How Self-Righteousness Might Be Hurting Your Investment Returns

Definition time…

The definition of “self-righteous” according to the Merriam-Webster dictionary is:

being characterized by unfound certainty that one is totally correct or morally superior.

Why this definition this week?

Because people have been sold that greed kills people’s portfolios. That’s wrong. As you know I’ve never found a person managing their own portfolio to be ruined by greed. I’ve never seen it in 20 years. What I have seen is the “Fear-Fear-Cycle” perpetuated by the long-only Big Box world and the “pick of the month” newsletter world.

The reason my company is called Fearless Wealth is not to be Fearless but to end the Fear-Fear-Cycle in your investing so you can find the stability and consistency you want and deserve.

The two fears in the “Fear-Fear-Cycle”

  1. The fear of losing out on the next big move in the Market/Sector/Stock/etc.
  2. The fear of losing money.

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If you can step out of the Fear-Fear-Cycle, you win. The characteristic that kills and continues to kill people’s future more than any other trait is “self-righteousness.” This is what’s killing people’s performance. It’s not enough to make money in the stock market anymore. Now you need to like and agree with the reason why the market is going higher. When did this start. Who are you to care why it’s going higher. The market knows more than you do.

Read the following until you believe it…The markets are always right!

It’s our interpretation of the markets that aren’t always right. And no, this is not a hat tip to people who believe the markets are efficient. Being efficient and being right are completely different.

The Ocean is Always Right

The image I most think of when I think of the stock market is the ocean. The picture below is scary. I meant it to be. The more you think of the market like the ocean, the more your money is going to grow and grow and grow… No one stares at the ocean and says: “you’re wrong!” People don’t do this when they look at the ocean. It’s the ocean. It’s not wrong and it’s not broken. It’s the ocean.

So when you think of the stock market, think of the ocean. The ocean is always right. The stock market is always right. It is our job to figure out if we should even be on the ocean or not. And no, you don’t do this by looking at your age and your self described risk tolerance. You do this by looking at the ocean. The. Ocean. Is. Never. Broken.

International vs. S&P 500

The image below is comparing the international developed stock market (VEU) with the S&P 500 (SPY). You can see international is up about 18% while the S&P 500 is up 11% since the beginning of this year. The market is right. It’s right that international is going up more than the S&P 500 this year. Now is it going to continue to go up? Possibly. But that’s a separate conversation. What this chart is saying is that international developed is the place to be based on what’s actually happening today. There is no debate.

Tesla vs. Ford

I love this chart below.

Tesla is the blue line and Ford is the red line. A lot of people look at the numbers and say Tesla shouldn’t go up. Tesla only made blah blah cars last year. Tesla’s revenue is only blah blah blah. Tesla’s costs are blah blah blah. The market already knows of that blah blah blah AND Tesla is still going higher.  If you make investing about you being morally right (self-righteousness) then you are screwed.

Serious question here, why should you care why the price is going higher?

What matters is what’s actually happening. If you don’t think Tesla should go higher… who asked you? Apparently the market doesn’t have your phone number. Because the market is always right. And you can see in this chart that Tesla is going higher.

You get it? The more you care why, the worse your money is going to grow.

S&P 500 vs. Oil

I want to show you a chart of the S&P 500 compared to oil over the past five years. The red line is oil and the blue line is the S&P 500. There is no “what ifs” here. It’s clear that the S&P 500 has been outperforming oil over the past 5 years. Why S&P500 against Oil? Because some have said over the past two years that “oil” is where money will be made. Apparently no one told oil.

Or then there’s the, I wanted to diversify so I bought oil. Why? So you could diversify out of a winning position into a losing one.

The more you have opinions about what should be or what will be, the more you will be surprised about what is actually happening. At the same time you will be hurt. The more complicated your approach, the more times you’ll get surprised, and the more often you’ll be hurt.

Value Stocks vs. the S&P 500

This chart below is showing you a relative price comparison between the “market” (the S&P 500) and value stocks. If the line is falling in the price chart below, which it clearly has been since 2007, it means value stocks have been under-performing the market. If you approach having to own “value stocks” with self-righteousness and say to yourself that value stocks should be doing better, then you have a leak in your portfolio. Because those value stocks are hurting you, you just don’t know it.

The Most Loved Stock of 2017

One of the top loved stocks in 2017 is a company called Verizon.

The noise-machines were talking about Verizon possibly buying Walt Disney, Pandora Media or Charter Communication. So people “based on the noise” have been buying Verizon. If you look at the price chart below, which is a relative price chart of Verizon being compared to the S&P 500, you can see that Verizon has been underperforming the market since 2012.  When you eliminate the noise, the self-righteousness, and the fear-fear cycle, you get perspective. Like the type of perspective you see below.

Owning Verizon has made people’s future smaller with fewer choices.

Bond Price Chart Since 1980

The final chart shows the price of the 30-year US Bond with the yield associated with each specific bond price that’s being pointed out.

You can see when the bond bull market started (lower left corner of chart), the 30-year US Bond was yielding 14.5%. Fast forward to 1999 and the US 30-year bond was yielding 4.8%. Fast forward again to March 2009 and the same bond was now only yielding 2.6%.

And then fast forward one last time, to one year ago and the same US 30-year bond was yielding 2.13%. I told you last week that bond prices will not soar to the heavens. Because what’s in front of this bond price chart is a 0% yield.

I’m not saying yields can’t go negative of course they can. They’ve gone negative in Japan and Europe.

The point is there is an upper limit to this price chart. Today this price chart sits at $156 +/-. It started this crazy ride in 1980 at $42 when it was yielding 14.5%. There just isn’t that much room left for people to feel good that they own bonds.

Remember, like the Ocean, markets are always right. Not fair but right. I was reading a blog posting by Ben Carlson the other day who argued that market’s are sometimes right. And what I kept thinking when I read his well written post was, “Okay, then how do we know when they are sometimes right and sometimes wrong?” And then it becomes an opinion game. No one has opinions about oceans…

Anticipating Doom is Brutal

I was reading a Seth Godin email recently that you can find right here. The doom and gloom that he talks about is so brutal and so prevalent in the investment world. This is why I pound the tables about getting a simple, powerful, and straightforward approach. Those that have access to my research and who have done my training know how powerful it is and what peace of mind feels like.

In Your Corner,

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RC Peck, CFP

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