In the 1990s investing was simple – put your money into some bonds and enjoy your interest income. Today that doesn’t work anymore – there is no more interest income, thanks to the Zero Interest Rate Policy passed by the central planners. So what can you do? Can you rely on the Stock Market to keep keep rising? I explain why you can’t.
In this video I talk about the investing landscape today, Black Swan events,and how you can protect yourself by thinking differently.
In this video, you will hear about:
- Why investing today is not the same as it was in the 1990s
- >How the Zero Interest Rate Policy changed investing
- Why stocks are at an all-time high now, and why you shouldn’t be raving about that
- How Black Swan events can make 50% of your investments disappear overnight
- What you need to learn to protect yourself
Items mentioned in this video:
- ZIRP – zero interest rate policy
- Alan Watts video – What if money was no object?
- Linchpin by Seth Godin
- The Black Swan by Nassim N. Taleb
- My Trend Commandments book
- Trend Following with Michael Covel – my podcast
- Subscribe to the Trend Following newsletter
In the next video I will expand on these concepts and talk about the Holy Grails and the Urban Legends of investing. Stay tuned!
In the meantime, subscribe to my podcast (over 1 million downloads!) and join the 12,000 Trend Following newsletter subscribers – links above.
[toggle Title=”View full transcript”]As I talk about the zero interest rate policy, let me tell a personal story. In the mid 1990s, my grandfather got Alzheimer, he was in his late 70s. I remember being at their house, and he was sitting on the other side of the room, and he frankly wasn’t sure what was going on. My grandmother came to me and she said, Michael, what does this mean? I looked at it and it was a banking statement. I immediately thought, “Oh wow!”. I realized that my grandparents had a bit more wealth than anybody in my family thought. And her portfolio was mostly municipal bonds. And she was generating, I believe, 6.7% in interest income.
If you’re under 30 today, can you imagine having cash in the bank and earning 6.7% interest on your cash? You don’t even know what interest income is! The central planners have taken it away from you. So I look at my parents – they did all the right things, they saved their money. My grandfather saved money for his wife – and she is still alive today, she’s 97, still living off this money. But she is no longer using the principle to live off.
So how did we get to a point where there are no more interest rates, no more interest income? We got to that point because in the fall of 2008 the major banks were insolvent – by any known accounting standards, they did not exist. And the powers to be panicked, they said, “We have to give these banks a way to recapitalize, we have to give them a way to get started again”. Even though it was all inside baseball, people working at Golden Sachs and the treasury. Bear Stearns goes under, Lehman Brothers goes under, but then it comes to Golden Sachs. Warren Buffet calls the president, and says: “Uh-huh, we’re not letting Golden Sachs go under”.
BOOM. ZIRP in all of its glory, followed by multiple QE policies, all unfold. These were designed with one thing in mind – to push the stock market up, with the belief being that people will feel wealthier, and they will spend more money, and the economy will recover. That’s the logic. That’s how the idea of no interest rates has unfolded. Twice in the last 13 years, the S&P dropped 50%. Black Swan events – unexpected, large magnitude events, come along, and the S&P drops 50%.
Do you think that will happen again? Do you trust the central planners to take care of you? Do you trust that the central planners have eliminated any idea that the Black Swan will hit again? Stocks are at an all-time high. Look, they were at an all-time high in the years 2000, and 2007. So the question comes, do you want to trust the buy & hold strategy? Do you think it will work for you in your retirement? I will offer that it’s a terrible strategy. I will offer that there’s a very good chance that the Black Swan is lurking around the corner, and it will land, and cause at least 50% of your net worth to disappear.
So what can you do? What kind of strategy, what kind of different approach can you use? Other than just trusting the planners, trusting buy & hold, and then panicking and doing something crazy like buying lots of gold, what else can you do? In my world, I write about trend following trading. Even if you don’t know about it, you HAVE to know about it.
What I want to end with today, is a list of places you can go to get started.
First, I want you to watch this video by Alan Watts – Eastern philosopher, brilliant – all about making money, but in a good way. Number two – Linchpin by Seth Godin. This is the age of taking responsibility. Number three: The Black Swan by Nassim Taleb. You must understand how these large, unexpected events just roll in much sooner than every 100 years. This isn’t this “100 year flood” stuff, this is every 1, 3, 5 years. something happens.
Lastly, I want you to go and subscribe to my podcast – Trend Following. I’ve had over one million listens since inception in early 2012. It’s an underground hit where people can listen to experts you don’t normally see on CNBC and CNN. This is an attitude in understanding, where you start to make money. Go check out those free resources, and check out my next video, where I will elaborate on these concepts, expand on everything I have talked about today.