NWP Monthly Digest | August 2022
Why do we enjoy being miserable so much? I’m not asking in a tongue-in-cheek sort of way but in a more serious, psychological way.
You can’t go a day without hearing a news story, reading a headline, or even engaging in casual conversation about how “we’ve never been more divided as a country”, or we’re experiencing “unprecedented inflation and economic headwinds”. Right?
"For reasons I have never understood, people like to hear that the world is going to hell." ~ Historian Deirdre N. McCloskey, January 2016
A couple of months ago, I wrote in this space about negative headlines appearing everywhere because of the poor stock market performance of 2022. The pessimism really starts to rise to the top in years like this one, and pessimistic prognosticators sprout up from every corner of the internet.
As a society, we seem to love it, crave it, and we gravitate to everything that seemingly will only make us feel bad. Stories with headlines that sound like this:
Will the Federal Reserve kill the stock-market bounce?
or…
The recent stock-market recovery is likely just a bear market rally, and 'significant risks' lie ahead says Morgan Stanley exec
…gather far more clicks than someone who writes about how normal bear markets are, their average length, and how promising the future still looks.
The great Daniel Kahneman famously showed that humans react with far more anger to losses than the happiness they feel with gains generated, and he won a Nobel Prize for his work.
"Organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce." ~ Daniel Kahneman
This hard-wiring that we have as human beings tends to explain some of our biggest shortcomings, and it shows up time and time again. The source of our anxieties about almost anything can be traced back to the simple story of our ancestors. The ones that were the most cautious and careful were the ones most likely to survive and pass along their genetics to future generations.
A lot of people have written about this phenomenon over the years, and the general consensus is that pessimism sounds smarter for a couple of reasons. Pessimism asks you to take action to protect yourself, whereas optimism makes you feel like you’re not preparing for things. Also, very few people ever come back to question pessimistic predictions when they don’t come true. Why is that? Probably because we’re so thankful that it didn’t come true.
Marc Faber is one of the most often quoted doomsayers in the financial world. In 2013, he guaranteed that we were headed for a recession in the 4th quarter of that year (we didn’t) and that the Federal Reserve was going to “destroy the world” (it didn’t). There was a point from 2011 to 2017 when Faber would come out on CNBC and predict that the stock market was ready “for the big one” (meaning a 50% drop in the market) or “at least a 20% to 30% drop”. It never happened and nobody ever questioned him about it. Thankfully, Marc Faber is garbage and got himself canceled for racist rants in one of his newsletters aptly named the “Gloom, Doom, and Boom Report” in 2017. CNBC wisely has distanced itself.
I just started reading a new book by Peter Zeihan called “The End of the World is Just the Beginning”. I like Peter Zeihan and think he is a smart expert on geopolitics and demography. The beginning of this book, however, is nothing short of pure gloom. In the opening chapter, Zeihan argues that the period from 1980 to 2015 was the greatest period of human history and will get significantly worse for everyone going forward. Yummy!
Obviously, there is a lot more nuance in the book than the title portends and it certainly does have some positive things to say about the United States. But, will Zeihan get fact-checked on his predictions 30 years from now (when he’s 78 and won’t care anyway)? I doubt it. And he’ll have sold an awful lot of books before that happens.
Side note: There is a scene in Ghostbusters 2 when Peter Venkman (played by Bill Murray) is interviewing a man who is allegedly psychic and wrote a book about the end of the world happening on New Year’s Eve of that year. To which Venkman quips, “aren’t you cutting it a bit close?” and that it was hardly enough time for paperback sales. At least Zeihan and his publishers were more thoughtful of the business side of publishing.
Eight years ago, I had a conversation with a person (keeping her anonymous on purpose) about what I did for a living. I was working for Deutsche Bank’s investment management group at the time, and I explained to her that I helped people invest their money for the future. While not unusual in the slightest, the nature of this particular conversation will stick with me forever because it deeply explains the average investor's psychology. She went on to tell me that she hated her former financial advisor who ruined her and her husband’s chance for retirement.
The wounds from the financial crisis and the Great Recession of 2007-2009 were still fresh, but it had been over five years since the worst of that stock market drawdown took place. Of course, I was curious and asked if she could explain in more detail. Her response was simple and heartbreaking. She explained that they had over $1 million saved and invested and were excited about retiring in the next 5 to 10 years. The market started to get really bumpy, and they said they wanted to sell everything and put their money in the bank. Their advisor, the one she hated, encouraged them to ride out the storm. I can’t speak about what they were invested in or if this advisor had done the proper homework with them in creating an investment portfolio that made sense for their situation, but the advice to stay invested was sound. And, apparently, not enough.
Needless to say, the person in my story and her husband eventually did sell everything in their portfolio. They fired their financial advisor, put the money in the bank, and decided that they would have to work longer. They locked in their losses and moved to cash, just in time to miss the beginning of a decade that would see a compound annual growth rate in the S&P 500 (stocks) of 13.4% per year from 2010 to 2019.
She said, “I just remember everything I was seeing on the news kept saying things were only going to get worse, and our advisor wanted us to keep investing!” She was so shellshocked that she didn’t even realize that the stock market had completely recovered and was hitting new, all-time highs in 2014.
That’s what stuck with me. She fell prey to the doomsayers.
I think the most important thing you can do when times get tough is to remember one very important thing: times have been tougher in the past, and the stock market has still performed well. Betting against human ingenuity and improvement can be hazardous to your financial well-being. If that’s not enough, then stick with the numbers and remember this chart: on any given day, the stock market being positive or negative is a 50/50 proposition, essentially a coin flip. But you can dramatically reduce the risks of your investment portfolio when you hold on to it longer. The stock market goes up far more often than it goes down, and there still has never been a 20-year time frame that has produced negative cumulative returns.
This too shall pass.
Noble Wealth Pro Tip of the Month
August is slow. Even though we’re headed toward the mid-point of summer (which happens on August 7th), it feels like it’s just about over already. Pretty soon, the kids will be back in school.
My major advice for the month is spend as much time with your friends and family as you can. But if you are going to force yourself to focus on something in your personal financial life this month, take a minute to download and print off your most recent paystub.
The humble paystub is one of the most under-utilized financial documents and is very handy in keeping track of a couple of very important things - how much money have you made, how much have you withheld for taxes, and how much you have saved in your work-related retirement accounts.
Several of our clients and some of my acquaintances were caught completely off guard this tax season with how much additional money they had to pay Uncle Sam.
Check in with your paystub and make sure you are on track now. If you’re not, then make the necessary changes.
Things We’re Reading and Enjoying
The End of the World is Just the Beginning - Mapping the Collapse of Globalization | by Peter Zeihan
I gave you a teaser in the newsletter. It’s gloomy, for sure, but incredibly well researched and interesting as hell.
2019 was the last great year for the world economy.
For generations, everything has been getting faster, better, and cheaper. Finally, we reached the point that almost anything you could ever want could be sent to your home within days – even hours – of when you decided you wanted it.
America made that happen, but now America has lost interest in keeping it going.
Globe-spanning supply chains are only possible with the protection of the U.S. Navy. The American dollar underpins internationalized energy and financial markets. Complex, innovative industries were created to satisfy American consumers. American security policy forced warring nations to lay down their arms. Billions of people have been fed and educated as the American-led trade system spread across the globe.
All of this was artificial. All this was temporary. All this is ending.
One Summer, America 1927 | by Bill Bryson
This has been a fun look back at the summer of 1927 and all of the amazing things that happened in our country in that short time. Bryson is a phenomenal writer and I’ve really enjoyed reading this one.
The summer of 1927 began with one of the signature events of the twentieth century: on May 21, 1927, Charles Lindbergh became the first man to cross the Atlantic by plane nonstop, and when he landed in Le Bourget airfield near Paris, he ignited an explosion of worldwide rapture and instantly became the most famous person on the planet. Meanwhile, the titanically talented Babe Ruth was beginning his assault on the home run record, which would culminate on September 30 with his sixtieth blast, one of the most resonant and durable records in sports history.
-Your team at Noble Wealth Partners
“There is nothing noble about being superior to your fellow man. True nobility is being superior to your former self.” Ernest Hemingway