Understanding Supercycles and Overvalued Markets

March 12, 2021

Understanding Supercycles and Overvalued Markets with David Mitchell

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Understanding Supercycles and Overvalued Markets Show Notes

Back in August 2019, I had an amazing conversation with David Mitchell of AllianceBernstein in which we talked about economic cycles and where we were. A year and a half later, his company has had some incredible returns – and many of the things that David shared with us really came to fruition.

Despite the uncertainty that the investment markets faced in 2020, AllianceBernstein’s assets grew by 70 billion since we last spoke. With their unique view on the larger global economy and their economic cycles, AllianceBernstein has thrived with amazing growth in a challenging year.

Today, David returns to the podcast to talk about where we are right now, why the markets are doing what they’re doing, and the parabolic move in the price-to-earnings ratios of the stock market.

In this podcast interview, you’ll learn:

  • How COVID and low-interest rates have collectively changed where we’re at in the current supercycle.
  • Why millennials are a tailwind to the economy as opposed to a headwind.
  • Why COVID was a proverbial match that lit the gasoline that had been building up for years.
  • How investing without purpose sets you up for failure.
  • Why the US stock market is currently hugely overvalued – and why this merits active management of financial assets.
  • Why volatility is a great time to look for new opportunities.

Inspiring Quote

  • “In the absence of knowing what’s enough, the alternative is always wanting more, more return, more performance.” – David Mitchell 

Interview Resources

Interview Transcript

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[00:00:08] Dean Barber: Welcome to The Guided Retirement Show. I’m your host, Dean Barber. All right. So, we had an amazing conversation with David Mitchell of AllianceBernstein back in August of 2019. That was Episode 17 of The Guided Retirement Show. And David shared with us then his thoughts on economic cycles, where we were. And of course, that was a pre-COVID environment. His company, AllianceBernstein, and some of their investments had some amazing, amazing returns in 2020.

A lot of the things that David shared with us in August of 2019 really came to fruition. And so, we’re really excited to have David back on to talk about a post-COVID world and where we are, why the markets are doing what they’re doing. And we’re also going to address the parabolic move in the price-to-earnings ratios of the stock market. Please enjoy this conversation with my friend and colleague, David Mitchell from AllianceBernstein.


[00:01:18] Dean Barber: David Mitchell, welcome back to The Guided Retirement Show. You were here, so let’s see, Episode 17 of The Guided Retirement Show and received a lot of attention, a lot of good comments, and a lot of good feedback from you on that particular podcast and from our listeners. It’s exciting to have you back. Welcome.

[00:01:37] David Mitchell: Thank you, Dean. It’s my pleasure.

[00:01:39] Dean Barber: All right. So, we got to catch up on a few things. First of all…

[00:01:43] David Mitchell: That we do.

[00:01:44] Dean Barber: We got to catch up. Let’s review some of the timeframes here. So, we did our podcast on August 6, 2019. That was Episode 17. As we record this podcast, here we are mid-January of 2021. And so, we’ve been about 18 months or so, and a lot has changed in the world. We went through the fastest bear market in history, even faster than the 1987 crash, the peak to trough. We came through an amazing rebound, your company, AllianceBernstein, at the time of our podcast back in mid-2019. You guys were at about 580 billion. Where are you guys at today?

[00:02:32] David Mitchell: Just under 650 billion.

[00:02:35] Dean Barber: So, you guys have had some amazing growth through that period.

[00:02:38] David Mitchell: We have. Yes.

[00:02:40] Dean Barber: And I will say, personally, I don’t like to talk about performance but I know that you guys kicked some serious tail last year in investment performance in, I don’t know if it’s across the board, but I know in some of the things that we use that that you guys manage some serious outperformance over your benchmarks last year.

[00:03:01] David Mitchell: Thank you, Dean. And we did. If you recall one of the themes that we talked about in August of 2019 was that this was going to – we were entering as we get later into these both business cycles and larger super economic cycles. It was really going to be a stock pickers market. That just owning the market or an index or an S&P 500 ETF was not going to get the job done. And that has really been the case, especially during COVID that being selective, being judicious about what you own, especially within stocks has been very successful.

[00:03:39] Dean Barber: Alright. So, I want to get into that. Before we go too far though, I want you to go back and recap your business cycle, your shorter-term economic cycles, and then what you refer to as the supercycle. So, if you could break each one of the three of those down for us and let us know from the perspective of AllianceBernstein and the expertise that’s behind you. What is it? What are all those mean? And what should our listeners and viewers take from that?

[00:04:04] David Mitchell: It’s a great question, Dean, and this is one reason that I think or one way in which AllianceBernstein thinks about the larger global economy and financial markets a bit differently in that we think about economic cycles on two different time horizons. The first one is what we call large supercycles.

And these large supercycles if you just look back the last couple of hundred years tend to last on average around 30 to 40 years. Our opinion at the time was that we had entered the most recent supercycle around 1981 and I sort of gave a what probably felt like a dissertation at the time around the four key ingredients or sort of this fundamental cocktail that created the supercycle of the greatest bull market in history from 1981 to 2000.

And then why since 2000, we sort of had started to enter more periods of volatility, but it had to do around demographics and Baby Boomers entering their prime earning years and women entering the workforce and mass. It had to do around falling interest rates and inflation. We talked about interest rates in the early 80s compared to where they are currently. Then we talked about the sort of the larger thematic events around globalization automation.

Our point was, was that that sort of magic elixir has sort of run its course in driving the fundamentals of the economy. On the other side of that, we thought that instead of having basically, very good supercharged stock market returns with very low volatility, we are most likely entering a period of probably average returns, but with higher volatility. And again, that goes back, to be specific, that’s at the overall market level. We talked. There’s a big difference between at the market level and at individual companies, which our job is to assess daily.

So, that was so we can sort of talk about what’s changed since then, 18 months roughly ago, and then our point was also that we also think about more the business cycle, looking about your companies and in debt, and how companies are making money.

And then the big thing was that what companies have sort of been able to adapt to what we call the 21st-century knowledge economy, service economy, and what companies were sort of being left behind, and what we might call the 20th-century economy, and that there was going to be basically a tale of the haves and have nots. And that’s also COVID fully expediting many of these trends. But that’s a brief recap of sort of where we were. So, we thought we were at the end of sort of nearing the end of both cycles.

[00:06:40] Dean Barber: Alright. So, obviously, it looked like and I would agree that when we were looking at the data, 18 months ago, it appeared that way, but here we are, and I’m going to get your take on this. Here we are in an interest rate environment that is driving real estate sales at the same time where the millennial generation in mass is starting to get married and buy houses and have babies. And we look at the sheer number of the millennials and how quickly that’s moving and then we start to think about all of the things that you have to buy. When you buy a house and start having kids, you go into your peak spending years, and you’re not spending the money on yourself anymore. You’re spending it on your family.

And now we’ve come through this period of COVID, where it seems that there are certain industries that have just absolutely killed it. They’ve done extremely well, they’ve adapted quickly, and they’ve gained market share, and yet there are other industries that are slowly dying on the vine, some have already died. And so, how has this super low-interest-rate environment that I think is fueling this real estate market faster than what it would have been fueled otherwise along with COVID? How those two things collectively changed your view or have they changed your view on where we are now in this economic super supercycle? Does it give us more time? Does it accelerate us to the end? What’s it doing?

[00:08:23] David Mitchell: So, that’s a great question, Dean. You’re hitting on a theme that you and I discussed when I was last on the podcast. So, we think about it two ways and this is why we think about economic cycles in two different time horizons. There is no doubt that as part of what you talked about that last year 2020 was a tale of two economies of almost two realities in many respects.

And home sales, if you look at all the economic data on the good economic data side, home sales was absolutely like by far the best statistic. And a lot of that was a result of sort of COVID being the accelerant of millennials buying homes, forming families, and those that had secure incomes maybe had been saving while the joke goes, living in their parents’ basement did pull some of that future growth forward.

So, that did sort of expedite some of what we were thinking that millennials could do to sort of maybe help at the margin. But here’s the flip side about our longer-term view and this is maybe where AllianceBernstein and Barber Financial maybe we might be splitting hairs. You tell me. The thing about millennials, a lot of people talk about the sheer number of them, nominal, and there’s roughly 2 million more millennials than boomers. That’s good but as I remind folks, we’ve run just the sheer mathematical numbers on this.

And we measure rates of change of growth in this country, right? We measure the growth relative to what it was. And even though there are 2 million more millennials than boomers, just because of how we measure growth across various statistics, that’s still just not quite enough to produce the type of macroeconomic growth, the 3% to 4% that we saw that the boomers supercharged relative to their parents, the greatest generation, because again, there was way more on relative basis boomers than there were of their parents or grandparents.

[00:10:31] Dean Barber: Well, and I think the other side of that, too, David, is that there were a couple of other things at play when the boomers entered their family formation stages and started buying houses and having babies. Number one, for the first time ever, you had a two-income household. And the second thing that was there was the ease of instant credit, the credit card, the revolving debt. And so, these boomers weren’t just spending at the same pace as what their parents did.

They’re spending far more. Not only are they spending more than their parents. They’re spending more than they earn because they’re going into such debt. Now, the millennials aren’t as in favor of this debt that the boomers seem to be. I think as a lot of them witnessed, Mom and Dad trying to get out of debt and a lot of them are still trying to get out of debt, or they’re in that vicious cycle. So, I think that those two components really help supercharge what that boom was in that greatest stock market, bull market in history from the early 80s up to 2000. Right?

[00:11:32] David Mitchell: Absolutely. Again, falling interest rates, falling goods, inflation, and like I talked about the thematic events of automation and globalization coupled with, like you said, women entering the workforce in mass because of the innovation and the mainstream. I guess the birth control pill becoming so accessible in the 1970s allowed women to enter the workforce too.

[00:11:54] Dean Barber: So, let’s talk about I get that the millennials, but I still think that they’re still going to be a driving force to help. They’ll be a tailwind to the economy as opposed to a headwind. And I think that…

[00:12:08] David Mitchell: Absolutely.

[00:12:09] Dean Barber: When you talk to some of the boomers out there today, especially some of the people that are in what they call the greatest generation, you say, “Well, the millennials are going to be the ones that are going to drive this economy for the next 10 or 15 years.” They’re going, “Yeah, right.” But you and I both know it’s true because we’ve studied demographics.

[00:12:25] David Mitchell: Yeah. They will be a tailwind. The question is to what extent, right? And that gets into will they be able to power? As their work with the boomers, as you alluded to, Dean, will there be enough complementing themes to the millennial generation to get us to a sustained period back to call it three-plus percent growth. And that’s where we run into some challenges with just the math.

[00:12:51] Dean Barber: And we’ve had a hard time seeing that, obviously, especially in the COVID era, but COVID changed a lot of things. It changed the way that we think. It changed the way that a lot of businesses operate.

Several different businesses and industries were able to adapt very, very quickly, and didn’t miss a beat and, in fact, have increased market share. And yet, like I said a few minutes ago, there are some that have really suffered. So, how has COVID changed AllianceBernstein’s view on the longer-term economic outlook? First, I want to go there and then I want to talk about what we’re seeing in the elevated price-to-earnings ratios on stocks. Where are you guys looking at? How do you think this is all going to end?

[00:13:42] David Mitchell: So, first question, Dean, that I will take and then you sort of alluded to this again, earlier, is why AllianceBernstein’s relative performance has been so strong, not just the last couple of years, but specifically last year. And to us, the way we think about what COVID really did, was COVID, again, accelerated a lot of trends and themes that had already been set in motion.

So, I’ll give you one. We had been sort of early investors in a lot of the innovation around health care, and specifically, genomics and personalizers or sequencing of medicine. And one of what I call the picks and shovels ways that we had been investing for this was investing in companies that were going to benefit from more and more clinical trial testing, but basically, companies that have large moats around that trend or theme. And what happened last year, right?

We have literally a moonshot, a global public-private partnership, equivalent to a modern-day moonshot of trying to get both vaccinations for COVID but also therapeutics. And who benefits from that? These companies that, again, were poised to grow from all these dollars chasing clinical trial testing. That’s one small example.

I could literally probably list up to 10 others but whether it’s electric mobility or electric vehicles, whether it’s digital payments, the growth in PayPal and Square relative to cash or called the rise of cashless commerce, that was a term we had pre-COVID. All COVID did was brought a match to all the gasoline that had built up. And so, yes, have we been prepaid now probably some of this future growth that is why the returns were so good? Absolutely. And it’s also why multiples on a lot of these stocks have gotten elevated, some justifiably, but others maybe a little too much.

[00:15:45] Dean Barber: It’s interesting. And I remember you and I talking about this in the podcast back in the summer of 2019 and how you guys were looking for some of those macro trends. The interesting thing about how you invest that way, though, and when you identify these companies, and you decide, okay, this is a company that we want to own, you may not get the payoff that year or even the next year, right?

[00:16:10] David Mitchell: Correct.

[00:16:12] Dean Barber: And so, in some cases, where you’re investing in things that may take two, three, four, five years before that really matures, and then you start to get the great returns, people can get impatient.

[00:16:23] David Mitchell: Yes.

[00:16:23] Dean Barber: And especially in today’s society, we get impatient, man. “This thing hasn’t performed for the last three weeks, Dean, what the hell do I still own it for?” And you and I know that there are fundamental reasons behind owning the things that we own. So, how do you get people through that? And then how do you get people to get rid of the emotion on the investing side of things? Because I think that there was a ton of emotion around investing last year.

There was a lot of people that just said, “I don’t want anything to do with the market,” and yet, the markets wound up with a banner year on top of a banner year in 2019. And there’s a lot of people that sat on the sidelines and didn’t participate.

[00:17:06] David Mitchell: It’s a great question, Dean. And that’s why I joke. That’s why Dean Barbers of the world exist because as you know, probably half of your job is being that client’s behavioral finance psychologist. Talked about the necessity of that personal financial plan and how performance is always beholden to the plan. And one of the quotes I used before and it’s as relevant as ever is that in the absence of knowing what’s enough, the alternative is always wanting more, more return, more performance. And that is, I think, if you don’t solve for that, initially, as an investor working with a financial advisor, you continuously set yourself up for failure.

I’ll give you one stat that still shocks me. I almost have to do a double-take when I see it, is that since 1988, the stock market’s averaged over kind of three-year rolling periods, which is kind of typical. We sort of assess things when we own a company, want to own it for at least three to five years, it’s averaged around close to 11%. But if you missed just the best five days in those three-year periods, you know what your return goes down to instead of 11%?

[00:18:15] Dean Barber: Maybe 2% or 3%.

[00:18:15] David Mitchell: 4%. You’ve been better off holding it a boring old municipal bond fund and just let it. You actually earned a little bit more in municipal bond fund. So, there’s been Nobel Prize-winning economists that have studied this, Daniel Kahneman and Amos Tversky, and others. And that’s the million-dollar question. But I go back to that. If you’re investing without a purpose, then you’re probably setting yourself up for failure and 2020 was a microcosm of that.

[00:18:43] Dean Barber: Yeah. You’re bringing a good point there, David, and here’s the way that I typically think about it when people say to me, “Okay. Dean, how should I invest my money now?” And I know you’re in the same industry, and so they’re going to come to you and say, “David, what should I buy?” Well, that’s really the wrong question, right?

Because I believe that there is a phrase out there that I call the Goldilocks portfolio for everybody. There is a portfolio that’s just right for every single person, but it’s going to be their own Goldilocks portfolio based on their own set of circumstances and what they’re trying to accomplish with their short, their mid-term, and their long-term goals, and the resources that they have in order to meet those goals.

We want to try to identify what we call your personal return index. What do you need to accomplish in order to be able to do all the things that you want to do from a rate of return perspective? And then we can go out and build the portfolio and construct a portfolio with AllianceBernstein and other companies like yours to then put that portfolio together that we know gives us the highest probability of being able to achieve that personal return index and therefore achieving those long-term goals. So, I think that’s a different way of saying what you just said.

[00:19:57] David Mitchell: It is. Again, you’re trying to solve for a culture of instant gratification, and of a loss of sort of temperamental patience. And you mentioned before, and again, I have found that I can tell all the best stock stories about so there have been years, by the way, with some of those themes that we talked about didn’t pay us in that year. The stocks that we own within a certain subcategory, for whatever reason, it was a year that the market didn’t reward those companies.

And I can try my darndest to get people to stay invested and try to see the long-term. But ultimately, if you haven’t had a conversation that you’re talking about, Dean, in a term I was taught, I’ve always used, if you don’t help people pre-experience the future and then especially from a risk standpoint, and you run these scenarios with your potential clients saying, “Let’s talk about what it would feel like to have your portfolio down 10% or 15% or 20%. It’s likely going to happen. Do I get that call from you?”

And you put it in dollars and not as percentages because percentages are abstract. You put it in real money and how it would feel then you start to talk about this Goldilocks portfolio where people are able to stick. The whole key is sticking to and through it. And ultimately 96 these odds of success that you run on these simulations, 90% to 94% odds of success ultimately tend to bear out.

[00:21:29] Dean Barber: Yeah. And you know, it doesn’t help, David, that we have the John Bogles of the world. Don’t get me wrong. Vanguard’s done a fantastic job at allowing the average investor to be able to do things that they never could have done without the advent of what Vanguard’s done but to make a statement so bold by people like Bogle and Suze Orman and the like that all you need to do is own an index.

[00:21:57] David Mitchell: You forgot Tony Robbins, by the way.

[00:21:59] Dean Barber: Tony Robbins. Okay. But it’s just wrong. You and I know that from a fundamental perspective, it’s just wrong. But sometimes when you’re trying to do things like what AllianceBernstein does, you’re going to have a year where you might underperform the broad-based market. But that wasn’t your bogey in the first place. Your bogey is to find the right opportunities that you know over time are going to bear fruit.

[00:22:26] David Mitchell: And I’ll just add one thing to that, Dean. I’ve told people and I might have heard this from somewhere but we also live in a world where nuance is in very short supply. And often when people make those blanket statements on financial television or on the radio, they’re often just lacking. It’s not that they’re wrong or bad. They’re just lacking a ton of nuance. And so, that’s what I think our job is to fill in for folks at that personal level.

[00:22:53] Dean Barber: Well, they try to make it like it’s a one size fits all or like it’s a simple process, right?

[00:22:57] David Mitchell: Exactly.

[00:22:59] Dean Barber: And I think that that went terribly wrong for a lot of people during the financial crisis that started at the end of 2007, especially with the advent of those target-date retirement funds that just absolutely people are saying, “I want a 2010 target retirement date fund. You know I’m retiring in two years,” so obviously they’re going to have that money be safe. Well, nothing was further from the truth, right? And until people actually experienced that they didn’t understand the risk that was out there.

So, speaking of risk, we like to measure the price-to-earnings ratio of stocks. And if we look at the market itself, and say, what’s the overall price-to-earnings ratio of the market, there are several different ways that you can measure that price-to-earnings ratio. You can use the Shiller P/E ratio, you can use the CAPE ratio, you can use the Tobin’s Q ratio, you can use the S&P 500 from its regression. You can go back and look at a long-term mean and then determine, okay, where’s the market at relative to its long-term mean? Are we overvalued or are we undervalued?

And as we talked today, we’re more overvalued. If we take a combination, an average of those four measurements, we’re more overvalued today from a whole market perspective than we were January 1, 2000 just before the dot-com bubble burst. Does that bother you and what are you seeing as far as risk in the markets today?

[00:24:30] David Mitchell: So, lots to unpack there. And I’ll just add on because you kept saying we and I don’t know if this was intentional but we as in the US stock market on a global scale is the most overvalued market in the world by much of those measures. Of course, as investors, we have a home country bias.

We want to own companies that we know and understand that we see day-to-day in our lives. And so, there’s a whole nother level of that which might mean now why we need to take a more global approach to finding great companies that are going to be beneficiaries of some of these themes. But I digress. So, Dean, I’ll answer it. I don’t mean to sound like a politician but you asked me if it worries me and I think the answer is both yes and no. It worries me on the short term. It worries me in that when I look at a lot of those metrics that you mentioned.

The question we keep asking at AllianceBernstein and I go back to this is to what extent have we already been paid the future return of a lot of these companies? And in many cases, it’s a lot of it. Like you said, these companies would have to have unforeseen growth, I mean, growth better than some of the companies that were literally built poised to benefit from a year like COVID would have to continuously see in the future, and most likely, that’s not going to happen.

Now, what’s different this time is, again, it’s always relative to what. And when I look at how overpriced the bond market is, in many ways, by similar sort of metrics, bonds are also expensive. So, there’s an acronym, Dean, that we use and I’m probably sure you’ve heard it, it’s TINA, T-I-N-A, there is no alternative.

[00:26:24] David Mitchell: And TINA’s at the party, meaning that for it to earn any return for an investor that owns a classic 60/40 balanced portfolio to try to get to that long-term average return of 5% or 6% is going to be a challenge because those bonds, because interest rates are so low, aren’t going to give you the return they did over the past, not just 40 years, but even 5 or 10 years.

And like you said, a lot of a good chunk, a good portion of the equity market is probably trading at valuations that don’t allow for a lot of new double-digit returns going forward. So, this kind of gets into portfolio construction conversation, Dean. So, it makes me nervous because I think investors are going to have to reset their expectations that the returns that they’ve had over the last 5, 10, 15, 30 years are not going to be the same going forward. And to try to even come close to those former returns, they’re going to get much more creative and selective in what you do.

[00:27:29] Dean Barber: So, in other words, active management really should come back into vogue with the scenario that you just unpacked.

[00:27:38] David Mitchell: I don’t know how it doesn’t, Dean. I know how it doesn’t sort of intellectually but, look, if COVID was again sort of an example of what we’re likely to see going forward, again, as far as accelerating some of these trends, last year was a great year for stock payers. Like you said, I look at kind of our best ideas fund.

It can go anywhere, owns only 50 stocks in the world compared to over 3,000 which the equivalence index or exchange-traded fund ETF would and it was up 40% versus its index that was up barely just over 10%. I’m not saying that’s going to be the type of outperformance that we should expect year in, year out but that trajectory is probably something that should sustain itself.

[00:28:27] Dean Barber: Fascinating stuff, David. You know, the thing is that I think that we really, really have to come to grips with right now is, yes, there’s a lot of excitement with the vaccine rollout and this hope that people are going to get back to a more normal cycle. I think that’s fueled an awful lot of late-stage growth that came in the fourth quarter of last year. The question is, are the consumers going to – are they going to come back to the party? And I get the TINA thing, by the way.

That’s really fabulous. Because think about it, where are we going to go? We can’t go to CDs. We can’t go to money markets. We’re not making any. Ten-year treasury is a little over 1%. You’re going to lock your money up for 10 years and get 1%? I don’t think so. So, people are willing to take on that risk and as long as people are willing to take on that risk, it can maintain or sustain these elevated prices and even move them higher for a period of time.

[00:29:36] David Mitchell: That’s right. That’s the one thing about and I don’t want people to say that I’m saying that we’re in a bubble that’s about to burst. That’s the one thing if you look at history, going back to the Dutch tulip bubble of the 1600s, they’re bubbles because they can last a really long time. They really can and no one ever knows.

And again, don’t forget, we had a 34% correction last year. We did reset on a lot of it. But also, again, the recovery has been so overwhelming that we sit here in January 2021 kind of where almost, Dean, back to kind of where we were in August of 2019, of looking around across the world for investment opportunities and knowing that it’s not like you can back up the truck and almost buy anything like I would have told you in April. You have to be much more selective.

[00:30:25] Dean Barber: You know what’s interesting, though, right now, David, is when we look at the price-to-earnings ratio as measured by the average of those four measurements that I talked about a minute ago, when we look at that and the parabolic move higher in those price-to-earnings ratios doesn’t equate to the same move that we’ve seen in the market. In other words, we haven’t seen that parabolic move in the market like we’ve seen in the price-to-earnings ratio shows. Is that telling us that maybe next year’s earnings aren’t projected to be so great, but the market’s pricing in what’s going to come out in two or three years? Is that what we’re doing today?

[00:31:02] David Mitchell: Well, that’s the question. The market’s always forward-looking, the question of how far in the future it’s looking. And usually, it’s a moving target, right? Maybe sometimes it’s, again, back in March, when we were dealing with the COVID, the market was looking at, it was worried about tomorrow, right? Sometimes it’s looking at three months or six months or next year.

Again, this winter in November, we knew we were entering a very awful period and COVID right now is we have worse statistics now that we had at the beginning. I mean, over 4,000 people died yesterday. However, the market continues to be resilient because to your point, Dean, it’s looking at this reopening and this pent-up consumer demand, and who’s going to benefit and how.

Again, is that this summer? Is it on the back half of this year? Is it 2022? We can make educated assumptions but the market knows that that’s coming. It’s just a matter of time and it’s willing to look through to that and thinking that both the Fed and now Congress will appropriate the money necessary to act as the bridge to get us to the other side.

[00:32:08] Dean Barber: You know, there’s another caveat there. You just brought up the Fed. You and I talked about this before we started the podcast today but one thing that wasn’t present in the dot-com bubble in the same way that it’s present today is the Fed, is the easy money policy, is the willingness to just print money and fill up people’s coffers and send $1,000 checks or $2,000 checks to everybody in the country that makes under a certain amount of money or to give companies forgivable loans to stay in business and all the things that happened. And I think that the reason why things happened at the speed that they did with COVID was born out of the 2008 financial crisis.

[00:32:50] David Mitchell: 100%. In some ways, Dean, our opinion is if we didn’t go because in many ways, what they did was this dusted off the ’08, ‘09 playbook and then kind of maybe added some steroids to it because we spent a lot. We spent over nearly $3 trillion last year in just the fiscal side, meaning just what Congress appropriated. I’m not talking about what the Fed did.

The Fed dusted off their playbook and added more liquidity than they even had then and Congress spent more money, which is why the recovery in the markets was so much faster than they were from 2007 to 2009. We didn’t get back to market highs until 2013. It took six years.

[00:33:34] Dean Barber: Right. So, when you think about that, that could mess with the psyche of the average investor and lull them into a sense of security thinking that it doesn’t matter what happens because Uncle Sam is going to come to the rescue, right? And there’s always been a saying don’t fight the Fed.

Even where we’re at right now with these elevated prices, I still don’t want to fight the Fed. I don’t want to fight that liquidity in that massive mountain because you get this fueled optimism that comes out of that that can continue to drive these prices higher and higher.

[00:34:09] David Mitchell: That’s right. The other acronym that we often instead of TINA is FOMO, fear of missing out. It’s also very powerful. And again, if you look at this industry flows data, Dean, you’ve seen this, even with the phenomenal stock returns over the last decade, you started sort of in the recovery in ’09 and ’10, most of money has been flowing into bond funds, not stock funds.

So, is there still sort of from an investor demand standpoint? Do people still need to re-risk towards stocks? That could still be another thing that could prolong this party and again, makes me a bit anxious about your stocks going forward to get at the sort of overall market level, but not paranoid. Again, there’s investors to solve for those financial plans that are based on these assumptions of getting people 4%, 5% in diversified portfolios. People are going to have to own more stocks. They just are with what the Fed is doing.

[00:35:08] Dean Barber: Well, and it’s a supply and demand game.

[00:35:10] David Mitchell: It is. Also, Dean, it’s going to breed more volatility.

[00:35:16] Dean Barber: Oh, there’s no question.

[00:35:17] David Mitchell: We need to prepare for that.

[00:35:18] Dean Barber: But we also understand the volatility comes in bursts, too, right? You’re going to have a period of volatility. It’s going to shake out the weak people and people are going to get spooked and leave, and then the people that are stronger are going to be ones that are looking at that as an opportunity to buy. And that’s when you can make your money.

So, you got to keep some powder dry. You should never have 100% of your money invested all the time and there are periods when you want to look for opportunities, and that volatility can actually present those opportunities, giving you the ability to achieve the longer-term results that you want, just not by holding an index over a period of time.

[00:35:55] David Mitchell: And, Dean, you’ll probably appreciate this, but one of the things that we’ve sort of dusted off, and maybe we’ll attach this in a link to the show, we just put out a piece talking about investing in market highs looking at that historical lens. Because I get the question to your point about clients that are sitting on cash, either they sold a business or they just did a rollover of some sort. And it’s like, “Do I invest all of this money now? Or I wait for a pullback?”

And it’s, well, those are sort of the opposite sides of the continuum. The history and the math would say, if you’re investing for multiple years, you should invest all that money at once. However, from an emotional standpoint, you and I know that can also lead clients to being a bit more anxious, but don’t forget what kind of meeting in the middle of good old dollar-cost averaging tends to be.

You might not get all the return at the markets go up as you would if you invested all at once but you can get 70%, 80%, 90% of the upside, but it’s good old-fashioned dollar-cost averaging. That tends to be my sort of default, making a blanket statement here. When people ask me, “Dave, I’ve got this cash,” and I do so some discovery around, “When do you need the money, etcetera?” Usually dollar-cost averaging is a good medium.

[00:37:06] Dean Barber: Well, and it just goes back to the comment that you made at the beginning of the podcast, which was the absence of not knowing how much is enough, you always want more.

[00:37:14] David Mitchell: Want more. Yeah.

[00:37:15] Dean Barber: And there are two emotions that affect every single investor out there and it’s fear and greed and our job, of course, is to help keep those emotions at bay so that we’re investing based on logic for reasons that are important to our clients so that we can meet those long, short, and intermediate-term financial objectives.

[00:37:36] David Mitchell: That’s right. Well said.

[00:37:38] Dean Barber: David, hey, I know we’re running short on time here. I want to thank you so much for taking time to be a guest here on The Guided Retirement Show. Again, I know that our listeners are going to get a lot out of this. I appreciate you sharing that link in the show notes here for listeners to download and look at. And as always, I’ll see you on the golf course at some point in time. Maybe give me some lessons there.

[00:38:03] David Mitchell: Maybe the gym.

[00:38:04] Dean Barber: Yeah. Maybe the gym.

[00:38:05] David Mitchell: Or walking the dogs.

[00:38:06] Dean Barber: There you go. Alright. David, take care. Appreciate you being here.

[00:38:10] David Mitchell: My pleasure, Dean. Be well.


[00:38:12] Dean Barber: All right. There’s a lot David and I unpacked there and I hope that you enjoyed that conversation. Of course, I invite you to get out to the show notes and download that information piece that David was talking about. Also, if you’re interested in visiting with one of the certified financial planners at Modern Wealth Management, you’ll find a link to our website there where you can request a complimentary consultation and can actually schedule it right there on our website.

We can do phone conversations, we can do virtual meetings, we can do in-person meetings, however you prefer to do it. Please, if you’re listening on Apple Podcast, give us a rating on The Guided Retirement Show. Subscribe to The Guided Retirement Show. Share this with as many people as possible. We’re so grateful that recently we were over 10,000 downloads and for a new podcast, we think those numbers are terrific. And thanks to you, our listeners and also our viewers on YouTube. We appreciate you being loyal to us and we appreciate you sharing and liking.


Investment advisory service is offered through Modern Wealth Management, an SEC-registered investment advisor.

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Investment advisory services offered through Modern Wealth Management, Inc., an SEC Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.