Topley’s Top 10 – September 13, 2021

1. See Top Quintile of Stocks Historical Valuation

Ned Davis Research—From CMG Wealth On My Radar

2. Largest 25 Stocks in the S&P 500, Now vs 20 Years Ago

Yesterday, we took a look at the makeup of the S&P 500’s largest 25 companies in 2021 and compared it to that of 10 years ago. Today, we will be extending the study to 2001, twenty years ago right before the 9/11 attacks. On the day before 9/11, the sectors with the largest number of components in the top 25 in terms of market cap were Consumer Staples, Health Care, Technology, Financials, and Communication Services. While all of these sectors still hold a spot in the current top 25 list, the makeup has shifted substantially.  Energy and Industrials, which each accounted for 8% of the top 25 companies in 2001, now have zero representation in today’s list. Consumer Staples also reduced its count from five to two.

Only four companies that made up the list of top 25 names in September 2001 remain on the list today. Those four companies are Microsoft (MSFT), J&J (JNJ), Walmart (WMT), and Pfizer (PFE). The average return of these four equities, excluding dividends, is 221.81% with a median of 129.58%. While the turnover of this list has been high over the last 20 years, every member of this list is still in operation today, but two have been undergone mergers (Time Warner & Royal Dutch Petroleum). Interestingly enough, the members of this list have approximately the same proportionate makeup of the S&P 500, with only a 1.89% increase in the weightings of the top 25 stocks now relative to September 2001.

The US economy today is far different than it was in 2001. As it has changed, some companies have adapted and experienced massive growth, while others have been left in the dust. Apart from the two companies that are no longer independently publicly traded, the average return of the 25 largest companies from 2001 is 92.94% with a median return of 49.08%. Over that same period, the S&P 500 has returned 310.61%.

3. Record Annualized Inflows into Stocks

Danielle Dimartino Booth

4. Last Week I showed Record Issuance Chart…But Net Issuance After Stock Buybacks and M&A Different Story

Record stock issuance is not necessarily bearish if it is accompanied by high levels of buybacks or M&A activity

Mark Hulbert Marketwatch

The reason record share issuance may not actually be bearish is that there has been a heavy volume of stock buybacks (or repurchases), as well as of mergers and acquisitions. Each of these other activities represents the opposite of new stock issuance, since they reduce the number of shares outstanding. Record stock issuance is not necessarily bearish if it is accompanied by high levels of buybacks or M&A activity.

That means we need to focus on net, rather than gross, issuance. When we do that, a far different picture emerges. In fact, according to data from the Federal Reserve through the first quarter of 2021, as well as more recent data from TrimTabs, net issuance for non-financial corporations is negative — just as it’s been for many years now. That means that non-financial corporations on balance are retiring more shares than they are issuing.

5. Rising Prices Continue

Charlie Bilello Blog–Producer prices in the US took another leg higher in August, up 8.3% over the past year.

Aluminum prices hit their highest levels in over a decade while Natural Gas hit 7-year highs

US consumers don’t seem to be buying the Fed’s “transitory” argument, with expectations of future inflation averaging 4.8% in the next year and 3.7% over the next three years.

6. Car Companies Spending Staggering Money to Build Their Own EV Batteries

Barrons Global Auto Makers Are Scrambling to Build Their Own EV Batteries. The Investments Are Staggering.

Al Root

How rising demand drives falling prices

7. The Changing Venture Capital Landscape

The Changing Venture Landscape-Both Sides Blog-In short, In 2011 I wrote that cloud computing, particularly initiated by Amazon Web Services (AWS)

  • Spawned the micro-VC movement
  • Allowed a massive increase in the number companies to be created and with fewer dollars
  • Created a new breed of LPs focused on very early stage capital (Cendana, Industry Ventures)
  • Lowered the age of the average startup and made them more technical

So the main differences in VC between 2001 to 2011 (see graphic above) was that in the former entrepreneurs largely had to bootstrap themselves(except in the biggest froth of the dot com bubble) and by 2011 a healthy micro-VC market had emerged. In 2001 companies IPO’d very quickly if they were working, by 2011 IPOs had slowed down to the point that in 2013 Aileen Lee of Cowboy Ventures astutely called billion-dollar outcomes “unicorns.” How little we all knew how ironic that term would become but has nonetheless endured.

Ten years on much has changed.

The market today would barely be recognizable by a time traveler from 2011. For starters, a16z was only 2 years old then (as was Bitcoin). Today you have funders focused exclusively on “Day 0” startups or ones that aren’t even created yet. They might be ideas they hatch internally (via a Foundry) or a founder who just left SpaceX and raises money to search for an idea. The legends of Silicon Valley — two founders in a garage — (HP Style) are dead. The most connected and high-potential founders start with wads of cash. And they need it because nobody senior at Stripe, Discord, Coinbase or for that matter Facebook, Google or Snap is leaving without a ton of incentives to do so.

Mark Suster

From Abnormal Returns Blog

8. Lots Controlled by Builders

John Burns Real Estate

9. Recovering from a lack of sleep takes longer than you might think, study says

By Sandee LaMotte, CNN

(CNN)Yawning and exhausted from another night of little sleep? Congratulations, you have joined the multitude of people around the globe who suffer from sleep deprivation, a serious problem that can affect your mental and physical health.

Do you have social jet lag? Here’s what to do

Sleep problems constitute a “global epidemic that threatens health and quality of life for up to 45% of the world’s population,” according to World Sleep Day statistics.

But it’s easy to recover from that sleep deficit, right, especially if you’re young? A good night’s sleep or two — and certainly a full week of sleep — and you’re back to your fully functioning self? 

Unfortunately, a recent new study revealed that may not be the case, even for younger people. Thirteen people in their 20s who slept 30% less than they needed for 10 nights had not fully recovered most of their cognitive processing after seven nights of unrestricted sleep to recover.

“This is a well done, albeit small, study with multiple measures to examine the impact of partial sleep deprivation — mainly examining sleep duration using wrist actigraphy, EEG changes and cognitive performance,” said Dr. Bhanu Prakash Kolla, a sleep medicine specialist in the Center for Sleep Medicine at the Mayo Clinic in Rochester, Minnesota, who was not involved in the study.

“Reaction times improved over seven days and returned to baseline levels while other cognitive tasks including accuracy did not completely recover,” Kolla said.

A chronic lack of sleep affects your ability to pay attention, solve problems and make decisions.

“What the study showed is that there are things like memory and mental processing speed that will not be restored that quickly,” said sleep specialist Dr. Raj Dasgupta, an assistant professor of clinical medicine at the Keck School of Medicine at the University of Southern California, who also was not involved in the study.

“Definitely, the major parts of sleep loss can be recuperated, but there are things that you’re just not going to get back quickly,” Dasgupta said. “That’s why it’s so important not to have that sleep debt in the first place.”

Your brain needs sleep

It may have been a small study, but it echoes results from prior research. A lab-based sleep study found that people who were sleeping fewer than six hours a night for two weeks — and who thought they were doing just fine — functioned as badly on cognitive and reflex tests as people who were deprived of any sleep for two full nights.

How exercising can affect sleep

That’s because the brain needs uninterrupted sleep cycles to absorb fresh skills, form key memories, and repair the body from the day’s wear and tear. During sleep, your body is literally repairing and restoring itself on a cellular level.

A chronic lack of sleep therefore impacts your ability to pay attention, learn new things, be creative, solve problems and make decisions.

Even skipping sleep for just one night disrupts functioning. 

Being awake for just 18 hours can impair your ability to drive as badly as if you had a blood alcohol concentration of 0.05%, according to the US Centers for Disease Control and Prevention. Skip a full 24 hours of sleep, and you’ll soon be at 0.10% — well over the US legal driving limit of 0.08%.

2017 study found healthy middle-age adults who slept badly for just one night produced an abundance of the protein beta-amyloid, responsible for the plaques characteristic of Alzheimer’s. And a study published in June found that older adults who have significant difficulty falling asleep and who experience frequent night awakenings are at high risk for developing dementia or dying early from any cause.

Depending on our age, we are supposed to get between seven and 10 hours of sleep each night. But 1 in 3 Americans don’t get enough sleep, according to the CDC.

In addition, 50 million to 70 million Americans struggle with sleep disorders such as sleep apnea, insomnia and restless leg syndrome, which can ruin a good night’s shut-eye.

The CDC calls that a “public health problem,” because disrupted sleep is associated with a higher risk of conditions including high blood pressure, weakened immune performance, weight gain, a lack of libido, mood swings, paranoia, depression, and a higher risk of diabetes, stroke, cardiovascular disease, dementia and some cancers.

What to do

How long will it take you to recover from a lack of sleep?

“We do not know that exactly,” Kolla said. “This study shows that maybe some tasks, especially in younger patients, can take longer to recover following sleep deprivation.”

The key, sleep experts say, is to avoid becoming sleep deprived in the first place.

“We need to prioritize sleep and try and get at least seven hours each night,” Kolla said. “When we cannot, making sure that we have some time to recoup and being aware that the sleep deprivation impacts our mood and cognition is important.”

Sign up for forCNN’S Sleep, But Better newsletter.You’ll get science-based guidance for sleeping better tonight and every night.

You can set yourself up for good sleep by not smoking and keeping alcohol intake to a minimum. Eating a well balanced diet, getting regular exercise, staying mentally active, and keeping your blood pressure and cholesterol levels in check will improve sleep as well.

You can also tackle any sleep problems by training your brain for better sleep. Experts call it “sleep hygiene,” and suggest setting a bedtime routine designed to relax and soothe, which includes no TV, smartphone or other blue-light emitting device at least one to two hours before bed.

10. Remembering what you read

FS-Farnam Street Blog

“The thing that’s very clear is that when people hear information that comports with whatever their tribe believes, or whatever their tribe supports, they’re willing to accept it without doing a lot of digging into the quality of the source, the quality of the information, the implications of the rest of the information that goes with it. Anything that challenges what their tribe believes they are going to be more dismissive of whether or not it comes from a quality source.” 

— Making Better Decisions with Todd Simkin ( YouTube | Apple Podcasts | Spotify | Join our membership to get transcripts )

Remembering what you read

“The things you’re looking for, Montag, are in the world, but the only way the average chap will ever see ninety-nine percent of them is in a book.” —Ray Bradbury, Fahrenheit 451

Now that you’re actively reading, you’re engaging on a deeper level with the book. You are making connections to your own life, seeing new opportunities and possibilities. The next step is making sure you remember what’s important. Even the most diligent of us get caught up in the busyness of life, and we thus lose those still-fragile connections we make while reading. But we can help with that.

You’ll remember more of what you read if you do the following five things while you’re reading.

Takes notes

Making notes is an important foundation for reflecting and integrating what you read into your mind.

The best technique for notetaking is whichever one works for you and is easy to stick to. While there are hundreds of systems on the internet, you need to take one of them and adapt it until you have your own system. Some people prefer to record notes on index cards or in a commonplace book; others prefer a digital system. Notes are especially useful if you write on a regular basis, although everyone (not just writers) can benefit from making them.

In How to Take Smart Notes, Sönke Ahrens suggests a way of approaching notetaking to make the books you read a lasting part of your thinking. If you’ve never really done any notetaking that was effective, his book is a great place to start. But wherever you begin, you must make a system your own depending on how you work and what you like to read. Although How to Take Smart Notesfocuses on nonfiction and assumes that fiction writers (and readers) have no need of notes, don’t let that stop you if you are researching a time period in which to set a novel or you’re trying to learn story structure and style from the great novelists. Adapt your notetaking system to suit your goals.

Over the years, we tested a lot of different approaches to note-taking and even created our own that we use every day called the Blank Sheet Method. Here is how it works.

  1. Before you start reading a new book, take out a blank sheet of paper. Write down what you know about the book/subject you’re about to read — a mind map if you will.
  2. After you finish a reading session, spend a few minutes adding to the map with a different color.
  3. Before you start your next reading session, review the page.
  4. When you’re done reading, put these ‘blank sheets’ into a binder that you periodically review.

The blank sheet method is effective because it primes your brain and shows you what you’re learning. When you first start with a blank sheet, you’re forced to search your memory and put on paper what you know (or what you think you know) about a subject. As you read, you literally see your knowledge grow. If you don’t know anything about a book or subject going in, don’t worry. You’ll be able to borrow the author’s scaffolding to get you started. Reviewing your ‘blank sheet’ before your next reading session not only recalls the scaffolding and key ideas but improves your memory and connects ideas. When you’re done the book put the page into a binder. Review the binder every few months. This is essential for establishing deep fluency and connecting ideas across disciplines.

Another effective technique is to start your notetaking by writing a short summary of each chapter and transcribing any meaningful passages or phrases. If you are unsure how to simplify your thoughts, imagine that someone has tapped you on the shoulder and asked you to explain the chapter you just finished reading. They have never read this book and lack any idea of the subject matter. How would you explain it to them?

As you are reading a book, write your chapter summary right at the end of the chapter. If your reading session is over, this helps synthesize what you just read. When you pick up the book tomorrow, start by reading the previous two chapter summaries to help prime your mind to where you are in the book.

Stay focused

Decide that for the time you will be reading, you will focus on the book and nothing else. No quick Twitter checks. No emails. No cell phone. No TV. No staring into midair. Understanding and absorbing a book requires deep focus, especially if the subject matter is dense or complex. Remember, we are aiming for active reading. Active reading requires focus and the ability to engage with the words on the page.

Referring to the time before the internet, Nicholas Carr writes in The Shallows: “In the quiet spaces opened up by the prolonged, undistracted reading of a book, people made their own associations, drew their own inferences and analogies, fostered their own ideas. They thought deeply as they read deeply.

When you’re looking for results, for some tangible change to come out of reading a book, you need to engage with it as you’re reading it. And that requires focus.

If you’re struggling to stay focused on a particularly difficult or lengthy book, decide to read a mere 25 pages of it a day. It takes only a few minutes to nibble away at a challenging text. Completing a long book in this manner might take months, but at least you will have read it without getting overwhelmed or bored.

Mark up the book

Most of us were taught as children to treat books as something sacred—no folding the page corners, and no writing in the margins, ever. However, if you want to remember what you read and you have the means to do so, forget about keeping books pristine.

Go crazy with marginalia. The more you write, the more active your mind will be while reading. If you can’t mark up the book, do it on paper and note the page numbers.

Jot down connections and tangential thoughts, underline key passages, and make a habit of building a dialogue with the author(s). Some people recommend making your own index of key pages or using abbreviations.

The first time you write in a book can be unnerving, but in the long term, it leads to a rich understanding and a sense of connection with the author.

Make mental links

Books do not exist in a vacuum. Every concept or fact can be linked to countless others. Making an effort to form our own links is a fruitful way to better remember what we read.

Building vivid mental pictures is one of the most effective techniques for remembering anything, not least what we read. When you come across an important passage or concept, pause and visualize it. Make the picture as salient and distinctive as possible by connecting it to other ideas already in your brain.

Another way of building links is to hang everything on a latticework of mental models. Having a framework of deliberately constructed concepts enables us to better understand and synthesize books by allowing us to make connections to what we already know. Knowledge sticks in our memories easier if it attaches to something we already understand.

Using models while reading can also help you get more out of the book. Here are some examples of paths they might lead you down:

  • Confirmation bias: Which parts of this book am I ignoring? Does this book confirm my opinions? (Okay, but does it actually affirm your beliefs or are you just seeing what you want to see? If you cannot think of a single point in the book that you disagreed with, confirmation bias is likely distorting your reasoning.)
  • Bayesian updating: What opinions should I change in light of this book? How can I update my worldview using the information in it? Keep in mind the words of John Maynard Keynes: “When the facts change, I change my mind. What do you do, sir?”
  • Incentives: What motivates the characters or the author? What are they seeking? What is their purpose? Here’s how Kurt Vonnegut described the importance of incentives in books: “When I used to teach creative writing, I would tell the students to make their characters want something right away—even if it’s only a glass of water. Characters paralyzed by the meaninglessness of modern life still have to drink water from time to time.”
  • Availability bias: Are the books I have recently read affecting how I perceive this one? How are my immediate past experiences shaping my reading? Am I assigning undue importance to parts of this book because they are salient and memorable?
  • Social proof: How is social proof—the number of copies sold, bestseller status, the opinions of others—affecting my perception of this book? Is the author using social proof to manipulate readers? It is not unusual for authors to buy their way onto bestseller lists, providing social proof that then leads to substantial sales. As a result, mediocre books can end up becoming popular. It’s a classic case of the emperor having no clothes, which smart readers know to look out for.
  • Survivorship bias: Is this (nonfiction) book a representation of reality or is the author failing to account for base rates? Survivorship bias is abundant in business, self-help, and biographical books. A particular case of a successful individual or business might be held as the rule, rather than the exception.
  • Utility: If a book offers advice, does it have practical applications? At what point do diminishing returns set in?