Everybody Look What's Going Down - Part III
ASK BART: Are You The One To Blame?
- By The Notorious CFP®
TABLE OF CONTENTS
- Where we are
- How we got here
- What happens next
- What to do now
Learning the Hard Way
I'm aware that my thoughts and strategies will offend some people. No one likes to admit the people we vote for are actually hurting us, despite 30+ years of tangible evidence. It's also uncomfortable to consider me recommendation to take advantage of our current feckless leadership, as well as the unskilled and inexperienced investors they have created. But my personal stance is that when someone decides to invest in the stock market, I kinda' feel like they've signed the liability form. It's hard to argue they are still an innocent party or a victim.
For example, If you were to show up at Kyle Field in College Station on a Saturday afternoon in the fall undersized, unprepared and/or unqualified; and your team were to find itself losing by three touchdowns to the Texas A&M Aggies, if you're embarrassed and upset that they keep their well-paid semipro varsity squad on the field for more name/image/likeness (NIL) royalties, then that's on you. No one marched you into the slaughterhouse. If you thought it was going to more akin to a pillow fight, then perhaps the real error occurred further up-stream. Like with your parents.
It's not the Aggies' job to go easy on Sam Houston State or Prairie View A&M, run out the clock or bring in their backups. On the contrary, the most caring act of love is for them to keep their foot on the (proverbial) throat of their opponent until the final whistle. That's how humans learn, grow and improve (metaphorically.)
If you're getting paid millions of dollars to be eaten by the lion, then it's your job to play better, or die (metaphorically) trying. The patsy first-week team is the problem, not the Aggies. They're paid very well to be humiliated, like Kardashian spouses. And if you weren't prepared for the reality of the situation, then maybe you should have stayed home. Maybe you should have studied/practiced more and harder. Maybe someone should have exposed you to risk and loss earlier in life. Cuz when the student is ready to learn, the teacher will appear.
If a generation of investors is suddenly realizing in 2022 that they really don't know what they're doing, that investing is harder than they thought and this game may not be for them, then better to learn that in little league then once they're lined up against a 6'4" 320 lb defensive lineman named Shemar.
Who's more to blame for this beating ... you or Shemar?
Similarly, it would have been better for new and unskilled investors to understand the markets before losing all their money this year in meme stocks, crypto and options. They could have instead learned first-hand from the experiences of others (which is the second-best method and way easier) and not be led to temptation to trade based on free money, gamified apps, no trading fees and an inflated sense of self-worth.
Investing in the market is still very much a game (as all modern warfare is), but the specific components involved are anything but trivial. This is your (financial) life and it's no one's responsibility but your own to play the game well. No one is coming to save you. Many have been (mis)led to believe they can constantly monitor and outsmart the financial markets (composed of thousands of institutions with well-funded research teams, very tall buildings, front-running algorithms and Jerome Powell on speed dial), without any formal education, formal experience - especially in declining markets- and an honest and objective understanding of their own investor disposition. It therefore does little good to tell new or unskilled investors that they're special, can do anything they want, or enable further delusion.
Telling me in high school that I could have a future as an offensive tackle in the SEC (at 5'10" and 170 lbs.) would have not only been absurd, but dangerous. Carried to it's extremes, I could have lost a limb. Yet when it comes to investing prowess, insinuating to someone that they can't beat Vanguard and Blackrock- much less the market- is still considered offensive by many people. What do you mean I can't have/do/say something???
But that, ladies and gentlemen, is the state of America- where few have ever been told "no," many lack(ed) an understanding of true market risk, and plenty have harbored distorted view of reality and an infinite, unquenchable capacity for BS. I would love to tell them otherwise, but I care about them too much and I want to see them succeed. A nation of enlightened, experienced and resilient investors that have been endured stressful (economic) recessions and (market) corrections is a stronger investment community. Investors- like all humans - benefit from failure, and that is what is happening today, in real-time.
However, employing the "helicopter parent" approach with new investors since the Great Financial Crisis is literally why we're in this mess in the first place- in some ways many investors have been coddled their entire lives, thus conditioning them to engage in mass speculation with gimmicks like Non-Fungible Tokens (NFTs), most forms of cryptocurrency, AMC and GameStop. These are all "investment categories" that should not - and would not - have existed if not for a fragile, gullible generation (or three) that demands to be stimulated 24-7 and frankly wasn't spanked enough. Now we have a not-insignificant percentage of participants cashing in their chips at the slightest hint of economic turbulence and going to cash.
For a market to operate efficiently, someone has to be on the other side of that trade to buy or sell your shares. No one is holding a gun to investor heads as far as I can tell. So if another investor wants to buy high and sell low, then who are we to stop them? Our responsibility is to win the game (retirement, college, estate, insurance, etc.) and that requires buying low and selling high. All of which involves being on the "field" of Wall Street and mimicking the big money by thinking long-term, maintaining patience, having cash (and some stones) and being ready and available to accept the stock shares from those that sleep better at night holding fiat currency losing 15% per year indefinitely. Or at least until the varsity team shows up to lead this country.
That sounds harsh, I understand. It feels like I'm punching down. But no one got rich playing down to the lowest common denominator (except the Texas Longhorns). I think we need more harsh in our world. We need to be constantly reminded that we have vast reserves of potential that are presently untapped because we already think we're already good enough.
When you look around at all that society has accomplished in this modern era, it can be easy to forget that we still live in a world largely awash in stupid. You know how I know this? Because even in 2022, Hertz has to put this disclaimer at the bottom of their annoying Tom Brady commercials where he recharges himself like an EV:
Tell me again how we're not just slightly evolved chimpanzees with pants?
The fact is that apples never fall far from the tree. I take it as my own personal mission in life to to instill a small amount of intelligence, resilience and fortitude into anyone I encounter in order to create the next generation of great investors, those that value earnings and dividends over hope and faith. (This post was originally over 200 pages in MS Word, so perhaps you can believe in my commitment to this cause.) But we all have a collective responsibility to gird ourselves to be smarter, more rational and more antifragile investors.
“You can’t let a youngun’ decide for himself. He’ll grab at the first flashy-with-shiny-ribbons-on-it-thing he sees. It’s difficult for him to tell the difference between right and wrong. When he finds out there’s a hook in it, it’s too late. The wrong kinds of things come packaged in so much glitter, it’s hard to convince him that the other thing might be better in the long run. All a parent can do is say, “Wait…trust me”…and try to keep temptation away.” - Andy Griffith (an old dude from the 50-60's.)
Wow, I really was born in the wrong century. Andy Griffith was a sage!
The truth is that we have a fundamental breakdown in economic intelligence in this country that has been festering and compounding for more than one generation. And we've made some very poor judgments about the people we allow to run our country. We compounded this by becoming complacent about surrendering the culture to sociopaths, the mentally ill and those with a desire to dismantle the greatest society in human history. I recognize that fact offends some people. As you can tell, I'm deeply concerned about that. When someone provides another culture that has accomplished more, I'll gladly surrender my position.
Admittedly, the United States was specifically designed to be run on a certain degree of stupid, though not inept and immoral. With one person equaling one vote, the system is designed to protect against that and has been fairly successful over time. I once thought the Founders had a blind spot for human's expanding capacity for nonsense, but America life expectancy has exceeded even their their wildest expectations so perhaps they knew what they were doing.
That being said, I doubt the Founding Fathers could have ever foreseen an entire population kept so comfortably numb and willfully ignorant by technology. One might even wonder if we're being kept ignorant about finance at the personal, community and national level on purpose. We're lied to so often and so blatantly that I feel it doesn't seem to even register anymore. It's 2022, and half the country is still freaked out about Russian collusion, unarmed buffoons in Viking helmets stealing Nancy Pelosi's lectern and other nefarious bogeymen in the heads of their multiple personalities. (Thankfully, Pelosi was at the doctor's office for a medical checkup that day, where he found traces of blood in her alcohol.)
The bad news is that anyone anticipating a top-down solution to our most pressing problems is going to be sorely disappointed. This isn't a case of time nor resources, society more often progresses forward through individual re-enlightenment. The good news is that it's 2022, more information exists in our smartphone than all the mental capacity of the entire world a couple hundred years prior. As such, it is now incumbent on each and every American to accept that our current leaders aren't getting any smarter from here on out. They're too old, too ideological and too corrupt. They represent a dying order, and they need to be replaced, if not outright removed entirely from public discourse.
We generally recognize and regard the majority (though certainly not all) of 70-80 year olds as unemployable due to their cognitive decline and skills mismatch. Yet, this demographic is exclusively responsible for running our country. How is that possible?
The good news is that no one is coming to save you, which feels scary but is actually quite liberating for you (and your trusted financial counsel) to build and protect wealth together though a thorough understanding of how the game is now played, eschewing all external noise to focus on reliable and time-tested principals of money management, and positioning wealth in strategic and prudent ways to (legally) take advantage of the dysfunction in the financial markets and financial illiteracy of the majority of the populace who struggles with the logic and reason necessary to win at finance, investing and life.
For instance, the government allows for the existence of most cryptocurrency for many reasons. One of the most useful- for them- was that it permitted the 2020-2021 stimulus money to quickly flood into the crypto universe and exchanges (i.e. via early adopters, or HODLers). I suspect the Fed's hope was that what hasn't already evaporated into the ether by now (i.e. stimulus money transferred from the new to the early investors at the top of the crypto Ponzi pyramid) will eventually and slowly drip back into the economy on a more controlled basis and gradual pace, so as to avoid even more massive inflation than already exists. Now that we're in hyper-inflationary 2022, the door is open for the Fed and it's primer dealers to pull some of that stimulus money back out of the economy through quantitative tightening, i.e. inflation and higher interest rates. Hence the current collapse in virtually all crypto digital assets. It was pre-ordained.
To many that's not conspiracy theory, that's by design. Otherwise, why would an asset and currency that is supposed to be non-correlated to the US dollar and stock market fall by over 70% in value in a single year, during hyper-inflation and an economic contraction? If crypto was functioning as deigned and as promised, it should be actually rising in the face of a currency debasement and market correction, not falling off a cliff at 3x the speed.
Where We Are Today
Maybe it's true that this time is different, or maybe it isn't. Of course, history never repeats itself but we all recognize that it does indeed rhyme. Perhaps we're at the bottom of this cycle, or maybe continuing a sustained move downward. It's impossible to know the short-term outlook for certain because the market is at it's foundational core represented by the combined "intellect" (and neurosis) of several billion self-interested parties of varying skills and intelligence, all trying to make the best decisions for themselves and their future, while also attempting to balance and control the only market emotions: fear and greed.
"The man of system…is apt to be very wise in his own conceit; and is often so enamored with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it… He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it." - Adam Smith, The Theory Of Moral Sentiments