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 Economist recently 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. 


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  • Report this Comment On September 12, 2013, at 11:27 PM, MAACPRIME wrote:

    I think No. 40 was Paul Getty not John R.

  • Report this Comment On September 13, 2013, at 7:07 AM, TMFHousel wrote:

    Maacrime, thanks. My source was the book Family Fortunes, but I always thought it was curious since Rockefeller was in the refinery business, not oil exploration.

  • Report this Comment On September 13, 2013, at 11:15 AM, Tomohawk52 wrote:

    I hear a lot about #4, but I think this sort of stat needs to be taken with a least a grain of salt. What happens when you subtract out those people who get degrees which are a requirement for the job they have? What is the differential then? If you have two bank tellers, for example, and one has a degree in say sociology and the other has no degree, is there enough difference in their career and income trajectories to compensate for the costs (both monetary and opportunity) of getting the degree?

  • Report this Comment On September 13, 2013, at 11:17 AM, jboyce6521 wrote:

    #4 - While it does not change the long term difference in wages, you present the figure of $12,800 in considering the benefits of a college degree. This does not present the actual 4 year cost of getting a degree - the loan balance is not the toeal cost

  • Report this Comment On September 13, 2013, at 11:19 AM, TMFHousel wrote:
  • Report this Comment On September 13, 2013, at 11:21 AM, TMFHousel wrote:

    jboyce,

    Fair -- but the debate on the value of education nearly always focuses on whether taking on a corresponding debt load is worth it. Average annual cost of public 4-year school including room and board is $15,600, implying a roughly 4-year payoff given the average wage differential.

    http://nces.ed.gov/fastfacts/display.asp?id=76

  • Report this Comment On September 13, 2013, at 1:10 PM, CashRulez wrote:

    Wow.....not to act like a groupie but your columns are simply amazing Housel. Reading them makes me think differently and I always look forward to the next one.

  • Report this Comment On September 13, 2013, at 1:21 PM, ejazz2095 wrote:

    The last sentence in Buffet's quote in comment #6 can apply to comment #1. Everyone can invest, just because you're educated about it doesn't mean you will.

  • Report this Comment On September 13, 2013, at 2:01 PM, famiglia112 wrote:

    >#34

    >worth its weight in gold in investing

    >gold in investing

    >gold

    Perhaps "a productive asset" may have been a better choice.

  • Report this Comment On September 13, 2013, at 4:10 PM, kyleleeh wrote:

    << Average annual cost of public 4-year school including room and board is $15,600, implying a roughly 4-year payoff given the average wage differential. >>

    Even less if you do your lower division courses at a community college.

  • Report this Comment On September 13, 2013, at 4:22 PM, SkepikI wrote:

    ^ excellent advice, Kyleleeh. And even less (to the student) if you work as hard at getting scholarships as you do at sports, shopping, ________ (write in your favorite activity here)

  • Report this Comment On September 13, 2013, at 5:05 PM, JamesBrown wrote:

    Love these articles, Morgan. Please keep them coming.

  • Report this Comment On September 13, 2013, at 5:42 PM, Sotograndeman wrote:

    No 32 "It can't be understated how important this is."

    Presume OVERstated.

  • Report this Comment On September 13, 2013, at 6:44 PM, ponysean wrote:

    "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."

    How do I invest in this?

  • Report this Comment On September 13, 2013, at 6:56 PM, TMFHousel wrote:

    sotograndeman,

    Overstated, yes. Should be fixed soon. Thanks for pointing it out.

  • Report this Comment On September 13, 2013, at 6:59 PM, simpletonbob wrote:

    Tom and David, Whatever you're paying Housel is not enough. Always insightful and thought provoking.

  • Report this Comment On September 13, 2013, at 7:02 PM, TMFHousel wrote:

    ^ I'll forward that on :)

  • Report this Comment On September 13, 2013, at 10:22 PM, eistha wrote:

    Great post!! I especially liked the ones about apple growing 9000% while declining on 48% of the trading days and that trading only makes the brokers richer.

  • Report this Comment On September 13, 2013, at 11:17 PM, mgmt06 wrote:

    Great article! Very insightful. My only question is the point on average student debt. I showed that to my group of friends and co-workers who are all university graduates. They had an student debt ranging from 20k to 120k (law school debt). They found it hard to believe that the student debt average was so low. Are you sure on that statistic?

  • Report this Comment On September 13, 2013, at 11:18 PM, lsbattista wrote:

    EXCELLENT article!!! Yes and yes, on making financial education a requirement in our Secondary Educational system! When I talk to friends, relatives and co-workers (with degrees and without!) about general financial topics or the stock market, I get these two reactions: either financial disinterest and/or fear of the stock market. I think, likely, the result of financial illiteracy. Every adult will participate in our economy: as entrepreneurs, employers, employees and as consumers, but, may have little to no knowledge of personal finance and investing. It is amazing to me how most people don't know and apparently don't care to know. This needs to change. Thank you Motley Fool for what has been described as an "Investor University." You make investing interesting and fun! Have you ever thought about starting a Motley Fool pro-bono program devoted to financial education as part of a National Math education curriculum? Talk about "disrupting" markets! Our country's Math curriculum should absolutely include financial literacy! How about Motley Fool analysts being Keynote speakers at the High School level with content driven, interesting, engaging and entertaining presentations? With educational materials/resources/ and a MF follow-up program to be implemented by Math teachers? Or what about a Personal Finance/Investing "Teach America" program focused with Finance Grad Students as the instructors? Something to think about...if you are not already thinking about it!

  • Report this Comment On September 14, 2013, at 1:56 AM, enginear wrote:

    I'm 60, but not a bond fund manager. There are a few of us that do remember rising rates. (My sister got 15% CD's from a bank in those days - for 5 years in the early Reagan term!). I'm sure there are fund managers that remember too.

    I'd like to add that over the course of 35 or so years investing, I have gotten better at it... I now do much more of nothing (#38). In fact many of these things 'just make sense', when they didn't always before. Its a long road to real understanding.

    My big question is: what makes some people start (investing) and others never (their entire life) get started?

  • Report this Comment On September 14, 2013, at 7:29 AM, Sotograndeman wrote:

    These soundbites appear seductive on the surface, but I'd urge caution in taking them at face value. If only life or investing could be so simplistically captured. There's no free lunch.

    Let me try to illustrate:

    "38. "Do nothing" are the two most powerful and underused words in investing."

    Wrong. There are several situations where we DO need to act - the 4 most discussed by value investors being (a) if we realize we've made an error; (b) if a stock reaches intrinsic value; (c) if the investment case changes for the worse; (d) if we find better investment. Failing to act in those situations would be detrimental.

    Furthermore, following Graham, Buffett and Klarman, the most important words in investing are Margin of Safety. Without it, an investment becomes a gamble and "Do nothing" becomes irrelevant.

    But wait, didn't we just get bombarded with news that the great fool leader Tom G has liquidated his entire portfolio? Why did he not "Do nothing"? :-)

    TMF is at its best when reminding us of the great wisdom of Buffett, Munger et al. Reading and re-reading Chapters 8 & 20 of The Intelligent Investor, as advised by Buffett, or Howard Marks' book The Most Important Thing, until they really become part of our investing DNA would benefit us more than digesting 43 soundbites with breakfast.

    Learning how to value companies and buying at a price which provides a margin of safety is the indispensible base for investing. Most who 'invest' cannot do this and are bound to fail. TMF is no exception. Just read some of the simplistic and often conflicting nonsense they publish on a daily basis.

    "Everything should be made as simple as possible, but not simpler." Albert Einstein

    "None of this is easy, and anyone who thinks it's easy is stupid." Charlie Munger

    "Not only do I not want to simplify investing, I want to show how not simple it is." Howard Marks

  • Report this Comment On September 14, 2013, at 10:47 AM, engr41 wrote:

    Overall, an excellent article. However, re: college vs hs education, don't distort reality by 'selective' math. While the college student is spending $$, the hs student is making $$. Thus, even discounting salary or wage increases, breakeven is more in the 12 year range, not 4.

  • Report this Comment On September 14, 2013, at 11:47 AM, TMFHousel wrote:

    engr41,

    <<don't distort reality by 'selective' math. While the college student is spending $$, the hs student is making $$.>>

    For the curious:

    "71 percent of the nation's 19.7 million college undergraduates were working in 2011. Of that number, one in five undergrads were working at least 35 hours a week year-round. Among undergrads who weren't full-time workers, more than half of them clocked in more than 20 hours a week ... In comparison to college students, high schoolers were slackers. Seventy one percent of the country's 11.1 million high school students were not working in 2011. Of those teenagers who worked, 1.5 million worked 13 weeks or less and 70 percent of them worked less than 20 hours a week."

    http://www.cbsnews.com/8301-505145_162-57565975/more-student...

  • Report this Comment On September 14, 2013, at 2:29 PM, mikecart1 wrote:

    "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."

    ^This is something I do regularly no matter how boring and repetitive the info is. When you see a pattern, you finally get 'it' and can make a real investment decision that takes nearly all the luck out of the equation!

  • Report this Comment On September 14, 2013, at 2:32 PM, jboyce6521 wrote:

    One other thought on salary comparisons between high school and college degrees.

    I very rarely see any mention of trade schools [plumbers, welders, etc...] the demand is high and so are the salaries, but when I speak to co-workers, they wouldn't even consider having their children go in this direction.

  • Report this Comment On September 14, 2013, at 2:52 PM, mikecart1 wrote:

    Agree jboyce6521,

    Especially about welders. Every company I've worked for, welders are in high-demand. If you can weld, you can get paid - and paid a lot. When you factor in the ability to get in on overtime pay on big projects, welders can get pass 6 figures. Not too bad for someone that 'merely graduated high school'. But pro-college people don't see that or won't admit to that. Electricians, specialized technicians, and other specific skills that can be mastered without college also have the same opportunity.

  • Report this Comment On September 14, 2013, at 7:57 PM, terryongarland wrote:

    Referencing The Congressional Budget Office as a predictive source of debt to GDP in 42, is a stretch.I have been following the predictions of the CBO for a while,and the government bureaucrats always deliver the desired result of those in power.Invariably they are usually wrong...very wrong.

  • Report this Comment On September 15, 2013, at 10:32 AM, Mathman6577 wrote:

    # 32 is important but the % of people actually working is going down. That is equally important. The potential is there but we have to start implementing.

  • Report this Comment On September 16, 2013, at 5:33 AM, CraigWPowell wrote:

    #15 AAPL increased 9000% from 2009, but lost 48% last year. " It is never a straight path up".

    I sold AAPL last September per this signal:

    /iknowfirst/Apple-stock-forecast-12-months-predictions

  • Report this Comment On September 16, 2013, at 12:40 PM, Whitermco wrote:

    In item #1 Wells Fargo survey refers to "27% of millenials". What does this refer to? A millenial is a span of a thousand years.

  • Report this Comment On September 16, 2013, at 5:24 PM, miteycasey wrote:

    Please expand on #25 or point to a source where I can learn more.

  • Report this Comment On September 16, 2013, at 11:00 PM, mhayon wrote:

    "If all you have is a hammer, everything looks like a nail"

  • Report this Comment On September 16, 2013, at 11:02 PM, SkepikI wrote:

    <29. Ben Bernanke understands monetary policy better than you do. Please remember this when criticizing him.>

    Can't resist. Sez who besides Ben Bernanke and M. Housel? This same thing was said about Montagu Morgan and Benjamin Strong and a host of others in the last 100 years. Morgan might I suggest you read "Lords of Finance" or re-read it. The list of financial and economic wizards who "knew more about Monetary Policy" than you, me and the gods of fortune is very long. Also very wrong in 20-20 hindsight. Will Beneficial Ben be the first to beat the odds? One can hope, but the odds are long....

  • Report this Comment On September 16, 2013, at 11:27 PM, Thaeger wrote:

    <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.>

    A pessimist might remind us that in the long run, we are all dead.

  • Report this Comment On September 16, 2013, at 11:56 PM, astuber9 wrote:

    25. I can't figure this out either. I certainly hope you are right so all of our pay checks will grow.

  • Report this Comment On September 17, 2013, at 12:57 PM, Turfscape wrote:

    @Whitermco - Millennials refers to the generation following Generation X...the generation born in the time period straddling the turn of the millennium.

  • Report this Comment On September 20, 2013, at 5:51 PM, ynotc wrote:

    #4 if you took the total cost of tuition etc this would not look so good, especially in a society that thinks nothing of paying $80,000 for a english lit job.

    #42 while the CBO used to be nonpartisan and taken seriously there predictions are no more accurated than any other so called expert. For proof look at your own list which supplies examples from many well known individuals that were not accurate.

  • Report this Comment On September 20, 2013, at 6:08 PM, SH3 wrote:

    re 28: Facebook focuses on its customers like a hunter focuses on deer.

  • Report this Comment On September 21, 2013, at 2:13 PM, consc wrote:

    #4 kid who goes to college is on average smarter. Not forgetting also that time spent at college could have been spent earning.

  • Report this Comment On September 22, 2013, at 4:19 AM, BJonRob wrote:

    Fantastic article that should be required reading for all investors/traders. Read it twice! #18- I'm thinking "Austrians" can be open to flexible thinking! (sp. ck.)

  • Report this Comment On September 28, 2013, at 11:46 AM, 123spot wrote:

    1) jboyce and mikecart : re welding/plumbing/trades etc. My neighbors' son became a welder last year just out of HS (where he underperformed since he was going to be a welder and make lots of money, so why read silly assignments). My guess is he will follow the route of other single skill labor ears I have known. His body will be completely worn out and broken in many ways after a short career and he doesn't have the sense to save his money the few years he will really make a lot of it. He'll be on disability relying on a working wife by the time he is 50.

    2) Morgan, can you kindly provide the source for the Munger- if you're not confused...- quotation as I need it for a paper. Thanks, another good read.

    Spot

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