Florida Bulls

You’re spoilt for choice when hunting the streets of Miami for overpriced burgers. Shrinkflation and Dollar strength guarantees an eyewatering experience. Shake Shack started out as a hot dog cart in Madison Square Park (NYC) and has graduated to a global fast-food outlet. Having spent a fair bit of time at JFK where a long Shack queue allows commuters to give away both time and money, we gravitated towards the familiar.

Our dinner was somewhat unique. We sat down outside and witnessed something astonishing: waiters feeding little six-wheel robots. These knee-high creatures arrived at the front door and waited… like Hachiko. A waiter would come out, open its top, put a delivery bag inside, close it – and it would turn around and wonder off into the night. “How long has this been going on?”, we asked the waiter. “Oh, very long”, said the Gen Z staff member, “five months or so.” We didn’t see them in town four months ago but we’re hoping our incongruent understanding of “long term” is industry related. These AI driven robots seemed content to be feeding the humans. For now. I pressed the pedestrian light for one, hoping he’ll remember me if things change.

“We work really hard to prudently compound the capital our clients have invested alongside our own” said the Chief Investment Officer of the firm. “Risk is everywhere, all the time, how the market prices risk fluctuates, and therein lies significant opportunities”, he continued. As we stood up from our meeting, one could see the Florida coastline in the distance. The same stretch of ocean where drone footage has shown countless swimmers in waist-deep water completely unaware of a giant bull shark cruising a few feet away from them.

Probabilistically speaking, this shouldn’t be any concern. Lightning strikes, tornados, boat accident statistics will put your mind at ease bobbing between the bulls. As Mark Twain said – “Facts are stubborn, but statistics more pliable”. Geopolitics, interest rates, earnings, valuations are all risks (think of them as sharks) that may or may not bite. No one knows. Investors and swimmers however tend to make the same mistake when estimating probabilities. They underestimate the probability of being exposed to the sharks and overestimate the probability of encountering it once clearly pointed out. It’s human nature. “Out of sight, out of mind” or “Jaws!!!”.

The bull market in equities that kicked off in October 2023 was underpinned by market consensus that central banks would be cutting rates starting in early 2024. That has proven to be incorrect. A resilient US economy has seen inflation prints come in hotter than expected. Equities however haven’t retraced lower as forward earnings expectations have been handed the baton to justify these levels.

Our interactions with investment teams around the world have made us think of the upcoming Sardine Run, where billions of pilchards will soon be swimming towards the warmer waters of Mozambique. The confluence of sardines, sharks and humans make for a somewhat different assessment of shark bite probabilities. That’s because the likelihood of exposure to sharks is higher and the probability of being bitten in a feeding frenzy is elevated.

Make no mistake, we believe that you should be in the water – just off to one side, away from the sardines. Warren Buffet said that you’ll only know whose been swimming naked when the tide goes out. Perhaps you could also know when panic sets in and they come running out the water?