Known. Unknown.

The beautiful astronomical clock in the photo is an unknown unknown (for me).

Covid-19 and its variants. Unknown unknown.

Unsustainable valuations of Hype and Halo assets. Known. When and how they'd crash. Somewhat unknown.

Federal Reserve shrinking its balance sheet and increasing interest rates. Known. When and at what pace. Unknown.

Okay, you get the point. Markets (and life) are a constant navigation of the known and the unknown.

But that’s not the main point of this note, which is actually intended to share my half-baked narrative on global markets while providing a quick Mash Global portfolio update.

Global markets.

The global stock markets have remained open for 20 days into 2022. During those 20 days, this is what market participants have witnessed.

Index	YTD returns, %
ACWI	-6.9
S&P 500	-7.6
NASDAQ 100	-12.4
Russell 2000	-13.4
NASDAQ Composite	-13.0

Let’s peel the Index onion and bare some ugly truths.

The next two datasets are courtesy the diligent workers serving the late Mr. John Pierpont Morgan. In other words, the following data is sourced from a JP Morgan research report.

Median stock within Index	YTD returns, %
ACWI	Not available
S&P 500	-16.3
NASDAQ 100	-22.6
Russell 2000	-33.4
NASDAQ Composite	-46.2

What you just read was data on the median stock within the index. What follows is data on the average stock within the Index.

Average stock within Index	YTD returns, %
ACWI	Not available
S&P 500	-18.7
NASDAQ 100	-26.2
Russell 2000	-39.6
NASDAQ Composite	-46.6

In this index correction and broader carnage, Mash owner-investors have experienced a 3.3% decline. As you already know, our portfolios continue to remain defensively positioned.

Within our core holdings, two of our businesses reported earnings results last week, another four report next week, and the remaining are due within the next month. For those that reported, business performance for 2021 wrapped up well and their prospects remain solid.

As the earnings season progresses, I expect the broader market dislocations to continue. There are behavioral and technical reasons for the same. Allow me to splash some colors and you can complete the painting.

---

Fun facts.

• 2021 saw a record $1.6 trillion in global equity inflows. That’s more than the inflows of 20 previous years combined. Now 20 days into 2022, I estimate that $7 trillion has been wiped out in market cap (7% average decline on a $100 trillion global market cap). That's more than 2x India's current market cap. Let that sink in.

• The US Technology sector accounted for the majority of inflows, both institutional and retail. Whether it was the Big 5, Tesla, or hyper-growth names. Also keep in mind that the Big 5 – Apple, Alphabet, Microsoft, Amazon, and Meta – account for 50% of the NASDAQ 100.

• Approximately 55% of the total market is invested via passive funds. This is a price-agnostic, double-edged sword. Good results when the market goes up, terrible consequences when the market goes down.

• Now put yourself in an institutional investor’s shoes. Year has started with a swift decline. Collateral just fell. Almost no net inflows, so no fresh cash available. Leverage and margin debt needs to be unwound. Cut your losers. Sell your winners. Get out before this falls further. And now repeat this across thousands of players. You have a crazy declining spiral.

• Put yourself in a retail investor’s shoes. Year has started with a swift decline. This is after speculative stocks have crashed anywhere from 50 to 85% since February 2021. No more YOLO (you only live once) left. Fading FOMO (fear of missing out). No free stimulus money. Let me book some profits and get out before I lose my shirt. And now repeat this across millions of players. You have a crazy declining spiral.

• So what do existing investors, both institutional and retail, sell whether to (a) pay down their collateral or (b) book profits? The NASDAQ 100. Or Big Tech. Or other Heavyweights. Because that’s where liquidity is the highest and that’s where money was made.

---

So what?

Now this is just one scenario amongst many. But it does have solid odds of playing out. Yes, playing out even further. Why you ask? Because markets take time to unwind. In fact, all natural processes simply take time. Yes, even in the age of artificial intelligence.

In the long history of markets, the 2020 crash and recovery was an anomaly, not a base case. Unfortunately, all new 2020 investors, including those who’ve spent less than 13 years in the markets, have been conditioned in an alternative reality. In which stocks only go up in a straight line. And if they go down, they recover before you blink.

I wish it were that simple. But something tells me it’s just not.

That said, the reality is no one knows if and when a further decline will occur. And if it does, how severe it will be or how long it will last. These are unknown unknowns.

Fortunately for Mash owner-investors, our risk discipline has ensured that:

(1) we have addressed the known unknowns well so far and hence, our investment portfolios have remained resilient in this volatile environment and

(2) we have both direct and readily convertible cash on hand to deploy.

Now it’s a matter of balancing prudence and courage as we navigate the choppy waters of the known and the unknown over the next few weeks. Excited. Let’s see what unfolds.

Have a good Sunday.