Menu
Investing
Date: September 23, 2020

What Got You Here, Won’t Get You There

I was reading a recently released book by Morgan Housel, a venture capitalist who writes one of my favorite blogs. I read this quote and it struck me as particularly timely:

“Your personal experiences with money make up maybe 0.0000001% of what’s happened in the world, but maybe 80% of how you think the world works.”

I share this because there are powerful secular trends that have allowed us to “sail downwind” since the early 1980s, including:

  1. Interest rates: This biggest influence I can think of is chronically falling interest rates. While we don’t know the exact limits of negative rates, I think it’s fair to say we’re near the end of this cycle (probably at the end in Europe and Japan). It’s a very high probability to say this tailwind will turn into neutral or a headwind over the next decade.
  2. Debt: We’ve increased debt virtually everywhere all over the world. Living on credit is fun/easy while you’re spending but is a headwind when you’re paying it down. The limits of debt levels are a lot more uncertain then the end of interest rate decreases, but I think it’s fair to say we’re much closer to the end than the beginning.
  3. Labor: We’ve seen labor’s power in the U.S. deteriorate consistently for 40 years. While great for corporate earnings, it sows the seeds of social unrest. We have inequality ratios in the U.S. that rival the late 1920s. Once again, the exact limit is unknown, but it’s easy to assume we’re much closer to the end than the beginning.
  4. Taxes: We’ve lowered taxes on corporations to a point that exacerbates the debt problem and is arguably unsustainable. Even before COVID-19, the U.S. government was running a deficit that was unheard of during economic expansions.

Despite stock valuations rising the last five years, we can see the effects of this less-friendly environment by looking at NIPA profits (a broad measure of U.S. corporate profits), which are virtually flat since 2015, even before COVID-19 hit us.

Hedge fund manager Chris Cole reminds us that, “A remarkable 91% of the price appreciation for a classic equity and bond portfolio (60/40) over the past 90 years come from just 22 years between 1984 and 2007.”

My point here is if you’re looking to your personal experience of the last couple of decades to draw investment lessons to guide your future, you’re likely to come up with sub-optimal lessons, and in some cases, the opposite conclusions that will be useful over the next 10 to 20 years.

Like a ship shifting from sailing downwind to into a headwind, the fundamentals of sailing don’t change but the optimal strategy does (tacking.)

 

Communications such as this are not impartial and are provided in connection with advertising and marketing. This material is not suggesting a specific course of action or any action at all. Prior to making any investment or financial decisions, an investor should seek individualized advice from a personal financial, insurance, legal or tax professional that takes into account all of the particular facts and circumstances of an investor’s own situation. No person associated with Money Coach is a licensed attorney or tax professional and the information contained herein should not be considered tax or legal advice.

Links to Third Party Content. This material contains links to articles or other information maintained by unrelated third parties. You acknowledge and agree to the following: All such information is provided solely for convenience purposes only because we believe that it may provide useful content. and all users thereof should be guided accordingly. We disclaim any responsibility for the link’s performance or interaction with your computer, its security and privacy policies and practices, and any consequences that may result from visiting it. We do not control the content published by the third-party; we do not guarantee any claims made on it, nor do we endorse its sponsor or any of the content, policies, activities, products or services offered by any advertiser on the site. Opus Wealth Management assumes no liability for any inaccuracies, errors or omissions in or from any data or other information provided by the third party and inclusion or reference by Opus Wealth Management to any third party link should not be construed by any consumer and/or prospective client as a solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

Opus Wealth Management and/or Loic LeMener offer Investment advisory and financial planning services through Belpointe Asset Management, LLC, 125 Greenwich Avenue, Greenwich, CT 06830 (“Belpointe), an investment adviser registered with the Securities and Exchange Commission (“SEC”). Registration with the SEC should not be construed to imply that the SEC has approved or endorsed qualifications or the services Belpointe Asset Management offers, or that or its personnel possess a particular level of skill, expertise or training. Insurance products are offered through Belpointe Insurance, LLC and Belpointe Specialty Insurance, LLC. Opus Wealth Management is not affiliated with Belpointe Asset Management, LLC. Additional information about Belpointe Asset Management and Loic LeMener is available on the SEC’s website at www.adviserinfo.sec.gov.

Loic LeMener
Author:

Loic LeMener

Loic LeMener, CFA®, MBA, CFP®, is the founder of Opus Wealth Management.