It's Not Different This Time

On Wall Street you’ll often hear the phrase “it’s different this time” to describe what’s going on.

More often than not that statement is correct. There’s a confluence of events that are impacting the market and you need to understand that each situation is unique.

Let’s use right now as an example.

Our supply chains broke due to a pandemic, wages rose rapidly as people reshuffled their careers, we poured a bunch of money into the economy to stave off a collapse, a combo of those has kicked off high inflation, now the US Federal Reserve is forced to hike rates to fight inflation, thus crushing stocks that everyone owns, and a war broke out in Ukraine.

All of that has combined to kick off one of the worst starts to a year EVER for the bond market and one of the worst starts to a year since the 1950s for the stock market. It’s super rare to see both of those occur at the same time and yet here we are.

Did anyone predict this on Jan 1? Of course not, the future is unknowable. Does anyone know when the pain will end? Come on, you know the answer to that too.

While unease permeates the room, I do know one thing: it’s not different this time with respect to YOU.

Events come and go, markets go up and down, but human behavior persists. The “Trinity of Trouble” is Fear, Anxiety, and Uncertainty and you are probably feeling all three. 

Will you allow those to overcome you like it’s doing to others?

Let me give you one of the most important pieces of wisdom I know: The last durable edge in investing is arbitraging human behavior.

The ability to be patient is a superpower in a world increasingly focused on the short term. If you can just go about your life, doing the average thing, sticking to your game, and let everyone else do the panicking, you will be successful. 

Let me ask you a question:  do you want to grow and compound your wealth or do you want to keep interrupting it and falling prey to the same mistakes humans make over and over again?

Everything good compounds. Money, relationships, knowledge, love.   

If you constantly interrupt your money because “hey things seem scary right now” you will never succeed. 

I loved this image from @visualizevalue because its simplicity is elegant.

Are you going to start over again every single time the news tells you to be afraid?

Will you fall prey to the mistakes every other investor in the world is prone to or will you forge your own path?

You decide.

You’re Afraid, Read This.

Something is happening somewhere in the World. The stock market is jittery, headlines seem particularly scary, and now you’re afraid and feel like you need to act. 

Let’s talk about what you should be doing right now:

  1. Control what you can control: Be super focused on this. Savings, spending, sticking to your plan, all of those are directly in your control.  
  2. Talk to your advisor about your PLAN, not the market:  Ask him or her how your plan is prepared for negative market conditions.  It’s likely built to expect market corrections which A) happen all the time and B) inevitably end. The plan IS the lifeboat, don’t jump out of a lifeboat when you are in icy waters.
  3. Forget about market timing: There is no “good news” or “bad news” with respect to the stock market, it’s “better or worse”. Stocks don’t rally when peace is declared, they rally when things are getting “less worse”. Want to know when stocks bottomed in WW2? Right before the Battle of Midway. From then on, things slowly went in the Allies favor after years of going against them. That’s why market timing is so hard, you won’t know when the news is getting better in real time. Selling and buying back when “things calm down” is a surefire way to lose money.
  4. Don’t hedge the unhedgeable: there’s no reason to prepare your financial life for nuclear war, money will have no meaning. Don’t buy insurance or sell stocks before a meteor hits, you will have no one to collect it from.
  5. Remember the lessons of history: the worst-case scenario has a funny habit of not occurring. Humanity does not splinter in a crisis, it comes together. If the worst-case scenario does happen, see #4.
  6. Take a walk / watch less news: Don’t spend your entire day doom-scrolling Twitter or watching the news nonstop, you need a mental break, or it will crush you and have an effect on your health.
  7. Help where you can: If the World is experiencing a traumatic event, donate your time or treasure to helping those in need.
  8. Talk to someone:  Are you trying to do this alone? Don’t. Friends, Family, an advisor, reach out and talk, humans crave companionship when they are afraid. If you are about to make a mistake with your money and have no one to turn to, give us a ring at Baird and we’ll help:
  9. Realize that you are living through normal history: If you could look 10, 15, 20 years into the future you would see crisis after crisis after crisis. History, it’s been said, is just one damn thing after another.  Once this worry ends, another will replace it. Endure, and in enduring grow strong.
  10. Do Nothing: Humans are wired to act, it’s part of our DNA, but ask yourself, is doing nothing an option here? We often think that a problem can be solved with complexity when it can be easily solved with simplicity.

My friend, I know you are worried, but I hope this quick list has calmed you down a bit.  Remember, there will always be a reason to sell stocks or hold onto cash because you are afraid. 

No one ever said this would be easy, but you need to remember that there is a price for everything.  The price you pay for growing your wealth comes from fear, uncertainty, and doubt. 

Nothing in life is free, especially not money.

Grind Up And Crash

I said this two weeks ago on Twitter:


I’ll be honest with you, I never expected it to happen in January. 

I know you are probably nervous right now, keeping one eye on the market and one eye on your portfolio, but I’m here to tell you, this is just how things are in 2022. “Grind up and Crash” is how you need to be thinking about the stock market going forward.

Stock markets have always risen gradually but selloffs in the past were more deliberate and slow moving than they are now. You didn’t find out that your stocks or mutual funds were down until days later in the newspaper.

Fast forward to today and the entire investing world is hyper connected. Markets, data, sentiment, trading, podcasts, blogs, everybody knows everything instantly and they can act on any emotion with the push of a button.

Humans are irrational creatures; they aren’t going to take the time to think about their actions when they can push a button and quiet the pain receptor in their brain. 

Not only that, large institutions and market makers primarily trade electronically. If they want to sit out a few days (or weeks) things become very illiquid, making stock moves even more dramatic.

Toss in the fact that Twitter, Facebook, and other forms of social media can whip up a panic with endless “sky is falling” disinformation and the recipe for quick market selloffs is complete.

This is how it’s going to be from now on, why would it be otherwise? 

Stocks are down 10-12% to start the year because of worries about the Fed, and valuations, and too many retail investors, and whatever other reason you want to come up with. Believe me, there’s always a reason (click this please).

Do you know what the average intra year selloff for the S&P500 is going back to 1980? -14%. When I called for stocks to fall 15% I just called for the average thing to happen. 

My friend Morgan Housel said “all past declines look like an opportunity, all future declines look like a risk”. 

Do you see the irony in that? If you could go back in time and buy every one of those dips would you? Of course you would. Why is now any different?

Let me tell you a quick story about the biggest winners from the Crash of 2020. Remember that one? It wasn’t that long ago. 

As people dumped stocks in March, in the midst of a cascading nightmare, there was one entity who stood in and bought regardless of the panic sweeping through the system.  

Hedge Funds? Nope. Sovereign Wealth Funds? Nope. High Frequency Traders? Nope.

It was you and me. 

Every few weeks, retail investors buy the stock market in long term accounts regardless of what’s happening. Why? Because that money is being invested for decades. DECADES. It’s been called “the endless bid”.

It was us who stopped the selloff in March-April 2020, it was us who reaped the rewards as stocks climbed to new heights in 2021, it was us who managed to ignore the headlines of the day and stay on track.

All of the best investing, the kind that builds real wealth, comes down to two things: time horizons and patience.

If you want to sell right now because you’re afraid, ask yourself these questions before you make a catastrophic mistake: Have my reasons for investing changed? Have my goals changed? Has my time horizon for this money changed?

Instead of panicking do this: Rebalance. As stocks fall, and they become a smaller part of your asset allocation, rebalance. After all, if you’re not going to “buy low” why bother?

There is a fee you have to pay to earn equity returns and you are paying it right now in fear, uncertainty, and doubt. 

Nothing in life is free, especially not money. Understand how markets work and accept that there will never be a time where fear doesn’t occupy your brain while investing.

“The man who has anticipated the coming of troubles takes away their power when they arrive.”- Seneca

What if Millennials and Baby Boomers are One and the Same?

There’s lots of things that drive stock markets. Interest rates, wars, corporate profits, sentiment, valuations, etc, but there’s something we rarely talk about that exerts a far more powerful force:  demographics. 

I’ve always said that if someone talks about demographics you should pay attention because when it boils down to it, how many people there are, and what they produce/consume, is what drives an economy (and its stock market) over the long run. 

The title of this blog is a bit cheeky, clearly the two generations are not one and the same, but what if they are from a market perspective? Stick with me here. 

Allow me to define the “prime” of someone’s life as generally a decade between their mid-30s and mid-40s. Some have their prime earlier, some later, some people have longer time spans, but let’s just go with that for now. 

In your late 30s, early 40s, you are well into your career. You’ve likely started a family, you are buying cars, homes, and egg bites at Costco. You have wisdom about what works and what doesn’t in life, and you are saving/investing for the future. 

Baby Boomers encompass the years of 1946 to 1964. That generation, which was one of the largest in history, started to hit their primes in the mid-80s. The market and economy would go on to experience a boom as a gigantic generation worked, consumed, and invested. 

My generation, Gen X, encompass the years of 1965 to 1980. We are a relatively small generation and started to hit our primes in 2000. The next 13 years would see sideways markets and lower growth, basically a lost decade for investors. We just weren’t a big enough group to hold up the economy in our primes. Give us a break though, we brought you Nirvana and Pearl Jam. 

Millennials encompass the years of roughly 1980 to 1995. That generation, now the largest in history, is JUST coming into their prime years. In fact, the oldest millennial is only 41. They are a gigantic group (like Boomers) that will also work, consume, and invest. They will be buying homes, cars, and egg bites at Costco (they’re so good) for years and years to come. 

Here's the best part. When Boomers came into their prime, interest rates were high. In 1985 mortgage rates were near 12%. Today, interest rates are near zero, you can get a mortgage for 3%.  That quirk of fate should pour JET FUEL on their consumption.  

Now there will be people who disagree with this take, you literally can’t shake a stick without hitting an “expert of a different version of the world” who is calling for a catastrophic end to the market and the economy because of valuations or inflation or the Fed or whatever. They may be right, literally no one knows, but don’t sleep on the importance of this gigantic group. 

In fact, it’s entirely likely we are going through a period of exponential growth (biotech, spaceflight, crypto, mRNA) and people are just bad at recognizing what that looks like.  

When might this tailwind abate? The median Baby Boomer moved through their prime by the year 2000, that’s when Gen X took over and things slowed. 

That same year for Millennials is out in the 2030s and, by the way, the group following them, Gen Z, is also large (roughly 68mm). It’s not anytime soon.  

The demographics of the United States are good right now, with low interest rates and rapid technological innovation. Baby Boomers guided the economy for a decade plus, now Millennials will. 

We will have our ups and downs but our largest generation are all working age and that’s super important. 

24 Hours

I made a mistake at work today and now I feel awful.  My daughter just cracked her iPhone for the third time and I’m beyond incensed. The stock market fell 2% and clients are wondering if they should do something to their portfolios.     

They say the “days go slow but the years fly,” and as I sit here stewing in my worries, I can’t help but reflect on just how fast my life is going. 

My 20s were a blur. I met my wife and we got married.  As we entered our 30s, we knew we wanted to start a family.  After that period of time, it seems like someone pushed fast forward. 

If I could map my life from the moment my son was born to its end and compress it into one 24-hour period, it would probably look like this. 

It’s midnight, my son was just born.

The doctor hands him to me, He has a wry smile, but he’s not crying.  It seems weird because aren’t babies supposed to cry after they are born? He’s healthy, but my wife looks at me from the table wondering if he’s ok. He is beautiful. We take him home to our condo in Chicago and our life will never be the same. We are in our late 30s and nervous as any new parents would be. 

It’s 1 a.m. 

Is there a manual for raising a newborn? Was there a class I missed that told me what to do when he cries late at night? We’ll figure it out, We have to, because there’s no going back now. One night he can’t stop coughing and every breath is a wheeze. What the heck is croup? 

It’s 2 a.m. 

He’s walking!  His grandparents are so proud, as are we.  I can’t believe how fast he is growing, not only is he eating solid food but he starting to talk.  We read him the same book every night.  He’s precocious, he knows who we are and he loves Max and Ruby.  Having a son is awesome. 

It’s 3 a.m. 

My daughter was just born. We tried for so long to have our first child but our second child showed up quickly. I had a dream we would have a girl, seriously. Now that she’s here I can’t believe how beautiful she is. I started a new job at a financial services firm named Baird in Milwaukee. I had heard of it but didn’t know how awesome it was.  There are so many nice people and this place is special. 

It’s 4 a.m. 

The children are growing like weeds! We took them to Disney World for the first time and it’s a trip we’ll never forget. My son thinks Mickey is real and my daughter hugged Ariel. My wife and I fight over how many stuffies we should buy. Do parents always fight at Disney?  I think so because you can see them in every corner of the park trying to keep it together.  We didn’t know it at the time, but this would become our family’s happy place. 

It’s 5 a.m. 

My son is in sixth grade and my daughter is in fourth grade.  It turns out they are really good swimmers. We tried football, baseball, volleyball, and soccer, most of the sports parents think their kids will be good at, but ours ended with swimming. Do you know what sucks about this sport? Sitting in a pool for four hours only to watch your kid swim for a few minutes.  Oh well, at least we aren’t baseball parents, they seem like they’re crazy. 

It’s 11 a.m. 

Wait, where did the time go? Did the clock just speed up? Yep, it sure did. The summers die one by one, how soon they fly on and on. 

It’s noon.

My son is now 15 and my daughter is 13. My wife and I are a little bigger than when this all started but we are much wiser about being parents. My children now look at their phone nonstop, but they can cook their own food.  They’ve figured out how to use Apple Pay and pretty soon my son will be driving. We are teachers now more than anything. They don’t need us hovering over them but they do need our wisdom. 

At 1 p.m. my son will leave us for college, at 2 p.m. my daughter will also depart, and the nest will be empty. 

Over the next 10 hours we will live the rest of our lives watching them grow, seeing how well we did as parents. Hopefully, they will have children and we will get the best job ever -- being grandparents.  

I wish I could stop the clock for even one moment. I see parents with small kids who are frustrated that they are crying, won’t go to sleep, or just won’t behave and I would almost trade places with them. 

There was a night I carried my son to bed for the last time but I don’t remember it. I’m sure he was tired since he fell asleep on the couch. I lifted him up, placed him in his bed and kissed him goodnight. I would pay any amount of money to relive it - literally any amount. 

That dream I mentioned of having a girl?  It’s now a fading memory and I wish I had a video of it. She’s just as perfect as she was in that dream. 

Even if you never have kids or a family, your life is what’s happening around you every day.  Embrace all the little things like a walk, a good dinner with friends, or a trip to someplace new. If someone says “hey, let’s go out,” never turn that down, because an unexpected adventure may lie ahead of you. 

Rose Kennedy once said, “Life isn’t a matter of milestones, but of moments.” 

Each moment is special. The clock may be ticking but your life is lived by the second, don’t waste any of them. 

It’s 11:59 p.m. 

What a journey, I live in them now.