How Humans Behave with Money

Like it or not, things are changing. 

And if investors aren’t careful they’ll miss this like they missed most of the opportunities in the 1980s and 1990s.

Sure, I remember some terrible events back then – certainly enough fodder for the media to serialise geopolitical and financial dramas into a kind of non-stop negative sameness.

But the trouble was (and is) if the bad news kept (keeps) your attention, you missed (are missing) the market rising over time. 

Simples, eh?

Now, I can appreciate how hard it is to block out all the garbage coming at us from every direction, and it seems to be getting worse every day.

But if you don’t and you end up lassoed by the poisonous, political vitriol spilled out of every audio, digital and printed media channel I guarantee things won't feel better later down the road.

It will just feel more expensive.  

"Yeah, But Mike You Don't Get It"

Boy, if I had $10,000 for every time I’ve heard that…

So, who’s watching out…?

Note the red line - all 32% of them – who feel bullish about the market.

Then consider the 68% who remain neutral or bearish, and who are not shown here.

You may feel it’s unfair to make things so confusing for the masses.  But the stark reality based on history tells us that, "It’s very difficult to have the end of the world arrive when most investors feel that it already has...."

Not At All Worked Up?

I have decided it might be low testosterone - but the thing is I can't seem to work up the energy anymore to lose my mind over every little headline.

Oddly enough, when you reach my age (33, cough…cough), you realize that you don't need to get all worked up.  In fact you begin to understand that it's a waste of time and output, and a truly failed process of managing your wealth over time.

So, we might want to chill out a bit, folks. Things are going to work out just fine.  Don't use the time we have now worrying about the time no one is promised.

It’s like I tell my son Max: Put it all on the court.  And walk away knowing you laid it all on the line - no prisoners, no plans for do-overs and no regrets. 

A Penny for your Thoughts?

How many times have we read some headline that touts opinions like, "Billionaire Hedge Fund Manager Expects..."

Uh, yeah. Ok. But with all respect to these dudes and dudettes, they aren't you. 

They don't have your metrics, your passions, your legacy wishes, your desire for your kids and family, your plan or your mind-set.

Following those types of storylines for anything more than entertainment is, well, expensive.

Earnings Updates Anyone?

Folks, earnings are still going strong with rising PMI's and manufacturing output.

See this from the Richmond Federal Reserve:

No please focus on the far right data point that shows we have not been higher in more than 20 years.

This suggests, along with the other sectors, that our country is running quite nicely if we get beyond the blindness caused by the mind-splitting, nasty, divisive headlines. 

The media may be successful in holding your attention but they are not going to make you a dime.

And as for Those Earnings?

• Forward 4-quarter estimate: $169.07 vs. last week's $169.10
• PE ratio: 17.3x
• PEG ratio: 0.76x
• S&P 500 earnings yield: +5.77% vs. +5.82% last week
• Year-over-year growth of forward estimate: +22.92% vs. last week's +22.87%

The year-over-year growth of the forward estimate continues to expand or grow, which is always a positive sign.

Thomson Reuters IBES provides the forward estimate every week, but this blog has tracked it for years.

Here is the forward progression of full-year "calendar" S&P 500 EPS estimates:

2020: $194.82 for expected 9% S&P 500 EPS growth in calendar 2019

2019: $178.86 for expected 10% S&P 500 EPS growth in calendar 2019

2018: $162.19 for expected 23% S&P 500 EPS growth in calendar 2018

As we have often noted - we can see how earnings growth is clearly expected to return to a more normal historical growth rate next year as we "lap" the tax cuts. 

The point here is the actual "new level" of earnings from which they are moving back to normal growth levels. 

Human Emotion - Not Money

Over the years, we have mentioned the psychology and emotion of the crowd very often. 

Investing is not the study of finance. It’s the study of how humans behave with money.

All perspectives differ.  Emotional and mental games are always at work. And in that process people play different games - all in the same "market."

It’s fine. There are all kinds of players in the same game.

What’s vital is that you don’t take your cues or build plans or actions from someone playing or projecting a different game.  A perspective can be highly relevant to one person and irrelevant to another if those people have different time horizons or different goals.