What you are about to read first appeared on my Medium page here. But, I am resharing it on my blog for those who missed it. Enjoy!

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Each year I do this, I’m reminded of how little I actually know. I think it’s important to accept and reflect on that reality. Someone recently said to me, “every time you meet someone, they know something you don’t.” I think that is a great way to go through life — curious, learning, and listening to all the things you could have never predicted or taken the time to learn about.

I first started writing my yearly investing lessons in 2016. I found it to be rewarding and it was a pleasure to publish it online, in front of everyone, to not only get feedback, but to also hold myself accountable for what I believe in or see in markets. I think that takes guts. You can read my previous reflections here.

1. The financial statement is what grounds a company in reality. Everything else is a “story.”
2. There is something new to learn in markets each day and the second you forget that, the moment you think you know better, markets will show you otherwise.
3. In technical analysis, the most important indicator is volume. You want to avoid slippage. And you want to know where most of the people are transacting.
4. If you don’t understand something in a financial statement, research it. Do not move on from it. You have to put in the hard work.
5. Learn to find irregularities. Find the things people are missing, usually buried in obscure foot notes or random slides in management presentations. This is also the most time consuming thing to do.
6. Watch, read, and study more presentations from management, and press releases from companies. Mastering the investor relations page is an underrated art for any investor.
7. Read more footnotes in financial statements.
8. In 2019, I did things a little differently. Spirituality, man. You have to have a belief in something. Whether it’s science, God, Mother Nature or anything else. Your investing career is only as grounded as your personal spirituality.
9. In 2019, I spent a considerable amount of time reading about Buddhism, Taoism, and some serious hippie stuff related to Mother Nature and the Earth. I don’t necessarily prescribe to any of it, but a lot of the teachings opened my mind up to things the market is generally against: stripping yourself of excess and finding meaning beyond news, money, and markets.
10. Combining spirituality with markets is a trippy thing, but there are benefits that go beyond a balance sheet or chart. It’s an investment in your sanity and long-term thinking.
11. They say the same part of the brain activates when people do drugs and a trader makes money. One is socially acceptable and considered “sophisticated” while the other is furthest from it. Just remember, at times, that’s what markets really are.
12. Market cap is an overused and overstated metric. It’s becoming the PE ratio of this era. I think Enterprise Value (market cap + (debt-cash)) or the difference between the two is a better use of your time.
13. A low PE ratio is generally low for a reason. If you buy a two month old avocado for 25 cents when avocados normally sell for $2, it’s not a bargain. It’s still going to be brown on the inside.
14. The stock market is one of the few places where as the price of an asset increases, more people want to own it and buy it even higher.
15. The market is not driven by greed or by fear, it’s driven by what your neighbor is doing. I am not the first to opine on this. When people hear the neighbor next door banked $10,000 on Bitcoin and bought a new BBQ, it is a driving force for decision-making. It is FOMO. No one wants to miss out and no one wants to feel jealous.
16. Remember that all social media companies make money by monetizing your time. Don’t let them distract you from your goals.
17. Free cash flow is still the first thing I check for all companies. Revenue, operating expenses, and enterprise value are not far behind.
18. Value investors do best when interest rates are rising. Value companies generally have more cash on hand and cash performs best when it’s earning the most interest. It is a tailwind that should not go unnoticed.
19. Growth investors do best when interest rates are dropping. Low interest rates are the fuel they need for growth.
20. Growth investors do not outperform value all the time and value investors do not outperform growth all the time.
21. If you maintain your own portfolio, always make sure you know what percentage of your stocks are considered growth or value — I don’t think it’s wise to be overweight either.
22. Industries surrounded by hype come and go as they always have from 3D printing to pot stocks and crypto stocks. This will always be a thing. The difference between a newb and an experienced investor is one knows this to be true.
23. You never quite know when a growth industry becomes a mature industry, but I believe the transition really starts to unfold when companies in the same growth industry start projecting similar growth trends as their competitors. They can’t all be right. They are all counting the same potential customer.
24. As an emerging industry becomes mature, with each passing day, another sales call is made by a competing company and the market begins to shrink, not expand. I think several industries are approaching this point. Read more on my thoughts here.
25. Never buy anything based on a tip from anyone. It’s either insider trading or something nefarious. Do your own work.
26. Always check your research one more time before buying or selling. The market has been open for 100+ years and there is no immediate rush to do anything without confirming it.
27. Online shills are a thing. Sketchy promoters make fake accounts across all social media networks. Their goal is to make the popularity of a stock appear big when in reality it’s a scheme to trick unsuspecting people.
28. Social media is a place to connect and learn about investing. It is not a place to find easy money. Generally, if someone is talking about a certain investment, they have already been invested in it. You are late.
29. Most people in this industry have a position in something and then they talk about it. That’s true for public investors and private investors on TV, on the Internet or in magazines and newspapers. They take a position and then they create their marketing campaign. Most people are pumpers, they just don’t know it.
30. If you’re going to pay for anything, pay for the education. Pay for a group of people to learn with.
31. Stay away from “popular” stocks no matter the temptation. The only time it makes even a little sense, is if you use the product first hand.
32. Try to only own things you know and understand.
33. The best investments are the ones that you also use in your daily life. The ones you can vouch for. You are an expert of the product and you are doing due diligence each time you use it. Owning shares is a bonus.
34. 2019 was a year of experimentation for my portfolio and I learned how important it is to embrace new ideas. In only a few examples has dogmatism worked all the time.
35. If you want to trade aggressively, the after-hours and pre-market trading hours are an opaque, confusing, but also fascinating space to try and gain an edge.
36. I believe pre-market and post-market trading is gamed and manipulated in ways no one understands and few have really investigated. I am hoping to do more research on it in 2020. You should, too.
37. Calling tops is hard, but you will never truly learn markets if you don’t try at least once.
38. No matter who you are, or how disciplined you think you are, unless your strategy is automated to some degree, you will experience moments of tilt or bad decision making at the worst time — the turning point.
39. Avoiding immoral companies and companies that do things that go against what you believe shows character and integrity. I believe that finds a positive way into your portfolio and life.
40. Automation is good and once you learn to apply it to your investing or trading, you will also learn to apply it to other things in your life.
41. They say know your enemy. Building automated strategies will open your eyes up to the people you’re going against — the quants. You have to see it first hand to know.
42. I believe there is an edge to being the last discretionary trader or investor. While everyone else is moving toward automation, there is something to be said about those who are combining both.
43. If you’re a long-term investor, don’t ever manage your portfolio from your phone. You need less screen time, not more.
44. If you’re a trader, you have to learn how to manage your positions from your phone. Find the best mobile app and use it wisely.
45. Options are an unbelievable casino where you can literally go broke or make a lot of money… and then just to go broke again.
46. If you can put aside the Las Vegas temptations of options, they are a fantastic place to hedge or place small bets with your risk defined.
47. My favorite options strategy is to use them as a tool to take a “big swings” or “YOLO trades” on crazy ideas. You can risk very little money on the craziest ideas for potentially big rewards.
48. If you are tempted to sell a long-term investment that has been an important staple to your portfolio, consider first using covered options strategies to unwind it or at least generate some additional income.
49. 99% of your gains can be attributed to luck of the moment. But, 99% of your losses are generally due to poor decision-making in the heat of the moment.
50. Never invest in something without first understanding that you could lose it all. Coming to that agreement with yourself is important. You have to be willing to accept the consequences before they happen.
51. Work-life balance is one thing, but I don’t think enough people think about investing-life balance. We work to fulfill ourselves, to help a business with its day-to-day activities or to make more money so that we never have to work again. You need to have an investment philosophy in place to guide you along the way so that the first Dollar you earn has the potential to be worth more Dollars down the road.
52. For every big trade we hear about it, or big winner, we forget to think about all the ones before who tried and failed at the same exact thing. The only difference was timing.
53. We tend to forget how long the greatest investors sat on the wrong side of a trade, until suddenly, out of nowhere, it worked. That includes Oracle of Omaha himself, Warren Buffett, who in his early days made many terrible trades including the name his company still has today: Berkshire Hathaway.
54. You learn the most about an investor when you ask them how they managed their worst positions.
55. The phrase “losers average losers” is wrong. Dollar cost averaging into an investment you like at lower prices is an amazing thing.
56. I actually like trying to call tops. I think it’s weird that more people are not trying to call tops with a small percentage of their portfolio, at the very least using it as a rolling hedge.
57. Trying to call a top with your own money on the line teaches you things about the market many will never understand.
58. Don’t fight the Fed.
59. Don’t fight buybacks.
60. Don’t fight the unemployment rate.
61. Don’t fight tax cuts.
62. Never ever go short when all of these things are true.
63. When major macro trends begin to take force, for example millions of people getting jobs, trying to go against that is like standing in front a tsunami with your hands up saying, “you shall not pass!”
64. Decentralization is going to drastically change financial markets and the modern corporation. Crypto is more than a financial asset, it is a new way of thinking about transactions.
65. I think Bitcoin is the most important thing to happen this decade. It nearly appeared out of thin air. Totally decentralized. No management. Practically no regulation. It’s complicated and still new to many. Its market cap is $100+ billion market cap and it made a 9,000,000% move this decade.
66. Zuckerberg sold nearly $1.5 billion worth of Facebook shares this year. Bezos sold nearly $3 billion worth of Amazon. That’s $4.5 billion between *TWO* people who ultimately sold to funds that invest on behalf of the general public. Time will tell who made the better trade. But, I actually believe that this is a serious problem. And it’s not Bezos or Zuckerberg at fault. It’s the laziness and lack of diversity of most funds and indexes. They are all investing in the same equities. The Dow, Nasdaq, and S&P 500 all share insanely similar allocations at the top. In 2020, I want to wage a campaign against this. There are over 4,000 other stocks out there and even more investment vehicles. The Wilshire 5000, for example, is largely ignored and filled with overlooked and fascinating opportunities.
67. 99% of the population has no idea what the Federal Reserve does, but it largely determines the winners and losers of society.
68. More people should learn about the Fed.
69. I have read Geithner, Bernanke, Yellen, and Volcker. One thing is for certain: new policies, tools, and processes are put into place that a previous Fed Chair did not use or even know of. In some ways, they are learning and creating on the spot. I don’t know if this is good or bad. But, people like Bernanke used different tools than Volcker and so on.
70. Being “cool” is risk taking. You take risks on music or style or your confidence. “Cool” people ultimately drive new movements from music to art or anything else. I think the decentralization of money is one of the coolest things happening in all of finance right now. And while I only own, say 1% of my portfolio in crypto the ecosystem is cool and I want to learn more.
71. The time to be fearful isn’t when people are selling, but when no one is buying.
72. Companies who are building their entire business on the subscription model have not been tested, yet. Time will tell how strong they are when that moment comes.
73. Exercise is still more important than any sum of money. Say you lost everything today, and your portfolio went to $0 — damn that would suck. But would you still be healthy? Able to move? That always needs to be answered yes.
74. Debt is a burden that eventually impacts the way you think about investing. I am a different investor with no debt than I am with debt. Obviously, at times, debt makes sense, but there are certain levels of your income or cash on hand that it should never reach.
75. While debt for individual people can be a burden, for companies it is sometimes the opposite. Tapping debt markets in a low interest rate environment and putting that money to work where it returns more than the interest on the debt speaks highly of a company. Especially the team in place.
76. Study the background and social media profiles of the management team for the company you want to invest in. It’s one way to see who you’re betting on.
77. Understanding the subscription business model is becoming increasingly more important. It has moved from gyms and magazines to SaaS, music, finance, and more.
78. Return on invested capital is how you value a management team. How good are they are deploying capital? That’s who you want to invest in.
79. In venture capital, they say they bet on the person and not the company. The same is true for investing in public markets.
80. Your significant other is the most important thing in your life. A shared understanding, vision, and belief in one another will change how you approach investing. There is no greater fan of your work and your ideas. A lot of my successes in 2019 are owed to my now fiancée and how she helped me in various situations.

Thanks for reading and I hope you enjoyed this year’s lessons. If you enjoyed it, subscribe to my email here and I’ll send you some of my other writings and notes. Make sure you’re also following me on Twitter.

I leave you with a quote I enjoyed while exploring Buddhism and reading various western philosophers who embraced the philosophy:

“When we speak about freedom, freedom from being a puppet of the past, it simply involves a change in your thinking. You’re getting rid of the habit of thought whereby you define yourself by what has happened before you and instead start thinking in the more plausible and reasonable way where you define yourself in terms of what you’re doing now. And that is liberation from the ridiculous situation of being a dog wagged by its tail.” — Alan Watts

Everyone asks for help. It’s natural and it’s important to learn from others. But, I also think you can’t ignore what it requires to have true mastery of any one thing. It’s built on an attitude of doing and a belief in your own ability when there’s no one to get help from.

Like many aspiring investors, I have read about Charlie Munger for many years. I once had an internship in Boston at a money management fund. I would play Munger’s talks in the background with a single headphone in while I did my work. I learned a lot that summer as an intern, but also as a student of Munger’s speeches.

The other day, a friend wanted to learn more about stocks in the current environment. He wanted to know how they were up so much and what he could do to make money. Obviously, it’s great to see people so interested in markets, but there is no easy answer. You could go to a financial advisor or you could open a brokerage account, but the journey is so much bigger than that.

Once, at a Berkshire Hathaway conference, a guest asked Charlie Munger what his secret was to picking stocks. How did he get so good? How did he find moats? Here’s what Munger said:

“There’s an apocryphal story about Mozart. A 14-year-old came to him and said, “I want to learn to be a great composer.” And Mozart said, “You’re too young.” The young man replied, “But I’m 14 years old and you were only 8 or 9 when you started composing.” To which Mozart replied, “Yes, but I wasn’t running around asking other people how to do it.”

The point is, at a certain moment everyone has to learn to be great at something on their own. They need to take their own chances and do their own research whether they want to be like Munger or a great chef slicing avocados. I believe that’s true for investing and just about everything else.

I recently read about a cryptocurrency ponzi scheme. In total, this scheme managed to scam people out of $722 million. The scheme was simple – they promised investors massive returns if they just gave them their money. Here are a few details:

“The indictment describes the defendants’ use of the complex world of cryptocurrency to take advantage of unsuspecting investors,” U.S. Attorney Carpenito said. “What they allegedly did amounts to little more than a modern, high-tech Ponzi scheme that defrauded victims of hundreds of millions of dollars”

And

“Discussed with his conspirators that their target audience would be “dumb” investors, referred to them as “sheep,” and said he was “building this whole model on the backs of idiots.”

US Justice Department (link)

It’s likely that these scammers will see the gavel thrown down on them like an episode of Judge Judy. In the meantime, I can’t stop thinking about the people who willingly gave them their money, about $722 million. How? What? Why? Imagine for a second that three or four people approach you, “Yo man, so I’m starting this company called BitCoin Club and we’re just, like, like we’re going to make so much money mining Bitcoin with your money.”

I don’t know if this surprises you, but in the investing world, things like this happen all the time. It, sadly, does show the type of people who are attracted to the financial world. Ponzi schemes, con artists, pump & dumps, and fraud have found their way into the investing world since the age of markets first began many moons ago.

There’s no easy way to avoid it, either. Everyone wants your money, but few really deserve it. I always come back to the legendary Peter Lynch who championed the idea of investing in only the things you know. His style has always resonated with me because of its simplicity. Lynch was most interested in the companies who he could see, use, and work with in his day-to-day life.

I will let Lynch speak to you in his own words (you can watch his entire speech at the bottom of this post):

“The single most important thing to me in the stock market is to know what you own. I am amazed at how many people own stocks and they would not be able to tell you why they own it. They couldn’t say in a minute or less why they own it.

If you can’t explain it, I’m serious, if you can’t explain to a 10-year-old in two minutes or less why you own a stock, you shouldn’t own it. And that’s true I think of about 80% of people that own stocks.

I made money in Dunkin’ Donuts. I can understand it. When there were recessions, I wouldn’t have to worry about what was happening. I could go there, see people were still there, I did not have to worry about low-priced Korean imports or anything. And you laugh. I made 10 or 15 times my money in Dunkin’ Donuts. Those were the kind of stocks I could understand. If you don’t understand it, it doesn’t work. This is the single biggest principle. And it bothers me that people are not very careful with their money.

The public, when they buy a refrigerator they go to Consumer Reports. When they buy a microwave, they do that. They ask people what’s the best kind of car to buy. They do research. And when they go on a trip to Wyoming, they get a travel guide.

But people hear a tip on a bus on some stock, they’ll put half their life savings in it before sunset. And they wonder why they lose money in the stock market. And when they lose money, they blame it on the institutions and program trading. That is garbage. They didn’t do any research. They got a piece of junk. They never looked at a balance sheet and that’s what you get for it.”

Peter Lynch

Lynch changed the way a lot of people think about investing. Myself included. But, I think it’s important to point out that I’m not saying Peter Lynch’s wisdom is a secret piece to success. Or a top 10 thing all geniuses do before waking up at 5 AM. No, I’m not saying any of that. There are no easy answers. What I’m more-so trying to say, is that generally, you probably want to remain extremely skeptical of the things you don’t understand or know. It may be smart to stick to the things you know, instead.

In an industry filled with people who want your money, you may benefit from added scrutiny, skepticism. Because, without it, well that’s how people get burned. They get burned when they underestimate their own ability to perform due diligence and overestimate their trust in something they know nothing about.

A Subscription for Everything

I am subscribed to a few strange things that I don’t use anymore and probably won’t use ever again. Thirty years ago, this first-world conundrum was probably a little less common. To subscribe, you paid with cash or by mailing out a check before the deadline. The whole process was harder. You had to really want a subscription.

I think back to when I was a ye’ young lad who subscribed to magazines. When my subscription to Sports Illustrated For Kids was about to end, my mailbox, the physical one in my front yard, would get bombarded with daily reminders. “Send your check in now if you want to keep reading about Ken Griffey Jr!”

Subscription Tech Changed The Game

Subscription services today have never been easier to run and manage. That’s true from a payment perspective and a bill collector perspective. I mean, there are automated platforms that run everything for you in seconds and show cool charts and graphics about your account as you go. Poof money gone! Ka-ching money deposited! You get notifications in real-time like it’s a video game.

Subscription technology has come a long way since my day, and probably yours. The ease of creating a subscription, maintaining it, and delivering it is seen everywhere. The biggest company on our planet, Apple, is squeezing itself into the subscription economy with music, cloud storage, and now a TV network of sorts. Something tells me, more of this is coming.

Subscription Competition On The Rise

As most of you know, I spend my time in financial markets. So naturally, when I’m standing between eight other people on a Manhattan subway, I find myself in deep thought, “What exactly is going on with all these subscriptions?”

I recently read that 3 of every 4 Americans now have a subscription to something. And the numbers are trending up for those who have multiple subscriptions. Most subscription services right now are doing great, especially when you consider what many of these services offer and their price point. Maybe it’s we’re living in a subscription enlightenment, not a bubble.

Perfectly timing a bubble call is hard. Probably impossible. I have tried a few times, even with my own money on the line. In each instance, I was wrong. The thing about bubbles is no one ever really knows there’s a bubble until after the fact.

I currently think the subscription economy is trending toward more competitive times. And no one is considering the implications of that. The subscription economy’s explosive growth has entered all stages of our day-to-life. I see it on the enterprise side, the consumer side, the health side, and the entertainment side with no signs of slowing down.

The Unraveling Risks

Economists like to tell a joke. A cheesy one. It goes like this:

“A hundred-dollar bill is lying on the ground. An economist walks past it. A friend asks: “Didn’t you see the money there?” The economist replies: “I thought I saw something, but I must’ve imagined it. If there had been $100 on the ground, someone would’ve picked it up.”

Economists believe the world is so efficient, large, and random that there’s no likely scenario where they would find free money. Over the last 10 years, several subscription companies have proved their joke wrong. Netflix, while enjoying a first-mover advantage, was once the only digital video subscription service in the world. They were the game changer picking up bags of $100 bills. Today, I can barely fit all the subscription based digital video companies into a single tweet.

The subscription economy, in its current form, is perplexing because of its understated maturity. There also seems to be double and triple counting happening when subscription-based companies make forecasts and then sell those forecasts to investors. It’s one reason why I still don’t fully understand certain subscription companies and their valuations – everyone is counting the same potential subscriber into their model! But people don’t have infinite money. With each passing day, more potential customers are spending on new competing subscription-based companies coming to market. The customer base in the subscription world is spreading thin over time. That once $100 bill on the ground that Netflix was picking up daily is gone.

The subscription economy has yet to be tested by a real slow down. Its resiliency should remain questionable. For one, it’s really easy to cancel a subscription. You go to your account and press cancel. It’s one thing that actually made their success in the first place – the ease to cancel was so friendly. However, that may also be the downfall if groups of people ever need to suddenly mass cancel their subscription to a service or because they are squeezed for money. A company could disappear overnight.

Final Thoughts: Let’s See What Happens

If the day ever comes, where markets or money gets tight on a macro level, it will be interesting to see the subscription services that make it out unscathed. Going forward, I’ll be keeping a close eye on the subscription economy and its growth.

It’s All About Assets

I think people have this idea in their minds about what wealth inequality means. I have come to believe that they think, what it means, is that these super rich people have bank accounts stuffed with cash. That these people have millions and billions just floating around for quick and easy spending. While yes, it’s very possible that is true for some, for the majority of wealthy people, it is a different form of wealth. It’s paper wealth.

Wealthy people tend to be investors and shareholders. It’s where most of their wealth comes from – the perceived value of the shares they own in something. If you could somehow view the world through a lens where asset holdings could *not* be counted, wealth inequality would be subdued. The richest have a lot of shares in things, the poorest have no shares in anything.

Of course, this post is not making any crazy statement about assets, whether they are good or bad. More-so, this post is meant to highlight that financial markets have been the outsized wealth creator for the last 10+ years. And the issue at hand, the proverbial elephant in the room, is that the stock market has enjoyed preferential treatment from Government organizations while others who have no exposure or access to markets, quite frankly, have received none.

Our Fed Officials Should Visit The Bronx More

The Federal Reserve is a lovely entity that saved us from the abysses in 2009. And I have championed them for many years reading books from Geithner and Mishkin to Bernanke and Volcker. However, in my time studying them and watching their rescue missions, I have been unable to ignore their advantageous treatment of certain demographics. They have backstopped the exotic world of finance over, and over, and over. They have been there each step of the way for more than a decade. Yo bro, you need liquidity? We got you. What’s up dog, you need some low margin to buy stocks? Rate cuts coming.

I often joke the Federal Reserve should take their asses to the Bronx and spend a day at PS 178. They should learn what these kids come from and how their families generally have no liquidity whatsoever. After that they should get an Amtrak, not an Acela, and go to North Philly. I write this because I think it’s very possible our Federal Reserve officials have spent too much time roaming in Wall Street circles. Private dinners, meetings, and exclusive events in Wall Street and DC towers will close your mind.

Liquidity Demographics

Our current Federal Reserve Chairman, Jerome Powell, was a partner at the private equity firm Carlyle before he was nominated. Ben Bernanke, the Fed Chairman from the Financial Crisis, is now an advisor to the market makers of Citadel. Tim Geithner is currently a President at Warburg Pincus. These former hard-working Government officials in control of who gets liquidity and when sure sound devoted to solving problems on behalf of society…

I often think about what the Federal Reserve actually does for a lower income people who have no access to financial markets and no assets. Maybe they live near a pay-day lender or know a loan shark. People who are day-to-day, cash only, or checking accounts have not once been bailed out or been given any assistance 10+ years into this economic expansion. Actually, to some degree, they have lost. Because their checking accounts and cash under a mattress now earn LESS than they ever did. They don’t keep up with the inflation rate and the Fed keeps cutting rates at every chance they get.

On the other hand, those who hold most of their wealth in financial markets, are supported with each moment of risk. When rates are low, when liquidity is high, when the Fed is always there, the investor class benefits from rising asset prices. But if you have no assets, you don’t benefit at all. That’s the problem – the Federal Reserve’s response to financial markets disproportionately benefits one class of people more than all others. It made sense at one point in time, I don’t believe the same policies make much sense any more.

So How Do You Fix It?

I should be clear, I do not want markets to go down. I have no problem with the assets you hold whether they are stocks, bonds, real estate or anything else. I think it’s great. Free markets, free trade, and free choices are essential to living well and creating great things. But, what I do stand against is unfairness. More importantly, I think you have to fight for the underdog when you can. And the underdog right now is getting destroyed out there.

So how do you make it fair? Our policy makers, especially at the Fed, could benefit from creativity. More outside the box thinking. Perhaps the Fed could start a program that specifically targets community banks in low-income areas. Perhaps the Fed could work with them, give them unique liquidity preferences, and encourage them to get out there with this new fire power and support.

Or maybe they could give a bigger savings rate to those with less than $25k in savings or checking accounts. Maybe these people can, somehow, be given a rate higher than the Fed funds rate so they can actually earn interest higher than the inflation rate. I mean, does anyone realize that poor people who have to hold cash are actually losing money each day? The Fed wants 2% inflation, but checking and savings account rates are less than that. That means if you hold cash, even if you need to because of your circumstances, your cash is melting each day because of an inflation rate greater than your savings rate.

Traditional methods of cutting rates and supporting markets with asset purchases has proven to work, but today, they are exhaustive measures with very little impact on the people who we really need to be helping and an outsized impact on the people who, at the end of the day, don’t really need much more.

That Is All For Now

It’s funny to watch my philosophical beliefs change over time.

Several years ago, I was in complete support of the Fed. I thought they saved markets, and more. Today, my tone has slightly soured.

But in a free market and country, that is a beautiful thing and it’s how change is made. Being critical of something, taking feedback and sharing your thoughts is how people build and create things that solve problems.

I was surprised to read something about Fidelity the other day. It was a fact they decided to leak out to the public. What they said was, based on all the 401k accounts on their platform, they’ve set a new record for millionaires within their customer base.

That’s just Fidelity. And that’s just 401k accounts. There is probably a record number of millionaires in America today, in general.

Yet, it still seems no one is happy. I don’t know why that is or what’s underneath it. I do worry, though, and what I worry about is our growing obsession with markets and the ways it benefits a particularly small demographic.

The other day I was watching our Treasury Secretary, Steven Mnuchin, talk about the Trade War. He was asked a question about the stock market. His response? He smiled and looked at the reporter, “The stock market is always right.”

90% of Americans own 6.8% of all stocks. The other 10% of Americans own the other 93.2% of all stocks. I don’t find that stat encouraging. It’s even less encouraging when you consider our Government officials speak of financial markets as a barometer for everything they do. Each day it is becoming their new god. And their new god represents a small percentage of the actual population.

In a prior era, we spoke about the middle class with admiration and focus. It was all about lifting up the middle classes. That was the secret to America’s success. Education, wage growth, savings, and increased productivity – that’s how the middle class got going. That’s how we went from one stage of wealth to the next.

Today, it seems we’ve moved on from those years. Today, we’ve graduated to the investor class.

While walking Bryant Park with a good friend several months ago, I explained to him my concerns about this scenario: a roaring market with very little participation from the general public. He said to me something along the lines of, “that’s just how it’s going right now and that’s all the people in this administration care about so either get on board or wait for the election.” I appreciated his bluntness.

The market is up roughly 10% since we had that conversation. He was right.

I wrote this post not to be political, but actually to be introspective. As someone who has followed markets all these years, I’ve been fortunate to enjoy the ride. But I also know when something is tilting in a direction that no longer feels “right.” Or more importantly, feels equitable. Even if that means calling myself out.

The simple fact is that a large percentage of the population is missing out on the excess and appreciation of wealth that come with access to financial markets. In other parts of the country, things seem to be going differently. So far this year, it’s been reported that farmers are going bankrupt at a near record. We live in a time where my brokerage account can do more for me than a plot of land, machine equipment, and the production of food can do for those farmers.

Margin matters most right now. In times of stress, people will sing Cash Rules Everything Around Me. Lately, it’s more like Leverage Rules Everything Around Me. I often joke that I can get a margin loan for 3%, but a college loan will take me up near 10% even though it’s essentially protected by default.

If you really think about it, the investing class has probably received more benefits, backing, and support than any other group in America over the last 10 years. The Fed has been there every step of the way. This is not gloom and doom or gold bug or an end the Fed rant. It’s just a post calling it like it is.

One of the more sobering things ever said about the stock market is, “don’t confuse brains with a bull market.”

When markets are rising, money is flowing, and capital is pouring into the lands of finance, it is easy to get carried away. Look over there! That is a genius investor. Or over there! That trader is a millionaire. And that one? That’s the best stock picker alive!

It is literally a challenge to invest your money poorly in a market that is popping off with excitement, with opportunity around every corner, and with never ending stories of growth. The punch bowl is full and money dances best when it’s drunk.

The real skill is found when you can invest successfully and with a sane mind in a market that is flat or declining. When viscous moves are thundering through the market or prices are grinding sideways in a storm-like manner, how do you perform? There are very few who have proven they are capable in these environments. Even the most diversified investors can get exhausted. At a certain point, the relief of having cash begins to exceed the mental capacity to continue onward. Sometimes, hanging in there, dodging swing after swing, is all that matters and it takes great skill to do.

The problem with making money from other people’s money, which is what financial markets are at the end of the day, is that generally someone, at some point, wants their money back. It’s at that time when gains can turn out to be not as real as once thought. I remember when I was suffering my worst draw down ever, the first time my stomach felt uneasy just looking at my portfolio, and a mentor of mine pulled me aside. He said, “You aren’t down as much as you think you are. Because you never actually had that money.”

What he meant was, while yes my paper value looked wonderful in the months before, it was not exactly mine for the taking. I had no right marking my draw down from that high point. I never saw the cash actually deposited. In the famous monologue from Blade Runner, when Roy Batty is grasping on to his last words of reality, he comes to realize how fast what he saw as reality can wash away:

“I’ve seen things you people wouldn’t believe. Attack ships on fire off the shoulder of Orion. I watched C-beams glitter in the dark near the Tannhäuser Gate. All those moments will be lost in time, like tears in rain.”

Blade Runner, Tears in Rain from Roy Batty

All markets eventually get tested and when they do, what you thought you had and saw, in the words of Batty, become lost in time like tears in rain. There is no easy answer or solution or article that explains what it means to go through these periods of time as a full-time investor. The only way is to go through it first hand. When it rains in markets, we learn the most about how good we really are.

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