Mistakes Were Made, December 2023 Edition

Jason’s Random Words

Accountability is, I believe, incredibly important for anyone who has a platform and is willing to take a position. And I hope that's something both Jeff and I continue to do as more and more people read and listen to our thoughts. As much as I hope people make their own decisions – something we exhort them to do at the end of every podcast episode – I am not naive to the realities of human nature. People tend to find experts who they agree with, and then nod along when they spew whatever their flavor of "agreeable wisdom" is. 

To help inoculate you, dear reader, from the folly of trusting me, and me from the folly of believing myself too much, I will try to regularly point out when I am or have been wrong. 

And there are few better mechanisms out there for making you look wrong than the stock market. 

Here are some recent examples:

• In our October 8 newsletter, I essentially predicted that stocks would likely generate below-average returns in coming years. Since then, all of the major stock market indices are up double-digits. Anyone who took my suggestion too seriously has missed out on basically a year's-worth of gains in two months. 

• In our October 15 Words, I warned about rising interest rates and the cost of capital upending the prospects for certain companies and industries. I used four high-yield independent electricity producers as my example. The stocks of all four are up at least 21% since then. 

• In our October 21 podcast episode, I doubled down on my expectations of lower stock market returns in the years to come. Stocks are up even more than after the October 8 newsletter. 

There are a couple of ways we can think about this. The first is, "Man, that Jason is a bit of an idiot when it comes to the stock market." Jeff probably agrees, and would also say you could just stop at "idiot." I think to some extent, that's fair. And at the risk of insulting our readership, my response would be, "If you acted on Jason's words, and he's an idiot, what does that make you?" 

So I won't make that response because I'm thoughtful and supportive, and this is a safe space. 

The more serious answer is that this has been an excellent reminder that the stock market can make long-term smart look short-term stupid. Broadly speaking, the vibe of my Words recently has probably come across as bearish while my internal vibe is more "muted bullish." I've been pretty steadfast that I think stocks will remain the best long-term wealth creator, just that investors should by and large have lower expectations for future returns. 

And of course, in the weeks since, the market has delivered an above-average year in gains. Anyone who took me too seriously is probably kicking themselves, and wishing they could kick me. 

This is exactly why I think it's so important to seek opinions broadly, from people who have a different opinion than you and hold themselves accountable in public, and are willing to say when they're wrong. And I've certainly been wrong about stocks since October. And while it's true that I have never – beyond our yearly Reckless Predictions shows – been one to make serious short-term predictions, it's important to not ignore the implications of getting it wrong. And I've definitely been short-term wrong. 

So this is the part where I pivot, right? Call for an epic bull market over the next decade? 

Not so fast (this is where I spew my agreeable wisdom). I still see the same fundamental challenges. The near-term "voting" of stocks higher has been great for our portfolios, but it doesn't alter the reality that profits are likely to face more headwinds. The "weighing machine" of value will reflect that, I expect, in the years to come, with below-average returns. Just don’t mistake below-average returns for I should move to cash returns.

Have I changed my investing as a result of these expectations? To some degree, yes, though stocks are still the foundation. Those moves have had some impact on my returns in the near term (read: idiot). I'll write more about that next week. 

Let's wrap this one up. What's an investor to do? Same as always. 

• Have a plan based on your goals (the when more than the what)

• Use the proper tools to reach those goals

• Own businesses (stocks etc.) to create long-term (decade-plus) wealth

• Keep cash for short-term (1-3 year) needs

• Own bonds and other debt instruments for intermediate capital preservation and better yield than cash

• Use the best accounts to preserve wealth and avoid unnecessary tax

• Build frameworks that make it harder to make mistakes and easier to reach better decisions

• Fill your life with people you love and respect and work that gives you high income, maximum fulfillment, or a good mix of both. And, I guess, Jeff.

Lots of words, I know. But you're worth it. You can do it. I believe in you.

Jason

Jeff’s Random Words

Man, Jason is an idiot.

Truly considering stopping there but alas, I type on…

Anyway, I loved Jason’s words. This is partly because it’s great when he’s wrong, but also because I admire people who admit their mistakes. I especially admire people who admit their mistakes in the world of investing, where revisionist history seems to be the preferred path for most. In this same spirit, I would like to spend some time sharing my thoughts about the short “market vibes” segment we recorded in this week’s episode.

One of the biggest mistakes I’ve made (and one of the most valuable lessons I’ve learned) was almost all the buying I did in 2021. Here are a few of the most egregious examples in easy-to-mock chart form:

Here’s the thing. I literally cannot believe I bought these stocks at those prices. I blame ignorance, but still. I keep telling myself that this is a mistake I’ll never make again. Right now I feel confident in that resolution, but who knows? 

It’s also worth mentioning that these are extreme examples. But you don’t need to overpay by this much to have a losing investment. So I am sure I will make some degree of this mistake again in the future.

I recently said to Jason “Man, are you an idiot”. But shortly after, I said that I vowed never to buy again like I did in 2021. Right now the market feels vaguely (if not more) like 2021 than it has in a while. Jason’s examples above show how quickly market sentiment can turn. I have no appetite to buy. I know I’m learning because when this happened in 2021, I couldn’t wait to buy. I was so damned excited. So, progress!

Don’t worry though. I keep detailed records of all my investing decisions. I’m sure I’ll be here at some point calling myself an idiot. I just hope it’s not because of the same reason!

Jeff