Let me tell you a “not-so” secret:  I bought AAPL (Apple) in 2001 at $17. I had a feeling that the iTunes thing was going to be big. And I was right. Yippee for me! Having just come off the bursting of the dot-com bubble and the horror of 9/11, I made a great call. 

We love a good narrative. We love winners. And we love the stories of great investors. But we don’t see the bad calls, failed companies and mediocre performances of the vast majority of stocks and holdings. In my post The Market Is Not A Casino, I noted that the market is up more than it is down. And when it’s up, it’s up by more than it’s down when it’s down. What that means is that you don’t have to have a winning year every year. You just need to have quality investments in the market over time, and winning will outweigh losing.

Do you realize that the record-breaking performance of the S&P 500 is being driven by seven stocks? We are now calling them “The Magnificent Seven,” and they are Microsoft, Amazon, Meta, Apple, Alphabet, Nvidia, and Tesla. (As I write, Tesla is iffy.) There are 503 companies in the S&P 500. (Don’t ask me why there are 503 companies in an index that is supposed to have 500. Sometimes, things don’t make sense.) Doing the easy math, that means 496 companies in the S&P 500 index are doing “meh.”  And yet here we are, happily gazing at our growing portfolios.

It's not that 496 companies are mailing it in. They’re performing fine. But they’re not sexy, so we don’t discuss them.  Will they get the job done of growing your wealth? Yes, they will. 

I want to make a couple of points here about the financial media and herd mentality.

First, and I say this a lot, “The economy is humming along, and the benchmarks are pretty good” makes for a terrible headline. Psychologists and editors know that it’s much catchier to say, “The economy could overheat and we could be headed for more inflation.” Technically, they are not telling an untruth. They’re just horrible manipulators who want to sell clicks. 

Second, and reaffirmed by my recent re-read of Morgan Housel’s The Psychology of Money (very entertaining), the herd isn’t investing the same way you and I invest. When I worked with clients, before I suggested any type of investment, I asked two things:  

• What is the purpose of this money? (home improvement in four years, 10 years of next-act funding, retirement, later retirement)

• What is the time horizon for this money? (i.e., when will you need it back to spend?)

Answers varied, but those were the key questions that told me the type of account and the type of solution (investment) to recommend.  

On the other hand, there are day traders out there who are looking for a little momentum; just enough to make a few dollars. And their time horizon is “end of day.” They will cash out before the closing bell. These people affect the price of our holdings. 

Then there are short sellers, risk forecasters who bet on falling prices. Sometimes they need to cover their bets (ouch!). These people also affect the price of our holdings. 

Then there are the big funds who make bulk trades. They move so many shares at a time that they (surprise!) affect the price of our holdings.

All of that is to say do not, do not, DO NOT buy what others are buying just because they are buying it. You don’t know their purpose or their time horizon. You must stick to your own unique plan, and your plan contains the right amount of flexibility for you, the right amount of risk for you, and the right amount of security (surprise!) for you.

We are emotional creatures. We fear, we envy, we irrationally (because the numbers do not bear it out) worry. My re-read of The Psychology of Money was so that I could dive into Housels’ other book, Ever the Same, wherein he tells stories of our inability to know anything for certain.  

In Ever the Same, Housel counsels us to understand that in all of human history, we should learn from what doesn’t change.  And what doesn’t change is human emotion (greed, fear, envy) and human aging. Why the heck is it so hard for so many of us to plan for the future “us”?  

News flash: You’re not going anywhere. You will age. And while you can’t forecast getting hit by a bus, you can certainly anticipate that, absent that kind of terrible luck, you will need to feed, clothe, and house yourself for many years to come. 

You say that it’s hard to save. I’m a fan of what I call aspirational bucketing, wherein every savings bucket has a purpose and a time horizon. And it’s not just one lump-sum bucket, dammit. I’ve had perfectly wealthy clients go into a single bucket for a $75,000 tax payment, a $100,000 bathroom remodel, a $25,000 vacation down payment, and a $5,000 pet emergency in the same month. And, suddenly, their cash is all gone. 

Use multiple buckets.  You can borrow from any one of them for another purpose EXCEPT the one labeled “Emergency.”  

Housel says we should save for the sake of saving itself because it buys us financial freedom not measured in things but measured in the freedom to do with our time what we choose. I could not agree more. Wealth is measured in the ability to determine how you will spend your days and how peacefully you sleep at night, all in accordance with your values. When I see Ms. Jones pull up in a $100,000 vehicle, I know one of two things is true: either Ms. Jones is $100,000 poorer or Ms. Jones owes a car dealer $100,000. I do not know if Ms. Jones is wealthy. But I know something about her decision process and what she needs to feel good about herself.

I’m going to take a tangent here into a self-deprecating story I tell frequently.  And I tell it because we do live in a world wherein people judge us (a little) by the first impressions we make.

I’m a notorious slob in my off time. Having started my career at a time when skirt suits and nylons were the only work options, I discovered sweatpants during the pandemic, and I may never go back. There’s a closet of St. John Knits (my fave) dating from the 1990s to 2020 that is very lightly used these days. But even in the ‘90s and early aughts, my weekend attire ranged from casual to “rags.” No apologies, although Hurricane Jackie certainly wishes I reflected better on her. 

One extremely hot day, I was wardrobe shopping wearing a t-shirt and what would generously be called pajama-style palazzo pants. No jewelry. I also am not a jewelry person. I wear my statement pieces for work. The rest of the time, I wear nothing. That’s a legacy from being in the gym a lot: I never wanted anything stolen from my locker, and I never wanted to crush my wrists or fingers. 

I stopped at Nordstrom in Long Island’s Roosevelt Field. Before finishing the errand that sent me there, I stopped in the St. John Knits department and poked around. 

Before long, the commission-based saleswoman approached me. I expected her to offer to help me find something I was looking for. Instead, she smiled wanly and asked if I thought I was in the right department. I stopped cold. Flabbergasted, I could not summon up a snarky response. I just knew that, even if I found something I loved, I was certainly not going to let her get the commission on it.  I turned and walked out of the women’s designer department and straight out of the store.

I drove east a mile or so to the Americana Shopping Center on the Miracle Mile in Manhasset, home to all kinds of high-end stores, including a St. John Knits store. I parked, walked in, and the manager spotted me.  She greeted me with, “Why, Mrs. Murphy. We haven’t seen you in a while. How nice to see you again.”  

I dropped a bundle in her store that day.

So, what’s the lesson here and from Morgan Housel, Dr. Thomas Stanley’s The Millionaire Next Door and who knows how many other advisory books? Simply this: You can’t see wealth. It doesn’t come with the trappings you think it wears. What you are envying when you see Ms. Jones driving a fabulous car is cash flow. There are plenty of folks with the trappings of luxury—the cash flow to buy stuff—who can’t afford themselves. Ms. Jones isn’t going to tell you that she’s in hock up to her eyeballs.  

(Go ahead. Have nice things. But have nice things that you plan and save for so you can afford them once you buy them. And if you don’t really, really want something, save the money until there’s something truly important to you that you must have.)

Just like wealth is invisible, so are bad stock picks and failed companies when your portfolio has, over time, grown. We diversify (spread our risk around) because we know that there will be some clunkers. Good financial planners avoid sexy and move you toward predictable performance. We are intentionally avoiding the highest possible returns because we are also avoiding the greatest possible losses. We want portfolios to grow somewhere in the middle, staying well ahead of inflation.  

So where does that leave us? When it comes to your own money, separate it by purpose and by time horizon. Don’t risk the money that can’t be risked. Risk only the entertainment money. Don’t aim for sexy. Aim for tried and true. Don’t think that a daily, weekly, or even monthly swing is the end of the world. If you have chosen quality, the market will return; and so will your investment.  

And please don’t think you’re missing the boat.  You can’t time the market—ever. Warren Buffet has frequently apologized for his failure to invest early in Amazon or Alphabet (Google) because he did not understand them. And he strongly believes that you should not invest in things you don’t understand.  

I guess that puts me in good company. You see, I sold Apple at $35. Regrets? Well, I have plenty of exposure to Apple in my mutual funds. And I did double my money. But yes, I should have held it forever if I really believed in the company. I didn’t want to be foolishly greedy.  But I have no regrets on my decision. The money is happily growing elsewhere among the “meh” performers of the S&P 500, I assure you.

#WeRescueOurselves #MoreRunwayThanYouThink

Reading:  Morgan Housel, The Psychology of Money: Timeless Lessons on Wealth, Greed and Happiness and Same as Ever: Timeless Lessons on Risk, Opportunity, and Living a Good life

Copyright Madrina Molly, LLC 2024

The information contained herein and shared by Madrina Molly™ constitutes financial education and not investment or financial advice

Related Posts