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

The rise of Ponzi ETF

6 implied HN points • 21 Nov 24
💰 Finance Investing Market Trends Stock Market
  1. ETFs have grown from simple investments to complex, niche products. This makes it easier for investors to find ETFs for popular trends, but it can also create unstable market bubbles.
  2. Niche thematic ETFs can cause stock prices to rise due to high demand for a few illiquid stocks. This situation can lead to returns that aren't based on company fundamentals but on the flow of new investor money.
  3. When the market shifts and investor interest fades, these ETFs can collapse quickly. This creates a cycle where falling prices lead to more outflows, similar to a Ponzi scheme.

European equities won’t provide safety if US bubble bursts

3 implied HN points • 12 Dec 24
💰 Finance Investing Market Analysis Equities Economic Trends Risk management
  1. If the US stock market crashes, it can impact European markets too. Investors shouldn't expect safety by moving their money to Europe.
  2. Currently, US stocks are very expensive, which raises concerns about a potential market correction.
  3. A downturn in the US could be more harmful to Europe than past market crashes, like the tech bubble in 2000.

Can carbon capture work?

1 implied HN point • 13 Jan 25
🌞 Climate & Environment Climate change Carbon Capture Renewable Energy Environmental Policy Sustainability
  1. Carbon capture and storage (CCS) has been criticized for its high failure rates in projects, historically failing 88% of the time. This raises doubts about its effectiveness for climate change action.
  2. Studies suggest that CCS could improve and become more effective if its rollout follows the learning patterns seen with wind and solar energy in the past.
  3. While CCS could help keep global warming below 2 degrees Celsius, achieving the more ambitious 1.5-degree target seems unlikely without significant improvements and a drastic reduction in failure rates.

Want to know if a fund manager is skilled? Watch the tough days in the market

4 implied HN points • 26 Nov 24
💰 Finance Investing Fund management Market Analysis Financial trends
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US debt is risky: A rant about evidence-based investing

5 implied HN points • 13 Nov 24
💰 Finance Investing Debt Economics Bonds Market Analysis
  1. US Treasuries aren't actually risk-free. When the government borrows more without a plan to pay it back, the risk of default increases, which can lower bond prices.
  2. Many finance experts think the US is overspending, yet they still believe that investors will keep buying US debt without questioning it. This is a strange contradiction.
  3. It's important to ask for real proof when investing advice is given. Effective investing should be backed up with solid data, not just opinions or conventional wisdom.

Past performance is indicative of future results

3 implied HN points • 04 Dec 24
💰 Finance Investing Performance analysis Market Trends
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Why have economies become less dependent on labour?

4 implied HN points • 20 Nov 24
💰 Finance Economics Investing Labour Globalization Productivity
  1. Many economies are using less labor to create goods and services, shifting more towards machines and technology. This means jobs are being replaced by machines, which can work faster and more efficiently.
  2. Countries like Brazil, Russia, and the UK are seeing a slower growth in labor share, possibly because they haven't invested enough in technology. This might make it harder for them to keep up with productivity improvements seen elsewhere.
  3. Factors like the cost of capital, globalization, and the decline of workers' bargaining power can also impact how much labor is used in these economies. Understanding these various elements helps explain recent economic trends.

ChatGPT can predict analyst forecast changes

4 implied HN points • 19 Nov 24
💰 Finance Investing AI Applications Market Trends Performance analysis
  1. ChatGPT can analyze earnings calls and predict how analysts will change their forecasts. This means it can assess important company factors like growth and risk.
  2. The Analyst Insight Score (AIS) created from ChatGPT's analysis is better at predicting analyst actions and stock prices than traditional methods. It's about two to four times more effective.
  3. There's concern that as AI like ChatGPT improves in its analysis, it might replace human jobs in finance. This includes roles like equity analysts and fund managers.

Christmas Edition: Ahhhh! A Christmas tree!

2 implied HN points • 19 Dec 24
🎭️ Culture Holidays Traditions Health Environment Well-being
  1. Getting a real Christmas tree can be better for the environment if you keep it for several years. An artificial tree may only be better after four years of use.
  2. Shopping for real Christmas trees might help improve your mood and make you feel more relaxed. This is backed by a study that showed people felt restored after the experience.
  3. Choosing a real tree can contribute to a cozy holiday environment where you can enjoy time with family. It's a nice way to add some festive spirit to your home.

European stocks offer earnings stability in surprising places

1 implied HN point • 08 Jan 25
💰 Finance Investing Stocks Market Trends Economic Analysis Risk management
  1. European stocks can provide surprisingly stable earnings even in tough times. It's good to look for companies that have shown consistent growth before.
  2. In this uncertain economic climate, having a strategy can help investors feel more secure. Focusing on steady performers might be a smart approach.
  3. Many investors are looking for ways to adapt and manage risks this year. Finding reliable stocks in Europe could be part of the answer.

Should Disney be in charge of large infrastructure projects?

3 implied HN points • 29 Nov 24
💼 Business Infrastructure Financial planning Investment Psychology Customer Experience
  1. Disney approaches projects with a focus on creating fun experiences, which could lead to better user engagement. This idea suggests that people enjoy experiences more when they are entertaining, even if it means spending more time in transit.
  2. A fun financial planning approach could keep clients more engaged and lead to better outcomes. Instead of just focusing on returns and risks, financial advisors could link investment choices to a client's happiness and lifestyle.
  3. The concept of a 'happiness advisor' in finance may change how people perceive their investments. By considering both financial planning and emotional well-being, this approach might help people stick to their plans and enhance their overall satisfaction.

Corporate culture starts at the top

2 implied HN points • 16 Dec 24
💼 Business Corporate culture Leadership Management Employee Relations Organizational Behavior
  1. Leadership sets the culture of a company. If managers are good, employees will stay, but bad managers drive people away.
  2. High employee turnover often means poor corporate culture. People leave bad work environments, showing how they really feel about their jobs.
  3. Companies with staggered boards tend to have worse cultures. This setup allows old board members to stay, making it hard for shareholders to demand changes.

Our friends shape our memory

3 implied HN points • 15 Nov 24
🔬 Science Psychology Cognition Memory Social Behavior Neuroscience
  1. Our memories are not like videos; we actually rebuild them each time we recall information. This means they can be easily influenced by others.
  2. People tend to remember things better when they are related to someone they trust or feel connected to. This makes our memories less reliable for those outside our social circles.
  3. Misinformation can spread easily because we are less accurate in recalling what people from other groups say or do. This makes us more susceptible to believing false claims about them.

Fees matter, frequent fees matter more

3 implied HN points • 14 Nov 24
💰 Finance Investing Market Analysis Fees Performance Fund management
  1. Fees are important for investors. Higher fees usually lead to lower investment returns.
  2. Frequent fees can hurt your investment more than higher overall fees. If fees are deducted often, your money has less chance to grow.
  3. Understanding how performance fees work is key. Different structures, like high-water marks or hurdle rates, can affect your overall returns significantly.

Smart people cooperate

3 implied HN points • 08 Nov 24
💼 Business Economics Cooperation Decision-making Game Theory Policy
  1. Smarter people tend to learn and adjust their behavior more quickly when playing strategic games, which often leads to better outcomes for them.
  2. High IQ individuals are more likely to cooperate with others they perceive to be intelligent, benefiting both parties in the long run.
  3. Cooperation is generally more effective than competition in most situations, as working together often leads to better results for everyone involved.

What makes a market ‘look risky’?

2 implied HN points • 27 Nov 24
💰 Finance Investing Risk Assessment Market Analysis Behavioral Finance
  1. How股票价格表现过往的涨跌次数会影响投资者的风险感知。投资者会觉得涨得多的股票更安全。
  2. 如果股票的涨跌超过某个时间段集中在一起，投资者会觉得这支股票风险更高，因为可能面临连续的亏损。
  3. 最近的表现越好，股票看起来越吸引人，风险感知也会降低。人们倾向于基于最新的结果来做决策。

Remember, remember…

3 implied HN points • 05 Nov 24
💰 Finance Investment Behavioral Finance Market Trends
  1. Our memories, especially specific experiences with the stock market, have a strong influence on how we decide to invest. Remembering good experiences can make us more willing to invest, while bad memories usually make us hold back.
  2. People who have personal memories about investing often ignore expert opinions because they trust their own experiences. In contrast, those without such memories are more likely to listen to experts and follow their advice.
  3. It’s important for investors to be aware of their biases from past experiences. Having a clear investment process can help avoid these mental shortcuts and lead to better decision-making.

Achoo

2 implied HN points • 22 Nov 24
🏥 Health & Wellness Medicine Health Risks Public Health Patient Safety
  1. Just like any medication, sneezing can have surprising side effects, some of which might seem extreme. It's funny to think about how silly the side effects of something natural like sneezing could sound if listed like a drug's.
  2. Holding in a sneeze can be harmful too and might lead to serious injuries like broken bones or damage to the windpipe. It's a reminder that our bodies have their ways of reacting, and sometimes we should let them do their thing.
  3. Reports about weight loss drugs like Ozempic highlight the complexity of medications and their side effects. It shows that we often overlook the risks connected with common actions, like sneezing or taking a medication.

The most sophisticated test of ESG fund performance, yet

2 implied HN points • 18 Nov 24
💰 Finance Investing Economics Sustainability Market Analysis Portfolio Management
  1. Studies show that ESG funds and conventional funds have similar returns, typically around 0.2% to 0.3% difference per year. This means investing in ESG doesn't significantly affect your returns.
  2. Critics argue ESG funds often perform slightly worse than traditional ones, which raises questions about the returns of sustainable investing.
  3. Overall, recent research found no significant difference in performance between ESG and conventional funds, which may disappoint both supporters and opponents of ESG investing.

Did the Fed engineer a soft landing?

1 implied HN point • 18 Dec 24
💰 Finance Economics Investing Monetary Policy Inflation Wealth Distribution
  1. The Fed helped lower inflation significantly, reducing core inflation by about two percentage points. However, most of the drop in inflation came from factors outside the Fed's control, like global demand changes.
  2. High-income households have played a big role in keeping the US economy strong during tough times. Their spending helped prevent a recession, even as lower-income groups struggled more.
  3. While the Fed's actions can be seen as positive for the economy, they also disproportionately benefited the wealthy. This raises questions about how well the overall economy truly supports everyone.

Stars are treated differently

1 implied HN point • 17 Dec 24
💰 Finance Investing Markets Forecasting Performance
  1. Star analysts have a bigger influence than regular analysts because their reports can move markets. They are rewarded for giving high-quality forecasts that help investors succeed.
  2. To become a star, analysts need to make good predictions, but staying a star often means making bold and risky calls instead of focusing on quality.
  3. Once an analyst becomes a star, they are judged less harshly for mistakes. This means they can take more risks and make big headlines, even if it doesn't always lead to good outcomes.

The new divestment trend

2 implied HN points • 11 Nov 24
💰 Finance Investing Economics Market Trends ESG
  1. Most investors in Germany are not interested in sustainable investments. More than half of them prefer traditional investing and don't plan to change that.
  2. Social influence plays a big role in investment choices. If friends and family are into sustainable investing, it’s likely others will be too, but the opposite is also true.
  3. Many people who divest from sustainable investments do so because they aren't seeing good returns. They feel like their money could earn more elsewhere.

How long? How variable?

2 implied HN points • 07 Nov 24
💰 Finance Monetary Policy Inflation Economic Growth Interest Rates Consumer spending
  1. The effects of interest rate hikes from the Fed can take a long time to show in the economy, often around 40 months. This means changes don’t happen immediately after decisions are made.
  2. Different types of goods react to rate hikes differently. For example, inflation for durable goods can keep rising right after a hike, while nondurable goods start to decrease right away.
  3. Today’s economy is more service-oriented than it was decades ago, making it harder to control inflation. This shift means that the impact of monetary policy is felt later and inflation management becomes more complex.

How big is the equity risk premium?

1 implied HN point • 11 Dec 24
💰 Finance Investing Risk management Asset allocation Market Trends
  1. Institutional investors are more sensible than retail ones. They adjust their expected returns based on market conditions, increasing them during declines and lowering during rallies.
  2. Pension funds tend to use higher risk premium values compared to other institutional investors. This is likely due to their need to show that their assets can cover their liabilities.
  3. There's a wide range of expected equity risk premiums among different asset managers. Some have very pessimistic views on US equities, while others are much more optimistic.

No, higher corporate taxes do not reduce profits

2 implied HN points • 06 Nov 24
💰 Finance Economic Impact Investment Analysis
  1. Higher corporate taxes don't necessarily mean lower profits for companies. It can vary, and overall, it often just shifts profits from one group of companies to another.
  2. The effect of changing corporate tax rates on corporate profits is very small. Studies show there's not much correlation between tax changes and profit levels.
  3. Government spending of tax revenue can boost the economy. For example, if the government invests in infrastructure, it can help increase profits for involved companies.

A dick move

2 implied HN points • 01 Nov 24
🇺🇸 U.S. Politics Gun Control Masculinity Social Issues Research Studies Cultural Commentary
  1. A study found that men who own guns tend to be more satisfied with their penis size. This was surprising to many who thought the opposite was true.
  2. The research looked at over 1,800 men in the US and revealed that gun ownership relates to feelings of penis satisfaction, but this connection fades for men over 60.
  3. The study challenges stereotypes about men with small penises being more likely to own guns, showing a positive correlation instead.

Great, now the machines start to understand me

1 implied HN point • 06 Dec 24
🕹 Technology AI Machine Learning Natural Language Computing Research
  1. Generative AI has made big strides in understanding language, but it still struggles with things like irony and context. These are important parts of how people communicate every day.
  2. Recent studies show that chatGPT-4 is getting much better at understanding complex human interactions, sometimes even matching or surpassing human understanding. This shows how AI is evolving.
  3. AI still has weaknesses; for example, it can struggle with recognizing social mistakes people make in conversations. Unlike chatGPT, another model called LLaMA2 did better at this specific task.

Can demographics undermine Europe’s dominance in global trade?

2 implied HN points • 30 Oct 24
💼 Business Global Trade Demographics Economics Labor Market Productivity
  1. Europe's working-age population is shrinking, which means there will be fewer workers available to drive economic growth. This change could lead to higher wages and inflation.
  2. As global trade patterns shift, countries with younger, growing populations, like India and Africa, are expected to gain a larger share of global trade. This could change the trading landscape significantly.
  3. By 2100, Africa and South Asia could become the main centers of global trade, while Europe's influence might drop to below 20%. This shows a major shift in where economic power will lie in the future.

The growing partisan divide in US investor portfolios

2 implied HN points • 28 Oct 24
💰 Finance Investing Consumer behavior Political Influence Market Trends Portfolio Management
  1. Many US investors change their opinions about the economy depending on who is President. When their party is in power, they tend to feel more positive about economic conditions and vice versa.
  2. The partisan divide affects actual investment decisions, like how credit analysts rate companies based on the President's party. This can increase the costs for businesses if the opposition party is in charge.
  3. ESG investing shows a clear divide, with Democratic fund managers favoring these investments more than Republican ones. Mixing politics with investing can lead to missed opportunities.

Do you spend a lot of time gaming? You are probably ugly.

2 implied HN points • 25 Oct 24
🎭️ Culture Gaming Society Trends Youth Research
  1. Video games make a lot of money, much more than movies do, with many teenagers and young adults spending several hours each week playing them.
  2. Research suggests that less attractive people tend to play more video games because they have fewer friends and social opportunities.
  3. However, the study's findings aren't very strong, and the only clear trend is that girls tend to game less than boys.

European bond yields may keep rising

1 implied HN point • 04 Nov 24
💰 Finance Investing Bonds Markets Economy Interest Rates
  1. European bond yields are likely to keep increasing. This means that borrowing costs in Europe might rise.
  2. In recent weeks, notable increases in bond yields have been seen in the US, UK, and Germany. This suggests changes in how investors view long-term bonds.
  3. Investors might be adjusting their expectations about the future of government bond yields, moving away from the idea that they will consistently decline.

Energising energy producers

1 implied HN point • 04 Nov 24
💼 Business Investing Utilities Private Equity Market Competition Efficiency
  1. Competition is important for businesses because it helps them become more efficient and often leads to lower prices for customers. By bringing in new companies, industries can see positive changes and improvements.
  2. Traditionally, utility companies lacked innovation and often prioritized dividends over customer service. This has led to underinvestment in infrastructure, resulting in higher costs for consumers.
  3. Private equity and institutional investors have recently started buying utility companies, leading to better efficiency and management. These newcomers are able to sell electricity at higher prices by managing their output more flexibly, benefiting both investors and consumers.

Where is peak ETF?

1 implied HN point • 31 Oct 24
💰 Finance Investing Market Trends ETFs Index funds Market Efficiency
  1. ETFs and index funds are becoming more popular, but this raises concerns about how well the market works. If everyone just follows an index, new information might not affect stock prices as it should.
  2. Countries like the US and UK have a much larger share of ETFs compared to places in continental Europe. This difference could affect how investors approach the market in each region.
  3. Even though active investors help make markets more efficient, they might not gain more investor interest. Index funds could continue to grow, even if active management shows better results.

Regulation as a driver of investment risk

1 implied HN point • 29 Oct 24
💰 Finance Investment Regulation Market risk Economic Policy
  1. Regulations can increase costs for businesses, affecting their profits. When companies have to spend more on compliance, their margins become thinner.
  2. Different industries face different levels of risk from regulations. For example, manufacturing has higher costs due to regulation compared to services.
  3. Investors should pay attention to companies with high regulatory risks since they can see bigger changes in their stock values. More regulation often means higher investment returns for those companies.