I made my money largely from 1990 to today, about a 30 year investment career. I started investing in 1975, trading commodities in Illinois and did some other business deals, but in 1981, I went to med school and later went into the Navy to pay back the cost of medical school so my investing at that time largely consisted in cheap living and trading my time to stay out of debt. I am the cohort discussed in this video.
I followed the markets since I was a kid. My first real term paper as a kid was on Jesse Livermore. My second was on the stock market. Both required reading a book or two and trips to the library since those papers were written about 1963 or so. Al Gore is 4 years older than me and had yet to invent the internet. When I was writing my papers he was trying to get laid in the back of daddy’s car, the one with the huge fins.
I lived through the recessions of the late 50’s the 60’s the 70’s and the 80’s. I went into the Navy because the inflation of the 80’s, ate all my medical school savings, so these periods weren’t historic to me, they are my history. My Dad started a business in the 60’s and went out of business because of the recession in ’66. I remember Japan in the 80’s. Japan equity investors couldn’t make enough money it was like opening a fire hydrant of money. All the smart boys were buying Japan. Japan was invincible. I didn’t own Japan, except in the 80’s when I was in med school, I ate a lot of Ramen, plus some fried eggs. Once in a while some sushi.
In the chart presented in the video he looks at several time frames. He looks at the first 60 years. The first 60 years were a time of pensions. Investing was NOTHING like today. To invest you needed a LOT of money. Every trade cost $200. A round trip cost $400. That was the invention of stocks for the long haul. If it cost 400$ to get into and out of a trade that made $1000 there was a huge psychological barrier to making that trade. It still exists today in the form of cap gains tax. People will hold onto doggie funds just because of the $20 of cap gains that have built up over decades. They typically don’t even know what the cap gains might be because “it’s complicated” but they know they are there and it’s a barrier to doing the right thing in the face of doing the cheap thing with the least hassle. Yet everybody is a tycoon.
Things changed in 1978 when Jimmy Carter signed a bill that divorced savings and loan interest from prime. Before ’78 S&L’s were highly regulated and could charge only 2 % above prime interest. After Carter’s swipe of the pen, S&L could charge any interest the market would bear. Of course to make the interest they need the money to lend so the peeps were part of the equation. The S&L charged 6%, the peeps got paid 3%. 9%, 6%. 18%, 12%. This is called inflation. Another thing that happened is the 60’s. Boomers came of age got woke and womens got libbed. Those libbed womans went to work in the 70’s which means house hold income (money supply) increased dramatically. First thing mama wanted with the new dough was a bigger crib so housing took off. Just what the S&L needed a ready source of new credit applicants for larger loans. The result? Inflation. Housing prices sky rocketed and that’s when the myth of the investment nature of home ownership was born. Many of the silent and GI generation bought houses after the war like brownstones in Boston and NYC and saw their property values explode with the increased productivity caused by the 2 hands that had previously supported the family turning into 4 hands. That ship has sailed. There aren’t anymore hands to put to work so that boot in productivity won’t happen again, but boomer parents and grandparents took advantage to sell at a 500% profit and move to FL.
In the north, garages were constructed out of concrete block because it was cheap. Houses were constructed out of limestone and brick and wood. When I moved to FL I was amazed everyone was living in a house that up north would have been considered a garage. in terms of construction quality.
Another thing happened. Corporations wanted out from pension liabilities so the government created tax deferred vehicles by which “investors” could plow their dough into “pretax” accounts, let the money compound tax free and the government would reap decades of compounding as ordinary income tax when the geezer started unloading the dough.
John Bogel came up with the idea of low cost passive index funds in 1975 which fit this time frame of creation of DIY investing. There were other mutual funds but they were offshoots of the rip off industry where you had to pay fees to get in, fees to get out and fees to stay in, but since the pensions were shutting down it was they only game in town for most working people. A round trip was $100 to the broker, 3% to 7.5% up front to the mutual fund company, and then 1.5%/yr to maintain the account. What little money you did make, you would get to pay compounded taxes on later when you were a geezer beside the 1.5%.
Competition worked in the late 90’s and prices at brokerages started coming way down. I was day trading for about $10 a round trip in the early 2000’s and fund cost hit the skids after the 2000 crash again due to competition. Trading became easy as the internet came to be, and brokerages realized they could make far more money by cutting out the private broker and letting the tycoons (rubes with the computers) generate millions of round trips with the press of a button. Now we have AI and everybody has to trade against a machine.
The point is there really is no history to history in terms of repetition. Housing is NOT going to go up 500%. There is no second spouse yet to be leveraged. I trade ETF’s all day every day, as many times as I want in a day FOR FREE. Boomers are done. They made their nut and will now spend far less on a relative basis causing a hit on GDP. Millennial’s can’t buy boomer houses because millennial’s had their house money ripped off by the colleges. Come to OUR school for 6 years get a degree in gender studies, get drunk, get laid, get woke, get $150K in bankruptcy proof debt and screw your parents because their “nest egg” house is unmarketable to someone with$150K debt and a job and future equal to a gender study degree, post 2008 housing crash. That’ll teach them damn boomers!
When you listen to this video consider the history behind the graph. Gundlach is 60, 7 years my junior but none the less a boomer. He’s lived my shared history. Dalio is 70, 3 years my senior and he too has lived my shared history. I came to believe what these guys believe through my own independent analysis before I found their videos.
In Japan they believed in stocks for the long run. same in EU. China is not going to break out, they are going to become Japan. Russia is too alcoholic and crooked to amount to anything. I’ll put the short synopsis video first, it’s only 12 minutes and covers the bullets. The actual Gundlach interview is second.
I have no idea what future is going to unfold, but I’m 100% sure (on a risk adjusted basis) it won’t look like the past 30 years. When you look at a narrative consider the context within which that narrative occurs.
5 Replies to “Stocks For The Long Term”
Quite a sobering post as always Gasem.
I am a fan of your contrarian point of view to the numerous other blogs out there.
It is a pessimistic outlook that seriously can damage someone who is just betting that history repeats itself so that they can rinse and repeat.
I have toned my enthusiasm for FIRE a bit namely because of tidbits I have gleamed from you. I still want to retire early and trying to accumulate a nest egg that can handle a more pessimistic financial turn of events. Not sure what size war chest that is though.
Sometimes I feel like my blog is the party pooper blog in the FIRE sign theater. I feel like Peorgie Tirebiter. There are a TON of things I read and listen to that I don’t publish because I feel there is an agenda behind it like the buy gold buy gold CROWD but in fact it is time to buy a little gold. It’s 5 o’clock twice a day. In fact it’s time to lighten up on stocks IMHO. The problem is the narrative DEMANDS perfect adherence of nothing less than “80% stocks” and the herd demands 100% compliance with that metric, or one is meant to feel like a dope or a traitor for doing what is prudent rather than what is dogmatic. The rule of course is never sell only buy and when you buy only buy stocks. That rule is precisely what the financial industry hopes you will do BUY BUY BUY. Bogel essentially “owned” Vanguard, in terms of driving the philosophy and he effectively marketed that philosophy as truth. For Vanguard to prosper it needs to have buy buy buyers! That’s reality. Vanguard doesn’t give a crap about you it gives a crap about itself.
The opinions I present are not hacks selling annuities or reverse mortgages or the bag men for those industries. Much of the opinion you see by people like Wade Pfau, you have to ask yourself “who does this guy work for?” because it’s clearly agenda marketed as truth, and that agenda is consumed hook line and sinker by an investing public that has no more ability to discern than the man in the moon. WCI’s site is full of that shit. “6 bullet points on how to tie your shoes!!!” 6 bullet points do not a coherent financial plan make but yet the dopey points are presented as credible and vetted and oh so wise ways to plan the rest of your life. Someone like Gundlach runs the book on 150B dollars of funds designed to make people money and he is quite successful in his funds. Probably worth a listen if your other financial information is coming from bag men for the annuity industry.
I find it so interesting that DIY is touted “as good as if not better than fiduciary AUM” who are characterized as crooks. I’ve actually read studies that looked at DIY efficiency in investing compared to the presumed perfect DIY investor and the typical DIY leaves 4% or more on the table every year because of mistakes yet howls loudly at 1% fees, which never are 1% anyway. You can get competent advice for way less than half that. If the advice is 0.5% and does nothing more than force you to invest as a DIY up to an efficient level you make an additional 3.5% on your money because instead of doing it wrong your doing it right. Actually a competent AUM over the long run will make you money in improved return efficiency, but you’d rather run your money by the rules of some crack flashing plumber or ER doc or Revolutionary Millennial or miscreant frugalist with a mustache turned self proclaimed financial Guru who has absolutely NO skin in your game.
I’m not a crusader. If the people I present were living in 2013 you would likely see a much rosier presentation. At that time the world economy was starting to hit on all cylinders. There is gloom and doom because the numbers predict gloom and doom in spite of the CNBC happy talk. CNBC’s job is to sell you “my pillows” and get you to buy stocks. That’s what they get paid for. Wisdom Tree has a fund just for you after all you are a tycoon aren’t ya?
People can do what they like. I have no dog in the success of their program. I don’t have a crystal ball. I do believe in math, probabilities and Bayesian statistics. I do believe in chaos theory and risk that complies dynamically with power laws. I do believe “sometimes it’s different” because the macro picture changes and the foreground of the economy now has a very different backdrop and an entirely different background to compare against. When have we ever experienced 30 years of financial engineering and bubble creation? When have we ever experienced this level of world wide debt with little actual collateral? When have we ever traded against AI and super computers? When did a cohort like the boomer generation ever retire before? Markets no longer exist on exchanges they exist in networks. Exchanges are simply window dressing, yet every day some dingle berry ascends the stairs and slams the gavel at 4 pm. What are we being marketed by markets, because it is all marketing?
I guess we’ll see how it all turns out. 50 years is a long time to play the odds and win when the odds are stacked against you. For every winner there is a loser. That’s why the Gaussian curve is symmetrical. I keep a Galton board on my desk. A Galton board is a toy that is designed to created Gaussian distributions out of 1000 independent ball bearings falling down a 50/50 random matrix. My question is always “if I were a single ball bearing how would I work it to become a ball in the upper 50% of the distribution, the winning 50%? My particular toy has 12 decision points that determines where an individual ball will end up. Imagine how many decision points go into becoming a winner over 90 years of decisions. Hell of a lot more than you can cover in 6 bullet points written by an agenda driven blogger.
You have had experience trading commodities etc and made money but is now retired from such trading.
Would you be willing to write a series of articles educating us about the pros and cons of trying to make money using such strategies (e.g. commodities , options , futures) and any wisdom you care to impart?
It would be great to hear of your views and experiences because I reckon we can learn something new from a retired trading pro like you.
Thanks for all you are doing.
Gaining experience in trading commodities is like gaining experience in playing 3 dimensional professional poker. In my day which was around 1975 There was no digital age and the “best” you could do was to be on the trading floor or in one of the booths above the trading floor. There could be shenanigans as well. One Friday I was long OJ and I was living in FL the weather report was for 25 degrees on Sat through Sun so the OJ market should have exploded on Monday. The floor traders came in on Mon and forced the contracts limit down and triggered a margin call which forced liquidation is people like me, then the floor went long and made a mint so I lost money and they made money going short and then long on a fundamental trade that should have been a slam dunk. That’s the day I quit trading commodities. Even though I had a C band satellite data link dish in my side yard. I was too far away from “the market” to be able to risk manage effectively. Today the trading is even more cut throat with computer modeling. I’m trading some commodity ETF’s on a macro basis based on the fact we are in an inflationary period. The FED and treasury pump money into STOCKS and so stocks are divorced from reality, but that’s good for politicians. No one pumps money into copper or cows or oil or natty gas so those are true market measurements of inflation. Given the economy IS NOT ROARING despite pumped up market prices, we are actually in stagflation. In stagflation owning inflation protection is important and commodities inflate right along with inflation so I bought commodities low and will sell them high if/when inflation ceases. Also the dollar is being manipulated being forced lower which also drives commodities higher which further enhances the buy low sell high strategy. My present strategy is therefore to use commodities as an inflation hedge which also may add a tiny bit of leverage. BTC is a similar play but BTC has a fundamental advantage in that its a disruptive technology and will carry an efficiency premium as it pays off. BTC is the best performing asset I own by far.