We Have Got to Do Better Than This
Treussard & Friends: A Holiday Special
Before we get into the crux of things, I want to share a couple of recent collaborations. Not unlike the other JT out there, these works cut across formats: a written piece and a podcast. (Fine, referencing Justin Timberlake might date me… Then again, there is this recent piece of literature that’s making it all very du jour). What I particularly like about these two exchanges is that both of my conversation partners are forcing people to think more deeply and challenge the status quo.
Sahil Alvi-Khan of Neuron Investors in Dublin and I had a conversation about the global economy and markets as we near 2024. Sahil is not bullish, to put it mildly. I will let you read the full exchange here but this will give the tenor of Sahil’s thinking:
“To take a completely dispassionate and apolitical view, when (not if) my bearish view of the global economy and geo-politics starts to manifest itself, opportunities to create generational wealth will present themselves.
In other words, if investors have “dry powder” ready to be deployed, there will be phenomenal buying opportunities to generate returns over the medium-term. Returns that will handily beat any market index. That is playing offense when the rest of the investor community is playing defense.
That time is getting closer and closer.”
While it’s impossible to know what happens next, there is a lot of value in contemplating extreme scenarios. The bearish scenario that Sahil lays out is worth examining, as a form of pre-mortem. If you are comfortable with your portfolio as it stands in a world where Sahil’s scenario plays out, then great. If not, then it may teach you something about your own risk profile that is worth exploring. Kicking yourself after things have gone badly is not overly productive but road-testing your own thinking when things have gone very well indeed recently and there may be some complacency in the system can be among the most productive things you do. But we’ll get back to that below.
My other conversation was on Meb Faber’s podcast. The last time I was on Meb’s show was back in the Spring of 2020. This time, Meb suggested I bring a friend, to shake things up. I choose my friends well, because friends and family are the most important sources of joy in one’s life. In this case, Nic Johnson did me the honor of being my friend. Nic is a former NASA research fellow and former PIMCO Managing Director responsible for commodities strategies, which is how I got to know him.
Nic has moved on to an even bigger mission: reformer of the status quo in residential real estate. Nic started ListWise to help homeowners get better outcomes when they sell their house. I love anything aimed at fixing a large-scale societal glitch, aligning economic incentives, and helping reveal the quality of intermediaries (Tip of the hat to the late Charlie Munger who passed away this week. Charlie was known for one-liners chock-full of wisdom. One of my favorites: “Show me the incentives and I’ll show you the outcome”). But forget all of that: Meb, Nic, and I talked about what investing in commodities is about, TIPS as the reference risk-free asset, people’s “monogamous relationship with US stocks,” and yes, the concept of pre-mortems in investing. I really hope you’ll listen. It was a fun one to record and you’ll enjoy it.
We Have Got to Do Better than This. I’m Willing to Help.
After we recorded the podcast, Nic forwarded to me a review article that just came out in the Journal of Economic Perspectives (Lusardi and Mitchell, Volume 37, Number 4—Fall 2023—Pages 137–154) on the topic of financial literacy. His point was simple: this is important stuff.
Financial literacy is a baseline amount of understanding around money concepts. Think of the difference between being literate (being able to read) and being illiterate (not being able to read). We’re not talking about whether you can discuss the writings of Albert Camus. We’re talking about whether you can read dosage instructions on your kids’ cold medication. Without basic literacy, the world gets real dangerous real fast, for you and for those you care about the most. Financial literacy is the same. It’s not about whether you can do what a Doctorate in Economics and a career’s worth of experience has taught me how to do for Treussard Capital Management clients. It’s about whether you have enough base knowledge to operate successfully in a world that is very unkind to people who are not financially literate. Things like getting “The Big Three” right (Spoiler Alert: Only 43% of respondents answered all questions correctly in a serious survey from 2019).
One question 1 and 2 each, roughly 80% get it right, 20% get it wrong. On question 3, something else happens, which is almost more troubling. A large fraction of respondents goes with “Do not know” or “Refuse to answer.” Think about that. Getting this stuff wrong is not great, but it’s not surrender. It’s being in the ring. Saying “I don’t know” is honest (which is unequivocally good) but deflating (which is less good). Refusing to answer is the nuclear option: it’s just opting out, like “this stuff is not for me, sorry.”
You may think I am being sensitive or maybe I’m exaggerating the importance of basic knowledge and empowerment around these concepts. After all, I am obsessed with this stuff. That is why I do what I do. And that’s a fair point. But you know what else I am obsessed with? The answer is simple: My kids. I am obsessed with my two smart, funny, and powerful daughters. They’re turning 12 and I literally cannot wait to see the impact my kids will have on the world over their lifetimes. Now that you know what I’m really obsessed with, let’s look at some more granular data.
OK, if you are screaming into a pillow (or just screaming out in the open), I don’t blame you. I’m still screaming. Here is Lusardi and Mitchell putting these figures into context:
“Overall, only 29 percent of women answer all three questions correctly, versus 48 percent of men. This gender difference is remarkably stable across topics (Yakoboski, Lusardi, and Hasler 2022). It is also strikingly stable across the 140 countries examined by Klapper and Lusardi (2020). The percentage of those who refuse to answer is normally very small, but as Panel B of Figure 1 shows, women are much more likely than men to respond that they do not know the answer to at least one financial literacy question, especially the one about risk diversification. Such gender differences are likely to be the result of lack of self-confidence, in addition to lack of knowledge (Bucher-Koenen et al. 2021)” [Emphasis added].
My daughters, your daughters, lacking confidence and knowledge. No thank you. I’m not signing up for that. I suspect you’re not either. So here is what I propose: If you have someone in your life – a kid, a grandkid, an adult (girl or boy, for that matter) – who you think deserves better, just reach out (jonathan@treussard.com). I will spend time with them and I will help them “get” some of the basic concepts they need to feel more confident, knowledgeable, and empowered. I hope you take me up on it. I kind of think the future depends on it. In the meantime, I told you, Nic is a rare type of guy to know. I rest my case, and I hope you’ll listen to the podcast.
Treussard Capital Management LLC is a registered investment adviser. This document contains a conversation that includes observations and opinions from various individuals, including those not affiliated with Treussard Capital Management LLC. Statements made by individuals in the conversation do not represent the views or policies of Treussard Capital Management LLC unless explicitly stated. The information provided in this conversation is for educational and informational purposes only and does not constitute an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. Treussard Capital Management LLC is not responsible for the accuracy or completeness of the information shared by individuals outside of its organization. Treussard Capital Management LLC is not liable for any direct or indirect losses resulting from reliance on the information presented in this conversation. Please visit www.treussard.com for more information about Treussard Capital Management and for important disclosures. And subscribe to our newsletter here: www.treussard.com/subscribe.