#315: How to Invest Through Booms, Busts & Bubbles (w/ Ben Carlson)

22:35Maybe I'm leading the witness here. Hey, it's Emmett. You know me from this podcast. Today, I want to tell you about something I'm genuinely very excited about, which is Investicon. and it's coming to Dublin on the 27th of August this year. It's a very exclusive one-day live event and I want you there. We're bringing together some of the most successful stock investors of our generation and each of them will hand you their top three stock picks on the day. Stocks you can buy in the moment for 2026 and to hold through till 2036. These are ideas you won't find anywhere else. not online, not in an investment newsletter.

23:16You get them in the room. The headliner is David Gardner, founder of The Motley Fool and the man who, amongst many other things, told people to buy Amazon in 1997. He is one of my greatest investing inspirations and he's coming to Dublin. This is a once-in-a-lifetime opportunity to join him and me and indeed Bill Mann, the chief investment strategist at The Motley Fool Asset Management, who is one of the sharpest global stock pickers. There's Jason Safran who's the Chief Investment Officer at a leading university in America who manages a real institutional portfolio with a long-term lens. We've Eric Bleeker, owner of 24-7 Wall Street who's forgotten more about AI and growth stocks than most people will ever know.

24:01And of course, Peter Slagers, founder of Compound and Quality. And if you're not already following Peter's work, you're missing out. You'll spend the day surrounded by people who think the way you think, long-term conviction-led investors who actually care about the companies they own. That kind of room is very rare. The venue is the Market Bar which is one of Dublin's most iconic spaces. It's historic, atmospheric and yes there will be tapas and drink flowing throughout the day. Spots are going fast. Head to investicon.ie to grab yours. Early bird tickets are available right now at a serious discount, but they won't last.

24:41So that's Investicon, 27th of August in Dublin. I'll see you there.

25:08Visit RedBull.com slash BrightSummer ahead to learn more.

25:11Ben Carlson:See you this summer. No, I've been getting a ton of questions on this. And a lot of people are like, this does feel kind of like, oh, man, what is going on here? So it is crazy that, you know, obviously companies are staying private longer. So seeing these companies get this big and go public is kind of just eye-opening and a little shocking to see. It does make sense just, I guess, because of how it's happened. but Anthropoc is obviously like one of the fastest growing companies in the world, right? They, they just did like a series H round and now they're going to go public and they raised like 60 billion quid in four months.

25:48And now they want to go after that.

25:50Ben Carlson:And so obviously like these companies need, and looking through the numbers for SpaceX, it's, it's such an interesting, like it plays on both the narratives of like, man, the numbers of this company, it's losing money. It's barely making money compared to like what the, potential outcome could be. And like, yeah, but we're doing data centers in space and we're landing rockets. And so like that to me is just interesting to think of through like the financials versus like the expectations of like, well, what could this be? But yeah, there's a lot of people who are mad at the index providers for kind of bending over backwards and changing their rules.

26:24Ben Carlson:I kind of, I can see both sides because in some ways like they have to kind of adapt to the new way of things working, right? The fact that these companies are staying private for longer and trying to represent the markets. And I don't have all of the details yet, but it does sound like they're going to kind of position these companies based on like how much of their free float is available, right? Because SpaceX is not going to sell all the equity, right? They're going to only have... No, it's a very small starting float. So it won't be a huge impact. But if it gets past, I think the lockup period, Matt Levine had a great piece on this yesterday.

27:00Within six months or something, that might have it might be equivalent to that if it gets joined on the s &p 500 it could yeah so i

27:07Ben Carlson:think we did we did some work internally we we figured you know it's not it's not like spacex is going to be like a three percent position right away it's going to be like i think we figured like the size of like amgen or something so it's i don't know that you know not not nearly as big um but it does feel like in some ways they're trying to force the index providers to be like the the exit liquidity in some ways right or be the the natural like they're forced buyers. So I'm guessing the index providers are going to continue to monitor this and change the rules as things happen. So I do give them a little bit of credit for wanting to, you know, change with the times.

27:45Ben Carlson:But it does certainly seem like some of these companies are forcing the hand of index providers, right, to be that liquidity for them at, you know, what some people think is a high valuation. The valuation part is that's the hardest thing, you know, no one's going care that's that's everything really do you know what i mean it's doing like 20 billion in revenue and it's like okay we'll be two trillion now next week if that's okay with everyone yes yes which again is kind of like ben thompson at tacheree had a really good piece on this he said if you look just at the numbers you would think that a two trillion dollar valuation is absolutely insane but he says but people are thinking through you know them doing starlink satellites and them doing data centers in space and they're thinking through what this could be.

28:31Ben Carlson:And it's funny how much benefit the doubt investors tend to give a guy like Elon Musk. His investors have given him the benefit out at every turn. Every time he would raise equity for Tesla, you'd think, okay, we're going to have more equity, it's going to dilute current shareholders, the price should go down. And every time the price would continue to go up, because they gave him the benefit out of oh yeah but he's taking that equity the money he's raising with the equity and he's going to do something with it and so investors forever have seemingly giving him the benefit out and that seems like it's something that's happening here too right that they're giving spacex benefit out so from that perspective i i'm not smart enough to guess what's going to to happen but you're right if you're just a fundamental analyst and you look at the numbers you'd go this is insane this doesn't make any sense.

29:19Yeah. Yeah. I've ranted on this last week. I think I'm lacking the vision right now, but you're right. Musk himself is anomalous completely.

29:28Ben Carlson:This is probably the wrong term, but it's almost like a religious cult in that they give him the benefit of the doubt. And that's what happened with Tesla, right? The whole way up for Tesla, the fundamental analysts were saying, this doesn't make any sense. The valuation doesn't make sense. He's raising equity to dilute current shareholders doesn't make sense and the stop kept going up because he would use it and so this has a feel to that as well the question is like you know can the cult have two different deities right tesla and spacex so they have to merge and so again i'm not smart enough to to know but that we might have six months to talk about that all right um okay this is a topic you've talked about before and i don't think there's really an answer for this but in your opinion why why does everything it feels like everything is happening faster now corrections recoveries bear markets since like covid i suppose even before that like i think in 2018 we had a very very fast uh correction and recovery covid obviously was the fastest 30 crash followed by the best 50 days in the stock market history we've seen that uh with liberation day we've seen it that started this year the recovery from straight heart moves which which which you know is still very much a real issue that just the stock market seems to be just going straight past.

30:45And now it's in the rear view again. What, in your opinion, is the cause of just how fast things are moving?

30:51Ben Carlson:I've been thinking about this for a while. Obviously, the information age is a big part of it. Improved technology, more sort of computers and algorithms. And there's just there's more people involved in the markets now. I wrote about it in the book a little bit, how people talk about the Great Depression crash was. But like, I don't know, 2 % of households own stocks back then. No one could afford to own stocks. Now, in the U.S., it's 60 % to 65 % of households own stock in some form. Everything has just become more financialized. And the speed of information, adding things like social media, if you just think about how much is available to regular investors.

31:27Ben Carlson:You've heard the stories about Buffett back in the day. When he wanted to invest in Geico, he goes and knocks on the door to the HQ and talks to the CEO. And if he wanted a quarterly report, he had to send away for it, and they'd mail it to him. Now all that information is available at everyone's fingertips with a click of a button. You can trade on your phone immediately. There's more investment products. There's more investment services. There's more research and data and knowledge about the markets. So everything is seemingly speeding up. And I think what that does is it makes it harder to be a slow-down patient investor because the barriers to entry have just been completely knocked down.

32:09Ben Carlson:I told this story to someone a month ago or so. When I first got out of college in 2005 or so, I wanted to invest in an index fund at Vanguard, and they said$3 ,000 minimum. I'm like, well, I don't have$3 ,000. I'm a broke college student. Now there basically are no minimums. There's no fees to invest. So all those barriers to entry for everyone, You can buy fractional shares. It doesn't matter what the share price is anymore, because you can buy fractional shares. So all of those barriers to entry have been taken down. The types of products that you can buy in ETFs now, like a tax-efficient wrapper, are kind of insane when you think about it.

32:47Ben Carlson:The things that would have only been available to 2-20 hedge fund investors 15-20 years ago, now individuals can just buy them. There's new ETFs springing up all the time. But what that does is just makes it so much more tempting to make changes, because it's easier to make changes. now right the frictions are essentially gone and so i think that's it's harder to not try to keep pace with like that fast-paced world and um in terms of markets like it's funny i try to think through like does this mean that there aren't any we're not going to have these like long drawn out like three to four year bear markets anymore because the market just seems to price things in way faster you're right the straighter for moves it got priced in like in like a week it's like all right we're we're pricing this in we're taking our medicine and we're moving on yeah and And it's just interesting to think about.

33:32We forgot we priced it in and now we're up 15%.

33:34Ben Carlson:Yeah, and think about how quickly you talk about the market and COVID. Like, there was no good news yet. The vaccine wasn't here yet. The government was sending out money, but people were like, that's not going to work in a pandemic. And the market just said, nope, we're moving. Like, we're not going to wait around for you. And I think for investors, the lesson is like, you can't wait for the dust to settle, right? You can't wait for it to be in the headlines to tell you, like, okay, coast is clear. Things are good. things just move so much faster and i i really don't think that's going to change i think it's ai is probably only going to speed up the cycles even faster yeah well in fairness like you know the guys at renaissance and all these hedge funds and quants have been basically using ai for the last 30 years yeah in some shape or form yeah now it's going to be why no i know it's going to be yeah yeah yeah um following on from that and the frictionless investing that basically everyone who wants access to has access to now do you think that has an effect on valuations in comparison to historical averages and stuff i think that's part of it it's interesting i think valuations almost had to be lower in the past because it was harder to invest and because the the fees were higher so i think like the the gross returns were really good in the past but the net returns probably weren't quite as good because fees were so high right i think the very first vanguard index fund in 1976 had like an 8.5 % sales load, like a front end sales load.

35:01Ben Carlson:You paid 8.5 % of your money just to invest. And that's on top of the investment expense. So yeah, I think that that certainly is part of it. I think the fact that so much is automated now, right? People with retirement accounts, technology allows you to automate your investments and so much money just flows in automatically. Like that stuff didn't happen in the past, right? With all the different retirement accounts and people being defaulted into investing. I think that has impact on it for sure. Obviously, things like target date funds and index funds that sort of indiscriminately buy. I do think that has an effect on valuations.

35:37Ben Carlson:I think the other thing is just that companies are so much more efficient now than they were in the past. I did this chart. Trillion dollar companies growing at 30, 40 percent to every quarter, you know. Yeah, and you look at how high their margins, like margins for companies in like the 70s and 80s were so paper thin because they were so much more capital intensive, which is kind of ironic that it seems like these getting into the data centers, these big tech companies are becoming more capital intensive, which is interesting. But the margins just seem to keep marching higher and higher. And so if these companies are more efficient, to me, it would make sense that valuations would be higher, which is, I think valuations, it's turned into one of the hardest things to play because it feels like you're, you're, you're, it's a moving target, right?

36:18Ben Carlson:The historical valuations, like what should we compare it to? The last 10 years, the last 20 years, the last hundred years? Like what makes sense for a long-term average? And with companies and markets changing so fast, it's hard to know what it should be. Yeah, stick a comp sticker on it and just get out of here. Right. Okay, let's go more general now. I have a question here for you. Why is it important to be an optimist if you're an investor? Yeah, I read about this in the book a little bit. I mean, I think if you don't think the future is going to get better, like what's the point of investing in the first place?

36:55Ben Carlson:Right? I know a lot of people who are like, the world is coming to an end. What should I do? It's like, I don't know. If the financial system really did ever implode, it probably isn't going to matter what you're invested in. Right? Guns and ammo or canned food at that point probably matters more. but I think you have to be an optimist because there is bad stuff that happens like you can't be completely blind and naive to the fact that bad stuff can will happen there's going to be recessions there's going to be crashes there's going to be a financial crisis at some point again in the future there's going to be volatility all these things and I think if you're not optimistic if you're a pessimistic person you can let those things kind of get you down and keep you out of the market keep you from investing and so I think you have to have a glass-saffled view to be someone who does stay invested even in the face of bad things that can and will happen yeah but i suppose you so much of the book is like contemplating and putting into practice risk you know and it's your own and it's very introspective in a sense of like it has to be your own attitude to risk and if you are just completely risk averse then that's fine but you have to sit out of the stock market like that that's the greatest wealth creation engine you've ever had, but it's not for you.

38:06You know, if you're pulling your hair out every night because the S &P is down a half percent, then clearly that's not your, that's just not going to be for you. You have to go find somewhere else to put your money.

38:16Ben Carlson:Yeah. If you're going to be more conservative, yeah. Say, you know, fine. I, you have the stock market, I'm going to invest in real estate or I'm going to invest in bonds or whatever it is. You have to just understand the trade-offs and then adjust your financial life accordingly. Right. If you're a more conservative investor, maybe you're just gonna have to save more or you're gonna not have to spend as much or whatever it is, but it's all trade-offs all the way down. Yeah. Yeah. Okay. I, when I heard you were coming on the pod, I knew I wanted to ask this question. So the asset allocation quilt, would you give a quick explainer what it is and more importantly, kind of the lessons you take from it?

38:50Ben Carlson:Yeah, I do an update of it every single year. I think I did it when I first started the blog and it just, it kind of ranks the asset, different asset classes. And I look at, you know, the different market caps, international stocks, emerging markets, and the different types of bonds and cash and all this stuff, and it just ranks them every single year. And I kind of color code them, and it shows each and every year, you know, the worst can be first and the first can be worst, and there's no, like, rhyme or reason to it, like which asset class is going to perform the best. And I think it's just a good lesson in humility when it comes to investing to show how hard it is to, you know, pull the levers and make the changes.

39:26Ben Carlson:Like, oh, why didn't I just invest in this? And I think that that's a game a lot of investors play. Like, I knew I should have invested in that. You know, why didn't I have less money in this? Copper futures were staring me in the face. How did I miss this? Yeah, exactly. So I think it's okay to like give yourself a little grace there that like no one is good enough to predict what's going to be the winner or the loser or the leader. And so there's a few lessons. One is if you're a diversified investor, there's always going to be something in your portfolio that's going to be lagging. And you have to just be okay with that, right?

39:56Ben Carlson:The other thing is, if you're a more concentrated investor, and you have a single strategy you're part of, or you're a single asset class, whatever it is, you're going to have to get used to sometimes you're going to be the loser. Sometimes you're going to be the winner, sometimes you're going to be the loser. And I think you have to just be comfortable with the fact that no investment strategy does well all the time. And there are going to be bad environments for everything and everyone. And so you have to just kind of get used to that, one way or the other. If you're an extreme person, it's concentrated.

40:22Ben Carlson:Or if you're a diversified person, one way or another, there's going to be something that's going to make you uncomfortable. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a$75 sponsored job credit at indeed.com slash podcast. That's indeed.com slash podcast. Terms and conditions apply. Need a hiring hero?

40:54This is a job for Indeed Sponsored Jobs. Yeah, yeah. Okay. So we've touched on this and around this in the book is revolving around it, I suppose. So if you could kind of consolidate into the key piece of advice you would give for protecting yourself, protecting your portfolio from your own behavior and building that investing strategy that can last decades. What's the kind of one thing people should look at within themselves to be able to do that?

41:26Ben Carlson:Yeah, it's interesting. I think everyone has like a lesser version of themselves or everyone has some sort of blind spot. And it's really easy to see it in other people, right? Sometimes it's hard to admit it about yourself. And so I think you have to kind of know what is going to be the thing that's going to eat at you and how do you get to your sleep at night point, right? And I think investing itself is really all about like the idea of regret minimization. Like what are you going to regret more? Like, what move are you going to regret more? For some people, they're going to regret missing out on big gains.

41:54Ben Carlson:And they say, you know what, I can withstand big losses and wild volatility and back and forth and V-shaped bottoms and all this stuff. Like, I can take that. But if I miss out on the gains, it's going to drive me nuts. And other people say, you know what, that's fine. But for me, I can't do that. And I need to have an emotional hedge of some sort in my portfolio that's going to see me through. And I know that's going to dampen my returns, but it's going to be okay. And I think you just have to understand the tradeoffs and understand yourself. because I think it's too easy to like confuse your own time horizon or your own risk profile profile with someone else's because you see like man that person made so much money why can't I do that without understanding like what it took to get there for that person like the sort of ups and downs they had to go through emotionally the kind of person they are so I think I think just understanding yourself is is kind of job one and which emotions are going to impact you the most because it's it's different for different people and I guess the the keeping up with the Joneses element is so much more amplified now because you know reddit pages or even instagram or even just you know your friends who are clearly all they're going to show you is look i'm up 900 since last year on micron and that yeah no one ever shows that blows your mind like because you're here sitting on i don't know berkshire hathaway and it's up 20 in the last three years or whatever it is you know it really exposes you i suppose exposes human nature in a sense of like oh this looks like easy money to me yeah but again they're playing a different game to you i think that's the most important thing it is it is quite an introspective process um to become this long term investor maybe people don't realize that as much yeah it took a long time for like the light bulb for me to go off to like figure out like what works for me uh but you're right no one on instagram ever shows like the worst version of their lives everyone shows the best version and and there's so much survivorship bias in the person who hit the lottery you know stock or the lottery ticket stock and like made a thousand percent in a year.

43:47Ben Carlson:Um, you hear those stories. You never hear the story about the person who tried it and failed, right. Or the person who bought the stock, but then it shot up 20 % and they sold and they missed out on the rest of the game. Right. Um, I think those are the hard stories is that you don't, you don't really see all the struggles and the bad side of things. Yeah, absolutely. And then on the other side of that, what are the most common pitfalls you see for people planning for retirement? What do people get wrong the most. Yeah, it's interesting. Right now, you know, one of the things is that you still have to actually grow your portfolio because, you know, people are living longer than ever.

44:23Ben Carlson:The past, people didn't live quite as long and they didn't have to plan for as much in retirement. You know, whatever, 200 years ago, the retirement plan was you worked on a farm until you died, right? You didn't really have retirement. Then it was, you know, people were really unhealthy and they didn't wear sunscreen and they smoked their whole lives and they would have, I don't know, 10 good years in retirement or something. Now people are, we're talking 20, 30, 35 years in retirement. So you have to kind of balance out the need for some stability in the short term for your spending. But you also have to grow because a 3 % inflation rate could cut your money in half in like 20 years.

44:55Ben Carlson:Right. So if you just sit on your money and don't do anything with it, you still have to grow and your standard of living could decrease if you don't grow that money. So you have to kind of balance out the need for safe assets with the need to grow your assets as well in retirement. So you're not subscribing to the bond stock balance of your age? So if you're 20, you should be 80 % in stocks. And if you're 80, you should be 80 % in bonds. Yeah, I mean, a lot of it depends on your resources, I guess. But yeah, I've seen some variations of that where you kind of, I don't know, add a 10 here, add 20 there or something like that.

45:33Ben Carlson:but yeah I still think that people need to grow their their money and for some people it could be like listen the money's not even for you it's for the next generation and thinking through that way so yeah I think if you get too conservative it can kind of come back to bite you obviously if you're too aggressive too you know the sequence of return risk is a big thing so that's why there's balance involved okay we've more or less had a bull market for 17 years give or take i know there's covid crash and those kind of uh corrections on the way up but pretty much if you stayed invested from 2019 to now you've had incredible returns like 16 17 18 uh just from the s &p alone there's a whole new crop of investors who never really felt the pain of an extended drawdown how can they prepare for that because it has to come at some point they're not going to go through their whole lives without feeling it.

46:30So what is the preparation for that kind of turmoil, I suppose?

46:34Ben Carlson:Yeah. The thing is, a lot of it depends on where you are and what stage of life you're in, right? Like risk means different things to different people at different stages of their life cycle. Like a long, drawn-out bear market is way more painful for a retiree who has a mature portfolio and all their assets are financial assets, right? But a young person, it's human capital is the biggest asset, right? So it's your future earnings and your future savings. So you shouldn't be scared of those bear markets. They should be looked at as an opportunity. So a lot of it is how you frame it. Are you still putting money into your retirement accounts?

47:07Ben Carlson:Are you still putting money into your brokerage account? Are you still buying stocks? You shouldn't want them to go up and hit new all-time highs all the time. You should want them to drop occasionally. And I think that it's kind of a mindset thing for young people. But you're right. There are certain things that you can't know until you experience them. You don't know how you're going to react until you go go through them and the good news is i think for young people is when you have fewer financial assets that's like when you want to test things out and see how you do right and that's when you have time to still make up for mistakes if you make some and you realize like oh my gosh i was way over my skis i was far too aggressive i can't handle this and other people are like no i i did it i handled it i kept i kept my head down i kept putting money in i'm okay i think that's a good time to learn you don't want to try to learn it when you're 50 years old and have more financial assets, right?

47:54Ben Carlson:You want to do it when you're young and can pay tuition to the market gods, and it's not that high of a price. Yeah. Okay. Okay, we'll finish on one question now, very broad and can be philosophical. But what is the one thing you wish every investor understood? Oh, interesting. My big thing is always that I just think simple beats complex when it comes to investing. And one of the reasons for that is because, like I said, there's always going to be a time period when your investment strategy goes through a rough patch, right? Regardless of how good of an investor you are. And I think if you have a simpler approach, it's much easier to lean into the pain and rebalance and keep staying with it as opposed to a more complex strategy it's easy to just bail out of and get into another even more complex strategy, right?

48:44Ben Carlson:And so I think simple makes it easier for you to stick with something because if you understand something, if it's more transparent and you know what you're invested in and why you're invested in, I think it's much easier to stick with it and then again, rebalance into the pain when things don't go well. Okay, I like that. All right. Ben, it's an absolute pleasure having you on. Let everyone know where they can find risk and reward or where they can find more of your work. Yeah, all the bookstores, Amazon, Barnes & Noble. I did the audio book myself and then yeah, check out a wealth of common sense.com to sign up for my newsletter.

49:17Good man. Okay. Ben, it's been an absolute pleasure. Thank you very much for coming on the show and thank you everyone for joining us.

49:47Ben Carlson:Intro rate first three months only, then full price plan options available. Taxes and fees extra. Default terms at MintMobile.com. Talk to you next week.