Fix It Friday - Federal Reserve Chairs: Not Market Oracles — Valuation is Never a Reliable Timing Tool

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A copy of Fusion's current written disclosure brochure discussing our advisory [00:00:15] services and fees is available upon request or at www.fusionfamilywealth.com.

when Alan [: 00:00:30

Was the stock market increased by about 25% a year with a historic run and the market, uh, when Greenspan made those comments, the s and p 500 was about 7 35. [00:01:00] And, uh, today stands at 6,600. So let's take that as a lesson. To tune out Fed chairs whose mandate is low unemployment and low inflation, and [00:01:15] they know nothing more than you or I about the future direction of the stock market.

you're just starting out. Or [: 00:01:30

And more to share fresh perspectives on making sound decisions that maximize your wealth. And now here's your host.

d welcome to another episode [: 00:02:00

Be, uh, very highly valued. Um, that hearkens back to a time in December of 96 when one of his predecessors, Alan Greenspan, uh, re referred to the market as, as being irrationally exuberant. [00:02:30] So let's explore that and let's see if, if, uh, the, the current fed chairs warnings about a high market indicate that investors ought to be considering reducing their exposure to stocks.

ome of the things we need to [: 00:02:45

One thing about the future, one, the defining characteristic about it is that there [00:03:15] are no facts about it. Somebody who's smart and well educated and smart sounding doesn't have one more fact about the future than either you or I. So it's important to remember that. The second thing to, to understand, we call, we call this also the [00:03:30] illusion of predictive value.

it will be. I call that the [: 00:03:45

An investor is going to see many recessions, bear markets, uh, terrorist attack type, uh, surprises. Um. One in a hundred year pandemics, things that, that, uh, that, uh, are [00:04:15] unexpected happen all the time. And so what we need to do is we need to realize all of those things fall into a category that I refer to as the noise and the signal is earnings.

that lead to the increase in [: 00:04:30

So the market is, is often at new highs In the, um, 1,188 month period since [00:05:00] 1926, the market was at an all time high. About a third of the time, 363 of those months were, were in an all time high. In just the last two years, in 2024, the market hit close to 60 [00:05:15] all time highs, and this year we hit close to 30 all time highs.

to to sell stock because it, [: 00:05:30

It's very important to [00:06:00] accept that truth because, because it is a truth. We're always looking for certainty and, and it's a human nature bias that we, that we, we can't fight. And, and, and it's, um, something called hindsight bias. We, we like to kind of know the past [00:06:15] and knowing the past makes us believe the illusion that somehow, because we know the past, the future will be more predictable.

nstant seeking of certainty, [: 00:06:30

Today it's 6,600. It stands 73 times higher. There were many, many, many all time highs since I was born. I, if I had, um, 10 friends in the room and you could use their fingers and toes to count 'em, you still [00:07:00] wouldn't be able to get to the number of all time highs in my lifetime. Uh, but, but the, the s and p went up 73 times, so a million invested dentist is 73 million and inflation is up 10 times to buy what a million bought back then.

million. My stocks [: 00:07:15

Uh, there, there were about, um, eight, eight or so bear markets, meaning the market went down 20% or more. There were, uh, probably a similar amount, eight or nine recessions. [00:07:45] And, and, um, and by the way, of the bear markets that, that I just mentioned, the eight or nine that occurred since my birthday, um, in nineteen seventy three, four, one of them caused the market to have [00:08:00] in 2000 to oh two, the market halved again.

And then in: 2008

What does one have to do to make 10% a year, I should say, have the high probability of achieving those kinds of returns? What they need to do is they, they need [00:08:45] to, um, buy their portfolio elect to reinvest in, in the dividends and not look at it and react to it. And that's all they needed to do. But most investors don't do that.

about new highs, they worry [: 00:09:00

Uh, so when I was born, the earnings for the SP were $5 in change. Today they're $230 through all of the events I just mentioned, and the bear [00:09:30] markets and the recessions, they went from five. And why do they do that? Because the companies that we buy are relentlessly responding to any kind of challenges rationally.

ey're gonna lay off workers, [: 00:09:45

Make sure that emotionally you understand what drives us to make these poor decisions and, and then financially be prepared by having two to three years living expenses outside of [00:10:15] stocks that protects you against what's called sequence of return risk. In other words, if you're investing for multi-decade and you're gonna make 10% a year, likely over the multi-decade period, we don't know what next year will be.

, uh, [: 00:10:30

So as long as we have two to three years living expenses, we protect against that [00:11:00] potential. And one word I'll say on the economy, uh, many big firms like to roll out their economists and tell you what the, the economy's about to do. They don't know any more than you know about what the economy's about to do.

ell you. I feel comfortable, [: 00:11:15

Fix it Friday. Look forward to seeing you next time. You can catch us. On, uh, [00:11:45] all of your favorite podcast venues, as well as the Crazy Wealthy podcast website and the fusion family wealth.com website.

into another episode of The [: 00:12:00

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