#199 – The Dog Chasing Tail Investment Strategy

Wes Moss [00:00:58]:
All here on today’s episode for retire sooner. And with me, producer Mallory steps into the studio. Fun to have you here.

Mallory Boggs [00:01:07]:
Thanks for having me.

Wes Moss [00:01:08]:
No, you don’t get to. You’re not here when we do guests. So it’s nice when it’s just, you know, when we’re pontificating upon the world that retire sooner topics that we think matter to our listener base. And that’s exciting.

Mallory Boggs [00:01:22]:
And I love whenever we hear from listeners that they did really get something from our lessons. I think one thing that I keep hearing is that I kept hearing that people really enjoyed the lessons from the psychology of money.

Wes Moss [00:01:35]:
Yes, I actually got some bad feedback from that, too.

Mallory Boggs [00:01:39]:
Oh, no. Well, I guess you gotta take the good with the bad.

Wes Moss [00:01:41]:
I think I got an email or some, you know, ridiculous. I don’t know where it was from, but somebody said, why don’t you just. Your summary of the psychology of money wasn’t as good as the book. You should just read the book. Which is what I actually said that in the beginning of the podcast, because, yes, the book is better. I read the book. It took 9 hours for me to do audio version. I took copious notes and I thought it was amazing.

Wes Moss [00:02:06]:
And my point of doing the podcast was, let’s consolidate this down into 230 or 40 minutes episodes so you don’t have to spend 10 hours. I’m literally trying just to make it easier. And no, I don’t think it was as good as the book, but it was still. But we got a lot of great feedback.

Mallory Boggs [00:02:25]:
I was going to say, I think we also got some positive feedback.

Wes Moss [00:02:28]:
And you know what’s interesting, and it’s the most listened to episode of the.

Mallory Boggs [00:02:30]:
Entire year, which I am so thrilled about. Like, that’s just, that’s incredible. So I. Clearly, by the way, you were kind.

Wes Moss [00:02:36]:
Of wincing there when I was saying somebody didn’t like it.

Mallory Boggs [00:02:38]:
Well, yeah. So you know what’s funny? It reminds me of, you’ve said before, that when you lose money, it hurts. What is it, five times as much as making money?

Wes Moss [00:02:48]:
Maybe it’s the same thing with criticism.

Mallory Boggs [00:02:49]:
It’s gotta be the exact same thing, right?

Wes Moss [00:02:52]:
You get a tiny little one person bump when somebody’s like, I love this. And you get a five x negative when someone says it’s bad.

Mallory Boggs [00:02:59]:
Exactly.

Wes Moss [00:03:00]:
You’re right. It is. It’s a great parallel to investing.

Mallory Boggs [00:03:04]:
Indeed.

Wes Moss [00:03:05]:
The negative emotion of getting chided, jided, jaded, whatever the word is, versus complimented.

Mallory Boggs [00:03:13]:
There you go.

Wes Moss [00:03:13]:
It is. Compliments are just like your investments going up, and criticisms are just like your investing is going down. They hurt forex more. The other thing, too, is this episode, if you’re listening to it right now, likely came out before, or probably did come out before an interview that I’m so excited for everyone to hear, which is Ed and Cynthia Statten. These are the people that live the fantasy we all want to live, which is living abroad. Go to Ecuador, go to Portugal for a year in retirement. That’s a very cool episode coming up here as well. Today’s a little bit more.

Wes Moss [00:03:51]:
I’m going to say today’s episode maybe is a little bit more like a radio show because there are a lot of different topics I wanted to cover. But really, what we’re diving into here, at least from an investing standpoint, as we’re thinking about hitting those goals, and remember, investing is all about working towards a specific goal, working towards a goal that we have this much in capital, that produces this much income, and then I can do all the things in the happy retirement I want to do. So, of course, the investing side of what we talk about here is ultra important. And there’s been some consternation over the last year and a half. And I liken it to a, a dog chasing its tail. And it’s so easy to do that when you’re an investor because there’s always something that’s doing really, really well. I think, of this. I mean, we all know this.

Wes Moss [00:04:41]:
We all have this same visual. The puppy running around in circles. It’s kind of cute, but they end up going nowhere. That’s what the dog chasing tail. Now, you’re a cat person. I don’t think cats are too smart to chase their tail. Is that right?

Mallory Boggs [00:04:53]:
So they’re not gonna chase their tail, but my cat has definitely been surprised by her tail. It’s just the funniest thing. And I will tell you, I got a dog now, too. But she’s got a little nub of a tail, so she doesn’t really chase.

Wes Moss [00:05:06]:
It doesn’t go as much into the periphery, their vision, and to run.

Mallory Boggs [00:05:09]:
Exactly.

Wes Moss [00:05:09]:
Run in circles. Cats are almost too cool to chase their tail. And a lot of dogs. My dog is too. He’s just too lazy to chase his own tail. He’s like, I’m not even gonna be bothered by running in circles. It takes way too much energy.

Mallory Boggs [00:05:23]:
Probably actually pretty smart of him then.

Wes Moss [00:05:25]:
And we’re gonna get to this and this. Again, a lot of this are topics over the 15 years. 20 years I’ve been doing media, over 15 will come from these little sparks that I get from one of my kids. Hey, dad, what about this? And they just ask it in a totally organic kid way, and they, out of complete curiosity. And it really goes to the heart often of something we’re dealing with in the real world, investment wise. And that’s this. One of my teenagers asked me a question that led to this dog chasing tale. One other thing that I wanted to cover.

Wes Moss [00:06:00]:
We’re going to get to that in just a second. So if you don’t want to hear about the applebee’s date night pass and the shocking price of bananas, then you can fast forward a little bit here. But this, and I hate that we missed this, but you got to go back into February, and it was Valentine’s day. And I didn’t know about this until more recently, but Applebee’s did this really cool thing where they sold, and it was almost a lottery system where it wasn’t. Not everybody could buy them. I think they only did 1000 of these, but they sold a weekly pass for $200. Weekly pass for two, date night pass. So you could go to Apple to be every single week of the year.

Wes Moss [00:06:40]:
Dinner for two is free on this card. Well, $200.

Mallory Boggs [00:06:44]:
That’s amazing. That’s an incredible deal.

Wes Moss [00:06:47]:
But it also speaks to, you know, it sold out. I don’t know. It was. It almost became like a lottery.

Mallory Boggs [00:06:52]:
Oh, yeah, that makes sense. I’m sure it was really popular also, actually, that makes me think of that country song about a fancy like Applebees.

Wes Moss [00:06:58]:
You’re right. Well, I think Wall Street Journal mentioned that, and I had not remembered that. It’s become. Applebee’s has kind of surged in the cultural phenomenon of America lately due to maybe country music. Even Beyonce is doing country music right now. Did you know that?

Mallory Boggs [00:07:14]:
I did. And you know what? It’s excellent.

Wes Moss [00:07:16]:
It’s pretty good. Yeah, it’s pretty. My kids were showing me. I listened to that clip of it on TikTok. Anyway, it tells us the reason I think this is interesting, not because of the date night, but it tells us about the times we’re living in when a restaurant pass is this hot and it means something else is going on. And that has to do with the cost of something that we all need, which is the staple, which is, of course, food. And food inflation has been very real. And I went back and looked at some economic numbers behind it, and kind of, as this unfolds, it’s even more fascinating if you go back ten years.

Wes Moss [00:07:56]:
So let’s go back to 2014. We were spending as a country. And Fred, by the way, the Federal Reserve economic database tracks this. It’s food away from home. How much were we spending? It was clocking in at about $40 billion a month.

Mallory Boggs [00:08:11]:
That’s significant. Okay.

Wes Moss [00:08:13]:
It’s a lot, right? We’re spending a lot of money on it, on food away from home.

Mallory Boggs [00:08:17]:
Is this all our coffees and pastries in the morning? Is this starbucks slowly taking over?

Wes Moss [00:08:21]:
It is. It is anything that’s counted as a restaurant. And of course, they can’t have every drip and drab of data, but it’s still pretty close and it’s pretty indicative of what we’re doing when it comes to this category. Eating out at a restaurant and we were doing about $40 billion a month. Call it about $500 billion a year. Half a trillion. Half a trillion dollars a year back in 2014. Now we’re regularly over $80 billion a month.

Wes Moss [00:08:51]:
Regularly over $80 billion a month. And 2023 came in just at 997 billion, so called it. That’s. That’s three. That’s just shy of a trillion dollars. That’s how much we spend out as a nation or we spend eating at restaurants. Now, you would say, well, isn’t it just because prices are up? Haven’t. So I will.

Mallory Boggs [00:09:14]:
I will tell you, you can go. It used to be in my mind, I would say, all right, $20 is dinner. You know what I mean? You go out to eat and it’s going to be $20. Now I feel like you go to a restaurant and I can’t find a dish lower than $25.

Wes Moss [00:09:24]:
Right. And then you’ve got your tips. So you’re probably spending more like 30 or 40 at least.

Mallory Boggs [00:09:29]:
Yeah. Like, and like, you know, throwing a cocktail.

Wes Moss [00:09:32]:
You’re just, you know, God forbid you have a cocktail.

Mallory Boggs [00:09:34]:
Yeah.

Wes Moss [00:09:34]:
So prices up about 50%, but total sales up about 100%, if we really think of it in that way. Now, this was from. This is actually from Dave Ramsey’s website. $3,700 is what we spend, average American per year, or about $300 per month to go out to eat. And that number just keeps going up. And maybe this is. There’s no exact answer about this. It could be restaurants are getting a little bit smarter.

Wes Moss [00:10:04]:
They’re better at marketing. COVID did a number on, hey, we couldn’t go to restaurants for a long time, so there’s still a surge.

Mallory Boggs [00:10:11]:
Oh, I was definitely one of those people. I was like, I missed going out to eat so much. So as soon as things opened back up, I was like, I’m there. I will be there to search. Yes.

Wes Moss [00:10:19]:
Revenge. Eat spending. On average, people say they eat out about three times a month, and then they order delivery between four and five times a month. And that’s. Maybe that is part of this, is that that is so much easier to do, and it’s just as expensive. Uber eats doordash.

Mallory Boggs [00:10:37]:
Ten years ago, zifty.

Wes Moss [00:10:38]:
I don’t know if Zifty’s around anymore.

Mallory Boggs [00:10:40]:
I think it is.

Wes Moss [00:10:41]:
So I’m looking at consumer prices for food up, really, from 2014, up 48%. Let’s call it up 50%. Total spending. Restaurant sales. This is restaurants and other eating places. That’s the data set up, essentially, from 500 billion to a trillion. So no wonder. Emily and William Brooks.

Wes Moss [00:11:02]:
This is. We’re so excited for their Applebee’s pass. That’s the couple.

Mallory Boggs [00:11:06]:
Oh, they actually got the Applebee’s pass. They. They struck gold. They were able to get that $200 deal.

Wes Moss [00:11:11]:
And I love this. And this is. I think this was Wall street journal. But they’re midwesterners.

Mallory Boggs [00:11:15]:
Oh, I love me. A good midwesterner. Those people love me.

Wes Moss [00:11:19]:
Which, again, remember, my in laws are all. They’re all midwestern.

Mallory Boggs [00:11:23]:
Shoot, you spend so much time up in Michigan, you pretty much are midwestern. I’m pretty sure you’ve adopted it now, right?

Wes Moss [00:11:29]:
I have adopted it, and. But I love this, that there, because we’re Midwesterners. Of course we love cheese.

Mallory Boggs [00:11:37]:
I mean, what. We can claim that in the south, too, though, right?

Wes Moss [00:11:41]:
Doesn’t everybody like cheese? Top dish. Here you go. Top dishes. I think of that as more like Wisconsin, because the cheese heaven. That’s fair. I don’t really think of Michigan as.

Mallory Boggs [00:11:50]:
Much cheese heaven, if you will, as cheese heaven. Yeah. Wisconsin, though.

Wes Moss [00:11:54]:
But here are the top dishes at Applebee’s. Three cheese penne pasta. It’s like one of their number one dishes. Grilled chicken breast, strawberry balsamic chicken salad. Tex Mex shrimp bowl, southwestern chicken bowl with cheese, blackened shrimp caesar salad with cheese, black and cajun salmon with cheese. I just added the with cheese.

Mallory Boggs [00:12:16]:
I think it’s so cheesy.

Wes Moss [00:12:17]:
Here’s a favorite headline of the week. Inflation is bananas. B a n a n a n. Yeah, inflation’s bananas. There’s a woman, I guess her name is Madeline Thompson. She is a trader Joe’s superfan. She has a handle, and I don’t even know where her handle is. I think she’s Rader.

Wes Moss [00:12:37]:
Jolene, I love this quote. I’m deep in all the Grocery subreddits.

Mallory Boggs [00:12:42]:
Oh, I bet that’s a Reddit handle, then.

Wes Moss [00:12:44]:
Oh, it’s probably Reddit.

Mallory Boggs [00:12:45]:
Okay, okay, okay. Go figure. I didn’t know there were multiple subreddits.

Wes Moss [00:12:49]:
For Trader Joe’s maven around food prices. And the big shocker this week was the fact that after 20 years of holding banana prices steady at banana trader Joe’s went to 2013. That just blew the world up. That was just. Oh, my goodness. It blew up the food Maven Pricing world, and it’s pretty incredible. Now, $0.04 doesn’t sound like a lot. Four on 19 doesn’t sound like a lot, does it?

Mallory Boggs [00:13:21]:
It doesn’t sound like. It’s like you went from, like, just under, like, two dimes to now it’s like, just under a quarter, I guess. But. So it’s just, you know, you’re talking cents.

Wes Moss [00:13:28]:
It almost doesn’t even feel like it matters. Yeah, but it’s a 21% increase.

Mallory Boggs [00:13:32]:
Wow.

Wes Moss [00:13:33]:
And this is. This makes me think of dividends. When you hear about a dividend going from nineteen cents, a stock pays $0.19. Okay, well, now they pay $0.23. It’s just people don’t even think of it. So who cares? What’s the big deal? 21% increase. When we think of cents, it just gets dismissed. But it can be a really big deal.

Wes Moss [00:13:58]:
And then, of course, people are cutting back on different sorts of food. We’ve read about that. But here’s what’s interesting, is that if I look at total spending, this is personal consumption expenditures, even though we’ve had all this inflation, and this is part of why we’re spending more, because everything costs a lot more. You’ve essentially seen, and I keep using over the past decade or so, 2014, we’ve seen about a 58% increase in PCE or personal consumption expenditures. So overall, not just restaurant spending, we’re spending almost 60% more, but we’re spending 100% more when it comes to restaurants. So they’ve taken even more of our wallet share and they’re really, I think they’re just really smart about it. Here’s an example. Another interesting headline this week, and this checks a lot of boxes that I think are important.

Wes Moss [00:14:49]:
Army of american productivity is an innovation. Doesn’t sound that crazy. But McDonald’s just announced that they are going to add Krispy Kreme donuts to the breakfast menu.

Mallory Boggs [00:15:02]:
Oh my God, that’s so dangerous.

Wes Moss [00:15:04]:
It’s dangerous on dangerous.

Mallory Boggs [00:15:05]:
Can you get like a Krispy Kreme McGriddle? Like just a donut?

Wes Moss [00:15:08]:
I’ll need to say sausage, egg and cheese on a double Krispy Kreme.

Mallory Boggs [00:15:14]:
That would be so dangerous.

Wes Moss [00:15:16]:
Krispy Kremes bring fresh donuts to the golden arches nationwide by the end of 2026. It looks like they’ve tested it in 160 locations in McDonald’s. Surprise, surprise. It’s done well. And it looks like now they’re going to go around, let’s say, could serve about 6000. You could see this in about 6000 McDonald’s.

Mallory Boggs [00:15:41]:
That’s amazing.

Wes Moss [00:15:42]:
My whole point around this is that inflation, whatever category you’re looking at, is very real. I think the food category hits home. There’s no way around it. We can choose to eat at home. And there’s another inflation measure. It’s called food at home versus food away from them. But inflation is very real. It is the dragon to combat for this foreseeable future, particularly imagine you retired two or three years ago and now everything’s 20% more expensive.

Wes Moss [00:16:12]:
And we have to deal with that over the course of 20 and 30 and 40 years when we stop working and we’re in retirement or an early retirement. So this is the, it’s kind of fun when you, it seems harmless when you’re talking about bananas, but when you blanket it to everything, it is a very big deal. And that’s why it’s so important to note that the whole reason we’re investing in companies whose products inflate along with inflation, that may just be the arrow and the quiver that we all need to slay. The inflation dragon. Now that’s, maybe that’s more than I wanted to talk about that, but I think it’s important. Is that okay?

Mallory Boggs [00:16:56]:
I think it really, it helps. Okay. Let’s just take a second to appreciate.

Wes Moss [00:16:59]:
The, you’re in charge of the content here. I just went totally off scrap.

Mallory Boggs [00:17:03]:
I thought it was so good. But it’s everybody. Everybody right now talks about how they are feeling inflation and how they feel like they don’t have any money and how the economy is going to crap. So the fact that, like, we’re spending 100 times more on 100%, 100%, excuse me, 100% more on food out, and then we’re eating out more than ever, like, it makes sense. Like, you know, you’re really feeling that wallet shrinks. So I think understanding what we can do to help give ourselves some relief is so incredibly important, which leads us.

Wes Moss [00:17:32]:
To making sure we have good investing habits. And that is this concept around dog chasing tail. We keep hearing that inflation is coming down. By the past three years, the common man inflation gauge is still up over 20%. That’s necessities like food, gas, utilities and shelter. How can you possibly keep up? Well, one option is income investing. That’s using a combination of growing stock, dividends, bonds for more cash flow, and other areas that can be a hedge against inflation. Look, inflation is tough.

Wes Moss [00:18:02]:
Let us help you overcome it. Schedule a time directly with our team@yourwealth.com. Dot. That’s your wealth.com dot. One of my teenagers said to me pretty recently, why don’t we just put everything in Nvidia now? We’re not talking about, we don’t recommend to buy or sell individual stocks here on the retired Stringer podcast or the radio show we do. We can’t do that because we have a very diverse group of people listening at different stages of life, different risk tolerances. And that’s why we don’t hammer to do, we can’t get overly specific. But sometimes, and maybe it’s not sometimes, very often.

Wes Moss [00:18:46]:
And this is this circular, dog chasing tale in the world of investing. People start to wonder, why don’t we just put all of our money in, fill in the blank. Whatever is super popular right now, because it gets all the press, all the coverage, it’s on tv, and even if it only lasts for a couple months, there’s always something doing better than what you’re holding. There’s always something because what gets the spotlight is what’s doing the very best. So by nature, it makes 99% of people think, gosh, why am I not just doing that? What I’m doing seems laggy. It’s not as good as that. That moth to a light is another way I think about this is the media screams of what is doing amazing. And you’re always you’re feeling as an investor, if you’re paying attention, and even you’re not paying attention, your neighbor brings it up or you’re at a sporting event.

Wes Moss [00:19:42]:
Have you. Do you. I own a good thing. I own shares of XYZ. It’s doing amazing. And you’re thinking, wait a minute, I own a well diversified portfolio of dividend companies, and it’s not screaming 100% higher in a year. Maybe I should just do that. Maybe I should do what my neighbor Jim is doing.

Wes Moss [00:20:03]:
And there’s this constant pressure that we have of we’re kind of missing out.

Mallory Boggs [00:20:07]:
I actually have a story from that. This past weekend, I had book club with, like, a bunch of ladies who were in a murder mystery book club. We were sitting around, we’re talking, and it was so funny. We ended up talking about taxes. And just everybody was like, oh, my husband takes care of that. It was great.

Wes Moss [00:20:20]:
You sat around talking about taxes.

Mallory Boggs [00:20:22]:
I know.

Wes Moss [00:20:23]:
Well, riveting.

Mallory Boggs [00:20:24]:
Well, I mean, really, everybody was just sort of like, we don’t deal with that. So we just let the husbands deal with that. It was very 1950s style, but it was funny. But what was crazy is I had a girlfriend who was like, yeah, I got cousins friends or something. And anyways, purchased a bunch of stock in some kind of cryptocurrency and, like, made, you know, a million x, right. Just like some insane amount. And you’re sitting there and you just. You can’t help but think, well, dad.

Wes Moss [00:20:52]:
Why didn’t I just do that?

Mallory Boggs [00:20:54]:
Yeah. Like, that just seems like such a great idea. And. But then, you know, I also had to be realistic. I was like, there is no way, shape or form that I would have the patience to sit there and deal.

Wes Moss [00:21:03]:
With it or the stomach to deal with it.

Mallory Boggs [00:21:05]:
Right.

Wes Moss [00:21:05]:
And typically, and this is when. This is what happens, the mag seven gets popular. Ark Etf’s. I remember two years ago, ultra popular, it was housing. The ninja, the no income loans to go buy houses. Before the housing crisis, it was the telecom infrastructure stocks in the late nineties. There’s always something real that seems like it’s never going to stop going up. I missed the rocket ship, so I’m just going to.

Wes Moss [00:21:33]:
Eventually, I’m going to get on the rocket ship. And that has happened over the past year or so. There’s been another version of that, and there’s very popular big technology companies. There’s a name for them, the mag seven. And it’s largely outperforming almost anything else you can find. And that tested well. Diversified portfolio investors who are just simply, well diversified. Let’s go back a year.

Wes Moss [00:22:02]:
In 2023, the S and P 500 was up, call it 25% or so. In last year, 2023, if you looked at some of the, let’s call it well known dividend ETF’s. So let’s call it three or 400 stocks, dividend growers, that only was up 7%. So you may have had an okay year, but you’re pointing to something else and saying, wait a minute, why don’t I just own that? And that’s just human nature. So 2023 dividend payers, and I look at multiple different dividend ETF’s in 2023, and they lagged way behind. S and P 500 up 24, 25%. The iShares core dividend growth ETF was only up seven, seven and a half, so it was tripled. The SB 500 was up more than triple.

Wes Moss [00:22:53]:
So you naturally say, wait a minute, maybe I should just be doing that. That’s powered by the mag seven, so maybe I should do that, or maybe I should just do the mag seven, or maybe I should just do the Nasdaq. So you can always say, maybe I should just do even something more and more and more specific. Until you get back to now you’re teetering with just the very best thing in isolation, and what’s just happened now you’ve wiped out all your diversification. Now you’ve chased something that’s already done well and you’ve left behind. So let’s say you’re not patient. You say, well, I don’t want to do these dividend payers anymore. Well, guess what happened? Now let’s go back to October.

Wes Moss [00:23:33]:
And here we are towards the end of March. Now, all of a sudden, these dividend ETF’s have really started to participate, and they’ve actually done really well, and they’ve largely kept up with the S and P 500. So they’ve started, and we’ve seen a lot of broadening out of the market in 2024. So instead of just a few stocks doing really well, we’ve seen a much. It’s been a much more diversified lift, which has rewarded those who didn’t ditch the laggards or the underperformers. Even though we know many of these dividend paying ETF’s, and I’m not talking about anyone individually or specifically, but they’re typically holding companies that have been able to have dividends for five years or ten years, and in some cases, they want these ETF’s only hold stocks that have paid or grown dividends for 20 straight years. So these are companies that have done a lot of things right for a very long time, but they may just be a little out of favor or not popular right now. They’re not the popular kids right now, and it’s easy for investors to ditch them.

Wes Moss [00:24:38]:
However, they get ditched and they’re undervalued, they then end up being what plays catch up. And here we go back to this dog chasing tail, and we’re always, and human nature tries to throw us in that pattern of let’s just latch onto what already did really well. And ultimately, just like a dog sitting there chasing its tail, definitely not a cat. They’re way too cool and smart to do that. What ends up happening? You end up going nowhere and you end up not having a whole lot of returns over time. And I think the moral of the story here is that even though it’s tempting to do so, you don’t want to succumb to selling arguably good companies that just happen to be out of favor to chase what’s already done amazingly well and end up in this dog chasing tail investment strategy.

Mallory Boggs [00:25:30]:
That makes so much sense to me. It actually makes me think of, I’ve seen that chart before which tracks the best performing stocks over time. And if you look at it year over year, it’s never the same company or same.

Wes Moss [00:25:40]:
You’re thinking about the periodic table, just like in chemistry. Yes, because it looks like a chemistry chart of all the elements, but really it’s different. It’s call it 20 years laid side by side with ten or 15 different asset classes listed from best to worst each year. And they all have a unique color. So often you’ll see, let’s say blue represents momentum stocks and they’re the very best in a given year. Very often you see them at the very bottom of the chart in the next year. And it’s this roller coaster. What does well ends up doing poorly.

Wes Moss [00:26:12]:
What’s in the basement ends up in the attic. And that’s the same concept of dog chasing tail. Which then leads us to really one other lesson and I go back to here we are, almost exactly four years removed from one of the scariest periods of time in most Americans lives. I mean, think about what the COVID shutdowns did. The people who died, the people who died, the schools that were canceled, the kids that missed a year or even two years worth of socialization in school, that there’s so many human difficulties that were the result of COVID So we’re also operating in a state of fear and panic a little bit, which we know we make even worse decisions when we’re in that state. But economically, even I was completely nervous and shell shocked when the economy shut down, because we really had no precedent for that. It never had happened.

Mallory Boggs [00:27:08]:
Oh, yeah, that was. I remember we were here in the office, and you were like, all right, we’re shutting down everything for the next two weeks. And I was like, there’s no way I’m not gonna be coming into the office over two weeks. You want me to wait two weeks? And then, what was it, six months?

Wes Moss [00:27:21]:
And then ended up being months and months and months. And remember, 15 days to slow the spread. And the world health organization. It was March 11 of 2020, declared a pandemic. S and P 500 fell by almost 10% in a day. In one day.

Mallory Boggs [00:27:39]:
I remember just, like, watching the screens and just. Everyone in the office was so shocked.

Wes Moss [00:27:44]:
It was shocking.

Mallory Boggs [00:27:45]:
Yes.

Wes Moss [00:27:46]:
And then that was the 6th worth trading day in the history of the market. At that period of time, really, there was no place to hide. Google and Microsoft and JP Morgan and Berkshire Hathaway and Apple. All these companies were down 10, 12, 18. JP Morgan was down 18% in a day. What’s also so interesting is that the very next day, the market rebounded over 9% in one day. That was the. That was the 10th largest percentage gain in the history of the S and P 500.

Mallory Boggs [00:28:17]:
Zachary, you want to. You know, we started this talking about, like, the good and the bad news and how, you know, it impacts us differently. You hear that 10% down, and, like, how that was so terrible, and that’s. That’s what I’m focused on. I can’t help it. But, you know, then you’re saying 9% up. That’s. That’s huge, too.

Wes Moss [00:28:31]:
It is. Doesn’t feel as good.

Mallory Boggs [00:28:33]:
It doesn’t, though. Cause it’s still not that 10%.

Wes Moss [00:28:35]:
Fast forward three days later, March 16. This is back in 2020. The SB 500 then dropped 12% in a day. That was the third largest percentage drop in the history of the market. Once again, panic. Want to get out of the market. Then a week later, March 23, the market, what we know now, only in retrospect, it bottomed, and the S and P 500 rose about 9.4% that next day. It was a really tumultuous time.

Wes Moss [00:29:05]:
It was full of doom and gloom, negative headlines, sickness. It was death. It was falling markets. It was just a really hard period of time. But that absolute yo yo of statistics. Down nine. Up nine. Down twelve, up ten.

Wes Moss [00:29:21]:
It leads us back to the really important concept of missing out on the best days in the stock market is a very, very big deal. It’s a very punitive for investors, and it’s always a good reminder for anyone to look back and just see what happens to your long term returns if you just. If you happen not to be there when you get one of these ultra unexpected updates. The ultra unexpected updates, again, remember, they don’t feel as good as the bad days feel bad, but they’re very important for our overall returns and there’s no way to know exactly when it happens. So essentially, we’re saying, effectively, as an investor, you have to be there before it happens. By the way, a lot of these days when the market’s up 9%, you can’t just buy into those days. Usually the market will open up eight or 9%. So it’s not as though on these giant updates you can just say, I think today’s going to be a really good day.

Wes Moss [00:30:26]:
I want to get in today. You already have to have been in the night before, which is usually a terrible day. So here are the statistics around this concept and what happens if you miss a few really good days. This is the S and P 500. Compounded annual growth all the way back to 1995 through. This is November 30, 2023. About 29 years of data fully invested, as you can probably imagine, gave a compounded annual return of 8.3% during that period of time. Annualized.

Wes Moss [00:31:02]:
By the way, that kind of rate of return allows money to double about every eight and a half years. So pretty darn good.

Mallory Boggs [00:31:08]:
Don’t hate that. That’s great. I love that rule. What is it, the rule of seven or 72?

Wes Moss [00:31:13]:
Rule of 72.

Mallory Boggs [00:31:14]:
Yes. That’s a fun one.

Wes Moss [00:31:15]:
Missing the best five days. So we’re talking out of 30 years or 29 years. And if I’m doing the rough math here, 29 years times about 252 trading days, that’s about 7300 days. And we’re saying you just missed the five. Five out of them. Of the. Again, the five best trading days.

Mallory Boggs [00:31:34]:
7300 trading days.

Wes Moss [00:31:36]:
And we’re just missing five, just five, the best.

Mallory Boggs [00:31:38]:
Like a drop in a bucket.

Wes Moss [00:31:39]:
So it’s around a half of 1% of the days. Right. So it’s less than one 10th of 1% of the trading days.

Mallory Boggs [00:31:48]:
That is not much.

Wes Moss [00:31:49]:
Right. But the rate of return drops to 6.6% at that point, which means that’s 20% lower than being there for all the days, all the good days, all the bad days.

Mallory Boggs [00:32:00]:
Wow. And that’s again just missing five days.

Wes Moss [00:32:04]:
And then it just gets worse from there. You miss out on the best ten out of 7300 days. Now you’re down to 5.4%. That’s 35% lower than being there the whole time. You missed the 30 best days out of again 7300 still a tiny fraction of the days 30 the best days. Now all of a sudden your return’s down to 1.8. That’s 78% lower if you’ve been there the whole time.

Mallory Boggs [00:32:34]:
Did you just say 1.8?

Wes Moss [00:32:36]:
It wipes it all. It wipes, almost wipes it out completely.

Mallory Boggs [00:32:39]:
You miss one month of trading and suddenly you’re like, you might as well just keep it in cash just about. That’s insane.

Wes Moss [00:32:48]:
One of the many lessons from that COVID period of time that was so dramatic is that if you were hopping in and out and you missed some of those really good days, it just ruins your rate of return. It can really ruin your rate of return. And even with other scary headlines throughout COVID I remember the summer of 2022 when we had the big inflation, when inflation hit over 9%. That was a really scary time for investors. People were freaked out in markets, but since then the Dow Jones is up over 30%, the S and P 500 is up over 40%. So even though we had a really bad economic scare in the summer of 2022, markets are still dramatically higher since then. And I think finally there’s a really, really smart chart visual that JP Morgan and asset management does. They label it simply time, diversification and the volatility of returns.

Wes Moss [00:33:42]:
What the chart shows is how stocks and bonds and then a diversified portfolio do in any given time period, the spread, how often is it up a bunch or down a bunch? In a one year period? In a five year period, a ten year period, a 20 year period. So think of it this way on the shorter the period, the bigger the span. We have some years that are up 30 or 40% for stocks. Some years are down 30 or 40 for stocks. So you get a big band when it’s still short. Same thing for bonds, same thing for even a diversified portfolio. But then when you move out five years, we have some years heavily positive and pretty negative. When you move out five years, the visual show you that your returns essentially narrow to the upside the longer you wait.

Wes Moss [00:34:29]:
So the longer you’re in stocks, the tighter the band gets, but towards the positive. So if you look at a five year period, and this is data from 1950 through 2023, is that on any given five year period, stocks could still be down, but down, not 39% like in the one year, but down three, negative 3% at worst, or had been able to compound it 28% over a five year annualized period of time. The range for bonds, of course, narrowed as well over a five year period. But what’s interesting, if you look at a balanced portfolio, a mix of 60% in stocks, 40% bonds, there is nothing on the five year category that’s in the negative. So at worst, again, this is a 70 some year period of time you had. The worst five year rolling period that you could have done in a balanced portfolio is plus one, plus 1% a year, all the way up to 21%. So there were some rolling periods in there that were still really good.

Mallory Boggs [00:35:40]:
So we started with talking about inflation and retirement and people, how you can structure your savings so that you can continually feel like you’re in a good spot. It sounds like a balanced portfolio is a really safe way to potentially protect your investment.

Wes Moss [00:35:58]:
It takes away the volatility. It should arguably take away the highs and the lows. And when you take away the highs and the lows, you’re on a steadier trajectory often. And it takes shorter periods of time to get to the point where all the periods are, the vast majority of the periods end up in the positive. And that’s, I think, part of the reason as we’re thinking about how investing is so difficult because of the yo yo effect and because of the roller coaster being able to stay the course, if it takes the diversification to do it, or the balance to do that, and not end up throwing you out of the roller coaster seat and getting back in, et cetera, which goes back to dog chasing tail investing, if we can get on a ride that we don’t need to exit and we can stay the course, even though we may not ultimately have the highest total rate of return, which typically would just be all stocks all the time, forever. That compromise of the balance allows us to actually stay on board during the journey and actually realize good long term returns. Maybe not the best or the maximum, but at least we are there to experience positive returns as opposed to getting kicked out along the way.

Mallory Boggs [00:37:20]:
Maybe, maybe give us some space to get to Applebee’s for a nice three cheese penne pasta.

Wes Moss [00:37:26]:
We need to stay in the car in order to get to Applebee’s. With that, every time we talk about food or grilling or restaurants, I’ve worked up an appetite here in the studio, and I think it’s time for, I think even though we don’t have one of the passes, Mallory, we should probably head straight to Applebee’s.

Mallory Boggs [00:37:47]:
That sounds good to me.

Wes Moss [00:37:48]:
Let’s do it.

Mallory Boggs [00:37:50]:
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 us@westmoss.com that’s wesmoss.com. You can also follow us on Instagram and YouTube. You’ll find us under the handle Retiresoonerpodcast. And now for our show’s disclosure.

Mallory Boggs [00:38:10]:
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 noticeable 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.

Mallory Boggs [00:39:02]:
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.

Mallory Boggs [00:39:22]:
The strategies will be successful.

Mallory Boggs [00:39:24]:
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.