Ben Carlson Investing At All Time Highs Rational Reminder 412

TITLE: Ben Carlson: Investing at All-Time Highs | Rational Reminder 412 CHANNEL: The Rational Reminder Podcast DATE: 2026-06-04 ---TRANSCRIPT--- This is the Rational Reminder podcast, a weekly reality check on sensible investing and financial decision-making from two Canadians. We’re hosted by me, Benjamin Felix, chief investment officer, and Dan Bordotti, portfolio manager at PWL Capital.

Welcome to episode 412. We got a good interview on this episode. Yeah, it’s honestly kind of surprising that this is the first time that we’ve had Ben Carlson on this podcast. Uh we’ve kind of been creating content in parallel for years. I’ve read lots of his blog posts. Uh we’ve had Barry and Josh Barry Rholtz and Josh Brown on the podcast was great. Oh, and Nick Muli twice. Those are all guys that are at Ben’s firm Roltz. Uh Ben writes uh a wealth of common sense blog. He’s also got a book of the same name. He’s got a new book out which is what we talked to him about roughly. I mean it’s more like the conversation was guided by what’s in the book. We didn’t really talk about the book but well indirectly. Uh the book is called Risk and Reward. It’s just out from Heramman House. It was a nice read. Uh and Ben spoke about the content very well as he always does. Uh Ben Carlson for people who do not know is the director of institutional asset management at Rholt Wealth Management. Uh he’s been managing institutional portfolios for his entire career and he’s also got a very popular blog that I mentioned the name of and he is the author of four books on saving investing and money. Um yeah I don’t know D what do you think of the conversation? Yeah, I think Ben is really one of a small number of financial writers out there who really I mean he backs up what he says with the data and the evidence, but he writes with a very distinctly non-academic style. He’s just very down to earth, very much common sense, very much um practical, long-term wisdom, and I think that really comes across in the conversation. I think people are going to enjoy it. Yeah, he’s a very a very good writer. similar to you, Dan. Honestly, you and you and Ben both have blogs. You read it and it’s like this is this is a really good writing. Well, I appreciate that. I I think that that’s kind of what I’ve always strived to do as well. It’s like, yes, of course, you need to back up what you say, but um I learned pretty early on in this game that if you really want to influence people and uh help them improve the way they invest, you can’t just hammer them over the head with data, right? because people will push back against it if it conflicts with whatever their existing beliefs are. You need to share some insights and you need to bring it down to uh the level of you know their own personal lives. And so um some writers are really good at that. Morgan Hel’s another guy is just maybe the best at it. Um and as we’ll see here u Ben is uh got a lot to contribute to that discussion. Yep. Yep. So, we uh we talked a lot about long-term returns, risk, well, as the title of the book suggests, risks, risk, and reward. I talked about the Japan bubbling crash, the 199 1929 crash, the difference between volatility and risk, uh the stock market versus the economy, and just Ben has great thoughts on on all this stuff and uh how that factors into asset allocation and the behavior of investors and just long-term thinking more more generally. So, I thought it was a really nice conversation. It was. Should we get to it? Let’s go to our conversation with Ben Carlson. Ben Carlson, welcome to the Rational Reminder podcast. Thanks guys. Glad to be here. Glad to have you here. Ben, how worried should people be about investing at all-time highs? They should be freaking out right now. No. Uh the funny thing is is that I think some investors think like the next alltime high is going to be like the high. like all capital letters. It’s the it’s that going to and I think more people maybe thought that after the great financial crisis, right? Like this is it. One of these highs is the next one. The data actually shows your return if you pick any day outside of all time highs, which only happened like 7% of all trading days or something. Most of the time you’re looking up at them. Uh your returns are actually better going out like one year, three years, five years from alltime highs, which kind of makes sense when you consider that bull markets last longer than people think. Uh but yeah, one of them is going to be the peak. It’s going to happen, but that it’s just one. It’s not most of them are just fine. So Ben, one of the questions that you always seem to get or many people get when they talk about the long-term potential for stocks is what about Japan? So tell us a little bit about the Japanese counter example. probably one of my favorite chapters to write in the book. But there there aren’t that many books written about the Japan situation, which is is one of like the biggest market outliers and anomalies in history. And people always throw that in my face anytime I talk about long-term investing. What about Japan, idiot? Like I get that all the time. People love throwing that down my face. So I said, I I actually told my publisher, I said, “What if we just can I call this book now show Japan?” And they’re like, “That’s a little too tongue-in-cheek. I think that’s a little too baseball.” All right, fine. Maybe if we do the Japanese version, I want to call it now show Japan. So it’s it’s you know there it was perhaps the biggest bubble of all time. It wasn’t just uh stocks right stocks trading like a 100 times earnings. It was real estate too. I think that the stat for your listeners the imperial grounds in Tokyo in 1989 were technically worth more than the entire Canadian real estate market combined. It’s like it’s just it was it was one of the most insane periods in history. And they compressed all these returns in a short period of time. And then so the next three decades, if you would have invested right in 1989 at the top, you were underwater. And that’s the thing people throw in your face of how do you how can you be a long-term investor if a situation like this exists? And to me, I don’t think that showing exceptions to the rule necessarily invalidates the rules. Right? I think you have to understand those situations and help it guide your actions a little bit. like the outliers do exist but I don’t think you can say that a situation like that totally invalidates because guess what the rest of the world did just fine after Japan peaked right Japan was pulling up the rest of the world in the 80s like if you look at the any of the returns like they were foreign stocks did much better than US stocks mainly because of Japan uh but the rest of the world if you would have diversified did just fine after Japan and actually the long-term returns in Japan are much better than they think you just have to go back further yeah I think people people miss that point that the the the bubble required really high returns before it popped. And so if you had been investing before the peak, you actually did okay because the returns were so high. It’s like it’s just a really long mean reversion. You got like 22% per year from 1970 to 1989 in Japan. Small caps in Japan did 30% per year for two decades. That’s insane. And so the returns almost had to be poor after that. And if you if you put them together, the boom with the bust, it’s like almost 9% per year. It’s kind of crazy. Over 50 years, the long-term worked. It’s just that over that 20 or 30 year period, it didn’t work so well because Yeah. the Nikki didn’t didn’t get a new high until like 2024 after pegging 1989. It’s crazy. Yeah, it is crazy. Uh other than Japan, other than the Japan example, what have been the worst market crashes in history? So I the Great Depression is the one that I always keep coming back to. I I read Andrew Worth’s book 1929. It’s a fascinating period of time for me. So the US stock market crashed like 86%. Um I just I can’t imagine that happening today. And one of the reasons that society didn’t just completely fall apart, even though it felt like it kind of did, I guess. Uh no one really invested in the stock market back then. That was one of the surprising things to me in my research is that it was like 1 or 2% of US households had any money in the stock market. And so it was more the economy that really took people down and you know 20 25% unemployment rate and you know the economy going nowhere and and you know Fed officials and government officials making it worse. And so a lot of people have asked me like do you think that could happen again? And I I really you never never want to say never and when it comes to the markets but I have a hard time thinking that we could allow the US stock market to fall 80 90% these days just because so many more people are involved in the markets now. It’s uh and government officials just have more institutional knowledge about how to step in and save these things and act as a lender of last resort than they did back then. The Fed was still pretty new when the Great Depression happened. They didn’t like have all the power they have today. But yeah, that that one is really scary. The the numbers are just insane. Like the there are still records from back then like in terms of down months and down days and down years that just will probably never be seen again. H. So tell us about what happened after the 29 crash and then more broadly what tends to happen after market crashes like that. It’s funny. I show one of my favorite stats in the book is I look at historical rolling monthly 30-year returns on the S&P 500. And the worst 30-year return came if you invested at the peak in September of 1929, which is actually was better than you would think. It was like a total return of 850%. and annual returns of almost 8% per year. So, that’s the worst 30-year return in the last 100 years or so. And then what happened afterwards after you had that huge crash and stocks fell 85% or whatever, then you had the best 30-year return and it was, I don’t know, 15 or 16% per year. Uh, and so you went from worst to best in like 3 years. And I looked at some of the numbers, too, like what if we just took the Great Depression completely out of the US stock market history, right? The stock market has given investors roughly 10% per year for 100 years. Let’s just take that situation out. start started a few years later, I think the returns go to like 11% or something. So, it’s it it that’s a that’s a lot for compounding wise, but it’s not like it it completely changed the ball game considerably, assuming it was, you know, considering it was such a huge huge crash. So, yeah, the thing that happens after the crash is that like your returns improve, right? The expected returns are higher after you go through the crash. And that was obviously the biggest one ever for US stocks at least. We talked about Japan crashing, Great Depression, 19 1929 crash. What are the best ways to manage the risks of a stock portfolio? I’m of the mindset that there really are no free lunches when it comes to investing. There’s always something that you’re going to be angry about or it’s not going to work. But I think diversification is about as close as you can get to a period like that. Like actually, US bonds did pretty well, did okay during the Great Depression. like if you had some sort of liquidity or you you probably did okay, didn’t have all your money overlegged on the stock market like many people did who were investing at the time. Um and then I think the other form of risk management is just like understanding yourself and and what’s going to make you, you know, what’s going to leave you worse off? Like what is your blind spot? Do do you overreact to these crashes? Do you need some more conservative investments? or you a person who like I just need to be aggressive at all times and I’ll take what comes in terms of volatility and and the ups and downs. And so I think that’s that’s a big form of risk management really is just like understanding like what’s the lesser version of yourself that’s going to cause you the most pain. So in the broader picture, how would you say that you think people can win at investing? I mean other than of course picking stocks and timing the market perfectly. Yeah, that’s easy. Um, I think I think I do think most people outside of finance like the the biggest thing for them is like are you just on track to achieve your goals? Jason Zag at the Wall Street Journal did this story a number of years ago where he went to Florida and he he interviewed all these people in this beautiful golf course resort in Boca Ratan or something and he was asking them like how did you do it? How did you end up how did you retire down here? How did you what did you invest in? How was your and he asked one guy like did you did your portfolio outperform the S&P 500? And the guy thought about it for a second and he said, “I don’t care. What does it matter? I ended up in Bokeh.” Right? That’s the point. Like um there are no like points for degree of difficulty or style points when it comes to investing. I think it’s just like how do you reach your goal and minimize risk along the way to achieve whatever your goals are. Uh I think that’s the biggest thing for most people. That’s the benchmark that matters. Yeah, I like that answer. How how problematic is inflation for long-term investors? Well, I think on the psyche of investors, what we’ve learned this decade is that it’s very problematic. I I’ve like my favorite thing to study about markets is behavior and psychology and how people react to these things. And having read all these books about psychology, I totally underestimated how angry inflation would make people. The fact that it came roaring back for the first time just maybe it’s just cuz we haven’t had it in so long. And so I think the sentiment part of it is really interesting to watch how people react, right? Um, and even if your wages rise, it doesn’t matter. Like, because listen, the wages, that’s me, that’s my hard work. But inflation, that’s like someone else. That’s a government or corporations or whoever. Um, but I think the big thing for investors with inflation is just it shows you like this is why you have to invest your money because your dollar is getting eaten away by rising prices over time. So, you can you can complain about it and bury your money in the backyard, but good luck with that. you ha you have to invest it in something if you want to try to keep up with or beat the rate of inflation. People have lots of ideas of what kinds of assets they should purchase as hedges against inflation. Um what do you feel are are the best ways for most households to do that? It’s funny. I looked at this through more of a personal finance angle in the book because I think you can look at like what is the best hedge against inflation in the short term and it might change. Sometimes it’s gold. Maybe it’s going to be Bitcoin at some point. It didn’t happen this time. Uh I want to own energy stocks or some sort of precious metals or commodities. And I’m sure like those are all pretty decent answers if you wanted to like hedge inflation in the short term. Uh the other side of that is if you hold those assets like maybe they when there’s not inflation, they don’t do as well, right? So you have to be kind of open to that. So I look at it as more from like a personal finance perspective. And I say the three best inflation hedges are just uh a good job where you can increase your wages over time, right? uh which is I think one of the areas a lot of personal finance people don’t spend enough time talking about because it’s hard to give people like blanket advice about how to increase your income right it’s easier to tell people how to save and pay down debt um I think having like you I talk about in the book the two biggest spending categories for people are housing and transportation in the US that makes up according to BLS something like 50% of household budgets so I think if you don’t have those two spending areas of your life taken care of in some way and have a good um good handle on it’s really hard to get ahead and save cuz that that’s such if if you overspend on your house and if you overspend on your transportation, it’s going to be hard to save in other areas. And then finally, I think the stock market is still the best long-term inflation hedge. So over the past 100 years, it’s like 6 to 7% over the rate of inflation. Now over the short term, sometimes the stock market might falter against inflation. That’s what happened in 2022. But leading up to that inflationary period, the stock market did way better than inflation. So I think I think you have to look at it not as short-term. And I don’t think about inflation hedging as much as like how am I going to hedge it over the next 12 months if it spikes or the next 24 or 36 months or whatever it is. I look at at it more of like a long-term game. Like how do you keep up with changes in prices in your standard of living over the long term, not just like hedge it over the short term. Yeah, I I like the human capital answer a lot and the uh you also mentioned in the book fixed rate mortgages. We we don’t really have those in Canada. Not the same kind of long-term fixed rate mortgages that you guys have in the US, but just a paid for home, like similarish outcome in terms of hedging your your housing costs. Yeah. And actually, housing itself is a pretty decent hedge against inflation, right? Owning a home, it it it’s because the materials go up, the cost of the land goes up, all these things. Yeah. Why is uh why is timing the market so tempting for people? It it sounds great to just say, “I got out of the top, right, or I got in at the bottom.” It feels so good. And I I I interacted with a few of these people in the 2008 crisis. And the funny thing is is like they might have timed the top pretty close plus or minus a few months and then the the bare market kept going on and whole time they felt so good about themselves. And then the problem with market timing is you have to be right twice. And a lot of them just overstayed their welcome and couldn’t get back in. And the thing is I had a colleague who did this. She sold in like September of 2008 when Layman Brothers was blowing up. you know, the stock market fell another like 30% from there. So, even as those banks were blowing up and all this bad stuff was happening, um, she didn’t get back in and then when she did get back in, she tried to time the market like four more times after that and and it was wrong every time. So, sometimes like the worst thing that can happen to you is that you you’re right about the timing once. And I just think that it just adds so much psychological warfare to the investing game of trying to think like, well, when should I buy back in? Should I wait for the market to crash? What if the market gets away from me? There’s so many so much uncertainty that it introduces and it just makes it so much more psychologically challenging. If you don’t have some sort of rules or guidelines to guide your actions there, I just think it you’re just you’re setting yourself up for disappointment. Yep. And what would you say is the single most important concept in investing? So, I think it’s how you deal with losses. And all Daniel Conorman did a bunch of research on this and he found the idea that losses sting twice as bad as gains feel good. And I he didn’t even need to do the research because I explain this to my children like when their favorite we’re all Michigan fans in my house and it’s great when the team wins in football or basketball or whatever, but when they lose like my kids are like distraught, you know, and I I tell them like just so you know, the loss is always it hurts more. You can just you feel more. So, it’s kind that’s kind of an intuitive feeling and that that’s why there tends to be more volatility in bare markets or market downtrends. Like there’s like these wide swings, right? You have these huge up days and huge down days where in bull markets it’s more like a smaller stairstep approach. And that’s because when people lose money, they tend to panic. It just brings all these different feelings. Uh I talk about in the book how they’ve done studies where they show that people who lose money in their finances can like relive those feelings and thoughts in their dreams. like you have nightmares about losing money. It’s something that can like have a visceral impact on your body. And so I I think it’s it’s just dealing with it. Dealing with losses is the most important thing as an investor because it’s going to play head games with you. We talked earlier about the the 1929 market crash. You said it was an 85% drop, which is crazy, but not that many people actually invested. Can you talk more about how bad the uh economic side was? Yeah, that and that that I think was probably even worse for people. It’s just like so it wasn’t just that it was a a really nasty recession and unemployment rate got like 20 25% but it lasted a really long like basically the entire 30s right by 1937 the um unemployment rate was still 20%. It wasn’t really until World War II that things kind of improved. Okay. So GDP in the great depression it contracted like 30%. Corporate profits fell by 70%. Which is just unfathomable to think about. Um you talked a little about fixed rate mortgages. One of the reasons fixed rate mortgages became a thing. It wasn’t that wasn’t a thing before the Great Depression and I think something like 40 or 50% of all US households defaulted on their loans and they were they were saying like we can’t let this many people lose their houses so we have to extend the life of their mortgage. So the the fact that there is a long-term fixed rate mortgage in the US is kind of an artifact of history from the Great Depression. So all of these things like the production in the economy didn’t hit those same levels in 1929 until World War II. And so it just the length of time and it’s funny because after the great depression there’s this whole generation of people they call them generation uh great depression babies who were frugal and didn’t spend money and they like you know they reigned everything in and I think some baby boomers still have that mindset because it was their parents who lived through it and it’s funny to think through how the pandemic was the opposite of that right in the pandemic we all turned into like degenerate gamblers and speculators and everyone wanted to invest And uh it was the complete opposite. So it is funny how these like big you know big events can shape like generations of people. Yeah. Yeah. Yeah. There’s a paper on on that looking at how uh risk-taking changes for people who were born during the great depression. Yeah. Um there’s a great book on that period that that I think I found through your blog years ago. The Great Depression of Diary by Benjamin Roth. Such an interesting read. Yeah. I I really enjoy reading market history, but sometimes it’s cool to read people who are actually there because it’s a little easier to have like a steady hand when you think about it, you know, decades later, but if you were living through it, yeah, he he shared his grandfather’s diary. He he had he made these comments like, “Man, I think the worst of it’s over.” And then a year later, like, no, the worst was not over. It kept getting even worse. And yes, I love those accounts like that that are sort of first person cuz if you you look back at something like that on a chart and you go, “Ah, it would have been fine. and I would have held through it or I would have bought at the bottom or uh the point that he makes in that book is just like no it would have been a great buying opportunity for the stock market no one had any money left. Yeah. It wasn’t possible for people to buy the dip cuz the dips had all been bought and it just kept going down. Yeah. So what are the main lessons from that crash? because it certainly isn’t hold on it’ll be a difficult but short you know way down and then uh the recovery is is just on the horizon. I what do you take away from a crash that led to a decade long depression? Yeah, I think it shows that like there are outlier events that can happen and you have to account for that. like that’s not your baseline. Of course, you know, people have been you see those charts that show like, oh, look, just like 1929. Again, that’s a little ridiculous, but you have to be I think you just have to be willing to accept that there are outlier events that can happen and the extremes can go way further than you think. I also think policy makers have learned a lot of lessons from that, right? The 2008 crisis with the government throwing so much money at it and lowering interest rates, I think they did that fast enough. A lot of people said because like Fed chair Ben Bernaki studied the Great Depression. He’s like, “We’re not going to let that happen again. we are going to be the lender of last resort. Uh I don’t think we get the response from governments around the globe and co if they didn’t live through 2008 and see that like actually throwing money at the problem can help the economy. And so I think policy makers learn their lessons. It’s funny though because I I talk about in the book there’s this concept called normal accidents. This guy Charles Perau like studied all these nuclear bombs and and nuclear reactors and and ships and stuff like when things go wrong. His whole point is is like when you have these complex systems like this, you can try to make them safer. In some ways, you can, but it just shifts the risks elsewhere. So, I I think like we’ve probably cut that left tail of the Great Depression off, but like what does that mean? Does it mean I don’t know like did people require higher returns in stocks back then because you could have that situation or is it just like are we setting ourselves up for complacency and other bigger risks down the line? I don’t I don’t know the answer to that question, but I think, you know, like risk doesn’t always just completely magically disappear. It just kind of goes somewhere else. Yeah, you can definitely see the argument just looking at historical US stock market valuations that the US stock market is just safer now and stock prices are higher, expected returns are lower. Yeah. Yeah. You’re right. So, the valuations probably had to be lower back then to get people to invest because they they didn’t want to as much. It was SC. Like, you look at the long-term chart after the Great Depression, you’re like, I’m not going to buy this. Look at how much pain there is in there. Yeah. Can you talk about how uh recessionary and nonrecessionary bare markets tend to differ? Yeah. I talked about the two different types of um bare markets in the book. And it’s interesting that 2022 period was like a nonrecessionary bare market to a te, right? So those those periods tend to be the magnitude of the fall is not as great. It’s like a average like a 25% fall down in in bare markets that happen outside of recession. And during a recession, it’s like 40% 40% or so of a downturn. Uh those bare those recessionary ones last a lot longer. But I think it is also instructive to know that like there’s there’s a decent number of bare markets that occurred outside of a recession, right? Where there’s another reason where the stock market fell, right? Whether it’s investors freaking out or earnings and sometimes it’s right, sometimes it’s wrong. But it’s not like those situations just happened when there was a recession because we we haven’t had a real recession in the US really since the great financial crisis, right? And there’s there’s been a handful of bare markets. And I think it’s just important to recognize that like these the stock market can fall even if the economy is still growing and doing okay. We touched on this a little bit already, but one of the interesting things in a bare market is that you can often have some of the best single days it with of market returns in the middle of, you know, what is a longer term downturn. there’s still a lot of volatility on both up and down directions. So, can you talk a little bit just about how volatility changes during bare markets? Yeah, it’s interesting because you see those those studies that say like, hey, if you just miss the 25 worst days in the market, you would done this. And if you just missed the 25 best days, it would actually been this. And the funny thing is that those best and worst days happen together. It’s during the bare market. you like you can see in March 2020, which is one of the most volatile years since like the Great Depression, um there were these big eight or nine% down days when the pandemic hit, but then there was also these huge eight or nine% up days. And that’s the that’s the difference is that the volatility tends to cluster during those bare markets because people panic to the upside and the downside. It’s like, oh yes, it’s over. let’s everyone back in and you see these huge gains and then it’s like no we’re taking away all that uh you know all that sunny attitude and we’re taking it away and then we’re going to go back down and you see because like I said people panic and and I think that those volatility clusters that’s what makes it so hard to understand what’s going on in a bare market cuz sometimes you get these like dead cat bounces and like it sucks you back in sometimes though that’s that’s the end of it and it’s we’re off to the races then that’s why it’s so hard to know when the bottom is in when a bare market does does bottom, right? Every one we’ve had this this decade, someone has said like, “No, that there’s no way that was the bottom. We’re going to roll over again.” Like, there’s no way that COVID has to be worse because it’s not getting improving. Inflation still hasn’t improved. That there’s no way that’s the bottom. And the the thing is just like no one knows at the time. Like it’s hard to know for sure. Like is this just a dead cap bounce and volatility or is this the market actually no, it’s reversing course and it’s going to go right back up. We talked about the challenges with timing the market. How should people prepare for these inevitable bare markets? Yeah, I think you have to have a durable enough plan to survive a wide range of environments. And I think people have learned that this decade, too. Like there’s different investments that work differently under different economic circumstances. High inflation, low inflation, high growth, low growth, you know. Um I I think a lot of people now are like, well, you know, we’re not going to have any more nasty recessions or nasty bare markets. like they all just are V-shaped bottoms. And I think that that’s that’s kind of hopeful thinking that you’re not going to have one of these more extended periods because we haven’t again we haven’t had a recession. Um so I think the way to way that I tell people is like don’t hold only hold enough stocks that you hold during a bull market and a bare market, right? Don’t don’t like try to go overboard during a bull market and then pull back during a bare market. That’s like the exact opposite. That’s like selling high and buying low. So, I think you have to be comfortable with your portfolio because money can evaporate pretty quickly in the stock market in terms of bad days and bad months and and market cycles are speeding up so much now because of the information age that I I actually am of the opinion that like the downturns are going to be swifter when they happen. It’s just we’re just going to rip the bandit off and go. I don’t know if that’s for sure, but that’s kind of my line of thinking. So, you can lose money very fast and if you’re too aggressive and not prepared for it, uh it can be scary. So I think for a lot of people especially you know a lot of it depends on like where you are in your investment life cycle. If you’re a retiree and you have no human capital left and you’re not going to be saving anymore you don’t have time to wait out bare markets as much and you don’t want to sell your stocks when they’re down. So you need some sort of margin of safety some sort of liquid more conservative investments. You’re not selling stocks when they’re they’ve already fallen. Um so I think part of it is understanding like that like where are you in your life cycle? If you’re young and you’re accumulating assets like you shouldn’t be scared of bare markets. They’re a good opportunity for you. you should want them to happen so you can buy at lower prices. I think a lot of people intuitively think that the stock market and the economy are intrinsically linked and of course they are in some ways but can you talk a little bit about how investors really need to understand the relationship between the stock market and the economy itself? Yeah, it’s it’s interesting because sometimes the stock market really is the economy and sometimes it’s not. Uh you think about it um the US stock market is roughly 40% made of tech stocks. I guess depending on how you define them it could be 50%. um 50% of the US economy is not made up of technology sector right 70% of the economy is driven by you know consumer spending and a lot of that is on services not even goods right so the stock market economy can diverge because the the best companies and the biggest best companies the SP 500 aren’t really representative of the the US economy you know and small businesses and these types of things so they can diverge at times I guess my biggest lesson when studying the economy. And it’s funny because it’s never been easier to track the econom like the economic data we have now at our fingertips is like better than anyone could have possibly wanted. Like one of the biggest differences between now and the Great Depression, we talked about that period. Like people didn’t know what the economy quote unquote was back then. It wasn’t they didn’t really measure even GDP. That didn’t happen until World War II. And so the fact that we have all this data at our fingertips, it’s funny like we have so much more information and data about the economy. It’s people still can’t predict what’s going to happen with it, right? There’s people way smarter than me that are in terms of like macro pundits and forecasters and they’re wrong all the time even with the ability to slice and dice this data and and so I think the hard part about the economy is like the stock market the data is there immediately. the economy kind of operates on a lag and the data is changed over time and it’s hard to, you know, these multi-t trillion dollar economies. They’re kind of like turning a battleship whereas a stock market is more like a speedboat, right? And the battleship turns very slowly. The economy doesn’t like start and stop on a dime typically. And so I think that’s what makes it much harder to to wrap your head around that. The stock market overreacts way quicker and faster than the economy because it’s hard for the economy itself to like have an overreaction. Yeah. Yeah, stock market is just forward-looking. The economy’s economic data are backward looking and so the stock market cares about future expectations which can change in directions different from economic data. Yeah. And back to our thing about the two bare markets like they said the old quote is the stock market is predicted to nine out of the past five recessions. Uh sometimes the forwardlooking part of the stock market is right, sometimes it’s wrong. But it’s not going to like stop to ask questions. It’s going to go. Yeah. Yeah. as you mentioned in the book your your post on that uh which has been read a million times I think you wrote uh that’s it’s fantastic it’s one of the I made a video related to that uh after reading your post that’s uh yeah it’s a great great topic and I do like in the book how you talk about how uh it’s it’s not that the stock market is not the economy as you just said sometimes it is uh but they’re just less related than I think people tend to think yes exactly and people used, you know, people have their own personal economy, right? No one’s in no one’s personal household inflation rate is what the government is putting out there. And it makes people really angry. Like, you think the inflation rate is 3%. Are you kidding me? Have you seen how much it cost for daycare or housing or and that’s because everyone has their own personal economy and personal and so I think sometimes what people do is they conflate anecdotes and their own personal life with like the economy at as a whole and the greater economy and that gets people into trouble because you know the economies like the US economy is like 32 trillion dollars or something. It’s huge. It’s very dynamic. It’s very diverse. Um so your little inputs into it your household like is not representative of it at all probably. That’s hard for people to wrap their head around. Yeah. Yeah. Yeah. How do you describe the difference between volatility and risk? Yeah. It’s interesting that um cuz Wall Street loves to quantify risk and put a number on it. I learned that early on in my career like, oh, everything has to be a number, right? There has to be a risk sore or a probability or or something. It has to be verified. And I think for most people risk is like qualitative and it’s like it’s harder to wrap your head around and and put a data or a number on it. And and so I think that’s the hard part for people because a lot of it is does come down to like the emotions and like so I say that like your the risk profile is determined by your willingness, need, and ability to take risk. Like I think need and ability you can kind of quantify a little bit like what do I what’s the expected return I need reach my goals and my ability to take risk is like where am I sitting right now what’s my what’s my net worth what am I saving how much do I make like that stuff you can quantify the qualitative side is like the willingness to take risk and because some people have the ability some people with a lot of money you could have a seven figure portfolio and have the ability to take a lot of risk but you might say I don’t want to because I already won the game and so that that like squishy part the willingness That’s the hard part that is really hard to to verify and like and put a calculation or a formula on and for a lot of people there is no one. It comes down to like really knowing yourself and that can be hard to do. Yeah. And like you mentioned earlier, stocks are volatile but they’ve been one of the best inflation hedges if we can call it that in the long run because they’ve got high enough expected returns. Right. A lot of skeptics of investing will compare the stock market to a casino. Um, can you tell us why you think that’s a bad analogy? Yes. My least favorite analogy of the stock market. I I’ll accept roller coaster because it is kind of a roller coaster sometimes, but the casino I’m I’m a blackjack player. I don’t know about you guys. Uh, I grew up in Northern Michigan and we had we had a lot of the uh Indian reservation casinos. So, I could go in. I was like

18. I loved it. Me and my friends would go on Friday nights. We played blackjack and the longer we sat at the table, the worse our odds were because the house has the odds in their favor, right? So the longer you sit at the table from a probability perspective, the higher your odds of walking out there a loser, right? Uh it’s the opposite with the stock market. The odds show that, you know, over a one day period, it’s almost a coin flip. It’s kind of funny. It’s like 53 or 54% of all trading days in the US stock market are positive. So the other 46% or so are negative. Then you extend your time horizon and since 1950 it’s like 80% of all one-year periods are positive, right? Like 98% of all seven-year periods. So the longer you stay in the stock market casino, the better your odds of walking away a winner. In my mind, that that makes it the best casino in the world, right? If it really is it’s the opposite of a real casino. And uh the hard part is for most people is having enough patience to allow it to happen. Yeah, it’s such a such a simple but powerful explanation. It’s just like a casino has negative expected returns. The longer you play, the more likely likely you are to lose. Whereas the stock market’s the opposite. Positive expected return, you stay in your seat, you’ll win. In the short term, though, they could look pretty similar.

Yeah, it’s obviously just I think it’s it’s I think today’s day and age and the information is it’s probably harder than ever for people to just sit on their hands and not do anything. Like the you guys know when you’re you become a financial adviser, the first thing I tell you to tell clients is ignore the noise, right? It’s really great advice. It’s it’s a great platitude and it’s like impossible to do these days because we have these little pieces of glass in our pockets that are constantly alerting us to everything that’s going on in the world, right? You can follow your investments immediately everywhere you go. I remember I I wrote out the 1987 crash once and a guy wrote in and he said, “You didn’t live through this.” I don’t know, I was 6 years old or something. You didn’t live through this, but when I lived through the 1987 crash, I didn’t know what happened until I was on my way home from work and I I listened to it on the radio and I thought we were going into depression and he like I didn’t know what was going and the next day I had to wait to call my broker to ask my portfolio did like it was so much I think it was so much easier to be naive in the past and not pay attention to stuff and today it’s impossible. And so I think it’s more important than ever to have like a filter on your information and and like have some limitations cuz if you have no limitations on like your information sources or your investments, uh it’ll make your head spin and it’s like it’s it’s really tempting to just like take it all in and eat drink from the fire hose. Man, another issue is that a lot of the stuff that does get promoted to retail investors is more casino-like. Like a lot of the brokers will push options trading or or or meme stocks or whatever onto retail investors and those probably do have uh a negative expected return in a lot of cases. Well, unfortunately, I think we’ve learned this decade. I talked about the, you know, outcomes of the pandemic. We’ve learned that people really like to speculate. And the the stat I give in my book that and this one blows me away every time each year Americans spend more money on the lottery than they do on sporting events, books, video games, movies, and music combined. It’s crazy. And and yeah, the the retail investor has just shown more that they want to speculate and gamble. And I think to be fair, a lot of people are doing it with like part of their portfolio. Right. Right. Right. They have target date funds or index funds in their retirement accounts and they’re leaving those alone in them. they have their brokerage account and they’re speculating with that. Um, if that’s the case, it’s not that’s not ideal obviously, but I think if like doing one allows you to leave the other one alone and it’s and you’re size it correctly, it’s not the worst thing in the world, but it’s it’s just, you know, that it’s it’s just a gateway to more and more speculation. And sometimes the worst thing that can happen is like one of those lottery tickets. Yeah. And you go, “Oh, I’m pretty good at this. I’m going to do it again.” And as we all know like that the probability of that happening consistently is very low and that’s the hard part. Yeah. It’s hard to size your bets appropriately when you’re winning like that. Yes. We talked about Japan earlier. Can can you talk more about how how severe was that bubble uh in terms of asset prices leading up to the 1990 crash? I looked at the valuations of this and I tried to match them up with the dotcom bubble. So the.com bubble is by far the biggest valuation bubble we’ve ever seen in the US stock market. like it dwarfs the 1929 crash even and I think the US stock market traded like 45 times earnings. Japan at the peak was more like 100. So it was just it it blew it out of the water. Uh and and just it’s funny because in Japan their culture they don’t have a culture of risk-taking people. They’re more conservative by nature and they haven’t really had any bubble-l like behavior since then. Right? In the US, the joke is like, I don’t know, every seven years or so, we need a bubble just to like scratch an edge like ah, what else are we gonna do? Let’s have a bubble and something. In Japan, it doesn’t really happen that much. So, I think I think stock the stock market in Japan as a percentage of GDP went from like 30% in 1980 to 150% by 1989. Like, it was the the runup was really insane. It went from 15% of the global stock market to all the way up to 45 at the peak. And it was bigger than the US stock market for a little bit there. and and all the magazine covers at the time were talking about how Japan is taking over the US as like the dominant economic power and uh it didn’t happen obviously. Um but it it just goes to show you that even like those anyone can get caught up in something like that. That was that’s a conservative culture of people that doesn’t do this kind of thing and they got caught up in it and they had they like suspended their disbelief and just like allowed themselves to dream like well what if this this is just this new paradigm and and we’re in Japan’s taking over the world. But how how bad are Japan’s long-term returns? Because you touched on it earlier said if you extend the period out kind of before and after the bubble burst, maybe they normalize over some stretch of time. Yeah, you just have to go like really long-term mean reversion. And I wanted to finally like put the NO Japan thing to rest. So I looked at it. So yeah, the it’s like it it’s like one or two% per year since 1990 for Japanese stocks, which is obviously terrible, right? you that’s like really buy and hold, but it was 22% in change from 1970 to 1989. So if you just mash those two together, you get like 8.7% annual returns over the past 55 years or whatever. So actually the long term, it kind of bears out to many of the other stock markets, not that much worse. It’s just the returns were so compressed in such a short period of time that that afterwards they had to be terrible. And that’s that’s the problem. It was like it was extreme mean reversion. Yeah. People, as you’ve noted, people love using that as a sort of counter example, but what do you think are the main lessons? I think people throw that out. It’s like, well, you know, stocks are riskier. You shouldn’t invest right now because of Japan. What do you think of the actual useful takeaways from what happened in Japan for investors? It’s funny because it’s not like that blow up because their their housing prices on an inflation adjusted basis are still below where they were in 1989 as well. Like it like huge financial asset bubble that burst. It wasn’t like there was bread lines in Japan, you know, it did it. Yeah, I think if that happened in the US, like there’d probably be anarchy. People would freak out. But Japan, they kind of like they said, “All right, fine. I guess we’re dealing with this.” And they they had money in bonds and they they increased their savings rates and they sort of took care of their elderly and um they didn’t have huge layoffs. And the Japanese economy is still kind of doing okay, right? And those stocks in the last 10 or 15 years have come back nicely and are doing better. So I think my biggest lesson from Japan is just the diversification piece because the rest of the world didn’t slow down just because Japan decided, you know, Japan peaked in 1989. The US went on to have one of the best decades ever in the 1990s, right afterwards. So like Japan didn’t bring the rest of the world down. The rest of the world went on and had a nice run in the 90s after that, right? Right. And so I think if you look at like the country stock markets though, they tend to that the ranking per by decade is always changing. I have some of the numbers in the book on that. And I just think if you have all of your money in a single country, you do potentially open yourselves up to like outsized risks like that. And it’s I guess it’s just it’s an unnecessary risk in my mind if you’re going to put all of your eggs in one basket because you have the ability to diversify so much easier these days. Yeah. I think the the other one that I always find fascinating with Japan is that if you look at the market, it had that horrible period where where it’s still barely recovered now. Let’s come come back a bit. Uh but if you look at Japanese value stocks or small cap value stocks over that same period, they actually did fine. Yeah, you’re right. It’s so it’s like strategy diversification as well. Yeah, you’re right. International stocks, the same thing. Haven’t done very well this like bull market for us, but actually, yeah, you’re right. Like value stocks internationally have done a lot better than value stocks in the US. And like that that form of diversification can save you in a lot of ways. Yeah. Speaking of you know one country dominating or lagging over one period the US experienced its most difficult decade at least in our remembrances from the dot crash until about 2009 2010. Um how common is it for there to be a true lost decade in the US market? Yeah, that period is kind of like singing into my memory because that’s when I first came up in the industry and I saw it firsthand right from 2000 2009 the S&P 500 went nowhere and it lost like 10% of its value. I think it was like 1% per year. So the US has had technically three of them. The 1930s was the lost decade. The ‘7s was the lost decade on a real basis. Nominally the returns did okay but inflation was so high on a real basis you lost money and then that first decade of the 20 21st century. So, three times in the past 100 years is probably more than most investors would think, right? Uh, but this happens to a lot of asset classes. Um, I was looking at energy stocks the other day. Energy stocks basically went through a lost decade in the 2010s, right? And then they’ve boomed this decade. They bmed a decade before. Uh, gold had an amazing 1970s period, but then basically went nowhere in the 1980s and the 1990s, and then it boomed again, then another lost decade, and then another boom this decade. And so I think that’s just kind of the thing that a lot of people forget. When things are going well, people tend to think like, oh, nothing can ever stop this train. And when things are going poorly, it’s like, this is never going to turn around. But all of these things are cyclical and nothing works forever. I think that’s the that’s the point. And when the US did go through it last decade, all these other asset classes did okay. Stocks did better. uh emerging markets and REITs and bonds and small cap value and all these different other strategies did pretty well when the US went through the last decade and it was just the S&P 500, you know. Um so kind of again another feather and a cap of diversification. Yeah, that seems like a particularly important lesson right now where the S&P 500 US market has just been ripping but you know valuations are high and as you said it doesn’t usually go on forever. Yeah. And and I’ve been hearing for years now like why would I invest in anything else? And obviously um a lot of those people weren’t around or don’t remember that we did have a lost second not that long ago, right? And and this is this is part, you know, obviously there’s other reasons, but this is kind of the mean version from that. Like we’ve we had that really bad period, now we’re in a really good period. And the the bad periods tend to follow the good periods and vice versa. The lesson I always like to bring up to people was I was sort of similar. my when I started my blog was 2010 and so that was right at the end of that so-called lost decade and we had the opposite because that decade was actually pretty good for Canadian stocks much much better than the US and I got the same questions from readers except the opposite which was why would I invest in anything other than Canadian stocks the US stocks you know what how did they do for you the last decade everybody’s completely forgotten that now so it’s just a kind a reminder of why you need to hold everything all the time because if it feels like you’ve got a portfolio that’s going to uh have all the winners, you’re probably poorly diversified. Mhm. Yeah. But then the hard part is like these cycles aren’t on a set schedule and they can last longer than you think. Like there’s no way coming out of the great financial crisis anyone would have predicted the US stock market would be this strong for this long. We’re going like 17 years, you know, of like a booming bull market. There’s no one thought that was possible back then. So that that’s the hard part is that sometimes these cycles like the pendulum swings really far and you might be rebalancing into the pain for a number of years which the way I look at it is if you’ve been rebalancing back into these other areas like it’s you’re it’s a form of like dollar cost averaging right and so when they and international stocks have turned around the last couple years emerging markets have turned around and if you’ve been kind of rebalancing in the pain throughout this whole period like you were kind of set up and ready for that to happen. Yeah. You mentioned a bunch of other other asset classes and their relative performance during last decades. Can you talk more about what has been historically the best way to avoid getting you know clobbered by a lost decade in a in a single stock market? Yeah. I I mean again the ge I think there’s there’s three different ways you can diversify. So one of them is geographically, right? We talked about investing outside of Japan. U two is asset class. So it could be stocks, bonds, cash, real estate, other alternative investments. And then the other one is just strategy and you kind of mentioned them too. Like there’s there’s plenty of other different ways you can invest in the stock market that’s outside of the S&P 500. There’s small caps and midcaps and value stocks and high quality and dividends and and there’s more ways than ever to invest and diversify these days. And I think that’s a great thing. And if you look at valuations today, sure the S&P looks pretty rich based on its history, but a lot of these other areas have kind of they don’t they they look, you know, relatively cheap and and so if you’re really worried about the concentration and the AI, you know, hyperscalers and all their valuations, like there’s plenty of other places to invest these days, even in the stock market, that don’t have valuations anywhere near those companies. When you try to combine asset classes, um, strategies, etc., I mean, is there a perfect portfolio? Is there an optimal mix of these things? Yes, but I just have to tell you about it after the fact. It’s funny, the first guy I worked for had like the efficient frontier that he would use to create build portfolios for for our clients. Um, and he would always have to give them like the the spiel about like we’re using the historical data here. If I had the future data, you know, I wouldn’t have to diversify. I just give you the best asset. And I think that’s the the idea behind it is that you don’t know what it’s going to be. You just have to pick the portfolio that’s perfect for you. And for most people, perfect is like the enemy of good and you have to find something that you can just stick with. And diversifying doesn’t always make it easier because you’re always apologizing about something. But I think it does take like those tailor risks off the table. And so you give up on the home runs, but you also can kind of take away the strikeouts. And and that’s the point is just like getting something that you’re personally comfortable with and then not worrying as much about what everyone else is doing, which is easier said than done. Yeah. And something that that helps you meet your goals. Like I I love the uh the bokeh example that you gave earlier from uh I think from Jason Swag. Yeah. Yeah. Uh what what are your top 10 from the book? The the top 10 ways to lose money in the stock market. Oh, yeah. I said I had to do at least one. um one list in the book. It it’s funny because I think that there are there are a lot of different ways that you can be successful as an investor. I used to be of the mindset when I first started blogging that like, okay, there’s one way everyone should follow this one way to doing things, right? My way is the best way. But then I I I’ve met with so many other investors that have that have made been successful doing other things, right? People have been successful investing in individual stocks. People have invested in index funds. People are real estate investors and technical analyst. But there’s tons of different ways to be successful. I tend to think that the ways to be unsuccessful are all pretty common though, right? I think anyone who thinks who pretends that they’re like smarter than the market is is due for pain. And it’s funny because many people think if they’re smart in one area of life that it’s going to translate automatically to markets and it rarely ever does. Uh I I’ I’ve still yet to meet anyone who consistently time the market. Things like chasing performance and and one of them that I really learned after the 2008 crisis was fighting the last war of like, okay, that big risk just happened. How do we prepare for that one next time? And the next risk is rarely like the last risk. And so I think stuff like that is is really tough. You know, you know, I I think anyone who who sort of panics during a downturn and changes their whole investment philosophy because they’re living through bad times, I think that’s a good way to lose some money. Speaking of lists, we’re going to ask you to itemize all of your top 20 beliefs about investing. But maybe we’ll just say share with us a couple of the highlights. Yeah. Um, you know, one of them that I’ve been harping on for a while is just kind of ignoring the billionaires out there who are giving you advice about what to do and and saying I’m going short the market or I’m predicting a recession or because I I think the biggest thing what we tell our wealth management clients all the time is like we can’t offer you investment advice unless we get to know you better. We have to know what your goals are. We have to know your circumstances. when you’re trying to take investment advice from people who are on financial television and they’re talking about, you know, most of the time they’re first of all, they’re not, you have to watch what they do and not what they say anyway. They create processions, but their portfolio doesn’t match it. Then you have to realize like, is is what this person is saying really relevant to me anyway. Is it are they do they know my circumstances and my goals, how much I’m saving, how much I’m investing, what my risk profile is. And of course, the answer is no. But you hear one of these really smart people talk and you go, “Oh man, really? They’re worried about a recession. They think stock market’s too overvalued. I should I should probably listen to them. Um I also think that the one big belief I have is that like you don’t always have to be bullish or bearish as an investor that like if you’re a hedge fund manager, sure I’m bullish right now on this company. I’m bullish on this area of the market or the market overall. I’m bearish. But I think as an individual investor like it’s funny with our clients most of the time it’s not the market that dictates a portfolio change. their personal circumstances, right? They had a life event. They make more money. They they make less money. They got fired from the job. They got an inheritance. They’re going to get married. Someone in the family died. It’s usually a life event that constitutes like, okay, actually this your your plan needs to change versus like, oh, we’re thinking about the market valuations now. We’re going to change your portfolio. And so this idea of being bullish or bearish, I think it’s different. And that’s why like shameless plug here for the name of the book riskreward. Like when we think about making changes to client portfolios, it’s usually not us trying to make a prediction on what’s going to happen in the market. It’s like the riskreward setup has changed in some way, right? We’re not being paid enough risk to um to continue to invest in this asset class or this fund or something. Um and we need to make a change of the portfolio in terms of allocation or whatever. I think that makes more sense than than like saying I’m wildly bullish. It’s time to go all in right now because no one knows how to time that stuff. Yep. We approach it the same way and I would even go as far as saying that is the right way to think about it to the extent that things can be right and wrong in investing. All right, Banner, last question for you. How do you define success in your life? Oh, great question. It’s funny how much that has changed over the years for me. Um, I think now where I am in my life, I have three kids. I think if like they can be successful, good, kind people, that’s success for me. I tell it’s funny, I I one of the benefits I think of having kids is that I don’t worry about myself as much anymore or think about myself um and take myself too seriously because all the worry goes on them. So like if as long as like my wife and I can like help make them good people, good kind people, I think that’s success in my life. It’s a great answer. How old are your kids? So my oldest daughter just turned 12 and we have twins that are 9 years old. Okay, nice. I’ve got kids of similar ages and then two more and I I’ve reached the age where they no longer think I’m the greatest person in the world. They no long think I’m cool. Uh I’m the dad that gets like ripped on now. And I don’t know how it happened but they it’s uh that’s what I’ve graduated into. So I’m no longer the cool dad. I’m the dad that gets ripped on. That’s pretty funny. My my older two older two rip on me. The my two younger daughters, they still think I’m pretty cool, but my two boys, they uh they rip on me every moment they get. It is kind of funny. Yeah. Circle of life. Yeah. Yeah. All right, Ben, this has been great. Thanks a lot for coming on the podcast. Thanks for having me, guys. Thanks a lot. Hey everyone, it’s producer Matt. Thank you so much for tuning in to this week’s episode. Before we sign off, here’s the disclaimer you’ve been waiting for. 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