Walking alone and looking over your shoulder

Accumulation usually beats perfection

Jeff’s Random Words

This week on the podcast we had former Motley Fool Money podcast host Chris Hill as a guest. As someone who found the Motley Fool podcasts early on in my time as a stock investor, hearing Chris again was great. I’ve missed his voice of reason over the 9 months or so since he stepped away from the microphone. I chose the phrase “voice of reason” to describe Chris for a specific reason. 

I had been a stock investor for about 4 weeks when the COVID-19 pandemic shut down everything. While worrying about the health and safety of my family and friends, I was also fascinated by how this would all impact my new obsession, investing. And there I was, every day, listening to Chris talk us all through a crazy and scary time. Up until I found this podcast, my exposure to financial news had been the talking (screaming) heads on CNBC and the large red chyrons on the bottom of the screen, promoting greed and instilling fear. Listening to someone present market news calmly and without hyperbole was refreshing.

We talked about this a bit on the podcast, both what it was like being in the financial media during big scary events and also what it was like working in a profession where so many of the incentives are to stoke fear. I think Jason mentioned the old news adage “If it bleeds, it leads” and I think that’s still the case with investing news.

I think the other reason I miss being able to listen to Chris is because, as he pointed out, investing can be an isolating endeavor. I know that when I started I had exactly one person I knew who was interested in investing, and he wasn’t nearly as interested as I was. So I became a listener of other people talking about stocks and that’s what got me through. Chris said that it’s great to have people to talk about investing with because you can celebrate your successes, and also have someone to talk you through your losses. 

As I think about our podcast, I can only hope that we might be filling this void for some of our listeners. And if that’s the case, we’ve done our job. However, we would love to make this a two-way communication kind of podcast. So please don’t hesitate to reach out to us by commenting on these newsletters, emailing us, or messaging us on social media. We’re easy to reach and happy to respond.

Lastly, keep an eye on whatever Chris Hill is up to next. I know it will be great.

Jeff

Jason’s Random Words

Jeff and I are both taking a little bit of time off in the weeks ahead, so we pre-recorded our monthly Newsletter episode earlier than normal, and my reflections this week are related to a few of the questions that we got, and to the conversation that Jeff and I had that you'll get to listen to in a couple of weeks. 

We got a few questions that touched on FOMO (fear of missing out), deciding when to sell a stock you think can keep running even though you'll need the money in less than a year, avoiding the AI hype in investing, and how to think about overvalued assets you already own. There were a lot of good, different questions. But they also seemed to have a lot of intersection across what feels like a broad worry that the market – or at least certain pockets of it – is overvalued. 

At some point in the conversation, I told Jeff that it feels like growth investors always turn into value investors on the way down. Valuation certainly has come up a lot more over the past two years than in the dozen years prior. And I think by and large, that's both healthy, and a lot of recency bias. Investors have enjoyed a great run over the past 14 month (the S&P 500 is up 32% while the Nasdaq 100 has rocketed 64% higher since the start of 2023), but seem to be constantly looking over their collective shoulder, waiting for Mr. Market to put a knife in their backs. 

We're always looking over our shoulders, usually for something that looks a lot like the last thing that happened. The 2021/22 market collapse was largely a product of the SaaS/tech/SPAC bubble popping, so a lot of people are expecting the current AI-driven rally to just be another bubble. Back in 2010, it was "double-dip" recession, coming out of the Great Financial Crisis. We all thought Greece was going to collapse. It didn't. Honestly I hadn't even though about that in years until Chris Hill brought it up on this week's podcast conversation. This is normal. We're always looking for something that rhymes with The Bad Thing that just happened. 

This isn't a new phenomenon. It's a normal way to feel when you're close to the markets, you've experienced some pain, then some success, and now your brain is telling you "hey pal, remember that pain from before? It's coming next." 

Heck, it could be. The market is basically at all-time highs again and the Fed is signaling that "higher for longer" makes more sense than cutting interest rates. Expectations of multiple rate cuts has buoyed stocks this year. So, crash? 

What to do? We have wealth to protect, after all! 

It's time to reach into our investing toolboxes. Pull out your plans. When will you need the proceeds of your investing wealth? Sure, if you’re looking at retirement, a child’s education, or some other planned expense that’s coming in a few years or less, maybe it is time to turn stocks into money.

But! If it's a long time from now, even buying at the "worst time" – prior market peaks –  has usually worked out just fine. Let me give you an example. 

From October 2007 through March 2009, the markets would fall almost 60%. The Global Financial Crisis was, in many ways, far scarier than the Coronavirus Pandemic. Yes, millions of people were dying during the pandemic and a lot of us lost people we love, I don't want to minimize that. But on an economic basis, global governments were reacting quickly to stabilize and stimulate economic activity. Back in the GFC, we truly didn't know if the entire world's economy was going to pull through, or what it would look like on the other side.

By most objective measures, buying in October 2007 was a terrible time to have invested. Not only did the entire market fall almost 60%, but it wouldn't fully recover until late 2012. That's five full years of losses.

Maybe that helps put things into context. The past few years haven't been fun, but they also haven't been awful. The markets broadly are up from every prior peak at this writing.

There's even more good news. The true power of owning stocks is in the very long term. From the market peak in October 2007 – before the global financial crisis –  the S&P 500 has gained 343% in total returns. That's a CAGR of about 9.5%, turning every $1,000 invested at that peak into over $4,300 today.

Roughly average historical market returns, from the worst time to invest right before the biggest crash and worst economic environment most of us will ever live through. 

The best part of this is that it mostly works out this way. Almost every other prior market peak has been a perfectly fine time to buy, when measured as a starting point over many years. Occasionally we go through a multi-year downturn. Usually it's just a few days or weeks or months.

When you buy for a future that's many years away, it's less about getting a perfect price and more about accumulating assets across valuation points and market cycles. Let the companies and their managers do the hard work. Don't get too caught up in what happens next week or next quarter. You'll drive yourself crazy looking for a perfect answer in an imperfect world.

Jason

And Now, Random Words from Our Sponsors!

Public

You might know Public.com as the all-in-one investing platform. Now, they’ve launched Options trading, and with it, they’re doing something no other brokerage has ever done before.

Public is sharing 50% of their options trading revenue directly with you… the customer. So whenever you trade options on Public… you get something back.

And of course, there are no commission or per-contract fees, either.

By sharing 50% of their options revenue… you’ll know exactly how much they make from your options trades—because Public is literally giving you half of it.

In other words: it's a more transparent approach to options with no fees—and you get something back on every single trade.

So go to Public.com and activate options trading by March 31st to lock in your lifetime rebate.

Options are not suitable for all investors and carry significant risk.  Certain complex options strategies carry additional risk. Options can be risky and are not suitable for all investors. See the Characteristics and Risks of Standardized Options to learn more.

For each options transaction, Public Investing shares 50% of their order flow revenue as a rebate to help reduce your trading costs. This rebate will be displayed as a negative number in the “Additional Fees” column of your Trade Confirmation Statement and will be immediately reflected in the total dollars paid or received for the transaction. Order flow rebates are only issued for options trades and not for transactions involving other assets, including equities. For more information, refer to the Fee Schedule.

All investing involves the risk of loss, including loss of principal. Brokerage services for US-listed, registered securities, options and bonds in a self-directed account are offered by Open to the Public Investing, Inc., member FINRA & SIPC. See public.com/#disclosures-main for more information.

.

Join the conversation

or to participate.