Investors Are Nervous, Should They Be?

23:08Do you think it's a bit more robust now with more people in?

23:12Ben Carlson:I think that could be the case where there's more households who are tied to it and people have also studied market history. You've seen it a lot. I mean, people have been pounded on the head for years and years now of, hey, you don't run out of the store when things go on sale, right? When stocks fall, obviously people are still going to panic and there's going to be forced sellers. If you took too much leverage and you're going to be a forced seller because you get a margin call, then there's nothing you can do about that. But I do think people have kind of learned their lesson. And we've seen it this decade alone.

23:40Ben Carlson:Anytime stocks have fallen hard, money is rushed in, it hasn't rushed out the door. And so I do think that there is something to this fact that, yeah, there's just, and especially there's more retirement, you know, people in the US used to rely more on pensions, and now it's these automatic retirement savings vehicles. And the fact that people are putting that money in on a regular basis, again, without thinking about it, I do think that's had a really big impact on how the stock market functions. That wasn't like that in the past. Which then kind of leads me on to another, I guess, the question after that is almost like, if we do have some crashes in the future, I know it's almost impossible to predict, but do we think they're ever going to be as bad as what they were before?

24:20I mean, it's difficult, isn't it? Like the global financial crisis, it's not really going to happen again, that's quite an outlier. Like you said, the Great Depression was a serious outlier. Are we now going to enter the area of super quick dips, super quick market crashes, which very quickly correct. And like you said, policymakers instantly rushed to correct things and print money and put rates to zero. What does it mean for the future?

24:44Ben Carlson:I don't think that we've totally rooted out financial crises situations. There still could be banking crises or something. If you think about AI how tied into the economy it is. I think a huge slowdown in AI spending could actually lead to a minor recession. I think that wouldn't be a financial crisis-like situation unless things got really bad, I guess. But I think there's also this idea of the wealth effect where people are more comfortable spending money because their stock portfolio has gone up so much and their house is worth way more. So they kind of go, I don't really need to save as much because I made a bunch of money in the stock market.

25:23Ben Carlson:So I'm just going to keep spending it. So I do think there could be a reverse of that, where if we have a prolonged, more prolonged downturn and people start losing jobs, I think that's the thing we haven't seen this decade really. And you've seen the reason people have been comfortable rushing back into the stock market is because they still have a job. So the unemployment rate in the US has been below 5 % for really since the pandemic, that period ended. And so I think if people started losing their jobs and we had a real economic slowdown, I think that's when people might get a little nervous and say, all right, I can't afford to put more money in the stock market.

25:58Ben Carlson:And only certain people could. And I think that's when, and I don't know what the reaction function to that will be, because we haven't really had it in a long time. We haven't really had, I make this point a lot, we haven't had a real recession in the US since 2008. The one in COVID was a month or two long, but it wasn't a real economic cycle. We turned the economies off for a couple months and turned it back on. And so I don't know how people will react because it's been so long. You said during the briefing call that people see history often as like a checklist. And right now we're in the AI bubble, which is a bit like, looks similar to the dot-com bubble.

26:31What do you think the difference is between the AI bubble and the dot-com bubble?

26:36Ben Carlson:I think there are a lot of similarities, right? Of course, like anytime a new technological innovation comes along, people get super excited and extrapolate out of the future, right? And money pours in and you're getting all of that stuff. It's kind of like if it looks like a duck and smells like a duck, quacks like a duck. But I think the biggest difference now is just that these are the biggest, best companies in the world that are doing this, right? And it doesn't mean that they can't make mistakes and they can't go overboard. But in the dot-com bubble, a lot of these companies not only had no profits, they had no revenues.

27:10Ben Carlson:So the fact is that these companies are so, we're talking about these multi-trillion dollar companies now, right? NVIDIA and Microsoft, and they sure can make a misstep. But I think that's the thing that is different, is just that the quality of the companies that are leading the charge are much higher. And these companies are so huge that I think it does kind of make a difference. And there's probably a bigger margin of safety than there was back then. Yeah, it's an interesting one. You talk a lot in the book, it's quite interesting about how the market reacts. and the stock market versus the economy and what that was like.

27:46Even if you knew a recession was coming, if I told you that a recession could happen next year, how would investors even react to that? Or can they even do anything with that information?

27:56Ben Carlson:Timing a recession is hard. I think timing the stock market to a recession is even harder because the stock market is forward-looking. And that's the problem. So I looked at the numbers in my book a little bit. Like if you look at just the actual recession dates themselves, right? Like the actual, like this is what we call the recession started here and it ended here, which we don't really know until after the fact. These things are dated six months later or something. Like when did this – because economic data is hard to find in real time. The stock market during the recession is usually already rising because people have priced it in.

28:27Ben Carlson:The stock market already fell beforehand, and then it started rising. So I think, yeah, you could get the headlines to people. Hey, there's going to be a recession starting June 15th of 2027. I don't think – you could go to cash now, but I don't think you'd know when to get back in. And I certainly don't think you would know when to get out and time it perfectly. That's what makes it hard about recessions. It's funny, the stock market and profits tend to bottom before just about everything else. The unemployment rate is still rising, and that's what makes it hard as an investor because people are going, now this doesn't make any sense.

28:59Ben Carlson:This happened during COVID, remember? Things were getting worse. The case numbers were going up. The economy was getting worse. The unemployment was rising, and the stock market is rising. People are going, this makes zero sense. And the stock market was trying to look past these things. And that's what happens. And that's what makes it so challenging. Like we talked before about waiting for the dust to settle. Like that's not a coherent strategy because by the time the dust settles and it's in the headlines, it's already too late pretty much. Exactly. I was going to lead that on to, you touched on it recently as well, but we've also got a lot of new investors here in the UK and new members of the audience who are starting investing.

29:36And again, we've only been shaped by this most recent time period, which have been very favourable, excluding COVID, which is an extremely short dip. I think the market's averaged like 14 % for about a decade or something like that, at least the S &P 500. What would you say to those people who almost now don't believe that the market is going to crash or correct or just continues to go up? Because people, I think, are getting very, very confident.

30:01Ben Carlson:So I wrote my book kind of for two different people. And one of them was coming out of the 2008 financial crisis, people were like in the fetal position and like, I'm never taking risk again. And now that was the 2010s. 2020s is a complete opposite. It's, oh my gosh, risk is on all the time. Anytime the market falls, you mentioned it, we have a V-shaped rally. It comes roaring back. Like, why wouldn't I just keep investing? And to those people, I wanted to remind them that risk does exist in the markets. There are going to be bad times and it's going to happen. And volatility is the price of admission.

30:32Ben Carlson:And so it is a good reminder that you need to be prepared for those times and understand what kind of investor you are. And some people can handle the volatility, right? I think we've seen it with a lot of young people who invested early on in crypto. You've seen like 70 % to 80 % crashes. And a lot of those people actually held on and like, you know, great, good for you. Other people just don't have the ability to do that. So I think now is a great time to understand yourself as an investor because losing money is painful. Like seeing just, if you have this$100 ,000 portfolio and you wake up in two weeks and it's down to$60 ,000 and you go, oh my gosh, my money just got vaporized.

31:10Ben Carlson:Like that's a really hard thing to do. And, you know, I talk about it in the book a little bit. There's been studies done that people can like relive financial stress in their sleep. Like they have nightmares about losing money. And on the other side, the FOMO you get from missing out on making money. My favorite study on this is from Jason Zweig who said that the feeling you get like the brain – they've studied brain receptors of people. And the feeling you get from making money in the market is similar to people who are high on cocaine or morphine. Like that's the feeling people get when they have these periods.

31:44Ben Carlson:They're like, oh my gosh, this is glorious. It's never going to end. But then you need like another hit and another hit. And if it doesn't come, that's the problem. And so I think people just need to prepare themselves for, yes, the good times while they're here, enjoy them, but they do not last forever. Just talking about that, just trying to get people prepared. And I've said a lot, and you just mentioned it there about saying that you need to find out what kind of investor you are and trying to stick to a plan. Do you think you can actually do that without experiencing it? You know, everyone says, I guess it's that famous quote that we, you know, everyone's got a plan until they get punched in the face.

32:20do you think everyone needs to get punched in the face at some point in their investing career because everyone says oh i'm gonna still invest when they have a crash but i remember even this wasn't a crash ban obviously but 2022 was a horrible bear market lasted for a long time and i made lots of videos about it and i was investing the same every month but my comment section was filled with people saying oh it's gonna get worse and worse and worse and oh my god you don't know what's gonna happen next but do you think people need to feel that pain to actually learn a lesson because they can look back all the data like you've done.

32:50Ben Carlson:Yeah, it's way easier to look back historically and look at a chart and go, I would have bought Ben, right? So Fred Schwed, who had this really funny book called Where Are the Customers Yachts? He wrote it in like the 1930s. And he said, there are certain things that cannot be adequately explained to a virgin by words or pictures. And sometimes you have to experience it. I totally agree, yes. You have to be punched in the mouth. You have to lose money and understand what that feels like. because again, that losing money, there's this concept I talk about in the book called loss aversion where losses sting twice as bad as gains feel good.

33:22Ben Carlson:And that's why the emotions are always so heightened during a downturn. And the fact that we haven't had a real big one in a number of years and a lot of, there are new investors who haven't experienced one of those. I think that makes it even harder because you haven't had that experience. You haven't had, you haven't been toughened by it and calloused by it. And it is something that you have to go through that um and i think the experience is something that you know it's it's it's totally personal i definitely agree with you on that one i mean for me i'm definitely someone who needs to learn by experience my dad's always like you can do the easy way or the hard way i like the hard way i thought i could stop pick i i burned myself i thought i could get away with being troubled at school i got in trouble so it's like some of us just need to experience the loss or the pain to be like okay i don't want to do this anymore i never want to feel like that again let me try something else.

34:11Yeah.

34:11Ben Carlson:And I think that the thing I point I try to make in the book is that there's no like right one right or wrong way for everyone to invest. The point is, you have to find what works for you. And a lot of times find what doesn't work for you. I was the same way. I thought I'm going to be the next Warren Buffett. I'm going to be all the Benjamin Graham books. I'm going to be the greatest stockbroker in the world. And I realized like immediately, I'm not good at this. I don't have the temperament for it. I don't really want to study the financial statements of these companies and understand them. And it's just it's not for me.

34:37Ben Carlson:Some people are really good at that. I am not. And I think that's what good investing is about, figuring out what you're not good at. Yeah, I know you've talked about it a lot, about the fact that investing isn't like an intellectual challenge. It's more about, you know, a behavioral one. What do you think, I guess it's probably going to be an easy one to answer, but how much do you think our own decisions affect, you know, compared with what the market actually does and how much is on ourselves rather than what happens in the markets. Well, yeah, the hard part is like, it's really easy to see problems with other people and biases and other people.

35:10Ben Carlson:But I think the biggest one is like, everyone has a blind spot to their own biases. And some I was asked a couple weeks ago, like, what's the biggest behavioral bias for all investors? And I said that the biggest one is the one you don't see everyone has it like some people, like they're really bad at FOMO. And during a bull market, they get too amped up and they go too crazy. And that hurts them. Other people, they're way too conservative. And they never want to be investing because they're always worried that what's going to come around the next corner is going to get them. And so I think it's really about understanding, like, what is the lesser version of yourself that's going to cause you pain in the markets, and then trying to figure out a way to build a portfolio that can get you through that.

35:45Ben Carlson:Now, there's some people who just need to have a more conservative portfolio, because they understand, like, I can't handle the volatility, I need to be more conservative. So maybe they just need to save and invest more, or they need to, you know, lower their expectations. and so I think really it is about there's that there's not no there's no perfect portfolio for everyone it's the one that you can stick with that will also help you reach your goals. Do you think over time like especially now for investing has become psychologically harder just because we have we're so exposed to it we've got the market in our pockets and the phones back when I used to trade I would wake up in the middle of the night to go to the toilet look at my look at the price in the charts wake up in the morning look at the price in the charts Do you think that makes it so much harder because it's always inundated into our lives?

36:30Ben Carlson:Definitely. There's this phrase that all financial advisors tell their clients, and they say, just ignore the noise. And I say, that sounds like great advice like 30 years ago because it's impossible to ignore the noise now. You have alerts. You have 24-7, everything. So I think the thing you have to do now is find the right filter, and that includes filtering the sources of your information, like who you're listening to. Because if you want to find someone who is extremely bullish or extremely bearish or likes this stock or hates this stock, you can find it anywhere. Because there's so much news and analysis and opinions.

37:04Ben Carlson:And you can find someone who agrees. The confirmation bias is so much easier today to find someone who agrees with you or someone who disagrees with you. And, yeah, so I think you have to have the right filters in place to guide your actions because you're right. It's way harder to ignore anything these days. People say, like, I'll just ignore it. It's fine. You can't these days. You have to figure out a way to filter out, like, you know, does this actually matter to me or not? Like this news, sure, it's exciting, it's interesting, and maybe it's moving the market today. Is it going to matter in like a year or two years or 10 years?

37:35Ben Carlson:Probably not. It's funny, isn't it? I think this problem is going to remain the same and not get any better, unfortunately, just with 24-hour news media coming markets. And like I said, I've had at least 10 notifications on my phone to do with markets. But how you react to it, obviously, is the most important thing. Like you said, filters, I think, is a good thing to put in place. um is the whole point of diversification that it should feel uncomfortable that if your portfolio always feels good you're probably doing it wrong yeah i think if you're constantly chasing just the best performers eventually you're gonna end up sad because nothing works always in forever and the whole idea i talk about in the book and i stole this line from my friend brian portnell he said being diversified means always saying you're saying you're sorry about something right there's something in your portfolio that you go man why do i own any of that or i wish i owned more of this and I view diversification as like you're giving up on the ability to hit a home run but you're avoiding striking out and I think if you are going to be concentrated in your strategy I think you just have to have like an iron will and the discipline to stick with it because you are going to go through a period where you're going to have some really poor performance and something is going to really sting and I think that's I don't think a lot of people have the temperament to stick with something when it's not working it feels great when it is working right I'm going to pile onto the parts of the market that are only doing good.

38:51Ben Carlson:And I'm going to base my entire investment philosophy off of what's done the best over the last one, three or five years or something. That's the kind of strategy that works until it really doesn't work. And I think that's the kind of thing you have to prepare yourself for. And again, I think diversification also is a little bit of an aggressive strategy because it can help you find areas of the market that are winning that no one expected them to. Like I said, these other countries that are doing really well from AI that no one could have possibly predicted in advance. You spent a long time, spent years working with ballers, incredibly wealthy people.

39:25What has surprised you most about what you've learned about what money can do and what money can't do?

39:32Ben Carlson:So there's this line from a guy named Nick Murray, who's like an advisor to advisors. And he says, if you're still worried, you aren't wealthy. And what I find is that there's still a lot of really wealthy people, objectively wealthy, worth five, seven, 10,$20 million who still worry about their money. And you almost have to kind of want to shake them by the shoulders and go, listen, you won. You won the game. It's okay. And the most surprising thing is that there's a lot of wealthy people who will not spend their money. They won't enjoy it. And it's kind of like, what did you, you did the whole thing where you delayed the gratification, right, you saved and invested for years and years and years.

40:08Ben Carlson:And then it's hard for them to flip the switch and go from saver and frugal person to now I'm going to be a spender. and that was a big surprise to me. I thought, no, it's easy. Once you have money, you spend it, but they don't want to see the number go down. Like the number is like a status symbol for them. It's not like cars and houses. Like that stuff is great, but for some people, it's I can't see my portfolio go down below this level. And it's like, well, why not? Isn't that the point of it? You save the money so they want to like live off the interest and never touch the principle. And it's interesting to see that the worries definitely change when you have a lot of money.

40:45Ben Carlson:Like you're way more comfortable, obviously. You know, the little things don't bother you as much anymore. But the big thing is that it's still not like it just relieves all stress in your life. It just, it changes shapes. Leading on from that, has that affected the way you look at money in your own investments? Like, you know, a number, a goal, a target, or does that change the way you think about things? It has. And I think it's made me realize like, you know, you should, and I've seen these other stories where people toil away and save and they build a business for 30 years We had one guy who built a business and sold it for nine figures.

41:18Ben Carlson:And literally a week after he sold his business, signed the paperwork, he dropped dead. And that's not the first story that I've seen like that where someone spends their whole life and then their health goes. And so I think it's opened my eyes to the fact that I need to have more balance. And I can't just be saving and putting away every single penny because it's going to compound in 30 years to this. Like you have to enjoy some of your time now as well, especially while you have the time and you have the health. Yeah, absolutely. You've probably read Bill Perkins' book, Die With Zero. Did you share that rough philosophy then, trying to make the most of the health you have now and spending that money on experiences rather than saving this magic amount of money for a time that may not be around?

42:00Ben Carlson:I like his idea. I don't agree with everything he says. The message definitely resonated with me when I read it, though. And I think a lot of people who are wealthy need to hear that message. And I love his idea that he says, like, your net worth should peak in your 50s. And for some people, that's like, oh, my gosh, no way. That's a peak. The day I retire, that's going to be the highest level ever. And it can never go down. And so I do think a lot of his stuff that he says really – and his whole point is, yeah, like, do the big thing while you can still enjoy it. Don't wait till you're 80 years old and your body gives out and you can't enjoy your time anymore.

42:33Yeah, 100%. Why do you think humans are so bad at realizing when we have enough?

42:39Ben Carlson:I think it's honestly one of the great things for us as a species and a terrible thing for us as an individual. Because as a species, it kind of keeps us going. The goalposts are always moving. If I just make this much money, I'll be happy. If my portfolio hits this level, I'll be happy. And then you get there and realize like, oh no, nothing changed. I'm just, now the number just goes up. And I think as a species, it's good for us because no one is ever really content, right? And we're constantly pushing forward and trying new things. And you see this with all the really, really wealthy people.

43:09Ben Carlson:It's like, why are you not just on an island somewhere sipping Mai Tais with an umbrella in your drink? Instead, you're building more businesses. And so I think for us as a species, it pushes us forward. As an individual household level, it probably makes way too many of us miserable because we can't find content. And I always tell people, like, don't worry about finding happiness. Worry about just being content with what you have and being grateful. And I think the way that I've always tried to do this is comparing myself to my previous self, not other people. Right. Like 10 years ago, did I think I'd be in this position that I have this much money or that I'd be doing this?

43:43Ben Carlson:And and, you know, when I first started my career, did I think I'd be in this place? And those kind of things like you look at yourself and your own mile markers and go, oh, yeah, that's right. I have I think that's a good way to stay grounded and grateful. Yeah. We always tend to forget our goals and when we achieve them. But yeah, that's a great point. I've got a selfish one. I'm a little bit selfish. I mean, it's my podcast. I can be selfish. I've got a three-year-old son. And I mean, I guess if you could tell you, do you have children? I have, yes. I have three children, a little older than you.

44:10Ben Carlson:I got twins that are nine and a 12-year-old daughter is my oldest. Wow. If you could tell your children one piece of advice, financial advice, what would it be? Oh, that's a great one. It's funny. My biggest one is always my number one personal finance advice is just never hold a credit card balance. That's like an easy one. Like never, never pay it off your credit card every month. That's the one that my dad instilled in me. It's like the only piece of financial advice my dad ever gave me. He said, just don't ever let your credit card balance roll over for one month to the next. Just pay it off every month.

44:39Ben Carlson:And that's like the number, his number one personal finance goal. Um, I guess what I would tell them is, especially when you're young, um, it, it just, it helps personal finance is so much more important than so many other topics. And I think just understanding the the ideas behind saving and investing and and in budgeting and understanding your money and where it goes um i think a lot of people don't understand that stuff until it's too late and i think understanding that from a young age is really helpful i will try to get that i will try to instill those values and then we'll see if they listen to me i don't i can't promise that they'll listen when's a good time to start what's a good age it's three too early because i've been trying to get him into investing and he's like i want to watch peppa pig and like Paw Patrol, what are you talking about?

45:23Ben Carlson:Yeah, I try to do like a, I'm the bank. And hey, if you guys put money into your investment accounts that I set up for you, I'll match your money or something. And they don't care yet. So I'm gonna have to wait till the teenagers probably. It's a difficult one. And then just kind of on a general question, I mean, we talked about a lot about recessions and crashes and all these things. But after everything you've learned about the markets and research, would you say you're more optimistic today than you have been? It's interesting. I heard this interview last week with a historian who said that studying history has to make you optimistic.

45:56Ben Carlson:Because if you study history, you understand all these stupid mistakes that we've made. There's so many mistakes and things that we've done wrong. And we've still come out okay. And that's the point. We're going to make mistakes. Things are going to go wrong. And yeah, I am naturally, I think, a glass is half full optimistic person. I think if you're not at least a little optimistic, you have to be kind of optimistic to invest for the future. like if you're not optimistic that tomorrow is going to be better than today or 30 years is going to be better than today like why are you investing in the first place what's the what's the point so yes i i do think that studying history is a good way to understand that man we've been through a lot like there's a lot of bad stuff that has happened way worse than today and we've made it through and i think that's like the power of the human spirit and we've been through a lot just this decade alone with the pandemic and everything that's happened and inflation and all these things like it's been a really crazy decade and we've come out okay so far yeah just got to have that long-term mentality and stop thinking short-term but we're still trying to work on that from us within the uk but um it's hard yeah thanks ben thanks so much really appreciate your time no this was great i didn't you guys didn't even buzz me once so um uh i appreciate it it's all good thank you yeah the book's great obviously i love your blog anyway so uh keep doing keep fighting the good fight thanks guys awesome you're the man thanks thank you so much

47:14so Toby we had Ben in the building well on on the Zoom we did we had him on screen yeah I was really interested to talk to Ben because I've actually followed his blog for quite a long time and actually used a lot of his research in my videos and read his recent book so I was really interested to get his insight the guy is so knowledgeable all the previous crashes we've had and so much knowledge and advice to to come from him so it's well worth that watching that episode yeah and I will not try to time the market it normally this is where we'd say this isn't financial advice and it really isn't but if you want to speak to a good financial advisor then we might be able to help we've partnered with a few advisors to offer a range of services from one-off flat fee guidance to ongoing advice i'm actually using the guidance service to sort out my finances if you'd like to understand your options there's a link in the description where you can answer a few questions and then book a free call with my colleague Will so you can figure out what might be right for you.

48:05This episode was produced by Ruth Edwards and it was filmed and edited by Ben and Jack at Flow Spire. See you next week.