Venture capital is, of course, its own thing in the financial world. When it comes to nearly every retail investor, however, I believe in a relatively simple, straightforward, nearly foolproof strategy.
That approach, in a nutshell, is to put your money in a broad, passively managed stock market index fund with a low expense ratio and leave it there for many years. Set up automatic investments to add money to your brokerage account over time. Ignore the ups and downs of the market.
You will beat almost all the human money managers if you have enough discipline to stick to this approach (and the few active managers who do achieve better returns than the market, regardless of what their marketing materials tell you, will mostly have pure luck to thank). Money managers have their place — a lot of people wouldn’t invest for retirement at all without them — and you can’t really blame a professional too much for hawking the services he or she has on offer in order to keep the lights on and to feed their family.
Yet, for those of us who are way too online, there has arisen an increasingly annoying chorus of “super money manager” media personalities who don’t know any more about what’s going to happen in the stock market than anyone else who has put in the time to become fairly educated on the subject. I grow tired of swiping past headlines about some supposedly “legendary” investor predicting a cataclysmic stock market collapse.
These people are wrong again, and again, and again, yet the internet keeps churning out articles repeating their consistently incorrect predictions. I suspect this is because a headline which warns of impending doom is always going to get more clicks than something which announces everything remains fine.
If you are reading this column, I imagine you probably have experience of your own with articles about the “legendary investor” Jeremy Grantham as tracking algorithms follow you around the internet. The first time I saw one of these articles, I wondered who Jeremy Grantham was, and if he was so legendary why someone who writes about the intersection of the legal and finance industries hadn’t heard of him. I guess I don’t watch enough cable news.
Late in 2021, Grantham told CNBC that U.S. equities were in a “magnificent bubble” even larger than the bubbles in 1929 and 2000. In an article published November 3, 2021, a reporter did note that despite the apocalyptic headline, “the market has surged further since Grantham’s comments.” The stock market hit an all-time high in January 2022.
Over the course of the whole calendar year, 2022 was indeed a down year for the stock market. Yet, stocks didn’t take anything like the beatings they did in 1929 and 2000. In fact, the stock market has down years fairly frequently, and as down years go, 2022 was a fairly unremarkable one. As of July 2022, Grantham said the “superbubble” would continue to pop and that stocks could sink another 25% (they didn’t).
He kept it up, consistently, predicting, stock market catastrophe, throughout 2023. Except, whoops, 2023 was a great year for the stock market, with the S&P 500 up 24.23% (26.44% with dividends). On January 23, 2024, the S&P 500 hit yet another record high at closing.
I suppose if a person predicts market collapse all the time, eventually that person will be proven right. Sometimes there is a COVID pandemic, or a housing market implosion, or a 9/11.
But what use is that? You can’t base any decisions on an indefinite prediction with no time frame. Even if you could, you wouldn’t want to under these circumstances, because the data has consistently shown that the average investor is better off just leaving their portfolio alone and being sure to benefit from the upswing in a time of crisis rather than trying to catch a falling knife.
I don’t want to pick on Grantham. The guy could crush me with his wallet, so he must be doing something right, and though he’s a prominent example, he’s far from the only one making terrible predictions in this entire subgenre of “market savant says we are all f*cked” articles. Also, it’s probably lazy reporting that’s largely at fault.
Still, I hope nobody is actually making financial decisions based on these sorts of interviews and articles. They provide entertainment much more so than actionable information.
Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at [email protected].