Steve and Dave look forward to their upcoming, star studded spectacular ( actually doing nothing different than normal) 100th podcast episode, and look back at the market’s 2022 performance. What if 2023 is as dismal as 2022? Does it really matter? If you’re interested in Dave peppering Steve with 4 word questions, and an old random story about running into former GE head honcho Jack Welch on the golf course, then episode 97 of PFLN is for you!

Steve:

All right. Welcome to Plan for Life. Now, episode number 97, Dave, we are continuing to creep towards that 100 mark.

Dave:

We’re getting there. Oh, the plans we have for 100 <laugh>, we are going to blow your mind.

Steve:

No, no, no. Come on. Seriously, that gives me anxiety. Just feeling like I’ve gotta do something now to live up the expectations.

Dave:

Really, my expectations are we’re gonna do absolutely nothing different, and we will do the same diligent prep that we do for that show that we do for every show.

Steve:

Wow. Maybe I’ll spend a good half hour preparing instead of 10 to 15 minutes.

Dave:

<laugh>. It’s gonna be that right there is a tease for what’s gonna

Steve:

Be

Dave:

A spectacular show

Steve:

Because I justify all the time that I spend surfing the internet during the week as it’s all podcast prep. I’ve gotta prep for the podcast. I gotta know what’s going on here. Uh,

Dave:

Because when you’re putting out a timely podcast once every three and a half weeks, the prep should be constant

Steve:

<laugh>. Yes. It’s, it’s constant. All right. So we are sitting here on December 21st. We know this will probably not get to anybody before Christmas. So maybe you’re listening to this between Christmas and New Year’s. Maybe you don’t get to it cuz you’re off doing something better and listening to this after the first of the year. So, you know, here we are sitting, uh, December 21st. I don’t know what the market did today. I think it was up right Dave.

Dave:

I think it was up today. But I will tell you I did do a tiny bit of prep

Steve:

Okay.

Dave:

To tell, because I, I know we’re gonna be talking about the market as of year to date prep. Okay. The s and p 500 is down. Last time I checked, which was very close to now, 19.1% for the year.

Steve:

Okay. Down 19.1%. But just to give you a, a recap, cause I know not everybody out there follows this stuff day to day, or, gosh, I really hope you don’t cause you’ll drive yourself insane. Um, the market low, not saying this was the final low, but at least for now, uh, was back I think October 11th or 12th, we were down about 26 and a half percent. The market’s rallied a bit from there. Tried to give back some gains the last couple of days here. Um, we’ll have to see. Dave, I mentioned this to a client we were talking to the other day, the Santa Claus rally. You know, had you, had you heard of this term before?

Dave:

I’ve heard of it, but tell me more details. I I’ve heard of it. It sounds positive. I hope that, but what is it exactly?

Steve:

Um, um, in the past, what they look at is the five days before Christmas. The five days after Christmas, which takes you through the end of the year. And statistically that is a much more positive time period than just any 10 day time period in the market. So I, I don’t know the exact numbers, but it’s something like 75% of the time that’s positive and it’s on average, you know, one and a quarter percent up versus generally you’re 55% positive and a quarter of a

Dave:

Point. What? So when you’re listening to this, you’ll probably have the results of that. But day one, because we’re about five days for what, how many days are we out? Four or five days, what word? So, pretty good day today.

Steve:

What, uh, counts all of this week and all of next week. So we got a pretty lousy start to the week. Pretty good day today being Wednesday. And then we’ll have to see. Um, but unless that Santa Claus rally is many, many, many times better than it’s ever been before, um, we are gonna have a losing year this year in the markets. Right.

Dave:

Or a real, what I call a real losing year.

Steve:

A real losing,

Dave:

Because really the whole year was a losing year and it was significant.

Steve:

Yep.

Dave:

Assuming things are, you know, more or less

Steve:

Hold. Yep, exactly. So, you know, it, it looks like we’ll be down. We’re certainly in that bear market territory. Um, you know, we never do predictions on this show. Um, you know, first of all, I just don’t think there’s a lot of validity to, to anybody’s predictions. I think, you know, too many people are just guessing and throwing things out there. Um, but what we did wanna take a look at is how often do you have multiple losing years in a row? And when I mentioned this, Dave, you immediately pointed out the tech bubble in the early two thousands.

Dave:

Right? I, I remember because I always look at these long-term. I’m a big long-term person. I’m interested in long-term stuff and yeah, around that time, maybe you have more details. It was not just one year like this, pretty big losses, but was it two in a row or

Steve:

Try three in a row? So let me pull these numbers up here. I just had it in front of me. So 2000 down 9% right? You’re down 9%, you’re saying, eh, it’s not too bad. It hurts, but I’m okay. 2001, you’re down, let’s call it 12%. Once again, you’re saying, eh, it’s not fun, but alright, that’s fine. I’m sure it’ll be better. 2002 down, 22%. Wow. So it just kept getting worse there. And, you know, that, that led I think cumulative. I don’t have that number in front of me, but I think it wound up being about 47% down for the market, um, which was pretty painful. Three year stretch there,

Dave:

Right? And it came right after the tech bubble that year before all, you just was one of the biggest years ever for the s and p 500. Don’t remember what it was, but it was big

Steve:

Right here. I got it in front of me. Let’s go from 1995 through 99, 37, 22, 33, 28 and 21%.

Dave:

That was crazy. We have not equated that type of streak during any of the old, previous 2008 through whenever Bull market. We didn’t have numbers like that.

Steve:

So it, it just, you know, some monster years there. And those of you who were investors, then you remember, you know, that it was pretty painful time. Of course you had the tech bubble, you also had nine 11 to go, you know, right along with that to, to kind of drag the economy down further. But it was overall, it was actually kind of a mild recession, wasn’t, it wasn’t a 2008 style recession there and a relatively quick recovery. But the question is, the question we went into this with is what are the chances of having two down years in a row? And you can look at this on the surface and just say, okay, you know, what are the chances of, of, you know, two down years overall out of the whole calendar and it looks pretty low, but broke this down further and said, okay, this is conditional probability going back to your probability classes and you know, high school, college, wherever you took it. You know, let’s only count the down years. Now let’s look at that next year. And it’s basically about one third of the time when you have a down year that you’ll have another down year that following year there. Um, so you know, that’s a 33% chance that the next year winds up being a negative year. And if I had to not make a prediction, but if I had to say, you know, but

Dave:

If you had to predict

Steve:

Right, <laugh>, that seems to me like a reasonable number. I mean, I, I don’t know if it jumps off the page at you saying, no, it should be higher or lower. You know, it seems reasonable. 30 40% chance of next year is still down.

Dave:

I think it’s reasonable and I have a reason why I think it’s reasonable, which may or may not be wrong since we don’t make predictions. It’s just that we had quite a, a rise in interest rates and I don’t really see those interest rates plummeting down this year. Yeah. So if you were to have a quite a rise in interest rates then another year where maybe interest rates go up a little bit or stay flat, super high comparatively super high to predict stocks then to come rallying back. Yeah, I would go with what, even what you said, there’s a whole bunch of other factors involved and we already did have the big interest rate hikes, right. But 30 40% chance that we’ll have another down year of some sort. That’s a reasonable assumption. Yeah.

Steve:

Yeah. I mean you can, yeah, I mean, you can go through the details and play out the scenario either way. I mean, you can say, okay, well, you know, earnings are relatively resilient and we’ve already come down quite a bit and, uh, the recession winds up being either pretty mild or, you know, that soft landing scenario, you know, that could happen. Um, then you can play it out and say, well, you know, uh, there’s been an effect on housing. And housing is such a big component of the economy and really sellers, you know, we’ve seen a softening in real estate, but sellers really haven’t brought their prices down. And if mortgage rates stay this high that, you know, you could have that as sort of a compounding effect to everything else. And it could be a more severe recession. You know, I’m right.

Dave:

Or a real recession for many people listening to this. Are we at a recession? Oh, if you have to ask for you, it’s not a recession, no offense, right,

Steve:

<laugh> Yeah, that’s, that’s a good point. If it doesn’t feel like a recession to you, and gosh, when I <laugh> when I go out to, not that I go to the mall, but I actually have been to a mall recently. If I go out to a restaurant, it sure doesn’t feel like a recession there and it feels like there’s people just crammed in there.

Dave:

Right. It feels like inflation there, but not a recession. Yeah. Uh, because that, but okay, so let’s just say we have another down year for just for the sake of saying it, I’m gonna throw out this hypothesis three word hypothesis and want to get your reaction. It doesn’t matter your reaction.

Steve:

Wow, <laugh>, I, I understand what you’re saying. It doesn’t matter in the broader scheme of things, in a long-term financial plan that’s structured properly. Correct. That’s, that’s where you’re

Dave:

Going. Well, I’m saying you’re our client, uh, or you’re Yeah, and you’re my age, 60 years old gonna be 61 soon. Oh my gosh, <laugh>, it doesn’t matter.

Steve:

Okay. But I, here, here’s the counter-argument to that. Um, a longer recess or a longer market decline, I, I think that psychology starts to weigh on people more. You know, you just, you know, okay, yeah, I get it, Dave and Steve, I hear all your long-term statistics, the market will recover. You show me all these charts, that’s fine for a year, but now you start to stretch into two years. And what if this stretches even fir you know, it just,

Dave:

Ah, that leads to my sub hypothesis, a three words. It shouldn’t matter.

Steve:

It shouldn’t matter. Right Then, then I can get more on board with that. Because if you’ve done the right planning, if you’ve structured your assets the right way, it shouldn’t matter. Um, but you know, that, that human nature, man, I <laugh>, despite everything that we’ve learned about behavioral finance in, you know, the last, I’ll just say the last 20 years since I’ve been in the business, but probably even longer than that, it still seems like the changes to human behavior are small compared to everything that we’ve learned about how we react and how we, you know, how we absorb losses and things like that. That’s actually,

Dave:

Are you ready for some hypothesis? B

Steve:

Oh geez. Okay. Sure.

Dave:

Four words this time. It could be good.

Steve:

Well, yeah, it’s, I mean, <laugh> it could be good. Certainly, you know, always saying that people who are still saving, still investing, you know, if you’re not touching that money soon, these market declines are good <laugh>, they’re a great opportunity. You’re still saving into your 401k, you’re still putting money away. These are great opportunities

Dave:

And you’re putting money away when things are from the long-term perspective, lower

Steve:

Right,

Dave:

Not high, but low, uh, an opportunity to get some money into your accounts low and then the growth comes later.

Steve:

Yep. No, absolutely. But I, I was gonna talk about emotion and behavioral finance because, you know, I just touched on that, but I had actually written down here, I’m, I’m reading a book right now and I say reading this is, this is a source of debate among book people. Um, I don’t read books, I listen to audio books, <laugh>, but I, I am a prolific listener of audio books. You know, I probably go through, you know, one a week or so, so I churn through audio books. But my sister, who is a voracious reader, she likes physical books. She tells me it’s not the same. I can’t say that I’m reading a book when I’m listening to it. I think it still counts <laugh> because I’m still getting the same information and I, I learn better that way. Anyway, um, any thoughts on that? Or you really don’t care?

Dave:

Oh, oh, no, I think it’s, I, I say kudos to you <laugh> say I read too. I read Twitter and then I go down rabbit holes of articles and it, for whatever is going on right now in the world of internet, a d d for me, I’m able to just get massive amounts of information in small doses. Yeah. Um, so I’m, I, so I say that I should probably be putting, but I listen to the podcast, quite frankly, when you’re listening to books.

Steve:

No,

Dave:

And I don’t feel like sharing with the group what podcast I listened to right this second because they would say, that’s frivolous and has nothing to do with this conversation.

Steve:

No, but sometimes you need that frivolous stuff. Uh, you know, I, I like a good nonfiction book, but oh man, I can’t just go boom, boom, boom, it gets too heavy. So you need frivolous. But anyway, anyway, <laugh> a bit of an aside there. So I, I’m listening to this book by Bob Tiani, um, not sure if you’re familiar with him. He is an, uh, talking head for, I guess lack of a better term reporter on CN b c, and he’s been on there, I guess since 1990. So he’s got a, you know, pretty long time, nice long, uh, career there on air. Um, and I, I honestly don’t watch CN b c very often, you know, when, when we used to be in the office over in Tyson’s, they would have it on in the background all the time, but I don’t turn it on that often.

So I wasn’t really familiar with him, but, and I should also say I’m not done with the book yet, but I was gonna share these things anyway cause I thought they were interesting. Um, so here’s a guy who spends his life, you know, on the floor. He started on the floor of the New York Stock Stock Exchange as a reporter. So he’s going around talking to the different market makers, the specialists, you know, all of this. And then of course, beyond that, talking to analysts and getting their opinions. And he talked about in the first part of the book, he talked about these emotional mistakes and how him as a person who is, you know, firsthand knowledge right there, made some of these really dumb emotional mistakes where he really just in hindsight, shouldn’t have done this. And the first one, probably as costliest one was he bought into this idea of Jack Welch. You know, for those of you who remember Jack Welch, the c e o of General Electric from I would say roughly 1982 through four days before September 11th, 2001, um, which is, know that date offhand, um, he was the c e O of General Electric. And the returns that he generated for shareholders were just phenomenal. And know, I, I don’t know the numbers, but it was, you know, way, way, way above and beyond with the s and p

Dave:

500. Right. And I hate to put a aside here cuz we’ll get right back to your story, but we saw Jack Welch, we were playing golf with a client. That’s right, that’s right. For all he had done, and then you’ll finish your story. Not a cool dude on the golf course.

Steve:

No, he was not cool <laugh>. He was, I mean, just to, to tell that story, we were playing golf with a client of ours, the Trump National, and you know, I thought we were playing at a pretty good pace, right? We weren’t, we weren’t taking too long. And these guys behind us just kept hitting into us and they were obviously getting frustrated. So at the turn the caddy said, you know what, you mind if we let these guys play through? You know, and everybody in that group, except for Jack Welsh said, Hey, thank you, thanks guys for letting us play through. Hey, we appreciate it. Jack Welsh said nothing to us. So for that reason, I’m not a big fan.

Dave:

I got the impression he felt he was better than us.

Steve:

I know maybe, um,

Dave:

I knew he knew in his heart that he was better than us.

Steve:

I mean, so he’s <laugh> well he’s, he’s dead now, but at the time he is worth 600 million.

Dave:

Hell, I feel I didn’t even know that. Whatever, okay. Yeah.

Steve:

Okay, so my, my whole story here, this is a lot of long-winded stories, but I think they’re interesting. Um, is this, this reporter Bob Pisani, he, you know, covers all this stuff, intimate knowledge of investments and all of this. He just fell in love with Jack Welch as a manager, right? Jack Welch, you just thought was so brilliant.

Dave:

But everybody did at that time, in all fair. I mean, all the media was in love with him in that timeframe.

Steve:

Well, I mean, to be fair, he was named manager of the century by, I don’t know if it was Forbes or Fortune or somebody, right? So he was, you know, he was up there. He was the Mount Rushmore of managers. Now, in hindsight, a lot of people realized that a lot of the growth that he did was all in the GE capital and the financing unit. And it all came crashing down and basically almost bankrupt the company in 2008. So in hindsight, people don’t hold him, you know, in quite as high of regard. Anyway, the point of this was that this reporter, Bob Basani, held him in super high regard, took half of his 401k, half of his life savings and put it into GE stock and kept it there even after Jack Welch had left because he felt that Jack had built, you know, such a great company. Um, and the stock went on to crater about, you know, I think 80% of its value there. Um, but you know, that that’s one of those classic stories of, you know, getting caught up in one particular stock, one particular story. You know, you can be a, a really smart guy who should know better than that and, and still have it happen.

Dave:

That’s a good story.

Steve:

Um, his other story, and I, you know, like I said, only part of the way through the book, and so I haven’t gotten all the details on this, but it was something about buying a Black Sabbath poster for $10,000. So <laugh> he referenced this as a very emotional, dumb mistake that he made. But I, I don’t know the full part of that story there. But, um, you know, the point is that, that all of us, regardless of our level of education,

Dave:

I’m assuming that wasn’t a good investment.

Steve:

I, I’m guessing not

Dave:

He should have saved his money for presidential NFTs, but that’s his problem.

Steve:

<laugh>, I don’t know, have to run those head to head to see which one does better. Um, you know, that we’ve talked about this before, that, that all of us fall into that trap of, you know, getting emotional about our investments, being able to separate ourselves from the emotion and the logical, um, reasoning. You know, I used to hand out, I don’t even know where this article is nowadays, but I used to hand this out probably 15 years ago at, at some of our seminars that talked about people that had frontal lobe damage. They had frontal lobe damage. So they, they couldn’t feel danger and, and fear like the rest of us. And they were better investors than the rest of us, right? Um, you know, cuz they’re, they’re not gonna react emotionally there. You know what, Dave? That’s been good stuff. Let’s just cut it off here.

Dave:

Let’s cut it off. Um, so we’ll be back sometime later in January. I feel like saying Merry Christmas and Happy New Year cuz that’s when we’re recording this. But I hope y’all had a Merry Christmas and happy Hanukkah and, and all other holidays. And if you’re listening to this after New Year’s, uh, hey, maybe we should do a New Year’s resolution.

Steve:

That’s a good idea.

Dave:

Podcast on the next one if we remember

Steve:

Well, and then you kind of mentioned this and I didn’t want to do it cause I wasn’t prepared for it, but to look at, you know, not our forecast for the year, but I always like to look at different analysts, forecast for the year and then we can go back and laugh at how wrong they are.

Dave:

Yeah, let’s do that.

Steve:

And you know what, one other thing from the Bob Pisani book, <laugh>, one of his big things is listening to analysts is absolutely useless. So <laugh>

Dave:

That that is spot on,

Steve:

You know, and he went out and called out some people by name that I, you know, I hear them talking heads and he is just like, listen, they gotta have something to say. They’re trying to get time on tv, but they don’t, they’re just, they’re just talking, right? They <laugh>, they don’t actually have anything, you know, so analysts are useless. Don’t be too emotional about your investments. Happy New Year. I’ll talk to you next year.