Capital Investment Advisors

#168- Driving Through The Smoke: Participation vs. Perfection

In this episode of Retire Sooner, Wes conveys his dismay at the abundance of scary headlines bombarding Americans these days. With unsettling bylines flooding our news feeds, he says it’s understandable for people to consider pulling money out of the market. But is that productive? Using a lesson he learned from Tom Cruise’s 1990 racing film Days of Thunder, Wes points to the statistical advantage of staying the course even when your survival instincts tell you otherwise. Pointing to specific examples from market history, Wes demonstrates how time in the market often beats any attempt to time the market.

Read The Full Transcript From This Episode

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  • Wes Moss [00:00:00]:You. I’m Wes Moss. The prevailing thought in America is that you’ll never have enough money and it’s almost impossible to retire early. Actually, I think the opposite is true. For more than 20 years, I’ve been researching, studying and advising American families, including those who started late on how to retire sooner and happier. So my mission with the Retire Sooner podcast is to help a million people attire earlier while enjoying the adventure along the way. I’d love for you to be one of them. Let’s get started. Have you seen the new Laker series? As in the Los Angeles Lakers?
  • I think it’s something like winning time. It was originally called Showtime, but because it’s on HBO, they didn’t want to use the word Showtime, so they changed it to the title Winning Time. And that’s a terrible title because it doesn’t match what’s really kind of a wonderfully good show. All ages evidently love this. And it’s about the dynasty that was the Los Angeles Lakers that went from a team and a franchise that was losing money, and there was this worry that they might actually go bankrupt. And then a guy named Dr. Jerry Bus came along and bought the team. And then, of course, it’s the story of how he bought the team in a really dramatic fashion, paid pretty much every penny he had, went into buying the team.
  • Today you think of someone that buys a billion dollar sports franchise, they’re usually worth ten or 20 or 50 billion. It’s not a big deal. Whereas in this particular series, Jerry Bus paid 67 and a half million dollars. Today, that sounds like pretty much just buy courtside seats for season tickets. But way back then in the 1970s, we’re talking about a guy who leveraged everything he owned. In fact, one of the scenes, he says he only has 120 grand left in the bank after a 67 and a half million dollar purchase. And of course, story goes from there with this meteoric rise of an amazing franchise. But you’re thinking about the business deal that’s going on. The first episode is such a cool recount of that, similar to the movie Air with Michael Jordan and Nike and how they did that deal. But what’s so fascinating is that and you’re thinking, how is this guy? Where’d this guy come from and how did he get the money? Well, he essentially love I love to buy low and sell high, which is such Wall Street parlance. Of course, this takes place in La. So he’s driving in a convertible in sunny La. But it reminds you of that Wall Street mantra that you’ve heard, we’ve all heard over and over again. It’s really the psyche of American investing.
  • It kind of makes sense. Of course it makes sense. Want to buy something when it’s low and we want it to move higher, and then we can sell. And we could repeat that over and over again and just intuitively we’d like to do. We’d like to be able to eliminate the pain of something we own falling in price because it hurts. We know that the pain of Moss is two to three times worse than the pleasure of gain is good. So in a perfect world, we’d always buy when the market’s down, ride it up, and then sell, and then buy when the market’s down again and ride it up and sell, just like Dr. Jerry Buss who got to buy the Lakers. But the reality is, even the most famous, most successful investors in the world will tell you that that is not a winning game. It’s not a winning formula. And no human can really do that over and over and over again, because maybe you can do it once or twice or three times, but to repeat that cycle over and over again ultimately ends in failure. Almost like saying, oh, I’m going to predict this coin flip, and you might get it right, and then you get it right again. You get it right again, but at some point you’re not going to get it right. And that one mistake of not timing it right or timing it perfectly wrong could wipe out that cycle of market. Timing or timing. Anything goes for real estate, it goes for housing, could go for picking a winner in your favorite team.
  • But perhaps the best example around it is trying to time the stock market, the S and P 500. And what makes all of it that much more difficult is the 24/7 media world that we live in. And even if you’re not pulling up or Bloomberg in any given day, you still can’t escape economic market headlines. Your local radio station that plays rock or country, they’re going to tell you what the market did in any given day. You can’t escape it. So even if you don’t watch financial, TV or political news channels, you will know what’s happening in the economy on any given day, or if not any given day, certainly in any given week. And you’re going to hear about what the stock market is doing or what interest rates are doing, or what gasoline prices are doing, bombarded by headlines that are very much about your money and how it’s impacting your wallet. And all of that leads to these questions that are just normal in any human investor’s mind, which is, hey, is now a good time to invest? Or maybe things have gone really well, so maybe, is this a good time to get out? Or things have been really bad. Are things going to come back? Or maybe they’re not. So I’ll just get out now. Oh, wait a minute. Now I just got out. And the market just rebounded 15% over the last month.
  • Did I miss the boat? And we get caught up in this chasing our tail cycle. It’s so easy to do that because that’s fueled by scary headlines and I’ve kept track of some really scary looking back on them great scary headlines from the last couple of years, which are the very ingredient that keeps us chasing our tail or can keep us chasing our tail. The study today that we just updated as of the end of July when it comes to stock market numbers, a market history study we call participation versus perfection. We’re going to look at three really scary periods of time when the economy was bad, stock markets were terrible, and markets dropped. And we’re going to suppose we had the clairvoyance of nailing the bottom just like Dr. Jerry Bus wanted to do, and we bought low, perfectly low. So we put our money to work. In this case, we’ll use $10,000 as an example, and we’ll put that money to work at the perfectly right time. Then we’ll compare it to doing the exact opposite, having the worst possible timing you could have had, meaning that we put that money to work right before the market dropped due to these financial and economic crises. And then we’ll take those two and we’ll compare it to having just left money in cash, which, by the way, gets an interest rate, particularly today, here in the late summer of 2023, interest rates are over 5% for the federal funds rate.
  • That means a lot of money. Market funds are paying 5%. So cash can earn some money too. So let’s compare seemingly great timing against terrible timing relative to investing money or leaving money sitting in cash. And that history will be our guide that might be able to help us avoid us chasing our tail due to crazy, scary headlines. And we just got a really scary headline. In August of this year, the first week of August, the credit of the United States got downgraded. Now this had only happened in modern history one time before, and it was almost eleven years to the day, back in two thousand and eleven S and P, Standard and Poorest downgraded the US. Debt for the first time. I remember being in the radio studio that Sunday morning and feeling some of the impact of that scary headline the day that that happened. And I have a screenshot, a photograph of what played out on CNBC. And by the end of the day after this debt downgrade from AAA rated all the way down to AAA plus, which is just one notch below this, was August 5 of 2011. The Dow ended up down over five and a half percent. The S and P 500 down nearly 7% in a day. I remember commentators that day saying the world will never be the same again. Well, what happened to the stock market after that since 2011, and these numbers are through the first week of August of this year total return. Dow Jones since that first debt downgrade up a little over 300%, it’s averaged almost twelve and a half percent per year since then world will never be the same.
  • Yet the Dow Jones plotted along, much like it has done over the course of multidecade long term economic history, stock market history. S and P 500, same thing. Cincinnati has still averaged annualized over 13 and a half percent per year since that Frightful Day. Now, this is a classic case in point where you get a knee jerk reaction. And I think in this particular example, it reminds me that we as investors on the Retire Sooner podcast, have to look past any given scary headline. And I’m not saying we should be whistling past the graveyard, but maybe it’s more like what I remember so clearly from Days of Thunder with Cole Trickles, the NASCAR driver. Remember Tom Cruise in that movie? Who was his crew chief? It was Robert Duvall, one of his best roles ever. And Tom Cruise is coming around the core, and there’s a big accident right in front of him. He can’t see what’s ahead because there’s so much smoke, but Duvall knows because he’s got it on the monitor and he’s in Core Trickle’s ear, and he’s going 150 miles an hour headed for a cloud of smoke. He can’t see through it. What does Duvall tell him to do? Drive through, Cole. Drive through. Because he knew it was on the other side. Scary at the time, but driving through is exactly what he needed to do. And that’s what you and I are going to consistently face. Stock market headlines. Geopolitical headlines, political headlines, economic headlines. Inflation hits 40 year high. You name the category. There’s always some breaking news that hits your wallet. It has an impact. Maybe that day, maybe that week, maybe that month. Your four hundred and one K. Is your cash working for you? For years, banks have gotten away with paying next to nothing for the privilege of holding your money. Today, investors have more options as the Federal Reserve has raised and raised and raised interest rates dramatically. Why not take advantage of it? If you’re interested in finding a higher yielding solution for the safety allocation of your investment portfolio, reach out to my team at That’s your wealth. So let’s go back a little more than three years and revisit some of the very real headlines that hit us.
  • And this is from Apnews and and Bloomberg. This was February, march of 2020. Stock market unravels as Coronavirus Ravages global economy. Dow drops nearly 3000 points as coronavirus collapse continues. Worst day since 1987. I remember that day down 3000 points. That was a scary day. Oil plunges below zero for the first time in unprecedented wipeout. How do you even have negative oil prices? There was such a demand shutdown when the world shut down and we were all not no one was driving for a period of time. Oil demand got so low that oil traders that had oil in their possession were paying people to take the oil. There was a period of time where oil traded at negative $46 a gallon. Negative. I’m going to pay you to take this commodity for me here today, oil is trading in the $80 per barrel range as of the second week of August. Then March, late March of 2020 came along. And for some reason that in retrospect, is very clear, but certainly didn’t feel that way on the day things turned the market bottomed and enough people had sold enough stock that finally there was a day when buying pressure started to outpace selling pressure. And that’s when markets finally turned. But not until thousands or hundreds of thousands or probably millions of people were selling out and selling out and getting out just in time for the market to bottom and start bouncing higher. Since then, SP 500 up over 100%. Some people said the world would never be the same, and they’re somewhat correct in that assessment. The world still isn’t the same prior to COVID, but they also said the market might never recover. Yet here Wes are about three and a half years later. And just the general stock market measured by the S and P 500 has more than doubled. What about war in Ukraine? Now, this is a 2022 event. Here are some of those scary headlines. This was February of 2022. A Russian invasion of Ukraine could send shockwaves through financial markets. That’s CNBC. Here’s some sky news. Russia invades Ukraine. Oil smashes past $105 a barrel and stocks sink as Putin pulls trigger on Ukraine from National Geographic. War in Ukraine could plunge world into food shortages. I mean, that’s scary. I remember hearing that. Wait, food shortages around the world. Oh, wait a minute. That’s when we found out just how much wheat was grown in Ukraine. And wait a minute, wait, that’s going away.
  • What about Iowa? But Indiana, I thought that’s where they grew all the wheat. Turns out a lot of it comes from Ukraine. And here we are as the second week of August 2023, a little over a year later. Well, 18 months later. And unfortunately, the world’s still going on to this day. And it’s still terrible news for the Ukrainian people and it’s still disconcerting to most of the world. But if we’re looking at it just objectively, what did the US. Stock market do? Well, it’s up a little over 9% since then, despite all of that very real calamity that took a lot of people by surprise, a lot of people to dismay. And it’s still going on to this day. And then, of course, inflation headlines. These are even more recent. Go back to last summer. And from Politico and Fox Business and AP News, us inflation reaches new four year high in June of 9.1% feels like it was yesterday. This one I almost blanked out of my memory. I almost don’t remember when things were this bad. Gas prices surged to $5 a gallon, reaching all time high all time high means it’s never happened before. All time. It’s the highest it’s ever been in the history of the recorded world. Well, that’s new. It’s new and scary. What’s that do to the economy? How about this headline? Federal Reserve raises for the 11th time to fight inflation, but gives no clear signal that the levers slow down. I just added that last part in. They actually said no sign of their next move. But the highest inflation print in four decades, over 40 years, came out on July 13 of 2022. What’s the market done since then? It’s up over 20%. And then one more stop along this haunted headlined house. How about starting 2023? Well, not an economist in sight would say they didn’t think a recession was on the horizon, or on the precipice for that matter.
  • This came out around Christmas, a few days before the new year of 2023. And this is CNBC. Why everyone thinks a recession is coming in 2023. And they made a really good case from Forbes if there’s a recession in 2023, some cities could take a decade to recover. That’s a scary headline. And then probably the most telling was from Bloomberg economists Place 70% Chance of US recession in 2023. Turns out none of that came to fruition. At least here we are almost let’s call it late summer. Heading into the fall could change. But what I have seen in the last month or so is that most of these economists have just extended their timeline for a recession. So if you’re not right this year, just add another year to your prediction. And you’re still not wrong. You’re just quote early. Well, eventually. How about this for a prediction? There’s a 100% chance we’re going to go into recession because at some point, the US always goes over a recession. The US economy doesn’t work like an escalator. It’s more like a mini roller coaster. Up 4% is a great year. Down 3% is a pretty terrible year. So GDP in the two to 3% positive range, that’s where we’d like to see it. But it doesn’t work in a straight line. We go through boom cycles and then bust cycles.
  • And that’s the cadence of the US economy. So it is technically a 100% chance at some point we’ll go into recession again. But when you see it in a headline, you see something like 70% chance. All economists say you immediately think, well, wait a minute, if it’s that certain, maybe I should get out of stocks. And there the cycle continues. And round and round we go. And we get thrown for a loop just in time for markets to recover. And we end up with the opposite of what Dr. Bus wanted, which is buy low, sell high. And because we know with great conviction that there’s no way to perfectly nail the top and bottom of every market over time, then what’s the other answer? What do we do instead? And the answer is staying in the game. The answer is participation over really long periods of time, which gives us the propensity and stacks the odds in our favor, gives us the propensity to win. So let’s look at this newly updated study. Brings us to what we call participation versus perfection as an investor.
  • And what we’ll do here is we’re going to take $10,000 and we’re going to put it into the SP 500 during really difficult periods of market history and see how it fared over time. If we had A, really great timing and B, terrible timing, and C, relative to just leaving money in cash, what about three month T bills or three month treasury bills? And technically, in this study, that’s what the cash equivalent here is, ultra short term treasuries. So the first period of time go back to the year 2000. That was the collapse of bubble. When I say the market here, we’re talking about the S and P 500, the market dropped 49% during the Great Recession. That was seven to nine. Financial crisis, the market dropped 57%. And then of course, the Pandemic or COVID-19 Pandemic SP 500 is down 34% in a very short period of time, which made that period one of the quickest corrections and most violent, which made it maybe even scarier than the preceding two. So what happened? We’ll go back to we’re starting with bubble and if we had, quote, perfect timing, we would have allowed the market to start to crater and we would have waited all the way until October of two after the market was down almost 50%. And then we would have put that $10,000 to work. And today, or as of the end of July 2023, that $10,000 would have grown into a little over $88,000. But let’s say you did it perfectly wrong and you invested right at the very market peak just as the market was about to head over a cliff and still hold on to this day.
  • It’s been about 23 years. Well, your $10,000 then would now be worth over $46,000, even with seemingly worst possible time you could have had. And if you had left money in cash and money markets, and there’s been some decent money market years over that 23 year period of time. Today, as an example, interest rates are running at over 5%. So a lot of money markets are paying around 5%. But your $10,000 would have grown into, with interest, a little over $14,000. So it would have grown at least a little bit. But compare that to the $46,000 that you would have had even in the worst possible timing scenario, which would have still beat cash by 225%. Now, a point of clarification when we’re seeing cash, really this study, we used three month treasury bills, which we can think of as a cash like equivalent, very short, ultra short term bonds from the US. Government. And if you look inside a money market account, they’re typically going to be owning short term Treasuries like this.
  • So money market rates, or quote cash rates are going to be very similar to where short term treasury rates are at any given period of time. Of course, we’d love the $88,000 result, but relative to the $14,000 result, that at least being invested with terrible timing. That participation over that full 23 year period. Even starting out terribly wrong, still four Xed your money and beat cash by 225%. Participation over perfection. How about in the intermediate term? So that was long term. How about intermediate term? The Great Recession. So we run this same exercise and our $10,000 goes to work right at the peak, October of seven. That was the peak. And then the market fell completely out of bed, ultimately down 57% over about a year and a half period of time. Your $10,000 today would be worth a little over $40,000 in the SP 500. So still four X your money now perfect timing would have been great. $10,000 at the Nader, down 57% today, it’d be worth about $89,000. So a great result. But what about cash or three month T bills? Well, guess what? Interest rates went down to almost nothing after that. Fed trying to stimulate the economy. They took interest rates to near zero for most of the next call. It 15 plus years until recently as they’ve raised rates over the last year or so. And your $10,000 in cash or technically three month T bills we’re really using here as a cash like equivalent ended up being $11,400. Still beating the worst possible timing by 253%. Now, a core short term example investing in the year 2020.
  • Think about what happened there due to the Pandemic economic gridlock lockdowns, no end in sight masks versus no Moss. Media hysteria, cases and deaths. A truly scary period of time for all of us and maybe even worse for the stock market. Perfect timing, meaning that we didn’t invest our $10,000 until the very bottom of the market, which came in late March of 2020. Left invested today, that’d be worth a little over $21,000, the worst possible timing. So investing right before the Pandemic started, Feb of 2020, $10,000 is still worth over $14,000 today. What about leaving money in cash for three month T bills? $10,500. So the worst possible timing in this shorter example here still beat cash by 36%. Bottom line. I think Wes get the picture here that success is clearly about participation over time, much more than the false dream of perfection.
  • When it comes to timing, market drops are completely normal. It is a nature of the market and they should be absolutely expected. We need to remember that the average, just the average drawdown in any given year in market history is a little over 16%. That’s a normal average drawdown in any given year. And go back to 1928. The S and P has averaged annual returns, despite those drops of nine and a half percent and has been positive on an annual basis 73% of the time. Again, it’s not about perfection. It’s about participation. Extend your time frame and extend your odds of winning. Read through the headlines, drive through the smoke because it’s okay on the other side. It’s about staying on course. Despite the unsettling headlines that’s typically how investors ultimately achieve their financial goals, we know that history has shown the market’s resilience. We’ve also seen the just sheer difficulty of timing, the movements of when things fall and turn around. And we know the benefits of compounding, which takes time. So while it’s completely human nature to feel apprehensive about when we’re getting in or should we be getting out, when it comes to investing in stocks, making those decisions based on fear and never getting started almost guarantees we never finish the race and we never get anywhere. Don’t let that be you on your Retire Sooner journey.Mallory Boggs [00:28:29]:Hey, y’all, this is Mallory with the Retire Sooner team. Please be sure to rate and subscribe to this podcast and share it with a friend. If you have any questions, you can find that’s You can also follow us on Instagram and YouTube. You’ll find us under the handle Retire Sooner podcast. And now for our show’s. Disclosure this information is provided to you as a resource for informational purposes only and is not to be viewed as investment advice or recommendations. Investing involves risk, including the possible loss of principal. There is no guaranteed offer that investment return, yield or performance will be achieved. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. For stocks paying dividends, dividends are not guaranteed and can increase, decrease or be eliminated without notice. Fixed income securities involve interest rate, credit inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Past performance is not indicative of future results when considering any investment vehicle. 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. Investment decisions should not be based solely on information contained here. 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. The information contained here is strictly an opinion and it is not known whether the strategies will be successful. The views and opinions expressed are for educational purposes only as of the date of production and may change without notice at any time based on numerous factors such as market and other conditions.

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