Animal Spirits Podcast - The Market Swoon (EP.62)

Episode Date: January 2, 2019

Steve Mnuchin's bizarre statement on the health of the banks, huge swings in the market from day-to-day, the causes of the market downturn, can we really blame the algos for increased volatility, is technology speeding up market cycles, stock millennials bought in 2018, performance for Ivy endowments in 2018, our review of the new Sandra Bullock movie on Netflix 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

Today's Animal Spirits is presented by Whitecharts. 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 Holtz 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 Ritthold'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. So Sunday night, Stephen Mnuchin tweeted, today I convened individual calls with the CEOs of the nation's six largest banks see attached statement. And basically, he was reassuring the American public that there was ample liquidity in the banks when I don't know if anybody was actually worried that there was insufficient liquidity in the banks. What is the etiquette in terms of crossover between a tweet that I used and using it on the podcast? Can I use a joke I used in a tweet?

By all means. Is that fair? Okay. So my tweet was Robin Hood has assured investors that they have enough money to pay millennials' 3% interest for the next 27 hours, according to Steve Mnuchin. That was good. So he basically screamed fire in a pretty dry theater. The thing is, if you're not a charlatan,

and you're not one of these people that just pushes for like a huge crisis or crash every other week, no one was worried that we were going to see another 2008 again. Right. No one was worrying we were having another banking crisis. At that point in time, and let me just pull up Y charts real quick, the Dow was in a, and I'm using the Dow because that's a people's index. The Dow was in a 16% drawdown. So certainly there was some anxiety going on, but it's not as if people like had any

suspicions that they weren't going to, you know, that we were like going into an 08 or anything like that. So you think a lot of the two or three days after that the crash had a lot to do with him? Well, so the Dow fell 653 points the next day. and that is a 2.9% decline, and it closed directly on the lows. And that has only happened six times since 1970 that the Dow fell 2.9% and closed on the very lows. It was not a great day for Christmas Eve. I will say that. It was not a great day. So did stocks crumble because of munition? I don't know. I mean, what do you think? Well, it seems like every day, there's been a huge

down day. There's been a different reason for it. So at first, First it was the tariff stuff, and then it was the trade war stuff with China because the headlines were good enough. And then this week it was the Algos, so Wall Street Journal had a piece. And I think if you were involved in financial Twitter or the blogosphere and you didn't dunk on this piece, right, this week, so the story from the Wall Street Journal was behind the market swoon, the herd-like behavior of computerized trading. and it's trying to make the point that it's all the algos and computer trading that is pushing everything around these days and making things so crazy. It's kind of funny to me because last year when there was basically zero volatility in the markets, it was the algos and the passive index people that were causing there to be no volatility. I thought that was the Fed.

Oh, yeah, the Fed's the other one. Yeah, actually the Fed was for a few days because they raise interest rates, so they're partial to blame. What is your favorite reason? Like I said, we get a new one every day. What's your favorite reason for the downturn? My favorite in terms of like, ha ha, this is so stupid. There are a lot of ha ha, stupid ones. But what's your, if you had to place a, like a waiting on the importance of this one factor in causing this, what would you, what would you say it is? Price. Okay.

I mean, no, seriously. But so the Monday where we had an early close and we had that the post-Meneutian day, that was the fourth straight day that the market fell 1%. So it is hard to blame that entirely on Mnuchin. I just thought it was like just way to not read the room. You know what I mean? Yeah, that was bad. That didn't help. It was such bad timing.

But I don't know. I mean, the Algo stuff is definitely pretty silly. Two of my favorite quotes from that article. Today, when the computer start buying, everyone buys. When they sell, everyone sells. With little to back it up. You don't even have to say factually that's inaccurate, but. I mean, I did some work today just to show I looked at the rolling 30-day standard deviation on the S&P

daily price returns going back to like 1928, which is something that you have done for me before. And if you line those up, it basically looks like the VIX index, right? Because that doesn't go back that far. I mean, you can't tell a noticeable difference anywhere on the chart. Like, if you picked it up in the 90s, let's say, when there was more computer trading that started happening or even in 2000s, there's no noticeable difference anywhere. People in the 30s and 40s and 50s and 60s didn't need computers to create volatility. They had a fine time doing it themselves. Yes. And here, yes, totally right. Here's another great quote from the article. Literally, direct quote, others aren't so sure what comes next. Uh-oh. Others or anyone? I mean, obviously, it's fun to

like play these games and attach a narrative to everything, but sometimes it's just the fact that there are, there's so many moving pieces here. And obviously, some of these forces, the prevailing forces can exacerbate things, but they're not. the cause of it. That, you know, that's just, that'd be way too easy. Because if, if these machines really could cause market volatility, why wouldn't they do it all the time and take advantage of it? So there's a chart that they showed the liquidity in SDP 500 futures, which has pretty much fallen off a cliff, at least since 17. And I'm just spitballing here. This is very far from our area of expertise, but aren't there just way more instruments to hedge and to find liquidity

other than the futures market these days? Yeah, I think that makes sense. So you can use a lot of others. What does the options market look like, for instance? Well, you can, yeah, you can use ETFs. And there's a lot of different ways to gain exposure to the market these days. And I mean, does it really matter that much if liquidity drops off a little in the instruments? Like, do we need people transacting millions and millions of times a day? Well, I guess. Keep the markets functioning. The people that controlled giant sums of money would argue that, yes, we do need a lot of liquidity. Does it affect like you and me? No. So this volatility has obviously affected the psychology of investors, which is not surprising. And B Spoke tweeted that AAI-Barrish sentiment is above 50% for the first time since April 2013. And then today, Charles Ropla tweeted about wait time for TD Ameritrade being 40 to 70 minutes. So I had a hard time believing that.

So I called up and I was on hold. You put this one to the test, huh? Yeah, I just left the speaker on, and it's classical music, so it's not a big deal. I put the volume pretty low. And I was on hold for 35 minutes just before we're recording this, which, by the way, is Friday morning at 11.30. Just in case anything crazy happens in between time, yeah. Think about the people that are calling. It's probably not younger people, because if they really want to trade or want to do something, they could just, you know, figure their way out on the internet.

Can I just ask something real quick? Yeah, go ahead. AIAI data is a survey, correct? It is a survey. I'm just throwing that out there. I don't think it is actually looking at what people are doing. It's looking at what they're saying. I want to stay on brand here.

Yeah. So my friend John Borman had a really great tweet that I think describes what's going on right now, or at least how investors should think about this. He said, there are times where analysis becomes fairly useless, fundamental and technical. A stock was cheap before it's now cheaper still. oversold gets more oversold, one extreme after another. We're stretching a rubber band. It either springs back or it breaks, and we don't know when.

This makes a lot of sense to me in terms of the other day we had the S&P was up 5% in one day, which, not to toot our own horn, but toot-toot, we kind of, we were pretty pressing on that last week, weren't we? Well, we got kind of lucky. We said it the day that the podcast came out. Anyway. It was a little tutu-toity. However, I will say this. This is very important because obviously we're joking that we are like, you know, Ben and I joke that we feel the market. That was clearly a joke.

But this is important to mention that market calls are a lot easier to make without any consequences. Like once you actually have money at risk, everything changes. And this morning I was reading the behavioral investor by Daniel Crosby. And there was a quote from a study done, we very quickly found that nothing had an effect. on people like money, not naked bodies, not corpses. It got people riled up. Like food provides motivation for dogs. Money provides it for people. So the point is that be careful when you're seeing people make calls because it doesn't mean anything. And you can fool yourself into thinking that you had a hunch or you knew something was coming. But I'm telling you, once you actually have

money invested, everything changes. Like you are no longer objective and you are just like a monkey. Well, and to Borman's point about things not working all the times or sometimes analysis is We had the 5% update the other day, and if you weren't a trader getting on Twitter that day and saying this is a dead cat bounce, this is exactly the kind of thing we see during a bear market, I don't think you can call yourself a Twitter trader because everyone said that. And maybe it was kind of right, but there's always exceptions to every rule. And I think anytime you look at a stat like that and you think, I know exactly what's going to happen next. I feel like anytime there's a bare market, it's so easy to become confident in either direction and think you know what's going to happen next. But any of these could be one of the exceptions where in five or ten years you look back and go, yeah, but then there was that end of 2018 where this happened. Because there's never any if X, then Y. Just markets don't work like that because the information gets updated and people understand and then people start, it's like the reverse reverse psychology thing where it doesn't always follow

the same path. So I think it's a little too easy to get overconfident in these things. So now we had a really great two-day balance. and there's probably going to be people shouting that we're wait for the retest. The coast isn't clear yet. And I just wrote about this bare market bottoms. And this is a really good exercise for me to go through because it solidified. What I had suspected is that not all bottoms look alike. There's no formula. Some of them have a V shape where you actually do see a giant update. And then that's it. The selling is over. Some of them just sort of languish. And it's just like it looks like just investor apathy. Others have a hard balance and then retest. Others have a hard balance. Other have a hard balance and then go sideways. Like there is no formula for how markets bottom. Yeah. Just like there's no formula for how they top either. Like people say like this is a textbook blank. Like there is no such thing as a textbook. If there was a textbook for how this stuff worked, it would be way easier. It just doesn't work like that. And I think that's like

one of the hardest parts about investing these days is because we have all this information at our fingertips. And it's great in a lot of ways because when something crazy happens like a 5% up day, you immediately, for people like us who are market history, you immediately get all this data sent immediately by people that you trust that combed through this stuff. But people didn't have that in the past. And now that we have it, does that change the way people invests going forward because there are some investors who understand it now? Yeah. So, well, okay. So actually, that brings us back to the algorithms. And by the way, I love that logarithms has become a meme now. Not bad, huh? So I found the dumbest comment

of all time in the Wall Street Journal comment section and logarithm has gone mainstream. But to the point about algorithms and does having data that wasn't available in the past, does that change things, I definitely think it changes things. How can it not? So I'm not saying that the algorithms haven't affected the way that the market, maybe not the way that the market behaves, but there has to be some sort of effect. I think where the trouble lies is that people thinking that they can predict what affected has had. Yeah. And think about all the amazing investors out there who made a name for themselves in the 80s, 90s and 2000s. who've gotten destroyed during this market because it didn't react like they thought it was going to. And they say, well, the Fed has broken fundamentals and people are manipulating stuff. But part of it is just, guess what, the market doesn't always react like you want it to or you think it should. Don't you think that there's a lot of algorithms that have combed all of the historical data to how market bottoms and we're trading against it, rendering it

totally useless? Yes. By the way, whenever you use the term comb, I always think about space balls. Yes, comb the desert. That's the one. yeah yeah so just i just want to touch on valuation just for a minute so jeremy schwartz tweeted our large cap earnings 500 index not back at 09 levels more likely 2012 but at less than 12 times forward PE and less than 13 times trailing looks quite reasonable and then for their wisdom tree small uh small cap index it actually was back at oh nine levels so i think this gets back to your case last week and you said tell me the fundamentals 12 to 18 months for now. I'll tell you how to invest. I think that, so looking at four

PEs, obviously, if things come in as expected, then stocks probably are relatively cheap right now. So it kind of depends. Do we have a slowdown or not? So if we don't have a slowdown and the earnings numbers come in anywhere near what people are predicting, I think you're right. Stocks are a pretty good value right now. And then if we do get a slowdown, then these numbers throw them out the window. So that's kind of the, which gets us back to square one of no one knows what the hell to do. But I mean, I guess that's why people pay attention to this stuff because if a market slowdown leads to an economic slowdown in some capacity, then it doesn't matter what these valuations say today because they'll just keep getting cheaper. So the psychology of markets being what it is, people are selling. Obviously, stocks are going down because people sell and it's a circular thing that we spoke about last week. But mutual funds just suffered redemptions of $56 billion in the week ended December 19th. The biggest outflow since the week ended October 15th, 2008. By the way, we have had, how many stats have you seen in the last, say, 10 to 20 days that have

said the worst sense, the best sense, the biggest sense, the largest. Can I throw one more at you? There's a lot of these, which makes sense. Allow me to give one more. Net inflows for U.S. mutual and exchange traded funds in the first 11 months of the year fell to $237 billion. That was down 62% from the year ago period, the steepest decline since 2008. Does this mean that money on the sidelines is running dry?

Wait. Well, if there weren't any inflows, that means there's more cash on the sidelines now, right? Yeah. I'm going to back this out. This is a good thing. That money's just waiting for a tradable bottom. Double bottom. So you did a post this week about what happens when stocks fall, and Beespoke had a tweet about,

by the way, is it bespoke? I keep saying Beespoke. I think it's bespoke. Bespoke sounds more highbrow. Let's go with bespoke. Okay. They showed all of the quarters where the S&P 500 fell. 10%. And it was positive, what is this? Over the next two quarters, I'm sorry, over the next

quarter, it was positive 79% of the time. So pretty good. However, when it was negative, when it was negative, it was really bad, like 2002 and 2008. So that's why you have to take all of these statistics with a grain of salt. Yes, you got it right that time. Because let's say that markets are positive 80% of the time. But the one in a five time when they're down, they're down a lot. Well, that doesn't do anything for you. Right. You only have one investing life cycle to live through. And so the averages don't matter to you because if you get that one or two times where things go really bad, then you look back at this data and say, what good was this to me?

Well, it's like the midterm election data. Yes. Remember how funny does that look right now? Yeah, that's seasonality. A good thing. If you sold in May but then followed seasonality, wait a minute, I'm lost. So I looked at the worst quarters going back to 1926. and every one of them is in like a terrible period.

The 1930s, 1970s, 1987, 2008. So when you start looking at these like your worst sense data, it looks pretty bad. But I found trade like the forward returns were pretty good. And it was like 80% of the time. In five years, it was the same thing where there was two down periods in five years. The other ones were up big. And the average over five years was like 90% up. but that doesn't tell you, you know, five years sounds great until you have to live through

the next three or six months or whatever. You're like, oh, just hold on for five years. Yeah, it's easy. It's ridiculous. So there was a news out this week that for the first time ever, more than 500 stocks in the SP 500 rose. And actually, the only stock on Wednesday that was down was Newmont mining. This one got a lot of play with the market nerds, didn't it?

that people realized there are 505 stocks in the S&P 500. Yes. So I pulled up the index data. Again, I got this from Y charts. And the reason why there are 505 stocks is because Discovery Inc., 21st Century Fox, Alphabet, News Corp, and Under Armour have multiple share classes in the index. So there's only 500 companies, but there are actually 505 stocks. Yeah, this is good data.

so Michael mentioned Y Charts. We do want to mention Y Charts is a sponsor of the show, and it's actually a service that we use. And since they're our friends there, they've actually given us a code. So if you call up Y Charts and tell them Animal Spirit sent you, they'll actually give you 20% off of their service fee, which is a good deal. And we use them all the time. And so we get a lot of people who ask us, like, how do you guys come up with all your data and charts? And in the past, I guess we did a lot of it by hand. I'd say for the last 12 to 18 months, we've been using Y charts. And they have a lot of good fundamental data. We use that one all the time where you type in an ETF ticker or an individual stock and pulp fundamental data. We like the one where you can show the drawdown or the different fundamentals on it. And you used it to look at all the different names of the S&P. So anyway, if you call up Y charts, tell them Animal Spirit sent you. You get 20% off of their fee.

All right. So let's move on to a story from where did this come from? I don't know. But it was talking about the Ivy League Endowment Returns. And so they had a cool pie chart, like a, I'm sorry, not a pie chart, a quilt of returns going back to 2009. And I think what they were trying to say in this article was that none of them even beat a 6040 portfolio and all the money going to hedge fund managers and whatever. I mean, that's a story that has probably been being to death at this point. But what really stood out to me looking at this chart or this quilt is look at Harvard and Cornell.

on the bottom. Yeah, Harvard's on the bottom five or ten years. Harvard and Cornell are consistently like bottom of the pack. So here's the thing with me being in the endowment world for so long in tracking this stuff. The first thing is the way that these places

compare themselves against their peers is very unhealthy, I think. In the Ivy leagues, that's probably never going to go away because that's just the way that those places are structured. But when they show the returns of these places, it honestly doesn't matter. So a place like Harvard still has the largest endowment, university endowment in the country, and they bring in so much money for donations, it almost doesn't matter what

they do in their investment portfolio. It's fun to, like, argue about. And you can see they've had some really poor returns over the last decade or so. And one of the biggest reasons that is is because they've had a new CIO like every other year. I think they've had six or seven. I've written about it a few times. So you think it's like somebody that has like $30 million and they spend $100,000 a year, and they're 65 years old, and they don't really have an investment philosophy, they don't really

have a financial plan, and they just trade stocks, and they probably lose whatever, 1%, and then they gain 2%, but it doesn't matter because it doesn't affect their life. And their parents' trust fund gives them another $5 million every year. So it's replenish. So I think it, yeah, it's fun to argue about, but these places, it almost doesn't matter what they do because they're never going to spend it all, and all they do is they hoard this money anyway, so it doesn't really matter. I guess the counterpoint is that if they were doing better, they would have more money for scholarships and, you know, we're able to put it back into the education.

And I will say they have done some good things in terms of we talked about the college tuition thing where I think it's if your parents make under 65 grand a year and you apply run of these schools and get in, you go for free and pay zero tuition or room and board. So they have done that a little bit. But they, it seems to me they certainly could decrease their tuition a little bit more and use this money for help out their current students. So earlier in the show we spoke about, is this happening faster? And odd stats tweeted, your crap but true S&P 500 stat, even though I'm on vacation. On December 17th, the index went from a new all-time high to a new 52-week low in 59 trading days. The only faster times ever, October 1929, October 1987, June, 1965, and August 1990. So I- Hang on. Hang on. I came prepared.

So last week, last week I said my hypothesis is that stock market corrections are happening faster because the free flow of information. Do you have something on that piece of paper? Yes. It's blank. Okay. So I wrote some, I did some digging. And the conclusion is inconclusive.

I thought you were going to like take the paper out of the envelope. So I looked at every single double digit correction going back to 1926. And I looked at the average of how long they take to go from peak to tree. trough. And the average pre-1995, I did pre-1995 and post-1995, assuming that's when the internet really changed things and flattened out the world in terms of data. So if you look at all double-digit corrections, the average peak to trough pre-1995 took 214 days. Post-1995, it took 186 days. So it is getting a little quicker. Hold on. What's the median? You are fake news. Here's the thing. It's different in corrections in bears. So I also separated them out by

bare markets and corrections. So in bear markets, post-1995 is 349 days and pre-1995 is 318. So actually, bear markets have lasted longer. Corrections pre-1995 is 115 days. Post-1995 is 71 days. So corrections are happening quicker. Bear markets are happening longer. So basically and part of that is because the 2000 to 2002 one lasted like the longest bear market ever. All right. So what's me? Did you do median? I didn't do median. I can. while we're here. That's okay. But wait, did you write about this yet?

I did not. Maybe I guess I could. No, that's, yeah, that's interesting. The debt is kind of inclusive and so maybe it's possible that corrections are happening faster and bare markets are taking longer. So I don't know what that means really, but it was, yeah, inconclusive, but maybe a little quicker for corrections. Okay.

Millennials piled into these nine stocks in 2018. Business Insider article that a listener sent us just showed what. traders on the app we're doing. And this is interesting in July, Facebook's earnings disaster and subsequent stock landslide was interpreted as a good buying opportunity among millennials and attracted a total of 61,000 Robin Hood investors to add the stock in the following week of the results. And since those results, the stock is down quite a bit. And I made the point that I don't think this is Robin Hood's intention, obviously, but I think that the earlier people can get involved in the market. Maybe they have a thing for trading and it becomes like a

lifelong passion. But for the majority of people, I think that they're probably going to understand, oh, this is really hard. There's no one. I'm a reason. I win. I lose. And I think that this is like a great way to learn. So are there going to be people that are irresponsible that blow up a decent size portfolio? Yeah, but there always are. I don't think that's like Robin Hood's fault. Yeah. I've heard about this four too. I think trading individual stocks is a great way to try to learn about how businesses operate and try to learn how your emotions operate in the markets. And I really like this kind of data because it's kind of bifurcated in, so they did the top, what, nine stocks. And half of them are like screaming momentum. They're like some cannabis

stocks and Amazon and Apple. And then some of them are like these deep value stocks like Ford and GE. And so I think it's kind of interesting to see that dichotomy between like bottom fishing and top ticking kind of. Oh, by the way, with with, yes, I agree. But with, with the Ford GE stuff, it seems that there's a really important caveat. Somebody tweeted to me, GE's popularity among Robin Hood users is probably due to the, quote, free share of stock referral program they run, which usually nets you a stock trading below $10. Chesapeake Energy is also one of the top 100 stocks. I don't think millennials are rushing to buy that one unless it's given to them. So that was a very critical detail that was probably not included.

This means that Robin Hood isn't quite big enough yet to manipulate the market higher. If they're giving away shares of GE and the stock is still getting crushed. That means not helping, huh? Yeah, not yet. Does GE still pay a 3% dividend? That's the question. Could you get a higher dividend yield in GE than you could get in a Robin Hood checking account that doesn't exist? Yeah, so the popularity, sorry, I just moved right past that. Okay. That's rude. All right. The popularity ranking of GE was number two, but I think, again, it's offset by that free share data. Okay. I'm used to it. Don't know me. Oh, so I was just looking about this. Tell me if this ever happens to you, because it happens to me all the time.

When I FaceTime somebody and I hang up, it seems like I always dial somebody else by accident. I'm like scrambling to them. Does that happen to you? Yeah, it's happened before, for sure. Why can't they fix that? I've had my 18-month-old get a hold of my phone too and accidentally FaceTime people, which is always kind of funny. So this was one of the most chin-scratching tweets of the year. from MarketWatch,

families earning the national median income can only afford 56% of the Hobbes up for sale right now nationwide. That was good. Yeah. Do you think that they were just trolling? I don't know. I don't know, looking.

Sometimes I, so there was this Andrew Jenks podcast I listened to this week, and it was about Kylie Jenner and that Pepsi ad. Do you remember that one? Where it came out and there was, she did like the protest thing and it became this big thing and they immediately took it down, but it was a huge like it was a huge controversy and he made the point that a lot of these

advertisers now these days know what's going to cause a controversy and so they do it on purpose and they already have a they already have an apology ready and it was kind of a conspiracy theory but don't you think a lot of these news sites know that too like anytime you see one of these New York budgets like they break out a pie chart they had one of these last weekend's NBC like they know that they're going to get a lot of people who try to dunk on that and every single person on Twitter is going to talk about it, and they know it's not realistic, but they do it anyway just to push people's buttons because they know what will work.

Yeah. Maybe this, or maybe this is a huge oversight, but yeah, this is pretty funny. So another good tweet that we'll put in the show notes was from Ivan, and I'm definitely not going to try and pronounce his last name. But it's a Google Drive on valuation stuff from Goldman Credit Suis, UBS, and some really good really good papers in there. All right, before we get to listen to questions, I want to talk about the process of showing my apartment.

Okay. So we spoke about this a few months ago on the show, like trying to time the real estate market. And so I showed the apartment and the guy was very pleasant and seemed to be interested. That's right. So you don't have a realtor. So you're literally showing it yourself. I'm literally showing it. Oh, my God.

Do you like bake cookies and get it already like for an open house? I mean, no, I keep it very clean when I show, but whatever. So this guy sent me in, you know, so we were going back and forth and he had some questions, and then he sends me the bomb. He made a lowball offer, and he listed out the reasons why. And I'm just going to read you two of them. I believe that real estate prices are still inflated throughout Brooklyn. In Manhattan, prices have fallen a lot more, but they've hardly fallen in Brooklyn, and he attached a screenshot, and then three. And this is the doozy.

I am convinced that geopolitical and other factors, like history, will cause a downturn for a while, which would cause for prices to fall further in the near future. And I read this and I was like, you've got to be kidding to me. Like, the irony of this, that I'm getting somebody trying to time the real estate market. So anyway, so he offered me such a low offer that I didn't even, I just said, you know, thanks. I appreciate it, but I'm not even going to encounter. So he's trying to reprice your place for you before the market forces intervene. Yes. So I think he offered me like maybe 17% below what I asked. And he also offered like well below what I paid for it. Right. But so in Daniel Crosby's book, The Behavioral Investor, which I think is I already plugged on earlier, he was talking about like the psychology of lowball offers and like what it does to your brain and how you physically respond to it. So I did have one of those like, what are you fucking kidding me?

type moments, but I gathered myself and I just, you know, said thank you, but no thank you. Well, it's interesting that you're going through this process alone because I wrote about this when I sold my house, I guess it was a year and a half ago or so. And I did some research. They actually had, I think it was in the Freakonomics book about how realtors are not really incentivized to sell, to get the top dollar because to them, a difference in $10,000, $30,000 is not that much in terms of their commission. So they're going to take the first offer they see and tell you it's good. Whereas you, that amount of money actually means a lot. So it's interesting for you. You don't have to worry about that on the on the realer side, but you're still

trying to figure out what your, like what you're breaking, your breaking point is, your tipping point in terms of like, didn't they, didn't they have a study in the book that show that like brokers that sold their own home sold it for an average of 10% higher of comparable listed sales? Yeah, it's good. I'll try to pull that one and put it in the show notes. Okay, so here's a listener question that is on the personal front to me. So I thought this was kind of funny. I'm hoping to hear more about your dislike of minivans. I sort of worry that I can no longer trust your financial opinions if you don't find a minivan to be the most practical vehicle to haul a family around in. So I mentioned in passing a couple weeks ago that we got

rid of our minivan and upgraded to an SUV. And we went from an Odyssey to a pilot. So it's really not that much of a change. It's honestly just like a kind of a little bit of a taller minivan in a lot of ways. But I guess we didn't really care we drove a minivan. I think my wife was not thrilled about driving one, but we liked it. What, you mean, like for vanity purposes? Yeah, not that we care. I'm more of an A to B guy in terms of cars, but the biggest thing was it couldn't handle well in the snow. So we needed to get something that handled better than the snow, and that was the SUV. At least that's what my wife likes to tell people. No, but that was the main reason is we, we just, it didn't handle well in the Michigan driving condition. So I'm still a fan of minivans,

but I can't imagine we'll get one any longer for a while. But you can still take my financial opinions if you want because I'm not, I still think they're practical. Okay. I'm an advocate. My wife says no chance. I mean, I think they're probably more practical when the kids are older. So we'll see if I reassess that one.

Okay. Next question. How do you square cut your losses short with having a conviction to add to a holding when it goes further on sale? This is a very good question. And I have two answers. I think that this depends on what type of investor you are, whether you're fundamental, technical, you know, long, short term. I think that

traders absolutely should cut your losses short. Like, I think that's pretty obvious. But for fundamental investors, if you are doing a deep dive and you have conviction, and by the way, how many of us are actually doing that sort of work where, like, you have earned the right to have conviction in a business. But let's just say that you are doing that. Having the conviction to add when it goes further on sale, I think that comes down to position sizing, which is definitely a hugely overlooked area of investing that is not much attention is paid to that. But like, for instance, Sequoia had, I think 30% of the fund was invaliant. Like, obviously, that's too much. But so I just think that position sizing is really important to this type of answer.

Well, and one of the things is that a lot of investment advice and like rules of thumb totally contradict one another. It just depends on what kind of investor you are. So, there's a lot of these adages that are completely different from one another where, it depends on what your time horizon is and what kind of investor you are. Let's say that General Electric, you had conviction in it over the last few years. And it was 3% of your portfolio. And over the last few years, you kept buying, whatever, and you took it up to 8%. But that was like your cap.

I'm not going to have more than 8%. God forbid, this is a zero. Like, that's how you should be thinking, I think. Yeah. Well, and if you're a trader, if you're a trader, you should be cutting your losses short. If you're an investor, you should be probably averaging down. or understanding, I guess, when to get out. But that's the difference, I think,

between a trader and an investor and which of these adages you use. So you use Mike Tyson quotes when things are going well. No, the other way around. Anyway. No, Mike Tyson, if you're technical, Charlie Munger, if you're fundamental. Okay, time for a Netflix movie review.

We both watched Birdbox, is that what it called, with Jander Bullock this week on Netflix? Birdbox, yeah. Okay. Bird in a box or just Birdbox? I think it was Birdbox. Okay. Yes, bird box with Sandra Bullock.

A few other. John Malcovich was in it. What are Rotten Tomatoes? It was another Netflix movie. IMDB gives it a 6.8 and Rotten Tomatoes gives it a 65%. Oh, that matches up with my score. Hold on. I DM somebody because what did the, oh, I gave it a 6.4.

Okay. I said it could have been a true eight. Like, I wanted to like it, but to me it was like a quiet place, but just like way worse. So I thought it was a mix of the quiet place. I am legend. And what's the other one? Quiet place,

I am legend. I can't think of it. But it was kind of a mishmash of a lot of movies that have been done. And it just, it was a little too long and it wasn't done quite as well. But it was kind of interesting. You liked it? World War Z.

No, I didn't, I kind of came away. Like, we started fast-forking at the end because we're like, all right, let's see what happens at the end. There was no payoff. No, they didn't tell you what happened. World War Z is the other one. It was kind of like World War Z. I felt it was a mishmash of those movies,

but it wasn't done nearly as well as them. So Netflix is getting better, but they're still not, they're not quite ready for the big leagues yet in terms of movies. I mean, I thought that, like, you know, the quality and everything like that was good. It just, I just didn't like the story. They never told us why what was happening was happening. That's what I wanted to know. And they never showed us what the people were looking at.

Yeah, come on. But, yeah, it was okay. Okay, what else you got for recommendations? Well, like I've said now for the third time, I'm reading Daniel Crosby's book, The Behavioral Investors. and I haven't read a behavioral investor book in a while, and they're all, I mean, obviously repetitive in the sense that they all hit on the same subject. But this, you know, it's always, I think it's always good to like revisit some of the fundamentals of this. And so I am very much

enjoying it. Okay. So I've been reading While America Aged by Roger Lowenstein. I thought it was a new book, but you just informed me it came out in 2008. So I'm a little behind, I suppose. But it's about the pension crisis. And this is something you and I both talked about and written about for a while so it was pretty interesting and they did it kind of through the lens of like general motors and new york city and it also it talks about how why new york city subways are so expensive because they're paying for the pensions of the people who worked there but the general motor stuff was interesting to me because i used to live in detroit and so a few stats in the book i thought were interesting first of all this is as of 2008 there's approximately 38 million

senior citizens in a generation that number will virtually double the 72 million and by 2030, one in five Americans will be over the age of 65, which is pretty crazy. I guess in 1900, it was like 4%. And this is the stat I found pretty shocking. So over 15 years stretch ending in 2006, General Motors poured in $55 billion to its workers pension plan compared to only $13 billion paid out in dividends. So the company paid pensioners four times as much, and that's not even including the money that they give to their full health care benefits as it to their shareholders. If you want to know why GM needed to bail out in 2008.

Wow. Yeah. So, anyway, it's kind of through the lens of that and how the UAW basically screwed GM over or they allowed them, GM allowed them to be screwed over. So that's a pretty good one. I think that's all I got. Check out my, I did a post this week where I put my, I summed up my 2018 recommendations for books, TVs, and movie shows.

Late, late, late. I'll put it in the, yeah, I know, late. And the one I did forget, my one big. Miss that someone pointed out was Ozark. I forgot to include Ozark Season 2, which I thought was one of the best shows. Oh, Ozark was very good. You know, I've been looking at some lists of movies in 2018, and there was a lot of like Marvel stuff, but like Black Panther was a huge success. Yeah. Avengers was a giant, you know, box office success. Yeah, those were all, yeah, I mean, those movies just aren't for me. That's all I'm saying. But luckily we're in the

golden age of TV where it doesn't really matter if they're in a good movie. So, all right, we will see what happens in the markets for the next few days. This probably will be stale by the time it comes out, but hopefully not. And thanks again to Y-Charts. Again, Animal Spirits, if you call them up, they'll give you a 20% discount, and we will talk to you next week.