Hola compadres,

Someone I know said he’s been following the journal, said it’s pretty good. Coming from a guy that has a reputation for not reading much at all (a Cole’s notes type of guy) - that’s a huge compliment.

Below a good question from a reader on dealing with uncertainty in the investing world.

Have a great weekend.

Eddie

PS If you missed last weeks Journal, find it here or listen to a podcast version if you can’t read good:

A reply I got after the question: what part of investing feels least clear right now?

With so much uncertainty right now seemingly after years of more stability (less the COVID years), I think it’s difficult to understand what are the triggers/warning signs for which areas of the market will outperform at a time that it seems a lot of opportunity will arise - with reference to duration/severity and subsequent unwinding/reversal of current large macro factors - Iran and Ukraine wars, higher interest and deficits, currency debasements, AI ‘bubble’….

Max, thanks for the thoughtful reply. This is the hardest question in investing.

I would be wary of anyone who pretends they can call which areas of the market lead or lag as global macro (and local) economics fluctuate.

Wars, countries, presidents, left vs right, higher rates, inflation, deficits, debt, and AI, are so extraordinarily complex, both independent but all intertwined at the same time.

I like to think of the market as a sort of quantum-like organism except on a grander scale with human participants. In the quantum world, physicists know that the very act of observing a particle can change its state or location. What's more interesting, however, is that these physicits cannot explain why. It just does.

Markets are like that. You could have the most money and access to the best information, and yet still get smoked predicting short movements and timing the market.

A past client of mine when I used to manage money, a wealthy and smart individual, called me during Covid when the market was down 35%. Asked me to sell all his $5 million in equity. I advised against that, but end of the day, the client has the last word. Only 100 trading days later, the stock market was back at all time highs. Had he stayed invested, heck, had he bought more as we were advising as the stock market fell, his original $5 million would have been worth much more. Instead, he crystallized a multi million dollar loss with never a chance to regain that. Eventually, he bought back in at higher prices several months later.

Not just in the stock markets either…even in real estate land, I know a Canadian developer that was worth $150 million at his peak, then he round tripped to zero. This from a guy who had the best information and all the right contacts. But he overleveraged, mistimed a cycle, and poof.

So while it’s intellectually stimulating to stay current and have an opinion, I believe it’s mostly unwise to allow those opinions to infiltrate your investing, because emotion, ie fear and greed, will soon take over and lead to mistakes.

What I try to do instead is keep it simple and look to the 200 years of american capitalism and its resilience, innovation, and the survival of the fittest ideas.

The S&P500 is the stalwart, which historically returns 10% on average.

I know, I know…to buy the “index” sounds boring. And I think that’s a major reason why a lot of people don’t do it. They want excitement, they want to be able to talk about an idea of a cocktail party…it’s hard to blame them!

But if you step back and understand just how powerful at 10% return is, woah sister…you double your money every seven years.

Over a 40 year investing career, that is nearly 6 double doubles. I’ll do the math for you, $100,000 doubled six times turns into $6.4 million. All of a sudden the 10% return doesn’t sound that bad.

And did you know that of the top 10 companies 20 years ago only 10% of those are in the top 10 today? That is the beauty of index investing. They are self correcting in nature; it is all survival of the fittest.

If you prefer not to put all your eggs in the American basket, you could consider XWD, the MSCI World Stock Market Index, or something similar. Since 2009 this index has compounded at 13%.

There will be many small intra year declines, sometimes several years of setbacks too. But if you stay invested and contribute regularily, your overall return will likely converge toward that hallmark 10%.

The simplest strategy for me is to contribute as much as I can when I can, and over my expected life, the portfolio will likely do pretty darn good.

While that’s on autopilot, you can focus on your income, your family, or whatever it is that fills up your cup.

I've been tossing around the idea of putting together a small, live investing and personal finance course for readers of this journal.

Unlike my existing Simply Investing Masterclass, this would be more interactive. Perhaps 4-6 weeks, weekly online sessions, open discussions, questions, and some practical exercises.

The idea is to help people better understand their investments, make smarter financial decisions, and build confidence managing their money and planning for retirement.

I'm curious whether there's any appetite for something like this.

If that sounds interesting, just reply to this email and let me know. I'd also love to hear what topics you'd most want covered.

Nothing formal yet, just exploring the idea!

“Don't look for the needle in the haystack. Just buy the haystack!”

—John Bogle, founder of Vangaurd.

What keeps you up at night?