Taylor Schulte

Skepticism and Investing

Published 2 months ago • 3 min read

Hi Reader,

Most of the time, the market's future feels uncertain.

This is especially true when the market hits new record highs, and investors debate how long the party will last.

As always, this debate is at least partially driven by media pundits seeking airtime by expressing skepticism.

Rather than arguing against negative outlooks, I believe this sort of constant skepticism is actually a good thing for our investments.

I'm sharing why I believe that in today's email.

But first:

  1. Click here to grab my "Investing During Election Years" 12-page PDF here.
  2. And then check out this weeks podcast episode on the topic.👇

🚨 Election Year Alert! 🚨

​Today on the podcast​, I'm sharing ~100 years of data to help retirement savers invest wisley during this election cycle.

Bull Markets Grow on Skepticism

Perhaps the easiest way to support my belief that skepticism is a good thing is to show that the opposite viewpoint (a feeling of certainty) is typically a bad sign for markets.

That's right, because here's what I believe history has repeatedly shown:

When investors are certain that more growth is sure to come the market is probably about to take a turn for the worse.

Let's look at a few examples of this theory at work.

In the late '90s and early 2000s, tech stocks were the sure path to wealth.

Profitability was an afterthought because the internet was changing everything, and their future was "guaranteed."

It wasn't long after that tech stocks imploded.

By the mid-2000s, investors moved on to real estate as the new path to wealth.

People were buying multiple houses—often with no cash down—thinking they could easily sell them for a quick profit.

Building wealth was so easy! (Or, should I say, certain.)

What followed was the biggest housing market collapse in our country's history.

In the latter half of 2020 and into 2021, "work-from-home stocks" and crypto were supposedly evidence that the world was changing again.

Profits were sure to come as Web 3.0 took over the world. 🥳

Instead, they crashed. 😥

We can see this same “certainty-followed-by-collapse” phenomenon throughout our history.

  • In the '70s, it was the Nifty-Fifty stocks.
  • In the '80s, it was oil stocks.
  • In the early '90s, it was biotech.

Or go back so far as 1929, when noted economist Irving Fisher said:

"…stock prices have reached what looks like a permanently high plateau."

(That sounds an awful lot like certainty to me.)

Of course, you know what happened next.

It's the same story over and over again.

The minute that people begin to believe that making money is easy is when things are about to get hard.

During each of these periods, skeptics were hard to find, which is one reason prices were bid up to the sky.

And when that happens, it only takes a slight shift in sentiment for the house of cards to come tumbling down.

So, you see, skepticism is a good thing because it's what keeps everything in balance.

Despite the value of skepticism, we're practically allergic to uncertainty because it feels painful, even if it's not.

And certainty feels pleasurable, even when it's often the chief culprit of pain.

It's one of many reasons that investing is so hard.

In Summary

I share all this with you today because we'll probably (hopefully?) continue to see skepticism in many forms as we continue into new all-time high territory.

It might be based on the supposed overvaluation of the "Magnificent Seven."

Or the Fed propping up the market.

Or the ever-present permabears predicting a dramatic collapse for some esoteric reason.

Or a host of other theories I won't bore you with today.

But as you hear from the skeptics, I hope you'll begin to view this skepticism as a unique form of encouragement as we proceed into the unknown.

While nothing is guaranteed (this is why we plan!), I believe that as long as there is skepticism, there is also hope.

As always, stay the course.

New Subscriber?

📖 Get caught up on past emails: Stay Wealthy Newsletter Archive

And then hit reply to this email with any questions.

I read and respond to every message. :)

Stay wealthy,

Taylor Schulte, CFP®

Taylor Schulte

Retirement and tax planning plain English.

I'm the host of the Stay Wealthy Retirement Show and founder of Define Financial, an award-winning retirement and tax planning firm. When I’m not helping people lower their tax bill, you can find me traveling with my wife and kids, searching for the next best carne asada burrito, or trying to master Adam Scott’s golf swing.

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