⁠Your Biggest Investment Risk Isn't The Market, It's You

29:23There are people who think that Bitcoin does it. I'm not convinced at all. Let's explore that a bit. So why aren't you convinced by Bitcoin? What don't you like about it? Because I've seen the movie and I know how it ends. I've read enough financial history that you see these enthusiasms where people think that the financial world has changed and this time it's different, and that they've discovered the financial equivalent of the fountain of youth. And you see it invariably ends badly. And there are certain sociological markers that you see all over the place with crypto. There's a famous quote, which is probably a bit apocryphal, from Joseph P.

30:04Kennedy, where he said he knew to sell at the top in 1929 when the shoeshine boys started offering him tips on stocks. Well, what you see now is you can't get into a Lyft or an Uber cab and about one out of three of your Lyft drivers are investing in crypto. That's a bad sign, okay? When people quit well-paying professions to speculate and day trade in an asset, that's always a bad sign. I'm overseeing that with crypto. There's a third thing that you see as well, which isn't as well remarked upon, which is that when you express skepticism, you're not met just with disagreement, but you're met with outright hostility.

30:44And I can remember, for example, back in the 90s when you expressed, when somebody would express skepticism about Internet stocks, that they weren't just told they were wrong. They were told they were idiots and they just didn't get it. You just don't get it was the classic response. response. So we're certainly seeing that with crypto as well. And the final thing is when you see extreme projections, when you see extreme predictions. So crypto, you know, Bitcoin isn't just going to go to, you know,$200 ,000 or a half million dollars. It's going to go to$5 million. It's going to replace gold. When you see those sorts of extreme predictions, you know that you're headed for trouble.

31:21We're seeing all four of those things. Does that absolutely predict disaster for crypto? No, but I sure wouldn't be betting the farm on it. He just broke T's heart. I was like, how do I come back at this without aggression? You're an idiot. Lies. You can call me an idiot and then you'll prove my point. He's putting me against the wall. Checkmate. However, I definitely agree with some of the points you made, but it seems that every four years or whenever we're in the bull run, that's when you hear Lyft drivers talking about it and Uber drivers and you see on the news, oh, Bitcoin will be 500 ,000 by December.

31:56However, once the market crashes in the four-year cycle, I don't know if it's going to happen again, but every time the market crashes, no one talks about it again for another three years. So what you're saying is right, but I feel like that's what happens as we approach the top of the market, and then Bitcoin crashes, everything else in crypto crashes, and then everyone's quiet for three years, and then we get back to the bull run, and everyone starts talking about it again. Is there any way that Bitcoin could change your mind at all, Bill? Elroy Dimson sat there and said, I wouldn't look at it because it's got no history, but obviously he deals in the hundreds of years, not the tens.

32:29Well, it's not an income-producing asset. That's the problem. It's a currency. It's crypto currency. And the important word there is not crypto. The important word there is currency. So no one would put a lot of their, you know, let's assume that it does become the medium of exchange. Well, you know, had you invested in Swiss francs or in Japanese yen and just put them under the mattress in the year 1900, you wouldn't have done terribly well. And here's where a little bit of history helps. In the 1920s in the U.S., there were 2 ,000 automobile manufacturers. Now, the automobile certainly changed the world.

33:07It certainly changed our economy. Did you make any money by investing in any of these companies? The odds of your picking out the three or four companies that succeeded out of those 2 ,000 is close to zero. The same thing with the Internet bubble during the late 1990s. For every Microsoft and every Amazon, there were 1 ,000 pet.coms. And the odds of your picking that winning lottery ticket are very, very small. So, and it's the same thing with AI. I have no doubt that AI may be a very transformative technology. But are you going to be, you know, making a lot of money by investing in the companies that are throwing capital at it now?

33:50I really doubt it. Do you think then a broad global index approach is the best approach just to capture the market with all that considering? Because you're basically saying, how could anyone guess where any of this is going? Yeah, John Bogle was very fond of saying that searching for very, very highly profitable stocks is like looking for a needle in a haystack. So the solution to that is to buy the whole damn haystack. But what happens if certain parts of the haystack become very big compared to the others? So in the market-weighted indexes that we have, the capitalization-weighted indexes that we have, AI is obviously a massive force.

34:27I try and buy the globe, and£5 of it's going into Microsoft or whatever, every£100 that I spend. Does that concern you? It's an interesting, again, you know, Vogel had an interesting way of explaining that, which is that if you think about it theoretically, it shouldn't work because you're going to wind up with a concentrated portfolio of these vastly overvalued companies. But if you look at a bumblebee, it shouldn't fly either, all right, aerodynamically. But fly it does, all right? And it's the same thing with investing passively, is that if you invest passively in the total stock market, you wind up with these very top-heavy portfolios.

35:05But golly, in the long term, they do pretty well relative to the way everybody else does. Now, is there a way out of that? Well, there is, and that is to have a value tilt. If you tilt towards less expensive stocks, you wind out chucking out the Magnificent Seven. And you may save yourself some money. You may make some excess profits. The problem is that that approach hasn't worked terribly well over the past 20 or 30 years, at least not in the U.S. It's worked well abroad. So it pays your money and it takes your chances. You can either approach, I think, as a valid approach. Yeah. But the thing is, even with value investing, you should do that passively and at least own the haystack of value companies.

35:44Because in that haystack are going to be a couple of very profitable needles. Tamay, do you want to hear a fun fact about tax? Don't get me excited. I'm all about tax facts. Are you? I love a bit of tax. This is new to me. Well, OK, so in 1970, the tax code was around 1 ,500 pages. Now, today, 2025, it's 22 ,000 pages. That's hefty. Very. So there's around 10 million words and there's more written about tax than any other type of law or legislation in the whole of the UK. It's one of the most complicated tax systems on the planet. We know how complicated tax can be, but we've got a tool that can help.

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36:56There's also a QR code on screen if you want to use that. You speak of the ability to kind of stay the course and to be value-leaning. Or the amount of people that sat here and said the UK market is undervalued for a long, long time. It's having an okay moment at the minute, but it stayed undervalued for a long time. And I imagine that's really going to test your mettle if you then look over the pond and you see the American market delivering 24 % return, say, or something like this in a single year. So I buy global just because it's easy, because I don't really need to think about it. Removes me from the decision-making process.

37:32Yes. And things can look, you know, much worse for underperforming markets than, for example, the UK does now. You could buy the entire UK market in 1974 for a couple of months of Saudi oil output. Yeah. Yeah. You could buy the whole UK market for one apple. So, you know, it's the size and scale of the American market is massive. And one thing I think is if there is an AI bubble and it pops and we go the other way, how painful is that going to be to a global investor who's bought into this thing of, well, I'll buy everything because then I'm protected slightly. Are they protected? Well, you're going to lose a big chunk of your U.S.

38:09holdings. And the U.S. is now about 60 % of the global stock market. So it's going to hurt a little bit. But that comes with the territory. You know, there's no return without risk. And what risk means is you're going to lose a truckload of money from time to time. You have to be able to live with that. I mean, Keynes, there's a quote from Keynes. I can't quite do it word for word. But he says it's not just the inevitability, but it's the duty of the equity investor to, from time to time, lose money and do it without regret or reproach. I think it's pretty close to his exact words. And do you see any argument for indexation being a bad thing outside of, it's good for the investor, but do you see it as bad for the markets, for capital allocation, for what the market was set up for?

38:57There's two arguments against it, against indexing. One is that if enough people do it, you lose price discovery. So when 99 % of people are investing in index, then stocks will get way out of, valuations will get way out of whack. And more importantly, capital will get misallocated into companies that perhaps they shouldn't be allocated to. And I think that that's completely and totally specious. Because even if 90 % of the market gets indexed, the 10 % of people who are investing actively are still going to be more than enough to do adequate price discovery. Because passive investors turn over their portfolios only about 10 % as much as passive investors, excuse me, active investors do.

39:47So if 90 % of the market is indexed, still, 50 % of trading will be done by active investors, and that's more than good enough for price discovery. So that's one argument. Another ancillary argument to that is, well, when everybody becomes a passive investor, then active investors will probably be able to make money. And if you think about it, that makes no mathematical sense, because if 90 % of the market is invested passively, then the other 10 % of the market is still the market, okay? And the people who are investing in that 10 % of the market that is not passively invested will still be investing against each other.

40:26They will be getting the market return minus their expenses. So you're back where you started. So even that's not true. Now, what is true, but maybe just theoretical, is the argument that when you have three or four great big index providers, so your BlackRock, your State Street, your Vanguard. Yeah, yeah, your Vanguard. You know, you're in a world where you have one great big investor who will be inclined to preserve the monopoly profits of a small group of airlines or a small group of automobile manufacturers. And Jack Bogle worried about that a little bit. I think that's a theoretical argument.

41:05There's no empirical support for it that I can see. Do you not worry then that Vanguard are sat on every board of every company in the S &P 500. Does that not concern you? It doesn't concern me, but it will certainly concern people in the legislatures and the executive branches, maybe even in the judicial branches. I think that if that gets to be a problem, it will become apparent, and I think it will get acted upon. Do you think the answer is to make them passive in terms of their influence? They've got like a seat, just, you know, they don't really get any say in the room. That would be one solution, is take away their voting rights.

41:39Yeah. And you mentioned before that you manage a small fund for a charity. Is that passive or are you actively managing? Well, it's passive. I mean, we use dimensional, which I think... Please explain what that means if you don't mind. Yeah. Basically what dimensional does is they are tilted investors towards small and value stocks. So they invest passively. They use a very mathematical criteria for just basically chucking out the stocks they don't want to invest in. And they still own a very large number of stocks. They don't trade actively at all. They don't try to do any fundamental analysis at the individual stock level.

42:19So I use them because they are value tilted for the endowment that I use. But it's not radically different than what Jack Bogle does. It's just that they chuck out the growth stocks. And this is like farmer French, like kind of thinking. And does that produce a higher expected return over the long run? To have that lean towards value or small companies is another factor. Well, over the past 70 or 80 years, it certainly has. In the US, you have to go back 30 years before it works. So you needed to be very, very patient. And the$64 question is when too many people invest like Fama and French, and a lot of people are, increasing number of people are doing it, does that take away the premium to investing in value in small stocks?

43:07That's a very good question. I think the answer to it is that, yes, that premium is still there, although it may not be as large as it's been in the past. Yeah, 30 years is a long time as well, isn't it? Because that could be your whole investing lifetime, basically, that you might be wrong. Yeah, I've been using that approach, and we've been using that approach in this particular endowment over almost that entire period of time, and we're very happy with it. But you had to have been very patient. Yeah, and the thing is, again, though, coming back to what you said at the start, But as long as it's good enough, I mean, it's not like you're not getting a return.

43:40You're still producing returns, even if it's not optimal or whatever. It still gets you to the end destination. I'd like to - Investing isn't a game where you're trying to get the highest return. You're not trying to get rich. You're trying to avoid becoming poor. Those are two entirely different things. Yeah. Do you think people don't think of it like that though? That's a very refreshing view on investing, but I feel like a lot of people think investing is how you get rich. like thinking of investing is protecting your capital and making a bit of money rather than getting rich do you feel like a lot of investors don't really see it like that and that's why people run into trouble yeah that's that's the problem with the mainstream media uh and you know the financial media in general is they focus on the things that look like they're going to get you rich timing the market picking stocks and the the the theory behind that the philosophy behind that is you want to make as much money as you can.

44:35No, you don't. You want to avoid being poor when you're old. There's a famous episode in American finance. It was a hedge fund called Long-Term Capital Management, which turned out was very ironically named. And these were the most brilliant people in finance, one of whom was Robert Merton, who we've already talked about. And they had this algorithm that produced enormous returns, very high returns, until it didn't, until their leverage finally caught up with them. And again, that's always the last word goes to Warren Buffett, who said that to make the money they didn't have and didn't need, they risk the money that they did have and did need.

45:12Yeah. And they wound up bankrupt. Yeah, there's a book called What Darwin Taught Me About Investing. And there's a story in there about the deer approaching the lake and how the deer knows there's predators at the lake and the deer has two choices. They can approach the lake and get eaten and they're dead, or they can wait and stay thirsty but not get eaten and we should do those you know we should take the choice of surviving another day but and you know we go oh well i missed out on the big thing but i didn't completely wipe out and it comes back to your labor point this your labor is finite you only have so much of it and once you've spent that capital it's gone so you shouldn't be swinging for the fences and basically peeing your labor up the wall right and i think that's that's how i changed with my view of investing over my investing journey i outrun inflation and i use it to make the fruits of my labor work for me?

46:00And that keeps me honest and stops me trying to pick stocks. Yeah, that's a good way to look at it. Yeah. Okay. So what I would like to talk about now is expected returns, if you don't mind. What does the next 100 years look like for investors, do you think? I'm sorry, I know you said forecasts are pointless, and I'm asking you to make a 100-year-old forecast. Well, the way I would look at it is the same way that Elroy Dimson, who you know well, looks at it and the way that Ed McQuarrie, who you also know well, looks at it. That's how we connected was through Ed. And if you just look at it objectively, you say, okay, U.S.

46:37stocks yield about a percent and a half. And there's a real rise in dividends of, at best, two percent per year. So that gets you to three and a half percent real return. And maybe if you're lucky, you'll get for 4.5%, you throw in some things like buybacks, although I don't really buy those either for a number of reasons. And then you go abroad and you say, okay, well, in the UK and in Europe, the yields are closer to 3 % or 4%, but then your growth isn't as high. So you're back to probably 3 % or 4 % real return. Now, here's the problem, which is that if you have that as your central estimate, say, being optimistic, a 4 % real return, then you ask, what's the noise around that?

47:25So, and I'm trying to try and do this in my head, but if you have a standard deviation of stocks of 16 % per year over 100 years, you divide 16 % by the square root of 100, which is 10. So, you've got a standard deviation of about a percent and a half. Two standard deviations below 4 % gets you to a 1 % real return. Two standard deviations above that gets you to about a 7 % real return. So I will tell you forthrightly that I can estimate fairly accurately with reasonable certainty that the return over the next 100 years of stocks will be somewhere between 1 % and 7%. You just don't know. And there's just too much noise involved even at 100 years.

48:09So you just don't know. And you have to plan for that eventuality. Now, there's another factor here, which is mean reversion, all right? If stocks revert back to anything even close to their traditional valuations, then you're in a world of hurt. Then you're starting at 4 % and you're heading south. But your assumption of 1%, 7%, they were real. So that was inflation adjusted. So you don't see a world where they're negative in real terms. Not over 100 years. Got 100 years to be even guaranteed of that. Yeah. And then you're - Over 30 years, it's very possible to get a negative real return in stocks now.

48:45Yeah, and we're in a higher inflation environment. What does someone do with that sort of information? Yeah, you do the best you can. You protect yourself as best you can. And the way you do that is, if you're going to own, if you're going to be retired, certainly linkers and tips are a reasonable way of protecting yourself against inflation. If you're going to own cash and bonds, and they're nominal, that is, they're not inflation protected, don't keep your maturity short, certainly well below five years. If you're willing to take a risk on a value tilt, then that is actually, for a number of reasons, a good way of having some protection against inflation.

49:27And finally, there's nothing wrong with owning a couple of commodities producers. Now, you already own those when you own the whole market, okay? But maybe you want to tilt a little more. So at least in the US, you can own gold stocks and energy companies and base metals producers reasonably, in reasonably diversified fashion, reasonably inexpensively with ETFs. I want to talk to you about retirement now. And to link off that point, I want to ask you, if people are saying, oh, maybe it's 1%, maybe it's 7%, and it would serve me well to work to the lower estimate, how can people ever hope to accumulate enough wealth to retire under, you know, defined contribution sorts of pensions that we've got now?

50:13Well, this is a very unpleasant subject that has to be approached. Let's take what Ed McQuarrie and I call the toy model, which is that you're going to live and save for 30 years, say from age 30 to age 60, which is not unreasonable because most people don't get clear of their student debt until they're 30 years old. So you're working for 30 years. They're going to retire at age 60. And you're going to live until the age of 90 when you push up the daisies, okay? So for every year that you're working, you are retired for a year. You have to fund retirement. And if you get a zero real return on your portfolio, that means you have to save 50 % of your portfolio, 50 % of your savings.

50:56You have to save one year of income or of living expenses, I should say, for every year that you are working. Well, you can massage that model a little bit and make it a little less grim by assuming a real rate of return over 30 years or 60 years, let's say, both retirement and working. if you can get a 2 % over that entire period of time, which is no mean feat, because remember you're investing in both stocks and bonds, then your savings percentage goes down to 30%. And in fact, when you look at well-run defined benefit pension plans, which in the United States are very rare in the private corporate world now, that's what they do.

51:47and that's what some good public plans do as well. When you look at the best public retirement plans, the best funded ones in the United States, the best funded corporate plans, they put away 30 cents on the dollar for salary. That's what you have to do. So this business of having a 401k in the United States and you put away 7 % and your employer puts away 3 % and you get to 10%, somehow you're going to be able to retire on that. That is a cruel fantasy. And that's the hard reality here. You know, everybody wants to have the old style defined benefit plans. And the problem is those are very expensive and most of them folded and U.S.

52:27companies are running away from them as fast as they can just for that reason. They don't want to put away 30%. Which is what you have to do if you're going to do it on your own. Yeah. I know this is the focus of your research at the minute and I know you're working on a book with Ed and stuff. Do you see anywhere in the world that has solved this problem? Or, you know, do you see any hope there? Because 30 % is a lot, right? There are some companies that do that. IBM, for example, bless them, still has a good defined benefit plan, and that's what they do. I have one child who works for a large city in a responsible position who, between she and her own private contributions, puts away 30 % into a defined benefit plan that looks like a pretty good plan.

53:19There are some countries, entire countries, that do a pretty good job of it. The Netherlands is certainly one. They have a very nice plan, national pension plan. The Scandinavian countries, particularly Iceland and Finland and Norway are doing a pretty good job of funding their national pension plans. And there are some other places, you know, Australia is doing a reasonably good job as well. There are some nations that are absolute disasters. The pension benefits, if you're a French person or an Italian or a German, are very generous. Unfortunately, those plans are very, very underfunded. And France right now, as we both know, is heading toward the precipice just for that reason.

54:07What do you think of the UK scheme then, the triple lock and the state pension specifically? I don't know as much about it, nearly as much about it as you guys do. From an American perspective, the national insurance, the national pension that you have looks really skimpy. If you're an American, you can get, on average, to about 50 % replacement. in the UK it looks like you're at around 20 or 25 percent replacement with a maximum benefit of what 12 ,000 quid yeah yeah it was never designed to be the thing it's always meant to have something alongside it but I think that getting people to understand that is the hard thing and the problem with the state pension scheme because of its pay-as-you-go nature is it's very expensive and not that generous so it's like just a terrible you know all-round solution because Because current workers today are paying for the existing, the people who've retired.

55:03And then when you've got an aging population that's skewing like this on the population triangle, you know all of the demographic issues that this causes. And it doesn't look very sustainable, even though, as you describe, it's skimpy. If you've got to only live off that, you're living in poverty. Yeah, and the UK is going the same way that the United States is going, which is towards defined contribution plans. What we call 401k plans, I guess, It's what you guys call... Auto-enrollment pension schemes would be the work-based schemes. But yeah, they're just DC schemes is what we would call them.

55:35And it's like everybody's their own Warren Buffett and is funding their own retirement. Everybody has their own pension plan. And I don't know what the UK data look like, but the US data is very grim. The average 60-year-old, the person who's just about to retire in the United States, well, the average is deceiving. But the median 401k balance is about$100 ,000 of total assets. And total retirement assets maybe are twice that. $200 ,000 doesn't get you very far. $8 ,000 a year if you're doing your 4 % rule from the Trinity study. Yeah, 4 % of$200 ,000 is$8 ,000 a year. Good luck. Yeah, yeah, yeah.

56:15It is concerning. And I wish, I mean, just to give you a stat from the UK, 90 % of people don't even log on to their DC schemes. They don't know what it's invested in. They're in these default funds, which are kind of like Goldilocks funds. They have like 15 million people in them and they tend to skew conservative because not too hot, not too cold. And yeah, people are just not engaged at all. In the UK, people can tell you exactly the deal their mortgage is on, but they can't tell you where their pension's invested. I had a funny experience. I was teaching a class at our local university on just this subject.

56:55And I was talking about the French system where it's politically unfeasible, untenable, to raise the retirement age from 62. And as I'm talking, I see this tall guy at the back of the room and he's grinning and nodding his head. And I said, OK, what's on your mind? And he said, well, I'm Spanish. And he said, we just raised our retirement age to 67. So, you know, we're smarter than those French people are. Yeah, we're running that way. I mean, ours is creeping up. I think, you know, the expectation for some of my age is that the state pension age will be pushing near 70. And I know a lot of the, you know, like the NHS pension schemes and things, the defined benefit schemes that do exist in the UK, they're linked to those ages.

57:40And it feels like they're running away from people, basically. You know, then you've got to ask what kind of quality of retirement will you have if you're not getting it until your 70s? Yeah. I mean, I suppose the advantage, this is a cruel thing to say, but the advantage of being an American is we have this crummy social welfare system, this crummy social safety net, so people never got used to it. And unfortunately, if you live in a country that has a good social safety net and it's not well-funded, you're headed towards a brick wall. You get one generation gets it good. It's basically what's happened.

58:15We've had one generation who got good defined benefit schemes and and the you know they basically yeah they basically pulled the bridge up it wasn't their fault you know i don't i hate this kind of oh the boomers you know screwed everyone they just worked with the system they had and if you look at you know the what they grew up through they went through the 70s they've been through lots of crap and i dare say at the start of it they had no idea what was coming but it does seem like the policymakers in the uk made the defined benefit scheme so generous that they could never be done again. Yeah, that's right.

58:48I mean, the boomers screwed everybody else, no doubt about it. Okay, question for you then that's a bit on the nose. Will everything sort itself out when that cohort dies? Will the boomers pass through the system and the big block of population? Do we end up with loads of houses everywhere? Does the pension issue disappear? And is it like, oh, there's plenty of room now? No, I think I'm sort of a glass half empty sort of guy when it comes I think it's going to be a real shit show. I think what's going to happen is you're going to see just increasing inequality. You're going to see a generation of young people, a minority of that generation, who are very lucky and are going to inherit from their parents.

59:28Okay? They're rich boomer parents. And then there's going to be the 70 % of everybody else who are going to be living a very precarious existence. And that is not going to bode well for the body politic. You're already seeing how it's playing out in the United States, which is that, you know, there's increasing wealth inequality, and it's not the fault of the fact that there's not a generous safety net. It's the fault of, you know, immigrants and transsexuals. Yeah, you get populist politics, because people just feel like, my life's crap, and someone comes along and goes, well, it's their fault, and it's like, oh, well, that makes sense.

1:00:08That makes sense, yeah. Exactly. Yeah, not... And it's not the fault that, you know, the biggest legislative accomplishment of the current administration is a massive tax cut for not the 1%, but the 1 100th of the 1%. The lights have turned on. Enjoy. It's getting a bit dark. Yeah, it was getting some dark, so we turned the lights on. So speaking about illuminating people, I was wondering if today you were starting your investing journey, what would you do? Terrible segue that today. I know, but... I try what I can. Knowing what I know now, I would have taken the Merton formulation. I would have simply gone 100 % into stocks and had a small emergency fund.

1:00:55And, you know, I would be wealthier now. Would I be any happier? I don't think so. uh you know i have i have i have you know i have enough and that's you know the i could have i could have had a higher rate of return would i would i be happier i don't think so so no i wouldn't i wouldn't have done things terribly differently but even with your projection of like the next 100 years could be or next 30 years could be a bit choppy for stocks you would still go 100 today yes yeah because that's that's the best bet and you have to understand that you know If you're a young person, you actually want a lousy stock market for the next 30 or 40 years.

1:01:35You want to be able to buy all of your stocks cheaply. The best possible sequence is to have lousy returns when you're saving and then good returns after that. And particularly, you want to have good returns right off the bat as soon as you retire. All right. So in retirement, the best possible sequence is to have high returns early and lousy returns later on. And the worst possible sequence is what's called sequence of returns risk, is to retire and then have lousy returns. That's the real risk of having too much stocks when you retire, because if you're 100 percent stocks and you have 10 years of bad stock returns and you're withdrawing five or six percent per year, after 10 years, you're flat out of money.

1:02:17You know, you're eating cat food. so that's why that's the that's that's what's behind the recommendation of having a decent amount of bonds in retirement is just to avoid that sequence of returns risk yeah can you think back to when you started investing and what the kind of tone or vibe was at that point because we've been a little bit negative and we're going to move hopefully get a little bit more positive in a second but yeah what was it like when you started it was awful i started saving and investing in the late 70s uh and the i mean that was probably the worst time to be an american investor Exactly.

1:02:49Between 1966 and 1982, the real return of U.S. stocks was zero. Now, that wasn't as bad as bonds. Bonds were even worse. And people were terribly negative about stocks. Why would anybody want to own stocks? Well, right now we're dealing with the opposite situation. You go back 50 years, what year are you? And you're 1975. That was the absolute bottom of the U.S. stock market for a period of 10 or 15 years. And the return of U.S. stocks since 1975 has been spectacular. I don't have it in front of me, but I'm guessing it's around 8 % per year. People think now that stocks do nothing but make money.

1:03:31People will tell you now that if you are not 100 % in stocks, that every penny you have in bonds will hurt you. And everybody brags about being 100 % in stocks. Well, that's pretty much the kind of zeitgeist you see right at the top of the market. That's not what you see when it's the best time to invest in stocks. You've mentioned about three different times indicators of market tops. Do these tend to work? Like, for example, you said if the Lyft driver is telling you about crypto or stocks at all times. much do do your indicators tend to over time if they come through no you you can't really time the market because bubbles can last longer uh than than than than you can ever imagine i mean it was it's an apocryphal quote from keynesia i remember actually said it but he gets quoted all the time saying it which is that the markets room can remain irrational longer than you can remain solvent all right uh and that is that is that is certainly true you can't time the market but it is a useful device to help you keep your head.

1:04:30When all of your friends are buying crypto, the knowledge of history of how things eventually turn out will keep you from losing your shirt. Yeah, and all of those indicators are kind of vibe indicators, aren't they? When it's frothy, what you're talking about, when there's a lot of exuberance, basically. People are learning the language, saying it can never go wrong. I can guarantee any young person who's listening to this podcast that there will come a time in your investing career over the next 30 or 40 years when you will be told you are an idiot for investing in stocks. Yeah, yeah. I've seen the literature around the lost decade for the American market between, say, 2000 and 2009, and people were like, equities are done in America.

1:05:11You know, don't touch this stuff. And it's almost the day after they just went on the biggest tear, you know, the longest ball run in history. There is always a period in the United States when the term junk bonds becomes an epithet. And we haven't had a period like that for 20 years, but, you know, there'll be a time when that happens. You shouldn't be buying junk bonds then because you'll make money doing that. But when junk bonds become an epithet, it's usually a better deal to buy stocks. And so, you know, there's the four, I've written this book, Four Pillars of Investing. Please, you know, it's really tacky when an author plugs his own books.

1:05:48But the four pillars I will talk about, which are theory, psychology, history, and the business. And two of those pillars have books written about them that everyone should read. The book that everyone should read is Jason Zweig's Your Money and Your Brain, which is about the psychology of investing. And the book on history that everyone should read is Ed Chancellor's Devil Take the Hindmost. And there's another book, which Americans should read if they get into it. It's a book by a guy named Mark Higgins called Investing in U.S. Financial History, which will give you the same field. And if you know those two fields, if you know the psychology and you know the history, you are well on your way to success.

1:06:37Yeah, we had Ed on. He was great. He's the national treasure for you guys. He's great. Yeah, yeah, he's funny as well. He told us he wanted to have a fight with Martin Wolf, if you know who Martin Wolf is, the Financial Times. He was like, we want to set up a boxing match and have a scrap with him because they disagreed. And he was like, oh, yeah, I'd have a fight with him, like a boxing match. So, yeah, he was great. We had a good time. His episode did really well as well. But, yeah, it was his theory around interest rates and how a lot of pain was to come, was basically his kind of argument.

1:07:11that we don't know what cracks that had caused. And as long-term rates creeped up because the trend for 30 years had been, you know, they'd been coming down to negative real rates as we come back up. He felt that that would cause a lot of issues within the economy. And he was very, he'll happily sit there and go, any day now, you know, I'm going to be right any day now. Well, yeah, Jeremy Siegel, I mean, we've made some critical remarks about him, but he's made some very good calls in his career. And the best call that he made was, It's 2021, early 2022, and Trump and Biden did a good job together of saving the economy with the stimuli that they put out there.

1:07:52And the interviewer asked him right at the end, I think, of 2021, well, you know, who's going to pay for all this? And he just had one word. He said bondholders. and he was not only he was right but he was precisely right at precisely the right time yeah you said it was tacky and that story is not done either no no I mean like you said it was decades long trend of declining real rates so we cranked him up in the last couple of years it's going to take a while to see what the lasting effects of that are so I do think that Edward Chancellor is probably right just maybe wrong right now you know You want to talk about long-term pain.

1:08:33Between 1940 and 1980, the return of both UK and US long bonds, the total return was a real loss of around 60 % to 65%. That's a 40-year return, total return, minus 60 % over 40 years. Yeah, that would... I'm not here. Well, if you're 100 % equities, you don't have to worry about that. Yeah, yeah. Well, this is why I do the short-term bonds through, you know, So like the money market funds, essentially. That's where I keep my emergency funds so I can access relatively good rates because I just find that a lot of the banks scalp you on the rates. So I don't mind the short-term stuff, but I've never really looked at the long-term bonds.

1:09:15I never really understood why people buy them. Yeah, don't. Just don't even go there. We're all singing from the same hymn sheet. Yeah, yeah, yeah. And you said that you think it's tacky to push your books or to talk about your books. But, you know, we can. And I think you've shown today that you're amazing at communicating these ideas in a language that people can understand. And I think that's because you're self-taught. And in the description, we'll link some of what I think are your best works. And I would really recommend that people check them out because you're very talented at what you do.

1:09:47Well, thank you. It was a great episode, wasn't it? Yeah. Yeah, yeah. Everybody's got imposter syndrome. Even the people who you think are the best in the game doubt themselves. And I reckon the more competent you are, the more you doubt your ability. Just, you don't want to be like you, mate, just blissfully ignorant of how crap you are. I mean, that's the thing. People are surprised that I have imposter syndrome and I get nervous about things. People are like, oh, you look so confident. I'm like, nah, I like, behind the scenes, I shit bricks. That's all right, you can say it. You can say it.

1:10:16But like basketball? No, the podcast thing, like replying to YouTube comments, like everything. It's like everyone, outgoing people, you know, we've all got a mask on, like everyone's got it. security issues at the end of the day that's down to a t hey there you go and and and ended it right there we're not even going to tell you to watch another episode you just need to listen to this man today that'll do that'll do pig that'll do pig give me baby of course i know it's a baby i like it i like the little mice

1:10:49do you know what I mean what a day what a film mate yeah what a film babe in the city can get in the bin yeah no that was trash that was trash what's that about steaming pile of trash yeah yeah that'll do pig