Considerations, December, 2019
A Decadal Change
A clear-headed, open-hearted, carefully examined, and historically relevant assessment would be ideal. But our attention spans seem increasingly short (except for Netflix binges). Multiple distractions abound. Your phone pings for your attention. Busy-ness and impatience seem quite the norm.
This exposes us to two biases: recency and confirmation. Recency bias means we overweight whatever is happening right now. Confirmation bias is when we quickly accept that which agrees with our pre-existing beliefs. Neither serve us well.
So, in the spirit of brevity-- because I know you have a lot of shopping to do-- here are the key take-aways for the next decade:
> Every decade has its unique qualities and hallmarks. No decade looks quite like the last one. *
> Expect the 2020’s to be volatile, uncertain, complex, and ambiguous. Be ready to adapt. *
> Time-tested principles, evidence-based strategies, and discipline will carry you through. *
This applies everywhere-- to our physicality, relationships, and “the world out there”—as well as to our personal finances.
*All the reference resources that led me to this are listed below.
Maybe you had just graduated college. Or had become established in a career. Or changed careers. Or got married. Or divorced. Or got a diagnosis. Or retired. It all matters in the arc of your life.
The next ten years will bring new challenges and changes. So, here’s a question to ponder during this last month of the 2010’s:
What can I do now-- that my future self or family will thank me for-- ten years from now?
As Sam Altman wrote, “The days are long and the decades are short.”
May you have a Joyful Holiday Season and Flourish in the New Year!
Reference resources are in alphabetic order by title.
All-Time Highs Are Both Scary and Normal
Every decade except the 30’s and 40’s has had new all-time highs. Chances are, the 2020’s will too.
https://awealthofcommonsense.com/2019/11/all-time-highs-are-both-scary-normal/
Avoid News: Towards a Healthy News Diet
This is the antidote to news. It’s 11 pages and you probably won’t be able to skim it. Once you’ve weaned yourself from “the news,” you’ll have time for in-depth, long-form reflection.
https://www.gwern.net/docs/culture/2010-dobelli.pdf
Bull Markets Last Much Longer than You ThinkIt’s quite unrealistic to think we can draw conclusions about a future based on the recent past.
https://awealthofcommonsense.com/2019/12/bull-markets-last-much-longer-than-you-think/
Callan Periodic Table of Investment Returns
This is a graphical depiction of annual returns for various asset classes, ranked from best to worst from 1999-2018. The key point is that no one asset class consistently dominates or lags. Strategic diversity matters.
https://www.callan.com/wp-content/uploads/2019/03/Classic-Periodic-Table-2019.pdf
Common Plots of Economic History
There are five of them.
https://www.collaborativefund.com/blog/common-plots-of-economic-history/
Dow by Decade
A table shows that only two decades out of the last 12 have had a negative return. In retrospect, those two decades were “back up the truck” buying opportunities. Really good decades, like we’ve just had, are often followed by mediocre ones. Go figure.
http://www.crossingwallstreet.com/archives/2019/11/dow-by-decade.html
Global Debt
Global debt has grown by nearly 5% annually for at least the past 20 years, outpacing global GDP. When does this become unsustainable? No one knows.
https://www.cnbc.com/2019/11/15/global-debt-surged-to-a-record-250-trillion-in-the-first-half-of-2019-led-by-the-us-and-china.html
Paradigm Shift
This long (45 page) essay by Ray Dalio is a key reference for this Considerations. Dalio challenges us to identify the paradigm we’re in, examine if and how it is unsustainable, and visualize how a paradigm shift might transpire when that which is unsustainable stops.
Further, he reminds us that theories about how to invest usually explain how the past few years made sense. These backward-looking theories typically were strongest at the end of a period and proved to be terrible guides for the future. The worst thing one can do is build a portfolio based on what worked well over the last 10 years.
https://economicprinciples.org/downloads/Paradigm-Shifts.pdf
Silicon Valley Economy
In the last decade, Silicon Valley has outpaced every other major region in gross domestic product growth. It’s become one of the most expensive places to live. A “gold rush.” What’s next?
https://sanjosespotlight.com/silicon-valley-economy-frothy-and-facing-headwinds-says-market-expert/
San Jose is now one of the most “unequal” cities in America.
https://www.nytimes.com/2019/12/02/upshot/wealth-poverty-divide-american-cities.html
Stock Market Returns Across Decades
Markets rarely match up well with fundamentals. The 1940s saw exceptional earnings growth combined with a 5% dividend yield but investors were still scarred from the Great Depression. Massive repricing occurred in the 1980s and 1990s. The 2000s saw corrections in terms of both fundamentals and sentiment. Dividend yields are lower now than they were in the past, and earnings growth is unsustainable at current rates. Exceptional recent growth contributes to the controversy surrounding equality, mobility, and opportunity. Returns should be lower over the next decade, but no one can predict whether that will be today, tomorrow, or 10 years from now. https://awealthofcommonsense.com/2019/12/where-have-all-the-stock-market-returns-come-from-this-decade/
“The days are long but the decades are short.”
Sam Altman, age 34, re-discovers what those of us with a few more years under our belt have learned. The kids are OK.
https://blog.samaltman.com/the-days-are-long-but-the-decades-are-short
Three Big Things: The Most Important Forces Shaping the World
Demographics, inequality, and access to information changes everything.
https://www.collaborativefund.com/blog/three-big-things-the-most-important-forces-shaping-the-world/
Visual History of the S&P500
This is a great illustration of how “the top companies” come and go. Over any ten-year period, about half of the Top 10 companies on the S&P500 change.
https://etfdb.com/history-of-the-s-and-p-500/#2009
Now take a look at the current list and ask, who will still be here ten years from now?
https://www.slickcharts.com/sp500
VUCA 2.0: Volatile, Uncertain, Complex, Ambiguous
Those are the key words people at the Harvard Business School are using to describe the world for future business leaders.
https://www.forbes.com/sites/hbsworkingknowledge/2017/02/17/vuca-2-0-a-strategy-for-steady-leadership-in-an-unsteady-world/#371c633613d8
