Smarter than a Nobel Prize winner

I’m making a bad habit out of taking extended (very, very extended) breaks from the blog.  What can I say?  I guess being retired can keep you pretty busy.  In fact, in retirement I have been doing a lot of freelance consulting work which has been fairly lucrative, but more on that in a future post.

Since I last posted, so much has happened in the investing world, so we have a lot to cover.  However, the thing that deserves the most attention is the roaring bull market we have enjoyed over the past 12 months.


Smarter than Schiller

Back in 2015 Robert Schiller, who had just recently won the Nobel Prize, wrote an article warning investors that future returns might not look so good.  I took the contrary position, thinking that stocks would do well.  Of course, since I’m bringing this up it must mean that I was right and the Nobel Prize winner was wrong.  Ha.

Stock performance since March 2015. The red line is international stocks and blue line is US stocks

As it turns out, US stocks are up an incredible 18.5% since then and International stocks are up 6.8%.  Those are pretty heady numbers, and hopefully you were invested and enjoyed the run up.

To be fair, when Schiller reads this and comments on this post (I am sure he is a loyal reader) he will certainly point out that he was making comments about the long term (let’s say 20-30 years), not just the next 2-3 years.  That’s fair, but facts are facts and the so far the race is not looking good for Schiller’s predictions.


The more things change the more they stay the same

Let’s look at the world and how it has changed since Schiller’s predictions, and try to figure out what has driven the changes.  The world’s a big place with a lot of stuff happening so I’m not going to cover everything, but here’s my short list of major developments that have impacted the stock market:

Greece—Two years ago Greece dominated the financial headlines.  The questions of whether or not Greece would get a financial bailout, if it would stay in the European Union, if it would continue to use the Euro, and the broader idea of how much austerity was too much were paramount.  Somewhat predictably, the EU waited until the last second before giving Greece the necessary loans, and the world kept on going.  I’m no expert, but my sense is Greece is still an economic mess but, as politicians are apt to do, it was easier to kick the can down the road.

Brexit—After the Greece drama, in June 2016 Great Britain voted to leave the Eurozone.  The vote was not expected, and it sent crazy reverberations through the stock market for the next couple days.

US starts raising interest rates—Back in 2008 during the great recession, the federal reserve and the rest of the world banks slashed interest rates to near zero.  And there they stayed for many years.  Many questioned if we were in a new normal.  However the US economy started to strengthen and in December of 2015 they raised the rate for the first time in seven years.  At the time this was such a major news event in the financial press it’s hard to overstate it.  Since then they have raised rates three more times.

Trump election—And the biggie.  Donald Trump defied all odds, first by capturing the Republican presidential nomination and then pulling off a shocking upset over Hillary Clinton to become the US’s 45th president.  He ran on a platform being pro-business and bringing a “business know-how” to the office.  Without getting too political, it’s been a bit of a roller coaster, but the US stock market is up about 16% since he was elected 8 months ago.


Keep on truckin’

Those are just my short list, and each of those could have a multi-part post.  In fact, at the time they produced thousands of articles and opinion pieces.

The point with all those, and also my point at the time of Schiller’s prediction and my rebuttal over two years ago still stands—we have a tremendously strong economy and things just keep on truckin’.  It’s impossible to predict the stock market in the short term, and certainly Schiller would agree with that.  I think it’s also impossible to predict when the stock market is going to fundamentally change for the foreseeable future, as Schiller did.

In the intervening 2+ years since Schiller’s prediction amazing things have happened to the US and global economy.  The US is producing nearly as much oil as Saudi Arabia (who would have thought) thanks to technology breakthroughs.  That’s employed thousands and lowered the price of oil to billions.

Airbnb and uber have revolutionized fairly old industries and ushered in a “sharing economy”.  Self-driving cars are now on the road and have the potential to bring the biggest life change in a generation.

The point of all this is since Schiller’s prediction back in March 2015 so much good stuff has happened.  So much innovation has occurred and so much value has been created.  Maybe the point is all that doesn’t seem abnormally high, it’s just what happens every month and every year.  And I think it would be foolish to think that won’t continue in the future.


In my first post in a while I wanted to make sure we reflected on how well the stock market has done despite some of the smartest people in the world saying our best days are behind us.  I promise I will be posting regularly now, and we’ll continue to look at the best way to get fat off of our investments.

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