Latest / Financial Survival Network / Successful Investing in Uncertain Times - John Jennings #5787

Transcript

Successful Investing in Uncertain Times - John Jennings #5787 · Financial Survival Network

0:00
You're listening to Carrie Letts's Financial Survival Network, where you get valuable information you
0:05
just can't find anywhere else to thrive in today's trying times. You need the
0:10
Financial Survival Network now more than ever. Go to Financial Survival Network dot com
0:17
and get your free newsletter in gift Financial Survival Network now more than ever.
0:27
Welcome you are listening to watching the Financial Survival Network. I'm your host,
0:32
Carrie lets Well, in these times, you know, we're facing lots of
0:36
uncertainty. Are we heading for a recession? Are we heading for a global
0:40
financial meltdown? Is the dollar going to blow up? Will there'll be a
0:44
new reserve currency? What about crypto? All of these things? Well,
0:50
what we're talking about here is a new book that you need to get called
0:54
The Uncertainty Solution, How to Invest with Confidence in the Face of the Unknown.
1:00
I guess so the author is John M. Jennings with us. Now,
1:07
John, you're always to some extent investing in the face of uncertainty.
1:11
It's just that the brain, I guess. Our human condition is we look
1:17
for normalcy, and therefore we've got this thing called normalcy bias. But in
1:23
times like today, there is no such thing as normalcy bias, because nothing
1:27
is normal anymore. So you've got to have an approach, a discipline.
1:33
How do you invest in uncertain times? Yeah, but you're exactly right.
1:38
It's always uncertain. I mean, there's this old adage says now is the
1:42
hardest time to invest whenever here now is right. So when things are going
1:48
gangbusters in the economy and the stock market, people are worried about, oh,
1:52
you know, my investing. When things are too high, things are
1:53
too good, when things are bad or they can continue to get bad.
1:59
And then, yeah, you have uncertainty. You have you know Russia and
2:00
Ukraine, um, other Joe of political issues, you have you know,
2:06
the leftover effects of the pandemic. You have inflation. We had our hopefully
2:12
you know, banking crisis in the rearview mirror. But but who knows.
2:15
So yeah, tons, tons of uncertainty right now. But to your point,
2:19
that's always the case, and it's hard to find what normal is.
2:23
Um. So yeah, in terms of in terms of uncertainty. The reason
2:28
why we hate uncertainty so much as a species is because we've evolved to be
2:35
pattern recognizing machines, right, And the reason this is the case is if
2:40
you can detect a pattern, it gave us historically back in the day,
2:46
a survival advantage, right, because a pattern will tell you what's going to
2:53
happen in the future. If it's a persistent pattern, this is a huge
2:57
survival advantage. You know, is that you know is that Russell the bushes
3:01
does a pretend predator or prey. You know what is the migration patterns of
3:07
my own prey, whether patterns or those berries nutritious or poisonous. All these
3:13
things gave us a survival advantage. And so what happens is when we cannot
3:16
recognize a pattern, we get anxious, we get worried. It actually triggers
3:21
our fight or flight response, and we get all keyed up and we may
3:23
not even realize it's happening because of uncertainty. Then when we resolve the uncertainty,
3:30
the opposite reaction happens, the calming effect happens. We actually get a
3:34
dose of dopamine. It feels good. So it leads us with the following,
3:39
you know, dichotomy. We don't like uncertainty and we want to resolve
3:44
it, but when we resolve it, it feels good. So we are
3:49
constantly looking to to feel good. So it's part of the reason why some
3:52
people like to gamble. Right, you create uncertainty, then you have that
3:55
that dose of dopamine. It comes when it's resolved. It's why we don't
3:59
like to know the Indians necessarily of sporting events or books or movies, right
4:03
because we want to have that bit of uncertainty that's not threatening that we get
4:09
to results. So it's it's it's pretty complex, but the mean takeaway is
4:14
we don't like when we can't recognize a pattern, which is really the definition
4:16
of uncertainty. Okay, so basically we've evolved, we're modern man, but
4:24
all of the vestigial all of the evolutionary things that got us here are the
4:31
things that are tripping you up now. So I have that, right,
4:34
absolutely, we are we are modern. Are ancient brains living in a modern
4:39
world, right, Yes, So they're constantly triggered by non threatening patterns in
4:45
the great scheme of things, things like you know, the stock market and
4:46
the economy and things. I mean, they matter, but it's not being
4:49
threatened like being chased by a saber tooth tiger. Right. So, but
4:56
we're being chased by a saber tooth the central bank? Right, yeah,
5:01
exactly. So so how do you avoid the saber tooth and the central bank?
5:06
Yeah, well I'm not sure we can. I mean, like gets
5:09
some more you know, tactical and investment in investing uh anthems, you know,
5:14
really really the thing to do when faced with uncertainly there's a few things
5:17
to do. So instead of doing what we usually do, which is to
5:21
get keyed up and and and what we do is we you know, we
5:25
grasped the first explanation we can find that explains this supposed pattern we're seeing or
5:30
the lack of pattern. We we we grasped the first explanation and we defend
5:35
it um. You know, we turn to experts for predictions of the future.
5:40
Right, So, like if I were to say, right now,
5:42
what's going to happen with monetary policy and what's going to happen with interest rates?
5:46
Like your listeners would be like, oh that's great, Like you would
5:47
you would feel this sense of calmness or pleasure by having somebody And I could
5:53
give all sorts of data and reasons why I was giving my opinion, but
5:56
you know what, what study after study has shown and probably experienced this and
5:59
rey Is, experts, whether economists or investment managers or even political experts,
6:04
are atrocious at predicting what's going to happen in the future. So really it's
6:11
really hard. But turning off those expert opinions of what's going to happen in
6:15
the future is so important to successful investing. Like a lot of people think,
6:18
well, you need to know what's going to happen in the future to
6:20
invest well, and actually the opposite is true, because if you start with
6:26
you can't know. Therefore, thinking you know doesn't make you make better decisions.
6:30
Acknowledging your ignorance about the future and others allows you to invest in a
6:34
way that you know. It gives you a margin of safety or a moote
6:41
and you know, if anything, you can say, Okay, what happens
6:44
if you know, inflation continues to run high, what happens if it comes
6:46
back to a reasonable level, And then maybe what happens if we actually tip
6:51
into deflation. There's some people that think that over the next eighteen months deflation
6:56
as as big of a risk as you know, continuing high inflation and structure
7:00
your investments thinking I don't know. Here's a range of potential outcomes. How
7:04
am I gonna you know, and you know, how am I going to
7:08
wait these things? How I can invest based on that? So, you
7:11
know, we find that that's really a good way to go is turn off
7:14
those those expert opinions because they're just not you know, it's just not possible
7:18
to be correct. And like when you hear an expert give their views of
7:21
what inflation is going to be your monetary policy, I mean, go back
7:25
and say, what were they saying a year ago or what were they saying
7:28
kind of the you know, going into twenty twenty two. Did they say
7:31
that they thought that inflation was going to spiked? You know what it was
7:33
eight point seven percent? You know, did they predict that the Ukraine War
7:40
would happen? And if so, you know, fourteen months later or whatever
7:43
it is, it'd still be going on. I mean no, of course
7:46
not. So why listen to them now? Yeah, well that reminds me
7:50
what Peter Lynch said to taking the walk down the main street instead of Wall
7:55
Street. And he always said, yes, the dumb money isn't dumb until
7:58
it listens to the small money. Yeah, yeah, right, yeah,
8:01
And to your point, you get a lot of people you know, talking
8:05
their book, you know, so uh and I don't mean like their book
8:07
that they've written, but their book, their book of investments, right,
8:11
So yeah, so it's really it's really hard to set that aside. And
8:13
really the premise of my book in addition to you know, here's how we
8:18
usually respond to uncertainty and we hate it is what to do instead is acknowledge
8:24
that you're feeling uncertain. So that's really you know, a skill that you
8:28
can develop. Say I'm going to sit in my discomfort, so I'm going
8:31
to accept it. I'm gonna say I'm just going to feel uncertain. And
8:33
then what my book mainly hits on our thirty five mental models, So mental
8:39
models of model that you keep in your head about how the world works,
8:43
and you want to develop mental models they're actually based in reality, right,
8:46
And to create and what Charlie Munger, you know, Warren buff As business
8:50
partner, says, who's the champion of disconcept is you need eighty or ninety
8:56
of them that will carry most of the freight in making you what he calls
8:58
a world wise person. And you know which ones to pull out when.
9:03
So you create this lattice work of mental model. So I'll tell you of
9:05
one of the key you know, investmental models they discuss my book is one
9:09
that's called the stock Market is not the Economy. And what really boils down
9:16
to is this is that the stock market moves in advance of what the economy
9:22
is going to do. It's not vice versa. So what happens a lot
9:26
of times with investors if they look at things like, okay, we're maybe
9:31
injuring a recession, or unemployment is going to go up, or you know,
9:35
this is what's going to happen with you know, inflation or other economic
9:39
metrics GDP growth. They look at those sort of things and then say,
9:43
I'm going to use that to inform my investment decisions, when the opposite is
9:48
true. The stock market doesn't always get it right. It's you know,
9:50
it's you know, Paul Samuelson equipped that the stock market is predicted nine to
9:54
the last five recessions, right, But the stock market doesn't always predict it,
10:00
but it moves in advance of what the economy does. So you can't
10:05
use the economy to inform your investment decisions. And that is incredibly freeing as
10:09
an investor. It can take away a lot of the worry and then certainty
10:13
about what's going to happen in the economy, because even if you knew,
10:18
it wouldn't tell you when you should invest. And an example of when we
10:22
use this recently was in you know, March of twenty twenty, so when
10:26
COVID was hitting, we'd have clients that were very concerned understandably about COVID.
10:30
So this pandemic is going to be, you know, sweeping the globes would
10:33
be in the US, you know, what should we do? And we're
10:35
like, well, we know a few things, like as things as entire
10:39
industry shut down, as economy slows. And you remember that that chart even
10:43
the Wall Street Journal in New York Times that showed unemployment claims, you know
10:46
they usually run around two hundred thousand. That jumped to like kind of like
10:48
four million or something that we just it was just mind boggling. But we
10:54
use that investment mental model with our clients to say, the economy does not
10:58
predict the stock market. Therefore, we should not make investment changes based on
11:05
what we think the economy is going to do, because even if we knew,
11:09
and we do know some things, it's going to get worse. It
11:11
doesn't tell you when the stock market is going to do. So we actually
11:13
had a lot of clients that rebalanced from bonds into stocks in March, and
11:18
then you know, the stock market rebounded way in advance of things getting better.
11:22
We saw that a new eight oh nine. You know, it happens
11:24
time and time and time again. And so that's an example of like one
11:28
of the mental models of the book. And you can see how like if
11:30
you if you study this, if you you internalize it as an investor,
11:35
how it can really help you in the face of uncertainty because you say,
11:37
we have all this a certainty, uncertainty in the economy, and you could
11:41
say, I don't need to know what the economy is going to do,
11:45
because if I did know, it wouldn't tell me what the stock market is
11:48
going to do. Right, So that's just one of the you know,
11:50
the thirty five mental models in my book. Okay, I'll buy it.
11:56
I've heard it said that when you're thinking of an investing you should not be
12:01
looking at the news because it's the cycles that determine the news, not the
12:07
news that determines the cycles. Do you buy that don't just survive? The
12:15
financial survival Network. Torque Resources is an exploration company establishing a portfolio of premier
12:20
copper gold early stage projects in Chile. Torques management and technical teams have a
12:26
strong track record of raising capital, discovery and monetization of exploration successes. The
12:31
company's Margarita copper gold project is located within the prolific coastal Cordillera Belt in Chile,
12:37
which hosts some of the world's largest and most profitable copper minds. The
12:41
Margarita project possesses excellent discovery potential for a major copper discovery due to the strength
12:46
of the alteration system, large scale magnetic targets, and the presence of copper
12:50
oxide mineralization. Drilling is anticipated to begin in Q three of this year.
12:54
Torque trades in Canada under t O r Q and on the OTC under t
12:58
R B MF. To learn more, go to Torque Resources dot com.
13:03
That's Torque Resources dot com. This is the financial survival network. The information
13:11
you need to throw now more than I do. I do, And it's
13:16
it's interesting. Um, I wrote an artist and I have a section of
13:20
my book on on you know, market cycles, because that's obviously you know
13:24
some very important mental models around market cycles. And one of them to know
13:28
is, you know Hyman Minsky, who was an economist that died nine six,
13:31
but moment, the Minsky moment. So the Minsky moment is a huge
13:35
thing to know about. And you know, really, I think the big
13:39
takeaway from Minsky is it's it's the financial instability hypothesis is that sometimes recessions or
13:46
market cycles are triggered by external shocks, like you know, the pandemic,
13:50
for instance, was an external shock, or the oil crisis back in the
13:54
seventies was an external shock. But often the economy shows the seeds of its
13:58
own destruct by actions that are taking you know, by risk seeking, you
14:03
know, businesses and investors and things. And so really, if you step
14:07
back, times of seeming stability end up being the riskiest time to invest,
14:15
and the times of the greatest instability because of the cycle end up being the
14:18
best times to invest, even though the opposite feels true. Right, So
14:24
the thing to keep in mind with the the you know, i'll call it
14:26
the Minsky cycle as financial and stability hypothesis is, you know, you'll see
14:31
things that are happening in the economy where people are taking on you know,
14:35
more risk and you know um risk, and we saw it with the banking
14:37
system. So all these banks took on an incredible amount of interest rate risk
14:43
by investing in treasury securities and you know, with mismass maturities, with with
14:48
their deposits, you know, taking more and more risk that was uncompensated.
14:52
Right, so they were getting you know, one and a half two percent
14:56
yields on these bonds. Uh, you having their money locked up and not
15:01
being compensated for it. And really, what the Minsky cycle tells you as
15:03
you start seeing those things is that there will be a moment where it has
15:09
a huge catalytic result. And we saw that with bank And again maybe we're
15:13
through that with what the you know, the FDIC and the FEND the Treasury
15:16
have done. But we don't know what those actions will cause in the future,
15:20
right, you know, they put out maybe they put out this fire,
15:24
but it's like suppressing you know, it's like suppressing force fires. We
15:28
found that that's not always a good idea, right because then you have bigger
15:31
force fires layer. So that's just part of the uncertainty is you know,
15:35
what were their actions to put out this fire? The best thing to do
15:37
in the long run, or was it more destructive we have a bigger force
15:41
fire later time will tell. I don't know. I don't either. I'm
15:46
the first to admit it to my future telling predictions haven't always been that great.
15:54
A lot of times. I've been in sync other times enough. But
15:58
clearly, when the pandemic occurred and they started throwing money at everybody and anybody,
16:06
I knew that was going to be major inflationary as bad as a war,
16:10
and certainly it was. Yeah, and I acted accordingly. It was
16:15
a great financial time for me personally because I didn't I wasn't in a job,
16:19
I wasn't in a business that was shut down by the government. But
16:25
like you said, to some extent, we're reactive creatures. It's really hard
16:30
based on that biology to you know, we're on the horizon looking for the
16:34
sabretooth tiger is going to attack us, but we're not necessarily seeing what's behind
16:41
us, who's creeping up from behind, and it might might be a lion
16:47
that's coming after us, right, you know, that's exactly right. And
16:51
and again I think you know, a key message in my book is that
16:55
to be a successful investor you don't need to predict the future. Well,
17:00
and the reason is it's not possible to predict the future. Well you're right,
17:03
sometimes you're you're wrong the others and um that that there's again it's it's
17:08
about making it's about making good decisions in the face of uncertainty and knowing what
17:15
to base those decisions on, to base them in lessons, you know,
17:18
wise, lessons from reality rather than based on emotion, where you know,
17:25
some prediction that you've you've read and you can just look at the big investment
17:30
banks, you know, year to year. So for for about a decade,
17:33
I've kept track of the you know, the the predictions that you know,
17:37
the Golden Sacks is, Morgan Stanleys Shape, Morgan's Bank of America,
17:40
you know, all them, you know, make of you know, what's
17:42
going to happen in the coming year in the markets. And it's completely laughable
17:49
that they continue to make these predictions. Um, you know, their predictions
17:53
on GDP growth and what the stock market is going to do, you know,
17:56
growth versus value, you know, and Nashville versus domestic all these things
18:02
are you know, worse than chance basically, and how they they end up
18:07
turning out and you know when you you know, I have these situations where
18:11
I'm at conferences or no people and you end up having a drink or two
18:15
at a bar, and I'll say to you know, some of these chief
18:17
investment strategies and some of these other institutions, you know, why do you
18:19
continue to make these predictions when you know you're really um, They don't really
18:26
add any value, if anything, they hurt. And the number one answer
18:30
of the ones that are more, you know, area died. I would
18:33
say, you know, there are some things like oh no, I'm great,
18:34
I'm like really, but most of them say, you know, it's
18:37
really what the clients demand, like my clients, you know, or the
18:42
clients of our firm want us to tell them what we think is going to
18:48
happen. So we tell them, even though we're often wrong, we tell
18:55
them. And you know, as I detail, you know more. There's
19:00
all these psychological reasons is humans. One of the main ones is over confidence.
19:03
Why we continue to make predictions or have strong opinions about things even when
19:08
we've been wrong over and over and over. You know, one thing that
19:11
I've started doing, you know, personally years ago, is keeping a decision
19:15
journal so when it comes time to make a decision, I will say,
19:18
you know, here's the issue. Here are my possible What I see is
19:21
my possible decisions I could make, and then I go ahead and do it.
19:26
And then I will go back, you know, months and years later
19:29
and look at here's the decision I made. How did it turn out or
19:33
wrong? It's up? Yeah, yeah, it can be very humbling,
19:36
you know. Yogi Barrett once said, prediction is very hard, especially about
19:41
the future, and we got to accept turmoil, uncertainty, chaos. That
19:48
is the norm, the new norm. But it's not really that much different
19:52
than the old norm, Hey, is it? John? If we want
19:53
to find out more about you besides buying your book, which is the uncertainty
19:57
solution, how to invest with confidence in the face of the unknown, how
20:03
do we connect with you? Website? Twitter? Yes, my website is
20:06
pretty easy, is John ms? And Jennings are ms and Michael sorry then
20:11
Jenny, so John m Jennings dot com. Very very simpler and so it's
20:14
my personal website and linked to my book more about me linked term. So
20:18
yeah, that's that's what we uh going Verry, And if you have a
20:22
question for John, shoot me an email kl at Kerry Lutz dot com.
20:26
There'll be a link to John's site in the show notes to this interview on
20:30
Financial Survival Network dot com. Make sure you sign up for your free newsletter.
20:34
John very interesting, compelling, and we appreciate you coming on. We'll
20:38
talk to you again. Thanks for having me a ton of fun. Thanks
20:41
for listening to Carry Letts's Financial Survival Network, your solution to today's trying times.
20:48
For the latest, go to Financial Survival Network dot com. Financial Survival
20:53
Network now more than ever. The Girls