What You Can Learn From The Oldest Living Person

Don’t Believe the Hype

At 118 years old, Kane Tanaka is the world’s oldest living person. Born in Japan, Tanaka was alive when the Wright Brothers first took flight at Kitty Hawk in 1903, and when the Ingenuity helicopter flew across the surface of Mars earlier this month.

The far-reaching progress made during Tanaka’s lifetime has spread to nearly every sector and industry of the economy, as humans continue to out innovate last year’s advancements.

But for every monumental success, there are countless failures that receive far less attention. Never has this been truer than in investing. For every Apple, Amazon, or Alphabet, there are hundreds of Nokias, Netscapes, and Yahoo.coms.

This dynamic, coupled with greed, helps foster the idea that the next great company is just around the corner waiting for your investment. But with the recent boom in SPAC IPOs, it’s important that investors remain as vigilant and skeptical as ever.

In the past year, many pre-revenue businesses have gone public with lofty profit targets and far-fetched 2026 revenue projections that have little chance of being met.

These pie-in-the-sky projections have gone on to support multi-billion-dollar IPO debuts, which hook in countless investors searching for the next big thing.

But once the company goes public, investor focus shifts from projections to results, and that’s when reality sets in. After just a few months of being public, multiple SPAC IPO companies that sold investors on the idea of explosive growth have either restated their financial statements, pivoted to a completely new business model, or replaced their entire leadership team.

Buyer beware.

Cryptocurrencies are another area of the investing world that have seen wild speculation in recent months.

The best example is Dogecoin, a cryptocurrency that was created as a joke in 2013. In April, this “joke” was up more than 8,000% year-to-date and worth more than Ford, the 117-year-old auto-manufacturer that sold more than 4 million vehicles last year.

For perspective, there are now more cryptocurrencies (6,816) than there are publicly listed US stocks (3,755)!

Often, these speculative bets end in failure, accompanied by a steady, sometimes swift decline in the stock price.

Sometimes, these speculative bets are wildly successful and even a small investment can turn into life-changing wealth.

There’s nothing wrong with speculative investing if it’s seen for what it really is: gambling.

But for the millions of new investors who discovered the stock market during the pandemic and are looking to get rich quick, this risky behavior is dangerous.

Many have already lost fortunes in a short period of time, and some will become disillusioned with investing as a whole, thinking that the stock market is rigged against them.

If you have FOMO and can’t shake the temptation to invest in speculative securities, it’s imperative that you don’t bet the farm. Avoid concentration risk through diversification.

While arguably less exciting than [insert most recent investment fad here], investing in stable, growing, blue-chip companies have time and again proven to be one of the most effective paths to building generational wealth and reaching your financial goals, while also affording you quality sleep at night.

Shares of Waste Management are up more than 18% year-to-date, Microsoft is growing its revenue and profits at an annual rate of 15%, and Costco just increased its dividend by 13%.

Invest in boring. Don’t believe the hype. Temper your expectations.

First Quarter Review

The first quarter of 2021 was strong for stocks, with the S&P 500 gaining 6% and hitting ten new record highs. The gains were mostly driven by cyclical stocks poised to benefit from a full reopening of the US economy. Energy companies led the way, with financials and industrials not far behind.

The gains came at the expense of high-growth technology stocks, as rising interest rates and the fear of decelerating growth (physical meeting > virtual Zoom meeting) overwhelmed valuations.

With more than 1 billion COVID-19 vaccines already administered around the world and half the US having received at least one dose, the economy is quickly reopening, and millions of Americans are beginning to return to work.

US consumers are on a strong footing and are spending at a rapid clip, with retail sales growth hitting a record in March. This firepower from the US consumer should have a long runway, as US households built up cash and paid off debts during the pandemic.

The much anticipated reopening dynamic has translated into pent-up demand being unleashed on everything from restaurants to airplane tickets and Airbnb reservations, and it will likely take more than a year for demand to moderate.

2021 US GDP growth estimates are nearing double digits, which if achieved would represent the fastest economic growth for the country since the 1950’s.

One corner of the economy that is showing no signs of letting up is the housing market, with many home sales metrics hitting new records. The boom can continue longer than most think, as tens of millions of millennials begin to transition to mortgage debt from student loan debt.

But rising demand for goods combined with supply chain imbalances have led to an increase in prices, most notably in semiconductors, lumber, gas, copper and even food.

The Federal Reserve expects this jump in inflation to be temporary, as the current extremes seen in supply and demand ultimately moderate.

Whether inflation lasts a few months or a few years, one asset class that is poised to benefit is stocks, as most businesses can raise prices to keep up with, if not outpace, inflation.

But a growing fear with rising inflation is the fear of persistent inflation, which could ultimately lead to hyper-inflation. This narrative has gained traction with skeptical investors who point to rising money supply and a growing US debt burden that is nearing its breaking point.

The solution? Buy something with a fixed supply that has historically been ascribed value to by investors, like bitcoin or gold. Bitcoin jumped 103% in the first quarter to a record $60,000.

As compelling as this narrative may be, consider these counterpoints.

1. Accelerating innovation in technology always lowers prices, and we’re on the verge of big advancements in the next decade (autonomous driving, artificial intelligence, robotics).
   

2. A bulk of the jump in M1 money supply over the past year was because of an accounting change made by the Fed under Regulation D during the height of the COVID pandemic, not due to the non-stop operation of money printing machines.
   

3. Academic studies have indicated that ageing populations due to an increase in longevity have put downward pressure on inflation. This is the situation most developed countries will be in for many decades to come.
   

4. While America’s debt burden continues to rise, today’s historically low interest rates means interest payments on that debt as a percentage of GDP is half what it was in the 1980’s and 1990’s. America’s debt burden is more manageable than many think.

Rather than hyper-inflation, there’s a strong case to be made for a deflationary environment.

Finally, even as pockets of the market were rife with speculation in the first quarter (GameStop short squeeze, SPAC IPO surge, Dogecoin melt-up), overall euphoria in the broader stock market has been almost non-existent.

Instead, many investors have been cautious, evidenced by the trillions of dollars of cash sitting in money market funds, as well as the never-ending headlines that stocks are in a bubble.

When everyone’s worried about a bubble, there usually isn’t one, as there remains a wide swath of people left to be won over by the market. Stocks climb a wall of worry and fall on a slope of hope.