Currency is an expression of national stability

And finally, here’s what Joe’s interested in this morning

In the short term, the stuff that drives currency markets in developed countries is kind of banal. Inflation, central bank expectations, trade data... these are some of the things that might cause exchange rates to move higher or lower on a given day. But ultimately, a currency is an expression of politics and national stability. Unlike other financial assets, it's fundamentally a social network: something that is accepted as having value because of public trust. That's one reason why the most stable countries in the world (the U.S., Switzerland, Japan, etc.) tend to have very strong currencies. The euro is weak right now not because of economic performance, but because of uncertainty about the future of the single-currency bloc as a political entity. At the far end of the spectrum, you have currencies like the Turkish lira or the Venezuelan bolivar that reflect deep dysfunction. If the developed world continues to look more like emerging markets, then currencies may move even more on politics and less on things like interest-rate differentials. To see what happens to a currency when politics undergoes an extreme collapse, check out our recent Odd Lots podcast with the historian Rebecca Spang on the monetary history of the French Revolution.

How to Turn $5,000 into $30 Million

Summary: 

Over 35 year time frame, retail stocks - Home Depot and Walmart - did much better than top software company - Microsoft. 

Investing is all about spreading portfolio with few such stocks and being invested over such a long period. 

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Home Depot (HD) closed at all-time highs today. $5000 invested in Home Depot when it went public in 1981 is worth about $30 million today.

Turning 5k into 30 million for 35 years means that HD compounded at an average annual rate of 28%.

28% annual appreciation for 35 years is very, very rare. To compare to some of the best-performing stocks of all time: 5k invested in Microsoft in 1986 is worth about $4.85 million today. 5k invested in Walmart in 1975 is worth about 29 million today. 5k invested in Applied Materials (AMAT) in 1975 is worth about 22 million today.

Finding a stock that has the potential to compound at 28% annually for 35 years is close to impossible and probably, it won’t be repeated ever again. Holding such a stock for 35 years might be even harder.

What if instead of finding a stock that can compound annually at 28% for 35 years, you find a stock that can go up 28% this year? And then you repeat the exercise every year for 35 years, one stock at a time? It won’t be easy, but it is also a lot more manageable. Compounding can be magical.

1562 stocks went up more than 30% in the past 12 months. 334 went up more than 100% for the same period.