๐Ÿง  Are Rate Cuts Bullish or Bearish?


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Welcome to Long-Term Mindset, the Wednesday newsletter that helps you invest better.

Today's Issue Read Time: <2 minutes

  • Lesson: Why hindsight bias can distort our views of reality
  • Timeless Content: The September effect, explainedโ€‹
  • Thread: How to review earnings
  • Resource: A free ebook on DCF modeling
  • And more!

Together with Finchatโ€‹

I (Feroldi here) am a huge fan of visuals. A good chart can relay information 10x faster than numbers or text alone. That's why I've recently become a power user of Finchat.

Finchat is a powerful tool that makes it easy to chart hundreds of business metrics with just a few clicks. This includes valuation metrics, financial metrics, analyst estimates, and even custom company KPIs like unit volumes, same-store sales, or even dollar-based net retention.

Finchat also allows you to take advantage of cutting-edge AI, drastically speeding up my research process. Finchat is free to try, but the site is so useful that I happily pay for its premium features.

Want to try it? Use this link to sign up and knock 15% off the annual price.

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Friends,

On April 9, 2020, Canadian comedian Julie Nolke hit the big time. In the first of a series of YouTube videos, she attempted to explain the pandemic to her January 2020 self.

A small sampling:

January 2020 Julie: I think [the Australian wildfires] are going to be the defining feature of 2020...they're a pretty big deal.
April 2020 Julie: Yeah, your definition of a pretty big deal is going to change, for sure.

The series continues with further visits detailing the George Floyd protests, the specifics of January 6th, and so on. What makes the videos so effective is the youthful ignorance of each "past" version of Julie.

The problem: we fail to see ourselves in these past "Julies."

The psychological name for this is the hindsight bias: we convince ourselves that past events were perfectly predictable before they occurred.

Read a diary from a New Yorker on September 10, 2001, or a European celebrating the end of the War-to-End-All-Wars in 1918, and you'll be reminded of just how unpredictable the future is.

This past week, the Federal Reserve cut rates by 50 basis points -- the first cuts in roughly four years. Some believe this is a bullish sign for the economy, and spending will accelerate with cheaper credit. Others believe it is a bearish sign, as rate cuts only happen right before a recession.

No matter how it turns out, you can be assured that there will be a chorus declaring, "See -- I told you so!"....as is to say that everything is about to unfold was perfectly predictable.

Our edge for long-term success comes from remembering that we'll always be the January 2020 Julie. We're unaware of what's around the corner, and we've prepared accordingly -- living below our means, and investing in wide moat businesses with acceptable valuations.

Do that consistently, and you won't ever need to predict what will happen next.

Wishing you investing success,

Brian Feroldi, Brian Stoffel, & Brian Withers

Long Term Mindset

P.S. Did you consume any great investing content this week? Reply to this email with a link. We'd love to read it.

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One piece of timeless content

Have you heard that September is the worst month for stocks? This article breaks down the history of this phenomenon and a few theories on what causes it.

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Brian Feroldi
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9:21 AM โ€ข Feb 14, 2021
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One resource

Are you a visual learner? If so, check out this free ebook by Dave Ahern. It contains 10 infographics that explain how a DCF model works visually.

One quote

Brian Feroldi

Brian Stoffel

Brian Withers

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More from us:

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VIDEO: Top 10 Ratios to Make You A Professional Investorโ€‹

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VIDEO: The 5 Most Expensive Stocks I Ownโ€‹

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Long-Term Mindset

I teach investors how to analyze businesses. Each Wednesday, I share six pieces of timeless content that can be read in less than 2 minutes. Read by 100,000+ investors from a16z, Amazon, Google, Microsoft, and more.

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