Dear Financial Samurai,
As big tech stocks like Google and Apple get wrecked, my two largest holdings, I’m getting bullish again. I’ve been putting the cash I raised a month ago back to work.
Brent crude oil is back down to about $72, after spiking to $118 on April 29. The 10-year Treasury yield has eased to 4.37% from a high of 4.6% on May 14. And it’s done so even as the PCE Price Index, the Fed’s main inflation gauge, rose 4.1% year-over-year in May, up from 3.8% the month before.
Meanwhile, earnings growth expectations have surged more than 20% this year. The S&P 500, on the other hand, is up only about 7.2% for the year and sits roughly 3.5% below its high. When earnings climb faster than price, valuations get cheaper. So stocks are a better deal now than they were at the beginning of the year.
But of course, the U.S. and Iran are attacking each other again after Friday’s market close.
We all know mid-term election years have historically been rough for stocks, likely due to all the uncertainty, with August and September usually the worst months. Check out the chart below.
But July also tends to bring positive seasonality in non-election years. These counterbalancing forces make me hopeful the market won’t correct much further from here. So I’m buying again. The key is to not run out of money while buying the dip.
In other news, there are reports OpenAI is considering delaying its IPO to 2027. That’s welcome, because less new equity supply is a net positive for equity prices.
After SpaceX’s IPO euphoria, when the stock popped about 50% to $211, it’s back down to $153. That’s still a respectable 13% above its issue price. But I’m pretty sure the book runners are propping the stock up here for better optics. It could easily break issue price before its first quarterly results as a public company.
Love Your Cash and Real Assets
The S&P 500 is down only about 3.5% from its high, while some tech stocks like Oracle are down 40% from its high. It’s a clear reminder to keep the majority of our public equity in the index. Almost nobody beats the index consistently for 10+ years, so keep your active investment portion to 30% or less of your total portfolio.
Even Berkshire Hathaway plowed $10 billion into Google at $350 the other week, thinking it got a deal. The stock is now at $334.
So this summer, appreciate your diversified net worth of real estate, bonds, and cash. That’s exactly what they’re there for when volatility hits.
I plan to spend more aggressively in July, when we’ll be in Honolulu for the entire month. I’d rather get something out of the profits than risk giving it all back to the markets. Treat yourself to a luxury expense with your profits every so often. You won’t regret it.
Satisfaction Feels Better Than Having More Money
We all enjoy getting a raise at work or earning a solid investment return. But that good feeling fades fast once we get used to our newfound wealth. What I’ve realized over the years is that the satisfaction of doing hard things is far more rewarding than having more money. And the people who feel this way may be more wired for FIRE or entrepreneurship than everybody else.
Take painting. I get immense satisfaction from it, so last summer I spent about 15 hours over five weeks painting every wall in my parents’ two-bedroom in-law unit myself. I just turn on a favorite Hidden Brain podcast episode and away I go.
Now every time we visit, I get to feel good knowing I brightened up the place for good. Paying a painter $3,500 would have robbed me of that, which is exactly why I didn’t.
The same goes for cleaning the house or doing basic landscaping. Sure, it’s more efficient to pay someone else. But then I’d miss out on the satisfaction of contributing to the cleanliness and beauty of our home. As a result, I’ve got my kids to join me to give them the satisfaction too.
Doing something that takes so many hours can make it hard to start. But the best thing about hard work is that it eventually ends, and you get to reap the benefits. Here are some new posts on the theme of doing hard things.
How To Overcome The Guilt Of Not Taking Care Of Your Own Kids
The Incredible Satisfaction Of Never Giving Up: A Lesson In Grit
A Conversation About Doing What Fits Your Spirit The Most
Finally, I recorded a new podcast about my friend’s entrepreneurship journey, from Mexico to building a cybersecurity company to selling it to Symantec. The part that jumped out most was that he was miserable being an executive at a big company, making the most money he’d ever made. So he left.
And even though he’s making little money now after starting his own VC fund, he’s as happy and excited as ever. His story reminded me of when I left my day job in 2012, which cut my total income by about 80%. I was much poorer, but much happier, because I finally had the freedom to do what I wanted.
And yes, we both had the luxury of stable partners who still earned an income, so neither of us feared starvation. But my wife eventually joined me in FIRE at 35, and now we’re what I affectionately call DUPs: Dual Unemployed Parents. It’s a precarious life when the markets are cratering, but it’s also quite exciting.
In the end, if you’re doing something that gives you fulfillment, that’s the best place you can be professionally. The money matters far less than you think.
Read and listen to The Entrepreneur’s Journey: From Mexico To A Symantec Exit
To your financial freedom,
Sam
PS Team USA plays Bosnia in Santa Clara on July 1, about an hour south of San Francisco. I’m bummed because it’s one day after we leave for Honolulu. Then again, mid-tier tickets are going for $3,000 to $3,500 a pop, so I probably wouldn’t go even if I were a diehard fan. I don’t have a single friend willing to pay that much and sit in traffic. But from an investor’s point of view, I love that ~71,000 people will happily pay a median $3,000 for a ticket, plus parking, lodging, food, and beverages. Add in all the fans filling other stadiums, and things can’t be that bad. Especially when the rest of us get to watch for free on FOX, which is already a great experience. Go USA!
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