Preston Pysh 7:04
Yeah, I remember you addressing that last time. It was a fantastic point: if we could get the 6% on the 10-Year back then and go to a PE ratio way higher than where we are now… What was it, 35 back then?

Bill Miller 7:17
Well it depends. The S&P PE reached high levels in the late 1990s.

Preston Pysh 7:27
Bill, is this your way of saying that this recent pullback, this 10% pullback that we just saw, that was very abrupt, was a buying opportunity?

Bill Miller 7:35
I think any pullback in market history is a buying opportunity, in the sense that lower prices are generally better for long term investors than higher prices and higher valuations are.

However, this type of pullback, especially… I think you’d have to distinguish between technical, cyclical and secular declines in the market, or things that are caused by that.

This decline is just purely the fact that we had an extremely low volatility period. Then we also had 15 straight months of the market going higher. That made me vulnerable to I think any type of dislocation. So 8-10% decline in the market, you normally see that every 12 to 15 months. This one is perfectly reasonable, given the underlying conditions, I think, are very solid.

Valuations again, I think for the overall market, call it 17 times now and this pullback are not demanding when you look at where rates are.

Stig Brodersen 8:36
Recently, the White House announced this 1.5 trillion fiscal spending plan. Even though it’s not effective, as of today, the market still anticipates more growth and ensures higher rates.

What are your thoughts on the magnitude of this? Do you think that this goes to the narrative of an even higher bond sell off? How do you see this effect, if any?

Bill Miller 9:00
Well, if the supply and bonds are going to be… I’ll just say that the supply of government securities, so those bills and notes and bonds, are going to be considerably higher. Yeah, that, other things equal, would mean that the prices would be lower.

You also have this point that’s been raised especially by Ricardo Caballero at MIT that one of the things that precipitated the 2008 collapse was a shortage of safe assets. That ended when the Wall Street engineering wizards got around… If there weren’t enough Triple A assets they would create some.

I think there’s a lot of truth to that in the sense of, especially with the new liquidity requirements for banks and high quality asset requirements. There’s a lot of demand out there for what are perceived to be safe assets.

Other other things equal to *inaudible* and deficits would lead to higher bond yields and lower bond prices, but first of all, it’s always off. Then second, we have a surplus in January. Obviously, that’s going to be temporary, but I don’t think it’s going to be material to the overall supply demand picture.

What will be material to prices would be inflation rates.

Preston Pysh 10:11
You’re talking about how the banks in the US are well capitalized. A lot of the changes from the 2008 crisis really kind of made those assets a whole lot safer than they used to be.

However, when we look over to Europe, we see organizations like Bridgewater that has a fairly substantial short position on Italian banks in some other locations. Do you have as much concern as some of these other people that are putting their money where their mouth is and saying that and that these banks over in Italy and the rest of Europe are is risky as they think?

Bill Miller 10:43
I think it depends on the individual banks and the conditions in the individual countries. We actually have a position in Credit Suisse for the past year or so, because I think the CEO is doing a good job. They raise capital, *inaudible* capital issues. The strategy is sound. However it is a case by case basis. That certainly could be the case that there’s weakness. Deutsche Bank doesn’t act well in the overall market, for example.

Stig Brodersen 11:12
Let me just shift gears here a bit. We have people like Jeff Gundlach who we follow really closely here on the podcast. He’s talking about how commodities might be placed to be here in 2018 and onwards. He’s been very vocal about it. I’m curious what you think about that statement, but also how you see commodities in general.

Bill Miller 11:30
The commodity supercycle is over. I think that lasted as they tend to do over 5 to 10 years.

A global synchronized recovery demand for commodities will go higher. If you look at the CRB index, for example, it’s been rising. It bottomed I think in 2015. It has been kind of on an irregular path higher.

I wouldn’t disagree with commodities… You should catch a bid here. Again, it all depends on which commodity.

I think oil, for example, has probably seen a peak in the mid 60s. We got it lower than the 60s. You got the US shale production rising very rapidly right now, but I think each commodity has its own supply demand cycle.

Preston Pysh 12:18
Just so people understand your thought process, when you would think through investing in a commodity, it really just goes straight to supply demand. I know that Jim Rogers suggests that the best way to invest in commodities is to really understand global supply and demand. Would you agree with that?

Bill Miller 12:34
Yes, I think most investors in commodities and most traders in commodities are chart oriented and highly focused on the trends, short and intermediate term trends. I think that’s because the commodities tend to be extremely volatile. You can put a lot of leverage on if you want to.

[Therefore], getting the right side of those trends is important. However, at the end of the day, the price is set by supply and demand.

Preston Pysh 13:00
The last time we had you on the show, we asked you about a book you would have recommended and you suggested “The Reminiscences of a Stock Operator.” Having read that book,tThe approach is very similar to momentum investing and how you can be on the right side of a trend.

Similar to what you just described there with investing in commodities, I’m just curious how much of that type of approach you mix into your own investing approach? Because I know that you’re a very hard core value investing, deep value investing kind of guy, but do you use moving averages and those kinds of things to help manage the risk of maybe catching a falling knife?

Bill Miller 13:37
Well, yes, I would say also, with respect to the book, I think that it is a tremendously valuable book, but not because of the way in which Jesse Livermore necessarily invested or traded in the short run on a momentum basis.

More importantly, I think from the standpoint of market psychology and behavioral finance, those kinds of insights that are important.

Again, I think the most important thing in that entire book is his point about the big money he made in the big move. Most people aren’t really thinking about that. They’re thinking shorter term moves.

However, to get to the questions, my son who works with me, just got a CFA and CMT, chartered market technician designation. I think when we think about charts, or we think about momentum, what we think charts do is they help you visualize fundamentals and they help you visualize the supply demand balance at a price. I think that is valuable to take into consideration.

When we do use that, we don’t make investment decisions based purely on a chart pattern. It’s based on fundamentals, we use that supply demand, as evidenced in the charts to maybe help our timing from time to time.

Again, it also helps us to understand if the stock here or whatever we’re buying is consistently moving against us. We think the fundamentals are positive. We have to go back and take a look again at the fundamentals to make sure we haven’t made a mistake.

Stig Brodersen 15:14
That’s very interesting. I don’t know if it’s too much to ask, or if you would share this with our listeners, could you be more specific about which techniques to use? Do you, for instance, use moving averages?

Bill Miller 15:28
It’s a combination of moving averages. I tend to look at the 10-day, the 50-day, the 200-day to get a picture of that. What you know also is because other people tend to actually make decisions on moving averages. You can get a sense about where they’re coming in.

If you look at 10% corrections or corrections to the 200-day moving average, I think something around 80% of those things, going back 20 years, have gone through that 200-day and an undercut low before bouncing. But yes, we will look at that. Usually then if something like Bitcoin went through the 10-day, on the upside, and against that, because so many people are using that to time those, especially the crypto assets. That told us we’re probably going to see additional demand coming in.

Preston Pysh 16:23
The whole Bitcoin piece is just red hot with discussion on the media with everyone. You have been a person that I’ve read about in the news relating to crypto. I’m kind of curious to hear your position on this because we read about crypto back in 2015.

After I had read the book, I took a small position in crypto just because I just thought it was interesting. You have evidently also taken a position back in 2015 is what I read. This has been a tremendous position for you.

What originally got you interested in this? Then I would be curious to kind of hear your thoughts on the recent run up and run down in Bitcoin specifically.

Bill Miller 17:06
Sure. Well, I forget when I first became aware of this. It wasn’t in 2008 or 2009 when it was pennies on the dollar. There’s somewhere in that 2014, probably 2015 timeframe.

I then read Popper’s “Digital Gold,” which I thought was a useful picture and a history of it. Then I heard Wences Casares, who gave a talk on Bitcoin and I thought he was very convincing about it, in the sense of understanding what its potential could be under a set of circumstances.

Wences’ view was that you just don’t see this kind of technological development with this kind of potential come along very often. He thought it would be useful for people to put 1% of their liquid net worth in it and understand that anybody could have could afford to lose 1% of their net worth. I thought that was good advice then and I think it’s good advice now.

Bitcoin is unusual in that it’s much less risky now than it was 10 years ago or five years ago. Because the ecosystem has been building out, we’ve got a lot more… It’s a much more firm foundation than it was when it was a bunch of I’d say, libertarian, anti-Fed people and techno geeks, but I think it’s very early days.

As I told people when they tell me that I’ve been a Bitcoin believer, I’m not a Bitcoin believer. I’m not a Bitcoin evangelist. I’m not even a Bitcoin believer.

I am a Bitcoin observer, like my cornerstone observation is that Bitcoin is following a very classic path for disruptive innovations that have exceptional secular possibilities going back to the printing press, railroad boom, electricity, radio in the 20s. Rhen more recently, obviously, the internet boom.

I’m an investor in Bitcoin. I’m not a Bitcoin trader. And so, the decline for me was costly because I have a decent position in Bitcoin but to me, this is something I’ll pay attention to.

If something fundamentally happens that can halt or reverse Bitcoin, and that could be regulatory or it could be technological, or when it reaches a price that I think begins to discount the potential out there but I consider it right now probably. Just to go back to Nathaniel Popper’s book. The best thing I think of it is an uncorrelated store of value the way that gold is.

Stig Brodersen 19:53
What do you think the potential is for the market cap of something like Bitcoin? Is the mind cap comparable to gold?

Bill Miller 19:59
Gold is about 7.5 trillion or thereabouts.

A perfectly reasonable thing given the way technology penetrates and the way we see Bitcoin’s advantages over gold are, there is something in the $700 billion range. It would certainly be reasonable. It’s what? 10 times or 7 times where it is right now?

However, I certainly couldn’t rule out 100,000 a Bitcoin or even 500,000 Bitcoin, depending on how it evolves and how the use cases evolve.

The thing to remember about Bitcoin, and I think, if your listeners look up Brian Arthur on the internet and read some of his work on path dependence and lock-in in technology, but one of the points that Brian makes is that technologies, once they reach a certain level of penetration, superior technology really can’t do much about it. In the sense that you have inferior technologies all the time, going back to the QWERTY keyboard or a typewriter.

More recently, when the internet was getting going, people pointed out that the TCP IP protocol was a problematic thing.

Remember, Bill Gates said that the thing could develop a much better protocol than that in a much more effective way, but it didn’t matter because it already won. Same with a beta and VHS.

So the fact that Bitcoin has a lot of issues with it doesn’t mean that it won’t actually fulfill what many people think it could do.

Understand also that because it’s open source software, anything that the 51% community decides is something to have, then they can create it. Right now, one of the problems with Bitcoin is the speed of the transactions and the cost of transactions.

However, this new lightning network, which has been developed, looks like it will solve that problem. It’s a very complex area and having a strong view, one way or the other, is likely to make you biased when it comes to evaluating what’s happening.

Preston Pysh 22:07
Yeah, that’s a really important point. Your argument is really the network effects and the fact that once these network effects really kind of set in, you think that you’re still holding and you still think it has upside potential.

However, you’re holding those beliefs fairly loosely. You think that that’s probably one of the most important parts for somebody investing in this is that they don’t get too pulled in one way or the other and that they keep their mind open to the possibilities of how it could turn out.

Bill Miller 22:37
Yeah, absolutely. I’ve been kind of surprised at the… I’d say the strong views of people and very eminent people in the financial community. The very strong views they have about it. It doesn’t engage my emotions, quite the way it apparently does…Those other people, I’m trying to look at it dispassionately and critically.

Preston Pysh 23:02
Let me ask you this, because to hold because I mean, this might clear up the 20,000. We saw the price go down to I think it was 5000 or 6000 just recently. Now it’s back up to 10,000. This is like the wildest roller roller coaster ride ever.

How are you able to manage your emotions in this so well, because you said that it’s just down to the fundamentals. If the government changes their position on it, or from a technological standpoint, something changes, then you’d be a seller at that point. Though if not, you’re just going to continue to ride the wave, even though the wave is like, a five hurricane?

I’m kind of curious. The question is how do you manage your emotions through something like that?

Bill Miller 23:43
Maybe because I was dropped on my head when I was a baby. Kidding.

I don’t have that visceral reaction that many people do. I’ve always thought that lower prices made assets more attractive, other things equal. Higher prices made them less attractive.

Amazon went down over 95% in three years. They turned out fine. I think that the real question for me on this kind of stuff is Buffett has made a comment that with respect to stocks, and if you can’t stand to see your stocks drop 50%, peak to trough, then you probably shouldn’t be in *inaudible* stocks because they can do that. I think that’s the same thing with Bitcoin.

Bitcoin’s volatility has been greater for all kinds of different reasons. In Bitcoin, if you can’t stand to see a drop of 70-80%, then you probably shouldn’t be at the end.

I think most people that kind of trade these things trade them exactly wrong, which is they’ll buy them on a spike or they won’t buy it when the price is flat and going sideways for a while. They wait till it goes up and then they buy it. Then it probably goes higher because they don’t buy it at the exact top. Then when it drops below their purchase price, they sell it so they’re always buying high and selling low.

I think that, with respect to me, I have no ability to know exactly how much of the psychology on Bitcoin represents froth that needs to be corrected. When I get asked about the Bitcoin correction, how low it would go, my comment is it’ll go low enough to shake out all the people that don’t really understand what they’re doing or afraid of losing money. Once they’re gone, it’ll start back up again. That was apparently somewhere in the under 6000 range who did that and now it’s going up for a while.

It comes down to the fact that the investment. The reason that I bought it at my average cost was around $350. The reason I bought it then was based on the long term, right tail of that distribution. That hasn’t changed at all.

What changed? The price has changed a lot so the gains aren’t as great as they would have been if everybody got at $350, but this works. That $10,000 will be a perfectly acceptable price to get into.

Preston Pysh 25:52
For me the concern, I don’t know if it’s a concern or if it’s a good thing, but let’s say that Bitcoins are successful. Let’s just go down that path for a second and say five years from now, Bitcoin price is $50,000 to $100,000, per Bitcoin. This is global money at this point.

It’s global money that’s easily exchanged around the world and it’s a fixed monetary baseline. Do you see loans? Because I mean, at that point, everyone’s going to want to be using Bitcoin, especially if they could drop the transaction fees. I know that they’re promising with the lightning network, that that might be a possibility that these transaction fees go down. This is going to be a drastic change to economics around the world as we know it, because who’s going to want to use the dollar, if the central banks or the Euro are just printing?

You got supreme currency here, if this would actually happen. I don’t know what that would look like and I think that it’s going to be a drastic transformation that I think no one really can comprehend. If that is a true statement, I’m kind of curious to hear your thoughts on some of that.

Bill Miller 27:02
I think that it’s unlikely that Bitcoin would ever challenge any of the reserve currencies, precisely because it has a fixed supply of it and a fixed schedule by which it’s issued. It changes every four halves every four years.

Every other currency in the world has some form of deflationary aspect to it, in the sense of over a long period of time, and the Fed wants the dollar to depreciate by about 2% a year to have the inflation rate.

With Bitcoin having the exact opposite. What Bitcoin does, if it “works” as money, is it deflates hard assets, and it deflates anything that’s priced in its terms. If Bitcoin then again works the way the evangelists think, what happens as you hold it is the price of food, cars, houses, everything drops, relative to Bitcoin. It deflates all those other goods and services.

I think the problem with that is and it’s been pointed out by monetary theorists is that it kind of bakes into this behavioral paradox to where you could theoretically reach a point where nobody wants to sell their Bitcoin, right? So it just goes just hyperbolic or parabolic up. It then can’t be used for transactions, because no one wants to transact it.

Then at some point, what happens is it reverses and then it collapses. It has built into it much higher volatility than anything that usually would be thought of as money.

However, the idea that the volatility by itself makes it not money is ridiculous on its face, because you can look at the Venezuelan bulevar and see what’s happened to it. Also, in the 1920s of Zimbabwe… They’re extraordinarily evolved. They just happen to be collapsing all the time.

There was money and legal tender in those countries. There are efforts underway. I think the folks at the MIT cryptocurrency lab are trying to devise a coin. They call it trade coin, which can be an alternative to the reserve currencies and a better store of value.

However, I do think *inaudible* at Stanford said that Bitcoin can be a threat to the Venezuelan bulevar and these countries that have their own currencies that aren’t reserve currencies. Also, countries like Argentina where they’ve seized your assets. They’ve inflated you out of assets of banks. They’ve inflated you out over the decades.

I think at Davos, Bob Shiller pointed out that he was in Lithuania and the Lithuanians were bullish on Bitcoin. They said you talked to many of them whose families when Russia took over Lithuania, the government seized their bank accounts. They said that if you own stocks, then you were sent to Siberia. You were wiped out, which can’t happen if you get an internet connection or you have a phone with Wi Fi. You can move those Bitcoin assets quickly.

Stig Brodersen 30:22
Very interesting hearing a value investor talking about Bitcoin like that.

Bill, recently, you gave an incredible and generous donation to Johns Hopkins University of $75 million, specifically to the philosophy department. How has philosophy influenced your investment approach? Could you please elaborate on your thought process about philanthropy?

Bill Miller 30:49
Yeah, I didn’t go to business school. I don’t have that business school training. I think with philosophy, the great benefit to me of philosophy, in addition to enriching my life, are the analytical techniques and the critical reasoning skills.

Philosophical analysis are incredibly valuable in capital markets, especially when you think about most people in capital markets suffer from some kind of confirmation bias to where once they’ve made up their mind on something, then they weigh evidence and the way they look at things and feel like they have to defend is just a natural psychological tendency. Everybody does have that tendency, because everybody does.

However, I think if you spend several years in graduate school in philosophy, they pretty much knocked that out of you because that’s not the way that the reasoning process works in philosophy.

When you have people who have strong opinions on things, whether it’d be like Bitcoin or Amazon for so long, it typically means that these reasoning skills can probably provide some insight that can’t be provided elsewhere.

The Austrian philosopher Ludwig Wittgenstein talked many times about criss crossing the land in his philosophical investigations about criss crossing the landscape and looking at problems from many different perspectives and angles.

Then even more practically, I mentioned somewhere that, with respect to Bitcoin, I had gotten some insight from a book by a very eminent philosopher named John Searle. He’s out at Berkeley. He wrote a book called “The Construction of Social Reality.”

It deals with things like money, marriage, property rights. He considers those socially constructed. He contrasts those with things that he calls brute facts, which are facts that are true, no matter if they’re any people at all.

For example, the Earth is 93 million miles from the sun. Whereas, that doesn’t depend on people but monetary systems do. I learned in philosophy from studying William James, John Dewey and Charles Sanders Peirce that the true false dichotomy is not often very helpful.

I found Searle’s book whether what he said was anything he said in it which is true from a philosophical standpoint, he was very useful to me in understanding and illuminating Bitcoin.

William James talking… that’s what the American pragmatist has spoken as truth as usefulness. Then truth as part of a long term quest and not something which is externally sort of immaculately conceived.

Preston Pysh 33:34
With all that said, there are all these cognitive biases out there. I don’t know if you’ve ever seen this chart that The Visual Capitalist website put together, but they tried to list all these different cognitive biases. It was a really cool chart. In fact, we’ll throw it in the show notes of this interview so people can look at it.

Bill, I’m curious, you’ve been around new investors. We got so many listeners of the show that are fresh out of college or they just completed an MBA. What cognitive bias do you think tricks a lot of new investors the most?

Bill Miller 34:04
Well, first of all, all of them trick investors. eEverybody is subject to them to one degree or another. The two that I think probably combined to create the most problem are the recency bias and myopic loss aversion.

What happens with people in recency bias is people overweight the most recent information. A lot of times that information is price action, not fundamentals. But even when it is fundamentals, they’ll tend to overweight it if it’s negative or positive, for that matter. So you get extremes on both sides.

Then the loss aversion kicks in because the coefficient of loss for most people is two to one. They have to have twice as many gains to offset a certain level of loss. More importantly, they feel the pain of a loss twice. Losses are twice as painful as the same amount of gains.

You then put those two things together and it causes people to overreact dramatically to declining prices, especially if they’re apparently fundamentally driven. You see that over and over and over again.

There’s a study done of credit default swaps after the financial crisis, because that was what people were keying in on is how risky were bonds. What were the credit default swaps selling out? What was the implied probability of the bond going under?

Then after the whole thing was over and the markets had recovered, the academics looked at it, and the credit default swaps had almost no predictive power with respect to defaults. They overestimated the defaults radically, because we were in a financial crisis. When the financial crisis ended, then those probabilities completely reversed.

I think that the most important message that I could tell investors, new investors, especially, is that the economy grows most of the time. Stocks go up most of the time. The risk to people’s financial wealth long term is not the drawdowns that you get during the occasional correction, or even the recession or even a financial crisis. It’s being underinvested systematically in equities, during the periods when the market is going up, which is most of the time.

Stocks have gone up 75% of the time, 75% of the years, since 1950. The economy has grown 77% of the years since 1950. If you had a probability of doing well 75% of the time, you had a casino that had a 75% edge, you wouldn’t be worried too much about the few times that you lost.

However, people are obsessively concerned because of recency bias and loss aversion with those losses that they take during three months, six months, a year or even two years.

Preston Pysh 36:51
So let me ask you this, do you feel that a person who’s trying to protect against systematic risk, meaning the whole credit cycle kind of evolves and starts to crash? Do you think a person is trying to protect against that?

Is that a fool’s game or is that something that you can actually hedging against by using moving averages or some other metric that you think would be important like, or when the bond yield curve inverts? I’m kind of curious to hear your thoughts on it.

Bill Miller 37:16
I think the question you’d have to get clarity on is what exactly are you trying to protect against? And so, once you can definitively say this is what I want to protect against, then you can come up with instruments that will probably do that in one fashion or another. Then all the things that you mentioned have roles to play, depending on what people are trying to do.

I think if you’re worried about steadily rising inflation… You want floating rate bonds, you don’t want fixed rate bonds. If you’re worried about deflation, then you want fixed rate long term bonds of one sort, one sort or another. It all depends on that.

I think that again, though, that people are way too sensitive to the volatility and perceived risk. One of the things that we’ve done in our funds is that we believed it would turn out to be correct that what would happen with the financial crisis, would people become risk and volatility phobic. If you could just make one decision in 2008 or 2009, it’ll be whatever the market thought was the riskiest thing, buy it and put it away. That would do really well over the next 10 years, which it’s done.

Stig Brodersen 38:31
So in continuation of your point about the recency bias, have you heard a very popular belief out there in the markets, but where you also discounted the magnitude of what’s being said?

Bill Miller 38:42
Whenever I hear sort of extreme predictions or predictions given with great emotion and emphasis, I would tend to believe that those are probably wrong. Extreme things don’t happen very often.

Also that having a dogmatic opinion in the market is a very risky and dangerous thing to do. One of the things that always annoys me when I hear it is when people say, “Well, the easy money has been made.”

I hear that a lot when defending after something’s gone up a lot. I’ve never heard anybody say there is easy money to be made doing this. All those people that use that locution, I want them to tell me when there is easy money to be made because ordinarily I probably see that easy money has been made in this bull market, probably beginning six months after March 2009 and repeatedly over the next eight or nine years that the easy money has been made.

Preston Pysh 39:40
I’m curious, what book would you say would you recommend for cognitive biases for people that are listening to this?

Bill Miller 39:48
Dan Kahneman’s “Thinking, Fast and Slow” is a good assessment of that. I think *inaudible* the book is fantastic too. I would highly recommend that to people. I had lunch with Ed, not long after the long term capital management collapsed.

Preston Pysh 40:06
He said that he had looked at that. He said that the probability of ruin there was as close to one as you could get. He said because basically the amount of leverage that they were using isn’t so, and then the fact that those particular bets might have had a very high degree of probability. However, it didn’t take much to get them to go awry with that leverage to send you right over the cliff. Ed nailed that down correctly.

Bill, thank you. Seriously, thank you so much for coming on our show. It is such an honor to have you here. Just to kind of pick your brain for an hour, we are thankful for that.

This is the point in the show where we’re going to go ahead and play a question from a member of the audience. This question comes from Lisa Woo.

Sender 40:56
Hi, Preston and Stig. My name is Lisa. I’m a university undergraduate student. I really enjoy listening to podcasts and listening to them every week. I just want to say thank you, first, for providing society such a great opportunity to learn more about finance and the stock market.

My question is we all know about the baby boomers, and we all know that they are approaching an age of retirement.What do you think, as the baby boomer generation is approaching retirement, as the capital gets released to the society, what do you think that effect is going to be on the stock market or the economy in general? Thank you.

Preston Pysh 41:47
I think the bigger concern for that generation is just the lack of yield that they can get on their retirement. I think that for me, that’s the bigger story. I think moving forward, you’re getting 3% yield for somebody who’s in retirement, and they’re trying to live off of that, is a very big concern.

Stig Brodersen 42:07
I guess I try to sway my bias of the stock market being bound to crash when I say this, but whenever I look at some of the stats, we’re looking at 1.5 million Americans turning 70, just last year. Over the next 15 years, you will continue to see something like that.

The thing is that this generation has a lot of the portfolio in equities. We’re talking upwards of 70%. That’s a lot especially because, as Preston mentioned before, you don’t have a lot of yield.

The stat I’m looking at here, and I guess you can find similar stats, or they’ll say less and more, but here, it says that the average boomer has only 136,000 saved for retirement. So when you have that kind of money, or you don’t have that kind of money, because there’s not a lot to live off when you retire.

I can see why you would take riskier investments. So you might keep being in stocks, even though what I think might happen is that a lot of baby boomers might look at high yield opportunities, which will entail a lot of risk, especially in these times where the yields are so low.

If you say that the average person would need something like 45,000 a year or even lower than that, you would need a lot of yield for this huge generation. That’s all coming out at the same time to sustain a decent way of living.

Just one thing I would like to add to this, and I guess something that might be even more concerning is if you look at some of the IRS mandatory minimum drawdowns, or your timing plans, your RAS 401ks, you’re forced to withdraw at least 5% of the value of the plan each year. If a lot of people are forced to do that, it will have a significant impact on the market.

Now, this is the trick: it’s very easy to look at this story and say, “This means that the market will crash. The price of the stock market, its demand and supply, this will mean that a lot of people are selling out, the price has to go down.”

While that is true, if you look at this isolated, that’s not necessarily what will happen because you have a lot of other players out there. They have a different opinion and a different incentive to take this in another direction.

One thing might be that you have central banks. They know that this is going to happen. So what are they going to do when everyone is just selling out? Okay, they might put a lot of liquidity out there.

What is the government going to do? They will probably do a lot of fiscal policy and really grow the economy to spike growth. So it’s one of those this one factors, yes, that should mean that we will have a significant bear market, but it’s only in isolation.

Preston Pysh 44:59
Lisa, Awesome, insightful question. Thank you so much for recording it and putting it there on the show. To show you our appreciation, we want to give you our intrinsic value course that we have on our TIP Academy page on our website. This is typically a paid course, but we’re going to give it to you completely for free just to show you our thanks.

For anybody else out there, if you want to get your question played on the show and get a free course, go to asktheinvestors.com. You can record your question. It will only take a minute.

Stig Brodersen 45:28
All right, guys. That was all that Preston and I had for this week’s episode of The Investor’s Podcast. We will see each other again next week.

Outro 45:38
Thanks for listening to TIP. To access the show notes, courses or forums, go to theinvestorspodcast.com. To get your questions played on the show, go to asktheinvestors.com and win a free subscription to any of our courses on TIP Academy. This show is for entertainment purposes only. Before making investment decisions, consult a professional. This show is copyrighted by the TIP Network. Written permission must be granted before syndication or rebroadcasting.