Ten Questions I'm Thinking About

August 14, 2015

4 minute read

by Ben Carlson, A Wealth of Common Sense

Ten questions I’m pondering at the moment:

1. Why are people are always looking for soothsayers who will help them predict the future in the markets or the economy when they can’t even explain what just happened? I understand that life would be much easier if we could predict the future, but this always strikes me as odd considering so many of these “prophets” have a hard enough time explaining what happened in the past.

2. Aren’t bond market liquidity concerns really just investor fears that other people will panic at the exact same time as they do? Investors are quick to point out the mistakes of others, but have a much harder time finding fault in their own actions. If you’re worried about bond market liquidity, the easiest solution is to never put yourself in the position of being a forced seller of bonds. The obvious solution is broad diversification not only by asset class, but also within the fixed income asset class by quality and strategy.

3. Why is it that the financial markets are constantly forcing people to call into question their own process and strategy? This is probably the best and worst part about investing. The markets either keep you honest and humble or they can drive you crazy and cause mistake after mistake. Don’t ever let anyone tell you it’s easy.

4. Why does it seem that anytime someone mentions a currency war they only talk about who the losers are going to be from central banker actions? Do they not understand that there are checks and balances? Or that when one party loses another party usually gains? These currency wars aren’t one-sided.

5. Will the people who have been calling for a crash for the past 4-5 years miss out on the opportunity to buy at lower prices if the market does finally correct 10%, 15% or even 20%? When you’re constantly on the lookout for extreme events you end up missing out on a lot of opportunities to profit in the markets. Extremes are called extreme for a reason — they’re rare. In 2011, when stocks were down nearly 20%, how many crash-callers viewed that as a buying opportunity?

6. Will all the people who have magically turned into “long-term” investors panic at the first sign of a correction or bear market? I’m not convinced investors have changed their ways. The fact that the corrections continue to get shallower and shallower when they do occur makes me worry about how the markets will react to an actual correction. A few months ago I heard someone say that 3% is the new 10% correction. If people are really thinking that way there could be more panicked sellers than usual during the next bear market.

7. Are you a disciplined investor or are you just being stubborn about the way things really are? “I’m going to be proven right eventually…” could be the mark of a true contrarian who is confident in their analysis. Or it could be the mark of an investor who is unwilling or unable to be flexible in their approach and admit when they’re wrong. There’s a fine line between a disciplined process and overconfidence.

8. Who’s wins the best actor title in the battle of brokerage commercial voice-overs: Matt Damon for TD Ameritrade or Kevin Spacey for E*Trade? Here’s the tale of the tape:

Spacey: 2 Academy Awards, 1 Golden Globe, The Usual Suspects, American Beauty, L.A. Confidential, House of Cards and Seven.

Damon: 1 Academy Award (2 other nominations), 1 Golden Globe, Good Will Hunting, Rounders, The Bourne Trilogy, The Departed and School Ties.

I thought this one would be an easy choice for me since The Usual Suspects is one of my all-time favorite movies, but it appears Damon actually has a much better movie resume and far fewer duds than Spacey after going through their respective IMDB pages. Rounders was the tie-breaker that pushed me into Damon’s camp.

9. What if stocks take a hit if and when interest rates rise? The historical data shows that stocks tend to perform much better than financial theory would suggest when interest rates rise. What if it’s already priced in now that everyone seems to be in agreement that stocks will do just fine when rates rise?

10. Is this Carol Loomis interview on the Longform Podcast great or what? Loomis tells some amazing stories about her many decades working at Fortune magazine including some excellent career advice. But the best part is her background on how she formed a working relationship and friendship with a young Warren Buffett in the late-1960s, made an investment in Berkshire shares (which she still owns) and became the editor of his annual shareholder letters for nearly 40 years. A must listen for anyone interested in business or journalism.