Animal Spirits Podcast - Looming Disaster (EP.48)

Episode Date: September 26, 2018

Bond market losses, why stocks diversify bonds, pot stocks & mini bubbles, Amazon's new microwave, the massive decline in world poverty, parallels to the 1990s, why retirement calculators aren't perfect but can still be useful and much more. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Animal Spirits, the podcast that takes a completely different look at markets and investing, hosted by Michael Battenick and Ben Carlson, two guys who study the markets as a passion and invest for all the right reasons. Michael Battenick and Ben Carlson work for Ritt Holt's wealth management. All opinions expressed by Michael and Ben or any podcast guests are solely their own opinions and do not reflect the opinion of Ritt Holt's wealth management. This podcast is for informational purposes only and should not be relied upon for investment decisions. clients of Ritthold's wealth management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. So we are in the back half of the year, almost 10 months through, and bonds are down. Long dated bonds are down, 6%. Intermediates down 3%.

And the index is down roughly 2%. Talking about total returns, so including interest. Now, obviously, that's not a big deal if your bonds are down 2%. but for some reason, people get really uncomfortable when their bonds go down. They probably wrongly think that it's a money market and that they should never see declines, not just in price, which they're going to see, but in total return also. But the thing is, if you are in a diversified portfolio, well, stocks have done really, really well this year.

The SP 500 is up around 10%. And you've written about this in the past that people think about the fact that bonds diversify stocks, but it works the other way, where stocks diversify bonds as well. Yeah, that's the point. Bonds have kind of lagged for a number of years. I saw a stat the other day that said over the last three-year period, it's one of the worst set of Barclays Ag has ever seen because it only goes back to the mid-1970s. And so it's up like 1% a year. And bond investors for the last three or four decades just haven't had to experience anything like that. And so, yeah, the idea behind diversified portfolio, no one ever thinks about stocks in that way. But in a lot of ways, they've been carrying the water for bonds for a number of years now. And so I looked at what happens every year that 10-year treasuries are down. And this goes back to 1928. So Demoderin over at NYU has this great annual return page where he compares stocks, bonds, and cash on an annual return basis.

And bonds have been down, let's say, I think close to 18 times since 1928. And in those instances, stocks were only down three of those years. So this is just on a calendar year basis. So the majority of the time, stocks actually do diversify bonds and are up when your bonds are down, which is a good thing. And the average loss on bonds is pretty minimal, too. The average loss was 4% on 10-year treasuries in that time when they were down in a calendar year. The Vanguard actually did a piece recently, I think just last week, where they looked at rising interest rate environments and what that did to stocks. And people think about periods of rising rates that they offer competition with the stock.

and that you would expect that when rates are rising, bonds and more attractment stocks would go down. But it's actually not the case. And another way to look at it is that rates are rising because the economic backdrop is positive. So they showed that during the 11 periods of rising rates and we'll include this chart in the show notes, annualized total returns have been broadly positive and in line with historical averages for stocks. And so one of the reasons people tend to hit on bonds these days is because they're waiting for these interest rates to normalize whatever that means. and you sent me a piece, I think he tweeted it out, about Robert Schiller and Jeremy Siegel.

And Siegel actually made the case that stocks are looking better against bonds maybe than they ever have. And so he said, he's forecasting a 5.5% return on stocks going forward. And he says the premium over bonds historically has been about 3 to 3.5%. And he says the upshot is that stocks are overvalued on a long-term basis, but bonds are enormously overvalued on a long-term basis. And the relative valuation of stocks to bonds is actually among. the most favorable in history. So maybe this is semantics on my part, but can bonds really be overrated and not thinking in terms of like selling at a discount or a premium for an individual bond, but can the level of interest rates really tell you that a bond is overrated if it's not

in negative territory? I mean, I think so. I think that, well, I have two thoughts. My first thought is that you could, you could certainly say, hey, listen, at 2% I don't want to lend money, it's not worth it to me. I'd rather just keep it in the bank or put in a money market fund, right? You can make that statement. However, what I think you might be referring to is, remember like in 2011 or 2012 how everybody was saying that there's a bond bubble? Right. Yes, that's what I'm saying, is that thinking about bonds in terms of a bubble is much different than thinking about stocks in terms of a bubble because either way with a bond, it's guided by math. You know that the starting interest rate is going to be your long-term return. And that's not including

inflation, obviously, but on a nominal basis, bonds are much more accountable to just simple math and following that, whereas stocks are just off on their own and it's much more psychological driven, especially when we're talking about government bonds, where it's all about the interest rate and not about evaluation per se. Well, let me ask you a question. Has there ever been a period where a bond bubble popped? I guess you could think about like government defaults and stuff. Right. And both of us have looked at what happens when the bond bubble did pop, quote, unquote, before from like the 1950s to 1980, more or less. And rates went from two or three percent, which they are today, to 15 percent. And nominally, bonds were still up. But on a real basis, they lost 40 to 60 percent, depending on what level of maturity. So again, I always like to say that bonds are, the biggest risk is always in inflation and not in rising interest rates.

So, again, maybe that's semantics, but I think, and I don't know, do you think that investors really think about stocks relative to bonds when they're making asset allocation choices? I mean, is that giving investors too much credit? I think in the aggregate, perhaps, I think, like, certainly not everybody weighs the risk and reward, you know, so scientifically. But I think generally speaking, I think it's like sort of fair to compare stocks to bonds a little bit. Right. I'm doing a lot of hedging there, but I guess it's hard to say. Yeah. I'm not sure if investors actually do that.

Did investors look at bonds in the 80s when they had 15% interest rates or even in the 90s when rates were 6, 7, 7, 8%, and people still got caught up in the stock mania. So I think people put maybe too much, give too much credit or post too much blame on interest rates for what's happening in the environment when a lot of it is just more psychologically driven in stocks. I mean, you could have gotten a 7% or 8% bond in 1990s and no one wanted that because stocks were doing so much better. Yeah, good point. So the Amazon microwave

I'm in It's like say no more I'm in It's an Alexa microwave It's like 60 bucks Honestly I think one of the most useless buttons on the world

Is the time cook Why do I have to waste my time Hitting time cook Instead of just putting a time in you know Is that too much I think Well listen I've never once said

I need to talk to my microwave That's fair However on the other hand And when I do, let's say I'm hard-boiling eggs, I will tell Alexa to set the timer for 12 minutes. So maybe I could just skip a step and tell the mic, I don't know, I, listen, I'm probably, I don't know if I'm going to get it or not. It just seems like. I'll say I'm probably going to get one.

But here's my biggest worry for when we have these internet of things happen. Like if everything's connected wirelessly and through voice and all internet, how screwed are you in the internet goes down? Like if your fridge and your microwave and everything is connected to the internet, are you just out of when the internet goes down, then you have to go back to being a cave person and not talking to your appliances. See, these are things I haven't even considered. But, I mean, the microwave, it's funny that they would choose a microwave first, but have you ever tried to use when you go to someone else's house, like a friend or relative

and tried to use their microwave? Yes, it's always confusing. It's impossible. Like, I just want to do this, and I have no idea. Oh, you have to hit these three buttons first. And that, so, I mean, it is kind of an interesting. But it seems like they kind of tell their, they put their toe in the water for a lot of these things and see what happens and then like go for it. Oh, tangent, speaking of Amazon. So I was

watching Bill Maher on Friday night and he had this guy on PGR work. Do you know who that is? Not really. So he was talking about how there's a bubble around the corner and it's going to come from all of these giant companies. And he posed a question, does anybody even know what Amazon does? It's just like a yard sale. Somebody was like, what are you talking about? What do you mean? Does anybody know what Amazon does like it was just yeah I just couldn't believe it I was like are you fucking kidding me what you this is your thesis for the next crash is does anybody know what Amazon does yes Amazon delivers like 12 boxes a week to my front door and I don't have to leave the house okay so Tilleray was the stock de jour in the last I don't know a month or so and last week

was kind of the it seemed to be when it just went but I'm we we mentioned this stock on the show what six weeks ago maybe and I'd never heard of it and last week it went from well I keep my ear to the ground. Yes, you do. You do if you would only buy some of these stocks. So it was up as much as 93% on Wednesday alone. It opened the week at like 130. It went all up to 300 and closed the week at 120.

So completely round-tripped after more than doubling. Today it was down huge again. Obviously, this is another case of like a mini bubble where there just aren't many stocks like this available. So people are trading it like crazy. Oh, this is a crazy. that from Wisensthal. So first of all, TILRA is a, there's not a lot of shares out there, which maybe can explain some of the craziness going on. So Joe Wisenthal tweeted, this is the

craziest number of the day. 5.8 billion shares worth of TILRA have changed hands today. That's more than Apple, Amazon, Netflix, and every single other company. That's pretty nuts. But remember, everyone is indexing these days, so it must be all computers trading this. But it is kind of interesting, like what percentage of people do you think these days that it's actually people putting their finger on the trigger and pulling it for something like this or how much do you think it is like algorithmically like they pounce on these this sort of volatility and try to take advantage of the newbies that's a good point i would think that there's a bunch of noob whales in this name there have to be but but you'd think that like

don't the hFTs see the newb whales coming and just pounce on them and take advantage there's chum in the water's i don't know yeah i'm sure a lot of that exists too uh i guess we'll never know. But if I had the guess, I would say, I don't know. So I made a comment the other day that I wasn't really around paying attention to the markets in the late 90s.com bubble because I was in high school and I didn't even know markets existed more or less. And I said, it's just, it's fascinating to watch these mini bubbles and things like crypto and pot stocks like this go crazy because you get some of that psychology. And of course, everyone immediately pounced on me and said, no, you're an idiot. This is nothing like that.

And that's not what I meant, obviously. But in a lot of ways, we're seeing more of these, mini bubbles and people are trying people have tried for years now to say this is like the dot com bubble which there's no way it is but it is kind of interesting to see the crowd psychology on this stuff when these little mini bubbles pop up and they're they're happening much quicker too it seems like well but but i don't think that this is a result of low interest rates or index funds or anything like that i think that bitcoin is a brand new thing marijuana being legal is a brand new thing and there's not a lot of stocks to trade Exactly. There's nothing, yeah, this kind of stuff has always happened. I think it happens

faster now because of the technology. Yes, I totally agree. I think the technology enhances it. Think about how many people have Robert Hood could jump on real quick. And think about what social media does to these stocks. It's total like gasoline on the spark. Yeah. So that's what I mean. It seems like it happened a little bit with biotech stocks a few years ago and then crypto really went crazy for a couple months and now this stuff is just going crazy. And who knows where it stops, but it's interesting to watch how quickly the crowd pounces on these things these days. So the Wall Street Journal had an article, World Poverty falls below 750 million. By the way, were you done? Thanks for asking me after the fact. Yeah, no, I got

nothing. Okay. All right. So are you trying to be nicer to me on the podcast? Is that what's going on? So that's a good thing, obviously. But it's still pretty wild that there's 750 million people, which is a number so gigantic, it's hard to even comprehend, that are living on $1.90 a day or $694 a year. It is one of those things where, like, even when you have good news and gradual good news, you talked about this before in a post, how bad news is a headline and good gradual news is more of a story. And it's kind of like any time you look at one of these things, there's always going to be

another side where you say, oh, things are getting better. And somebody able to say, yeah, but it's still not perfect. And obviously, the world's never going to be perfect. But I talked a few months ago about that book, Factfulness. and he had a lot, that Hans Rosling had a lot of stats like this about how extreme poverty has been cut in half over the last 20 years or whatever. And it's hard to sort of wrap your mind around the fact that, like you said, the trend is in the right direction, but it's still so bad for so many people.

Yeah, so two things stood out to me in this article. In 1990, nearly one billion of those living in extreme poverty were in East Asia, but decades of rapid economic development in China and other East Asian economies has brought that figure down to 47 million, a decline to a 2% poverty rate from 62%. So that's insane. One billion down to 47 million is obviously amazing progress. But this sort of was surprising. In the U.S., the Census Bureau says that 12.3% of the population was living in poverty, using a threshold of about $12,500 a year for a single person. So think about how many people that is, 12.3% of a 330 million person population. Like, holy shit, we have a ton of people in this

country living in extreme poverty. Here's another one going way back. Two hundred years ago was 85% of the world population was in extreme poverty. So it's the hardest part is that we always look at things on a relative basis. And pretty much if you're in the U.S., you've more or less made it because a lot of the people are outside of the U.S. And I think that's one of the reasons that people in the U.S. have had a hard time seeing inequality explode here is because the people on the very bottom wrong are actually seeing leaps and bounds in improvements in extreme poverty, but I think the middle class has just been stagnating. I think that's one of the reasons it's hard for people in the U.S. to see things like this because it hasn't happened

for them. Well, the other thing is that I think you might have just said this, but comparing ourselves to 200 years ago, like in an absolute basis doesn't work because the comparisons are relative. So the people on the bottom compare themselves to people on the top, and with that respect, the gap has just widened so tremendously so that even though absolute poverty might be declining relative poverty is going the exact opposite way. What's the saying? We compare ourselves to our neighbors, not our ancestors. Right, exactly. Okay, survey time.

So this was from Betterment, the Robo Advisor, and they did a survey of, I believe, 2,000 of their own clients, and the results are pretty crazy. And so they say basically half of their clients don't know what happened in the financial crisis or the aftermath. They said roughly half of the people think that the S&P has not gone up at all in the past 10 years, and 18% thinks it's actually down since 2008, which, as we know, is not true. close to 200%. 79% say they don't fully understand what happened during or caused the financial crisis.

Two out of three say they invest less today than they did in 2008. Again, anti-survey podcast, I take this for us worth, but thoughts here. Well, I think it's a good thing that these people are using an advisor, even if it is a digital one. That's true. Right? I mean. Yes, if they're, if they've automated and they're saving on an automated basis

using someone like Betterment and they don't know any of this stuff, maybe that's a good thing and they just keep it out of their hands. I think you can make the case that admitting that you know nothing and putting something on autopilot where you're saving and you're investing and you're staying out of the way. Now, are these people going to actually be able to do that? Time will tell. But successful investing does not require much knowledge, which is maybe controversial, but it's true. I mean, you can know nothing and put money into index funds and bury your head in the stand or just stay away from the financial news. And over 20 years, Obviously, we don't know what returns will be, but you're probably going to do better than most people that try and do anything else.

Well, in a lot of cases, having a little knowledge is the worst thing that can happen to you because you think you know more than you really do, and then you over trade or you get overconfident. And so it's almost like it is almost a barbell where you know a lot or you don't know anything. And sometimes it's a lot of people in the middle that get hurt the most because they have just a little bit of information and run with every headline or piece of advice that they see. And you're describing exactly what I was doing when I first started trading. Right, which is why you keep a trading diary, right? Okay. So there's a story in Market Watch this week, and the headline was, here's a clear case for owning dividend stocks instead of bonds, which is, I don't know, let's see. So Hank Smith, co-investment officer of the Haverford Trust laid out a clear case for owning dividend stocks instead of bonds.

He compared Pepsi stock, which has a dividend yield of 3.25% with the 10-year U.S. Treasury, which yields a little over 3%. Nope. Yeah, he says every year you know you'll get 3% with a bond, but at the end of 10 years you're going to get your money back with Pepsi. No guarantees, but you can be reasonably assured you will get increases each year in that income stream. Okay, that might be true. You know, if a company like Pepsi has raised their dividend every year for the last 47 years, yeah, you could probably rest knowing that the dividend will go up in the next year.

However, that 3.5% dividend, the other, whatever it is, can be wiped down in one afternoon. Right. Yeah, in a couple hours probably. Yeah, trying to compare the risk profiles of stock. That's what I meant when I said one afternoon. Okay. Afternoons an hour? Okay, same thing. But trying to compare the risk profile of stocks or an individual stock to bonds is just,

it doesn't make any sense. There's no way you could put them on the same footing. And even if dividends do tend to go grow over time, that offers a little in the way of support when stocks are getting crushed. Dividend stocks are not bonds. That's what we'll say. I agree. Somebody, a reader sent us an article from, or a client letter from Seth Clarman, June 24th, 1999.

And I guess asking the question, are there parallels to today? So I'll just read some of Clarman's words. And by the way, Seth Clarman runs a hedge fund called, is it Bow Post? Yeah, bow post group. Probably one of the most successful hedge fund managers of all time. All right. Unprecedented gains in large capitalization growth stocks continue to generate a mistaken faith among individual investors in the safety of owning stocks, as well as an erroneous impression

of the potential future returns from equity ownership. Success begets additional success as investors project future results from the rearview mirror. One particular irksome development is that fundamental research is today a significant impediment to good short-term results as the most overvalued securities have steadily been the best performers and the most undervalued the worst. More and more stocks are seen as apart from the business, all right, you get the point. So what do you say to this, Ben? Is this a fair comparison? I know we've been over this a million times. It is interesting. That could be written today, you would think. You could say that That sounds like something could be written today.

But a lot of that has to do with the fact that markets are just cyclical like this, but we already discussed the fact that this is nothing like the tech bubble, I think. But thinking in terms of value investors being shunned in fundamental analysis not working, there are maybe some minor parallels, we'll say. I'll say that. If we could ever figure out what Amazon does, then maybe it would be easier to figure it out. So I wrote a piece about Carmen last year, I believe, and he said this to it in a Wall Street Journal interview with Jason Zaggy said. By holding interest rates at zero, the government is basically

tricking the population into going along on just about every kind of security except cash at the price of almost certainly not getting an adequate return for the risks they're running. People can't stand earning zero on their money, so the government is forcing everyone to invest in the investing public to speculate. I am more worried about the world more broadly than I've ever been in my career. And the upshot of this one was that Clarman said this in 2010. So he was obviously way off on that. So I think his sentiment is right that he worries about the crowd psychology, and it's probably treated him well, but it's just the timing of these things gets you every time.

So I don't know when his fund started. From what I understand, his returns over time have been absolutely tremendous. However, investing is hard, and especially in a period like the 90s, where even though stocks are going up, like, it was hard. And $50,000 invested in his fund by April of 2000 grew to $131,000. And that same money invested in the ESP 500 grew to $237,000. So almost double. The reason someone like this can be successful when they have such a poor period like that,

so he for 10 years got slaughtered by stocks. And ensuing 10 or 15 years, he probably did amazing, is because he has really patient investors that allow him to. Like when his fund was closed going into the financial crisis, and I remember seeing him at a conference, and he had a waiting list, and everyone at the conference was on this guy's waiting list. Like he had people beating down his door, and he sends money back off. And so that's one of the reasons that it's so hard to beat the market in my mind is because of the career risk.

So he doesn't really have to worry about career risk because people want to give him money because his track record is so good. So he had 42% of the fund in cash in 1999. And he also interestingly in this piece spoke about how he doesn't short stocks outright, but he buys derivatives and such. And I'm sure that after the turn, he absolutely annihilated the market. And to your point, 10 years could be a blip to him, you know, whereas most people emotionally just can't say the same thing. So if he's got, if he's legitimately investing for 50, 60 years, well, you're going to have 10-year periods that look really lousy relative to what you could have done in an index fund. And if you want to outperform, that is the price that you're going to have to pay. And we know that it is a price that many investors say they're willing to pay, but for goodness sakes, 10 years feels like an eternity.

So in reality, it's a price that most people won't pay. I'm guessing if it happened these days, he'd have a much shorter leash, and that's what's happening to people like David Einhorn and other value investors who they're not being given 10 years. Their money is rapidly going out the door because their performance has been so poor. So I think if he had one of these stretches again, he wouldn't maybe his investors wouldn't be so patient. So there was an article in the Washington Journal. There's a new fund, cuts pay if managers don't beat the market. So this is a new fund called Aperture, and they don't really give too many financial details on how exactly this works. But I think this is a really interesting idea, just generally speaking, active management has to do something different to earn their fees.

And I think that this is a really potentially interesting way of looking at it. Now, one of the first thoughts that I had was, well, what if the fund is, you know, lagging their benchmark by four and a half percent through September? What's to stop these managers from throwing a few hellmeries to hit their boge in? If it doesn't work out, well, it doesn't work out. But one of the things that they do is that they use five-year performance to calculate long-term pay, which gives managers the time to build a track record. So one bad year wouldn't necessarily affect things too much. So that was a good way to mitigate that potential problem. What do you think about this?

I think it's a step on the right direction. There's always pros and cons to any of these compensation schemes, and people will always be able to argue both sides. But I think the fact that some active managers are thinking this way, trying something new, I think is a positive. And I think that probably needs to be done to get rid of shake out a lot of the closet indexers and people are charging too much money. And so our friend Eddie Alfenbine did something similar where he has kind of a swinging fee where it goes up or down depending on his performance. And his fee goes up. If he outperforms, it goes down if he underperforms. So I think this is a definitely step in the right direction.

It could probably, it would be nice to see it at some of the larger, more established firms that are already have huge funds. But I think a lot of times they just want to keep doing what they're doing and not messed with anything. Another article in the Wall Street Journal, Triumph of the Market Pessimists. And this was featured Mark Spitznagle, who is, I don't know if he's a student of Talib's or what sort of relationship they have, but their names always seem to be intertwined. I think he launched a fund with him and Talib steps down. Okay. So one of the quotes from Spitznagle is, I spend all my time thinking about looming disaster. And, you know, this got me thinking, I don't, I don't necessarily think that being bearish or bullish is always

an analytical, objective decision. I think a lot of this just has to do with your personality. Like, I can't imagine living my life that way, but I don't think that's necessarily a choice that people make. No, I think a lot of it is just ingrained in your personality. It's either some experience you had in the past or just the way that you're sort of hardwired, but I agree. I lean towards being more optimistic and I'd have a hard time. I'd be fighting my own, like, innate wiring if I tried to invest that way. I just couldn't do it. And I think it's not a bad thing that people like this exist.

I think it's a good thing to sort of balance things out in a lot of ways. Yeah, so I guess his strategy is something to do with capturing on like the tail risk of volatility when they blow up his fund does tremendously well. So, I mean, I don't think it's a terrible idea to marry a strategy like this. with like your core holdings. Now, obviously, I don't think it's like, you know, for something that the retail investors should do, but for somebody sophisticated,

I think you could do worse than having a strategy that sort of bleeds money every 18 months, but on the 19th month, it'll spike 30%. Yeah, and understanding that this thing couldn't bleed money for eight or nine years and then the 10th year finally do well. So, yeah, you have to have the right expectations going into something like this. So you sent me an article about the disruption of Bloomberg. It's called the Twilight of the Terminal.

And I feel like we see these every year, and they're talking about the fact that Bloomberg lost some market share last year, and it says they have 320,000 people around the world, have a Bloomberg terminal, which is insane. It says they average about $24,000, $25,000 a year, and they're making the case that maybe Bloomberg is losing their hold, which seems to make sense intuitively the fact that there's so much data available in the world, but I think Bloomberg has such a like a stranglehold on things like messaging and the amount of data. that's incorporated in it, it's, I just have a hard time seeing them ever really go away for a long time. Well, yeah, no, I mean, listen, at some point, the growth has to slow down, right? They, right. How many, how many terminal users did they, you said they have? 320,000, which is one of the stats that Charlie Ellis uses in his, a lot of his books to say how crazy hard it is to do well in the markets these days because you have this many people

armed with that much data and knowledge. Yeah, I mean, that's, that's crazy. So the article said the opportunity to make money from marginal. advantage on information gathering is mostly gone. Breaking news to the extent that it is being traded on at all is being traded on by high frequency training algorithms that instantaneously process raw news feeds from all around the world. So there are, there's just competition now. Bloomberg is not the only place to get your data. You have stock charts and free stock charts and Y charts and Yahoo and Google and, you know, there's just a million different financial

technology company. So I think that to the extent that Bloomberg is losing market share, it's probably going to be at a glacial pace. Yes. And I remember every, we had Bloomberg's at my prior employer. And every six months, we'd have someone say, hey, we're going to do the same thing Bloomberg does much cheaper. We're going to be the Bloomberg of this specific space. And it's just really hard to compete at that level.

So I think anyone challenging them at scale is going to be hard to do, but maybe around the edges. Thompson Warriors made a big push into that space. I don't really know how it worked out. We tried that one. And yeah, it was, it was okay. Okay. get to some listener questions. Before we get to that, so I downloaded the new Apple software. Okay.

Like the new operating system. And I got a report popped up on my screen last night. You averaged two hours, 45 minutes of screen time last week. Per day? I guess so. Are you sad about this, happy about this? Sound about right? I didn't feel good. Did not feel good. Yeah. Don't rub it in, Apple. Leave me alone. Yeah, I can see how that would maybe affect the way you think about that.

that. I think this is the type of thing that, like, it's information that upsets me, but that I won't act on. Right. You kind of think, oh, man, why am I doing this? I could be doing, that was like the, on hard knocks, the guy calculated, if you spend a couple hours on Instagram a day, it'll be like two months of an entire year, something like some ridiculous stat. And I'm like, I don't want to hear about that. Just let me go along my day, staring at my Yeah, you know, sometimes, sometimes information is not motivating. Like, I could step on a scale or take my shirt off and know that I look like shit, but like I'm not going to do anything about it. Just leave me alone.

there we go. That's Motivation Monday with Michael and Ben. All right, listener question, what's a good way to allocate cash for a bigger purchase, i.e. house or condo down payment in the medium term, call it three to seven years. Do you look at these sort of intermediate timeframes any differently they need to do short-term timeframes? Nope. If you need money for a specific purchase, such as a house or whatever, I don't care if it's six months or three years or seven years, I would be very, very conservative. So right now, cash is yielding almost 2%. If you want to take a little bit more risk in bonds, you could do a little bit better, but that's where I would go. I would stay so far away from anything that had the potential to be down 50% when I needed that

money. I'm the same way. I do not like to take risk if I know that I need it for a specific, whether it's a vacation, down payment, education, whatever it is. I mean, I guess, yeah, maybe you could go out a little bit in bonds if you want to try to match the mature. of the timeframe, but I don't like to take risk in that thing where I know I'm going to need it. Yep. Opportunity costs. It's definitely not a factor in that decision. I think it's sacrilegious that I have never seen a retirement calculator that asks if your nest egg will be drawn down from qualified plans or post-tax accounts. It completely blows up your plan if, say, you're going to 0.25% of a 200K withdrawal to Uncle Sam. I agree. The problem is there's going to be no

retirement calculator that's ever going to be able to go through all the different variations of what you need. There's so many inputs and levers you can pull. I mean, all of them ask you for a return assumption and you say, I'm going to make 7% a year. And it shows you what it would look like if you made 7% every single year without taking into account volatility and losses. And that doesn't mean you can't use those things. I think you can still use them as sort of a baseline, but then just update and make course corrections along the way. But of course, no retirement calculator is going to be able to take in all your specific circumstances. Right.

So whenever you're looking at things like this, expected returns turn in. to realize returns. And to your point, you just, you monitor it and you updated. And no plan, I don't care how good the software is, it's going to tell you what your withdrawals are going to look like in 25 years. Exactly. All right. Recommendations. What do you got for me? All right. I got two books this week. One is, I heard you paint houses. And this is going to be a movie on Netflix in 2019 starring, it's called The Irish Men. And it's going to be directed by Scorsese. And it's going to include a cast of Al Pacino. Bobby De Niro, Joe Pesci, Harvey Kytel, Ray Romano, and some others.

I cannot wait for this movie. The book was freaking awesome. It was about the one of Jimmy Hoffa's really good friends is the guy that killed him. So this was a mystery for a long time. There's a ton of great history of the mafia in here. It was just awesome. It was really, really good. Great read.

Do they make the case that he knows what happened to Jimmy Hoffa then since no one does? No, this guy killed him. Okay, but then it's just no one knows where his body is. Oh, no, they know. Oh, they know? Did I miss that one? We've landed on the moon. Was that my... Yeah, no, I need nothing about Jimmy Hoffa, other than that he disappeared, and there was, you know, he was allegedly buried in Giant Stadium.

But no, they know who killed him. They know what happened. And this is the story. Okay. So it's a great read. And next, so I like John Meacham. He wrote a new book called The Soul of America, and it's basically, you know, inspired by what happened in Charlottesville. He wrote an article for time, I believe, and he expanded it and made it into a book.

And the gist of the book is that, you know, it's really just a tug of war between good and bad, but in terms of like politics and the country. But we move forward. And we move forward. I mean, it's two steps backs and three steps forward. And it was really, really good. A lot of good history, some stuff that I didn't know about. So I just want to read one quote that I thought really captured what the book was about.

And yet there is always an end yet in American history. Taken in all, Woodrow Wilson and his age are revealing examples of the battles between hope and fear. The era of the suffrage triumph, for instance, was also the age of segregation, of the suppression of free speech and wartime, of the Red Scare of 1919 to 1920, and the birth of the new Ku Klux Klan. The story of America is thus one of slow, often unsteady steps forward. If we expect the trumpets of a given error to sound unwavering notes, we will be disappointed for the past tells us that politics is an uneven symphony. So it was really good, just a lot of trouble with stuff about our history that I never knew. Like, there was pictures in the book of the KKK marching in Washington in 1925. And, of course, talked about George Wallace and Huey Long.

And just all along the way, we have, you know, we have some dirty parts in our history. But we always march forward. So this was, this is poignant and one that I would highly recommend. Okay. I read last week, I read Fortin's Children, the fall of the House of Vanderbilt, which was looking at the aftermath of Cornelis Vanderbilt when he died. And he was the, by far the richest man in the world. I think it was like 105 million.

that he had at the time. This was in the late 1800s. And I saw some estimates. I saw some estimations. One of them estimated that would be worth $5 billion today. Another estimated it would be $200 billion. I guess it depends how you think about it in terms of inflation and what that wealth would look like today. But it looked at what happened after he died and gave his money to his children and then his grandchildren. And basically, they just blew all the money. And so it's almost like a personal finance book in terms of how hard it is to preserve your wealth after you've had So they talked about how a lot of the Rockefellers and Fords and DuPonts, a lot of in Walton's, these family members have been able to hold on to their wealth and even grow it in some

cases, but the Vanderbiltz just blew everything. And they found that 30 years after his death, none of the family was among the richest people in the world, even though his son initially doubled the money right after he died. And it's kind of great. Tell right. Yeah, right. He got it on a pretty good thing of Ripple when it first came out. And so they actually interviewed his some reports.

interviewed his grandson, who was a son of his son who inherited all the money. He gave $95 million to his oldest son, even though they had 10 children. But they interviewed his grandchild, Willie, and the reporters couldn't believe what was saying. So he says, my life was never destined to be quite happy. It was laid out along lines which I could not foresee almost from earliest childhood. It has left me with nothing to hope for, with nothing definitive to seek or strive for. Inherited wealth is a real handicap to happiness. It is a certain death to ambition as cocaine is to morality. And so, yeah, He, and it said this was like a good looking, happy guy, but like having all that money come to him and everything, everything be so easy, like ruined him and it ruined a lot of the family.

So it's one of the better books about wealth that I've read in a long time. And finally, I started reading Lethal White by Robert Galbraith, which actually is a pseudonym for J.K. Rowlings. I don't know if you've read any of these books. She wrote three of them before, and this is the fourth one. And they're really good. And so this was the story where J.K. Rowlings wrote this book as a pseudonym, and it came out for a few months. sold like 1500 copies and no one had ever heard of it right and then finally someone squealed and said this is actually jk rowling the most successful author on the planet and then it exploded

and it's a really good private detective series where you can't get enough of those i love i love them and this she's they're a little long and very detail oriented but they're really good and this is another good on that kind of expands the series and i think it could be a good movie too if they ever decided to make it into one all right one thing i forgot so meb had meb favor had a podcast with, I think his name is Phil Haslett of Equities in. And so we've been talking about this recently. MEP made a pretty good point with respect to accredited investors and, you know, why shouldn't retail investors be allowed to invest in these companies?

And he made the case that, listen, most public companies suck, right? Like a lot of stocks just don't like the index or go to zero. So why should there be restrictions with investments in private companies? So this is a platform that allows accredited investors to get into, illiquid investments, and I thought it was kind of interesting. I don't really know the details about how it works, but I thought that was a good listen. Cool. All right.

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