Investing Unscripted Podcast 128: Market Crash 2025 (Ominous Music)

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​Jason Hall: Hey everybody, welcome back to Investing Unscripted where we ask and answer the hard questions about investing. I'm Jason Hall joined as usual by Jeff Santoro, my good friend. Hey, voice of the people. How are you?

Jeff Santoro: Hello. How are you? 

Jason Hall: I'm, I'm great. And I'm enjoying. This plays really, really well for podcasts. For those of you watching it on YouTube, you see I'm holding, it looks like a beer. It's not a beer and it's not, not a beer because it's Monday. We're recording this on a Monday afternoon.

Jeff Santoro: That wouldn't stop you. 

Jason Hall: Oh, that wouldn't stop me at all. 

Jeff Santoro: Oh, are those the, uh, they had, they sell them at Target 

Jason Hall: Spindrift. They're very, very good, but this is half tea, half lemonade. It's a little carbonated, but it's really good. 

Jeff Santoro: All right. 

Jason Hall: It's really, really good.

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Jeff Santoro: I hope they're a sponsor. 

Jason Hall: They should be. They should be. Because I need [00:02:00] some of their money to offset all of the money that I'm giving for their products.

Jeff Santoro: I have not, tried them. But I will take your recommendation and give it a shot. 

Jason Hall: Yeah. Just a little bit of caffeine, but they're just really good.

I think you'll enjoy them. So with that said any housekeeping before we get into our, our show? I think we're just ready to go, right? 

Jeff Santoro: Well, let's tease the B block because at the end of the, after we have our main little topic conversation here, we are going to give the results of the 2024 portfolio for the month of October.

We're going to go through the portfolio contest. So stick around for that. We will be asking, For ideas for the 2025 contest at the end, but we're only going to listen to ideas that are accompanied by a five star rating on Apple Music. So if you want to give us an idea, 

Jason Hall: How did we get on Apple Music? That'd be weird. 

Jeff Santoro: Oh, sorry. Apple Podcasts at it, but we're only going to take suggestions from people who give us a five star rating on Apple Podcasts. So that's the criteria. 

Jason Hall: That's good. That's good. [00:03:00] Oh, but so I guess for the, I don't know, 70% of our listeners who consume our podcast in another manner.

I don't guess your ideas are good enough people. Well, you know, I think it was a 

Jeff Santoro: five star rating on Spotify. That's fine too. 

Jason Hall: That'll work. That'll work. Yeah. 

Jeff Santoro: Anyway, that's what's happening later. But I know no other housekeeping subscribe to all the things, reach out to us with mailbag questions cause we'll do one in November.

And with that said, I think we should just dive into it. 

Jason Hall: Yeah, I want to promote something. Can I promote something? 

Jeff Santoro: Sure. 

Jason Hall: Signers for the newsletter have slowed down. I would love to see more people sign up for our Investing Unscripted newsletter. It's easy. Just go to InvestingUnscripted.com. It's going to take you right to it. Remember you get the transcripts that way. If that's helpful, you get more links to different stuff that we talk about during the shows and the transcript, but the big one is our Sunday random words where mostly me, but you also we'll share our latest thoughts on different things.

It might be something topical. It might be something we're just thinking about a lot. Suggest everybody check that out too. 

Jeff Santoro: That's a good, that's a good reminder that has been slowing down over, over the last couple of months. All right. So [00:04:00] the topic here is market crash, 2025. Ominous music. We're going to talk all about what we think might happen in 2025, what we think we would do, or could do if something like a market crash does happen.

We're going to approach it from a bunch of different angles. We usually do this kind of stuff, Jason, at the end of the year, like as a, as a wrap up show or like a first show of 2025, but we decided to do 

Jason Hall: a reckless prediction show. We said, yeah, but this is a 

Jeff Santoro: little bit different. We're going to, we're going to kind of talk through what we think we might see next year and.

Through the lens of where the market is right now and talk through it. So where do you want to start? As you think about the possibilities of a potential crash coming up, where do you want to start with that conversation? 

Jason Hall: So let me kind of lay the case here. I'm going to lay the case a little bit for seeing, um, a market crash.

And one place to start is. I mean, I think we've seen the soft landing, Jeff. I think it's [00:05:00] fair to say that that's happened. The, the, the fed has pulled that off. We haven't gone into recession. We're at full employment where there's going to be a little blip and this latest data because of the big Boeing strike that's been going on for like seven weeks and then because of the, this spate of, you know, horrible hurricanes, that's affected a lot of people.

You. You all, whenever there's hurricanes, you see a spike in unemployment. That's temporary as businesses close temporarily, people fire for fire, full unemployment, and the businesses are able to reopen to go back to work. So because of this massive Boeing strike that's 40, 50,000 employees or so, and then the hurricanes, we're going to see a little temporary bump.

And then the numbers are going to be pretty normalized again, a really, really low unemployment rate and also pretty high workforce participation. So that's one of the things that's been really healthy too. And then we've beaten inflation this time. Anyway, you know, inflation is under control.

GDP growth is really good. But you put all of [00:06:00] those things together and it's just going to be hard to keep growing the economy. 

Jeff Santoro: Can I pause there and point something out or talk about a piece of this, please. So I think for a lot of people and I, and this might've been where my head was until recently, you hear market crash and you immediately associate it with previous crashes, which have oftentimes been lined up with.

major economic recessions. Right. And I don't know that you and I are defining market crash in 2025 necessarily as meaning the economy is in some massive tailspin. Am I correct in how you're thinking? Yeah, no, absolutely. That's. So I just want to separate those two. Those two aspects of, you know, you can get a crash in the market without it having to be tied to a economic recession.

Jason Hall: Well, look at, look at 2021, 2022, right? We came out of that peak just the insane highs, and then in 2022, the market sold off a [00:07:00] ton. I don't think,

That didn't come along with a recession. Everybody thought it was going to come along with recession, right? The market's always forward looking. And there was the expectations with interest rates skyrocketing that eventually we were going to, the, the, the, the fed wasn't going to be able to stop it.

The only way the fed was going to be able to cool off inflation was to shrink the economy. Rising interest rates, cutting off access to capital. And it didn't happen, right? It, they actually did it the way they wanted to do it without actually killing the economy. Um, but we got that big, I think that the S&P 500 was down like 24, 25% from the peak and the NASDAQ 100 was down like 36%.

It was down a lot before, uh, bouncing back. And we didn't have a recession, right? Just the market sold off. You can go back to 2014, 2015, somewhere. I can't remember exactly what year it was. There was another almost 20% drawdown that was largely driven by oil prices and kind of some macro things that were happening around the world, but [00:08:00] no recession.

You don't always get a pandemic or the financial crisis or dot com bubble bursting. It was followed by a recession a year later, right? They don't, they don't always have to be. You 

Jeff Santoro: know, corresponding, but they can be triggered by an event or events, right? That not that shake the market, but don't necessarily cause a recession.

And I, I just think that's worth briefly pausing and pointing out only because we're recording this on November 4th and this will go live November 13th. So as of right now, we don't know who's going to win the election. But when this comes out, we will hopefully know who has won the election. And so you could be listening to this and the market could be doing something crazy.

I don't know. Time will tell. But I just think it's worth time stamping our conversation just in case this does go live when there's some craziness going https: otter. ai

An event that triggers some selling that triggers more selling that [00:09:00] triggers more selling and then all of a sudden you find yourself in a drawdown, even if it's not a full fledged crash you know, and I think we should talk through that to like, when we say crash, what do we mean is a is a 10% drawdown a crash?

You know what I mean? Like we have to kind of. Talk through what we, what we think qualifies as a crash too. So just other contexts I want to make sure we dive into. 

Jason Hall: Yeah, no, that's, that's exactly right. So, again, thinking about the case for the market coming down number one, I think a market crash to me.

The two big terms that get thrown around with the market are a bear market and a correction and a correction is anytime you see a 10%. Drawdown from the previous all time high and a bear market is when you get a 20% drawdown from a previous, um, a previous high crash, uh, is, I mean, there's not anything that's technically defined.

There's not a speed at 

Jeff Santoro: which you get that drawdown, I guess is how I 

Jason Hall: think of it. It kind of is, is a little bit, it's the velocity, but. Typically anything that's more than 20%, and happens quickly is considered a crash. You like looking [00:10:00] back in 87, the black Monday, that flash crash, like 27% a single day, you know, it was.

We'll never see that again because there's breakers set now that the market will will close right before it ever. And there was a 

Jeff Santoro: lot of those breakers were triggering during the spring of 2020. Yeah, no, that's every day, every day, certain companies in the market would just Yeah, it was happening. So we saw, 

Jason Hall: we saw, uh, the fastest 30 plus percent drawdown.

And certainly since the, those protect protections have been put in place, you know, the market drew down like 33, 32, 33% and barely over a month. It was a bizarre, weird time that I'm, I'm sure it'll probably happen again in my lifetime, but. It won't happen exactly the same way. It's just bizarre how it happened.

But here's, here's kind of how I'm thinking about it. If I'm leaning towards, uh, seeing a crash, which I'm kind of defining as a pretty quick draw down, you know, 25% kind of thing. Number one, I [00:11:00] do think. There's a lot of euphoria in the markets right now because we have come through this period where there was this expectation that we would see a recession and, uh, it was going to be bad for stocks.

And also the idea of rising interest rates we're going to be. You know, we're going to interest. You're going to keep getting pushed higher. And that was going to hurt the stock market. That was going to hurt business's ability to grow their earnings. That was going to hurt consumers ability to spend.

And we've seen some of that happen. Yeah. But certainly not to anything like the levels that we're expecting. There's pockets that are still being affected. Yep. Housing market still being affected. Companies that need money. Are, are getting affected, but companies that are well capitalized are still growing their earnings and they're still spending capital to do it.

I think there's a little more too. If you look at the market's valuations this is something that, um, I'm, I'm paying a lot of attention to the S&P 500 Jeff trades for like 27 times [00:12:00] trailing earnings right now, which is, I mean, you can go back. Decades and you only ever see these sorts of valuations in little pockets.

Like one time you saw it more recently was during the crash during the pandemic crash, a company earnings got smashed, stocks fell but they didn't fall as much as their earnings did in, in those periods. And then they started to recover really, really quickly. The stocks recovered before the earnings did.

So the valuation shot up ahead of earnings normalized. So that, that. And then the earnings multiple came down just because company earnings were recovered and all the zero interest rate access to capital things were happening and companies were able to grow their earnings pretty quickly. But another thing that I think is a factor here, besides the fact that market's at 27 times earnings.

Is it's a 27 times earnings with interest rates as high as they are. 

Jeff Santoro: Yeah, yeah. And I keep thinking about what happens when they keep going lower, you know, [00:13:00] like the other side of this coin is if, what if we don't get a crash in 2025 and then we just get another incredible year, 

Jason Hall: it's like it could happen. I want to contextualize how good things have been for stocks. So. Again, late, late 2021, early 2022, that was the previous high for S& P 500. The previous high was January 4th, 2022. The tech indexes were a little bit later in 2021, but roughly there's like a six week period where all the major indices hit their high.

October, 2022 was roughly the bottom of the sell off. So get this. The S&P 500 since September 30th, 2022, that was when it bottomed and the NASDAQ 100 right around the same time, they're up 65% and 86 % since then the NASDAQ 100 is actually up more than 90% since it's high.

And we're [00:14:00] roughly two years removed from that. Yeah. It's been a hell of a two year run, Jeff, a hell 

Jeff Santoro: of a two year run. And that's, what's been interesting about the last. I want to say year is it. It just feels like I'm waiting for the other shoe to drop again, you know, but it just hasn't. And I felt the same way in 20, not to the same degree 2020 and 2021 felt even crazier.

But yeah, it just, it just knowing that the market is cyclical and there's drawdowns and then there's bull runs. It just does feel like we're about due for the other side of this incredible two year run. 

Jason Hall: It does. But now I'm going to, I'm going to shift a little bit to the, maybe the counter argument a little bit here.

If you go back to the beginning of 2022, before the markets sold off the rough, they get, this is round figures, the, the major indices from their late 2021 and early 2022 from that peak before [00:15:00] the sell off really kicked in the CAGR, the average annualized returns over that just a little bit less than three year period.

Is 8% so just below the long term average below the long term average, right? But not far not not a lot far right now, especially for like, you know, a three year period. It's a pretty normal level of return. I think the key but I don't think a lot of us really thought many stocks were cheap back in late 2021 or early 2022.

No, right? So, we've seen a period, so this is also maybe, you think about that average of 8% a year CAGR since then, so it's a little bit below the long term average, from a period of high valuations to now. What do we have? Another period of high valuations. 

Jeff Santoro: Yeah. Well, alright, so, let me ask you this question, and this is a little bit, Maybe diverting from what we were going to talk about, but this is where my head is hearing you lay this all out I wonder if what's here's [00:16:00] what here's my question to you What's what do you think is more likely that we see in 2025 just to pick up a defined period of time?

More likely we see like an actual crash like a relatively quick 20 plus percent drawdown or just like a slow boring Grind of losses, you know, like, do we, do we get to the end of 2025 and, and the markets down 8% on the year, but it's just a slow descent, very, very slow descent over 365 days versus a rapid crash.

Does the air come out of the balloon slowly or all at once? 

Jason Hall: So, history, history as are, you know, looking in the mirror, so to speak, looking in the rearview mirror, um, using history to kind of inform what. What is most likely to happen is it'd be a quick sell off cause that's the way it goes.

You know, the market goes up roughly two thirds of the time, two thirds of days it goes [00:17:00] up, 

Jeff Santoro: but there's been years, like if you go back and look at, you know, year by year S&P 500 returns, there's been years where you get like a down to down six. But I guess the question is what, what happens over the course of that year, right?

Was it like a 20% drawdown and then an 18%. We'll run to get you to negative two. 

Jason Hall: using history as, as the guide, I would think we'd probably be more likely to see a faster sell off and typically because there's catalysts that cause it, and that's why it tends to happen.

People. Run for the exits, right? But they, they, they, they walk into the market. Yeah. They don't, right. So, so that's what tends to happen. And, and I think maybe the catalyst would be something like maybe an extension of what we saw for Microsoft this past quarters. Maybe all that AI spending is not delivering returns quite as quickly as some people were expecting, right?

Is the, the, like the consensus for investors we're expecting, or we [00:18:00] see. I don't know, NVIDIA finally, second half of the year, you know, Blackwell is their big thing and they're saying demand is bonkers and maybe that's not the case, uh, in August, right? And demand just slows down substantially. That's what happens in cyclical industries, right?

We see demand go crazy until it goes away. So that could be, that could be the sort of catalyst. That that could under, you know, undermine the market 

Jeff Santoro: and with all these big, this is the thing I'm thinking too, with all these, with all the returns being driven by. The, the six or seven largest companies in the S& P 500 and all of them playing in the AI space.

Any perceived overspending or weakness in AI theoretically pulls down all of them, which then pulls down the overall market, which then freaks people out and they sell, which then starts the snowball effect of a, of a crash.

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Jason Hall: Yeah. I don't have the exact number in front of me, but I know the, the magnificent seven makes up. Roughly a third of the S&P five hundreds market capitalization. And this, this is actually one of the reasons I think why valuations have become stretched. Because those companies [00:21:00] all trade for very high earnings multiples, uh, to a large extent because they're earned, right?

Because they're. High margin, very profitable businesses which are in a higher multiple than, you know, a, a low margin steelmaker restaurant that's getting, you know, three or percent margins when you're getting cash margins in the 30 or 40% range, you're going to trade for higher multiple.

But with that, there certainly comes a certain amount of risk that concentration risk you were talking about. And that does concern me, it 

Jeff Santoro: really, really does. It does make me wonder if, this is absolute speculation, but it does make me wonder if something like AI ends up being, ultimately, at some point, the trigger that does cause a sell off, because it's so much of the market seems to be tied up in that spending.

and even, and even the employment, like, you know, one of the reasons, one of the reasons we didn't go into recession, and one of the reasons I, I was, if, if I, if I was skeptical that we were going to see a recession at any point over the past couple of years, it, it was mostly that employment stayed high the whole time.[00:22:00] 

And I'm sorry, yeah. Employment said, hi, unemployment stayed low again. It's the same double edged sword, right? If all these companies are in a, into AI spending and that turns that cycle turns, you're going to see layoffs. You know, because the, the, the financials aren't going to be as good, they're going to try to cut costs and then all of a sudden unemployment goes higher, you were saying earlier that a lot of these times, a lot of these crashes are triggered by an event, and I do wonder if that could be.

The event but time was out. 

Jason Hall: Yeah. I mean, investors are always looking to, to avoid losses first. That's, you know, Morgan house has written so much about that when it comes to investor psychology and human psychology and behavior is. Pain avoidance is a far bigger motivating factor than seeking pleasure and losses in your portfolio, your brain experiences the equivalent of real pain, right?

And you can have a stock that falls 10% and that hurts worse than that [00:23:00] same stock going up 50% feels good. It's just, that's how we've evolved. And that's, that's why we get the sell off so quickly when they do happen. So, so we haven't even talked about. Geopolitical stuff. 

Jeff Santoro: I was just going to ask you that because I'm trying to think like what other, what other events could be the spark that sets off a crash and.

I was going to ask you geopolitical events. It's, it's odd because there's two major conflicts going on right now. One that's been going on for years, the war in Ukraine. There's all the Middle East conflict and potentially more with, you know, Iran and And Israel going back and forth at each other, but it doesn't seem like those conflicts have had an impact on the market.

I mean, not, not one that you could point to. 

Jason Hall: Yeah. 

Jeff Santoro: So other than like a major thing, right? It's some sort of attack or a war that we are actually involved in. I have a hard time seeing. a singular geopolitical event rattling the market. I think it would have to involve us [00:24:00] directly, right? Like that's, that would kind of have to be what happens.

Jason Hall: The, the irony, the sad, twisted irony, Jeff, and I don't want this to sound crass, but wars are usually good for the stock market. 

Jeff Santoro: Maybe in the short term, maybe not so much in the long term. 

Jason Hall: Oh, obviously, obviously the loss of human life beyond the, the, just the pure tragedy there undermines economic growth.

Again, I don't want that to sound crass, but speaking as objectively about your markets and opportunity. You need more consumers. You need more people contributing. And it creates other economic opportunities for businesses to again, horrible realities, but realities, nonetheless I think the bigger, the bigger risk beyond looking beyond war is potential.

And again, by the time this show comes out, the election will have already happened. Lord hope we will have a president elect. There's certainty that comes along with that, right? There's predictability like expectation. When you have the clarity for who's going to be sitting in the oval office in [00:25:00] the U.

S. That affects a lot of things on a global basis. there are certainly some risks with China that, that I think we shouldn't ignore. 

Jeff Santoro: Yeah, I think anything that messes with semiconductors or the global supply chain writ large. Yes. Right. Absolutely. I have impacts on, on the stock market. 

Jason Hall: Yeah.

And China's economy is not doing great right now. , it's struggling , that doesn't necessarily bode well. You'd think maybe put China in a position of weakness when it comes to global trade. But I don't think that's necessarily going to prove to be the case, uh, with the leadership that's in place there now.

But that's the biggest thing on our, like a global factor that certainly concerns me about affecting, stocks. 

Jeff Santoro: All right. So I want to eventually pivot. So what do you do when, when and if this happens, but is there any other, you know, groundwork we want to lay in terms of what, what you're seeing and thinking about in terms of the likelihood that we see some sort of crash in 2025 before we pivot to how do you handle one when it happens?

Cause whether we're right or wrong about 2025, there will be one at some point and we should all be prepared for that. 

Jason Hall: Right. And as I want to say this now we've been pretty doomy [00:26:00] gloomy here. I always expect a recession to happen in the next year. Kind of 

Jeff Santoro: a. You're kind of a pessimist of us. Well, but here, so I want to say something at the outset of like our conversation about like how to handle this because I think you and I are biased towards looking at market crashes as opportunities by virtue of the fact that we're both decades away from truly needing to rely on our.

Investments for income in retirement, but not everyone is in that boat. Right. And I want to acknowledge that, but I also want to use it as an opportunity to encourage people who might be closer to retirement to really consider the fact that not whether we're right or wrong, that there's going to be a crash in 2025, but more about when you get close to needing that money, you really should be always expecting there to be one in terms of being defensive with the capital that you've accumulated over all the years you've been working.

Jason Hall: Well, this is to paraphrase many leaders and [00:27:00] experts and military planners who've said this over the, over the years, it's, it's, it's less about the plan and more about the planning. Because, yeah, I pretty much always expect a recession, which means that I'm wrong 90% of the time, because, you know, they don't happen, but about once a decade or so, right.

And like the big market crashes, it's again, we've gone through this odd period where we have the pandemic. That big 30 plus percent drawdown. And then, two, two and a half years later, we saw another 20% plus drawdown. They usually don't happen that close. But that happened when they happen.

So, but again, you're right. It's, it's been interesting because I'm not a pessimist. you're a long term investor, you have to be long term optimistic because you expect companies are going to grow. People are going to continue to spend more money. Innovation's going to happen.

More people are going to join the middle class around the world and the world's economy is going to get stronger and wealth is going to get created. As an, as a long term focused investor, you kind of have to have those basic principles or, or you're, [00:28:00] you're not going to be able to be successful.

So maybe part of it is like hope. That there's going to be a, um, a recession and a market crash. But I'll never hope for that again because of the real impact on real people that's far more meaningful than whatever tiny little bit of upside I'd get as an investor. But I think the key is being aware that it's a possibility.

And understanding how it would impact you in your real life and also future you right? And you have to, those are two different people. You know, there's you next year. That's just really a similar version of you today, right? You're probably going to be doing the same job. You've got the same number of kids.

You got the same spouse, same friends, interest, all that kind of stuff. Same budget. Like all that kind of thing. But then there's future you, which is what you're saving for a future. You, you know, your kid's no longer in your house. He's living in a college dorm or an apartment somewhere. Future you is retired, right?

You're no longer generating income from a job you're living off of the invested wealth you've created, social security, et cetera, et cetera, et cetera. So kind of bucketing [00:29:00] real you and future you is one of the things that I've been able to do that I think does kind of help me. As I'm going through this planning process of, of thinking about long term goals, short term goals, risks I guess basically like frameworks versus feels.

Maybe. 

Jeff Santoro: Yeah. I think this is the hardest thing especially if you're closer to needing your money in retirement, I don't want to say retirement age, cause that's different for everybody. But I can understand the, the desire to not be in mostly bonds or mostly cash because you could say to yourself, okay, if I go into safer things and then we don't see a recession for the next four years, I just gave up a ton of gains.

Those are some risky dice to roll if it goes the other way and you are about to step into retirement and now all of a sudden your portfolio is worth 80% what it was. You know, a month ago, you know, that can have a huge, you know, cause then you're going to be, you know, you're selling, cause I think what people [00:30:00] don't conceptualize is you're selling all those stocks and investments in retirement to get money to live on.

And you don't want to sell them out at a loss or 20% lower than they were, right? That's the reason to not be so heavily invested. It's not that it won't come back. It's just that it. It might not come back for five years and then you're selling everything at a lower valuation. 

Jason Hall: Yeah. It gets back around to accurately defining what risk really is for you.

And for you and I and people in similar, but basically anybody that's still a decade or more from retirement, net contributing to retirement or whatever the goal is, maybe it's not retirement. But again, the point is that you're still many, many years away from whatever that financial goal is. You're still contributing new money into it.

Your biggest risk as an investor is the failure of an individual asset. If you want a company, the company struggles, their key product, they lose a patent or they get disrupted and they didn't see the disruption, their earnings get cut in half, the stock's going to fall right in your, you're going [00:31:00] to, that's a permanent loss.

Of, of capital, right? Because that stock price has fallen. Worst case scenario, a company goes bankrupt and you lose a rounding figure, a round, you know, a rounding error from 100% of your investment. You buy a bond in a company that goes to liquidation. And even though the bondholder is one of the first people in the line, the total liquidation only results in a 50% recoup of the total capitalization of the company.

Guess what? You're, you're bankrupt. You're going to get half your money back, right? So there are ways even with things like bonds to lose to lose money. In the short term, volatility can be a material risk if you're on fixed income or you're retired or your kids in college. And you didn't roll that five 29 into cash and bonds.

You left it mostly in the stock based fund. 

Jeff Santoro: Yeah. 

Jason Hall: Because you need to pay that kid's tuition this August. Well, the market fell 30% in May. You're not going to get back up to where [00:32:00] you were. Volatility is a real material risk to you because of the timeframe. So I think that's really important.

You flip that over. We apply that Charlie Munger inversion principle to it. You turn time into a risk when you buy the wrong assets when you hold cash for the long term, 

Jeff Santoro: right? The wrong asset for where you are in that Yeah. 

Jason Hall: Right. So again, if you're, you know, 10, 20, 30 years from a goal, 15 years, your kids in kindergarten and you got a dozen years before they start college or whatever, the continuum tells you and makes it perfectly clear that your best way to reach your financial goals are assets that over the longterm give you the best chance of getting the best returns, which we know that's generally stocks over the longterm, again, depending on where you're starting with the price.

Okay. 27 times earnings for the S&P 500 is expensive. Starting from this price, you're probably going to get a below average level of returns over the next five, 10, however many years, if you're buying an S&P 500 index fund. But even if you're [00:33:00] getting a below average return, it could still be better than cash or bonds.

So again, thinking about time using the right tool based on the amount of time you get to your financial goal, that framework, Around your goals to make the right decisions and think through it versus rules. That tell you what to do that aren't always right because of things that may have changed.

Jeff Santoro: So let's dive into some framework thinking because you, you and I are not that different in age or station in life, although you started 

Jason Hall: your best attempts to make it sound otherwise. 

Jeff Santoro: Yes. I think based on the amount of jokes I've made, people think we're probably 10 years apart from each other, but we're less than three, I think.

 But you've, you've actually taken some steps and we've talked about it on the show. People can go back and listen. I think we did an episode called Jason just bought a bunch of bonds or something like that. You can go back and find it. So you've already. made some decisions not to completely transition, but just to start the journey of future proofing your invested wealth.

And I've done none of that, but if we [00:34:00] do let's, let's talk through what you're thinking and we don't have to go deep into like your cash deployment plan, because we've talked about that before, but I'm curious if you've thought differently about how you might behave in a, in a crash or a big drawdown now that you've moved some of your money into.

Into bonds. Would you reverse that? Would you double down on it? Do you keep a lot of cash on the side still to deploy? If there is a drawdown, cause I have a different philosophy on how to handle a drawdown as it pertains to investing, but I want to hear if you've made any changes in your frameworks.

Jason Hall: Yeah. So the short version of the whole story about my investing profile with different assets is now I'm about 10% cash, um, used to be about 5%. It's about 10% and it used to be 90% stocks and 10% cash. But now it's about 5% bonds. About 10% cash and then the balance in, in stocks.

And why I did that for people that haven't listened to that Jason just bought a bunch of bonds [00:35:00] episode, which I do encourage you to go back and listen to if you haven't is because I've gotten to the point and. Here's the thing, like precision over the long term is, is useless, right? You want to be directionally correct with how you allocate your assets and over time to make sure that you're, you know, investing enough over the long term to move towards what your financial goals are, but the closer you start to get to those goals, the more precision you start to be able to have and kind of being able to drill down on, on making sure you reach your financial goals.

And you don't miss them by over risking or by under risking with different assets. And the short version is my family, we've gotten to the point where we can look 10 or 15 years in the future based on the size of our portfolio. Now our expected contributions over the next decade or so. We pretty much know what rate of return we need to get to reach like the bare minimum to, to, to reach our financial goals.

And anything above that would just be. Excess, right. Would be wonderful to have, we could do [00:36:00] more for our kids, whatever we want to do. So because of that, we made that decision to start allocating more towards bonds to kind of lower that, that risk threshold a little bit. The change in interest rates over the past three years is one of the catalysts for that, because now we can get some real return , in bonds that weren't there for most of the past 15 years now to your question, how, what are my thoughts about And seeing a big market sell off, what would I change?

How would I act? I really think that making this transition now to increasing my exposure more towards bonds and fixed income and cash. I've basically tripled the amount of cash and fixed incomes that I hold versus where I was three years ago, going from 5% cash, 95% stocks to 15% of those other two and 85% stocks, it's put me in a position of strength during sell offs. Sure. The total performance, if I were to stay in stocks and we get like a normal period of CAGR growth, maybe I'll have [00:37:00] less total money than I would. But I know that if we do see a big sell off. I have that 15% of my portfolio that's not going to be subject to the short term whims of the stock market.

So that's really empowering to think about how I invest that 85% to create the best opportunities to get the best returns, because it also means that I have a nice big chunk. Including the bonds that during a market crash, particularly if it was more in the next few years versus in the latter half of that 10 to 15 year period.

Right. I would feel very comfortable selling a portion of that, particularly if we saw a pretty deep drawdown because I know there would be some really good opportunities for some of my favorite stocks that probably had fallen even more than the market, uh, or even maybe they felt just the same as the market.

The capital appreciation potential for them just to normalize as the market recovers would be well worth adding more risk back into my portfolio. 

Jeff Santoro: Yeah. I think about this a lot because I [00:38:00] remember. During the 2022 drawdown thinking to myself, maybe I should have not bought so many things in 2021 and save some cash, you know, because everything was so overvalued.

I didn't know it at the time, but I learned enough by 2022 to look back a year earlier and realize I had made some. bad decisions in terms of buying things that were way too expensive. But I've not changed my cash strategy. I'm still almost entirely invested mostly because I want that to be a hedge against feeling like I have to time the market.

Cause the other feeling I remember having during 2022 was cause you know, when, when you hit those big drawdowns, there are days where the market drops three, four, five, 6%. You know, in a day and then the next day it might go up by one or it might go down point five and then it might be another day where it's three.

And every time we would experience those bigger days of drawdowns, I would think to myself like, is this, is this the day? Is this the day I should buy everything? And I [00:39:00] think by just keeping my normal cadence of the money, it's my account twice a month. And I, when I have a chance and want to, I go in and decide what to buy or not buy is probably the right thing for me to do just because it will prevent, it's still a version of dollar cost averaging to some degree.

And it will prevent me from feeling like, no, today is the day is the, is now the bottom, the questions I would ask myself all the time in that last drawdown. So I don't know. I. I might look back on what, whenever the next crash is and realize I made the same mistake twice, and I should have just had some cash on the side to be a little bit more aggressive.

I also am in a position where my stock portfolio is a small percentage of the overall portfolio, which we've talked about a lot. So I'm in a little bit of unique situation, but I think I guess the reason I raise it. And the reason I asked you is because everyone listening is going to have a slightly different situation where they are in life, the composition of their portfolio.

Are they entirely in cash? Do they have ETFs? Do they have index funds? Do they have any bonds? Right. [00:40:00] And everyone's got to make the right decision for them based on that, all those factors, but also just their own mindset and what they want Risk tolerance they have and how much they can stomach a downturn and all those kinds of things too.

Jason Hall: Well, I, I think this is, there's a little bit of the process that I have and I want to say this too, like I do have, and again, it's, it's, it's not a hard and fast rule, but it's, I really try to adhere to this when we see a 10% that correction, that 10% market decline from the previous high.

I really do try to take half of my cash and find my highest conviction These are the big like opportunistic buys. I really try to do that. We came through that 20% drawdown, uh, in 2022. And I reinvested. I invested a pretty good chunk of my cash, but not probably not in hindsight, not as much as I should have.

So, history is a guide. If you do that it will, it will pay off. The thing is, Jeff [00:41:00] I think this is something that investors can do even in like your 401k. Maybe not with the same level of precision, but again, precision isn't always the, precision gets in the way. Sometimes you, you spend too much time and you're trying to get too cute and do it perfect and you miss the opportunity or you work too hard.

Yeah. Yeah. There's no reason in the world why let's say you've your 401k, you've got 70% of it that goes into stock funds and 20% that goes into bond funds and 10% that goes into like the money market cash equivalent fund. There's no reason in the world why you wouldn't want to log into your 401k when we see a correction.

And do some rebalancing or that 20% draw down, do some rebalancing, right? Cause the market's going to come down. The percentage of your contributions won't change, but the percentage of the value will have changed. So move some of that bond money. Over into your equity funds till you get the percentages back to that, [00:42:00] you know, 70, 20, 70, 30 total mix, however you want to do it.

You can accomplish kind of the same thing and boost your returns over the long term. Again, as long as you're not creating material short term risk because you're getting close to a financial goal and you were just trying to grab some extra money and you weren't considering the reality that. Well, the financial crisis, it was what?

Five and a half years round trip from top to top. I mean, it can take worst case scenario, dot com 2000 peak. We had a few months of an all time high back in 2007, and then it was like 2011, 2012 before the market fully, fully recovered. You're talking like 13 years with the exception of a few months in the middle where the market.

Hit all time highs. So, you just have to be really mindful about, you know, measuring risk appropriately based on your goals. And seizing the opportunity when it makes sense to. 

Jeff Santoro: Yeah. I think a way to wrap this part of the conversation and then we can play some [00:43:00] commercials and come back and talk about the portfolio contest is to remember that we started this conversation with.

Sort of a hypothetical slash here's why it would be reasonable to expect a crash in 2025 just based on where the market's been and the economic environment and things like that. But the reality is we're not being hyperbolic. There will be a major drawdown at some point. That's what the data tells us. I forget the.

I don't have it in front of me right now, Jason, but there are plenty of places. You can see, you know, we get a 5% drawdown every X amount of years. We get a 10% drawdown every X, every Y amount of years. And we get a 20% every Z amount of years, right? 

Jason Hall: There's, you're going to see a 5% sell, sell off every year.

Like, I mean, it's, 

Jeff Santoro: it's like 10, I think is like every couple of years. And then a 20% is like once a decade, something like that. Right. 

Jason Hall: Exactly. Of course, they don't run like the trains in Germany. They're not on a set schedule. But I think this is the average. 

Jeff Santoro: This is something that if you're new and or you just really hate watching your portfolio go down, this is [00:44:00] where knowing that it's normal, it can help.

You know, you can never tell someone relax. It'll be fine. Like go, go try to tell your significant other that when they're upset about something and see how it goes. But 

Jason Hall: put both of your hands on their shoulders, look them right in the eyes and say, calm down. Do that. It works so well. 

Jeff Santoro: Yeah. Don't do that.

But I, but I do think knowing that this is a normal part of the, of the process is important. I told the story when we were talking With Emmett Savage about my family member and I've told the story before who bought Cisco at the very top and then spent the next 30 years thinking, I can't put too much money in the stock market.

It's not safe. and how she could have really 

Jason Hall: missed one of the best bull markets in their lifetime along the way. 

Jeff Santoro: Right. And that was just, that feeling is completely understandable. 

Jason Hall: Yeah. 

Jeff Santoro: But it, it comes from a place of, of a lack of understanding of how the market works over time. Right. So 

Jason Hall: I 

Jeff Santoro: think that's kind of where I wanted to.[00:45:00] 

To wrap up my thinking on this. 

Jason Hall: Yeah. And I think the biggest thing is again, it's like we said before, it's, you know, it's in the planning, not the plan, whatever you're planning in the short term is it's not going to turn out that exact same way. But being aware of all the pot, there's reasons every damn year for there to be a recession or a market crash or some sort of a sell off.

But there's more reason every year. To see stocks keep moving higher because wealth gets created. People come out with great innovative, innovative ideas. Those innovative ideas create efficiencies and they get passed along across industries and create value and more people join these marketS&Participate and create wealth.

And then they send their kids to school and their kids are better educated and more capable and. You know, it's, it's this, this machine that continues to feed itself. It's, it's a remarkable, wonderful thing. Just don't get too caught up in the dogma of, of believing the madness that there's going to be a market crash.

Because there will be a market crash. You just don't [00:46:00] know. You just don't know when 

Jeff Santoro: let's, let's play some ads and then let's talk about the. Portfolio portfolio contest, uh, October results. We'll be right back.

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Lock in a 6% or higher yield with a bond account only at public.com/investingunscripted. Brought to you by public investing member FINRA and SIPC. As of 9/26/24, the average annualized yield to worst across the bond account is greater than 6%. Yield to worst is not guaranteed, not an investment recommendation.

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Hey, Investing Unscripted listeners. My name is Brett, one of the hosts of the Chit Chat Stocks podcast. If you love Investing Unscripted, we think you will love [00:47:00] listening to Chit Chat Stocks. On our show, we research individual stocks, interview investing experts, and well chitchat about investing every single week from hot stocks, such as Nvidia and Celsius, the hidden small cap gems.

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Jason Hall: Hey, Jeff. Who, uh, who's winning? 

Jeff Santoro: All right. So as a reminder, we do longer talks every quarter, but we do give monthly updates. So we are going to be talking about how our portfolio contest participants did it just in the month of October. So for just that month alone and our winner for the month of October is 2023 guest Travis Hoyam.

Who you guys can all find that asymmetric investing, that's his newsletter. And this was a pretty impressive quarter. And there's some fun stuff in there that we can talk about, but his portfolio was up [00:48:00] 11% just in the month of October. Now, just for comparison sake, that was a month in which the S&P 500 was down 1%.

So that's, I mean, it's only a month, but still credit where it's due. That's a pretty good thumping of the S&P. But here's, I'm kind of glad Travis won this month, because I think it gives A fun opportunity to talk about the type of portfolio that he put forward and, and the type of investing he likes to do, which is what he calls asymmetric investing, right?

So basically taking, I don't know, this is how I think of it, taking bigger swings on some companies where the, the result might be binary. You know, like it, it may not work out, but if it does, it could work out massively. And that's a long term investing philosophy. But when you invest that way, you do get months like this, where one stock in this case Peloton was up 82% in a month.

now it's still, [00:49:00] I'm not looking at the chart, but I'm guessing it's still down significantly from its-all time highs. Uh, because you know, if you go down 80% and go up 80%, it doesn't get you back to zero. Having one stock be up 80% and another one up 13, he had General Motors in his portfolio and that was up 13 just in the month.

You know, those two things alone can overcome a lot of other stocks that just Are middling along or lose money. So that was my first take. Think seeing that Travis won the month. 

Jason Hall: Yeah, I want to build on that a little bit too, because there's a little bit of that same mentality that I've used in, in my own portfolio, I've talked about the barbell approach and it's my real portfolio, not my horrible, awful, good Lord, don't buy any of these stocks.

2024, we're going to come 

Jeff Santoro: back to talk about your portfolio contest. Stocks, but yeah, we'll dunk on me. 

Jason Hall: But in the, in the real world, you know, my, the barbell approach I've taken with my stock portfolio, where I have a large portion of it. That's in dividend stocks, dividend growth stocks, predictable, solid.

I have a lot of conviction in these [00:50:00] businesses and their ability. I kind of set it and forget it with these. And then the other side is more of a growth focused, almost like a venture capital approach to a certain extent where I'm taking bets. And all it takes is one to be like Peloton to be really, really, really right.

And it makes up for a lot of wrongs. So just for example, in Travis's portfolio, again, this is all last month. He had three other stocks, MGM, Portillo's and Zillow that were all down. They were down 6%, 6% and 4% and one stock that was up 82, so it's like the slugging percentage approach.

You can create a tremendous amount of value with some swing and misses. Because this is the rare game. It's not a game, but it's, it's the pursuit where you can hit a thousand run home run, right? 

Jeff Santoro: And it's not, it's not just that particular type of investing. where it's asymmetric bets [00:51:00] necessarily, but it's sort of how it works in almost any long term portfolio where you're trading.

And I'll give you an example. Cause I finally feel like I've been investing in individual stocks long enough that like I can point to this actually happening in my own portfolio. So here's, here's a quick example that I think illustrates the point. My, I currently own 41 individual stocks. And if I take the dollar amount lost on all of the ones that are in the red, they are canceled out by.

NVIDIA, Arista networks, and Broadcom of which each one is, they're probably three of the smallest investments I've made by cost basis, but they've just been massive winners over four years-ish. I've owned them, you know, so that's three stocks completely covering the losses of 9 other ones, right? So, and I, I don't consider myself to be a quote unquote, asymmetric investor like Travis's.

I'm not, these are not stocks I bought because I [00:52:00] saw a binary outcome like massive winners or maybe not. It's just sort of how good longterm investing plays out in a decent size portfolio for a lot of people, right? Like that. So. That's the other kind of point that jumped out to me in terms of what he saw just in this month, but compared to what I've been able to see just over a couple of years.

Jason Hall: Just to kind of build on that too. roughly half of my individual stock buys, not individual stocks, but each individual investment that I've made using the spreadsheet that I track with, roughly half of those buys are beating the market.

But because of what, like exactly what you said but, but just like some context, I own 21 individual stocks that I own that have fallen 20% or more of lost 20% or more of their value. my 10 best performing stocks. have generated about 3000% in total returns. So those 10 stocks made me money and erase 20 losers, 20 complete zero losers, [00:53:00] right? That's the power of investing. Being right can be worth a lot more than being wrong costs you.

Jeff Santoro: And you will be wrong. Yeah. Guaranteed. Cause the best investors in the world are wrong a lot. all right. So back to the contest for a second, but those are some of the high level things that. I think you and I both thought about when we saw that who won we said we were going to dunk on you and year to date we absolutely can and should. But I want to give you some credit, Jason, because in the month of October, you beat the market. Your portfolio was up 1%, market was down 1%. And I lost to the market. I was down 4%. So I want to, I want to give you. 

Jason Hall: I'm, I'm curious. Was it actually 1% or was it like 0.7%? 

Jeff Santoro: No, it was 1.01. If you go to the second. 

Jason Hall: All right. I'll take that. That's it. That's I'll take that. That's good. That's good. Cause if you grow, you know what I want to say about that? I want to say that if you own a portfolio of stocks and you manage to consistently get 1% gains every month, a number that sounds [00:54:00] really small, You're going to end up doing like 40 or 50% better than the market over an investing career

It is remarkable how a small number like 1% can pay off The problem Jeff is that other numbers that I've put up in months are negative 23 negative 22 negative 7 negative 13 you get you get the point. This has been a bad year to date 

Jeff Santoro: year to date You're down 40%. 

Jason Hall: Yeah. Yeah. But again, for those that don't remember those that are listening to this episode without, without going back to late 2023, when we rolled this out, I intentionally made a decision to basically bottom feed, pick a bunch of stocks that were down a whole bunch and looking at this portfolio.

Now I will tell you with all of the hindsight in the world baked in the only ones that I would buy. Knowing what I know today, I would buy in phase. I would buy [00:55:00] QuantumScape, I would buy SoFi and I would probably buy WolfSpeed. Maybe not. But three definites and one maybe out of those, what, seven stocks?

Eight 

Jeff Santoro: stocks? Yeah. I mean, look, I, I know it does sound like we're making excuses because we are. But the reality is I did the same thing. I mean, I picked stocks that I either thought would do well because. They're strong companies, or I thought they'd do well because they kind of were beat down after the end of last year.

And I picked a couple because I wanted to just track them a little more closely and learn more about them. That was the mistake. I've actually sold a couple of the ones that I had in my portfolio out of my actual portfolio, because for various reasons, the whole point of the contest, I think was just, it was more to learn and talk and illustrate points than it was to actually pick stocks we thought would crush the market.

and as a result, I will say we're doing much better at our savvy trader portfolio than we are here. 

Jason Hall: Yeah. Well, and going [00:56:00] back to 2023 portfolio too, I want to mention that we still, we still have the spreadsheet running that contest too. You'll find it in the description if you want to go check that one out too.

Like I just objectively said, let me pick three, Stocks that I have really high conviction in, and it's still, it's up 108%. 

Jeff Santoro: I'm glad you mentioned the 23 contest because I want to, I have a, I have a request of our listeners. So when we were chatting to plan today's episode, we were starting to think about, What we want to do for the 2025 contest, because we're going to have to announce that and plan for it.

It's going to come up quick because this time of year always flies by, but sometime in early December, we're going to have to get together and, you know, decide what the rules are going to be. And we've done it differently. Each year. I don't think either year was perfect in any way. There were some things I liked about the 23 contest and that I and things I liked about the 24 contest.

But this is an open call to our listeners who have been especially those who have been listening for a long time. I'd love to know [00:57:00] your ideas for how we can. improve on and tweak the contest for 2025. And I'm specifically Jason. I don't know if you feel as strongly about this as I do. I would love to find a way to have the contest still be fun and still donate money to charity and still give us an opportunity to review it quarterly and monthly, but be a little bit more long term based.

So I don't know if that means combining some of the from 23 and 24 or starting from scratch or making the contest. Over the, you know, a three year contest or something like that. But we have lots of listeners who are very creative people. So if you're listening to this, you have an idea, shoot us an email, reach out to us on social media.

Any way you wanna reach out and pitch us your idea. We already got one unsolicited from a listener a couple weeks ago, which is cool. 

Jason Hall: Thank you for that, by the way. 

Jeff Santoro: Yes. if anyone else has any ideas. I would love to hear that because this is fun and I, I want to keep making it better every year. 

Jason Hall: Yeah, I [00:58:00] agree.

I think it is definitely time to kind of, uh, revitalize it a little bit. And I like the idea of trying to do something that's over the longer term and maybe what we could do is just, you know, it's, we still have a annual contest, but we also have a kicker for multiple years, like where we have a base portfolio we start with and we can make a certain amount of changes or something like that.

So 

Jeff Santoro: yeah. 

Jason Hall: Yeah. Yeah. We got ideas. 

Jeff Santoro: Yeah. 

Jason Hall: We got ideas. They're 

Jeff Santoro: good ideas too. But We'll figure it out. But we're. We want your ideas. Yeah. We want the crowdsourcing aspect of this as well. All right. Well, listen, that. I don't know. There's too much more we need to say about a monthly update. There's not. I don't want to give, spend too much time on 30 days worth of market data.

But we'll, the next time we will do this will be sometime in early December to talk about November. And then in the early in the new year, we'll wrap up the contest when we get our end of the year results. And hopefully by then we'll have a new idea for 2025. 

Jason Hall: Here we go. 

Jeff Santoro: Sounds 

Jason Hall: good. Also stay tuned for the rest of the year.

We've got going to finish the year strong. We're going to do our reckless predictions episode at some [00:59:00] point. We've got a couple more guests still lined up to come on the show. It's going to be a fun finish to 2024. So ride with us as we go through the holidays. I'm sure everybody needs some distraction from their families as we get into the holiday season.

So look forward to, uh, to more great content to come. In the meantime, Jeff, I have to remind everybody about the thing, right? Do it. These are our ideas. These are our answers. We love giving our answers to these hard investing questions. Thinking through the scary stuff and the fun stuff and the opportunities, too.

But you have to remember these are our answers to these questions. You got to figure out your own answers. You can do it. I believe in you. Okay, Jeff, we'll see you next time.

Jeff Santoro: See you next time.