Economics vs Price… Choose Wisely.

Hold on… here we go.

I think of things as being cheap, fair or rich. And today, broadly speaking, there is nothing cheap and if you draw a midline down that range which we will call intrinsic value, there is almost or maybe nothing or virtually nothing that is selling below its intrinsic value.
– Howard Marks. 

What if the stock market went up another 100% and still nothing sold at intrinsic value? And what’s gold’s intrinsic value? Something in motion (read: price) stays in motion until something of equal and opposite force pushes back against it. 

I heard again this week someone say this is the longest [stock] bull market in history… what does that mean? How are they measuring a “bull market?” Most definition of a “bull market” is a period without a – 20% stock market loss. But this is really arbitrary. In 2011 the S&P500 dropped – 19.87%. And in 2018 the S&P fell -19.89%. Neither of them hit the magic -20%. 

My point. Be careful with… “this has not happened in ‘fill in the blank’ years” type language. 

Offensive or defensive?

And then you have to say, given the fact that the economic recovery is the longest in history and the bull market is the longest in history and the world is leveraged and there are all these cosmic things going on that the results of which are unpredictable. In investing in the medium term you should ask yourself if you want to be on offense or defense.  
– Howard Marks. 

Why do you have to choose sides? Why do you have to be offensive or defensive. Why can’t you just be aligned? I never liked this idea of being offensive or defensive. In my training course I teach people to buy strength and avoid weakness. Easy words and some may “know” to do this but most are doing it wrong because they have never experienced the difference. 

Knowing vs. Experiencing…

Knowing about loss and reading about loss is the lighting bug to a lighting strike (read: actually experiencing real loss). Like the loss of a child. The worst loss any human could ever experience. Once someone has a child then they truly get how fragile life is. Up to that point their are close seconds. Like the loss of a spouse or friend or parent or sibling or even a pet. But no loss is worse then the loss of a child. 

My point… we are getting thrown words about Fed Funds Rate and the Fed’s tightening cycle, and Hawkish and Dovish, and what is the real neutral Feds Fund Rate, and Money Supply Growth, and the Economic Surprise Index, and Leading Economic Indicators, and Corporate debt to GDP ratios, and the increase of junk rated bonds, and record low unemployment not seen for 50 years, and on and on and on.

So let’s set the record straight. 

We, the United States, after 244 years of existence, many times almost pulling the temple down on ourselves, are still here AND experiencing the longest economic expansion in history. 

The US is in their 121st month of expansion. Never happened before. So of course the recession is closer than far.  Okay. I get it. So move to cash? Noooo!

Get trained. Yep. That really is the answer…

Because people haven’t been trained to do what they are supposed to do, when they are supposed to do it. 

The answer is not in the ticker symbol. It’s in the behavior. That is why Buffett and your cousin can own the same common stock and Buffett will become the third richest person in the world and your cousin is just annoying. 

Symbols don’t matter. Behavior does. 

And reading all those scary words above is just going to load up a bunch of scary feelings in your body. And please most of the people using those scary words have been using them for the past five years. 

Without a noise filter the following is happening to people daily and [sometimes] hourly…

After the amygdala sends a distress signal, the hypothalamus activates the sympathetic nervous system by sending signals through the autonomic nerves to the adrenal glands. These glands respond by pumping the hormone epinephrine (also known as adrenaline) into the bloodstream. 

Harvard Health

Why are we taught to care what we own… it’s not marriage?

If I can leave you with anything, it’s to study being unattached. Like… take a course in it. A real course. With real money. With real money on the line. Take a course that teaches you to be unattached to whether all of your money is in the S&P500 (IVV). The Vanguard Total World Index Ex-USA (VEU). Gold (GLD). Or bonds (BND).

Why should it matter where your money is? 

Shouldn’t what matters most be that your money is in an asset or sub-asset that is going up and to the right in a stable manner?

But we are not taught this.

Look. I don’t know where things are going. Gold is $1423 as I write this and if continues going up then more and more of my money will be in it. Or if the stock market goes up another 100% then, “okay, I guess I’ll own that uptrending thing.”

It’s that we are taught to be attached to what we own, that’s hurting us. 

Like anyone cares what we own outside of ourselves. Only we care. I get it. Of course you should care. It’s your money. But the more you can see like the market. The more your money is going to be okay. 

And you won’t have to play “economics.” You can just follow price. Again, it’s easy to say this but almost everyone is doing it wrong. 

Below are four images about price:

1. The S&P500 (Total Returns) – at new life time highs.

2. International Bond Market ETF (BNDX) – at new life time highs.

3. Gold – at six-year highs.

4. Buying at new 52 weeks highs vs buying at new 52 week lows… 

…all things considered buying at new 52 weeks highs is safer. See Tweet by Rayner Teo below. 

Unpopular doesn’t sell but it sure seems to work… 

“If you could say well give me one rule to follow as an investor, just one, it would be, do the things that are unpopular. Everything else being equal, the things that are popular are overpriced and the things that are unpopular are underpriced.”
– Howard Marks, Founder, Oaktree Capital Management

In Your Corner,

RCPeck-Dig Signature.JPG

RC Peck, CFP

PS – I’ve got three things for you this week…

(1) True. But pointless…
For those observing Tuesday’s Buck Moon (a full moon in July), five of the last Buck Moons over the past 20 years saw the S&P lower 45 days later if it was near a high. Just because it can be measured doesn’t mean it should be followed. 

(2) Quote I’m Pondering…
“A wealth of information creates a poverty of attention.” — Herbert Simon

(3) 100% of an investor’s problem…
If you have the right symbol then you solved [only] 10% of your problems. The other 90% is strategic and the best symbols in the world can’t save you until your brain has dumped the head trash and rewired for growth. All of this can often be solved with this conversation.

Leave A Response