A disciplined weekly review of the forces shaping risk and return.
Key Points
- Markets reacted to heightened geopolitical tensions this week with Indices decline and WTI Crude up 22.2%
- The 10Y2Y indicates we may be due for a recession (nobody knows)
- Garmin (GRMN) Fitness Segment revenue comes in at $726M for FY2025, up 50% y/y.
Markets
- Markets are still in a small shock from the Iran conflict with the VIX climbing 27.5% while major market indices decline 0.6% to 3.4% respectively.
- The S&P 500 is still ahead of the Nasdaq on a 5 year basis.
- WTI Crude jumps 22% in the last week.
Macro
10 Year Treasury Constant Maturity Minus 2 Year Treasury Constant Maturity
What it measures:
Also known as the “10Y–2Y,” this is the yield on the 10‑year U.S. Treasury minus the yield on the 2‑year U.S. Treasury — a simple measure of how steep (or inverted) the yield curve is.
Why it matters: Historically, when this spread turns negative (an “inversion”), recessions have often followed — though the timing has varied and the signal isn’t perfect. It’s a useful indicator to watch, not a precise clock.
There’s a big downside though: timing the market is almost never a good idea. If you had sold when the latest 10Y2Y dipped below zero in April of 2024, you would have missed out on this:
So far we’ve covered half of the risk. The other half is in getting back in. The thing about market timing that a lot of people don’t talk about is you need to get it right twice per iteration.
This also sets a precedent of staring at the screen, watching the market and the news, trying to determine when a good time is to enter/exit the market.
For most long‑term investors, frequent market timing is one of the most reliable ways to erode returns — especially after taxes, fees, and behavioral mistakes. Even if you get lucky 10 times in a row, it’s a miserable way to live, and messing up the timing on the 11th iteration can destroy years of wealth compounding.
I would much rather learn about individual businesses and the landscapes they operate within.
“So What?”
I cover the markets and macro for a few reasons. One is to reinforce the habit of zooming out when macroeconomic conditions change. Almost always a news channel is incentivized to make things a bigger deal than they really are. The opposing idea here is that to be a great investor, one must accept that they are incentivized to see the world accurately and think clearly. This is the hard part because “The first principle is that you must not fool yourself, and you are the easiest person to fool” (Richard Feynman).
Are we headed for a recession? I have no idea. I’d be wary of anyone who claims they know for sure — the track record of consistent macro calls is not great.
This is especially important lately as “doomer” AI reporting has become rampant and the conflict with Iran unfolds.
Will AI take jobs? Absolutely. Will there be global conflict? Unfortunately, yes.
Will this lead to the economic collapse of society? I don’t think so.
As long as humans solve problems and create businesses with the intention of solving problems for customers, I think our financial world will be just fine. There will be bumps, bruises, recessions, depressions, and wars, but they are normal.
I will continue to focus on what I can control: buy wonderful companies at reasonable prices and hang on.
Equities
Garmin (GRMN) Earnings
A couple weeks ago Garmin announced their FY2025 earnings. I’m impressed with their fitness segment:
Their FCF/Sh LTM numbers look pretty good too:
However, Garmin is not without its risks including tariff uncertainty, memory component cost pressure, supply chain constraints, and more.
I think it’s interesting how they intentionally put engineering close to production, so end users get the benefit of engineering-first products.
- Walsh Financial and/or its clients may hold positions in securities discussed.
- Garmin is mentioned for educational discussion. This is not a recommendation to buy or sell any security.
Education
When considering working with a financial professional, it’s generally wise to look at the incentive structures inherent. For example, I am an independent fee-only fiduciary.
- Independent – I am not owned by someone else or another business.
- Fee-Only – I am paid only by clients, not by commissions on products.
- Fiduciary – As a Registered Investment Adviser, I’m legally required to act in your best interest and not put my interests ahead of yours. That includes giving advice based on your goals and making full and fair disclosure of any conflicts of interest.
When dealing with a financial professional, it’s a great idea to inform yourself by asking questions like:
- How do you get paid?
- Are you a fiduciary?
- How do you handle conflicts of interest?
Wealth
It’s Never Too Late
The best time to plant a tree was twenty years ago. The second-best time is now.
Chinese proverb
I hear again and again “I wish I started sooner.” While a valid wish, it doesn’t help anything. What helps is to address where we are today, and how we can improve the situation with wisdom.
Quote of The Week
The first principle is that you must not fool yourself and you are the easiest person to fool.
Richard P. Feynman
Richard Feynman was a physicist and gifted teacher. His quote here is a great example of what happens to many investors who fool themselves into thinking a certain way, only to be taught a tough lesson by Mr. Market.
We all tell ourselves stories, because we are human, but we also have the opportunity to continually seek out a more accurate view of reality, the markets, and our own investments.
Michael’s Corner
Two Track Analysis
Personally, I’ve gotten so that I now use a kind of two track analysis. First, what are the factors that really govern the interests involved, rationally considered? And second, what are the subconscious influences where the brain, at a subconscious level, is automatically doing these things—which, by and large, are useful but which often misfunction? One approach is rationality, the way you’d work out a bridge problem: by evaluating the real interests, the real probabilities, and so forth. And the other is to evaluate the psychological factors that cause subconscious conclusions, many of which are wrong.
Munger, Charles T.. Poor Charlie’s Almanack: The Essential Wit and Wisdom of Charles T. Munger (p. 85). Stripe Press. Kindle Edition.
Many of us lean towards one side of the fence when it comes to processing information: logical vs emotional. While we like to think that investing often rewards the former, ignoring the latter can land investors in hot water. It’s important to think along both tracks.
The logical:
- Economics
- Probabilities
- Incentives (my favorite)
- Math
- Competitive dynamics
- Expected value
- Second‑order effects
- Base rates
- What’s the underlying truth?
The psychological:
- Social proof
- Commitment/consistency
- Authority bias
- Incentive-caused bias
- Deprival superreaction (loss aversion)
- Availability bias
- Envy/resentment
- Reciprocation
- Stress and fatigue
- What will people do under pressure?
- What behavior is most predictable, not most reasonable?
A lot of my own personal headaches in the past came from ignoring the psychological track. Only when I learned to accept that humans are not logical (including me!) did things start to click.
PS — You’ll notice that I often talk about judgement, biases, and psychological factors. This is because nobody is purely logical. The best we can do is educate ourselves on human biases and implement guardrails for ourselves. Our brains are quite powerful, often bringing to light subconscious decisions that affect our lives in very real ways.
Things brings me to my next point:
The Line AI Struggles to Cross
There’s a ton of fear lately about how AI might take all of our jobs.
In my view, there’s an important line AI still struggles to cross consistently: turning information into insight, and insight into wisdom.
Key point: Under “Insight”, notice how the two highlighted points are different color. Those are two different data points from completely opposite sides of the network in different domains.
We humans have the power to notice similarities across domains (insight), and then link them (wisdom).
Once we notice the similarity, the connection is automatic (the “ah ha! It’s so simple. How did I not find this sooner?” moment).
Have a great weekend.
— Michael
Disclosures
This newsletter is provided for informational and educational purposes only and does not constitute investment advice, an offer, or a solicitation to buy or sell any security. Walsh Financial is a Registered Investment Adviser.
The content is general in nature and is not intended to be advice tailored to any particular person, circumstances, or investment objectives. Any references to individual companies, securities, sectors, asset classes, market indexes, commodities, or economic and market conditions are for general commentary and discussion only and should not be construed as a recommendation or a call to take any specific action. Walsh Financial and/or clients may hold positions in securities mentioned.
This information is not intended to provide, and should not be relied upon for, accounting, legal, tax, or insurance advice. Readers should consult with their financial advisor and/or other qualified professionals regarding their specific situation and the then-current applicable laws and rules before making any financial decisions.
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