“The Stock Market is a Device for Transferring Money from the Impatient to the Patient.” – Warren Buffet
There are always reasons to be pessimistic. There are always reasons to be concerned. That’s why we keep our investments, keep our strategies sound and we stick with it.
While we’re seeing inflation soar, gas prices rise, and a war rage on between the Ukraine and Russia, we must remain focused through the uncertainty. The reason why we have investments is because we believe that in the future it will be higher. We don’t know exactly when that will be, but a good guess is that now is the low and we’ll be happy in the future.
Let’s take a look at what we’re seeing in the current state of affairs and what it truly means for our investments.
Hi there. Mike Brady with Generosity Wealth Management, a comprehensive, full-service financial services firm headquartered here in Boulder, Colorado.
With today’s technology you never know if this is a backdrop or if it’s reality. And I’m just telling you it’s real. I’m out here in the gardens of my building. A beautiful spring day and I want to share it with you and I’m hoping that you’re enjoying the spring weather we’ve been having as well.
For the past year gas prices have steadily increased and they might go up more—I’m not really sure with the energy through Russia and Ukraine and some of the supply problems we’ve had there. We’ve got inflation. Twelve months ago we started talking about it. It has steadily increased. Now it is at the high in the last 30 to 40 years. We’ve got the worst start to the unmanaged stock market index, the S&P 500, in almost 50 years. There’s lots of reasons to be pessimistic if you allow yourself to be pessimistic. And, we’ve got continued from the pandemic supply chain issues. What does this all mean?
One thing that I like to think about, and I believe that you should as well, is what’s the long term impact of some of the changes that happen. We’ve had globalization now for many decades and I continue to think that’s a good thing. It’s not perfect. It’s not a panacea. I think that’s one of the things that we’re finding out is just because you do business with a country like Russia, it doesn’t mean that they won’t invade you or they might invade another country, one of your allies, that puts you at odds. We are interconnected which is both good and bad. So, there’s no absolutes in this. There’s a spectrum that is continually being negotiated between countries and the world and the economy. Things are complex.
The older I get, that is one of the messages and one of the things that I’ve learned is that it’s not if A, than B. It’s A plus B plus C plus all these things and then I might have an output of X, Y or Z. There are many things that contribute to an ultimate equation, to the solution, to the output. And we have to always remember that. Things are not simple. Things can be complex, and so we take that humility of not knowing exactly what the future holds into the decisions that we make.
I remember back in the 1990s. This is before I owned my house and I was in my 20s. Listening to this older couple – of course this old couple were in their 40s – younger than I am right now. And they said, “Oh no, we rent here in Boulder because it’s so expensive. We think that it’s real high in the market. We’d be crazy to buy a house here in Boulder.” Really? What do any of you who have property think of that decision. Not very long sighted. Not very forward thinking. I remember when I bought my house that I’ve lived in for the last 22 ½ years. I bought it in 2000 which was pretty much the high of the tech bubble. I remember people saying, “Oh my god, housing is at a bubble and you’re kind of a fool for having bought it.” Since then it’s doubled, it’s tripled depending on what source you want to go to, and I’ve lived in it the entire time. I love my house. I’m probably going to die in in hopefully many decades from now and it’s served my purposes.
Just yesterday I was talking with someone who’s considering real estate again and they said, “Well, should I really buy because it’s really at a high.” Well, it is at a high from where it was one year ago, five years ago, ten years ago. When we look back 10 and 20 years from now are we going to say that it was at a high now? Most people would say no. I’ll bet if you really think to yourself wow, if I have a 10 or 20 or 30 year house that I’m going to live in or rent out, it’s probably now might be the low.
Let’s take that into investments. It’s the same concept. When you have a diversified portfolio, and I’m going to put up on the screen some bar graphs that you’ve seen before, that a diversified portfolio of 50 percent of diversified unmanaged stock market index, and 50 percent of a bond index diversified, there’s actually never been a five year time horizon going back to 1950. One hundred percent of the time it has at least broken even or made money over a five year time horizon. The next five years could absolutely be different. Frankly, it’s still something that I believe is important for me to think that I’m making a bet. That’s why I have investments that five years from now, now might be the low in the markets.
I said two years ago when the markets went down significantly that I thought it was an oversold position and we might, for the rest of this year, the markets as an unmanaged index might still be down. It might happen, absolutely. It could even be in the next two years, but that’s why we always have to have a time horizon of, you know what, it might be high right now, it might feel that way. It’s definitely lower than where it was four months ago. That’s the reality. But it’s higher than where it was a year ago, five years ago, ten years ago, 20, 30. Going forward nine months from now it could be lower. Two years from now it could be lower. It could be lower – there’s no guarantees – anytime in the future.
However, the reason why we have investments is because we believe that in the future it will be higher. We don’t know exactly when that will be, but I would guess that now is the low and we’ll be happy in the future. Even though the ride, the fun of seeing it go up every single month isn’t there and it stinks along the way, that’s the reason why you don’t look at it every day, every week or even every month. That’s why you’ve got to string these things together.
There are reasons to be pessimistic. There are reasons that I’m concerned. I’m not going to lie. If the Fed doesn’t get this inflation, these numbers, under control that will be bad for the economy. That will not be good. You know what? We have recessions periodically. That’s why we keep our investments, keep our strategies sound and we stick with it. That’s what we do here as well.
Mike Brady, Generosity Wealth Management. Give me a call at any time, 303-747-6455. You have a wonderful day, week, month and let’s make it a great year. Bye-bye.