43 Thoughts About Investing and the Economy
1. According to a Wells Fargo survey, only 27% of millennials say "time is on my side for my savings/investments to grow." Please, please make financial education mandatory in school.
2. "Guy Who Has Been Predicting Market Crash Since Carter Administration Predicts Another Market Crash" is not front-page news. I wish journalists would come to an agreement on this.
3. Asked about the economy's performance after the financial crisis, Charlie Munger said, "If you're not confused, I don't think you understand." A strong dose of humility is vital when assessing the economy.
4. The median wage of workers age 25-34 with a bachelor's degree is $44,970. The median wage of workers age 25-34 with a high school diploma is $29,950. The median student loan balance is $12,800. These three figures should be included in every debate on whether college is worth it.
5. Since the financial crisis and Great Recession began, Tumblr, Instagram, Groupon, Zynga and Uber were all dreamed up, founded, and sold or valued at more than $1 billion. A weak economy doesn't kill opportunity. It probably increases it.
6. Someone once asked Warren Buffett how to become a better investor. He pointed to a stack of annual reports and industry trade journals. "Read 500 pages like this every day," he said. "That's how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it." That last sentence is the most important.
7. As Josh Brown points out, there are no perma-bears on the Forbes 400 list of richest Americans. Optimism wins in the long run.
8. There are now more hedge funds in the U.S. than there are Taco Bells. This explains why the average hedge fund manager is about as talented as a bean burrito.
9. Investment theses that could have been written by kindergartners -- "People are still going to need a home to live in" and "We'll need to replace our old car" -- turned out to be spot on and incredibly profitable over the last five years. Don't overthink things. There are no points awarded for difficulty or subtracted for sounding dumb.
10. Most economists could do better if they acted more like historians and psychologists and less like meteorologists.
11. I thought stocks returning to all-time highs just four years after the crash would change the tenor about the supposed death of buy-and-hold investing. It hasn't. More and more, I'm realizing the only people who think buy-and-hold is dead are (1) businesses that earn income on transactions, and (2) people frustrated in their inability to follow it.
12. The first half of 2013 was the best first half for private employment growth since 1999. Three things cause people not to notice: Government employment has been declining, the hole left from the recession is so deep that even strong growth barely makes a dent, and nearly every year since 1999 has had abysmal private jobs growth, making for easy comparisons. We are at a point where even "the strongest in more than a decade" doesn't mean much in context.
13. Investors have notoriously short memories. Interest rates have been falling for 30 years. Put those two together, and the prospect of rising interest rates is really daunting. Even some of the most grizzled, seasoned bond managers haven't experienced a sustained rise in interest rates.
14. The average number of Americans receiving unemployment benefits since 1980 is 2.96 million. The current figure is 2.95 million, so we're a bit below average (especially when adjusted for population growth). But the number of unemployed Americans is currently 40% above average. The idea that unemployment is high because we're paying people not to work holds very little weight.
15. Apple increased more than 9,000% from 2002 to 2012, but declined on 48% of all trading days. It is never a straight path up.
16. In an interview earlier this year I asked Nobel Prize-winning psychologist Daniel Kahneman how to make fewer mistakes in life. "You should talk to people who disagree with you and you should talk to people who are not in the same emotional situation you are," he said. Try this before making your next investment decision.
17. The Economistrecently wrote about the prospects of a new baby boom. If they are right, it could be the most important economic story of the next half-century.
18. Labeling yourself a "Keynesian" or an "Austrian" economist purposefully shuts your mind off to open and flexible thinking. It turns trying to figure out how the world works into a sporting event of "my team versus yours" where the goal is to beat and humiliate your opponent. Total waste of time.
19. When most people say they want to be a millionaire, what they really mean is "I want to spend a million dollars," which is literally the opposite of being a millionaire. A lot of wealthy people don't have nice stuff, which is, in fact, why they're wealthy.
20. Investor Nick Murray once said, "Timing the market is a fool's game, whereas time in the market is your greatest natural advantage." I would nominate this in the top 10 most important investing maxims ever spoken.
21. Elderly Chinese can now sue their children who don't visit often enough, according to Bloomberg. An aging population can be a nightmare for an economy and politicians will do anything to deal with it.
22. Harvard professor and former Treasury Secretary Larry Summers says that the premise of "virtually everything I taught" in economics was called into question by the financial crisis. This is why they call it a soft science.
23. The business model of the majority of financial services companies relies on exploiting the fears, emotions, and lack of intelligence of customers. The worst part is that the majority of customers will never realize this.
24. According to economist Burton Malkiel, 57 equity mutual funds underperformed the S&P 500 from 1970 to 2012. The shocking part of that statistic is that 57 funds could stay in business for four decades while underperforming their benchmark. Hope often triumphs over reality.
25. Every time I read a story about how low wages are for so many Americans while the rich get richer, the stronger I feel we're near a turning point. The battle between labor and capital is cyclical -- it's shifted three times in the last century, and It'll shift again. Probably sooner than most think.
26. CAPE, the popular cyclically adjusted P/E ratio, for the S&P 500 has signaled an "overvalued" market in all but nine months in the last 22 years. Financial metrics can make lots of sense in theory but be flawed in practice.
27. Investors anchor to the idea that a fair price for a stock must be more than they paid for it. It's one of the most common, and dangerous, biases that exists. "People do not get what they want or what they expect from the markets; they get what they deserve," writes Bill Bonner.
28. Companies that focus on boosting their stock price will eventually lose their customers (Lehman Brothers, Enron). Companies that focus on their customers will eventually boost their stock price (Amazon, Facebook). This is an oversimplification but helps explain the difference between short- and long-term management styles.
29. Ben Bernanke understands monetary policy better than you do. Please remember this when criticizing him.
30. When appearing on CNBC, most money managers are introduced with a word about how much money they manage, rather than how well they've done managing it. There's a reason for this. "Joe Smith helps oversee $10 billion," sounds better than "Joe Smith has underperformed the market his entire career."
31. If housing construction returns to its historic norm, private fixed investment returns to its historic norm, and state and local austerity comes to an end, boom, economic growth could be back to a normal, strong pace. And good news: All three of those are in the process of occurring.
32. The U.S. is the only major economy whose working-age population is growing at a reasonable rate. It can't be overstated how important this is.
33. You can control your investing decisions, your own education, who you choose to listen to, what you choose to read, what evidence you choose to pay attention to, and how you respond to certain events. You cannot control what the Fed does, laws Congress sets, the next jobs report, or whether a company will beat earnings estimates. Focus on the former; try to ignore the latter.
34. A hedge fund once described its edge by stating, "We don't own one Apple share. Every hedge fund owns Apple." This type of simple, contrarian thinking is worth its weight in gold in investing.
35. Investor Dean Williams once noted, "Expertise is great, but it has a bad side effect: It tends to create the inability to accept new ideas." Some of the world's best investors have no formal backgrounds in finance, which helps them tremendously.
36. Billionaire investor Ray Dalio once said, "The more you think you know, the more closed-minded you'll be." Repeat this line to yourself the next time you're certain of something.
37. The most closely watched economic numbers like the monthly jobs report and quarterly GDP reports will be revised more than a dozen times, sometimes decades after they're originally reported. The circus of analysts dissecting the details of initial reports that will be revised to look completely different never ceases to amaze me.
38. "Do nothing" are the two most powerful and underused words in investing. The urge to act has transferred an inconceivable amount of wealth from investors to brokers.
39. Maggie Mahar once wrote that "men resist randomness, markets resist prophecy." Those six words explain most people's bad experiences in the stock market.
40. It's easy to mistake luck for success, or at least the role luck plays in success. As John D. Rockefeller once said, the key to success is: (1) get to work early, (2) stay late, (3) strike oil. This needs to be kept in mind more often when learning from wealthy people. Especially investors.
41. Hours after Pearl Harbor was attacked in 1941, the U.S. military planted mines in San Francisco bay. Trenches were dug along the West Coast. The idea that Japan would follow up with an even greater attack on the mainland wasn't if but when. Same thing after 9/11 -- everyone from policymakers to intelligence officials to lay Americans warned that an impending second attack was nearly certain. Something similar happened after the financial crisis. The idea that we'd soon get hit with a new financial crisis and double-dip recession was taken as nearly certain. But five years on, it hasn't come. Preparing for the worst is better than the opposite, but we consistently fool ourselves about the recent past foretelling the future. Psychologists call it recency bias.
42. Government debt as a share of GDP is set to decline over the next decade, according to the Congressional Budget Office. The ratio of news articles that mention this improvement compared to the number still referencing out-of-control spending and rising deficits is depressingly small.
43. According to Bloomberg, "Consumers in the U.S. are spending more closely in line with their incomes than in any expansion in the past 48 years." We learned from the financial crisis, and it's set us up for a more stable future.
Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.
The article 43 Thoughts About Investing and the Economy originally appeared on Fool.com.
Morgan Housel has no position in any stocks mentioned. The Motley Fool owns and recommends Apple. We have a disclosure policy.
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