#11 – Inflation, COVID Lessons, Microsoft, And Economic Cognitive Dissonance

Connor Miller [00:01:14]:
This is my only green shirt as well.

Wes Moss [00:01:16]:
I think that’s like a lot of America here on, well, maybe producer Mallory. She’s got green and Harry Potter, basically. That’s most of her wardrobe, which is great.

Connor Miller [00:01:29]:
Is that the Slytherin house?

Wes Moss [00:01:31]:
Yes, I think that’s what it is. So. Good morning. Welcome to money matters here on a St. Patrick’s day. Lucky charms pot of gold. The number one visual I get when it comes to St. Patty’s Day is what or what is yours? What’s your number one visual? Immediately, what do you think of.

Connor Miller [00:01:50]:
I got to go straight to the green beer.

Wes Moss [00:01:52]:
Green beer.

Connor Miller [00:01:52]:
It’s the one time of year where drinking green beer is appropriate.

Wes Moss [00:01:55]:
Green beer. Got it. And I think of the river in Savannah that goes green. Talk about a green. I mean, you’re pouring dye into the river. Can we still do wonder? I don’t know if they still do that.

Connor Miller [00:02:10]:
I don’t know. Chicago did it. Does it? Maybe, I don’t know. We’ll have to check on that one.

Wes Moss [00:02:15]:
But I immediately think of lucky charms. I think of the cereal because you’ve got the leprechaun, you’ve got the rainbow, the pot of gold. It is a vacation cereal for my kids. And we went away on spring break, what, a week ago or two weeks ago? And I know we’re out of town if we have really crappy cereal in the house. And then inevitably I’m going to go right for it, it’s like a dessert. So it’s not only I would never eat lucky charms as a real breakfast cereal, and then even if my kids are eating something in the morning that is not healthy, I’ll tell them, you might as well just eat a Snickers bar, just get rid of the cinnamon toast crunch and you might as well just have skittles for breakfast.

Connor Miller [00:03:04]:
Somehow we got away with putting marshmallows in our breakfast.

Wes Moss [00:03:08]:
Oh, we more than got away with it. We created entire multi billion dollar industry, Connor. It’s called american productivity ingenuity, which, by the way, we’re going to talk about today. Even though most people think this economy is terrible, we’re going to still talk about that. We’re going to talk about why people think the economy is terrible, to not bury the lead. It’s inflation. And today there was a really good article this past week in the Wall Street Journal that gave. In fact, I’m going to go right to that because there’s a concept called our.

Wes Moss [00:03:42]:
What is it, our retention. What is this concept here that I was searching for it and I finally found this and I thought it’s about time we talk about this and I’ll come up with this in a minute. But we have this thought around our, it’s reference price. So we have this concept of reference price and that’s part of what kicks us in our money psyche over and over, punches us over and over and over again because we all have a reference price and we’re getting constantly disappointed when we go shopping for almost anything because we have a reference price of what it should be. And it’s something very different today. And it’s higher in almost every single case and it hurts every single time we spend money. So there’s a lot happening here on the Sunday morning. Not only is it St.

Wes Moss [00:04:31]:
Patty’s Day, and I know that Connor Miller and for his girls, because he’s father of the year, we nickname him Fodi. F o t y. Father of the year because he made green pancakes this morning and is going to have a pot of gold scavenger hunt later for the girls where he’s using leprechaun traps and they’re going to round out the evening with an irish movie marathon. Of course, he’s wearing green along with something like 82% of Americans here on this Sunday.

Connor Miller [00:05:04]:
I really hope they’re not listening right now because you’re setting me up for big time failure.

Wes Moss [00:05:09]:
There’s so much he’s going to do for you today, girls. It’s going to be amazing. So where do we go? Let’s start with this, because I thought a lot this week around why is this economy still pretty darn good, even though most people say it’s not good and most Americans don’t feel like it’s good, but the numbers don’t lie. If we’re looking where we are in this economy, we have 3.9% unemployment rate. US GDP tracker, which is from our very own in our backyard right here in midtown. The Atlanta Federal Reserve does the US GDP now tracker. That’s at two and a half percent. It’s tracking that we’re growing at a two and a half percent rate, which, again, for the giant massive cargo tanker ship that is the United States economy.

Wes Moss [00:05:56]:
That’s pretty darn fast. Two and a half percent CPI. Now this was not as good as we wanted, but still much better than we saw two summers ago. CPI, now down to 3.2%. Market again, is having some indigestion around CPI. We also had, what, this past Thursday.

Connor Miller [00:06:16]:
We had PPI, which is the input prices.

Wes Moss [00:06:20]:
So it’s the producer side of it. So we’ve got CPI, consumer price index. You got PPI, which is the producer price index. And that came in a little higher than expected, too. So both numbers are a little higher than expectations, not a ton, but a little bit higher. And the market doesn’t like that because we’re still trying to get rid of that final quote, the last mile of inflation, we’ve gone the marathon, but we still have a really tough mile left.

Connor Miller [00:06:44]:
And last year we got used to this, where it was like every month you were getting a print that was lower and lower and lower again, not prices going lower, but just the rate of price increases moving lower. And we’re at this point where over the last six ish months, that’s stalled out a little bit. It really is this last mile of inflation problem. Getting us back down to that 2% target is going to be somewhat difficult.

Wes Moss [00:07:09]:
Well, here’s really what we’re talking about today, how population growth and productivity, which are just silent tailwinds, at least if they’re going in the right direction, that continue to be an economic tailwind. So that’s the kind of the good news here today on a Sunday morning. I also want to talk about this concept of old, I call this old economy, new tricks. Old economy new tricks. And we’ve been through so much. This is also, and I didn’t want to start with this because I didn’t even know if I wanted to talk about it, but I think it is super relevant because these are good lessons that we’ve all learned as investors. But it was also, this past week was the four year anniversary of the world shutting down and the four year anniversary of when COVID really became the pandemic that we all know so well. So I don’t want to spend a ton of time.

Wes Moss [00:08:00]:
It’s almost as though I don’t like to go back to those. That was a truly scary time in America and I don’t love revisiting that. Our also guest on the show, Jeff Lloyd, who’s here on Sunday mornings as well. We kind of went back and forth. He’s like, what’s you kind of got to talk about? I was like, I don’t want to bring up, I don’t even want to talk about what happened four years ago. But we’ve come a very long way despite all of the hurdles and the landmines and the potholes that we’ve been through. But really, four years ago this week is when the world essentially shut down. Yet here we are four years later and we have a stock market that has grown tremendously.

Wes Moss [00:08:41]:
We have an economy that still has stayed out of recession after once we got out of recession because of the pandemic. And despite eleven out of ten economists predicting we’re going to go into recession, we still haven’t done so. And productivity increases, by the way, on a broad scale are kind of invisible. Connor Miller and we also know Americans, again, don’t feel all that great about the economy because we can’t get comfortable with paying $8 for a stick of old spice deodorant with some weird name like Matahorn. I know that’s your deodorant of choice. Are you, what is it? Cool yeti, mint Yeti? I don’t go with the abominable yeti.

Connor Miller [00:09:33]:
I don’t go with the old spice anymore because they’re over $8. You’ve got middle schoolers in your household. So I’m sure that’s, I’m just begging.

Wes Moss [00:09:41]:
Them to use deodorant. So we can’t get comfortable with that because we have something called, and this is the Wall Street Journal article I was talking about, it’s something called a reference price and that’s the price that gets stuck in our head that something’s supposed to be. So if deodorant is supposed to be three, something like it was in the year 2020, and now it’s double. We just can’t accept that without a twinge of pain. And that happens to all of us now. Ten or 20 or 30 times every single day. It’s little kicks to our money psyche. There’s all these great example, these consumer examples in this Wall Street Journal article.

Wes Moss [00:10:18]:
This is Stan Kretcher from St. Louis. What really hurts him every single time he has to pay for it in today’s world is the dry cleaner. That to him is the biggest piece of sticker shock because he remembers that it was a dollar 50 for, I guess, per shirt and now it was $4. Now my dry cleaner in Atlanta has not gone to $4, but this is, I guess, some, maybe it’s a fancy dry cleaner in St. Louis, but that’s nearly a triple dollar, $50 to $4 as of this past month. I think a deodorant is a really good example. So you go back to 2020 and your average deodorant was under $4 today.

Wes Moss [00:11:02]:
If you go buy, I guess this is premium quote branded deodorant. Now you’re looking at over $8. Paper towels were $5.50, now they’re $8.22. Potatoes were $2, now they’re only $2.60. That’s the kind of thing you may not notice because it’s potatoes. How many did you buy? But if you’re buying cooking oil, this is a little bit of a shocker. You used to pay $5 for cooking oil. Today it’s over $8.04 that you notice.

Wes Moss [00:11:37]:
That’s just one of those punches to the gut for your money psyche. And it’s over and over and over again. Dog food was $5.40 in 2020. Today it’s almost 850. You feel that? And that is part of, again, I think that is part of why, despite the numbers, unemployment rate of 3.9, GDP now track of two and a half CPI down to 3.2. It’s death by 1000 cuts every single time we buy something that has, that’s souring the american economic mood.

Connor Miller [00:12:11]:
And really for the last, really the ten or 15 years up to COVID, the prices just didn’t change that much. And so really for a decade and a half, you got used to paying the same thing, maybe with a few pennies increases, but nowhere near to the extent of what we’ve seen.

Wes Moss [00:12:27]:
We got used to almost no inflation. And then the inflation monster that was frozen in a glacier was unleashed. How will generative AI go from party trick to impacting economic prosperity in a meaningfully positive way? First answer is I don’t know. I don’t know exactly how it’s going to happen. However, we’re starting to get some real examples around this. And the reason I wanted to bring it up this week is I’ve done a show on this a couple of different times, or we did a show maybe six months ago on this or eight months ago on this. This week to me was one of the first real light bulbs of. Oh, wait a minute.

Wes Moss [00:13:11]:
Old company, new tricks, generative AI. Yes. When you use it, it’s kind of fascinating, but almost in a party trick way. You can translate anything into seven languages, figure out any equation, write a story, do a list, do an agenda. But none of those things I’ve seen as impactful except they’re amazing and fascinating that it can happen. OpenAI this week just presented this was exclusively with the Wall Street Journal. I believe their generative video production where they just give me a bull in a china shop scene and they’ll give you a 32nd video. And it came out to something looking like Ferdinand the bull running around in a china shop.

Wes Moss [00:13:58]:
Incredible.

Connor Miller [00:14:00]:
Almost indiscernible from a real video.

Wes Moss [00:14:03]:
Indiscernible. The little bit of issue with the hands, little bit of issue with fingers and hands that are I guess even.

Connor Miller [00:14:08]:
But so much better than even what we had a year ago.

Wes Moss [00:14:12]:
Incredible. But I always struggle to think, well, okay, this is great, this is great. How are people going to make more money with this? Our companies. And it hit me this week reading about how Walmart old economy been around for decades and decades and decades. When you think of Walmart, you don’t think innovation, you think massive store that we all go to to buy whatever we need. But what they’ve done is they’ve started to implement generative AI on their website, which again is a huge part of Walmart sales. So instead of saying I need these eight things and jotting them down, you just ask, well, I’ve got a 4 July, I’ve got a St. Patty’s day party coming to my house tonight.

Wes Moss [00:14:57]:
What should I buy? And boom, here are the dozen things to make your party amazing to me. That is something that could really drive sales. So sprinkle in some generative AI. What is that going to do for my business? Automated shopping lists that get smarter and smarter every time you go shop. That I can see. Old economy, new trick, generative AI, we’ll see how it translates. But the company’s been talking about how quickly they were able to implement something like that. And I could see that.

Wes Moss [00:15:31]:
Really imagine if it boosted a shopping experience by ten or 20% for every single customer could be amazing. Jury is still out, but the use cases now are starting to become clearer and clear. Old economy, new tricks. We’ll keep talking about it here on money matters. It’s fascinating, and it’s St. Patty’s day. Hopefully there is a pot of gold at the end of your lucky charm rainbow. More money matters straight ahead.

Wes Moss [00:16:02]:
How does setting the goal to have income for a lifetime sound? It’s not a trick question. Many happy retirees create income for a lifetime, and it’s something that’s called income investing. It’s a way to harness the power of many different forms of cash flow, including rent, royalties, dividends, distributions and interest. If you’d like help with income investing, you can reach capitalinvestmentadvisors@yourwealth.com. That’s your wealth. Connor Miller if I were to take up, let’s call it 10ft, a pot of gold, and let’s say an iPhone. One weighs 100 pounds, one weighs a few ounces, which one hits the ground first?

Connor Miller [00:16:50]:
My intuition is going to tell me that the pot of gold is going to hit first. But then I go back to the physics classes from high school that I paid attention to 100% of the time, and they’re going to hit the ground at the same time.

Wes Moss [00:17:03]:
And this has nothing to do with the markets. I don’t know why we were talking about this, but we were just talking about a little physics in between the break, trying to remember our physics days, which if you go on the economic. I was on the economics track, so I had to do a lot of statistics, but I didn’t have to take physics. I guess that was early in when I changed my major six times. So I went into college as a biomedical materials sciences major, and for some reason I thought it’d be cool to do prosthetic limbs as a career. And I also thought that it was such an obscure major when I was applying to college that I would have less competition to get in.

Connor Miller [00:17:42]:
It sounds really hard.

Wes Moss [00:17:43]:
Does sound hard, doesn’t it? What did you do? What did you originally do?

Connor Miller [00:17:46]:
I was just a broad business major going into college and then shifted to finance my sophomore year.

Wes Moss [00:17:53]:
You’re one of the 27% that changes their major. No, you’re one of the 27% that’s actually doing in your career what you studied.

Connor Miller [00:18:04]:
I took my first finance class and was just, I loved it and felt like this is what I wanted to do.

Wes Moss [00:18:11]:
Well, you’re fortunate to be in a labor of love, and that’s why we’re talking about this, the statistics around us changing our mind about what we end up doing, the future. Just again, three quarters of people end up in a career, do something different than their major, which doesn’t inherently, it makes sense, because imagine choosing your major. It’s 18 or 17. You have no idea what you’re really going to do. You don’t even really understand how to make a living or how to make money a career. What?

Connor Miller [00:18:41]:
And even on a day to day basis, I’m using like 5% of what you learn in finance classes in college.

Wes Moss [00:18:48]:
This is a pretty good foundation. And I luckily stumbled into economics because it was the easiest, quickest major I could get done in a year. I didn’t even do economics until my last year in college. And I looked around and I tried to figure out what I could get done in one year because my dad, like any good dad, said, you’ve only got one year left and I’m not going to help you after this year. So you got to get it done. And mathematically, I could do it by just taking 100% economic classes that year. So I think I took six econs in the first semester and five in the next 100% economics to be able to finish out with the economics degree. Strangely, I guess I’m one of the 27%, too, because it’s something I use it the most and I have for my entire career, probably more now than ever.

Wes Moss [00:19:41]:
And that’s why it’s so often a topic here on money matters, because that’s what I think about all the time. So this week we were thinking, well, here we are. Good economic numbers, good stock market up high single digits. We’d be annualizing at what, 30 some percent? If we keep up this pace, which we not saying we will at all. However, interesting that we haven’t had an election cycle, we haven’t had a negative year. SP 500 has increased every presidential reelection year since 1944. I’d say that’s maybe not necessarily economics, but a little bit of political market research. It doesn’t guarantee anything, of course, but some historical context.

Connor Miller [00:20:31]:
Yeah, I was going to say that was the one thing coming off of last year where the market was up double digits. It’s like, well, can it keep going higher? And that stat just gets pointed out of, well, we haven’t had a negative reelection year in the market going back to the 1940s.

Wes Moss [00:20:46]:
When I talk to families about, as we’re doing retirement planning and we’re thinking about where markets are going, it’s so easy to point to all the bad things that are happening in the national debt, and we’ve got, interest rates have continued to go up and the Fed hasn’t lowered rates. And now inflation, it seems like it’s hard to get rid of it down to the 2% level. And that means the Fed’s not going to cut rates. That could eventually slow the economy down. But at the same time, when you point out that it’s an election year and that, imagine all of the tools at the disposal of Washington, how powerful that is. Imagine them doing everything in their power to make sure things stay at least pretty good for this next year, till November or so. I think then you can start to visualize, oh, wait a minute, maybe this economy will stay pretty good. Imagine all those levers, even though the Federal reserve, of course, is not political.

Wes Moss [00:21:43]:
Connor Miller, of course not. Listen. And I actually don’t think they are. I actually believe that the Fed is pretty independent, but they’re also humans. And maybe I don’t think they’re trying to influence the economy just because it’s election year. But their job is to keep the economy on solid footing. So they’re always, to some extent, trying to make sure we’re on solid footing and doing okay. And we want low inflation and what? Maximum employment? That’s what the federal, they have a dual mandate.

Wes Moss [00:22:13]:
That’s all they’re supposed to do, keep prices consistent, keeping inflation in check and maximum employment. What did Rafael bastic say? He’s our Fed governor here in the United States, in Atlanta for the Atlanta Fed. The way he said, it’s not maximum, necessarily employment, but keeping just full employment.

Connor Miller [00:22:38]:
Full employment, which is an arbitrary number. It’s not like full employment means that.

Wes Moss [00:22:44]:
You have zero unemployment, just, you have most people employed.

Connor Miller [00:22:49]:
For a long time, people thought full employment was four and a half percent. They didn’t even think we could get to 3.4% where we bottomed out last year.

Wes Moss [00:22:58]:
And we still are in the sub 4% range, which is still really solid. Again, the reason the Americans don’t feel great, and they hear the statistics around that. 45% of Americans in the latest Gallup study say the economy is poor. 63% of Americans say it is getting worse, not better. 29% say it’s fair. So 74% think the economy is just fair to bad or fair to really bad.

Connor Miller [00:23:29]:
And most people you talk to, they’re not looking at the data on a day to day basis. It’s more of a feeling, more of a sentiment. You know what it is?

Wes Moss [00:23:40]:
They’re not looking at the data. You know what they’re looking at deodorant, dog food, nutrition bars, paper towels, ramen, noodles, almost doubled in price. Now, this one is okay, though, right? So you go from sixty two cents to a dollar and a dollar eight. So 2020 pack of ramen, $0.62. Today it’s a dollar eight on average, baby wipes, four and a quarter now almost $7. You feel that. You feel that you’re a mom, you go out or dad, go out and buy baby wipe. I’ve bought many a baby wipe in my day.

Wes Moss [00:24:16]:
Death by 1000 inflationary cuts, let’s put it that way. So here we are in an environment where the market’s good, the economic numbers are good. People don’t feel so good about that. And how do you explain it? And I think part of that is these two invisible yet very powerful economic tailwinds. And they’re very simply population growth and productivity. Now, you can’t sum up everything in the economy or economic, you can’t sum up economic growth this simply. You can’t just say it’s, oh, you know what? It’s population growth and productivity. But those are the two stars of the show.

Wes Moss [00:25:01]:
Yes, maybe there’s a whole orchestra, but those are your chair one and chair two. And imagine, think about productivity quite simply as just doing more with less or being able to produce more with the exact same inputs or producing more even with less inputs.

Connor Miller [00:25:18]:
And productivity is becoming increasingly more difficult to define. Right back 5000 years ago, when you’re making widgets in a factory or you got the production line, you can easily measure, okay, this number of workers is putting out this number of cars every day. But in more of a services oriented economy, as technology has played a bigger role, it’s a little harder, harder to quantify.

Wes Moss [00:25:46]:
However, we have seen those productivity numbers start to go up. And this is what gives me a little bit of hope and maybe just starts to explain good economy. But we can’t see why. So people feel not so great. I’m just trying to figure out why we’re doing okay, but people don’t feel well. And I think it’s because you’ve got these somewhat invisible trends, population growth. Now this is from the CBO, from the Congressional Budget office. And you could look at, there are other measures of what the population grew, how much we grew last year, but we grew by about a half a percent, Connor, at least.

Wes Moss [00:26:24]:
And we’re not going into the immigration numbers here. And undocumented workers. That’s not what we’re talking about here. We know we have at least about 1.6 million new people that are part of the game today. So we have 1.6 million new people out there doing work. So producing and spending money. So just imagine that that’s a pretty big inflow of new economic activity. A full half a percent population growth on, call it now, we’re at almost, call it 335,000,000 people in the United States.

Wes Moss [00:27:02]:
Now. Only a 10th of a percent out of the 0.5 of the percent is from birth death. Birth death. So we have more births than deaths. The other 0.4 of the 0.5, that’s immigration. So we are more people coming into the United States. Again, we’re leaving the political conversation way out here. We’re looking at the economic implications here.

Wes Moss [00:27:25]:
So pair that. In fact, this gives me a little bit of hope, too. If you look at the projections for population growth here in the United States, and again, this is birth minus death and immigration. We’re still growing as a population, as far as really we can see. So you got to 20, 35, 20, 40, 20, 45, you go out 20 years, you go to 2050. So go out almost again a couple of decades ahead into the future. We’re still growing the population here in the United States. The question is, can we continue to grow productivity? You go back to some of the golden times in american investing.

Wes Moss [00:28:11]:
Call it the 1990s. That was an escalator higher. It’s because part of it is we had, obviously, the advent of the Internet, which, in a way, almost invisibly increased our productivity. It’s hard to tell exactly how it was, but during that period of time, we were in the two to 5% productivity range. Increases in productivity each year, and we had some of the best markets we’d ever seen. It’s been a long time since we’ve gotten back to those numbers, and we just hit those numbers. We’re two and a half percent productivity growth as of the most recent print. So we’re starting to see some real productivity growth.

Wes Moss [00:28:52]:
It’s invisible, just like you don’t know that the population is growing around you now. You can see it over any major city. You can pretty much see it, but it usually takes a return trip. I haven’t been back to anybody you talk to, haven’t been back to Atlanta in five years. Oh, my goodness, it’s so crowded. So you see it over time. You can’t see it at any given day, week, month, or even year. And then productivity.

Wes Moss [00:29:14]:
So the phenomenon of being able to produce, create, sell, procure more with the same amount of money or less, same amount of people or less. That’s productivity growth. Productivity growth was between two and 5% that range. This is an annualized growth of productivity for most of the 1990s. And then it crashed after the great Recession. And then it crashed again during COVID Just recently, just over the past, call it quarter or so, we’ve seen a big surge in US productivity to over two and a half percent, much like we saw in the late 1990s. If that continues, it could be a massive tailwind for the economy. In turn, it should be good for stocks.

Wes Moss [00:30:10]:
Let’s call it broadly, because AI isn’t just about AI companies. I think of how can an old company do new tricks along with all these fancy technological innovations?

Connor Miller [00:30:23]:
We get the question all the time. It’s well, how are you investing portfolios for AI? And that question is loaded because it comes from the standpoint of wanting to invest in the chipmakers and anyone that’s going to be at the forefront. But in reality it’s going to be the innovators that have innovated for the last 2030, 40, 50 years, hundred years that are also going to benefit from artificial intelligence.

Wes Moss [00:30:53]:
Imagine this. So the first example we use is any big box, call it perennial old line retailer like Walmart, Home Depot, let’s call it large retailer, allowing you to ask it a question when you go online to shop and giving you ten things you should go buy for your St. Patty’s Day party or St. Patty’s Day project, and instead of buying eight or nine things that you would have normally you buy twelve, and you do that times several million transactions, that starts to be a huge uptick. Imagine Coca Cola as a company whipping up a new flavor that thanks to generative AI, with looking at mounds of data to say this is exactly what consumers are missing and what they would like. Personalizing preferences. Imagine how advertisements, even websites, can be now personalized to each person based on generative AI that goes to the website. Imagine the uptick in that experience and the benefit for any company in any industry utilizing some of this new technology, old economy, new tricks really.

Wes Moss [00:32:12]:
That could be productivity. And we’re starting to see more and more real life examples of that. Again, it’s the economic tailwind of productivity. Add in a little population growth and what do you know? We keep growing as an economy. I’ll take that story all day long. I’m going to transition with something lighter. That was also from this past week, which was this was the anniversary of the Microsoft IPO this past week. Microsoft went public 38 years ago.

Wes Moss [00:32:43]:
This past week IPO happened, it was March 13, 1986. Total return over that period of time, pretty good. As of this past week. Connor Miller. So if you bought, you ran some of these numbers. What does it look like?

Connor Miller [00:33:00]:
I love doing this because it’s just like, if only I had a crystal ball. I wasn’t even alive back then, but if only I had a crystal ball back in 1986.

Wes Moss [00:33:08]:
What we’re about to do is contributing to the problem. This is exactly why investing is so hard, because even we, which we’re long term investors, this is exactly why investing is so hard, because about what Connor Miller is about to do to every single listener, you are ruining investing for people by doing this. We can’t stop it because it is so fun.

Connor Miller [00:33:34]:
This might be a tough pill to swallow. If you had, maybe you had a neighbor that was like, oh, you got to buy Microsoft. It’s ipoing in 1986, just put in $1,000. Right.

Wes Moss [00:33:45]:
How many shares would that have been?

Connor Miller [00:33:47]:
Oh, back then that was, I think it was only 2036 shares. Yeah.

Wes Moss [00:33:54]:
And by the way, nobody buys 36 shares anyway.

Connor Miller [00:33:56]:
And that’s not how many shares you would have today because there’s been stock splits. And so today you’d have way more than that.

Wes Moss [00:34:04]:
How many shares with all the splits would you have?

Connor Miller [00:34:07]:
Over 10,000.

Wes Moss [00:34:08]:
So you go from 36 back at $28. So I guess that was $1,000 today you’d have 10,368 shares. So let’s just get all the splits.

Connor Miller [00:34:21]:
Let’s get to the real numbers.

Wes Moss [00:34:23]:
Right?

Connor Miller [00:34:23]:
If you had $1,000 that you invested in March 13 of 1986, today, this is not even including dividends. This is just price. You’d have $4.4 million.

Wes Moss [00:34:35]:
So you’ve just ruined us all. You’ve ruined us all. Now think.

Connor Miller [00:34:38]:
If you would have invested $10,000, right.

Wes Moss [00:34:40]:
That would be 44 million. No? Yeah, that would be 44 million. You’ve ruined us, Connor Miller. Now, at the same time, what if you just happen to be, I guess this just goes back to the, since it’s St. Patty’s day, we’ll talk a little bit about luck, the luck of the that. Just imagine the luck. Maybe it’s the luck if you happen to just live in the city of Seattle during that period of time. Because it was, yes, Microsoft, pretty quickly.

Wes Moss [00:35:16]:
It was such a strong company. From a software perspective. We all know what, we use it every day ten different ways between Outlook and windows and word and Excel and PowerPoint and then the cloud and teams. It’s such an integrated part of our lives on such a global scale. So everybody knows of it today. But imagine, go back, call it 40 years or so, or 30 some years, 38 years, let’s say. Because it was in Seattle, it got a little more local press, and you knew somebody that worked for Microsoft, and they said, well, this Bill Gates guy, he’s a super smart guy, and he had a little bit more recognition, let’s say, maybe because he lived in the city where it started. And you just said, maybe I’ll just like here in Atlanta, we’ve seen the same thing with Home Depot.

Wes Moss [00:36:13]:
A lot of wealth in Atlanta. And I haven’t done these exact numbers, but I would bet a lot of money that there are a lot more Home Depot millionaires here in Atlanta than there are in Austin, Texas, or San Francisco or Helena, Montana, because it started here and there was more recognition around it here and more people worked here. So what am I leading to here? Is that there is, and again, which has been another amazing stock over the years. Right? Again, I’m not promoting, saying buy or sell any of these companies, but just imagine you had the fortune, the good fortune to live near one of these companies. It would have given you a much higher probability that it’s part of your net worth. And I’ve seen this happen over and over and over again. The proximity to something that happened to end up doing well over a long period of time can literally be worth millions and millions of dollars. Now, it’s not easy because it takes a lot of discipline to stay put and own these stocks through thick and through thin.

Wes Moss [00:37:14]:
And it does it for every one IPO story that Connor Miller just ruined our investment psyche over there are 50 or 100 that go terribly wrong and end up at zero. And not $1,000 goes to $4.4 million. But even with Bill Gates, so there’s some just happenstance that is involved in a lot of times in investing. There’s some, dare I say, luck. When you talk about the Microsoft story, and this just goes back, the statistics around this, I think, illustrate this. We know Bill Gates, one of the richest people in the world. Yes, smart, yes, he’s skilled. But what about the luck side of that? Imagine 1968.

Wes Moss [00:38:00]:
There were 300 million high schoolers in the world. 300 million high schoolers in the world. There were 18 million high schoolers in the United States. There were 300,000 high school students in Washington state. There were 100,000 high school students in Seattle, and 300 of them went to high school with a personal computer. 300 out of 300 million. We’re just rounding here, I think Connor, that’s one in a million. It’s one in a million that this guy named Bill with elastic into Gates happened to have one of the very first computers ever in a classroom and he happened to be really good at it.

Wes Moss [00:38:40]:
Next thing we know, the rest, of course, is history. On the flip side, his best friend Kent Evans was alongside him for years and would have been one of the founders of Microsoft. But Evans died young. He was on the other side. Luck has two faces. He would have been one of the co founders of Microsoft. So Luck obviously plays a big role in our lives and of course it does in investing as just, and this comes back to Morgan Housel’s book, the Psychology of Money, is that I think whether we can create our luck, the only way we know how to do that here at investing really is patience and time, patience and time, patience and time. Here on the eve of the fourth anniversary, not the eve of, but this past week, the fourth anniversary of COVID it was perhaps one of the scariest economic events you can think of yet.

Wes Moss [00:39:41]:
We got through it and just the days of negative returns and then rebounds and negative returns and rebounds just tells the story around how we’re only able to increase our luck, or at least for most people, by extending our time and our period of time. We’re going to talk about that when money matters returns. We had gone to break talking about how obviously there’s luck involved in everything we do. There’s luck involved in life. Of course, there’s two sides of luck when it comes to investing. However, there are a couple of things that can go a long way to extend the probability of becoming fortunate. Lucky on the right side of luck. And that really comes down to time.

Wes Moss [00:40:36]:
We have no control over markets or the economy over period of time anyway. But we do know historically that if we can extend our horizon out and be patient long term investors, that increases our chances of success really dramatically. And this goes back to one of your favorite charts, Connor Miller, what do you call it?

Connor Miller [00:41:00]:
So we’re talking about this chart. We’re going to call this the staying invested chart. We don’t really have a great title for it. Let’s call this the patience is the better part of luck chart.

Wes Moss [00:41:13]:
Whoa. I’m not going to even try. Patience is the better part of luck. I’m going to write that down.

Connor Miller [00:41:18]:
So what we’re looking at here, and you can’t see this, but we have several bars here that show what your return would have been over the last roughly 30 years from 1995 all the way to the end of last year. If you were fully invested, if you just put your money SP 500, put your money in January 1, 1995, stayed invested all the way through, you would end up with a compound annual growth rate, which is an annualized return of about 8.3%.

Wes Moss [00:41:48]:
And that includes dividends.

Connor Miller [00:41:51]:
That is just on price.

Wes Moss [00:41:52]:
Oh, that’s just price.

Connor Miller [00:41:53]:
Just on price. And then we said, well, what if you take out some of the best days of investing? So if we took out the five best days or the ten best days or the 20 best days?

Wes Moss [00:42:03]:
All right, five days. Let’s take out five days. In how long? How many years?

Connor Miller [00:42:07]:
Over 28 years.

Wes Moss [00:42:09]:
Five days out of 20 years.

Connor Miller [00:42:13]:
Sorry, 29 years.

Wes Moss [00:42:14]:
Almost 30.

Connor Miller [00:42:15]:
Lower your return by one and a half percent. So instead of getting that 8.3%, only 6.6%.

Wes Moss [00:42:23]:
Well, really it lowers your return by, let’s see, 8.3. It lowers it by 20%.

Connor Miller [00:42:30]:
Right. And it just.

Wes Moss [00:42:32]:
As you expand more than 20%.

Connor Miller [00:42:34]:
As you expand that out, if you missed the best 20 days, your return is less than half of what it would have been. So only three and a half percent. Here’s the crazy thing. If you missed the best 50 days.

Wes Moss [00:42:44]:
In the market, which out of almost.

Connor Miller [00:42:46]:
30 years, your return is negative. And so oftentimes what you see is in these volatile periods, you have to stay invested in order to experience the best days as well.

Wes Moss [00:42:59]:
Now, these are market days, aren’t they? We’re not looking at. Obviously, these are market days. So let’s do this math for. We’re going to do this real time. 29 years times. It’s approximately 252 market days, is 7308 days. If you miss. So, 7308 days, I’m going to take 50 divided by seven, three, eight.

Wes Moss [00:43:25]:
And that means. So, essentially, if you miss one half of a percent, 0.6 of a percent of the best days essentially wipes out your return. It’s pretty fascinating if you go back four years and when the world was shutting down, remember, 15 days to slow the spread. This is four years ago. It felt like a very long time ago. S and P 500 on March 11, 2020, a little over four years ago, fell nine and a half percent in one trading day. It was the 6th worst trading day in the history of the SP 500. I have this memorialized chart.

Wes Moss [00:44:08]:
There’s a mapping chart that you can see. Every single stock in the SP 500 are almost all of them, and they’re either red or green. In any given day, you’ve got some red, some green. This one was one, there was, I think there were four stock, five stocks that were up six stocks that day out of 500. So just the entire market fell. No place died. Google down ten. Microsoft down twelve.

Wes Moss [00:44:32]:
JPMorgan down 18%. This is in a day. This is one day. Berkshire Hathaway was down 11% in a day. That was pretty vivid because it was phone calls and it was a scary time. It was a really scary time. And of course, the natural reaction to the lockdowns and to say, look, this economy is going to be the dark ages for a while. We’re going to go into a massive recession, massive depression, not just a recession.

Wes Moss [00:45:06]:
And you got to get out of the market, of course, get out. And then something really, in retrospect, it makes sense why this happened, but it seemed far away. The light at the end of tunnel, the seemed so far away. After that trading day, the market was up 9% in one day, up which is the 10th largest percentage gain in the history of the S and P 500. And it was just one day after the 6th, the worst day in SP 500 history. Fast forward a couple more days. Let’s go to the. I think it was the 23rd condor.

Wes Moss [00:45:44]:
Miller.

Connor Miller [00:45:45]:
Yeah, that’s the wild thing is all this happened over the course of like.

Wes Moss [00:45:49]:
A couple of weeks.

Connor Miller [00:45:50]:
Yeah. So this was, I believe it was the twelveth when we were down nine, then the next day we were up nine, and then it was just a couple of days later. Fast forward to March 16. The S and P 500 dropped 12%.

Wes Moss [00:46:07]:
That’s right. It was 12% in one day.

Connor Miller [00:46:10]:
Third largest drop, percentage drop in the S and P 500 history.

Wes Moss [00:46:14]:
In the history of the world. And then what happened? Well, March 24 of up almost nine and a half percent in a day. And what was so interesting about that is that that’s when the market, still in the middle of the early days of being in economic lockdown, started its trajectory higher to some extent. I’m not going to say it never looked back, but we’re tremendously higher today than we were. And I think that’s such an important.

Connor Miller [00:46:49]:
Point to hammer home, too, is a lot of times you’ll hear, well, I’ll get back in the market when things get better. Right.

Wes Moss [00:46:56]:
But you just said you’ve got to be patient if you’re going to have luck.

Connor Miller [00:47:00]:
March 23, from a pandemic standpoint, things weren’t better. We’d only been home for what, a week and a half? At that time. We were just starting the lockdowns. But the market being this forward, looking forward looking discounting mechanism was already looking into the future and what the Fed had done and what the federal government had done and injecting all of this stimulus into the economy, knowing that things were going to be okay.

Wes Moss [00:47:33]:
And it also goes back to missing a couple of days. Imagine you get out after a down ten or a down twelve, and then you miss a 20% jump in the next few days or the next few weeks. It’s hard to ever recover from that. So you really miss out on the majority of what the market does to the upside. We have to be invested to get the gain and it’s very easy to not be because we get shaken out and we get scared. JP Morgan does this wonderful chart. I don’t know what they call this one, by the way, I would call that chart don’t miss a day, but I like yours better. I would call that the don’t miss a day chart.

Wes Moss [00:48:13]:
JPMorgan does a treatment around annual returns and intra year, intra year declines, meaning that what happens in any given year? Well, if you go back and you look at over the span of, let’s go back to 1980, all the way through last year, you’ve got this 44 year period of time. The majority, 33 of those years ended up positive. So 33 out of 44, it’s a pretty good track record. But you’ll see that in any given year, every given year you’ve got drops because the market is not an escalator. It’s like a yoyo going up, a slow, shallow escalator. And if you go back to the 1980s, you’ll see those drops, you get an 18 and a 17 and a 34% drop. You go to the 90s, you see a nine and minus nine and minus eleven and -19 you go to that 2000s, this is a rough, rough decade, saw a -30 and -34 a -49% these are percents per year, intra per in a given year. And then just like this latest decade, so 2029, -34 2021, minus five, that was actually one of the least volatile years I can ever remember.

Wes Moss [00:49:37]:
That was easy street for the markets. 2020, down 25%. And then last year, even though it was a good year in the very end, because we had a big rally at the very end of the year, we still had a 10% drawdown last year. So put it all together. On average over those 44 years since 1980, we’ve seen intra year drops of 14.2% on average. That’s what happens in any given market year. So we should expect a down ten to 15% at any given time, at any given time, all the time. And that’s what makes it so tough.

Connor Miller [00:50:15]:
And that’s the thing is you never know when the drop is going to come. The market could rally 1020 percent and then fall 10%. So you can’t just wait around expecting the drop saying, well, I’ll get in then. You really have to have that patience. Stay invested through the cycle, through the volatility, in order to reap the benefit of those long term returns.

Wes Moss [00:50:37]:
How about this summer of 2022? Seems like not all that long ago, inflation hit a 9.1% 44 year or four decade high. What’s the market done since then? Wait a minute. Inflation through the roof. That means the Fed has to raise rates. Almost every time the Fed raise rates puts us in a recession. That’s got to be terrible for markets, right? No. Since then, Dow up 30%, s and P 500 up 40% or so, Nasdaq up about 45% since that scary headline from the summer. Now we’re long term invest.

Wes Moss [00:51:14]:
I know you are Connor Miller. I am. I try to be ultra long term investor and not get shaken out. We do that in a lot of different ways. One, it’s critical to have some sort of plan so you have a vision on the horizon so you don’t get car sick along the way. It’s good to focus on the big tree way out into over the horizon. Secondly, we don’t have a lot of diversification, so we’re not worried about any one given, let’s call it investment going sideways or down. And then if we can add time to that diversification.

Wes Moss [00:51:49]:
The good news is that our returns narrow to the positive the longer we wait. What does that mean, Connor Miller to you? You can probably come with a better name than that. Returns narrow to the positive over time.

Connor Miller [00:52:03]:
I’m a one hit wonder today. But look, I mean, it just goes back to this patience. The longer you, more the higher probability of success of going through an extended period of time where your returns are actually higher. The time benefits you. Time is on your side.

Wes Moss [00:52:22]:
So this shows us that if we’re looking at stocks and we’re looking at bonds, we’re looking at a balanced portfolio. In any one year period, stocks could be up 47% or down 39% in any given period of time. Then you go out five years, the luck becomes more in your favor, which is you could be up anywhere, up 28% or down only three if you had committed to a five year period. And then as you continue to go out, the return profile gets better and better you go out 20 years, you could be up as much as 17% on average, or up only 6% on average. I think the interesting thing here is that if you look at a balanced portfolio of stocks and fixed income or bonds, let’s call it 60% equities, 40% bonds. If you go out five years, there’s no five year rolling period where a balanced portfolio, and again, we’re just looking, this is just s and P 500 in the agri bond index. There’s no five year period where that loses money. Now we’re only going back, what, 20 years? But there’s no five year periods where a balanced portfolio lost money.

Wes Moss [00:53:47]:
Now you could have been pretty flat and only made 1%, but that’s a powerful way to look at it. With that Connor Miller, how do we find you and the team, or you, me and the team? It’s easy to do.

Connor Miller [00:54:00]:
So where do people head go to yourwealth.com your wealth.

Wes Moss [00:54:06]:
Yeah, you say it with a little bit of e, almost like it’s your, it’s your wealth because it’s your wealth.

Connor Miller [00:54:13]:
So I had to spell it out.

Wes Moss [00:54:14]:
Yourwealth.com easy to find us. Have a Connor Miller thanks for being here ma’am.

Connor Miller [00:54:19]:
Thank you.

Wes Moss [00:54:19]:
As always, fun here in studio and have a wonderful rest of your day.

Mallory Boggs [00:54:29]:
This is provided as a resource for informational purposes and is not to be viewed as investment advice or recommendations. This information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. The mention of any company is provided to you for informational purposes and as an example only, and is not to be considered investment advice or recommendation or an endorsement of any particular company. Past performance is not indicative of future results. Investing involves risk, including possible loss of principal. There is no guarantee offered that investment return, yield or performance will be achieved. The information provided is strictly an opinion and for informational purposes only and it is not known whether the strategies will be successful. There are many aspects and criteria that must be examined and considered before investing.

Mallory Boggs [00:55:17]:
This information is not intended to and should not form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment tax, estate or financial planning considerations or decisions. Investment decisions should not be made solely based on information contained herein.