What caught my eye this week.

A quick housekeeping note – it transpires the Google Sheet we embedded into our fund-of-funds update this week didn’t get inserted into at least some emails.

If you were confused – or thought the image from Trustnet was the sum total of all the tabling we had for you – then you’re in for a treat! Or at the very least, less confusion.

Please see the full article with table on Monevator. (Sorry for the mishap. I’d say it’s Google’s fault but they can afford better lawyers than we can.)

Incidentally, I know there’s a whole tribe of you who only read Monevator via email and have forgotten the blog ever existed. For example, now and then a reader will write to me to explain they can’t see how to “let us know in the comments below” in their email, or similar.

If that’s you, then you might check out the blog now and then you know. Especially for those reader comments. Like all village squares we have one or two… characters… but the vast majority are constructive contributors.

In particular, we can’t usefully reply to many of the personal reader queries we get over email, for a whole stack of reasons. But a comment left on a new article will often elicit a useful response.

Career change in range

Finally, last week’s article from The Atlantic on the half-life of a cutting-edge working life touched a few nerves.

If you’ve reflected on it and wondered if it’s now time to do something different, I came across an interesting book extract on a blog called Quiet Revolution this week. The new book’s author, David Epstein, argues that taking a roundabout route to where you want to be has an illustrious history, adding:

Career goals that once felt safe and certain can appear ludicrous, to use [Charles] Darwin’s adjective, when examined in the light of more self‐knowledge.

Our work preferences and our life preferences do not stay the same, because we do not stay the same.

Epstein’s book is called Range: Why Generalists Triumph in a Specialized World, and to somebody who decades ago resolved – after an early brush with computer science – to ensure I didn’t need to know the deep details of anything just to pay my rent, the title appeals.

Given how many stories we hear from worried mid-lifers that go something like “I know the youngsters are keeping me away from the machines” – as one of those smart commenters of ours put it – it might be worth a read.

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What caught my eye this week.

There’s a big article to be written about the FIRE movement (though I still don’t like the name) and what it can and can’t deliver for its growing band of adherents.

With ever more aiming to ride the wave to the island of early retirement (or maybe getting washed up on that shore by fate) it’s not surprising to me to find the sea catching quite a few by the heels and dragging them back out again.

It turns out the promised land isn’t exactly what they expected – or else they discover they’re not quite who they thought they were.

For now though I just want to highlight a thought-provoking article in The Atlantic this week that’s more than tangentially relevant.

In Your professional decline is coming (much) sooner than you think, the author warns high-flyers in the prime of their life that the decline and even demise of their careers is almost inevitable. Biology will catch you, even if you escape the siren call of the personal finance bloggers!

So do not ask for whom the bell tolls:

According to research by Dean Keith Simonton, a professor emeritus of psychology at UC Davis and one of the world’s leading experts on the trajectories of creative careers, success and productivity increase for the first 20 years after the inception of a career, on average.

So if you start a career in earnest at 30, expect to do your best work around 50 and go into decline soon after that.

The whole piece is well worth a read. But isn’t it interesting that the frustration identified by some of those desperate to retire early might not be all to do with work itself – and more to do with their waning place in it?

Is early retirement seen through this lens a precocious mid-life crisis? Instead of splurging to buy a sports car, you squirrel away the money to do so if you wanted to.

Don’t get me wrong! I continue to think financial independence is a great goal for nearly everyone – and retiring early worth a try if you’re keen. It took me a mid-career sabbatical / snoozefest to realize I’d probably always want to do some paid work for as long as I could.

Maybe you’ll have to retire early to discover similar. Hopefully no harm done – it’s a joy to be financially free even in an office of wage slaves, though I’d keep it under your hat and be careful not to betray yourself in the Secret Santa.

At the same time, you might consider that you and the harried 50-something man without a plan from accounts that you just bought a pair of vintage Bart Simpson socks for might have more in common than you think…

The same question: “What next?”

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Given that investors’ emotions move in cycles from fear to greed and back again, two obvious questions to ask are “Where are we in the cycle now?” and, as greedy asset gatherers, “How can I make money from it?”

Entire books have been written about slumps and bubbles.

For this post we’re going to make do with a few over-simplified graphics.

Investor’s emotions in graphic form

Note that in the different attempts at visualizing investors’ emotions that I’ve collected below, you won’t find any shots from charting tools or similar

While I’ve no doubt that investors’ emotions do cycle, I’m very doubtful that many people can take short-term advantage of it through charts. So no double-tops, candlesticks, death crosses or any such technical analysis bric-a-brac here.

Rather, the main benefit to understanding emotions and investing is to know yourself better.

Once you appreciate how psychology moves the markets – and can influence yourself – it should help you stick to your plan, whether it be sensible passive investing or more hands-on active investing antics.

Greedy buying, fearful selling

Nobody is immune to the cycle of fear and greed. Even the greatest investor can get carried away, or else be made miserable by a deep market downturn.

From euphoria to despair

When I wrote that I thought the markets were a clear buy in March 2009 for anyone who was ever going to buy shares, I got nasty comments across the blogosphere.

I don’t mean “yeah, perhaps, but I don’t think he’s right”. I mean suggestions I was part of some secret narco-government backed plan to ramp up the market to make the last few people with any cash insolvent.

The nicer ones just said I was an idiot.

That’s what the bottom of a bear market looks like. (While I was confident it was a buying opportunity, I won’t pretend to have known the subsequent rally would come so swiftly!)

Nobody rings a bell at the top

This is the same graph as above, really, but I like how the creator has put in the shaded areas. This stresses that there’s a phase of euphoria and of despair, rather than a single event that marks the top or bottom.

For instance, where are we as I write in June 2019?

It’s complicated!

In terms of the US shares that make up the largest part of the assets of a global tracker, I’d guess we’re somewhere between exhilaration and euphoria.

That’s hardly the case for the Brexit-blighted UK market though. With domestic-facing stocks especially, it feels like we’ve been trudging through the denial to capitulation stage for at least three years.

As for the rest of the world – ex-US – I’m torn between thinking we’re sitting on an upswing at the optimism point, or sliding down the other side of the graph into pessimism!

The following graph is illustrative. It shows the divergence between the valuation of US shares and the rest of the world:

Source: Morgan Stanley

In other words, the US stock market looks very expensive compared to the rest of the world but – like the similar divergence between growth and value shares – this relative costliness has been the case for years now.

Timing a reversal is hugely difficult. Most investors will do better to stick to a passive investing plan.

Blast from the past: In the 2010 version of this article, which I’m updating in 2019, I judged global markets sat somewhere between hope and relief. I wrote: “If I’m right, then the masses who are still waiting for an optimistic mood before buying will pay a steep price in forgone returns.” History has shown that was true, demonstrating at least the potential for making a ‘precisely wrong but roughly right’ long-term forecast. (Or, alternatively, proving one can get lucky now and then!)

It’s less risky to buy something unwanted

Most active investors, for their sins, need to pay attention to sentiment – otherwise they’ve no business active investing.

It’s usual better in the long run to buy an asset nobody currently wants, mainly because you might get it cheap.

If it’s cheap then there’s less far for it to fall, as well as much higher for it to climb.

Also there’s probably not much optimism ‘baked into’ the price. That means there’s potential for something unexpectedly good to happen, which could lead to a reappraisal of the asset’s value.

In contrast, buy something everyone loves when everyone is buying, and if it disappoints you face the double-whammy of a de-rating.

Elementary, you’d think, but for some reason people like to buy expensive. Just ask my friends, who almost to a man1 shunned my suggestions to invest for the long-term in the 2008/2009 bear market.

As investing veteran Howard Marks writes in Mastering the Market Cycle:

“Superior investors are people who have a better sense for what tickets are in the bowl, and thus for whether it’s worth participating in the lottery.

In other words, while superior investors — like everyone else — don’t know exactly what the future holds, they do have an above-average understanding of future tendencies.”

Nothing new under the sun

This is clearly just the chart above, jazzed up for a fund manager’s literature.

What’s interesting though is the date. This chart was created in 1998. Just two years later we saw the mother of all stock market bubbles, and nine years later one of its fastest and most frightening slumps.

If you’d seen this chart 12 years ago, wouldn’t you have been better placed to ride through that roller coaster?

Little ups and downs add up

I like this graphic because it includes lots of jagged lines. The other charts make riding investors’ emotions look as simple as going up and down on a see-saw, but in reality it’s a lot tougher than it looks.

Is any particular zig the start of a new leg-up – or is it the last gasp before a zag down into a slump?

Very hard to tell until five years later.

Funny old investors, and their emotions

(Click to enlarge)

I’m pretty sure I first saw this graph during the dotcom boom. It’s been regularly wheeled out ever since.

No wonder: Whoever knocked it up all those years ago knew everything you need to know about investors’ emotions, and had clearly been around the block.

I wouldn’t be surprised if he or she had said these things to themselves. Books and blogs are reasonable teachers, but nothing beats living through a cycle of fear and greed to really appreciate sentiment and emotion in the market. And to get a sense of your own risk tolerance, of course.

Further reading:

• How to spot a bear market bottom
• How to spot a bull market top

1. The women were genuinely smarter, and kept dripping money in [↩]