[00:03:16] David Stein: And foremost, asset class valuations. The price-to-earnings ratios of stocks, for example, are a type of market condition that we need to be aware of. And so, other market conditions would include economic trends, which can impact corporate earnings. And then there’s what is called the market’s temperature, which we refer to internally as market internal.

[00:03:39] David Stein: So, the level of fear and greed in the market and what the average investor is doing. When we look at where we are with market conditions and why they’re important, essentially it is to keep us grounded. Knowing where things are helps us stay invested, and it keeps us from being flipped around as something new comes along.

[00:04:02] David Stein: So just, we look at, I formerly look at market conditions once a month. I’ve done it as an institutional investor since the early 2000s, just really understanding where we are. And in fact, Clay, you discussed Howard Marks’s book “Mastering the Market Cycle,” and he uses some of the same language.

[00:04:23] David Stein: He recently had an editorial in the Financial Times, and one of his points is that the market is generally somewhere in the middle. It’s rare that it’s at an extreme, and we’ve seen that in our work. We’ve done a monthly investment conditions and strategy report for over a decade, and only 10% of the time.

[00:04:46] David Stein: It’s really been about overall conditions, asset class valuations, economic trends, and market internals. About 10% of the time, you get more of an extreme where it’s either red, so more bearish, or green, more bullish. Because most of the time, we’re in the middle, and so we’re weighing different elements and ultimately, most of the time, we decide, “Hey, we want to stay invested.”

[00:05:12] David Stein: This is not a time to move significantly in or out of the markets. Stay close to our long-term targets.

[00:05:20] Clay Finck: And I think so many people are confused by what’s happening. And I think this confusion really stems from what happened in 2020 when we saw a big disconnect between the economy and the stock market and the real estate market as well.

[00:05:37] Clay Finck: People were really confused because the economy shut down, and then people expected that in light of interest rate hikes, markets would be in for a world of trouble. So what’s your take on market conditions today? We’re recording today on July 21st, 2023, and you just recently put out your monthly report that you just mentioned.

[00:06:00] Clay Finck: So what’s your take on current market conditions, and then what are you keeping an eye on?

[00:06:07] David Stein: So overall, when we look at it, across the board, we’re low neutral, so in our models, we’re slightly underweight stocks, but it’s been an incredibly fascinating three years. You mentioned the pandemic, and just, and I know we’ll talk a little bit about the Fed later, but just the sheer amount of cash that was created, liquidity through a combination of massive federal budget deficits in the US and quantitative easing.

[00:06:36] David Stein: At the same time, we shut down the economy. So we had the money supply M2, which is essentially checking accounts, cash, retail money market mutual funds, go from $15 trillion to over $23 trillion in about a year. That’s money and purchasing power going out into the economy, and in that environment, why do we have inflation?

[00:06:59] David Stein: Because the economy had shut down, supply chains had got interrupted, yet now there’s massive cash going into meme stocks, going into real estate, going into crypto, going into watches. And we’re just working our way through that. And the Federal Reserve essentially was caught off guard by the sheer amount of inflation that we’ve seen.

[00:07:21] David Stein: And not that I’m saying, well, I know better than the Fed. The reality is we don’t know exactly how long this inflation period will last. And so when we talk about people sitting around waiting for a recession because the Federal Reserve raising interest rates the most aggressively it has in several decades, but this is a blunt tool.

[00:07:45] David Stein: And because of all the cash that was in the system, the savings that people have, the fact that we had a decade of very low interest rates. And so businesses and individuals, homeowners had locked in very low mortgages. It’s taking a very long time for higher interest rates to impact the economy. And it’s not certain that we’ll even get a recession.

[00:08:11] David Stein: We’re already seeing inflation, and especially after the most recent report, core inflation is coming down. And maybe the Fed will get incredibly lucky and pull off this sort of Goldilocks economy where inflation comes down, and we never enter into a recession. We don’t know. Typically, there’s an 18-month lag before interest rates really start to bite the economy.

[00:08:35] David Stein: We’re starting to see the economy slow and one of the things that we look at the measures is what are known as purchasing manager indices or PMMI. And this is data that basically business surveys around the world that the statisticians ask businesses, well, how’s business? What about your new orders?

[00:08:54] David Stein: What’s your inventory like? What are your employment plans? What kind of price increases are you seeing? And it’s normalized to where 50 is, and it’s done in every different country. They do manufacturing, they do services. So when it’s above 50, that’s generally an expanding economy. When it’s below 50, it’s the economy that’s slowing or contracting.

[00:09:13] David Stein: And we’re at 48.6 and so we’ve been hovering around 50, but it’s getting slightly worse, but it’s not as if, and I’m talking globally now ‘because we look in our work, we look across the globe and then look at what percentage of countries are expanding basically above 50 or below 50. So when we look at the P M I data, it’s low neutral.

[00:09:33] David Stein: It’s not a flashing recession. And I think the takeaway is there’s a balance of things or multiple measures that we can look at. This has been a recession that analysts have been calling for two years. And mainly because the yield curve went inverted with longer term rates, lower than the shorter term rates.

[00:09:52] David Stein: And that often can lead to recession. Not every time, but we’re waiting around. In the meantime, it’s been a great time to stay invested in risk assets because we’ve been rewarded for doing so that this was not a time to run for the hills and not have exposure to risk assets such as stocks, non-investment grade bonds, and others.

[00:10:12] Clay Finck: You mentioned the massive increase in the money supply and its effect on how things have been able to keep going as the Fed attempts a balancing act – trying to crush inflation without crushing the economy. As many people have pointed out, the recent inflation numbers, such as the CPI, came in at 3%, and I believe we’re seeing even higher inflation in places like Europe and different areas of the world.

[00:10:40] Clay Finck: I’m curious about your assessment of how well the Fed has managed inflation over the past couple of years, especially after inflation rose to around 9%.

[00:10:51] David Stein: Well, the Fed was embarrassed, right? They were acting to save the reputation of low interest rates and low inflation. They won’t say it, but the fact that inflation got up to 9% was embarrassing. Now, there are reasons for it, etc. They have raised rates very aggressively. When you think about it, within 15 months, we’ve gone from zero to where it looks like they’ll raise the policy rate, the Fed funds rate, another 25 basis points in their next meeting. Now, we’re close to five and a half percent if they do that in a year.

[00:11:30] David Stein: And so, when we talk about the impact on the economy, that takes time to work through. But the good news is that, for example, core inflation, the annual rate of core inflation in the June report was a 20-month low at 4.8%. And more importantly, inflation is made up of hundreds of different products that basically create this basket.

[00:11:54] David Stein: But a third of inflation, the CPI measure, is housing-related. It includes rents on apartments, but it’s also what homeowners think they could rent their house for. They survey homeowners every six months and ask them, “What do you think you could rent your house for?” Then they compare that to the prior survey.

[00:12:16] David Stein: Well, home prices in the 20-City S&P/Case-Shiller index are down or flat over the past year. Home prices are not appreciating as much as they were. So now, eventually, with a really big lag, homeowners suddenly realize, “Well, maybe I can’t rent my home for 20% more than I thought I could two years ago.

[00:12:38] David Stein: And so that’s starting to flow through the inflation numbers. So there is a lag, inflation is coming down. Hopefully, that will allow central banks to pause. And then once they pause, because longer-term interest rates are a function of expectations for shorter-term rates, if investors believe, including bond market participants, that shorter-term rates will be higher, that pushes up longer-term rates. Once the Fed pauses or other central banks indicate they’re going to pause, that can bring down the real rate of interest that’s baked into, for example, the yield on the 10-year government bonds.

[00:13:16] David Stein: Now, there are other factors at play. Inflation expectations are built into those interest rates. And then surprisingly, and this is what I find incredibly fascinating, there’s something within interest rates called the term premium. It’s additional compensation that bond investors demand for uncertainty regarding inflation and uncertainty regarding central bank actions.

[00:13:37] David Stein: That term premium, at times, has been one to 2% above what expectations were for short-term interest rates and above what inflation expectations were, just because of uncertainty about whether the Fed could pull it off. Well, the term premium has been zero for a number of years now, which indicates high confidence in the Federal Reserve, despite the embarrassment of the 9% inflation.

[00:14:02] David Stein: So we’ll see. They do their best, but their reputations are on the line. Like any investor, they don’t really know what’s going to happen despite having hundreds of PhDs on their staff. Inflation still got away from them.

[00:14:18] Clay Finck: Approaching the summer of 2022 when the rate hikes really started to pick up really quickly.

[00:14:24] Clay Finck: And you’ve mentioned on your show previously that it generally takes 18 months for the changes in interest rates for that impact to flow through the economy. Can you talk about that and how that works and how you’re viewing that today? Now that we’re in July, 2023. 

[00:14:43] David Stein: So it just works in the fact that people or corporations that want to borrow money to fund projects, if interest rates are higher, the hurdle rate that they need, the potential return of a particular capital project, is higher. And so there could be less investment in the economy, which can slow the economy. At the same time, consumers are potentially less willing to go out and buy a car because with the higher interest rates, the payment’s so much higher. So as rates flow through, people are less willing to borrow.

[00:15:20] David Stein: Much of the economy is based on borrowing because people accelerate that future purchasing power into the present. They go out and buy stuff or they invest in things. But there is a lag as people, as I mentioned, they’ve had savings in place, and many have been able to lock in lower rates. So the lag potentially is even longer now because people don’t need to refinance. Look at the home market. One reason home prices haven’t cratered is due to a lack of supply because people have locked in low-interest rates.

[00:15:57] David Stein: In our case, we have a 3% mortgage interest rate on our mortgage in Tucson, and we’re not going to move because we don’t want to give up our 3% mortgage. And that’s played out across the economy. So there definitely is a lag, but that doesn’t mean we have to have a recession. And even if we do have a recession, because there aren’t really the excesses that we saw with the great financial crisis in terms of debt bubbles, households are in better shape, corporations are in better shape.

[00:16:33] David Stein: It could be a very mild recession. And markets are forward-looking and may, in fact, already be looking through the recession, given all their excitement with AI and other developments.

[00:16:45] Clay Finck: I believe you mentioned that the temperature of the market in the economy is around average. So we’re not in a sort of euphoric phase, we’re not in a depression type phase.

[00:16:56] Clay Finck: What are the main indicators you’re looking at to gauge the temperature of the equity market specifically? 

[00:17:04] David Stein: So, when we look at earnings growth, we’re looking at expectations for corporate earnings. And if we look at that, corporate earnings expectations have actually been increasing for the last six months. This is a global trend, where analysts have been raising their predictions for what they think earnings will be over the next year. It’s a bottom-up analysis that we then combine and look at on an index level. So that’s one positive indicator.

[00:17:34] David Stein: Another thing we monitor is the PMI data, which hasn’t fallen off a cliff. The level of fear and greed in markets is also considered. When we combine all these factors, we would say that we are low neutral. This means it’s not a horrible environment. We’re monitoring to see if a recession comes, but we don’t think it’ll be very deep.

[00:17:59] David Stein: At the same time, we’ve been keeping an eye on inflation and core inflation. As I mentioned, the shelter component is coming down, and aside from the shelter component, there are many areas that haven’t even seen increases in prices. So on the economic front, much of the news is good, not fearful news. And we consider that a good thing.

[00:18:23] Clay Finck: One of the things I think a lot of investors may be underappreciated or maybe overlook, is the role that international stocks can play in a portfolio. And you’ve been pretty vocal about the important role that international stocks can play in a portfolio.

[00:18:40] Clay Finck: And one of the big reasons for that is just the difference in the valuations between the two different markets. In many markets, you’re able to get essentially more bang for your buck. So can you talk about the role that international stocks can play in a portfolio? And then I’m also curious how you weigh the two.

[00:19:00] David Stein: So we are very much in favor of understanding what’s driving markets. Part of that is the equity market. Let’s take the US stock market, for example. It has returned 12.2% annualized over the past decade. But we can deconstruct that and break it down into the drivers. The dividend yield, the cash flow, the percentage of profits that companies are paying to shareholders contributed 1.9 percentage points to that 12% return.

[00:19:29] David Stein: The earnings growth grew at 6.9%. So these factors are additive. We can add the dividend yield plus the earnings growth, and then we care about what investors are paying for that cash flow and earnings. If we look at the PE (price-to-earnings ratio) of the US market over the past decade, 10 years ago, the price-to-earnings ratio was 16.6. Now it’s 23.6. So close to four percentage points of that 12% return was because investors bid up stocks and are willing to pay more for stocks.

[00:20:04] David Stein: So, combined, if we back out that 4%, the US stock market would be closer to 8%. Now, if we contrast that with the developed market outside of the US, the dividend yield contributed 3.1%. So dividend yields outside the US are twice as high as in the US. The earnings growth was slower, growing at 5.2% versus 6.9% for the US market. But what wasn’t a tailwind for non-US stocks was valuations. Valuations actually got a little cheaper, going from a 15.8 PE a decade ago to 15.4 today, and so that cost 30 basis points of return.

[00:20:43] David Stein: And then we’ve had a decade where the US dollar has strengthened about 20% versus a basket of basically the rest of the world. So that was a two and a quarter percent drag per year because the dollar got stronger. We care about why things happen. When we say, “Why did non-US lag the US stock market by seven percentage points over the past year?” Two percent was because of currency. The strengthening dollar contributed a little bit to it, and earnings growth was a little slower. The dividend yield was higher for non-US, so that should have helped. But the really huge driver was the valuation increase for US stocks, close to four percentage points of additional return because stocks got more expensive going forward, and that’s backward-looking.

[00:21:35] David Stein: Now, we care about, “Where are we today?” Well, we’re sitting here with US dividends, as I mentioned, half as much as non-US dividends. So a 1.5% dividend yield for the US compared to 3% to 3.2% for non-US. If we assume that earnings growth will be the same in the decade ahead as it’s been in the previous decade, we basically get a very similar return with non-US growing a little slower at 5% earnings growth and the US growing their earnings at 7%, often due to buybacks and more technology.

[00:22:12] David Stein: But that gives you a return of roughly eight and a half percent for each. So I’m overweight non-US in my portfolio. Our adaptive model portfolio examples are, because when we look at expected returns, they’re similar to the US. But if we actually had the dollar headwind that we’ve had with the dollar weakening a little bit, that actually helps non-US stocks because many foreign corporations borrow in US dollars.

[00:22:40] David Stein: And so, if you have a period where the dollar is strengthening, it becomes more expensive for foreign companies to pay the interest on their debt in the local currency or to service it. As a result, we actually see a negative impact, not only due to the pure currency impact but also from an economic standpoint as companies struggle to service their dollar-denominated debt.

[00:23:06] David Stein: If we actually saw the currency weaken, that could potentially lead non-US stocks to outperform US stocks over the next decade. And if there’s a repricing of non-US stocks, where they get closer to what US stocks are paying for, we would see a positive valuation adjustment.

[00:23:25] David Stein: When we look at the overall global stock market, it’s currently 62% US stocks and 38% non-US stocks. So, at a minimum, if you want to be neutral to the market, you should have close to 40% of your stock exposure in non-US stocks. If you don’t, then you’re likely more home-country biased and believe that the US will outperform. And that’s fine, we can believe that, but we just have to understand why. Is it because earnings are going to grow even faster, or are there other aspects at play?

[00:24:01] David Stein: Being grounded in investment conditions means not investing blindly. We want to know what has to happen for our particular investment thesis to work out. If that includes overweighting US stocks, then we ought to be very clear that we believe the US will grow their earnings much faster than the rest of the world, and we understand the other aspects that I discussed earlier.

[00:24:27] Clay Finck: So in studying what is driving markets, and we see investors for lack of a better term, piling into the US markets.

[00:24:35] Clay Finck: Some may believe it’s a safer place to park your money relative to other countries or other drivers. I’m curious whether the role the US plays in being the reserve currency, whether that plays a factor in. Considering this US versus non-US allocation and determining the weighting? Or does the currency reserve status not really matter at all in your mind?

[00:24:58] David Stein: Well, nobody elected the US to have the reserve currency. That’s a bottom-up phenomenon. So most trade is still conducted in US dollars. I mentioned the Euro dollar, the sheer amount of borrowing that is done in US dollars. Nobody’s telling these corporations overseas to borrow money in US dollars. In fact, if I were an overseas corporation or at least a household, I would not be borrowing in a foreign currency. My mortgage would be in the currency that I’m earning money. But for whatever reason, because of attractive interest rates, businesses borrow in US dollars. And as I mentioned, that does have an impact because when economies are slowing, there’s often a flight to quality, which tends to be to the US due to the reserve currency status. But it isn’t anything special. It’s just a bottom-up decision, person by person, business by business, how trade is conducted.

[00:25:58] David Stein: Now, going back to the forties, there were obviously some structural things that contributed to the US dollar being the reserve currency, but it’s something that’s going on in the background, other than to recognize that over the past decade, the dollar get stronger, and that hurt non-US returns. I would just be content if it just held its own. If we look at where the dollar has been, the long-term trend is actually weak for a weaker dollar. So the US dollar peaked relative to non-dollar currencies. The dollar index, essentially 167 in 1985, was a super strong dollar.

[00:26:38] David Stein: It hit 132.3 in 2002, and then the most recent high was last October at 123. Even though the dollar strengthened 20%, it’s not getting back to where it was back in the eighties or even the early 2000s. Now we’re at 115. Over time, as some trade moves away from the dollar and people realize that they may prefer to invest in countries like Japan where the stocks are much cheaper, capital flows may move into non-dollar assets, putting some downward pressure on the dollar.

[00:27:12] David Stein: So while the dollar does influence it, the reserve currency status in and of itself is a bottom-up phenomenon with flows of dollars and non-dollars going all over the world. The US has some advantages, being the deepest market and running massive trade deficits. When you run a trade deficit, it means there are dollars going all over the world that people can use, spend, and borrow from. These are the underlying macro mechanisms, but it isn’t based on top-down decisions; it’s bottom-up.

[00:27:45] David Stein: It will be a while before the US dollar is not a reserve currency, but that doesn’t mean the dollar can’t weaken over time, consistent with its long-term trend. And that weakening would be beneficial to non-dollar assets, including international stocks.

[00:28:02] Clay Finck: And since we’re talking about the drivers of returns, we’ve spoken extensively about the importance of diversification. Many investors out there are heavily concentrated in the US. When looking at the S&P 500, for example, we’ve seen the top companies, specifically the top seven, really drive the returns year to date. As of May 2023, the top seven companies essentially accounted for all of the year-to-date returns. Currently, at the time of this recording, the top seven companies comprise around 28% of the index.

[00:28:35] Clay Finck: I’m curious, what do you think about the larger concentration within just a select few number of companies? Is there a point where these companies become so large that further diversification within a portfolio is prudent?

[00:28:50] David Stein: I think further diversification in a US stock portfolio is prudent now. If we look back at the drivers of that analysis, those big-cap companies are growth companies. The US Growth Index returned 15.5% annualized over the past decade, outperforming the US Value Index, which returned 8.3%. The faster earnings growth for growth stocks contributed 7.7%, whereas the biggest component, 6.5% annual return contribution, was because US growth stocks got more expensive. The PE ratio a decade ago was 19.8, and today it’s 37.2. So about 6.5% of that 50% return is just because investors are bidding up those big-cap stocks.

[00:29:30] David Stein: In that environment, I think it’s appropriate to have some small-cap value exposure, which surprisingly had higher earnings growth, over 9% over the past decade. Its valuation went from a PE of 19.6 down to 14.2. So even just adding whatever 10-15% of US stock allocation to small-cap value, you’re getting a higher yield, about 2.5% higher. Let’s say it’s unlikely that small-cap value will return earnings growth of 9%, but the historic five-year average earnings growth for small-cap value is 6%. So you have a 2.5% dividend yield and 6% earnings growth, totaling an 8.5% return for small-cap value if they don’t get more expensive. However, if small-cap value gets more expensive, closer to the average PE for small-cap value, which is over 20, currently at 14.2, there is that potential boost, and that’s why diversification makes sense.

[00:30:26] David Stein: But, and understanding where we are, the market temperatures we talked about, what is the dividend yield for the different areas of the market? What is the potential earnings growth? What are analysts expecting and what are current valuations? ‘because that’s the math that drives investing and that’s what we need to be well schooled in.

[00:30:43] Clay Finck: Thank you for expanding on that. That’s a very useful framework to think about how investors can be more prudent in the way they’re putting together a portfolio. I want to transition here to talk a little bit about AI, which seems to be what so many people are focused on in 2023. Especially looking at the popularity and the rise of ChatGPT and then the meteoric rise in the stock price of Nvidia, which is up over 300% from its October 2022 lows.

[00:31:17] Clay Finck: I just recently saw that Elon Musk, during his Q2 earnings call, mentioned that Tesla’s demand for Nvidia chips is so high that Nvidia simply can’t keep up with that demand. Tesla essentially is going to purchase whatever hardware that Nvidia can deliver to them.

[00:31:35] Clay Finck: For investors who want exposure to AI because of the obvious enormous potential, but they also don’t want to get caught up in a bubble, what do you think about getting exposure to it?

[00:31:48] David Stein: Well, the primary way, and I recently did an episode on AI, and it’s important, this is meaningful, and it’s only been six months, seven months, eight months since ChatGPT came out. But to invest in it, first off, invest in yourself, use it. It’s eye-opening when I do a search right now, if it’s not something recent, but if I just want to learn something or understand something, I’ll ask ChatGPT, because I don’t have to see ads at least currently.

[00:32:22] David Stein: And I pay for the premium version, and the information is distilled. And so when you talk about AI, there are business models that are going to be positively impacted and negatively impacted. Google, which is one of those top seven companies, they call a Code Red because of the potential or the threat of AI to their advertising business because people suddenly aren’t searching Google and they’re just searching AI to get information in a clear fashion.

[00:32:53] David Stein: And not that there are no issues with AI, but I’m saying as I see it, it can fundamentally change the creation for particularly professionals and just something like ChatGPT, and which means that they become more productive software developers. We have a software developer that’s a member of our community.

[00:33:13] David Stein: And he said, ChatGPT has doubled his productivity. It’s writing documentation for his code. It’s putting scaffolding in place as he builds out code. Now he has to monitor what it produces, but it’s like this virtual assistant that has doubled his productivity, if that goes through the economy.

[00:33:33] David Stein: That boosts earnings growth, which means to participate. If we just own the global stock market, we’ll participate in AI. Now, if you go out and I say, “I want to participate by buying Nvidia,” that’s much more risky because when you purchase an individual stock, there’s a price there, and that price is based on the consensus of investors.

[00:33:57] David Stein: All the buyers and sellers say that Nvidia should be worth 300% more than it was a year ago, which means for that stock to go up, Nvidia has to do better than what everybody expects the consensus. And that’s why I generally prefer to invest in index funds, ETFs, and occasionally an active fund. The reason why is I want a basket of securities. I don’t want to be betting on whether something’s going to do better than expected. If I have a basket of securities or index funds, some will do better, some will do worse, and disappoint. But in aggregate, the performance will be driven by those drivers I’ve already discussed – the dividend yields, their earnings growth, the change in valuations, and AI will proliferate throughout the economy and that will benefit all stocks, both US and non-US over time.

[00:34:54] David Stein: So, that would be to buy the Vanguard Total World Stock Index Fund, ETF, VT. And you can participate in AI that way, and you already have. If you owned it, you benefited with Nvidia making up roughly three to 5% of that particular ETF.

[00:35:12] Clay Finck: Yeah, it makes sense. And a lot of people are talking about how some people are even afraid that the top companies might extract a lot of the benefit from AI and having a lot of the data and having a lot of the technology behind it.

[00:35:26] David Stein: You’re absolutely right. This is not a technology where little tiny startups are benefiting because of the huge cost it takes to train. These large language models, it’s incredibly expensive. And so it is the bigger cap companies, at least for now, that are benefiting. And again, instead of trying to pick out which particular one, if you just own a size weighted or a capitalization weighted index fund, you’re participating.

[00:35:54] David Stein: And now there’s other ways to do it. But that would be the simplest and most direct and just accept the fact that it potentially could be life changing, at least grow the economy faster because of greater productivity for workers if they’re suddenly able to produce twice as much work or output than they did before.

[00:36:13] Clay Finck: And there’s some debate about the long-term effects of AI, one of which I have been really pondering is how it may impact our current financial system. For example, if AI pushes down the cost of many goods and services, then that would lead to deflation, all else being equal. And since we live in an inflationary financial system, in my mind, currency debasement would be something that’s necessary to offset that deflation.

[00:36:42] Clay Finck: One example I can think of is just currently, I pay an accountant a good sum of money to go and do my taxes for me each year. And maybe eventually, there’s an AI software that can do it for a fraction of the cost for me and not have me drive over to an office a few times every single year and sign all these papers and whatnot.

[00:37:09] Clay Finck: So, I’m curious if you’ve considered the long-term impacts of AI on our financial system overall.

[00:37:16] David Stein: Well, first off, there basically is, I mean, there’s TurboTax, right? So you don’t have to go to your accountant now. And so why do I pay my accountant? One, I trust him, and taxes are complicated. So AI is, in my view, not going to replace highly trained professionals who are creative and trustworthy.

[00:37:38] David Stein: It will replace less creative professionals who are just churning out things that AI could churn out. Personal finance articles, for example, or investing articles. There’s going to be so much content out there, average content, because AI models are trained on the average that’s out there, and so they are by definition somewhat average in terms of their creativity.

[00:38:02] David Stein: As you mentioned, the economy is naturally inflationary because the money supply keeps increasing due to the banking system. When banks make loans, they put money in a checking account if you’re a borrower, and it doesn’t have to go find that money through the magic of accounting; it just puts a loan receivable on its balance sheet. So there are inflationary pressures as the economy grows and as households and businesses borrow more money.

[00:38:32] David Stein: Then, if you’ve got the government running a budget deficit and the central bank is going out and buying bonds, essentially monetizing the debt, that in and of itself creates money, as we saw with the M2 going from 15 trillion to over 20 trillion. So you have this inflationary push. But as you point out, there’s deflation, a natural aspect of things getting cheaper, more efficient, and more productive.

[00:39:00] David Stein: And those work together. Generally, as I see it, it could be disinflationary, which is a combination of the two. It means inflation rates are not as high as they would be because of the deflationary impact of AI and other technologies. But because the system itself is built on an ongoing increase in the money supply, that’s inflationary.

[00:39:23] David Stein: So ideally, we’ll just have lower inflation than we would have without AI, which is actually good news because we’ve had 20 years of low inflation up until the post-pandemic period. And we’ve already discussed why that was due to the money creation combined with the capacity constraints caused by the shutdown of the economy, leading to delays in producing goods and services in the supply chain.

[00:39:50] Clay Finck: It’s quite an interesting topic, and I’m super interested to watch it play out over the long run, over the many years to come. I’ve also heard debates around GDP being an outdated metric, or for lack of a better term, maybe even misleading. I pulled this idea from Jeff Booth’s great book, “The Price of Tomorrow,” and to help explain what I mean by this, you can think about how much value Apple products provide to people.

[00:40:21] Clay Finck: Consider the Mac, the iPhone; so many people in the US I know are going to purchase Apple products no matter what because they add so much value to their lives. Another way to think about it is how technology and AI, in a way, are deflationary, and their role is to make things better, faster, cheaper, and increase the wealth of society through that.

[00:40:47] Clay Finck: Entrepreneurs also contribute to this by making things better and more efficient. So, I think this kind of conflates with the idea that we need to have continuously increasing GDP, whereas AI is fighting that in a way. I’d love to get your take on whether you think GDP is maybe an outdated metric or if this is the wrong way of thinking about it.

[00:41:13] David Stein: First off, let’s define GDP. So gross domestic product is the monetary value of the goods and surfaces produced. So it’s the output that is produced. That’s all it is. That’s what’s measured, what is the dollar value of what’s produced. Now, when the government estimates what that is, they, you can estimate what’s produced based on what people spent on goods and services, but you can also base it on the income received and GDP grows because the population is increasing or that population of workers is producing more with less, they’re getting more efficient and more productive.

[00:41:52] David Stein: So if you talk, go back to that software, Developer. That developer, because of AI, is able to produce more and that leads to greater productivity and that would grow GDP if he’s actually creating more software. Now on the other side, there’s people who have to buy the stuff if they’re not going to produce it.

[00:42:11] David Stein: And that’s, I think that’s where you’re getting at. If there’s a surplus of things and where, I don’t think GDP’s where there’s a flaw, we don’t even call it a flaw. It’s just GDP that measures the dollar value of what’s produced. It doesn’t measure wellbeing. It doesn’t measure happiness. And there was a Scottish philosopher, James Maitland, who had a great example.

[00:42:34] David Stein: He wrote about this around 1800 and he distinguished what he basically called wealth, which was. The exchange value, the monetary value of things, what’s basically being measured in GDP, what’s the monetary value of what’s produced? But then he said, he talked about abundance. Abundance is things that aren’t necessarily scarce.

[00:42:54] David Stein: They’re useful, they’re delightful, but there’s not a scarcity of it. The GDP is basically based on scarcity, demand and supply. But the example we gave is if somebody realized if you just ate one kernel of corn that your life expectancy could increase by a hundred years the impact of wellbeing would be amazing.

[00:43:14] David Stein: But what would be the price impact of corn? It probably wouldn’t change that much because it’s so abundant. And so we can’t, GDP measures what’s produced. It doesn’t measure abundance and it doesn’t measure wellbeing. And we know that because there are areas of the world that have as high a life expectancy as the US, the people are just as happy.

[00:43:37] David Stein: That country’s GDP per person is 20% of what the US is. So just producing more doesn’t lead to wellbeing and happiness. And so I’m fine with how GDP is measured. The part that worries me a little bit that we don’t capture adequately in that metric is the cost of producing. In other words, we measure the value it’s produced, but if you know what’s the cost of the planet, if we’re producing in developed countries at a level that if the entire world produced at the same amount of cement and steel and clothing, it would take three to four as many planets to do that.

[00:44:17] David Stein: And so maybe technology can solve that, but we ought to be measuring as part of our output calculation, what is the cost to the natural system, the ability to produce as a world, all these things that we produce. 

[00:44:32] Clay Finck: Very interesting. A lot to take in and think about there. I wanted to transition here to chat about crowdfunding platforms.

[00:44:41] Clay Finck: We’ve chatted about a number of these sort of platforms on the show here, and I think it’d be really beneficial to our listeners to chat about some of the things you should think through when talking about these sort of platforms and considering maybe what sort of role they play in a portfolio as well.

[00:44:56] Clay Finck: So definitely want to get your take on what your thoughts are on how reliable some of these platforms can be and how we might utilize them in a portfolio. Of course, many people are probably going to think of all of the cryptocurrency platforms specifically as they’ve been the poster child of investment platforms that have gone bust and bankrupt.

[00:45:17] Clay Finck: I’m sure many of our listeners are aware of that sort of risk. I’d like to get focused more in this discussion on platforms that are more non cryptocurrency. You can think about art, real estate, and private debt. What’s your take on the role, these sort of crowdfunding methods, how they play in a portfolio?

[00:45:37] David Stein: Well, they can be selectively beneficial because they can give us access to investments that typically aren’t available in the public market. These investments could include private real estate transactions, pieces of art, or real estate-backed loans. Essentially, a platform acts as an intermediary, bringing in investors and sourcing investments for those investors to invest in.

[00:45:59] David Stein: However, what many investors may not fully appreciate is the structure of these investments. For instance, in a recent episode, we discussed Pierce Street (P Street), which was a crowdfunding platform that allowed investors to back debt collateralized by real estate. The borrowers in this case were usually home flippers or individuals undertaking remodeling projects. They sought short-term financing to fix up a property and either sell it or rent it out after renovations were complete, transitioning to a more traditional mortgage.

[00:46:32] David Stein: P Street had been operating since 2013, but what most people, including myself, didn’t realize during the first couple of years of investing was the potential risks involved. At one point, I had 2% of my net worth invested in P Street.

[00:46:49] David Stein: An attorney who is a member of our Plus member community pointed out the structure of your investments in P Street, a crowdfunding platform. You are not investing directly in the loan with collateral; instead, you are investing in a mortgage-dependent note, which means you have an unsecured liability with P Street. In the event of P Street’s bankruptcy, you would be in line with all the other unsecured creditors, and you would not have access to the real estate to sell.

[00:47:22] David Stein: This lack of transparency in venture capital-backed companies like P Street and BlockFi, a cryptocurrency lender, poses significant risks. BlockFi went bankrupt, leaving unsecured creditors in a precarious situation due to the lack of financial information provided.

[00:47:37] David Stein: As a result, there are ways to mitigate these risks on crowdfunding platforms. Nowadays, platforms often set up special purpose vehicles or registered fund structures to shield specific investments from the corporate assets in case of bankruptcy. Additionally, some investments, like those on Masterworks, are registered securities, providing more transparency and protection for investors.

[00:47:58] David Stein: And most of these crowdfunding platforms are still at an early stage. And so they’re very dependent on venture capital backing. And that’s what happened with Pierce Street. They’re, the mortgage market collapsed as interest rates went up. And so they didn’t have enough money to operate and they were getting money from venture capital firms, which have been much more reticent.

[00:48:18] David Stein: To invest in these companies. And so you’re seeing it they’re capital starved and if these businesses don’t have a profitable business model, then they’re going under. And that’s what happened with Purestream. But the key then is what is the structure of the investment you’re purchasing on a platform?

[00:48:36] David Stein: And with the cryptocurrency, it wasn’t separate. They commingled it with the corporate assets. And when those platforms went under, people lost their funding or they lost their funds, or most of them. 

[00:48:47] Clay Finck: One of the terms you mentioned that sort of struck me and took me by surprise was the term blitz scaling.

[00:48:54] Clay Finck: Essentially the way I interpret it as these companies are VC backed and they have to essentially grow, and when they aren’t growing as investors wanted them to, then eventually they just could get shut down and go bankrupt. Can you talk more about that? 

[00:49:12] David Stein: That’s basically what venture capitalists do in today’s environment. Over the past 10 years, they have been focused on growing market share. The typical private company will remain private for 12-13 years, even after going public, as they are still trying to figure out a profitable business model. During this time, they invest money heavily in advertising and expansion, running deficits and losing money, all to capture a larger share of the market. Then, just before going public, they try to make the company appear profitable.

[00:49:46] David Stein: Blitzscaling is the term used to describe this approach, where companies prioritize rapid expansion and market dominance over immediate profitability. However, this strategy can lead to challenges after going public, as the company must then find a sustainable and profitable business model. Unfortunately, many of these companies fail to achieve profitability, resulting in share prices plummeting.

[00:50:08] David Stein: For consumers, this approach can have both benefits and drawbacks. During the growth phase, services like Uber and Lyft were heavily subsidized by venture capitalists, resulting in cheap and affordable rides for users. However, once these companies go public and become more focused on profitability, they may have to raise prices to cover their costs. This means that the cheap prices users were accustomed to may no longer be sustainable in the long run.

[00:50:38] David Stein: And so, but from buying an IPO it typically doesn’t work out. If you’re buying, well, if you can get an early allocation and there’s a bump, then that’s great, then you can make money. But if you’re a long-term investor in an IPO. The exception of it being a profitable investment or the idea that it’ll be profitable.

[00:50:58] David Stein: It’s actually very rare despite, I mean, there’s always the big, well, Google that was popular, Amazon that went well, most IPOs fall below whatever their stock price was. And even more so today, because they don’t have profitable business models when they go public and they have to figure it out on the fly.

[00:51:16] Clay Finck: I can’t help but think of this. Howard Marks calls it the sea change. Interest rates aren’t at zero anymore. Now they’re at, call it 5% or whatever. And I just think about the case of Pierce Street where this VC funded company goes bankrupt? Do you see this sort of, these one-off situations where a VC funded company just happens to go under or is this something where we’re going to start to see it maybe pick up and be more of a trend over the next few years with higher interest rates?

[00:51:49] David Stein: Oh I think you’re, you’ll see more of a trend. There are 16,000. Private companies that are venture capital backed and the competition for capital is ever more intense. The amount of VC funded companies in the past year has gone, like the actual capital invested, fell 50%. And so in some ways it’s good because suddenly these companies realize, oh, we actually have to figure out how to make money on our own without being subsidized by venture capitalists.

[00:52:17] David Stein: But, Many won’t. So you’ll see more closely. But the, I mean, these are, they’re small companies in many regards, so it’s not like it’s going to crater the economy, but if you are invested in venture capital, the returns will, they’re certainly going to be lower than they were because the difficulty to exit, they’re not able to sell the private companies or the VC-backed companies at a premium.

[00:52:39] David Stein: And the IPO market, at least currently, is not, the public market’s not really receptive to IPOs. And so that, that will cascade through the venture capital space, which is why as investors, this is a very risky place for us to play. A lot of these crowdfunding platforms were to invest in startups.

[00:52:57] David Stein: And the challenge is in order to be a successful investor in private equity, so venture capital in buyouts, you need dozens if not hundreds of positions. So I have about 20% of my portfolio in what we’ll call private capital. So it’s leveraged buyout funds, it’s venture capital, it’s. Real assets including real estate.

[00:53:18] David Stein: So these are fund to funds run by my old advisory firm. And I was just looking at this the other day. So I’m in six of their funds, just one of their funds is in 30 underlying limited partnerships and are invested in 500 different deals. And so the model is based on most of them failing, but some doing very well.

[00:53:37] David Stein: And so if you’re investing in a startup, in a crowdfunding platform, the better way to do it is at least do it in a portfolio. Maybe they’re offering a portfolio, maybe the sponsors are screening it. But you can’t do private equity investing, venture capital and doing two or three deals because the numbers basically don’t work against you.

[00:53:54] David Stein: ‘because most won’t work out. That’s just the nature of venture capital. 

[00:53:59] Clay Finck: Very interesting. And these crowdfunding platforms, I’d consider ’em more an alternative investment. It’s something that’s not in the traditional space that people have traditionally parked their money in. Can you talk a bit about the role that alternative investments play in a portfolio?

[00:54:18] David Stein: Well, the institutional investors, so endowments and foundations in pension plans are the largest participants in alternative investments. And the main reason is the expected returns are higher than the public market. Now, whether because these 

[00:54:35] David Stein: are 

[00:54:35] David Stein: set up as limited partnerships, you don’t know for 10 or 12 years whether it’s going to work out, but if the consultant that’s advising that endowment puts a higher expected return, so let’s say they say private equity or return, 10% and the public market will return 7% by allocating more to alternative investments.

[00:54:58] David Stein: Where if you’re a board member, that you’re a volunteer. And if we can’t figure out a way to get a higher return, I mean there’s that demand to do that. Otherwise you gotta cut how much you’re spending on scholarships and operating the university. So by investing in alternative investments, they have higher expected return.

[00:55:16] David Stein: And by the way, we don’t know if it works out for another 10 years as a board member. Yeah, I’ll do that. ‘because I don’t have to make hard decisions now. Well just, hopefully it’ll work out when I’m not on the board 10 years from now. And so that’s why you see pension plans in endowment foundations move into alternative investments now.

[00:55:33] David Stein: Hopefully they will. I mentioned my investments in. The private capitalist space, like these are the top tier underlying funds. I mean they have generated a 20% return rate of return over the past decade. So it’s been a very good period. But as individuals, it’s hard to do because we can’t invest in a hundred different startups.

[00:55:53] David Stein: So we’re. Trying to select one. And I’m saying don’t select one or two. And so you, maybe you have to step aside, but there are crowdfunding platforms on the alternative investment space that have set up funds where you get more transparency. So I Fund Rise is a solid platform. I personally have invested in deals on crowds, Streete, so there’s some, the real estate’s a little easier.

[00:56:13] David Stein: I’ve mentioned art, which you know, art is more speculative ‘because it isn’t cash flow, but that’s another option. But it’s a little more challenging in the private capital space. One platform we’ve reviewed on our premium podcast is Moon Fair. So that seems better than most in terms of, but the idea is the one is as much diversification as you can and you want some screening mechanism on those deals so that, and you get enough of them so that hopefully some of them will work out ‘because most won’t.

[00:56:41] David Stein: And that’s where you really need diversification on the alternative investment side. 

[00:56:47] Clay Finck: So you do use some of these crowdfunding platforms. 

[00:56:51] David Stein: Yeah, I have one deal on crowds, streete, mainly because, and this was one hotel property, but it hap I, my hometown where I grew up with Cincinnati. And so it was a hotel across the Ohio River in Kentucky.

[00:57:04] David Stein: It’s a two or three year deal. It seemed very secure. And so I invested and there are those opportunities, but generally it’s better to use a fund structure that there’s multiple real estate deals in the fund or multiple private venture capital deals in the fund. Unfortunately the fees are just high and they’re just not, it’s not easy to do.

[00:57:26] David Stein: So most of mine, as I mentioned, is in the institutional funds that my investment, my former investment advisor runs, but they’re institutional funds and so they just made an exception for me ‘because I helped start them, helped start the private investment program with FEG advisors is the name of the firm.

[00:57:44] Clay Finck: The fees, definitely, I’d encourage people to definitely be very mindful of and be careful of things that might be hidden and not something they show you at face value there. You’ve talked about things like timber. You mentioned art. You also mentioned people are going towards these alternative investments because they offer higher expected returns.

[00:58:03] Clay Finck: So for something like timber art, how do you wrap your head around the expected returns for something like that? 

[00:58:11] David Stein: Art’s really challenging because it’s like figuring out what’s the correct value of gold or the correct value of Bitcoin because there is no cash flow. It’s pure speculation. And so when I invest in art antiques, it’s maybe 2% of my net worth.

[00:58:25] David Stein: I’m just guessing. I mean, I’ve got a masterwork, I think I own three or four paintings. I don’t know. I trust their ex, I mean, they sponsor a podcast. I trust their experts that they’re picking paintings that they think we’ll appreciate, but we don’t know. I, we sold one, I had a Monet, I mean, I heard a Monet, so I invested that went, I had about a 9% internal rate of return, but it’s, I would prefer cash flow.

[00:58:47] David Stein: So timber’s a little different. And I have invested in, I mean, there are timber REITs out there that you can invest in timber and timber benefits because the trees keep growing. But the problem with timber that makes it really challenging is the control. Power that the mills have to choose from where they can buy.

[00:59:06] David Stein: And so it’s a challenging asset class, but there are a number of timber REITs, I think plum trees. I think plum tree’s still around, but there’s some timber REITs that you, that investor can invest in. So it’s a publicly traded vehicle that invests in timber. I mean, there’s agriculture that you can do on a private basis, something like farm together or acre traders.

[00:59:26] David Stein: So there’s private ways to do that. But you could also invest in Gladstone, which is an AG reit. And so oftentimes there’s a public vehicle that’s publicly traded, a security that we can get investments in alternative investments without having to go to a crowdfunding platform. Another example is a fund that I own.

[00:59:46] David Stein: Corporate investors fund these tickers, MCI This is a closed end fund, and they lend money to private companies, so there’s what’s sometimes called mezzanine funding. So they’re involved to some extent in the management, or they can be, or they get a little bit of an equity kick. In terms of if the company does well, but it, this is a close and fund that’s yielding close to 10%, but it’s public.

[01:00:10] David Stein: So if I’m tired of, if I think the environment for private lending is just getting too sketchy, then I can always sell, which most of the private opportunities you don’t really get a chance to sell once you’re rent and you’re seeing that in a, something like Be reit, which is a real estate, a private real estate investment trust that Blackstone has sponsored 

[01:00:33] David Stein: and it’s done well performance wise, but investors are trying to get out every quarter ‘because they think it won’t do as well going forward.

[01:00:39] David Stein: And, but there’s a gate, they only limit so many people out or so much funds each month. So you got the bottom line. You have to be careful with alternative investments, see if you can find a public alternative. But if you do the private side, make sure that it’s very diversified with a number of different deals.

[01:00:55] Clay Finck: Thank you again for that. That was really informative. I wanted to transition to the last section of our outline here, which is talking about living a good life, and it’s something that TIP is I feel like has talked about more and more over the past couple of years. We recently partnered with William Green, who now hosts the Richer, wiser, happier series here on the feed here that everyone’s listening on.

[01:01:20] Clay Finck: And that series has been unbelievably popular with our audience. As many have come to realize one way or another, that money is in everything. So I wanted to also mention that I think many people confuse investing with trying to chase returns and try and achieve the highest returns possible, outperform the market and brag to their neighbors that they picked the right investments.

[01:01:43] Clay Finck: But really at the end of the day, we want to align our investments with our financial goals. So can you talk about how you think about aligning your investments with the life that you want to live? 

[01:01:58] David Stein: So the term good life or one of the first individuals who used that term was Aristotle, a Greek philosopher, lived several hundred years BC and he wrote about it in Makki and ethics, and he said the good life was a life of virtue.

[01:02:14] David Stein: And virtue back then was very different. So probably the way that we would think of virtue now was if you swing a tennis racket or you swing a hit at a baseball it’s hitting this sweet spot. It’s really having the right amount at the right time, in the right manner for the right reason. And it’s often called the golden mean.

[01:02:35] David Stein: And so when I think about a good life for me is just to have enough, not to spend my time fretting about the past and worrying about the future. And that can be very difficult to do with investing, but to realize that, that we have enough. And one of the terms I’ve used for years on our podcast is live like you’reY, retired.

[01:02:54] David Stein: So I left my investment advisory firm 11 years ago. Didn’t know what I was going to do. I called myself, retired early, but reality is I needed to do something because 50 years is a long time to live off your investments, and my firm owed me money over the next seven years. I wasn’t even sure they’d be around to do that, so I eventually launched money for the rest of us and did some other things.

[01:03:15] David Stein: It’s taken me a while, but the whole idea is that I’m living a life now that I don’t want to retire from, and I have enough. And so my investments, I don’t, I’m not a growth investor. I focus on making sure my net worth grows each year after my expenditures, and part of that comes from my business. Part of it comes from the yield or dividends interest on my investments, but just maintain a sustainable life over the long term.

[01:03:41] David Stein: But not focus so much on the future that good life is just focusing on today and focusing on some of the things that I mentioned on this idea that an economy is more than GDP, it doesn’t measure wellbeing and happiness and the things that produce happiness are things you don’t buy. It’s the health part that you can buy but friendships, you can’t buy community.

[01:04:00] David Stein: You can’t buy friendships. You can’t easily buy the opportunity to be creative. You have to do that on your own. And so those are the things that make up the good life. It’s these basic goods that are oftentimes they don’t have a financial price and maybe they’re not scarce because it’s work we have to do on our own.

[01:04:16] Clay Finck: What are some of the other things or themes you’ve found in your experience? Starting your own thing and living a, what I’ll just call richer, wiser, and happier life. Outside of just thinking about the money, 

[01:04:32] David Stein: Well the, one of the things that I do each year I’ll have three words that I focus on.

[01:04:37] David Stein: So if I’m meditating, walking, whatever, and one of my words this year is, well one’s breathe. So just breathe. Just take a deep breath, don’t overreact, just breathe. The other is time and it’s the idea that we have enough time and we spend so much time leaning into the future and we don’t do things for their own sake.

[01:04:57] David Stein: We do it because we want to get somewhere else we can. We’re having some dinner with some friends tonight, and we don’t have to be there anywhere after the dinner, so we’re not rushing to get dinner done so we can go somewhere else. Or we’re not using this dinner so we can get a good connection for something else.

[01:05:15] David Stein: We’re going to dinner to just be with our friends, enjoy the time, connect with them, and that’s with time. We can do that. We get into trouble when we’re always trying to maximize our time or get maximum productivity, or we’re trying to get something done so we can get something else or we’re doing something to achieve something else.

[01:05:33] David Stein: We should spend more time just doing something because we enjoy it and maybe it’ll work out, but maybe it won’t. We enjoy the process writing a book. A lot of people write a book. We don’t write a book because you think it’s going to sell a lot of copies, you can dream about it. But I’ve written a book and I published it and it turns out you write a book because you enjoy writing and because it’s rare for them to become bestsellers.

[01:05:56] David Stein: So we do, it’s just trying to do things for their own sake, not because we’re trying to reach some goal or achieve something else. More time just being and doing for the intrinsic value of it. 

[01:06:10] Clay Finck: I really love that you mentioned just truly living in the present. You and I we’re both in the US and I think it’s really easy to learn about concepts like compounding, learn about concepts like opportunity costs, and then you log on social media and see people posting their highlights and their wins.

[01:06:27] Clay Finck: And then I’ve been to Europe a couple times and I’ve been to I know there’s different cultures within Europe, but one of the things I caught onto was like a lot of people that like businesses aren’t open as long in some countries over there and they’re opening later in the day and people are generally just more relaxed.

[01:06:44] Clay Finck: They’re enjoying life. And I think that’s one thing that many people in the US that maybe aren’t aware of other cultures and the way other people maybe are more acquainted with just living in the present, just relaxing. And I love that you just mentioned that. 

[01:06:57] David Stein: Yeah. I mean, the economists did a big profile on that a month or so ago where they were comparing the US economy and how we live and how we work.

[01:07:06] David Stein: So many hours to Europe. And the reality is they’ve made that trade off. They don’t work as much in Europe. They don’t produce as much in Europe. Let’s go back to what was our definition of GDP? It was the value of what’s produced that’s produced by people, and it’s produced by technology. And they don’t produce as much in Europe per person because they take more time off to spend time with family and friends and go hang out at the cafe.

[01:07:30] David Stein: And that’s their choice. And I actually think that’s wonderful and we can do that in our own lives. We do not have to work 60, 80 hours a week. And maybe you do it for a stretch, but seek to create a life where you don’t have to do that because it’s way more enjoyable. That’s why I say live like you’re already retired.

[01:07:45] David Stein: How would you live if you were retired and figured out, well, how do I live that today while still working and contributing to society, but not overworking? 

[01:07:54] Clay Finck: And I think another thing is that with money you can always log into the account and then see the number, you see the progress, you can see the chart.

[01:08:02] Clay Finck: And then with living in the present and enjoying time with people you enjoy spending time with, it’s not as tangible. 

[01:08:11] David Stein: No, it’s not, which is why I look at my net worth once a month in my portfolio once a month partly. ‘Because I have, I share my portfolio with our membership community.

[01:08:21] David Stein: If I didn’t do that, I’m not sure. Maybe I would do it once a quarter, but I don’t look at it every day. And because life’s way more fun, not worrying about our investments every day. So, which is another advantage of investing in index funds and other more diversified investments because you don’t have to worry about whether Nvidia is going to hit its number this month or achieve, exceed its earnings estimates or miss it and plummet 30%.

[01:08:44] David Stein: You do that If you’re investing in individual stocks, you have to do that because you’re trying, you’re competing against the consensus of everyone out there. And I would rather invest in a way that I don’t have to compete and win to be successful. That’s why we spend so much time on the drivers. I don’t have to compete for a dividend.

[01:09:03] David Stein: I don’t have to compete for earnings growth if I am in a diversified fund, an index fund. And so it’s easier to invest that way when the performance drivers are not being successful as an investor, not depending on beating other people in winning. 

[01:09:18] Clay Finck: Wonderful. David Volt, thank you so much for joining me.

[01:09:21] Clay Finck: This is a big pleasure for me to have you back on the show and hope to bring you back again in the future. It’s always fun learning for me, that’s for sure. And you always bring a new perspective that feels very fresh. So please give the handoff to our audience on where they can learn more about you and any other resources you’d like to share, please.

[01:09:39] David Stein: Sure. So our main website for our free podcast, as well as the free investment guides, is Money for the Rest of Us (dot) com. We also have a new website called AssetCamp (dot) com, and that’s a place where you can find tools to analyze stock indexes and index funds.

[01:10:00] David Stein: The underlying drivers of a lot of the mathematics that I shared in this episode come from AssetCamp.com.

[01:10:08] Clay Finck: Awesome. Well thank you so much again, David. Really appreciate it. 

[01:10:11] David Stein: Great. It’s great to be here, Clay. Thanks. 

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