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welcome to the best interest podcast
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where we believe Benjamin Franklin's
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advice that an investment in knowledge
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pays the best interest both in finances
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and in your life every episode teaches
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you personal finance and investing in
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simple terms now here's your host Jesse
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Kramer hello and welcome to episode 77
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of the best interest podcast my name is
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Jesse Kramer later in today's episode
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Peter lazarof is going to be joining us
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Peter is the chief investment officer at
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plan Corp in St Louis plan Corp is a
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multi-billion dollar wealth management
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firm serving clients across the country
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very similar to my firm in that regard
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so we Peter and I kind of share that in
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common Peter star is rising Peter is the
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chief investment officer there as I said
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he also hosts the long-term investor
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podcast which I love the name the
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long-term investor I love the content I
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highly recommend it previous guests on
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Peter's podcast have included Morgan
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hell William Bernstein Burton Mel Ben
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Carlson and even somehow myself Jesse
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Kramer which is awesome it's so much fun
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and it's it's kind of like if Mount
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Rushmore had this fifth face you know
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hiding off somewhere in the woods to the
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side I don't know exactly how I made
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that list but I'm very thankful for
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Peter for having me on his podcast and
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anyway Peter's great our conversation
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today is fantastic it's all about
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investing in the stock market at
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all-time highs which ostensibly we are
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at right now Peter and I spoke last week
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I think it was the first week of March
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when we spoke I'm recording this right
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now on March 16th I know this episode
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might not come out until a little bit
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towards the end of March and who knows
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where the markets will be at that time
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but we can be pretty sure that whether
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markets are still at alltime Highs at
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the end of March we will see alltime
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highs again it's a recurring theme for
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investors to experience and see all-time
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highs in the stock market to ask
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themselves should I still be investing
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right now even though things are at an
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all-time high what goes up must come
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down right Peter and I dig into that my
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monologue today is on that topic as well
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but before we get to that as always
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we're going to do a quick listener
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review this comes from Apple podcasts
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please guys I really appreciate it and I
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love reading your your reviews I love
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seeing the ratings usually they're
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festar rating so thank you so much on
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Apple podcast so if you are so inclined
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please go ahead and and leave me a
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review I'd love to read it on the
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podcast I'd love to send you one of our
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super soft best interest t-shirts and
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this review comes from Jeremy Schneider
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very wellknown from personal finance
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Club on Instagram and Jeremy a former
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guest of the best interest podcast
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Jeremy talked about the seven sins of
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investing on the best interest podcast
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and Jeremy wrote in and said Jesse knows
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his stuff his kind and thoughtful
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approach to personal finance and
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investing shines through in the best
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interest podcast if you want a voice of
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reason to cut through all the nonsense
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you hear in the world definitely check
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out the best interest podcast so Jeremy
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thank you so much for the kind words if
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you're listening to this Jeremy drop me
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a note Jesse bestin interest. blog and I
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will send you out a super soft t-shirt
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out to you in San Diego California you
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can rep the best interest on the beach
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volleyball courts there I know Jeremy is
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a big beach volleyball player all right
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guys let's get into the good stuff let's
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talk about the upcoming market crash yes
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that's right I'm going to read for you
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an article I wrote in 2020 that's called
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the market crash is coming eventually
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because here on the best interest I
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provide a lot of advice that rhymes with
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you should be investing you should put
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more money into your Investments every
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week every month every paycheck you
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should be investing I even share my
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specific investment choices how I have
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my money invested and why but today is
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different because I'm going to talk
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about the upcoming market crash well
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it's coming eventually I mean maybe you
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come to believe that I'm an unwavering
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bull pure Optimist that I think
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Investments can do nothing but increase
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in value but that is not true I know the
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crash will come because it always does
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and that might seem scary if the crash
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is coming then why not do something
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about it and that's what today's post
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today's rant today's monologue is about
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even though we're aware that a market
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crash is coming eventually we can take a
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step back and we can think about it
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rationally today so first I want to talk
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about being a bull before a market crash
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because here's a prediction I predict
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that I will eventually make a podcast
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episode or write a blog post where I say
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something like I bought some shares of
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an index fund this month just like every
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other month and I think it's one of the
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smartest things you can do as an
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investor and then after that future blog
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post the market will proceed to Fall by
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30% over the next few months right we're
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talking here in March 2024 for all I
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know uh a crash is coming in April I
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don't know I'm still going to be
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investing right now in March of 2024 I
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can tell you that in 2021 I was still
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investing even though 2022 eventually
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came and the stock market dropped
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whatever it was 23% 25% something like
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that I am going to make content and in
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my own life I am going to be investing
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right before the market crashes and some
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people when that occurs will look at the
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best interest will look at me and say
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Jesse doesn't have a clue what he's
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talking about he just invested $1,000
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last month at the S&P 500 and then the
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market crashed what a dummy so I'm
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calling it right now that has happened
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before right I've been writing for five
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and a half years I've been podcasting
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for four years and if you know what
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happened in the last five and a half
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years years or four years you will have
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known that the market had a few
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Corrections a couple bare markets covid
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2020 2022 that happened I was investing
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the whole time I was throwing money at
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the market right before it crashed and I
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understand why it appears like I might
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be a dummy so we we should dig in am I a
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dummy okay let's first look at some
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historical data because the market crash
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always comes at least it always comes
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eventually right bare markets where the
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stock market has dropped by 20% or more
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from its previous times there have been
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13 of them since 1929 the craziest one
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the Great Depression the market dropped
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86% and it's such an outlier and because
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the US economy and the Federal Reserve
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and the gold standards so many things
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have changed since then that a lot of
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people they really look from 1950 onward
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or from World War II onward where we've
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had plenty of bare markets of 22 and 36
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and 34 and in 73 through 78 there was a
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48% bare market the.com bubble 4 9% bare
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Market the financial crisis 56% the es
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and flows the oscillating between
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unsustainable optimism and unjustified
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pessimism if we believe the assumption
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that stock prices are currently
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unsustainably optimistic then it's
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believable that a serious bare Market
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could happen in the next few years but
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lesser Corrections typically defined as
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at least a 10% draw down they occur even
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more frequently since 1950 there have
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been 40 of these Corrections of 10% or
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more that's more frequent than one every
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two years it doesn't take no Shamus or
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Madam Cleo or the great carac to predict
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that kind of future Market downswing
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it's not that we're calling some one in
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1,000 event Market Corrections 10%
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something like that they happen all the
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time in fact 2023 I'm reminding all my
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clients of this as I meet with them
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right now last year 2023 in the March
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April time frame we had a an 8%
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correction and then in the August
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September October time frame we had a
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10% correction in the stock market
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that's two small Corrections in the same
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year and when you combine them that's an
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18% draw down and you see that from the
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outside looking in and you might think
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booy that's a rough year and yet what
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happened last year the market finished
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up 25% those kind of draw Downs happened
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all the time they always will they
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always have that is the nature of the
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stock market it's a feature not a bug
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and our job as long-term investors is to
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hold through thick and thin now this was
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very appropriate when I originally wrote
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this article in 2020 it's appropr again
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here in 2024 what if he gets elected
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great question you can find arguments
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from both sides of the political aisle
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that certain parties lead to better
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stock market performance but we need to
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dive in and investigate the data itself
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so we can look at the president alone
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and see what party he or she is in and
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then and then see how the market is
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performed but we need to realize this is
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a slightly dangerous game because does
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the president alone have enough
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influence to affect the stock market
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will the answers we find here be
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conclusive of causation or will they
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only present correlation if we look at
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from 1926 to today we have close to 100
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Years of S&P 500 data we've had
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democratic presidents we've had
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Republican presidents and there is a
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difference actually Republican years saw
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an average S&P return in the 9 to 10%
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range while Democratic years saw an
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average return in the 14% range that's a
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pretty big difference but is it causal
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right does the party of the president
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cause the market to go up a certain
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amount can a system as complicated as
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the stock market as the US economy be
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tied down to a single influencing
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variable like the president's political
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party probably not and after all that's
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only 24 presidential terms and 16
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individual presidents eight Republicans
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eight Democrats it's not exactly a huge
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sample set so keep this in mind the next
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time you hear someone talking about
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President X leading to stock market
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success or failure now if we combine the
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president and Congress it presents
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another interesting working Theory the
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theory is that our government is more
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efficient when Congress that's both
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houses Senate and representatives is
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controlled by the president's party the
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idea being if the president and Congress
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work together effectively then we all
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benefit Teamwork Makes the Dream workor
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in the hundred or so years the same
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historical period that I mentioned
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before we've had 48 years of
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presidential and Congressional
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unification and we've had 51 years of
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presidential and Congressional division
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the market performance during those
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periods is very interesting what we see
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is that during the total unified years
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where teamwork was making the dream
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workor the S&P average annual return was
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about 14% And during the divided years
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it returned about 10% now again is this
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causal does a unified federal government
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ensure that the economy and stock market
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perform better I have no idea I doubt
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it's conclusive okay it's interesting
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nonetheless but the real important
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takeaway that I take from this at least
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is that the market trends up and to the
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right no matter who who is in office it
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might appear that political cooperation
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is helping Grease the wheels but
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ultimately the stock market is driven on
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business fundamentals is driven on
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business earnings there is probably some
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correlation maybe even causation between
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well if certain laws can get passed that
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make it easier for American businesses
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to thrive then the market will do better
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I get it but ultimately this is more
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than macroeconomic it's like macro
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socioeconomic it's such a big factor in
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such a complicated system that I
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recommend ignoring it altogether there
00:11:01
is a silver lining of Market crashes
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back when we consulted Mr Market on the
00:11:06
blog one of the big takeaways of
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Benjamin Graham's Mr Market Parable is
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that the only two prices that ever
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matter are the price when you buy and
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the price when you sell nothing in
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between so ask yourself what are your
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investing plans for the next few years
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are you going to be a buyer someone who
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is investing for the future or are you
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going to be a seller someone who has
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invested for the past few decades and
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now wants to live off those Investments
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if you're a buyer then the market crash
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has a pretty significant Silver Lining
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cheaper prices if the market declines
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then you get to invest at lower prices
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it's the easiest way to increase your
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long-term investing potential Buy Low
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sell high dollar cost averaging
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investors relish these chances to
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decrease their cost basis now if you're
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a seller let's look at how your past 30
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35 years have been the S&P 500 value was
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around 350 in 1990 and it's at 5,000
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today day what's that about 15 times
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higher if the market drops by 20% next
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week down to 4,000 now your returns are
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only 12x right instead of 15x but a 12x
00:12:10
return is not bad now I know one of the
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biggest questions on your minds today
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it's definitely something Peter and I
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talk about is if the market crash is
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coming why not just sell now wait to
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reinvest after the prices drop before I
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answer that question let's consult Peter
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Lynch who's considered one of the most
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successful investors of all time pet pet
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Lynch famously said more money has been
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lost by investors preparing for
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Corrections than has been lost in the
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corrections themselves okay what exactly
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is Lynch saying there how do people lose
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money by preparing for Corrections well
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they lose money preparing for
00:12:43
Corrections because they sell too soon
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and then they don't know when to buy
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back in it's that simple both of those
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actions selling too soon and then not
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buying back in soon enough can cause
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investors to miss out on years of growth
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and years of dividends that's why Peter
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Lynch's quote rings so true timing the
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market is impossibly hard so we don't
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sell in preparation for a crash now the
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next logical question is well what about
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saving up cash right now and then
00:13:12
waiting to buy why not hold cash wait
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for the 10% drop in the market which we
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know happens pretty often and then buy
00:13:19
in well that's been looked into too for
00:13:22
ex I wrote an article back in March 2020
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I called it viral stock market
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strategies because it's something a lot
00:13:27
of people were talking about in Co where
00:13:29
we looked at an assortment of supposed
00:13:31
strategies that involve holding on to
00:13:33
cash while waiting for the market to
00:13:34
drop and if you back test those kind of
00:13:37
strategies against the historical S&P
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500 data simple dollar cost averaging
00:13:42
beats all of the buy the dip strategies
00:13:45
so I'll say that again simple dollar
00:13:48
cost averaging over time beats any type
00:13:51
of buy the dip strategy you want to
00:13:53
propose so if you think there's a market
00:13:55
crash coming I do too eventually I just
00:13:59
don't know when there's certainly a
00:14:00
chance that holding on to cash and
00:14:02
waiting for the crash is correct right
00:14:04
now there's a chance that's right but if
00:14:08
that's going to be your tactic all the
00:14:10
time if you're going to try that tactic
00:14:12
for the next 10 or 20 or 30 years it
00:14:14
will be a losing strategy don't sell for
00:14:17
fear of a market crash and don't wait to
00:14:20
buy for that fear of a market crash
00:14:22
carry on with your normal investing
00:14:24
Cadence the last question and it's a big
00:14:26
question what if this is the crash what
00:14:29
if it's the big one the mother of all
00:14:31
crashes what if Society falls apart what
00:14:33
if a meteor hits Earth and life changes
00:14:35
as we know it what if we all start
00:14:37
Scavenging for beans and scrap metal and
00:14:39
fuel for our souped up dirt bikes just
00:14:41
like in Mad Max those are scary
00:14:43
questions but they actually have a
00:14:44
pretty simple answer if an existential
00:14:46
threat ruins your Investments then the
00:14:48
stock market will be the least of your
00:14:50
worries that's it if the big one hits
00:14:52
then the stock market will be one of
00:14:54
many societal structures that
00:14:56
essentially no longer matter if it's not
00:14:58
the big one though then the market will
00:15:00
recover it always has and it always will
00:15:02
now why is that the case why does the
00:15:03
market always bounce back in part it's
00:15:05
because humans are resilient we learn
00:15:07
and grow we work towards progress we
00:15:10
innovate while the covid market recovery
00:15:12
for example could be attributed to many
00:15:14
different factors like the Federal
00:15:15
Reserve lowering interest rates it can
00:15:17
also be attributed to human resilience
00:15:20
if the big one is coming then you maybe
00:15:22
you should just YOLO and spend your
00:15:24
money right now but I suppose we all
00:15:26
need to do some probability analysis in
00:15:28
that case what are the odds that the big
00:15:30
one is about to come and that you're
00:15:32
going to look stupid that your
00:15:33
Investments become worthless versus what
00:15:36
are the odds that the big one never
00:15:37
comes and you wish you had invested in
00:15:39
your younger years to enable a
00:15:41
successful retirement I'll take my
00:15:42
chances and save for retirement so going
00:15:45
back to one of the initial questions am
00:15:46
I a dummy I hope I've convinced you
00:15:48
otherwise even though we know that the
00:15:50
stock market crash the stock market
00:15:52
correction the bare Market will
00:15:53
eventually come we will eventually have
00:15:56
10 or 20% or even larger draw Downs
00:15:59
there's still no basis that you'll
00:16:01
benefit by trying to wait for that or by
00:16:03
trying to time that market crash it
00:16:05
might work but it usually doesn't that's
00:16:08
what the historical data tells us
00:16:09
waiting for the election doesn't really
00:16:11
matter either Democrats Republicans the
00:16:13
market ends up doing its own thing there
00:16:15
might be some causality there but it's
00:16:17
very hard to tell and there's Silver
00:16:19
Linings in Corrections and crashes if
00:16:21
you're investing for the long run then
00:16:23
Corrections enable cheaper prices and
00:16:25
greater returns and if this market crash
00:16:27
is the big one well then none of it
00:16:28
really matters it'll be hard to podcast
00:16:31
though if the electrical grid fails
00:16:33
here's a quick ad and then we'll get
00:16:35
back to the show every week I send a
00:16:37
quick free email to thousands of readers
00:16:39
that shares three Simple Things One my
00:16:42
new articles and podcasts two the best
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financial content of the week from all
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over the Internet and three a financial
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chart that explains some important
00:16:51
Concept in the news that week it's a
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great primer to boost your financial
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knoow but Jesse I don't want a another
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email well this might not be for you but
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I do hear you which is why I make it
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very short sweet and full of only the
00:17:06
essentials a whopping 66% of subscribers
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read my email at least once a month
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they're enjoying it and maybe you will
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too you can subscribe for free on the
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homepage at bestter interest. blog again
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that's a free no strings attached
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subscription at bestin interest. blog so
00:17:25
with that I want to bring on Peter
00:17:26
lazerov as I mentioned before Peter is
00:17:29
the chief investment officer at plan
00:17:30
Corp in St Louis a multi-billion dollar
00:17:33
wealth management firm serving clients
00:17:34
across the country Peter also hosts the
00:17:37
long-term investor podcast terrific
00:17:39
podcast we'll mention a few different
00:17:41
things a few different episodes of
00:17:42
Peters that will all be in the show
00:17:44
notes so without further Ado let's bring
00:17:46
on Peter
00:17:48
[Music]
00:17:56
lazarof Peter here we find our elv early
00:17:59
March 2024 while stocks happen to be
00:18:03
down today it's about 1 p.m. Eastern I'm
00:18:05
sorry 2 p.m. Eastern here as we're
00:18:07
recording the market whether it's the
00:18:08
S&P the NASDAQ the Dao is nevertheless
00:18:11
we are at all-time highs right now so
00:18:14
let's talk a little bit about investing
00:18:15
at all-time highs what is the the
00:18:18
logical or rational way to approach this
00:18:20
question Peter should we be investing at
00:18:22
alltime highs it's interesting when you
00:18:25
look at the data we are actually at an
00:18:28
all-time high more often than we're in a
00:18:31
bare market and when you think about the
00:18:33
fact that on average in any given year
00:18:36
like 75% a years the market is up you
00:18:39
know if we were gambling people and
00:18:41
maybe we are making a bet on capitalism
00:18:43
when we invest in stocks and such but
00:18:45
truly if you had to guess the
00:18:47
probabilities would suggest the Market's
00:18:49
going to be higher and if it's going to
00:18:51
be higher well then that means that
00:18:53
we're going to be hitting new all-time
00:18:55
Highs but I do understand the feeling
00:18:58
invest have when you're at an all-time
00:19:00
high because on one hand it means things
00:19:03
are going well it's a testament to
00:19:04
growth and resilience of the market but
00:19:06
then they also have this little sense of
00:19:10
hey do this mean we're on the brink of a
00:19:12
downturn because whatever goes up must
00:19:14
come down it's sort of the narrative we
00:19:15
tell ourselves in our head but really
00:19:18
even as I look at some of the closing
00:19:20
data just looking at monthly data going
00:19:22
back to 1926 following an all-time high
00:19:25
the average annual return on the S&P 500
00:19:29
is
00:19:30
13.7% one year later and we average
00:19:34
10.6% per year over the subsequent three
00:19:37
years and 10.2% over the five years
00:19:39
following a new all-time high and that
00:19:42
really isn't that different from just
00:19:44
any sort of historical annualized return
00:19:47
so on one hand it's great on the other
00:19:50
hand like many things investing the best
00:19:53
action is often in action yeah I like
00:19:56
that that's that what the John Bogle
00:19:58
quote don't do something just stand
00:20:00
there right just just in action well it
00:20:02
sounds like part of that that data
00:20:04
series then is just the idea that
00:20:06
alltime highs happen all the time and
00:20:09
that's part of part of your argument
00:20:10
right there is that I think whether it's
00:20:13
us as individuals or maybe were kind of
00:20:15
pushed by the financial media into
00:20:17
thinking like whoa here's this crazy
00:20:19
thing that's going on we're at an
00:20:21
all-time high well it's not that crazy
00:20:23
because it's happening all the time you
00:20:25
did hit on a couple things there which
00:20:26
is you know well what about uh what goes
00:20:28
up must come down that's a very human
00:20:30
thought or what about this investing
00:20:33
Axiom we've all heard before by low sell
00:20:37
High well if we're at an all-time high
00:20:39
shouldn't I be selling right now yeah
00:20:41
it's a really good point let me the
00:20:43
first one like what goes up must come
00:20:45
down yes that did come out of my mouth
00:20:47
in in part because it's what a lot of
00:20:49
people think of and just because the
00:20:52
market making all-time high isn't
00:20:55
necessarily A distinct risk worth making
00:20:59
a change to your portfolio I still
00:21:01
acknowledge that markets are cyclical
00:21:04
nothing goes up forever and one of the
00:21:07
things as an investor that you
00:21:09
absolutely must do in order to earn a
00:21:11
reasonable return is assume some degree
00:21:14
of risk and uncertainty I mean if it's
00:21:16
just the cost of higher expected returns
00:21:19
in stocks than what you would earn in
00:21:20
cash and bonds yes if the stock market
00:21:23
goes straight up it will pull back it
00:21:26
will go down at some point on average
00:21:29
just using the S&P 500 cuz it's well
00:21:32
known and people talk about it a lot
00:21:33
it's not necessarily the whole Market
00:21:35
but great proxy the S&P 500 averages a
00:21:38
10% loss about every 12 months so any
00:21:42
pullback should be expected I mean it's
00:21:44
laughably normal and then you see
00:21:47
historically that 20% drops happen about
00:21:50
every three and a half years and then
00:21:52
30% or greater drops happen about once a
00:21:55
decade so for me seeing a a Great Rally
00:22:00
from October 2023 to the present March
00:22:03
2024 if we just keep going up and up and
00:22:06
up then yeah I think there is some sort
00:22:09
of pullback but Jesse you and I we are
00:22:12
long-term investors we are not concerned
00:22:16
about missing the 10% pullback yes it
00:22:19
would be profitable if we could foresee
00:22:21
it and time it and get out of stocks and
00:22:23
somehow not pay taxes and then get back
00:22:26
into stocks at the exact right time that
00:22:28
would all be wonderful I'm not saying
00:22:30
that would be a bad thing that would be
00:22:31
wonderful I would love to do that that
00:22:34
would be buying high and selling low but
00:22:36
in reality we can't really know when
00:22:38
those downturns are going to occur and
00:22:41
if we have a financial plan that takes
00:22:43
into account volatility like I discussed
00:22:46
downturns like I just discussed with a
00:22:48
similar magnitude and frequency as we've
00:22:50
experienced in the past well then we
00:22:53
don't really have to worry about whether
00:22:55
this all-time high is just the latest
00:22:59
mile marker like latest Milestone on the
00:23:01
continued Trend up and to the right or
00:23:04
if we're at a peak and it doesn't get
00:23:07
any better than this and that we go into
00:23:09
a bare Market which on average takes
00:23:11
about two years to decline and then come
00:23:13
back to the previous Peak we never
00:23:16
really know but I do think you try your
00:23:18
best to remember why you're investing in
00:23:21
stocks which in my mind you invest to
00:23:24
grow your wealth at a rate greater than
00:23:26
inflation without taking undue risk
00:23:28
undue risk yes sitting in the stock
00:23:31
market at an all-time high is not an
00:23:33
undue risk trying to avoid a downturn
00:23:36
introduces a lot of unforced error a lot
00:23:39
of undue risk and even as the market is
00:23:42
going up if you are a diversified
00:23:44
investor across stocks and bonds you can
00:23:47
actually buy low and sell High via
00:23:49
rebalancing so look it's a catchy
00:23:51
headline it's hopefully a headline that
00:23:53
we see a lot we I love seeing that it's
00:23:55
all-time highs it means I as an investor
00:23:57
have made money it means that the
00:23:59
economy is doing well and that companies
00:24:01
are doing well and that chances are
00:24:03
because over the long term stock prices
00:24:06
tend to follow company earnings pretty
00:24:07
closely it means that earnings are
00:24:09
looking pretty good I'm glad you touched
00:24:11
on many of those topics there Peter I do
00:24:13
I want to come back to rebalancing I
00:24:15
want to come back to earnings at some
00:24:16
point because those are important topics
00:24:19
that fit into this conversation of
00:24:20
investing in all-time Highs but
00:24:22
specifically I want to respond to the
00:24:25
idea of the frequency of different
00:24:26
percentage drops that you have right so
00:24:28
I'm talking to the 33 year olds out
00:24:30
there I'm 33 right now so talking to the
00:24:32
33 year olds listening to the best
00:24:33
interest podcast you might own a large
00:24:37
percent of of stocks stay till you're 53
00:24:39
and then you'll start to eventually
00:24:41
start shifting maybe more into bonds by
00:24:42
the time you're 63 but even as you
00:24:44
retire and now you're 73 and 83 you
00:24:47
still might have a a portion of stocks
00:24:49
in your portfolio so you might have 50
00:24:51
years in the future of having stocks in
00:24:54
your Investment Portfolio and based on
00:24:56
some of the 20% and 30% decline data
00:24:59
that you gave us we're setting ourselves
00:25:01
up for what sounds like 15 instances of
00:25:04
20% drops before we Dro dead at 83 and
00:25:08
five or six instances of a 30% drop like
00:25:11
this is expected we know this stuff is
00:25:13
going to happen and something that I
00:25:15
like to do with myself and with my
00:25:16
clients and with my listeners and
00:25:18
readers is prepare them for that fact
00:25:20
get ready get your arm around right now
00:25:22
because it's going to happen well and
00:25:24
even NASA who sends astronauts to space
00:25:27
does what they call exposure therapy and
00:25:30
they go over everything that could
00:25:33
possibly go wrong so that in the moment
00:25:35
they can remain calm because once your
00:25:38
brain I mean there's real strong science
00:25:39
about this that the moment that there is
00:25:41
fear and anxiety inside the brain then
00:25:45
you don't make logical rational choices
00:25:48
and so I love there's some podcasts
00:25:51
about NASA training and they go through
00:25:53
some of the things that they talk about
00:25:55
and they can't predict every single
00:25:57
thing that might go wrong but it's all
00:26:00
about the practice of slowing everything
00:26:02
down and I think that can be applied to
00:26:05
markets where I kind of put out the same
00:26:08
information that you just said where if
00:26:10
you're sitting down and we're talking to
00:26:12
the 33 year olds in the house that hey
00:26:14
you're going to have like a dozen of
00:26:16
these in your lifetime every single
00:26:18
client I get in front of I say hey in
00:26:20
our lifetime working together we're
00:26:22
going to go through multiple 30 plus
00:26:25
percent drops and I can't tell you why
00:26:27
they're going to happen but they're
00:26:29
going to be scary and each one is going
00:26:31
to feel different and feel like that
00:26:33
history doesn't matter and look there
00:26:36
are some things that are different but
00:26:38
that doesn't mean that what you're doing
00:26:40
when you're investing which is providing
00:26:42
Capital to companies who are trying to
00:26:44
earn more profit that will still be true
00:26:47
now if you as an investor for some
00:26:49
reason are providing Capital to
00:26:50
companies who don't like profit then
00:26:52
that is different and concerning that is
00:26:54
where Financial Theory doesn't exist
00:26:57
anymore it all falls apart it exists
00:26:59
it's just all wrong at that point right
00:27:01
it's funny it's it's almost similar to
00:27:02
the idea of timing the market it's of
00:27:04
course none of us want to be investing
00:27:06
in unprofitable companies that are just
00:27:08
siphoning money into The Nether void but
00:27:11
sometimes we own those like Index Fund
00:27:13
investors it's something it's so funny I
00:27:15
was just talking to someone the other
00:27:16
day about how when they own a portfolio
00:27:19
of say 50 individual names 50 individual
00:27:21
stocks there's something in the human
00:27:23
brain that looks at that and says okay
00:27:24
well these 30 are doing well but why the
00:27:26
hell do we own Disney what's up with
00:27:28
that and they I want to sell that it's
00:27:30
BS get it out of here what's the point
00:27:32
of owning it still if you had owned S&P
00:27:34
500 Index Fund you would still own
00:27:37
Disney actually I don't know for sure if
00:27:38
Disney's in the S&P I think it is but
00:27:40
yeah something about the wrapper of the
00:27:42
index fund you know the index fund is up
00:27:44
14% year to date or whatever it is and
00:27:47
people just ignore the fact that 60% of
00:27:49
those companies in the index fund might
00:27:51
have lost money or might be down on the
00:27:53
year and it just kind of gets wiped away
00:27:55
but just an interesting little aside
00:27:57
there one thing that did say that I
00:27:59
thought was very very interesting is
00:28:01
this idea of you can never really time
00:28:03
the market of course we would love it if
00:28:05
you could we would love it if you knew
00:28:07
exactly when to sell and exactly when to
00:28:09
buy back in and you could avoid any sort
00:28:11
of tension and anxiety that comes with
00:28:13
investing at all-time highs you
00:28:15
mentioned before you brought up the
00:28:17
Market's performance since late October
00:28:19
early November of 2023 and I just think
00:28:22
it's so interesting that you could have
00:28:25
sat there anyone listening could have
00:28:26
sat here in mid October 2023 and put
00:28:30
together an extremely rational argument
00:28:33
for why the market was going to continue
00:28:35
in t of this uncomfortable slide
00:28:38
downward just as it did through August
00:28:40
September and most of October last year
00:28:43
and and I would have sat there and said
00:28:44
yeah all those points totally make sense
00:28:47
and then Jay Powell comes out at the end
00:28:49
of October says a couple things about
00:28:51
interest rates and the market rips 8% in
00:28:54
one week and 19% before the end of the
00:28:57
year so that rational argument that you
00:28:59
would have made in the middle of October
00:29:01
completely got imploded by what actually
00:29:03
happened and it just it's what again it
00:29:05
just proves that point of it's really
00:29:07
hard to get the timing of this right and
00:29:09
it's probably not worth trying in the
00:29:10
first place you know what I love about
00:29:12
your fed example is even the FED doesn't
00:29:15
know what they're going to do with
00:29:16
interest rates so if we go back to 2022
00:29:20
worst B Bond Market on record full stop
00:29:24
and at the beginning of the year so the
00:29:26
Federal Reserve the Fed Federal Open
00:29:28
Market Committee the the group within
00:29:30
the Federal Reserve that's setting
00:29:31
interest rate policy after each of their
00:29:34
meetings they publish what is called The
00:29:36
Dot Plot and it's they basically put
00:29:38
dots where they think that they will be
00:29:40
setting interest rates themselves six
00:29:43
months from now 12 months from now two
00:29:45
years from now Etc and none of them at
00:29:47
the beginning of 2022 thought that
00:29:49
they'd be raising interest rates from0
00:29:51
to 5% none of them none of them had
00:29:54
really anything going on and like you
00:29:56
said in October Dr pal comes out and
00:29:58
says hey actually we may not be cutting
00:30:00
interest rates even though their do
00:30:02
plots said that they might they're just
00:30:04
humans too they don't know what's going
00:30:06
to happen what's really challenging for
00:30:09
investors of all types and even for
00:30:11
financial advisers I think advisers
00:30:13
sometimes suffer from this more than end
00:30:16
clients is that you hear someone make
00:30:19
this extraordinarily intelligent case
00:30:22
full of facts objectively factual case
00:30:27
for bad things to happen and it sounds
00:30:29
smart and then you hear guys like us
00:30:30
saying well you know just stay the
00:30:32
course everything's going to be fine
00:30:33
staying the course doesn't mean putting
00:30:35
your head in the sand and saying I don't
00:30:38
you know there's nothing bad going on
00:30:41
however it is hard to digest whether
00:30:44
you're an investor professionally or you
00:30:47
have an advisor or you're doing it
00:30:48
yourself to see these really intelligent
00:30:50
cases and be like no that just doesn't
00:30:52
make sense yes everything they're saying
00:30:54
is true but you know what millions of
00:30:57
Market participants are out there have
00:30:58
that information also and they are
00:31:01
pricing in the probability that that
00:31:03
person's thesis will lead to impending
00:31:05
doom the other thing is like people
00:31:07
predict Doom because they know it's what
00:31:09
gets some airtime and I think knowing
00:31:11
what people's motivations are are really
00:31:14
important I feel like if you put up a
00:31:16
bearish bet like on CNBC you should also
00:31:19
be required to disclose what is in your
00:31:21
portfolio like you ask those guys well
00:31:23
what's in your 401k well it's a bunch of
00:31:24
index funds I would never change those
00:31:26
yeah like maybe in their taxable account
00:31:28
they have some trades on but for the
00:31:30
most part I think that that you the FED
00:31:33
themselves the people setting interest
00:31:34
rates in hindsight we could call the
00:31:36
perfect Catalyst for this runup they
00:31:38
didn't know they were going to do it and
00:31:40
anyone who to your point was making the
00:31:42
perfect be case you know they were wrong
00:31:44
and even if they were right and there
00:31:46
was a decline who's to say that the
00:31:48
reason that the decline you know the
00:31:50
theoretical decline happened even
00:31:51
aligned with what they were saying in
00:31:52
the first place it's just such a tough
00:31:54
thing to do and I I think sometimes it's
00:31:56
easy for advisers like us to be on a bit
00:32:00
of a soap box and say like it's so silly
00:32:02
to listen to this but everybody involved
00:32:04
is humans and humans love stories and
00:32:07
look a doom story is just more
00:32:10
interesting it's why the media sells it
00:32:12
so here's what you know when you're
00:32:14
listening to the two of us is that we're
00:32:16
not concerned about what's happening
00:32:18
next week next month even next year
00:32:20
we're in it for the long game and when
00:32:22
you catch a sound bite of somebody it is
00:32:25
extraordinarily rare unless their names
00:32:27
War Buffett that they're in it for the
00:32:29
long game and they have an agenda and
00:32:31
it's different than yours you have
00:32:35
multiple decades to write out what these
00:32:37
downturns that we've talked about a few
00:32:39
times that we know are going to occur
00:32:41
just tune it all out now if you want to
00:32:43
do it like a hobby like I do fantasy
00:32:45
baseball or you know like I watch
00:32:47
professional sports that's totally
00:32:49
different and I actually don't mind it
00:32:51
when people carve out a small portion of
00:32:53
their portfolio and they time the market
00:32:56
and they buy individual stocks and they
00:32:58
make all sorts of bets and like that's
00:33:00
great that's fine but 90 to 95% of your
00:33:04
wealth should just be staying the course
00:33:06
in a long-term strategic asset
00:33:08
allocation it has been shown time and
00:33:10
time again Financial theory in long-term
00:33:13
investing are effectively undefeated and
00:33:16
it's just hard to recognize because the
00:33:18
longterm is an eternity to live through
00:33:20
in the moment and it's so human to think
00:33:23
so wait a second like Peter was just
00:33:25
telling me and Jesse apparently courts
00:33:28
Peter in that the boring thing is the
00:33:30
right thing you're saying it's not the
00:33:32
flashy thing you're saying it's not the
00:33:34
Wall Street Secrets you're saying I mean
00:33:36
Robert kosaki he wrote Rich Dad Poor Dad
00:33:38
it's like the bestselling book in the
00:33:40
personal finance space ever and he's got
00:33:42
a headline every single day calling for
00:33:45
Doom and Gloom in some way you're
00:33:47
telling me he's wrong but to me like
00:33:49
Robert kosaki is the poster child of
00:33:51
what you were saying Peter of what are
00:33:53
the incentives and Robert kosaki it it
00:33:55
stinks because I've actually had readers
00:33:57
listeners they've heard me rail against
00:34:00
kosaki before and a few have reached out
00:34:02
to me and been like Jesse I I don't get
00:34:03
it like I just read Rich Dad Poor Dad
00:34:05
and I kind of liked it like it clicked
00:34:07
with me and I understood it and now here
00:34:09
you are saying these bad things about
00:34:11
him a quick detail about that is I think
00:34:13
the book actually spal us some
00:34:15
reasonable thoughts about owning incom
00:34:17
producing assets and then he leveraged
00:34:19
his Fame into being a snake oil salesman
00:34:22
for the past 25 years I mean both of
00:34:24
those things that's right I agree with
00:34:25
that take by the way for whatever it's
00:34:27
worth thank you yeah and like it's okay
00:34:29
to say that both are true it's a
00:34:31
reasonable book and he's now Shilling I
00:34:34
don't even know if he believes his own
00:34:35
statements I think he doesn't that's my
00:34:38
take I don't think he believes what he
00:34:39
says but he knows that it attracts
00:34:41
eyeballs what's the one thing basically
00:34:44
if you can instill fear in someone you
00:34:46
can probably then sell to them and and
00:34:48
that's what he does so no respect there
00:34:50
from me but when yeah I'm with you we're
00:34:53
on the same team there and he's probably
00:34:54
the worst of them or at least the worst
00:34:56
of them that that get a lot of air
00:34:58
but there Dave Ramsey isn't necessarily
00:35:00
harmful but he's stubborn to the point
00:35:04
he actually reminds me of Eugene F who's
00:35:06
unwilling to acknowledge behavioral
00:35:08
Finance I once asked Eugene F Nobel
00:35:12
laurate efficient market hypothesis uh
00:35:14
guy for all those listening I once asked
00:35:16
him hey is there anything that you know
00:35:19
to be true without data and I was hoping
00:35:22
you like he'd say yeah like humans are
00:35:25
fearful and greedy or like say he's like
00:35:27
there's nothing you can know without
00:35:28
data I was like okay well thanks buddy
00:35:30
just sticking to his guns talking his
00:35:32
book but Dave Ramsey you like Dave
00:35:34
Ramsey has a brand and it's anti- debt
00:35:37
even if that is not the optimal Choice
00:35:40
financially which by the way the optimal
00:35:42
Financial Choice is not always the right
00:35:44
choice for every human but he's willing
00:35:46
to do it he's willing to steer people
00:35:48
that direction even when it's not the
00:35:50
right choice for them the human and Dave
00:35:52
Ramsey does so many good things again
00:35:54
like you said both can be true we don't
00:35:56
live in a black and white world just
00:35:57
just like in the market we're at an
00:35:58
all-time high and a lot of things can be
00:36:00
bad both can be true So Many Shades of
00:36:03
Gray and I think they're incentives are
00:36:06
just so important when you think about
00:36:08
who is giving Financial advice now Jesse
00:36:12
you and I I would bet that our biggest
00:36:14
incentive is that we would love
00:36:15
listeners to become clients of our firms
00:36:17
okay yeah that that that's an incentive
00:36:20
that doesn't seem as harmful is I want
00:36:22
you to follow me I want you to buy my
00:36:24
stuff like you a lot of what we do if
00:36:27
someone has all the time in the world
00:36:29
and can be completely objective all the
00:36:31
time maybe they don't need an advisor I
00:36:33
mean I have a personal trainer I have
00:36:34
someone who cleans my house I have
00:36:36
someone cuts my lawn I have an executive
00:36:38
coach you know the coach the trainer
00:36:40
that probably Falls more into the bucket
00:36:41
what we do where you get regular
00:36:43
feedback it's better but look when I
00:36:46
have a health issue I still go to a
00:36:48
doctor I do WebMD the heck out of it but
00:36:51
and that's not good it's not healthy I
00:36:53
shouldn't do that and every time I get
00:36:55
sick my wife's like don't Google
00:36:56
anything do not
00:36:58
I think that people can fall into the
00:37:00
trap with investing where there's so
00:37:01
much out there but unlike information
00:37:05
that is I'm going to say pure science at
00:37:08
least it should be pure science there is
00:37:10
so much bad stuff in the finance world
00:37:12
that is not science and what's really
00:37:14
confusing about the science of investing
00:37:17
is that the evidence typically Cuts both
00:37:20
ways and so the example I'll give to a
00:37:22
lot of people is like if you're trying
00:37:24
to choose whether to include or exclude
00:37:28
something from your portfolio or make
00:37:30
some sort of change to your Investments
00:37:33
if you take an approach like the FDA
00:37:34
does where they're seeking to approve a
00:37:36
drug and they want to approve something
00:37:39
that's net beneficial to society but
00:37:41
minimizes like bad side effects you're
00:37:45
going to fail to approve some drugs if
00:37:47
you're worried about the side effects
00:37:48
now we could have the FDA that just
00:37:50
approves everything that has a slightly
00:37:51
good test even if they're bad side
00:37:53
effects and that'd be a problem too what
00:37:56
I'm talking about is actually I mean
00:37:58
you're an engineer Jesse you like type
00:38:00
one and type two error we could talk
00:38:02
statistics but I don't know if the
00:38:03
listeners will Revolt but I'm talking
00:38:04
about type one and type two air and in
00:38:07
general my feeling is that I am more
00:38:09
concerned about implementing a bad idea
00:38:12
than missing out on a good one and I
00:38:14
think when you look at the investment
00:38:15
world the evidence-based peer-reviewed
00:38:18
investment world like a doctor like
00:38:20
you're practicing medicine with that
00:38:22
lens of recognizing that the vast
00:38:25
majority of success comes from a couple
00:38:27
really big decisions and then just
00:38:29
minimizing mistakes after that you know
00:38:31
I think it does start to simplify stuff
00:38:33
now here we've been talking for I don't
00:38:35
know I haven't been keeping track let's
00:38:36
say 20 30 minutes we don't always get
00:38:38
that long to get people's attention
00:38:40
that's why the sound bite people win
00:38:42
because they have sound bites that are
00:38:43
catchy and actionable and like you said
00:38:45
steer some fear a little bit of a
00:38:47
tangent but interesting nonetheless I
00:38:50
liked it I really liked it I really
00:38:51
liked it you reminded me of one of my
00:38:53
favorite Buffett quotes he tells this
00:38:55
this little story it's it's not very
00:38:56
quotable because it's almost a little
00:38:58
too long but essentially that investing
00:39:00
is a no called strike game yes right
00:39:03
baseball is a called strike game where
00:39:05
you can have the bat on your shoulder in
00:39:07
baseball if the pitcher throws three
00:39:09
strikes well then you're out so you're
00:39:11
incentivized to swing in baseball well
00:39:14
there's no C strikes in investing and
00:39:16
you can sit there with your bat on your
00:39:17
shoulder and if you don't like the
00:39:19
opportunities that are presented to you
00:39:20
you don't have to swing at them and you
00:39:22
can wait for the perfect pitches you can
00:39:24
take your swings at those hopefully most
00:39:26
of them are successful
00:39:28
and all the ones that you didn't swing
00:39:29
yet you're not any worse off for having
00:39:31
not swung but I think a lot of people
00:39:33
don't realize that fact and feel some
00:39:35
sort of obligation to swing some
00:39:37
obligation to act on whatever news or
00:39:41
opportunity they're presented with and
00:39:42
and you simply don't have to well if we
00:39:44
transport oursel a 100,000 years back
00:39:47
into the jungle and Jesse you and me are
00:39:49
standing there and we hear a wrestle a
00:39:51
rustling in the bushes and you take off
00:39:53
running cuz you know you assume it's a
00:39:55
lion and then I sit there calcul the
00:39:57
probability of it being a lion versus
00:39:59
the wind I get eaten so you know like
00:40:02
you survived because that instinct to
00:40:04
act when there's a little bit of a
00:40:06
threat uh it happens with our money it
00:40:08
happens with every sort of decision we
00:40:10
make well since I've already mentioned
00:40:12
our primary bias as advisers is that
00:40:14
that's one of the things advisers do for
00:40:16
you they just take the emotion out of it
00:40:18
even me I sort of treat my money I I
00:40:21
have it all invested in a single
00:40:24
globally Diversified mutual fund in part
00:40:26
so that I don't ever have to think about
00:40:27
trading or rebalancing or asset
00:40:30
allocation because I'm overseeing a lot
00:40:32
of assets and I can approach those with
00:40:35
a robotic discipline you know for my
00:40:39
first let's call it decade of being a
00:40:41
professional I I don't know that I was
00:40:43
robotic and systematic in fact I know I
00:40:45
made mistakes and so it's sort of
00:40:47
finding a way to take it out of your
00:40:49
hands and getting those a couple really
00:40:51
good decisions in place and then just
00:40:53
staying out of the way making sure you
00:40:55
don't make mistakes the only mistake I
00:40:57
can make with money that's designed for
00:40:59
30 or 40 years from now even 20 years
00:41:01
from now but probably more likely 30 or
00:41:03
40 just don't touch it like I did all
00:41:05
the research I did all the homework I
00:41:07
got it what it needs to be in it might
00:41:09
do poorly for the next 10 years but it's
00:41:11
very rare over 20 or 30 years that if I
00:41:15
go back to that very simple first
00:41:16
principal level investing purpose is to
00:41:19
grow my wealth at a rate greater than
00:41:21
than inflation that's all I got to do
00:41:23
and historically stocks have delivered a
00:41:25
rate of 7% above inflation over the long
00:41:28
term does that mean even though like a
00:41:31
headline you might read today actually
00:41:32
there are lots of them is that
00:41:33
valuations are really high and so expect
00:41:35
to returns are lower over the next 10
00:41:37
years fine I mean they were negative in
00:41:40
the knots so right you know part of the
00:41:42
reason we're having such a good run
00:41:44
right now is that we had such a hideous
00:41:46
run through the knots and part of the
00:41:48
reason we had such a hideous run through
00:41:49
the knots is because we had such a
00:41:51
killer run from like 1982 to 1999 and
00:41:54
you know before that we had another
00:41:56
terrible run so hey talk about full
00:41:59
circling something what comes up must go
00:42:01
down and I said yeah things are cyclical
00:42:04
the thing again is that if you're
00:42:06
investing in the market you're making a
00:42:08
bet on human inguin oh my gosh can I
00:42:12
even say that word you don't have to cut
00:42:14
out you okay you don't even need to cut
00:42:16
that out because I don't think I've ever
00:42:17
successfully said that word I can type
00:42:19
it and spell it though you're betting on
00:42:21
that and you're betting on the fact that
00:42:23
like companies like making money as long
00:42:25
as they like making money I don't care
00:42:27
what the rules are the rules are always
00:42:29
going to be changing with governments
00:42:31
with people but there are some things
00:42:33
that just never change here's a quick ad
00:42:36
and then we'll get back to the show one
00:42:38
of the more common questions I hear is
00:42:40
Jesse what do you like in use books
00:42:42
blogs podcasts even Banks and brokerage
00:42:45
firms what are your recommendations so
00:42:48
to answer that question I put together a
00:42:50
web page you can check it out at bestin
00:42:53
interest. blog reccommendations again
00:42:56
that's best interest. blog
00:42:59
reccommendations to check out how I'm
00:43:01
improving my financial life I just put a
00:43:04
chart together the other day and and
00:43:06
published it in my most recent blog post
00:43:09
so I suppose we'll link to it in the
00:43:10
show notes so that listeners can see the
00:43:12
chart but I had this hypothetical
00:43:14
investor I took Robert Schiller's data
00:43:16
back to 1871 before the S&P even existed
00:43:20
it's just us stock market data through $
00:43:22
thousand doll back in at it back in 1871
00:43:26
and then just let it ride and I didn't
00:43:28
want to inflation adjust it only because
00:43:29
I I kind of wanted to view it through
00:43:31
the lens of an actual investor who they
00:43:33
know inflation might be there but really
00:43:35
they're just looking at the dollars in
00:43:36
their account I didn't want to have to
00:43:37
deal with taxes so he didn't look at
00:43:39
taxes but I did assume that all
00:43:40
dividends were reinvested and the
00:43:42
question I wanted to ask myself is kind
00:43:45
what was the longest period of time in
00:43:47
between all-time highs if you will or
00:43:51
what kind of Crash and what was the
00:43:52
duration of a bare Market or a crash
00:43:55
where someone's account value was below
00:43:58
a previous all-time high and one of the
00:44:00
most significant ones actually was the
00:44:02
knots with the Doom bubble where there
00:44:04
was this tiny little Gap in between
00:44:06
technically but it was such I think it
00:44:08
was like one or two months in length
00:44:09
between where the dot bubble technically
00:44:11
recovered and really where the great
00:44:14
financial crisis would have started to
00:44:16
impact you it was 140 months in total
00:44:19
though so if I take away that tidy Gap
00:44:20
in between those two periods and just
00:44:22
think of it as one long period 140
00:44:24
months which is what 13 years in change
00:44:28
that's wild no 11 11 years in change I'm
00:44:30
sorry but still 11 years in change where
00:44:33
technically speaking not even accounting
00:44:35
for the fact that inflation was eating
00:44:36
away at your dollars for those 11 years
00:44:38
but 11 years where someone's account
00:44:40
value ostensibly was lower than a
00:44:43
previous all-time high and again that's
00:44:45
the kind of information that stock
00:44:47
investors need to steal themselves with
00:44:49
is this idea that you're signing up for
00:44:51
the potential where you will go five or
00:44:54
seven or even up to 10 years with your
00:44:57
account technically being lower or or
00:44:59
the value of your stocks technically
00:45:01
being lower than a previous high it's
00:45:03
not a great feeling but it's important
00:45:05
to know well and if you're a diversified
00:45:07
investor you own Global stocks which
00:45:08
you've probably hated for the past
00:45:10
decade right but a great stat that I'll
00:45:12
Butcher and so I'll say about and
00:45:14
approximately so that nobody's
00:45:16
compliance gets upset but basically in
00:45:18
years in which US Stock returns are less
00:45:21
than 6% International stocks beat US
00:45:23
Stocks something like 94% of the time I
00:45:26
know the number's over 90% but I think
00:45:28
it's 94 and then periods in which US
00:45:30
Stock returns are below 4% International
00:45:33
stocks have won every single time and so
00:45:35
you you think of and we're in we're kind
00:45:38
of down a rabbit hole of some sort but
00:45:40
like one of the reason one of the
00:45:42
mistakes I see people making these days
00:45:44
is only thinking about the S&P 500 and
00:45:47
not wanting International stocks and
00:45:49
when they're adding new money they're
00:45:51
just plowing it into an S&P 500 Index
00:45:53
Fund which believe me there's a lot
00:45:55
worse things you can do but they forget
00:45:57
that there was a 12-year period that
00:45:59
you're outlining where the S&P 500 lost
00:46:02
to cash and that period has talking
00:46:05
about before 82 to 99 there was a
00:46:07
17-year period where the S&P 500 lost a
00:46:11
cash and you know Japan it took them
00:46:14
three four decades to recover from their
00:46:16
bare market so it's not uncommon and you
00:46:18
know what and when we talk about these
00:46:20
kind of historical downturn numbers I
00:46:23
don't even feel like I'm making a market
00:46:24
call Jesse when I say that in our
00:46:26
lifetime you said you're 33 I'm 39 it's
00:46:29
going to happen again we're going to
00:46:30
have a 10 plus year period where US
00:46:33
Stocks underperform cash and it's not
00:46:36
going to be fun and people will say is
00:46:38
it the death of equities is it the death
00:46:40
of the 6040 is it the death of long-term
00:46:42
investing all those headlines are going
00:46:44
to be there will we still be doing
00:46:46
podcasts or will there be some new
00:46:48
medium I don't know but we'll be talking
00:46:50
about it and we'll be here to tell you
00:46:51
all stay the course we have seen this
00:46:53
before and things are cyclical it will
00:46:57
have a day in the sun again I don't know
00:46:59
if podcasts will exist Peter but I will
00:47:01
say about 18 months ago I got an email
00:47:04
from a business development person at
00:47:06
only fans not even kidding only fans was
00:47:08
trying to Branch into personal finance
00:47:10
and investing they reached out and said
00:47:12
hey do you want to start an only fans
00:47:14
Channel he said no thanks I'm good I'm
00:47:16
good I'm more of a voice only leave the
00:47:19
cameras off leave the clothes on and
00:47:22
that that doesn't do that doesn't do
00:47:24
well on the only fans I think so so I've
00:47:26
Been Told I haven't explored the
00:47:27
business model myself but you had
00:47:29
mentioned this idea that businesses
00:47:31
publicly traded corporations I mean they
00:47:33
are in the business of earning profits
00:47:36
and somehow that ties back to the stock
00:47:38
market but I think a lot of typical
00:47:39
investors might not be aware of that
00:47:41
fact that the stock market isn't a
00:47:43
casino it might be random in the way
00:47:45
that Burton Mel talks about a random
00:47:47
walk but it's not random in the way that
00:47:49
it's completely untethered from reality
00:47:52
so what is that connection between the
00:47:55
businesses like apple or Coca-Cola and
00:47:58
the actual stock prices that I see so
00:48:00
there is a book that uh someone named
00:48:03
Brian faldi put out oh a year or two ago
00:48:06
I think it was in 2022 that is called
00:48:09
why does the stock market go up and I
00:48:11
feel like it is one of the best books on
00:48:15
this topic I feel like it should have
00:48:17
gotten more attention than it got
00:48:19
there's a lot of really good data kind
00:48:21
of jumbled up from this isn't a comment
00:48:25
about the book but like you can find
00:48:26
what I think is the key point of that
00:48:28
book jumbled up in a lot more
00:48:30
complicated formats across a lot of
00:48:32
different platforms which is basically
00:48:33
that over the longterm stock prices
00:48:37
follow their earnings very closely very
00:48:41
very very closely in the short term
00:48:43
there can be some deviations that are
00:48:45
driven largely by investor psychology
00:48:48
because when you think like large
00:48:49
established businesses don't really
00:48:51
change that much on a day-to-day basis
00:48:54
but the value that the investors will
00:48:56
assign those businesses they can change
00:48:58
rapidly just based on the broad
00:49:00
psychology of all Market participants
00:49:02
but what I think that Brian does really
00:49:04
well in this book is walk through some
00:49:07
hypotheticals that causes light bulbs to
00:49:10
go off for both novice investors and
00:49:12
extremely experienced investors I think
00:49:15
he does a wonderful job of like walking
00:49:17
you step by step it's a short read so in
00:49:20
the show notes I I would link to it why
00:49:22
do stocks go up and ultimately you know
00:49:25
when you ask that question his book is
00:49:27
what comes to mind because I think in
00:49:29
many ways to me even though we had a
00:49:30
bare Market in 2022 and a bare Market at
00:49:33
the beginning of the pandemic there's
00:49:35
this part of me that feels like we've
00:49:36
just been on a run since the financial
00:49:38
crisis since 2009 and I often find
00:49:42
myself looking back there and people are
00:49:44
like oh the feds no interest rates
00:49:46
Juiced return oh like fiscal stimulus
00:49:49
Juiced return oh it's all like this that
00:49:51
or the other so three things that are
00:49:53
going to drive returns regardless of the
00:49:55
period that you're looking at the first
00:49:57
is change in earnings the second is cash
00:50:01
return to shareholders whether that is
00:50:02
dividends or BuyBacks and the third is
00:50:05
valuations and so while people are
00:50:07
saying oh fed you know the FED is
00:50:09
driving returns uh fiscal stimulus is
00:50:11
driving returns changes in valuation
00:50:14
like investor behavior all these things
00:50:16
you look at the data in its change in
00:50:18
earnings the rally that we have had from
00:50:22
2009 to present and yes again two bare
00:50:25
markets occurred in that but to me we're
00:50:27
like I'm looking at it as almost like a
00:50:28
secular bull market they've just tracked
00:50:30
earnings and today with all the things
00:50:33
going on around us in the world in the
00:50:35
country in your local communities with
00:50:37
specific companies with specific asset
00:50:39
classes at the end of the day earnings
00:50:42
are pretty good I I think a theme that
00:50:44
seems to be coming up routinely in this
00:50:46
conversation is like both can be true
00:50:49
Shades of Gray bad things can be
00:50:51
happening and companies can be growing
00:50:53
earnings I think when they're headlines
00:50:55
like this company or that company laid
00:50:57
off 15,000 people relative to the size
00:51:00
of the economy that that's not that much
00:51:03
the jobs data is still really good I
00:51:05
don't know when the next bad thing is
00:51:07
going to happen but KL Richards has a
00:51:10
saying that risk is what's left after
00:51:12
you've thought of everything else and I
00:51:14
love that it is so right that we could
00:51:16
bring in every brilliant mind in the
00:51:18
world right now to this podcast and list
00:51:21
off all the risks and then the thing
00:51:23
that ends up making everything topple
00:51:24
will be something that wasn't mentioned
00:51:26
that's just how it works so it's a
00:51:28
brilliant quote and I think I'm saying
00:51:30
it correctly that that risk is what's
00:51:32
left after you've thought of everything
00:51:33
else that is a great quote and it is
00:51:36
it's it's very true it's this idea that
00:51:38
it's almost like it's parallel to black
00:51:39
swans isn't it like a Black Swan event
00:51:41
by its very definition is something that
00:51:44
you cannot plan for could not have
00:51:46
foreseen and there are all these things
00:51:47
that we're talking about today that are
00:51:49
foreseeable in some ways I I guess I I
00:51:52
should take that back a little bit and
00:51:53
just say that from the long-term
00:51:55
investors point of view we say well
00:51:58
you're not going to foresee some things
00:52:00
and you should just stay the course but
00:52:02
yeah you know you and I Peter we're
00:52:03
going to have conversations clients in
00:52:04
the future where we just have to say
00:52:06
yeah didn't see that one coming it's not
00:52:08
fun we knew something was coming
00:52:09
eventually though and I think that's the
00:52:11
important point that we know that things
00:52:14
will happen that will affect our
00:52:16
portfolios and affect the market and it
00:52:18
won't be fun to deal with and I think
00:52:20
that's just an important takeaway to
00:52:21
have it's always Jess since we're deep
00:52:23
into the conversation and probably
00:52:25
people have dropped off so I'll give
00:52:26
them something fun to listen to
00:52:28
billionaires or I always picture like
00:52:30
Mike Tyson owned a tiger or like
00:52:32
billionaires own exotic animals I would
00:52:35
love to own a Black Swan because one
00:52:37
I've never seen one and two I would like
00:52:40
that when people ask about it that I
00:52:41
could talk about Black Swan events and
00:52:43
talk about why they're called that so I
00:52:45
think if I win the lottery you can count
00:52:47
that I will own a couple black swans you
00:52:51
know that a swan is a real like son of a
00:52:53
of an animal you know that right
00:52:55
well I'm a billionaire I'll have in this
00:52:57
scenario I'm going to have a really big
00:52:58
yard and I'll build it a lake and when
00:53:00
there's a bear Market maybe I'll
00:53:02
Slaughter one every time there's a bear
00:53:04
market now I've really I've really upset
00:53:05
some of the listeners it'll be like a
00:53:07
ritual to uh to the Bull and Bear Gods
00:53:10
to make it right some some listeners
00:53:13
know that I'm on the board of the local
00:53:14
SPCA here in Rochester lollipop Farm but
00:53:17
it's okay Peter was joking guys I was
00:53:19
joking because one I'm not gonna
00:53:21
slaughter a swan and two I don't think
00:53:23
I'm gonna win the lottery because I
00:53:24
don't play it smart very smart and Peter
00:53:28
coincidentally Brian faldi was nice
00:53:29
enough he stopped by a couple episodes
00:53:31
ago on episode 74 holy the best interest
00:53:34
podcast why does the stock market go up
00:53:37
we talked about that book a fantastic
00:53:39
book if you've spoken with I don't know
00:53:40
if you've spoken with Brian on your
00:53:42
podcast Peter but he is a a magnetic
00:53:46
podcast guest he just loves talking
00:53:48
about stocks I don't blame him but we
00:53:50
had a terrific conversation yeah he's
00:53:52
great so if again I don't know how many
00:53:54
people we've lost in all of our rabbit
00:53:56
holes during this conversation having a
00:53:58
podcast myself I know the longer we go
00:53:59
the more of you that have to like get
00:54:01
out of the car and go to work or get on
00:54:03
with your life but yeah Brian was on my
00:54:05
show the long-term investor he was
00:54:08
episode episode 55 uh people should
00:54:12
definitely go back I'm gonna go back and
00:54:13
listen to yours knowing that I came
00:54:15
after him it just means your guests are
00:54:17
getting worse you're running out a good
00:54:18
guest Jesse stop that stop that but no
00:54:21
you're right Peter I mean this was an
00:54:22
awesome awesome conversation how how do
00:54:25
people find you pet whether it's the
00:54:27
long-term investor maybe they're in
00:54:29
Greater St Louis and they want to check
00:54:30
out plan Corp how can people get in
00:54:32
touch with you so I think going to the
00:54:35
longterm investor.com is probably the
00:54:37
easiest but you can go to Peter laazer
00:54:39
off.com if you can figure out how to
00:54:41
spell my last name or remember it but
00:54:43
the long-term investor.com ends up
00:54:45
redirecting to that anyways and I'm at
00:54:47
Peter lazarof on every platform but
00:54:49
Jesse you were on my podcast we had a
00:54:52
great conversation you were one of the
00:54:54
most popular episodes I had ever
00:54:56
recorded at the time and so much that I
00:54:58
believe uh resurfaced and you and I have
00:55:01
a new clip on YouTube from that
00:55:03
conversation so if you go to Peter lazro
00:55:05
on YouTube You'll see Jesse Kramer
00:55:08
laying down the facts so you know it's
00:55:10
fun this is a fun format for meeting
00:55:13
people for talking to people and if
00:55:15
listeners are interested in learning
00:55:17
more once you go to the longterm
00:55:18
investor.com you'll have everything you
00:55:20
need that is awesome well not only am I
00:55:22
going to go check that out now because
00:55:24
I'm excited to see myself on YouTube
00:55:26
listeners you know where to find Peter
00:55:28
and Peter thank you so much for stopping
00:55:30
by the best interest podcast hey thanks
00:55:32
for having me
00:55:34
Jesse thanks for tuning in to this
00:55:36
episode of the best interest podcast if
00:55:39
you have a question for Jesse to answer
00:55:41
on a future episode send him an email at
00:55:43
Jesse bestin interest. blog again that's
00:55:47
Jesse bestter interest. blog did you
00:55:50
enjoy the show subscribe rate and review
00:55:52
the podcast wherever you listen this
00:55:55
helps others find the show and invest in
00:55:57
knowledge themselves and we really
00:55:59
appreciate it we'll catch you on the
00:56:01
next episode of the best interest
00:56:06
podcast the best interest podcast is a
00:56:08
personal podcast met for education and
00:56:11
entertainment it should not be taken as
00:56:13
Financial advice and is not prescriptive
00:56:15
of your financial situation