Jonathan Satovsky hosts a Summer School class on the benefits of focusing the mind on investing in small and profitable businesses for the long-term; especially as life expectancy continues to increase.
Good afternoon. This is Jonathan Satovsky of Satovsky Asset Management. July 2019 with a video blog update.
And today we’re going to go back to summer school. And summer school isn’t just for young adults.
I’ve had the privilege of spending some time with people between the ages of 50 and 80 over the last month and common question that people have asked is, “Should I, as I get older be more conservative because of my age?”.
And in honor of that, we’ll decide to go back to summer school to benefit everybody.
So let’s remind everyone why are we investing.
Well it’s been noted that many people are living a lot longer and the statistics bear that out.
In fact, one out of two people in a married couple likely will live past a hundred.
So if someone retires at 60 or 70, they may live 40 years in retirement.
So one of the silent risks that people have is inflation.
The cost of living almost certainly will go up over someone’s lifetime.
And people say no, well in retirement I’ll do less.
Well that’s not been my experience. Most people end up traveling more have more expenses on health care cost, prescription drugs, property taxes.
So the reality is that investing means taking risks.
And not investing is also taking risks.
So as a basic reminder, if you’re investing in stocks and bonds, you’re basically lending to businesses or even ownership stake in businesses.
And over time, the vast majority of rewards have inured to the benefit of small business owners and people that have headache in an ownership in small companies versus lenders.
And what’s interesting is that many of these people that are on the verge of retirement work for a singular business.
And of course they’re devoting their labor, tools, their knowledge and materials in that business along with financial capital in that business for profits.
So let’s just remind people of a mindset.
People are devoting their time and energy into a single business that they control.
But you can transfer to ownership stakes in a diversified pool of other profitable businesses all around the world.
And instead of your labor you’re benefiting from other people’s labor, knowledge and financial skills.
And therefore it’s a reminder to understand that singular concentrated risk of an individual company is much greater than having a diversified pool of passively owning other people’s businesses and letting the markets work for you of the collective conscience of everyone else’s labors.
And so you don’t have to try to outwit everyone.
In fact, when people tried to outwit people, they make a lot of mistakes as witnessed by the jelly bean experiment.
In the jelly bean experiment, the range of guesses of how many jelly beans range from 400 to 5,385.
The average being extraordinarily close to how many jelly beans there were, which was 1,870.
So you can see when asking people their opinions, rather than relying on the data and facts, not opinions but data and facts, it leads to a lot of mental errors.
So let’s ignore the mental errors and realize there’s a world of opportunity.
And in that world of opportunity passively sitting on an ownership stake in the globe of businesses over the last 25 years has yielded 7% a year.
Trying to outwit people and not guessing properly has led people to very poor equity performance over the last 25 years.
And you can see how easy it is to make behavioral mistakes just by looking at the last 12 months.
At the volatility in the last part of the year people start a question, I’m a long term investor, no I want to be more conservative. I’m a long tern investor I want to be more conservative.
So let’s adjust the mindset in honor of summer.
Summer school is closed. Have a great summer.