Footnotes

* Bob was also sitting on some cash since he didn’t invest the rest of his savings after his last ill-fated investment in 2007. * For some reason, October is when the worst days tend to occur. Seven out of the 10 worst days occurred in the 10th month of the year. * The worst-case scenario was 2022, when bonds and stocks each got shellacked. High inflation and rapidly rising interest rates hurt both stocks and bonds that year. It can happen, but it’s rare. * Stay the Course was the title of Bogle’s final book before he passed away. * Prices falling 40% sounds like a screaming deal until you realize that deflation was accompanied by two decades of economic stagnation. Inflation itself isn’t necessarily good, but it’s the lesser of two evils when compared to deflation. Deflation means lower wage growth and a shrinking economy. * Cash equivalents such as savings accounts, money market funds, CDs, T-bills, etc., are a good hedge against inflation because short-term interest rates tend to rise when inflation is high. The fact that cash is a short-term asset allows investors to pick up higher yields much more quickly, whereas bond investors have interest rate risk since they typically have yields locked in for longer time frames. * Median income in the U.S. was approximately $13,500 in 1978 when this piece was published, so Mr. McLamb’s income was 15% higher than that. * Inflation brings about the same feelings of loss aversion we talk about in Chapter 4. * Many investors assume the biggest risk when investing in bonds is interest rates. Since bond prices and interest rates are inversely related, bond prices fall when rates go up. While that is true, the biggest risk to high-quality bonds over the long term is inflation eating away at your periodic income payments which are worth less and less on a real basis as inflation rises. * Millionaires make up 1.5% of the population, yet they control nearly half of the world’s wealth. In America, millionaire households (including home equity) make up 18% of the population. * This is not the case in most other developed nations. In Australia, more than 80% of mortgages have variable rates, meaning they can change when market rates change. In Canada, Sweden, Norway, Portugal, Finland and Japan, more than half of all mortgages are on an adjustable rate. This is a good thing when interest rates fall, but not so great when they rise, which tends to occur when inflation rises. * There are, of course, ancillary costs to homeownership such as property taxes, insurance, maintenance and upkeep that can and will change over time. Owning a home is not a free lunch. * Gold was the other big winner of the 1970s, rising nearly 30% per year after Nixon took the U.S. off the gold standard for good. Unfortunately there was no gold ETF back then, meaning you actually had to buy gold bars or coins to take advantage. * Bob kept all of his savings in a checking account until he could work up the nerve to invest in the U.S. stock market and never sold out of those initial poorly timed investments. Just like before. * Recall that Bob saved $2,000/year for the first 10 years of investing and increases that amount by $2,000/year every 10 years. * When the stock market opened back up, it took off like a rocket ship. 1915 remains the best year in the history of the Dow, which rose more than 80%. * A nickel in 1929, adjusted for inflation, is worth around 90 cents today. * This return does not include things like fees, trading costs, taxes or inflation. It’s also true that reinvesting dividends was much harder back then. * For the purposes of this exercise, a bear market is over once a 20% gain takes place. And I rounded up for the 1990 bear market. Close enough. * It is worth mentioning that not every recession leads to an earth-shattering crash. The recessionary bear markets in 1990, 1980 to 1982, 1961 to 1962, 1957, and 1948 to 1949. all saw losses of less than 30%. It is possible to have a recession that leads to a relatively minor bear market. * Again, I rounded up to include the four bear markets where the peak-to-trough decline was 19% or more. * In comparison, the Great Depression of 1929 to 1932 was 43 months long. * Bezos responded to the class by saying, “You might be right, but I think you might be underestimating the degree to which established brick-and-mortar business, or any company that might be used to doing things a certain way, will find it hard to be nimble or to focus attention on a new channel. I guess we’ll see.” * It was investors of all shapes and sizes too. In 1983, households with incomes of $250,000 or more owned 43% of all publicly traded stocks. By 1992, that share had dropped to 23%, while Americans with incomes of less than $75,000 saw their share jump from 24% in 1983 to 42% by 1992. * The retirement contributions I made throughout 2008 and early 2009 into the stock market will be the best investments I ever make. * Robert Shiller created the cyclically-adjusted price to earnings ratio (CAPE) to compare valuation measures across various market cycles using data going back to 1871. This is not a perfect valuation measure because the perfect valuation measure does not exist, but it can be useful for putting different markets into context.

* After 20 years you would have had more than $410,000, but the market crash in the 1990s meant you went nowhere even with an additional 10 years of contributions. * Microsoft’s Internet Explorer browser more or less made Netscape obsolete in short order, but Netscape was still bought by America Online for $4.2 billion in 1998. * Ramirez defaulted on the loan a year and a half later. * The crash in long-term government bonds came after this glorious period when they fell more than 50% in the 2020s as interest rates shot up following the inflationary spike from the pandemic spending binge. * Of course, this is nearly 100 years of data. Plenty of stocks over this time had fantastic returns over shorter time frames before flaming out. * Markowitz stated in a later interview that he had changed his tune and tried to create a more efficient, diversified portfolio. I wonder if the simple portfolio did better. I’m guessing it did.