You’ve heard it before, especially if you regularly read or listen to The Best Interest: Stocks are volatile in the short run and rewarding in the long run Bonds are less volatile (good) but less rewarding (bad) It’s a perfect example of investing’s golden relationship between risk and reward. The two charts we’ll look at today wonderfully present stock and bond behavior. First, let’s baseline ourselves in bonds. The chart below shows bond data (the Bloomberg U.S. Aggregate bond index) from 1976 through 2022. The gray bars show full calendar year returns in the bond index. The red dots, howe ..read more

Last week provided a terrific, real-life stock market lesson. Let’s dive in. First, Some Context… Let’s zoom out to 2023 as a whole. The market was up 9% in January Then down 8% the next 6 weeks Then steadily up from mid-March through the end of July – up 20% on the year Leading into a recent 3 months of pain – down 10.3% from July 31 through October 27 Why has the market dropped over the past 3 months? It’s strange logic, but it makes sense if we tease it out. We all know inflation reared its head in 2022, causing the Federal Reserve to raise interest rates faster than ever. Higher rates ..read more

I read Going Infinite last week, Michael Lewis’s recent book about Sam Bankman-Fried (SBF), and the ~$10 billion fraud/downfall of Bankman-Fried’s cryptocurrency exchange, FTX. I found the book totally worthwhile and hard to put down. This week, I’ve been catching up on SBF’s trial via the Judging Sam podcast, below. There are many crazy parts of this story and many lessons to be learned. One lesson deals with a hypothetical coin flip. Economist Tyler Cowen once asked Sam: Let’s say there’s a game: 51%, you double the Earth; 49%, it all disappears. Would you play that game? And would you kee ..read more

How much time is needed for stocks to outperform bonds? A stock portfolio is like fine wine. But not in the way you think. I mean…sure, “it gets better with age.” That’s the low-hanging fruit (get it?). I won’t deny that truth. But what’s more important – and what we should focus on – is that stocks are like wine because premature expectations can lead to nasty results. Friend-of-the-blog Matt (who owns a wine store in Rochester), shared some wisdom with me. For some wines and champagnes (and bourbons, and other liquors) waiting years-to-decades is a prerequisite of palatability. Opening that ..read more

This recent episode of Freakonomics shares an important lesson:  People tend to think of tragedies and failures as single moments of failure. But that’s wrong. Instead, we must realize that every failure is a chain of events. There are multiple inputs into a failure. Thus, a “failure chain” can be interrupted or diverted at many different points. As an example, Amy Edmundson of Harvard Business School writes of drug dosing failures at hospitals: “The natural tendency is just to look at what they call in hospitals ‘the sharp end,’ or at the last person, the person at the bedside who ad ..read more

In 1790, the US census counted 4 million Americans. 90% of them lived on farms. Granted, not all of them worked the farm, but you get the gist: agriculture was huge! Food was so hard to produce that only 10% of the population could afford not to be involved in agriculture. Today, only 1.3% of the American workforce participates in farming. Look at the chart below. It’s amazing. Farming productivity and total output have increased incredibly over the past 70 years despite inputs staying steady and labor & land use dropping precipitously. This change has been hugely beneficial for both Amer ..read more

After teaching my “Saving and Investing 101” class at the University of Rochester yesterday, two undergraduate students ask me personal investing questions: “How should I invest the money in my Roth IRA?” “My portfolio is currently in 7 stocks, all tech stocks. My dad thinks I should diversify. Should I? And how do I do that?” I bet you’ve had similar questions before. Investing is a confusing topic. Thankfully, many personal investing questions have a similar answer. So whenever anyone asks me for specific investing advice, I go over the following ideas. It’s About *You* Giving personalize ..read more

Friend-of-the-blog Mary and I had a wonderful conversation this week about an important – but depressing – topic: Everyone should get their sh** together in case they get hit by a bus. Seriously. It might not be a bus. But you never know when death will come knocking. Don’t worry. He walked away and “went to a pub.” Seriously! The last thing you want – other than getting hit by that bus – is to leave your loved ones with a mess after you go. Such a mess can take many forms. Financial. Logistical. Legal. But it can all be avoided with a “Life File.” Some call it a “death binder.” Or perhaps a ..read more

I suspect I might write a few articles in the coming weeks inspired by our recent trip to Ireland.  Kelly and I in Dingle Harbor The Cliffs of Moher Ladies’ View, in Killarney National Park First, let’s discuss the main benefit of traveling: observing the way other people and other cultures choose to live. These cultural observations are an amazing way to learn. Sometimes you think, “What a great idea! We should be living more like this.” And other times, you count your lucky stars that you were born where you were, when you were. You realize things you’ve been missing your whole ..read more

Warren Buffett turned 93 years old last week, so friend-of-the-blog Kyle wrote in: Could be an interesting article to reference and break down his most memorable pieces of advice Kyle Call Me Stan…for Buffett Did you know that stan is a slang term for “an overzealous or obsessive fan of a particular celebrity.” Apparently, the etymology is “half stalker, half fan,” and a reference to this (very R-rated) Eminem song, “Stan.” I’m certainly a zealous Buffett fan. The word “Buffett” appears in 45 unique articles on The Best Interest. This is article #46. Call me Stan. Yes – Buffett and Emin ..read more