Dear Financial Samurai,
With strong results from Google and Apple, the S&P 500 reached another new record at 7,230. I'm not sure any public company will do better than my favorite monopoly, Google, at using its profits to outcompete everyone else. And just last week, I talked about buying the Apple dip, hoping for a hungrier, more innovative CEO. Tim Cook delivered a strong quarter as his final gift to shareholders.
Believing in the earnings story has proved profitable so far. However, I'm no longer funneling new cash into public stocks. Partly because we're approaching my year-end target of 7,300 and valuations are no longer attractive. I've also decided to invest in a new private fund, so I need to raise cash for future capital calls.
With my waning enthusiasm for the public stock market, I naturally look for reasons to justify my move. For perspective: my rollover IRA (once my 401(k) for 13 years) is 100% in stocks. So is my Solo 401(k) and SEP IRA. Meanwhile, my taxable brokerage account is 96% in stocks, slightly lower because I've been transferring cash into it.
Berkshire's Massive Cash Hoard
Look no further than Berkshire Hathaway, which manages about $900 billion in assets but holds roughly 40% of it in cash.
Berkshire has been wrong about its conservative stance for the past three years. They also sold the majority of their Apple stock around $160 a share, which now trades at $280. As a result, Berkshire has underperformed the S&P 500 by about 40% since Warren stepped back.
But clearly, their team of investing veterans sees little value in the current market. And given that they started raising cash aggressively a couple of years ago, I don't expect them to chase the rally. If anything, they'll likely sell even more and raise even more cash.
So if you've been aggressively long equities over the past 3.5 years, it may be worth dialing down risk. You've significantly outperformed Berkshire Hathaway, and they're not seeing much value here. Further, the 10-year Treasury bond yield is at 4.4%.
Excess Gains Should Be Enjoyed
The S&P 500 is up roughly 100% since Q3 2022. This has been an astounding run, one that has generated about 60% in excess gains compared to the historical average annual return of 10%.
As a result, I think it's important to recognize these excess gains, calculate them, and actually use that “free money” to improve your life. Identify the things causing you the most grief, whether your job, a failing car, or a difficult relationship, and take action.
We're so far beyond historical return norms that it would be a shame not to put some of those gains to work for your well-being. Setting and forgetting your portfolio is generally a great long-term strategy, but the older you are, the more important it is to take advantage of fortuitous gains while you can.
Check out my new post: Use Your Excess Stock Market Gains To Actually Change Your Life
The Rise of Arrogant Real Estate Agents
One of the most dangerous side effects of extraordinary gains is convincing yourself you're a money-making savant. If you start confusing brains with a bull market, you might take on excess risk and blow up during the next downturn. But perhaps more insidiously, you might start looking down on others for not having your level of success.
I've toured thousands of open houses since moving to San Francisco in 2001. I have never encountered a real estate agent as rude as the one I met last Sunday. Maybe I was extra sensitive because it happened in front of my two children, and the papa bear came out.
When a profession is already under siege from lawsuits over excessive commission charges, you'd think there would be more humility. Nothing good lasts forever, and treating someone poorly could hurt your business for the rest of your career.
So be careful. Don't be like this agent. You never know who you'll run into. And if you're having a record year, think back to the lean days when you could barely make ends meet.
Read about my encounter, and what to look for before hiring an agent to sell your home: The Rise Of Arrogant Listing Agents In A Hot Real Estate Market
Fathers Rejoice
Finally, some good news on fatherhood and childcare. It looks like today's fathers are doing twice as much childcare as their own fathers did. The absolute time increase isn't huge, but it's progress.
Part of the reason is that fathers are working less, likely because more mothers are in the workforce than in the previous generation. But another part seems to be that fathers are actively choosing to cut leisure time in favor of spending more time with their kids.
I know some mothers will roll their eyes at this. I was certainly teased by a bunch of moms when I shared this in our parents' group chat. But the data is interesting as societal roles and norms continue to shift. Have a look for yourself!
Dads Should No Longer Feel Guilty Neglecting Their Children For Money And Status
To your financial freedom,
Sam
PS: Personal finance consulting sessions are fully booked for May, and my Millionaire Milestones inventory is now spoken for. Thank you for the interest. I may open up some slots after August.
However, I'm still sending signed copies of MM to those who participate in a free financial consultation with an Empower professional this year. See this post for details on my experience and how to participate in the giveaway.