🧠 Sea Change

​View Online | Sign Up | Advertise​


Let’s talk about two destructive phenomena — one benign, one dangerous.

  1. Moths flocking to lights: Moths die by the millions getting too close to light bulbs.
  2. Diabetes: Between 1990 and 2020, the incidence rate of Type II diabetes increased by 50% in highly industrialized countries.

For over 99% of Earth’s history, moths had two reliable compasses to navigate the night: the light of the stars and the moon. Using transverse orientation, they made their way through their environment.

For over 99% of human history, people unknowingly followed a simple rule to make sure they didn’t go hungry: when sugar is available, eat it!

In both cases, a general rule was reliably helpful. They worked for millennia.

The problem: our environments have changed drastically. But when the environment changes, we are often very slow to change our rules.

Thus, the armor that protects us too often becomes the guillotine that ends us.

It’s a maddening problem — and the same is true in investing.

We have spent the vast majority of our investing lives in a zero interest-rate environment. It’s the only water we’ve ever swam in.

The general rule that we learned during this time period was “de-emphasize valuation.”

In other words, the quality of the company (moat, management, growth…etc) was far more important than the short-term valuation. Buying a great company — even when it was “insanely expensive” — became the rule to follow.

Until recently, this ‘rule’ worked great.

But, over the past 12 months, the environment has changed. The simple rule that aided our success has quickly turned into a liability.

Over the last year, we’ve acted like a moth flying towards the sun, only to discover the painful way that it was, in fact, a light bulb that we were after.

Famed investor Howard Marks called this a “sea change.” We whole heartily agree with that assessment.

Now, that doesn’t mean we’ve abandoned our core investing principles — but it does mean we have to look at our environment with new eyes.

We’ve been forced to unlearn the rule “de-emphasize valuation” and replace it with “emphasize valuation.”

When the environment changes, the rules that once protected you come to harm you.

A quote by John Maynard Keynes sums up this lesson nicely:

β€œWhen the facts change, I change my mind – what do you do, sir?”

Wishing you investing success,

– Brian Feroldi, Brian Stoffel, & Brian Withers

In Partnership with Tim Urban​

A brand new framework for thinking about today’s complex world

What’s our problem? Get to the bottom of modern society with a groundbreaking new book from Tim Urban, creator of the wildly popular blog Wait But Why. Dive deep into history, evolutionary psychology, political theory, neuroscience and more as you explore an entirely new framework for understanding our complex world. Packed with original concepts, sticky metaphors, and hundreds of drawings, What’s Our Problem?: A Self-Help Book for Societies is sure to change the way you see your world.

​Get your copy​

One Simple Graphic:

One Piece of Timeless Content:

Are you a fan or Peter Lynch? You can listen to his classic book “One Up On Wall Street” for free on this Youtube video.

One Twitter Thread:

If you’re a dad (like the three of us are), you’ll love this thread by SaveYourSon on 20 life lessons to teach your child:

twitter profile avatar
Save Your Sons

Twitter Logo
Twitter Logo
January 6th 2023

One Resource:

Need to send someone private information? Check out 1time.app. This free tool allows you to easily share encrypted information with a friend or colleague (like a user name or password).

One Quote:

More From Us:

πŸ‘¨β€πŸŽ“ The reviews of Valuation Explained Simply are fantastic! We are considering offering access to the video replays. Would that interest you? Click here to let us know.

πŸ“— If you’ve read Brian Feroldi’s book, he’d love a review.

πŸ‘¨β€πŸŽ“ The next cohort of Financial Statements Explained Simply launches in May. Click here to join the waitlist and be notified when enrollment is open.

Unlock Rewards

Would your friends, family, or colleagues enjoy this newsletter?
Share it with them using the link below!

1 Referral: Links to the best FREE investing resources

5 Referrals: 10 Stock Investing Mistakes ebook

25 Referrals: Signed copy of my bestselling book
Why does the stock market go up?


Facebook Twitter Linkedin Email

PS: You have referred [RH_TOTREF GOES HERE] people so far