Good News and Bad News
Stock picking monkey, best index funds, and $80T of hidden debt
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In 1973 when Princeton University professor Burton Malkiel claimed in his book, “A Random Walk Down the Wall Street” that a blindfolded monkey throwing darts can pick stocks better than any financial expert, it caused a lot of outrage - That fund managers who rake in multi-million dollar fees could be beaten by literal monkeys.
Rob Arnott, CEO of Research Affiliates, went out to test this theory once and for all and the results were stunning.
“Malkiel was wrong, the monkeys have done a much better job than both the experts and the stock market” - Rob Arnott
The company created 100 portfolios every year by randomly selecting 30 stocks from a 1000-stock universe and repeated this from 1964 to 2010. Amazingly, 98 of the 100 monkey portfolios ended up beating the market!
Before you go to the local pet store to get your own “stock picking monkey”, you should know that higher rewards come with higher risk. Most of these strategies such as stock picking monkeys, flipping NFTs, and buying virtual Real Estate in the metaverse only work as long as there is free money in the system due to 0% interest rates. With the Fed raising interest rates at a record pace, we are in for a world of pain…
Let’s take a look at how my own monkey portfolio has performed, how this could be one of the best entry points for the stock market in the last 15 years according to JP Morgan, and how $80 trillion of hidden debt was just discovered!
My experiment with a stock picking monkey
During the pandemic stock market boom of 2020, I wanted to make a point that investing had become so easy that a monkey could do it. I put down $100K of my own money in the stock picks made by a monkey. One year after publishing the list of monkey-picked stocks in December of 2020, my monkey stocks had outperformed the S&P500, Warren Buffett, and even Cathie Wood! But it all went horribly wrong in 2022…
Index Funds for 2023
It’s really sad but the truth is that the average investor has a terrible track record in investing. JP Morgan found that over 20 years, average “mom and pop” investors managed to make just a 2.1% return on their money, which wasn’t even able to keep up with the inflation rate.
It’s not like the pros are any better - a report earlier this year found that 80% of active fund managers are falling behind S&P 500 and 95% of hedge funds fail to beat the market over a 15-year period.
Most people buy with excitement and then subsequently sell with panic - This is exactly what you should avoid in the stock market. It’s also why I have been recommending dollar cost averaging into a low-cost index fund throughout the last decade or so. But, there are over 2,672 index funds to choose from. Here are my top 5 all-time favorites:
80 trillion dollars of hidden debt
One topic that almost no one is talking about is the fact that $80 trillion of hidden debt was just discovered - just for context about how massive this amount is, it’s twice the value of the United States Stock Market, 3x the National Debt, and 6x the entire mortgage market!
There could be some rather serious implications for all of our money should something go wrong. Here’s everything you need to know about the missing money and the “shadow banking system”.
So that’s it for my Sunday round-up. For the new folks here, in this newsletter, I give a quick recap of whatever you may have missed over the week on Sunday, and on Wednesday, I will be doing my deep-dive article on one of these topics.
See you next week with another bunch of exciting videos!
This is being fact-checked right now, but studies show that if you smash that like button, markets will end in green this week :)
Enjoyed this one Graham and the concluding video.