The Next Time Will Be the Worst
Spring! It is here, and bon voyage (hopefully) to the freezing cold for the foreseeable. The lighter mornings and evenings definitely give me that extra spring in my step, and I’m sure I’m not alone.
Well done to those of you who spotted the intentional typo in my last newsletter. That can be our little test of authenticity, team. If this newsletter is strewn with grammatical errors and the odd typo, you know it's the real deal. If the prose is flawless and the spelling would have received a 10/10 from my old English teacher, then tread with caution – I have been compromised by AI.
Needless to say thatz not the case hearrr.
Sorry. I would say the humour gets better, but it probably won’t.
The Next Time Will Be the Worst
I’ve written quite a bit in the past about the media hysterics when the market occasionally and completely expectedly experiences one of its temporary falls. It is the way of things.
However, it has occurred to me recently that we are in for a real cracker the next time that this happens.
The way the media works has changed. Rather than competition between media outlets being driven by the sharpest release, wittiest prose, and the undercover scoop, much of the agenda these days is instead driven by sensationalism. ‘The loudest headline earns the most clicks’, in other words. And clicks of course, is where the money is. Clicks mean eyeballs, and eyeballs mean advertising revenue.
So perhaps, and this is just me thinking out loud, but the next time the market experiences a temporary decline – for they all have been temporary, to date – I wonder if the coverage at that point will become so berserk and outlandish that it will make the previous headlines look almost sanguine.
Perhaps, or perhaps not. Regardless, the fundamentals of successful investing will not change. No matter how hard it is, such predictions are to be avoided and disregarded.
Stay the course and be rewarded.
The Power of Compounding
Doing what I do, I am confronted with the power of compounding on a daily basis. I have seen people who make it work for themselves (investments) and of course there are others who make it work against themselves (overloaded with debt).
This phenomenon affects every area of life, most notably health, fitness, career and relationships. Our minds, being linear thinking machines, find it very difficult to grasp the true power of what compounding can lead to in our lives. The tragedy for those who don't follow the two steps that compounding requires is that their lives are robbed of unimaginable progress.
While most of us overestimate what can be achieved in the short term, we routinely underestimate what can be achieved in the long term.
The Two Magic Ingredients
Compound interest is nothing more than earning interest on interest. In year two, it may seem insignificant, but given enough time, the numbers become substantial. Think of it as a snowball that slowly grows into an avalanche.
Generating compounding returns in all areas of our lives is not a formality. You will no doubt be able to think of a few people whose lives seem to plod along linearly while others are leaping forward. Being on the right side of this divide is simple but not easy, requiring you to follow two steps.
The first step that compounding demands is time. This is a challenge for those who are impatient and those who start later than they could have. It's the reason I encourage people to start saving from their first paycheck and why your oldest friends are probably your best friends. It's also why today is the best day for starting anything new in your life.
However, compounding only comes into play after you start. The second demand of the equation is work. It only compounds what you put in. For financial compounding, you have to make the contributions repeatedly. For health compounding, you must make the healthy choice today and again tomorrow. For fitness compounding, will you do the exercise tomorrow when you don't feel like it? So on and so on.
Every area of our lives can be significantly stronger in one to two years, but only if we understand what needs to be done and commit to doing it. If someone works on a particular area of their life for a decade their previous situation will likely be almost unrecognisable.
The idea of becoming 1% better every day has been popularised by James Clear in his excellent book "Atomic Habits". There’s a great line in there:
"Every action you take is a vote for the person you wish to become."
On a similar vein, one video I have always really enjoyed is Will Smith discussing his work ethic and his philosophy regarding the separation of talent and skill. This will be essential viewing for the young ones when they’re old enough.
Although, of course, by that time their natural reaction will be “Dad, who is Will Smith?” Yikes.
Norway – Doing Things Right
I love reading about the Norwegian Wealth Fund. Aside from the sheer scale of the wealth amassed there – it is the world’s largest single investor and owns 1.5% of all stocks in the world – it just does things right.
Specifically, around 70% of its asset allocation is towards equities, the great companies of the world.
It uses low-cost systematic investing rather than expensive underperforming storytellers, the same philosophy that we espouse.
It’s basically just run extremely well. Since the initial investment of approx. $175m in 1990 we now have a value of $1.78 trillion, and growing. Each Norwegian citizen has a share – just under $320,000 of value.
Incredible.
Optimism Prism
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Recommendations
Ladies and gentlemen, do I have a recommendation for you today… Have a feast on this. Now, I’m not going to have pretended to understand it all, but it is fascinating all the same. The Twin Paradox has always caught my attention, with its unnatural feeling, and the Block Universe concept is right up there as well.
