investors might think. During a crisis, the reactions are often quick and correlated with these markets.
  3. Despite their resilience, private equity is not totally safe. Investors should expect some volatility during tough economic times, but patience can lead to better long-term returns.
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Index funds and the rise of mega caps, redux

4 implied HN points • 13 Feb 25
💰 Finance Investing Market Analysis Portfolio Management Financial trends Economic Impact
  1. Index funds have caused a big shift in the stock market, making large companies perform better than smaller ones. This is mainly because more money flows into these large companies due to index tracking.
  2. The growth of index fund ownership in large-cap stocks has increased significantly over the years, while small-cap stocks have seen almost no indexing. This means small companies are getting less attention and investment.
  3. If the flow of money into index funds decreases or investors start pulling money out, the highly indexed large-cap stocks could actually perform worse. This creates a risk bubble that could burst for larger companies.

Philosophical economics: Shameless robber barons

12 implied HN points • 30 Jan 25
💼 Business Economics Inequality Capitalism Philosophy Market Competition
  1. Wealth inequality in America is high, but it was worse during the Gilded Age. The richest 1% owned about 35% of all assets in 2020, which is a lot, but not as much as in 1913.
  2. Top American companies today, like tech giants, make huge profits that are not normal in competitive markets. They don't face enough competition, which leads to these big profits staying high.
  3. Today’s billionaires don't seem to share the same sense of responsibility as past leaders like Rockefeller and Carnegie. Many seem more focused on personal success rather than helping society.

Deglobalisation: Diversification rather than decoupling

2 implied HN points • 11 Feb 25
💼 Business Global Trade Supply Chains Investing Economics Market Trends
  1. Businesses are diversifying their supply chains instead of completely decoupling from certain countries. This means they are sourcing from multiple countries to reduce reliance on any single one.
  2. The evidence shows that while some decoupling is evident (like with Russia and the UK), many ties with countries like China are actually increasing.
  3. Overall, it's more about managing risks in supply chains rather than a full reversal of globalization. Companies are investing in new areas like Southeast Asia instead of just relying on past hubs like China or Russia.

When index funds make the market riskier

4 implied HN points • 05 Feb 25
💰 Finance Investing Market risk Index funds Portfolio Management Correlations
  1. Index funds can make the stock market riskier by increasing how closely stocks move together. When more money goes into these funds, stocks often react in similar ways.
  2. The ownership of stocks by index trackers affects their risk. More index fund ownership leads to higher stock price drops during market downturns, meaning more losses for those stocks.
  3. As index funds grow, the overall market's volatility also increases, making big market drops worse than they used to be. The concern is that everyone could suffer larger losses during a major market downturn.

You don’t bring me flowers, anymore

1 implied HN point • 14 Feb 25
💼 Business Consumer Trends Market Analysis
  1. A lot of people in the US celebrate Valentine's Day, with 71% participating in some way. Many spend money to show love, which can feel less genuine when gifts are so expensive.
  2. The average American spends about $185 on Valentine's gifts, and this has increased over the years. People are generally spending more now than they did a decade ago.
  3. Interestingly, fewer people are buying flowers for Valentine's Day compared to the past. Instead, more people are spending on jewelry, which has become a popular gift choice.

Let the sunshine in

2 implied HN points • 10 Feb 25
🌞 Climate & Environment Renewable Energy Agriculture Electricity Land use Environmental Policy
  1. Solar farms in New York State have helped increase farmland prices by 18% from 2015 to 2021. This shows that renewable energy can positively affect local economies.
  2. Farmland close to electric substations saw the most price increases. Locations far from the grid didn't benefit as much, making it more challenging for solar developers.
  3. Higher local electricity prices led to even greater appreciation in land values. Proper planning for renewable energy can improve lives and reduce electricity costs.

Political stability is necessary to attract investments

3 implied HN points • 06 Feb 25
💰 Finance Investing Economic Policy Market Trends Foreign Investment Risk Assessment
  1. Political stability makes a country more attractive for investments. When governments are stable, investors feel more secure putting their money there.
  2. Economic Policy Uncertainty can hurt investment. High levels of uncertainty about policies lead to lower returns and make investors hesitant.
  3. Recent research shows a drop in foreign investments during times of high policy uncertainty. Countries like the UK saw many foreign investors pull out after political events like Brexit.

If you get a takeover offer, fight

3 implied HN points • 04 Feb 25
💼 Business Investing Mergers Acquisitions Finance Market Analysis
  1. If a company gets a takeover offer, they should consider negotiating instead of accepting it right away. There's a good chance they can get a better deal.
  2. Research shows that most takeover deals do not fail and often result in the target company receiving more favorable terms. About 80% of modified deals end up giving more money to the selling company.
  3. Overall, companies approached for a takeover have a 94% chance of either keeping the original offer or getting a better one by negotiating.

Capitalism creates inequality: Stone age edition

4 implied HN points • 31 Jan 25
💼 Business Economics Inequality Capitalism Finance History
  1. Wealth inequality has existed since ancient times, even as far back as the Stone Age. Early societies had low inequality, but it started to rise around 6,000 years ago.
  2. The invention of farming led to people settling down, which allowed them to store wealth in crops and livestock. This changed how wealth was accumulated and shared among people.
  3. Over time, technology and the growth of states allowed some individuals to amass even more wealth, leading to high levels of inequality that are still seen in many developed countries today.

Trump-coloured glasses

2 implied HN points • 07 Feb 25
🇺🇸 U.S. Politics Political Views Government actions Risk-taking Social Interaction
  1. When the government changes hands, people's views of reality seem to shift based on their political party. It's like their feelings about the economy and events depend on who is in power.
  2. People often see actions taken by the opposing party as harmful while justifying their own party's actions as protective. There's a strong bias in how we interpret government actions depending on which side we support.
  3. Overall, any intervention is viewed differently depending on who it comes from. It's acceptable when it is from your own party but seems threatening when it's from the other side.

California’s electricity conundrum

4 implied HN points • 27 Jan 25
🌞 Climate & Environment Renewable Energy Natural resources Environmental Policy Climate change
  1. California has some of the highest electricity prices in the US, even though it's using more renewable energy. In 2023, its prices were about 70% higher than the national average.
  2. Several factors contribute to the high electricity costs in California, including expensive natural gas, wildfire-related expenses, and increased demand for power due to climate change.
  3. The shift to renewable energy is not the main reason for California's high prices. Other states with a lot of renewable energy actually pay less for electricity on average.

Philosophical economics: The golden calf of business and finance

5 implied HN points • 23 Jan 25
💰 Finance Tax policy Economic Growth Fiscal policy Investment Strategies Corporate Finance
  1. Cutting taxes isn't always the best option for improving the economy. Sometimes, raising taxes can actually help fund important things like infrastructure and education.
  2. There's a lot of disagreement about whether low taxes lead to higher profits and growth. In reality, many developed countries show no clear link between tax rates and economic growth.
  3. It's important to consider how tax money is spent. If governments invest in useful projects, they can create more value than just cutting taxes.

Children are bad for your career, unless you are a man

2 implied HN points • 03 Feb 25
💼 Business Gender Equality Labor Market
  1. Having children usually hurts women's careers more than men's, especially when they are young parents. Women often leave their jobs to take care of kids, while men generally do not face this issue.
  2. In countries with affordable childcare, women are more likely to stay employed after having children. This leads to smaller wage gaps between mothers and fathers.
  3. By age 50, many mothers earn more than childless women due to better job opportunities, while fathers often make more than non-fathers at both ages. Overall, being a parent seems to have different impacts on men and women's careers.

Can monetary policies inflate a stock market bubble?

3 implied HN points • 29 Jan 25
💰 Finance Investing Market Trends Monetary Policy Economic Analysis Stock Market
  1. Easy money policies from central banks can create bubbles in the stock market. When interest rates are low for a long time, investors tend to take more risks.
  2. Looking at historical events, many market crashes followed a time of low interest rates. It shows that keeping rates low can lead to excessive speculation.
  3. Currently, the US stock market is believed to be slightly overvalued, but not in a bubble. Some analysts think markets are around 10% to 20% above fair value right now.

Politicians care about (some) debt

3 implied HN points • 28 Jan 25
🇺🇸 U.S. Politics Government Economy Public Policy Elections Debt Management
  1. Politicians pay attention to government debt, but mostly when it's short-term. A small increase in debt can lead to a slight decrease in budget deficits, showing they take action to manage it.
  2. The maturity of debt matters a lot. If debt matures within 3 to 5 years, politicians are more responsive to it because it affects their chances of getting re-elected.
  3. Once the debt maturity goes beyond 10 years, politicians tend to ignore it. This can create long-term issues if they keep running large deficits, leading to unsustainable debt levels.

Philosophical economics: From individualism to libertarianism

6 implied HN points • 16 Jan 25
📖 Philosophy Political theory Economic Theory Individualism Social Structures
  1. Individualism, while beneficial for starting businesses, can lead to selfishness if taken too far. A healthy balance between individual rights and community needs is important for society's well-being.
  2. Libertarianism, which promotes extreme individualism, can create dangers for society by ignoring the communal nature of humans. This can lead to inequality and a breakdown in trust among people.
  3. When business and politics prioritize profit over social responsibility, it can harm society and increase inequality. History shows that high inequality can lead to serious problems for both communities and economies.

The impact of renewable energy on electricity costs

4 implied HN points • 20 Jan 25
🌞 Climate & Environment Energy Renewables Economics Policy Sustainability
  1. Renewable energy, like wind and solar, generally helps to lower electricity prices rather than raise them. In Spain, for example, these sources cut prices by up to 58% compared to using only fossil fuels.
  2. The recent energy crisis was mainly due to rising natural gas prices, not the shift to renewable energy. Without renewables, the costs and inflation would have been even worse.
  3. While renewables can be less reliable at times, investing in energy storage and other clean sources can solve the supply issues. Stopping the shift to renewables will likely lead to higher electricity bills and inflation.

Considerable overlap

3 implied HN points • 24 Jan 25
🔬 Science Behavioral Science Animal studies Cognitive skills Statistics Economics
  1. Baboons can learn to assess scatterplots and identify trends, similar to humans. This shows that different species can have overlapping skills in certain tasks.
  2. In general, smart baboons can outperform less intelligent humans in recognizing relationships in data. This highlights that intelligence can vary greatly, even within our own species.
  3. The study suggests that education plays a big role in developing skills, like understanding statistics. Humans often learn these concepts in school, while baboons do not.

Coffee makes men more sociable and women better looking

4 implied HN points • 17 Jan 25
🏥 Health & Wellness Nutrition Behavior Psychology Research
  1. Caffeinated coffee helps men be more social and motivated. When they drink decaf, they tend to hang out less and could get into more fights.
  2. Women don't gain weight differently based on their coffee type, but decaf coffee affects their motivation. Drinking decaf could make them less inclined to take care of themselves.
  3. Research shows caffeine affects behavior and motivation. But the studies used mice, as ethical concerns would prevent testing humans in such a way.

Can we measure soft power?

3 implied HN points • 22 Jan 25
🌍 World Politics Soft Power Geopolitics Cultural influence International relations Economic Impact
  1. Soft power is about a country's influence through culture and lifestyle, not just military or economic strength. Researchers created a soft power index to measure this influence in various countries.
  2. South Korea topped the soft power rankings, surprising many since it’s not always viewed as a global leader. Countries like Germany and China also ranked higher than the US, which many might not expect.
  3. The study suggests that soft power can affect financial markets and exchange rates. Countries with strong cultural influence and global reach might see less fluctuation in their currency values.

Let me fix those forecasts for you

7 implied HN points • 03 Jan 25
💰 Finance Investing Market Analysis Forecasting Equities Financial trends
  1. Forecasts for stock market returns are often inaccurate. For example, analysts expected the S&P 500 to rise by about 8% in 2024, but it actually rose by 23%.
  2. Historical data shows a low correlation between predicted and actual stock market returns. Over the last 20 years, the correlation for analysts' forecasts has been very weak.
  3. Using forecast errors, we can adjust predictions for the next year. For 2025, the S&P 500's return could realistically range from a 29% drop to a 47% increase.

Analyst do not read across enough

3 implied HN points • 21 Jan 25
💰 Finance Investing Stock Market Earnings Reports Financial Strategy
  1. Analysts often miss important information from companies outside their coverage. This means they might not fully understand trends that affect all businesses in a sector.
  2. When analysts react to earnings news, they usually overreact, leading to big price swings in stocks they cover. This overreaction can create temporary price changes that might not last.
  3. Because heavily covered stocks tend to see bigger price moves after news, there could be a strategy to buy less covered stocks and sell more popular ones right after earnings announcements. But this requires quick actions that many investors can't easily pull off.

It's 2025 and life is still messy

6 implied HN points • 02 Jan 25
💰 Finance Investing Economics Market Trends Sustainability
  1. The author writes on various topics related to economics and finance throughout the week, with Mondays focusing on ESG and sustainability, and Fridays being more lighthearted and fun.
  2. The posts challenge common theories and emphasize understanding the real world through experimental data rather than traditional economic models.
  3. Life and financial markets are unpredictable, and it's important to embrace curiosity about how things really work instead of relying on rigid theories.

Philosophical economics: Status anxiety

4 implied HN points • 09 Jan 25
📖 Philosophy Economic Theory Political Economy Social Dynamics Wealth Inequality
  1. Status anxiety makes people feel like they are doing worse than their peers, leading them to take bigger risks in their investments or choices. This could mean putting themselves in tough situations just to feel they might catch up.
  2. Recent events like Brexit and the election of Donald Trump can be seen as responses to this anxiety. People felt left behind, and their desire to disrupt the system was a way to express their frustration.
  3. Economic changes, like slower growth and higher taxes, can worsen the feelings of anxiety among the less well-off. When people feel they have no control, they often react in ways that can hurt the economy instead of helping it.

A watershed moment for bond yields

3 implied HN points • 15 Jan 25
💰 Finance Investing Bond Market Economic Trends Government Policy Macroeconomics
  1. Long-term bond yields are rising again after decades of decline. This shift suggests that investors are now expecting a risk premium for holding government bonds.
  2. Several factors influence bond yields, including government deficits, demographic changes, and the balance of supply and demand for safe investments. These can push yields higher or lower.
  3. The trends observed in bond markets could change how governments finance their debts in the future. It's a developing situation that could impact financial markets.

What happens to stocks after an inflation shock?

3 implied HN points • 14 Jan 25
💰 Finance Investing Stock Market Economic Analysis Risk management Market Trends
  1. Stocks usually drop about 4% in real value after a sudden inflation shock. This happens because investors get worried about future profits.
  2. Not all companies respond the same way to inflation. Companies with high profit margins can handle inflation better than those with lower margins.
  3. To prepare for inflation shocks, it's smart to focus on companies that have high markups and strong cash flow. These companies are generally more resilient.

Bad year? Increase risk. Good year? Do the same.

3 implied HN points • 08 Jan 25
💰 Finance Investing Risk management Hedge Funds Market Trends
  1. Hedge fund managers often take more risks after a bad performance to try and recover losses. This can lead to excessive risk-taking because they don’t lose more than what's already lost.
  2. Interestingly, top-performing hedge fund managers also increase their risks, possibly due to overconfidence or wanting to attract more investor money.
  3. The way hedge fund fees are structured can encourage these risky behaviors, which might not be in the best interest of investors.

YIMBY to windfarms

3 implied HN points • 06 Jan 25
🌞 Climate & Environment Renewable Energy Sustainability Environmental Policy Urban Development
  1. Many people support wind and solar energy, but they often oppose having them in their own communities. This is called NIMBYism, which stands for 'Not In My Back Yard.'
  2. Wind farms can actually boost the finances of local towns by increasing tax revenues, which helps pay for local services and infrastructure.
  3. When towns have more money from wind farms, they can invest in growth, leading to more jobs and lower property taxes over time, making it beneficial for residents overall.

I hate SUVs and pickup trucks

5 implied HN points • 13 Dec 24
🇺🇸 U.S. Politics Transportation Public Safety Urban planning Environmental Policy
  1. SUVs and pickup trucks are bigger than some tanks, making them a danger on the roads. Smaller cars can do the same job more safely.
  2. The design of SUVs can lead to more severe injuries or deaths for pedestrians, especially children. Studies show that if these larger vehicles were replaced with regular cars, many lives could be saved.
  3. Driving an SUV doesn't make motorists safer; advancements in car safety technology are the bigger reason for decreased motorist deaths. Choosing a smaller, regular car is better for everyone.

Are you kidding me?

2 implied HN points • 10 Jan 25
💼 Business Gender bias Stock Market Corporate Leadership
  1. Analysts treat male and female CEOs differently, based on gender stereotypes.
  2. Female CEOs using 'uptalk' may face negative reactions, while using a more masculine tone can lead to better outcomes.
  3. Unconscious bias against female CEOs affects how analysts view them, which is frustrating and unfair.

The UK’s failed Annual Investment Allowance

2 implied HN points • 07 Jan 25
💼 Business Investment Policy Economics Technology Productivity
  1. The Annual Investment Allowance (AIA) was created to encourage UK businesses to invest in equipment to boost productivity. However, it ended up incentivizing investments in outdated technology instead.
  2. While businesses did increase spending on IT hardware and software due to the AIA, they significantly reduced their investment in modern cloud-based services. This shift has left UK companies behind in adopting the latest technology.
  3. As long as the AIA excludes newer IT options like big data and AI, UK businesses may continue to fall short in improving productivity and competitiveness on a global scale.

Factors come and go…

4 implied HN points • 12 Dec 24
💰 Finance Investing Market Trends Portfolio Management Risk Assessment Economic Factors
  1. Investment trends often come and go, leading to mixed results. It's important to recognize that what works today may not work tomorrow.
  2. Combining different types of investments can help manage risks, but it also comes with uncertainties about what factors might perform well in the future.
  3. Using flexible models that adapt to changing market conditions can be useful, but they can overlook new factors that may become important. The investment world is always changing, making it an exciting challenge.