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- [00:00]
A
Ben, it's great to see you. I want to get right into your view on why markets have pretty much shrugged off everything geopolitical. All the headlines, the oil shock, what's going on here.
- [00:09]
B
It's funny because a lot of times the short term answer is like, I don't know, like sometimes it's like it's a mystery and then you learn later like what actually was going on, right? The stock market was looking past this because this thing was going to happen in the future. And the stock market is forward looking right now. It's actually pretty simple. And it's just earnings. And if you look at the earnings numbers, they're coming in, I think factset said six quarters in a row of double digit earnings growth and this one is the biggest since we've had since 2021. And that year was coming off of a low base year of 2020. So it's like 27% earnings growth right now year over year. So it's a fundamentally driven story. And I know a lot of people don't like they want to think like this is like detached from reality, right? The markets aren't making sense, why aren't we paying more attention to geopolitics? But in reality it is attached to fundamentals. And that's the thing. I think that it actually does make a lot of sense that the market is shrugging off this geopolitical stuff for now because it's just following earnings.
- [01:02]
A
I think that makes total sense. And I definitely agree with you. Whenever people ask me, hey, why are markets going up? I say, well, because earnings are going up.1 actual earnings, but also earnings expectations keep going up. But the one thing that I don't really have a good answer for yet, which I think you would. Is it possible that because things are going so well in the markets, is the whole market just a momentum trade?
- [01:28]
B
I mean there's certainly areas of the, there's big pockets of momentum right now. And it's interesting because it's not just the Mag 7 anymore, right? It seems to be whiting out these other areas and obviously it's AI and the AI momentum is working in both directions, right? The software stocks are negative momentum, they're getting crushed seems like all the time. And these other like semiconductors are going nuts and they're going to the moon seemingly. And so that does seem like the momentum set. But yeah, it's, it seems like any time there's a flare up in anything, AI kind of comes in and trumps it. And that's the thing that matters over everything else.
- [01:59]
A
Yeah, the, the thing I keep hearing is that AI is the macro. Like it's more important than the decimal point changes on inflation or unemployment. As long as the hyperscalers keep doing their thing, AI keeps doing their thing. Ben, you had this great chart that you shared, the bull market tracker 19 versus 2009. And it essentially compares these two mega secular bulls. What stands out to you here?
- [02:25]
B
I think the thing that stands out the most is how close it is. So we're like 55% of the way there to reaching that same thing over that 17 year period. So some people quibble with the definition of a bull market because if you go back to the lows of 2009, we're up like 17 years at 17% annualized returns, which is crazy, right? Pretty close to that 1980s, 1990s period. We've had some bear markets along the way, but no big financial crisis resets. And so I think the fact that after we went through all that and everything that's been thrown at the market last decade, rates were on the floor and growth was slow and couldn't really get out of our own way to get the economy moving. And now this decade, it's the pandemic and tariffs and war and inflation and all these things, and the market just keeps shrugging it off. The crazy, craziest stat I found is that the annual return in the 2020s is higher than it was in the 2010s. So the bull market this decade is actually stronger than it was in that period after the great financial crisis, which
- [03:28]
A
a lot of people I don't think would realize because we've had so many crises in the last few years. I mean all the oil shocks, the inflation shocks, all the Fed drama, even. Let me ask you about this AI semic semiconductor and memory rally here. It's been absurd. I mean, all the charts look like meme stocks. First of all, how are you thinking about this?
- [03:52]
B
Sandisk is up like 4,000% last year. And that's not even an exaggeration. It really is. All these Western Digital and Micron. Micron briefly yesterday was in the top 10 of the S&P 500 and it was like the 90th largest company a couple years ago or something. So the moves are just breathtaking. And I mean the only thing I could say trying to predict this is kind of crazy, but it's just like at some point these companies are going to have like a. Just a nasty day or two or like there's going to be an air pocket at some point, right. Even if they have a long term trajectory, like having gains that big compressed in such a short period of time, like eventually there's going to be something that people just say, all right, fine, I've got it, I'm going to take some profits. And it wouldn't surprise me to see like some big double digit down days or even an earnings beat. But it wasn't as big as the expectations. I think that's the kind of thing to think about. There is like the psychology behind it. It's not just tracking the fundamentals in the AI trade. It's like how baked in are the expectations. And obviously the answer is no one knows for sure. But that's the thing that would be interesting to me is like will there be some air pockets in these stocks eventually? When people just say, all right, enough is enough. I've made so much money here.
- [05:01]
A
I mean I think the price action, it looks so absurd and the price action, I think we've gone well beyond Internet times, honestly. It's so vertical and parabolic. But the fundamental story, you know, we're talking about earnings, fundamentals look pretty damn good, right? You talk about Micron, they can't even meet the demand for several years out. So for me that gives me honestly a lot of confidence in these companies.
- [05:25]
B
That's why like a lot of people are saying, asking the question, is this a melt up? And I think that it certainly feels like it in some stocks. But if it is a melt up, it, it's one of the melt ups that makes the most sense that we've ever seen. Because you're right, the earnings are there, the store, it's not just a story, it's not just a here's what's coming in the future. It's here's the demand now, here's the earnings now. So to me it's kind of a melt up that, that you know, is in the realm of possibilities and reality. Like it makes sense what's going on.
- [05:54]
A
And okay, speaking of melt ups, Ben, you had this chart that essentially compares the current 10 year stretch in the NASDAQ to previous melt ups. We have the dow in the 1920s, the S&P in the 1950s, Japan in the 1980s and the dot com bubble. What's going on here?
- [06:12]
B
So yeah, looked at the last 10 years and the NASDAQ 100 is up, I think it's like 650% almost and that's like 21% and change per year. And so it be it, it Beats the Dow in the roaring twenties. It beats the S&P in the 1950s, which is kind of an unsung bull market. Japan in the 1980s even, which is one of the biggest bubbles we've ever seen. And the only one it really hasn't challenged yet is the Nasdaq in the 1990s, but it's getting close to that too. But the crazy thing is over the past 15 years, the NASDAQ has compounded earnings at 15% per year. So yes, there's been like 20% annual gains in the stock market, but earnings have been there too. And that's what I think makes this whole thing so challenging, is that it's not the dot com bubble where there's all these promises of what the future is going to hold. The earnings are there with it. Again, the question is at what point do the expectations get ratcheted up so high that you know you can't meet them anymore? But so far, the reason these are the biggest companies in the world now is because they've delivered.
- [07:13]
A
So just to clarify, the 15% compounded earnings, have we seen stretches like that in the past with the other melt ups?
- [07:20]
B
It's funny, I, I sort of asked this question, so we were talking on our podcast to a guy who works for Nasdaq and he had the numbers and, and I said, there's no way, there's no way that could ever be replicated in history. Right? And. And he said, no, there's nothing we could find because companies in the past were so much more capital intensive. They didn't have the margins, they didn't have the end, they weren't as efficient as they are. So yes, I think this is like a historic run, which is one of the reasons why I think you have to kind of keep an open mind. Because I think there's some people who think this is a bubble, it's going to burst regardless. Right. And other people think, no, no, no, this is a new technology that's going to change the world and it makes sense. And I kind of think you have to have an open mind about that. Both of these things could possibly be true and you don't know which one it is right now.
- [08:02]
A
Do you think people had that same open mind, let's say, during dot com?
- [08:08]
B
I think that there was probably, I think the biggest difference between the dot com bubble and now is that the financial media was like huge cheerleaders back then for like really the first time in history. Like the financial media got caught up in it. And so all that euphoria everyone was at. You know, there was of course people who were saying this is going to end badly. There was financial historians who kind of predicted that, you know, these valuations are crazy and nosebleed and. But the financial media was part of it and you don't have that anymore. I think that's because the financial media got kind of caught off guard in the great financial crisis. But that's I think the big difference that yeah, the stories there and the narrative was being driven not only by investors but by the media.
- [08:44]
A
So I think we have a bunch of people we know that always point to magazine covers as contrarian indicators. Like whenever barons or a magazine is calling a bubble or a top signal, it's usually the exact opposite in recent years. And you know, I think that's a great point. We don't have the same exuberance in the media probably. And I think the media generally tilts bearish right now and they're pretty anti asset prices. I would say the other hard part
- [09:12]
B
is that there's just more people invested in the stock market now. So it's hard to. So like 65% of households in the US are invested in stocks and that number has risen this decade. It fell after the great financial crisis. It's risen. So it's hard to look at the whole market and investors collectively because you think like, oh, everyone is a degenerate gambler now, right? There's zero day options and they're day trading. And sure, that's like there's one group of investors who are like that, but there's also this other group who, you know, there's $12 trillion at Vanguard and 15 trillion at at iShares and BlackRock. Right. And those people are kind of set it and forget it. And the money goes into index funds and low cost and like long term investing. And obviously there's a million other types of investors out there too. So that's the hard part is like trying to, to pigeonhole what exactly the group of investors is that's controlling sentiment. It changes from day to day because there's so many different groups now. So it's hard to get your arms wrapped around like what is the sentiment of this market because some people are obviously euphoric, the people who are in these semiconductor stocks, I'm sure. Right. So, but not everyone is there so that it's harder now to gauge the whole sentiment of the overall market.
- [10:14]
A
Some of you may not have heard this, but our partners at public just launched something called generated assets. It brings AI into investing in a way I've honestly not seen before. Here's how it works. You type in an idea like AI powered supply chain companies with positive free cash flow or something like defense tech companies growing revenue over 25% year over year. Publix AI then dispatches a swarm of agents that can scan every single stock, evaluate them and instantly build a custom index around your thesis. What really stands out is how clearly it explains why each stock is included. And before you invest, you can even backtest your idea against the S&P 500 so you're making decisions with real context and not just guessing beyond generated assets. Public lets you invest in stocks, bonds, options, crypto, all in one place. They'll even give you an uncapped 1% match when you transfer your investments over from another platform. If you want to build a portfolio that actually reflects your thesis, visit public.com openingbell that's public.com/opening bell. Now let's get back to the conversation. One sentiment gauge I think is really interesting is the launch of so many different single name levered ETFs. So that's what I look at that and I'm like, okay, prediction markets are fully in the stock market right now and that's a little troubling. And I, I don't think we had the financial engineering back then to have products like that, but now they're pretty much available to everybody.
- [11:44]
B
And yeah, obviously part of it is the ETF producers are throwing stuff against the wall and seeing what sticks and a lot of these are sticking. You're seeing massive flows coming into them. Right, like, and you know, if they work, they, they, you're right, there's a ton of it. There's, it's easier than ever to get leverage through those type of products. They're probably hard to understand for people, but obviously again, there is an appetite for that for some investors. Other people say no way. You know, the, the volatility decay and the potential for a crash and. But there are certain investors and traders who like these things and want to use them.
- [12:16]
A
Do you think that making.com comparisons today is more or less valid than a year ago?
- [12:25]
B
Probably more. Just because it continues to go on. Right. And this thing just keeps moving higher regardless of what happens. But the funny thing is that I think a lot of people have kind of moved off of their. I think a year ago if you would have pulled people, most people would have said this is like the railroad in the dot com bubble. Like we're seeing this excess capex build Out. This has to be a bubble. Look at history. It has to be. And now I think people are kind of changing the tune a little bit to go, oh my gosh, look at the demand for this stuff. And they're not able to keep up with it. Right. You go to use Claude and it can't answer your query because there's not enough compute for it or ever. So I think there are some people who are maybe backing away a little bit and going, wow, what if this really is like this glorious handoff of all this money invested and the use case is there much quicker than it was in the past.
- [13:13]
A
Are you using AI a lot in your day to day?
- [13:16]
B
Yes, all the time, as far as research goes. And I wouldn't say I'm like a power user like some tech people. I mean, you talk to people in the tech industry and it's like you're talking to someone on a different planet because of how much they're using it. But yeah, every day it gets more and more integrated in what I do.
- [13:37]
A
I feel the same thing too. It's a year ago I was probably accomplishing almost half of what I can do today just because I have all these tools at my disposal. And they keep getting better by the day too. Is there anything you can point to in the current market that would make you turn bearish?
- [13:59]
B
It's a good question. It seems like it has to be the fundamentals. Right. I guess it would have to be a lot of these AI companies just pulling back on their spending. Right. And they just keep ratcheting it up. Every year now it gets ratcheted up higher. I think they said the big six, whatever, are, it's going to be 75% higher than it was last year or something. And so I think if you saw any of those companies say, all right, you know what, we're not seeing it. The ROI is not there. We're going to pull back. I think the market would, would fall out of bed pretty quickly in that scenario.
- [14:31]
A
And that would just be something like a comment on an earnings call.
- [14:34]
B
Yeah. Yes. I think that that's what would happen if Zuckerberg went on there or and said, like, all these investments, they're not panning out. We're going to pull back a little bit, not grow our spending. I think the market would not take that well just because I think the embedded expectations are there. Like, all right, we're going to put our foot on the gas and keep going with this.
- [14:54]
A
Yeah. I think any indication of slowdown from the big Spenders, probably it'd be very troubling to be still holding the bag as retail.
- [15:05]
B
The other thing is consumers make up 70% of the economy. Right. So everyone's been wondering when are consumers going to slow down? And it didn't happen. Even when inflation hit 9%, people kept spending right through it. And I think the reason for that is because the unemployment rate is still low. It's still below 5%. Right. Never got below 5% in the 80s. It didn't get below 5% till the end of the 90s. So it's been there for quite a while now outside of that Covid spike. And so I think if you did see some, some job loss that would get consumers to finally retrench a little bit. People have been waiting for this whole decade. When are consumers going to retrench? Right. That excess savings is gone from the pandemic and inflation and tariffs and all this stuff like is this going to be the thing and consumers still keep spending. I think if you finally saw some job loss and people, not only their own job, but if they saw their peers and their colleagues getting laid off, then that would cause people to retrench a little bit and pull back their spending.
- [15:56]
A
Yeah. And I, I think the, to me, we would have to see a very significant change in the economic data to almost shake people out of the mindset that AI is the macro.
- [16:08]
B
Yeah.
- [16:08]
A
Because even, especially for investors, you're not even looking at the economic data that much anymore. Like we just had two hot inflation reports this week. Markets are at all time highs, which is absurd.
- [16:19]
B
It is kind of crazy to think about, isn't it? And we do seem to be in this new world where the 2010s was like this 2% inflation rate and now we're kind of in a world of 3% inflation rate and higher. Maybe. And that's kind of around historical averages. But that's a big change. Right from where we were to what people got used to. And obviously that's one of the reasons that sentiment is so poor. But you're right, it hasn't changed behavior yet.
- [16:41]
A
So Ben, I want to move on here to your book, right. You just published this book, Risk and Reward. It is excellent. I read the whole thing in a weekend. And you do a great job going through data driven strategies essentially on how to invest for the long term, deal with volatility, understand your history. I really enjoyed it. I want to ask you about your chapter on the perfect portfolio. You lay out how stocks and bonds have historically been the most popular arrangement. Do you think the 6040 portfolio is still relevant in this current market?
- [17:21]
B
I think it can be. I think it's probably harder than ever to have a traditional portfolio because I'm of the opinion that there's never been a better time to be an individual investor. In terms of what's available to you, the menu of options. There are strategies that you mentioned leveraged ETFs, but you can get option income now. You can get buffered ETFs. There's all these strategies now. There's active ETFs that charge a relatively low fee and a tax efficient wrapper. There's all these strategies you can get now that would have only been available to hedge funds maybe 20 years ago. And that's a great thing for investors who know what they're doing. But I think if you don't know what you're doing, the temptation to add a little bit of this and add a little that, it's like you're at the buffet and you're constantly filling your plate up, but there's no rhyme or reason. So I think that's the hard part is like it's a fire hose now. And so how do you put some limitations or filters on your investments so you don't just keep wandering and making changes for no reason?
- [18:21]
A
Okay. I think those are, I mean, it's an amazing point. Just the information overload as sort of a big risk factor. As an investor.
- [18:31]
B
Think about how much worse AI is going to make it too, right. When you can create your own investment strategies using AI. There's that stuff is coming and some places already have it. Where I want to do this strategy that moves around here and it buys this and it sells this and it trades this and I push a button and you do it for me. It's just going to make it even harder to have limitations.
- [18:51]
A
Oh, it's already extremely hard because even pretty much you log on to any brokerage app or trading platform and they will be pushing strategies on you.
- [19:01]
B
Right.
- [19:01]
A
Depending on the app. So let me ask you about these. You had these two chapters on Japan in your book and those were actually my favorite chapters. Reading about the 1980s asset bubble. And you have a couple stats I want to share with you that came from your book. Japanese stocks in 1989 had doubled valuations compared to the S&P 500 in 1999 Internet bubble. And then Japanese real estate was worth four times the real estate in the entire US even though the US is 25 times the size. This is why any Time you show any type of bullish chart, people just come to you and say, now, now do Japan.
- [19:41]
B
Yes, right.
- [19:42]
A
And it's so ridiculous. But I thought you did a great job contextualizing it. Can you talk about that a bit?
- [19:48]
B
Yes. And it's funny because the Japanese culture is far more conservative than us. Like, it feels like we Americans are so just the American spirit. Like, we almost have to create a bubble for ourselves, like once every seven years. Like, it's just in our DNA. The Japanese culture had never been like that. So the fact that they did allow that to happen in the 80s, and it was not only a stock market bubble, probably the biggest one we've ever seen, but it was a real estate bubble. Like their real estate on an inflation adjusted basis is still below 1989 levels today. That's how crazy things got. And there aren't many history books written about it. That's why I really wanted to cover that in depth, because people always say, like, how could you have a situation where a stock market is underwater for three plus decades? Like, how is that even possible? So I wanted to show how compressed those returns were into the short period and how crazy it got. Crazier than anything we've ever had here, obviously. And the offset offshoot of it is like, Japan got to be 45% of the global stock market in 1989 at the peak, bigger than the US stock market. Even with Japan being that big, if you would invest it in the entire globe, right, Inclusive of Japan's in there, you would have gotten like 9% per year. Even with Japan going from 45% of the index to 5. And the reason for that is because other countries grew, right? The UN United States got bigger, emerging markets got bigger. China, all these other countries, South Korea. And so the point of that chapter, I think the big takeaway is like, if you do have all of your eggs in this one basket, whether it's a single strategy or a single country, like, you could potentially, if things get taken too far, have a really painful experience if you're not having other investments to sort of, you know, spread the wealth.
- [21:23]
A
So it makes me think of, in today's market, South Korea, because everyone is getting into South Korean stocks. The South Korean ETF EW Y has been one of the hottest investments the last couple of years. I don't think, though, we, we, we don't have the structure in markets to replicate Japan. Is that right? Like, what we saw back then.
- [21:46]
B
It does seem like it would be harder today. I mean, if it could happen Anywhere, I guess it would be here. But again, we have a much more diverse economy. Right. The stock market is more diverse. You mentioned Korea. Like people think that the US is concentrated because we have the MAG7 make up 35% of the index or whatever. In Korea, two companies now make up more than 50% of the index and they're obviously AI plays. The South Korean stock market is now bigger than the stock market in the UK and Canada. And this happened like all in the last year, essentially. You're right, it's like one of those hockey sticks that just goes straight up in the air because those two big companies are an AI play. But I think that's the other thing about diversification is you don't know where those winners are going to come from. Right. And so no one was predicting two or three years ago that South Korea is going to be riding the coattails of this AI boom and it's going to be one of the biggest beneficiaries. So I don't look at diversification just as a risk management play to like spread your bets. It's also, I think an aggressive play in that casting a wider net opens you up to those, those winners that you might not expect in advance.
- [22:48]
A
It's such a good way to think about it because I think you had one chart in there that compared in your book, like South Africa returns against like Japan and the US and Canada, you know, all these different stock markets. And when I saw it, there were a lot of surprising ups and downs and that. And I don't have the numbers off top of my head. But just looking at that diversifying on a country level basis I think is really interesting and certainly not something that I personally do or a lot of my friends are doing. Probably worth a note though, when you think about everything you covered in your book, what stands out to you as your favorite, like takeaways?
- [23:26]
B
Yeah, I think the biggest thing to me is that like you have to define yourself, you have to understand yourself as an investor. So like the two biggest things every investor needs to grapple with is their risk profile and their time horizon. And I think the time horizon to me is the biggest one, like defining that before you go into any investment. How long am I going to be holding this for? Right. I think that defines a lot of. It can take away a lot of pain and angst and guessing in terms of like, is this a three month hold period and I'm hoping to just get a quick profit or is this something I'm holding for 7, 10 plus years? I think that can kind of, you know, color the way that you think about these things. And so I think, yeah, that time horizon is the big one. And just I don't think that there's like a one specific way for everyone to invest because I think a lot of it is personal to you. Your personality, your emotional makeup. That's why the behavior piece is so big. So I think, I say in one of the last chapters that like, a good investment strategy that you can stick with is way better than a perfect strategy you can't stick with. And I think some people try to optimize too much. And I think that's going to be another problem with AI is people are going to try to pull all the strings to optimize things perfectly. And I think that often perfect is the enemy of good when trying to create a strategy because if you can't stick with it, it doesn't matter how good it looks on paper.
- [24:36]
A
Yeah. And you had this one quote in the book, the secret to investing is that there is no secret. And I think this explains exactly that. If you're 25 and super high tolerance for risk, you can have a way different portfolio than if you're 55 and you're more conservative. And, and I think if you look to books as the thing that's going to give you like, here's how to build your portfolio. Exactly. You're probably looking for the wrong things.
- [25:04]
B
Yeah. My whole point is that like, and we say this in our wealth management business, we can't give you investment advice if we don't understand your goals and your circumstances and what you're trying to get out of it. Right. You can't just give blanket investment advice to people because you don't know what their time horizon is. You don't know when they need to spend the money. So it's hard to give that advice to everyone at once. And that's why it has to be a little more high level and it can't be so specific and detailed.
- [25:29]
A
Ben, what was your writing process for this book? Were you doing a paragraph a day, a chapter a week? What did that look like?
- [25:36]
B
I mean, I feel like I've been thinking about these topics for 10 plus years now through my blog. So I kind of have all the research in place and I kind of had an idea. And the idea really was that risk and reward are attached to the hip and it's like a yin and yang. And so I tried to do every other chapter was like one chapter is like, here's the big Risk. And the next chapter is like, here's the context behind it. Here's the data. Here's the. Here's how you deal with those risks. And so I wanted it to be like that, where it's kind of more of an evergreen idea. And my publisher said this. My publisher told me, he said, you know, whenever this book comes out, it's going to make sense, because you look at both sides of the coin, and there's always something to worry about in the markets. Right? And that's the point of looking at history. It doesn't show you exactly the blueprint for investing in the future. It just shows you that the past is often surprising and often uncomfortable, but also sometimes surprising to the upside, like we're doing now. Right? So I think that's the point of understanding history. If you haven't lived through some of those different periods, I think learning about what's happened historically is a good way to understand that the human element, human nature, behavior, that's like the one constant.
- [26:41]
A
Now that you say that out loud, that the chapters were alternating between risk and reward. Now I can see it in my head how. Because it reads very well and very smoothly, and it was so, frankly, such a good book that I didn't even notice maybe the implicit pattern of it. But, yeah, you did a really good job. And, Ben, where can people find more of your work online?
- [27:05]
B
Yeah, WealthOfCommonsense.com is my newsletter. You can sign up with your email there. Books available now, anywhere you can find it. Actually, I read the audiobook myself this time for the first time, which was an interesting experience.
- [27:17]
A
Why was it interesting?
- [27:19]
B
It's. It's hard. It's harder than I thought it would be just to sit there for two days in a studio and read and. And really get a good, you know, a good pattern. They asked me, do you want just to have some British guy read it for you with an accent? And I first, I said, yes, but then I said, you know, I do a podcast. I'm on YouTube. I should be doing this myself. And I did it, and it was kind of a challenge, and then. But then I got into a rhythm and I figured it out, and I felt like it was. It was kind of fun to do.
- [27:43]
A
I love that. All right, Ben. Risk and Reward. Fantastic book. Everyone should definitely go check it out. And we're going to have to do this again soon. Thank you for coming on the show.
- [27:53]
B
Thanks for having me.