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This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
At this week’s Yahoo Finance Invest conference, I had the chance to interview two different authors — Mark Spitznagel and Morgan Housel.
Spitznagel is the founder of Universa Investments and the author of the books “Safe Haven” and “The Dao of Capital.” Housel published “The Psychology of Money” in 2020 and his latest book, “Same As Ever,” was released on Tuesday.
Both of these guests brought to the audience one of the most common messages an investor is likely to hear: stocks for the long run.
“We could all agree in this room that over the next 20 years, I’m the most bearish guy you’re ever going to meet,” Spitznagel said. “But we could all agree in this room that in the next 20 years, probably, the S&P is the best [place] to be. And if you could make one trade right now it’s probably buy the S&P, right, despite what’s going on and how expensive it is today.”
“[If] you are a student of economic history, you should be an optimist on the future,” Housel said. “People’s ability to solve problems and become more productive is incredible.”
Spitznagel’s firm is focused on what his books cover — safe-haven investing aimed at preserving capital while offering explosive returns during turbulent market conditions. Housel’s writing helps investors balance the pressures today with best laid plans for tomorrow.
And so it comes as little surprise that both Spitznagel’s and Housel’s messages came with the same caveat — all that matters is that you survive.
“Mitigating risk really isn’t about where we think the world is going to be,” Spitznagel said. “Mitigating risk is about what that path is going to look like, and the opportunities that you have along that path, right? The dry powder that you create.”
“If your definition of optimism is that everything’s going to be great, that’s a problem, that’s complacency,” Housel said. “So I think reasonable optimism is, the short term is a constant chain of surprises and setbacks and bear markets and recessions. But if you can survive and endure those, which, that’s the big if, then for those who can stick around the rewards are incredible.”
As TKer’s Sam Ro flagged on Tuesday, work from Bank of America out this week showed that $1 invested in US large cap stocks 200 years ago is worth $16 million today. Stocks, in other words, usually go up.
Over those two centuries, we’ve seen a civil war on US soil, two world wars, multiple financial crises, several pandemics, and hundreds of events that would spook even the most reasonably optimistic long-term investor.
Coming off a bruising 2022 for markets, we began the year by flagging work from Nick Colas at DataTrek, which found that no 20-year rolling period since World War II has seen stocks offer investors a negative return.
“History shows that 20 years of continuous investment is the bare minimum to be assured of a positive real return for the S&P 500,” Colas wrote. “One can do very well over a shorter period if all the stars are aligned, of course. But … two decades is the ‘right’ long term timeframe to use in a mental model of how long it can take for US equities to generate value for investors.”
None of which means investors should ignore how things change over those two decades.
Nor should timespans 10 times longer be ignored, either.
But reaping the benefits of the S&P 500 over the next 20 years does require all 20 of those years. And that will likely require an investor to be both a pessimist and an optimist — but never just one or the other.
“One other way to frame it is save like a pessimist, and invest like an optimist,” Housel said. “Save with the idea that all of economic history is just a constant chain of surprises and setbacks. But if you can endure that, then it’s great. So that requires optimism and pessimism to coexist in the same mind, which is very difficult for most people to do. For most people you’re either a full-blown optimist or a full-blown pessimist. And both of those two get into trouble.”
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