Summary
Charlie Munger died late last year, but he left behind a wealth of wisdom. At periods of extreme optimism, stocks are often expensive. If investors hope to profit from expensive stocks, the most effective strategy is to go short. The other side of the coin is extreme pessimism. This often presents a backdrop where stocks can become cheap.
Energy stocks made up around 2% of the S&P 500’s market cap, down from nearly 30% in 1980. The energy industry is very different today from what it was a decade ago. There is less debt, capital is being returned to shareholders, and valuations are undemanding.
Regional bank stocks continue to slide with PacWest leading the way down 50%. The market is looking for the next ‘domino’ to fall, keeping banks under pressure. All the banks mentioned outperformed an index of large-cap stocks over the past year.
