?? LTP Notes 002: Wind Power Takes the Lead Over Coal, Google's $300B Revolution, The ROIC Advantage, and Others

Some?investing notes?that may help you?gain insights or make long-term decisions: Wind Power Takes the Lead Over Coal; Google's $300B Revolution; The ROIC Advantage; The S&P 500's 5-Year Volatility Journey; Millennials Drive Housing Market Shift; When 23% Carries the S&P 500; The 60/40 Portfolio: Not So Balanced Anymore.

Published originally on ?? https://longtermpick.com/p/ltp-notes-002

?? Wind Power Takes the Lead Over Coal

In a significant shift, wind energy is now generating more electricity in the US than coal. The chart shows a clear decline in coal-generated electricity since the mid-2000s, contrasted by a steady rise in wind power. By 2023, wind energy surpassed coal in terms of megawatt-hours produced.

This trend highlights the growing importance of renewable energy sources in the US energy mix. The increase in wind power generation reflects advancements in technology and a shift towards more sustainable energy solutions, while the decline in coal usage underscores the nation's move away from fossil fuels.

?? Google's $300B Revolution

Google's (GOOGL) journey from $3B to $311B in 20 years is a masterclass in tech dominance. Starting with Android ($50M) and YouTube ($1.65B) in the mid-2000s, they've strategically acquired game-changers like Motorola, Nest, DeepMind, and Fitbit.

Each purchase fueled exponential growth, transforming Google from a search engine into Alphabet - a diversified tech powerhouse. A story of relentless expansion and smart bets on emerging technologies.

?? The ROIC Advantage

High ROIC companies deliver superior returns over time. This chart shows the stark difference in growth between a company with 30% ROIC (Company X) versus one with 10% ROIC (Company Y), both reinvesting 50% of profits.

Starting with $100, Company X's value soars to $105.54 after 10 years, while Company Y crawls to just $15.51. The compounding effect is clear – higher ROIC leads to exponentially greater wealth creation, even with identical reinvestment rates.

?? The S&P 500's 5-Year Volatility Journey

The S&P 500's daily returns from 2020 to 2024 reveal a fascinating story of market volatility and stability. 2020 stands out with wild swings, dots scattered from -12% to +8%. 2021 and 2022 show tighter clusters, suggesting more consistent performance. 2023 marks a turning point - the last >2% drop was on Feb 21, 2023.

Fast forward to 2024, and we see a remarkably tight cluster, with only one day (Feb 22) breaking the 2% threshold. This visual perfectly captures how US stocks have indeed been "chill" in 2024, displaying unusually low volatility compared to recent years.

?? Millennials Drive Housing Market Shift

Millennials are leading a surprising homeownership surge. From 2016 to 2022, the under-35 age group saw a remarkable 4.5 percentage point increase in homeownership rates, the highest among all age brackets. The 35-44 group followed with a 3.6 point jump. Interestingly, older age groups experienced minimal changes, with those 65+ seeing just a 0.3 point rise.

This data challenges the narrative of millennials being perpetual renters, suggesting a shift in their housing preferences and financial capabilities.

?? When 23% Carries the S&P 500

The S&P 500 is experiencing unprecedented concentration. Since 1980, the percentage of stocks outperforming the index has fluctuated, with peaks nearing 70% in 1980 and 2000. However, recent years have shown a dramatic decline. By 2024, only about 23% of stocks are outperforming the index - a record low.

This trend suggests a market is increasingly driven by a small number of high-performing stocks, potentially signalling heightened risk and reduced diversification benefits within the index.

?? The 60/40 Portfolio: Not So Balanced Anymore

This image illustrates the changes in a US 60/40 portfolio allocation over 5 years from July 2019 to July 2024. It compares the weights of S&P 500 ETF (representing stocks) and US Aggregate Bond ETF (representing bonds) in the portfolio. In 2019, the split was 60% stocks and 40% bonds, adhering to the traditional 60/40 portfolio strategy.

By 2024, the allocation shifted dramatically. Stocks grew to occupy 75% of the portfolio, while bonds shrank to just 25%. This significant change reflects a substantial increase in the proportion of equities and a corresponding decrease in fixed-income assets over the five-year timeframe.