There are so many interesting stories in the financial world right now, but my favorite continues to be MicroStrategy’s quest to unlock the infinite money glitch.

For those who aren’t familiar, MicroStrategy (now just “Strategy”) is a company that raises money from investors and uses it to buy Bitcoin. It currently holds about 4% of all the Bitcoin that will ever be created.

Last summer, I wrote a note called Crypto Bubbles in which I quoted the company’s Chairman, Michael Saylor, when he said

“If you want to 10x your money, you buy bitcoin,” he added. “If you want 100x your money, you buy bitcoin with someone else’s money. If you want to 1000x your money, you buy bitcoin with someone else’s money, and then you leverage the bitcoin.” [emphasis added]

A month after I wrote the note, the company doubled down on its efforts to 1000x its money by unveiling a new type of preferred share called STRC (“Stretch”), with a fluctuating dividend that would always keep the price at par. And even though Bitcoin doesn’t have cash flow to pay dividends, the idea was that it could cover distributions by continuously issuing new rounds of preferred or common stock.

Saylor declared the discovery of this financing mechanism as the iPhone moment for credit markets.

Unfortunately, this specific infinite money glitch hasn’t created infinite money. As pointed out by the Financial Times in its article “Can Strategy pull out of its death spiral?” It’s a Stretch . . . ”

The problem is that keeping Stretch at par has proved far more expensive than expected. Since the listing in July 2025, Strategy has raised the dividend five times, from 9 percent to 11.5 percent. Even that has not been enough. Stretch closed yesterday at $89, implying a current yield of roughly 13 percent. If Saylor wants to drag the security back to par, the dividend will probably have to rise again, perhaps to something closer to 14 percent.

Since the date I wrote Crypto Bubbles, Strategy’s common stock has fallen roughly 75%.

Leverage Creates Fragility

I love this story because it reminds me of three of my favorite Warren Buffett quotes:

• “When you combine ignorance and leverage, you get some pretty interesting results.”

• “There’s only three ways a smart person can go broke: liquor, ladies, and leverage.”

• “If you’re smart, you don’t need leverage; if you’re dumb, you have no business using it.”

Everyone wants to believe there is an easy way to generate excess returns without creating excess value. Everyone wants to believe they have a new approach to using leverage that will be safer than all the versions that came before.

But that has not been true historically, and I don’t suspect it will be true today or any other time in the future. But when the potential prize is infinite money, the temptation to keep searching will never go away.

Personal Note:

Last Sunday was Father’s Day. We got to celebrate by driving home from a lacrosse tournament and spending the rest of the day with family.

Monday was my 42nd birthday. I worked from home, and my daughter made me breakfast.

A thoroughly enjoyable two-day stretch.

• 1 million seconds is roughly 11 days,

• 1 billion seconds is nearly 32 years

• 1 trillion seconds is over 31,700 years.

2 trillion seems like a small step up from 1 trillion, but now you are out to 63,400 years.

It is kind of like the paper folding example from a few weeks ago. 42 folds are enough to get you to the moon, which means 43 folds are enough to get you to the moon and back. The math is simple, but that doesn’t make it intuitive.

Ben Cohen, with the Wall Street Journal, offers some cool visualizations to make this point in his article, You Have No Idea What a Trillion Dollars Is—and We Have Proof

I bring this up because SpaceX has a current share price around $200 (a relatively small number), which represents a valuation of $2.5 trillion, on $30 billion in revenue. These are two huge numbers, and our brains can’t make sense of them.

But shrink them by a factor of 10,000, and this is equivalent to valuing an unprofitable small business with $3 million of revenue at $250 million.

“But it’s only $200 / share!”

At $200 a share, a purchase of SpaceX feels like a reasonable bet on an impressive company run by an impressive leader. But the share price is just a way of dividing up the valuation. It doesn’t tell you whether the valuation makes sense. Billions become rounding errors. $200 feels like nothing. And somewhere in the gap between what feels true and what is true lies a whole lot of risk.

Fun Fact:

At SpaceX’s current valuation, Elon Musk has a net worth of over a trillion dollars. This means that your net worth is much closer to Jeff Bezos’ (approx. $250 billion) than Jeff Bezos’ net worth is to Elon Musk’s.

Personal Note:

Last weekend we took a trip to Small Hope Bay Lodge on Andros Island. We did some bone fishing, reef fishing, and handlining. We learned to scuba dive, jumped into some blue holes, and had an amazing time.

On the way back, we stopped in Nassau, which gave me the opportunity to put the family in matching outfits.

This afternoon, we’ll drive up to Dallas for our last lacrosse tournament of the summer.

Planning is important, but the most important part of every plan is to plan on the plan not going according to plan. – Morgan Housel

On Monday, Bloomberg News published the article, “BofA Warns It’s Time to ‘Take Profits’ as Red Flags Multiply.” The article opens:

Investors should exercise caution regarding US stocks as an increasing number of “bear market signposts” point to an approaching top, according to Bank of America Securities.

There are “too many red flags,” strategists led by Savita Subramanian wrote in a note dated June 5. “Take profits,” they advise.

This sounds scary until you get to the last paragraph, which reads:

“We see opportunity in S&P 500 stocks, but not the overall cap-weighted index,” Subramanian said. Her year-end S&P 500 year-end target is 7,100; the index closed 0.3% higher at roughly 7,406 on Monday. [emphasis added]

In other words, she thinks the S&P 500 will fall roughly 4% from the current levels. As a long-term investor, I do not see this as a reason to sell.

Losses Happen

When we hosted our seminar on stock market volatility last week, I used the chart below to make the point that one-day pullbacks of at least 1% are completely normal

And I used this chart to make the point that 5% pullbacks occur just as frequently, with 30-50% declines not out of the question.

The chart I should have also included is this next one, which shows what would happen if you sold at every 5% pullback to avoid the risk of bigger losses and bought back in when the market returned to all-time highs.

After a little over 35 years, the buy-and-hold strategy has climbed from $1,000 to over $20,000, thanks in large part to the market’s performance since 2009, while the strategy designed to limit volatility is roughly $17,000 behind, the result of a choice, repeated dozens of times, to treat normal volatility as a problem to be solved.

But What If the Market Falls 30%?

This happens. It has happened 6 times since 1950, so surely it will eventually happen again. The trick isn’t trying to time the collapse. It is having the discipline to maintain sufficient short-term reserves such that you are never forced to sell, emotionally or financially, at the worst possible time.

Because, at some point, the stock market won’t immediately rebound and the headlines will get loud enough that doing nothing will start to feel irresponsible. In those moments, the only investors who can stay on course will be those prepared to ride it out.

Personal Note:

The last two weekends, we have been at lacrosse tournaments in Dallas and Austin. One more in Plano next weekend, and our lacrosse season will officially end for a few months.

I didn’t film or edit this video, but my 70-pound son describes his goal here as “tuff.”

Back in April, I wrote Vibes & Valuations, and finished the note by saying,

When an IPO is all anyone can talk about, and investors seem more concerned with vibes than valuation, it is generally best for retail investors to stay away.

This week, SpaceX officially announced the launch of its initial public offering (IPO) along with a website for retail investors. The roadshow started yesterday, and the shares are expected to begin trading publicly on June 12^th. It will be the largest IPO in history. The company plans to raise $75 billion at a valuation of roughly $1.785 trillion.

Even if the financials justified the price (they absolutely do not), I would still caution against buying into the IPO simply because history suggests that a year from now, the price will be lower.

I briefly discussed this dynamic at our seminar on Wednesday as part of a broader discussion of volatility (the full slide deck can be downloaded here) and highlighted the chart below.

Of the top 10 largest initial public offerings in US history (Alibaba, Visa, Meta, GM, Rivian, AT&T Wireless, Snap, Uber, Medline, and UPS), the average one-year return was a loss of 27.8%.

I have no doubt SpaceX is a great company, and Elon Musk has a long track record of defying expectations. But investing on the assumption that this time will be different is a hard way to make money.

Seminar Update

On Wednesday, we hosted a seminar at our office titled “Navigating Market Volatility.” A full copy of the slide deck can be downloaded here. A big thank you to everyone who came out.

Personal Note:

Every summer, my boys and I take a one-day fishing trip on the Trinity River to chase monster alligator gar.

This year was another successful adventure with the largest fish measuring 6’4” long.

Weekly Notes

May 1 — “The Robots Aren’t Coming for Your Job” - Despite widespread fears about AI destroying the job market, history suggests that when technology makes professional work cheaper and faster, demand for those services tends to grow, not shrink.

May 8 — “Structured Products and the Appeal of Complexity” - Wall Street has a talent for packaging complicated, fee-laden investments into pitches that sound too good to pass up. Structured notes are a prime example of how added complexity almost always benefits the seller more than the buyer.

May 15 — “The Tax Tail Wagging the Portfolio Dog” - There are more tax-deferral strategies available today than ever before, but the history of tax shelters is also a history of investors who lost sight of the underlying investment. Low-cost fundamentals like loss harvesting and asset location remain the most reliable tools.

May 22 — “Our Instincts Are Terrible at Math” - Humans consistently underestimate the power of compounding. The penny-doubling problem, paper-folding to the moon, and 76 years of S&P 500 returns all tell the same story: time is the most powerful variable in investing, and interrupting compounding is costly.

May 29 — “Lessons From the Greatest Investor You’ve Never Heard Of” - Herbert Wertheim built a multi-billion-dollar fortune not through Wall Street connections or complex strategies, but through decades of disciplined buy-and-hold investing. The real lesson is the behavior, not the stock picks.

Quote We Love

“The first rule of compounding: Never interrupt it unnecessarily.” — Charlie Munger

Media Features

Crystal McKeon was quoted in a MarketWatch article on the truth behind tax-friendly retirement states, examining whether the tax savings from relocating in retirement are as significant as advertised.

Ladies Potting Social

Earlier this month, we hosted a Ladies Potting Social at The Flora Culture. A huge thank you to everyone who joined us.

Back in 2019, Forbes published an article titled, The Greatest Investor You’ve Never Heard Of: An Optometrist Who Beat The Odds To Become A Billionaire

It’s a great article that tells the story of how Herbert Wertheim built a multi-billion-dollar fortune through decades of disciplined buy-and-hold investing. He bought companies like Apple, Microsoft, and Heico in their earliest days and never sold.

This type of return seems impossible until you remember that, at the time of this article, Herbert was 79 years old and still working his day job. If a 79-year-old today invested $10,000 in Berkshire Hathaway when he was 18 (and never invested another penny), those shares would be worth $412 million today. This is what can happen when you have annualized returns of roughly 19.8%.

But Herbert spent his life consistently investing. If he had contributed $1,000 / month to an account earning 19.8% per year for 61 years, he would have deposited $732,000 and would be worth $9.6 billion today.1

That all seems easy enough in principle, but most investors don’t have the skill, patience, or confidence to be like Herbert Werthman.

Take this anecdote from the end of the article. By the publication date in February of 2019, Herbert had accumulated 15 million shares of GE and was picking up more.

“They hit an all-time low yesterday, and I’m getting hurt. But I feel very, very comfortable with GE because of their technology.”

The position described would have been valued at roughly $750 million. And despite the huge gamble, more than three years later, I can look at the stock chart and estimate that his return had been close to 0%. However, if he continued holding until today, he’d be up around 571% with annualized returns of nearly 30%.

From $750 million to $4.2 billion over the course of 7 years. Not a bad trade.

The Big Caveat

I have no idea if he continued to hold. Forbes lists his net worth today at $4.4 billion, and midway through the article, it says that not all of his trades are winners and that Wertheim “Will generally sell if a position reverses on him by 25%.”

So, it is entirely possible he exited the trade before it could work.

But either way, I bring this up because I think there are a few important lessons here:

1. Time is the most underrated variable. The math only works because Herbert was 79. Most people see the billions and think “great stock picks.” The real engine is six decades of compounding. Have your kids and grandkids start investing early and never stop.

2. Conviction without action is worthless. Plenty of people knew about Apple and Microsoft early. Herbert bought and held. The behavior is what made him rich, not the insight.

3. Patience is the hardest and most valuable skill to develop. Most investors would have rotated out of GE into something “working.” The people who can tolerate that kind of pain (or boredom) are rare. As I wrote back in January (Even the Best Investments Hurt), the best buy-and-hold stock investments of the last 40 years experienced average declines of 72% along the way, giving investors ample opportunities to shoot themselves in the foot.

4. Don’t interrupt compounding unnecessarily. Every time you sell to “take profits,” rebalance emotionally, or chase something new, you reset the clock. A lot of Herbert’s edge came from having good insight and then simply being able to stay the course.

5. Even legends have blind spots. His 25% stop-loss rule could have cost him billions had it caused him to exit some of his positions early. Rules that protect you in bear markets can also eject you right before a recovery. There’s no perfect system.

6. The strategy has to match the person. Herbert’s approach worked for Herbert. For most investors, a simpler, lower-volatility approach they can actually stick to will outperform a theoretically superior strategy they abandon at the wrong moment.

Ultimately, great investing is less about intelligence than it is about behavior. The math is easy. Doing nothing while your $750 million position bleeds is not.

Personal Note:

We took the kids down to Crystal Beach for Memorial Day weekend, and it was the first time I’ve seen a gator swimming in the surf.

Galveston isn’t for everyone.

“The first rule of compounding: Never interrupt it unnecessarily.” - Charlie Munger

During my career day presentation a few weeks ago, I reminded the fifth graders that humans are terrible at properly conceptualizing compounding.

I asked the kids if they’d rather have $1,000,000 today or a penny that doubled every day for a month. Most wanted the million dollars until I showed them the math, and they learned the penny option was worth $10,737,418 after just 30 days.

I also asked them how many times they’d have to fold a piece of paper in half for it to be thick enough to reach the moon. Most of their guesses were much higher than the correct answer of 42.

And even once they knew it only took 42 folds to make the paper thick enough to reach the moon, most found it hard to believe it only took 43 folds to get all the way to the moon and back.

Investing is the same way.

The investor who put $10,000 into the S&P 500 (a compounding investment) in 1950 and lived off the dividends now owns an asset worth roughly $4.4 million and receives an annual dividend of roughly $46,000. The investor who bought $10,000 of a hypothetical 76-year bond (a simple interest investment) with an 8% coupon still receives $800 / year and will get back the same $10,000 at maturity.

In the near term, the implications of compounding are hard to perceive. But in the long run, they make all the difference.

Other interesting math facts that are hard for people to comprehend:

• You only need 23 people in a classroom before there is a 50% chance two people share a birthday.

• Thailand currently has 63 million people and a birthrate of .8 (each woman has an average of .8 kids). If this birthrate continued for 200 years, Thailand’s population would decline by 97%, leaving only around 2 million people. (For an interesting read, see: The Global Fertility Crisis Is Worse Than You Probably Think)

Personal Note:

Yesterday, my wife and I had our 15-year wedding anniversary.

Time flies when you’re having fun.

There have never been more ways to defer paying taxes on investment gains. Wall Street has made sure of that. I stole the chart below from Bloomberg, but it does a good job of explaining some of today’s tax-optimized strategies.

The menu of tax-deferral strategies has exploded in recent years, fueled by lower trading costs and better technology.

Some of these strategies work as described (direct indexing and custom indexing being strategies we regularly implement for clients), but every time Wall Street hands investors a shiny new tool to avoid taxes, they usually take it too far.

We’ve Seen This Movie Before

In the 1980s, the tax shelter industry was booming. Intangible drilling cost (IDC) deductions were a popular vehicle allowing investors to sink money into oil and gas partnerships and write off the bulk of their investment as drilling costs in the first year. The pitch was simple: save money on taxes now and maybe make money on the oil later.

For many investors, the oil never came. The deals were loaded with fees, conflicts of interest, and speculative assumptions about energy prices. When oil crashed in the mid-1980s, and Congress tightened the rules with the Tax Reform Act of 1986, investors were left holding the bag.

Real estate limited partnerships, equipment leasing deals, and movie production shelters followed the same script. The IRS eventually labeled many of them abusive and pursued investors for back taxes.

The lesson wasn’t that tax planning is wrong. It was that tax planning is never the most important thing.

The New Playbook Has Some Old Risks

Today’s tools are more sophisticated and more transparent. Long/short strategies are one popular example.

Managers of these strategies simultaneously hold long and short positions and use leverage to create portfolios with 100% market exposure and an outsized capacity to realize capital losses for tax purposes.

But, of course, there are a couple of catches.

First, this article from Elm Wealth reviews the costs and benefits and finds that:

“The only party that is with near-certainty better off is Wall Street, while wealthy investors and the government, both individually and together, are likely worse off.”

Second, leverage has a way of converting innocuous strategies into ticking time bombs.

Custodians seem to have recognized this second point, and despite generating huge fees from the margin balances these strategies create, Schwab, Fidelity, and others are now limiting the extent to which firms can implement these leveraged long/short strategies for clients.

What Actually Works

None of this means tax planning is a waste of time. Managing the timing of gains, harvesting losses thoughtfully, maximizing tax-advantaged accounts, and being deliberate about asset location are all genuine, low-cost ways to improve after-tax returns.

However, it is important to never forget that if the underlying investment isn’t attractive on its own merits, the potential tax savings probably won’t fix it.

Personal Note:

Earlier this week, we hosted a Ladies Potting Social at The Flora Culture. My daughter attended and tells me she had a great time and loves her new plant.

The event wouldn’t have been possible without Crystal McKeon doing everything to put it together, and a huge thank you to everyone who came out and joined us.

Wall Street has a gift for complicating investments in ways that allow them to make more money. Structured notes are a good example of that. Most investors have never heard of them, but if you have money, someone has probably tried to sell you one. Here is how that conversation with a broker tends to go.

What the investor in the hypothetical conversation above probably doesn’t realize is that:

1. The bond is being offered by the issuer at $1,000, but the estimated value of the underlying securities used to create this investment is roughly $915. So, he is starting 8.5% in the hole1.

2. This is a bond, so even if the underlying metals perform well, the return is now subject to the issuer's credit risk.

3. The investor really only wanted to buy gold. But by tying the return to gold and silver, the entire return dynamic has changed. Gold may be fine, but a 50% drop in silver is very possible, and in that case, the price of gold doesn’t matter.

4. If you want to get out early, you can sell it in the secondary market, but you will probably get your head taken off.

This is Wall Street’s version of a parlay bet (See my note from January 2025: Sports Betting & Investing). The more moving parts they add, the harder it becomes to understand, the lower your odds of winning, and the more money they make.

Wall Street is financially incentivized to keep expanding this market, so even if it doesn’t benefit consumers, I suspect it will keep expanding.

A few related items worth mentioning

These things are everywhere.

Collectively, the US market for structured products was around $150 billion last year.

Structured products come in all shapes and sizes, and despite this 2011 study titled “The Dark Side of Financial Innovation,” which showed that structured products were overpriced to the point that their expected return was slightly below zero, these investments are still pitched as a way for investors to limit downside risk and improve returns.

Banks love structured products because they can package absurd spreads into an exciting sales pitch. Lawyers love them because the salespeople usually overpromise and underdeliver.

That is how you get the below headlines, which simultaneously appeared in my inbox last month (which inspired me to write this note).

My favorite quote from the article regarding the litigation:

The plaintiffs had argued that Stifel failed to exercise “any adequate supervision” as the broker, Chuck Roberts, assured them that the structured notes would preserve their principal while offering long-term average returns of 12.25%.

I don’t care how sophisticated you are. Anytime someone promises a safe 12% return, something bad is probably about to happen.

Personal Note:

Last week I presented at my 5th grader’s career day. I gave each kid a $5 billion Zimbabwean note to explain the concept of inflation. Some kids didn’t pay attention to the discussion and left the classroom with a genuine belief they were now rich.

1

Each of these structured notes comes with an offering document explaining the investment. If you open it up, you will see a chart somewhere in there that looks something like this.

We’ve been hearing a lot about how AI is going to destroy the job market. But I’m pretty sure that isn’t true.

Back in 2016, Geoffrey Hinton (who would go on to win the Nobel Prize for his work on neural networks) proclaimed that we should stop training radiologists because, in five years, AI would be better at the job than humans.

10 years later, the number of radiologists has continued to climb, and the average income for radiologists now exceeds $500k. Turns out AI has made reading scans faster, cheaper, and better, creating more demand for the service.

This is one example of Jevons Paradox. When steam engines made coal more efficient to use, we burned more coal. When vehicles got more fuel-efficient, we bought more cars and drove farther. When professional tools used by lawyers, accountants, and consultants improved, the cost of completing tasks fell, and demand for those services rose.

That pattern shows up reliably across two centuries of technological disruption. And it’s showing up again now.

Apollo published a few charts, which I’ve copied below, to make this point.

First, as the cost of professional work has fallen, the addressable market has expanded, and the total number of firms and workers in professional work has grown.

Second, AI is making it easier for recent college graduates to compete with established firms on certain tasks. That is likely the reason the unemployment rate is falling faster among young workers:

And the number of new businesses created each week is at the highest level in US history:

The story of technology and labor is not a story of disappearing jobs. It is a story of shifting jobs, expanding markets, and rising demand for things we couldn’t afford before. That’s been true of every major technological leap in the last two centuries. There’s no particular reason to believe AI will be the exception.

The radiologists are fine. The lawyers will be fine. And the patient investors who didn’t panic will be fine too.

Personal Note:

This was a big week for me to be proud of some of my favorite sportspeople.

First, as I’ve mentioned before, this is my first year as the President of Fort Bend lacrosse, and our varsity squad won the city championship for the first time in program history.

We had five All-State players, two All-District players, two honorable mentions, and a Coach of the Year.

Second, my local Riverbend teaching pro, Jesse Droemer, won the PGA Professional Championship at Bandon this week. This gets him six exemptions into PGA tour events, along with a spot in the PGA Championship in two weeks.

If you are looking for someone to cheer for, he is your guy.

Weekly Notes

April 3 — “What You’re Trying to Teach and What You’re Actually Teaching” Opening stock trading accounts for kids is more likely to teach bad habits than patience, and competitions judged on strategy quality — rather than portfolio returns — are a better model for financial education.

April 10 — “Vibes & Valuations” Using the anticipated SpaceX IPO as a case study, the post cautions that when retail enthusiasm peaks, even great companies can make for terrible investments.

April 17 — “The Good News Is There. It Just Doesn’t Make Headlines” Strong earnings, normalizing valuations, and the benefits of diversification tell a more optimistic story than the headlines suggest.

April 24 — “Investing While Sad” Despite historic lows in consumer sentiment, widespread pessimism is framed as a bullish signal — markets only need news to be slightly less bad than feared to move higher.

Quote We Love

"In the short run, the market is a voting machine, but in the long run, it is a weighing machine." — Benjamin Graham

Media Features

USA Today quotes Jon Swanburg in an article on free and low-cost financial advice.

ADV Updates

Every year, we update our Form ADV, Client Relationship Summary (CRS), and Privacy Policy. If you would like to view the documents, this link will take you to all of our latest filings with the Securities and Exchange Commission.

One year ago, I wrote a note titled “The Time to Invest Is When Things Feel the Worst.” The article used charts to show that, 12 months after the most bearish periods (when Americans were collectively most concerned), the stock market averaged 25% returns.

Looking back, this was a good call. We’re now 12 months later, and the S&P 500 has climbed another 36%.

But the good returns haven’t done anything to make people less depressed.

• This week, the Federal Reserve’s measure of US worker satisfaction fell to its lowest level since the survey began in 2014.

• Last week, consumer sentiment had fallen to the lowest level ever recorded in the 70-year history of the University of Michigan economic survey.

Why people continue to be sad is beyond the scope of this article. (For that discussion, see Derek Thompson’s article If America’s So Rich, How’d It Get So Sad?)

But counterintuitively, the fact that people remain sad supports the idea that the stock market is still a good place to invest.

When the market feels safe, investors tend to take more risks. Rising prices beget more confidence, and more confidence begets higher prices. Optimism creates bubbles, and bubbles lead to crashes.

But when investors have as little confidence as they do today, even bad news can make the market go higher. All it takes is for that bad news to be just a little less bad than expected.

Personal Note:

A few weeks ago, my wife brought home a foster dog she named Junebug, along with her two puppies.

Junebug is an amazing dog who was rescued from a very bad situation. When we brought her to the vet for a checkup, the doctor found that she was highly heartworm positive with BB pellets in her skin. But she somehow still loves people and will be going to her new family in Washington state in a couple of weeks.

Below are just a few examples.

Earnings Are the Story

The primary reason the stock market has been going up is that earnings have been going up. Companies are making more money. As the chart below shows, earnings and dividends have collectively contributed nearly 7% to the S&P 500’s total return this year. The only reason the stock market isn’t up further is that people are willing to pay less for those earnings now than they were at the start of the year.

And that is healthy.

A Return to Normal Valuations

Remember last year when everyone wanted to talk about how tech companies had gotten too expensive, and we were in something that looked like another dot-com bubble (See my note from October, Not Every Boom is a Bubble)?

Well, since then, tech valuations have compressed from 40x to 20x, and we are back at valuation levels last seen before the AI boom began.

Similar trends have occurred in other sectors as well. As the chart above shows, today’s valuations are very much in line with their ten-year averages.

Diversification Did Its Job

A few years ago, the S&P 500 was the best-performing asset class in the world, and it was tempting to wonder why you owned anything else. (See my January 2025 note, Predicting Stock Returns). But that has since changed, and diversification has continued making a difference.

Investors who stuck with their plans have continued to benefit. Those who went chasing returns have not.

The Impact of Higher Oil Prices

This chart isn’t necessarily good news, but it provides some important context for the bad news. Specifically, higher oil prices do not necessarily lead to lower stock prices.

Historically, when oil prices have risen by 20% over two days, as they have recently, the stock market has averaged 24% returns over the next 12 months.

That is not intended as a prediction, but rather a reminder that scary inputs do not always produce the outcomes we fear.

The Optimist’s Advantage

Finally, good news tends to be boring. It arrives gradually in the form of declining mortality rates, rising corporate profits, or technological progress that compounds quietly over decades. Bad news is a much better storyteller. It creates vivid narratives that make the worst feel permanent.

But nothing is ever quite as bad as it seems. The world rarely ends, and when it comes to your retirement plan, the pessimists may sound smart, but it is the patient optimists who make money.

*If doomscrolling has you thoroughly depressed, I highly recommend reading some of the articles on the Human Progress website.

Personal Note:

Tomorrow is the day! If you are in the Sugar Land area and looking for something fun to do, come on out, eat crawfish, play with puppies, and bid on auction items.

Last year, my wife made me walk around greeting people in a dog costume. We’ll see what happens this time around.

It is not very often that an initial stock offering comes along that is so obvious, so exciting, and so inevitable that even people who never buy stocks start paying attention.

But that seems to be what has happened with SpaceX.

Last week, the company confidentially filed with the SEC for a U.S. Initial Public Offering (IPO), targeting a potential June 2026 debut. The company reportedly aims for a valuation of over $1.75 trillion and may raise between $50 billion and $75 billion, making it potentially the largest IPO ever.

Do the financials justify a valuation that would make the company worth roughly 300% of Exxon or nearly 175% of Walmart?

I haven’t seen the numbers, but probably not.

SpaceX may be a great company, with great growth potential, but as I mentioned in my note two weeks ago (The Price is the Risk), great companies can be terrible investments if you pay too much for them. And when a company is at the peak of its popularity, as SpaceX seems to be right now, that popularity makes it one of the most dangerous things to buy.

In many ways, it reminds me of Facebook.

Back in 2012, I remember one of the bond traders I worked with excitedly buying shares of Facebook on the first day of its IPO. It was the only stock trade I ever saw her make. The shares started at $38, fell 33% in 11 days, and eventually fell more than 50% over the next few months.

Somewhere around the lows, she sold her shares and declared Facebook a scam.

SpaceX may trade very differently from Facebook, and it may very well end up being the greatest company ever created. But when an IPO is all anyone can talk about, and investors seem more concerned with vibes than valuation, it is generally best for retail investors to stay away.

Interesting sidenote:

The Fundrise Growth Tech Fund is a closed-end fund that began trading a few weeks ago with very thin liquidity. Most investors who held shares when the fund was private are currently locked in and unable to sell. But the fund owns SpaceX along with other private AI names like Anthropic, Databricks, and OpenAI, and retail investors want to get in before the underlying holdings become public.

So, despite the fund valuing its holdings at around $19/share, the fund started trading at around $31, peaked at $575, and currently trades at around $122.

When the hype dies down and the lockup period for existing shareholders ends, it should eventually trade closer to $19 (or whatever the net asset value ends up being), and whoever is left holding the bag will probably wonder how they lost nearly everything being an early investor in a portfolio of great companies.

Personal note:

My wife has spent the last few months helping to organize a fundraiser for Jenni’s Rescue Ranch. If you are in the Sugar Land area and looking for something to do on April 18th, I highly recommend it.

Weekly Notes:

March 6 | Iran, Uncertainty, and Why We’re Staying the Course - If you are asking whether to move to cash until the Iran conflict settles. The answer is no. Historically, the S&P 500 is positive 83% of the time in the year following a major geopolitical event — and panic-selling is rarely the right move.

March 13 | The Eternal Promise of Easy Money - Private credit was the hot trade for years — until the blowups started. A reminder that chasing high-return, hard-to-understand investments usually ends the same way, no matter how convincing the story sounds at the time.

March 20 | Everyone Thinks They’ll Get Out in Time - An AI meme coin, a derivatives bet on the Second Coming, and shady micro-cap IPOs walk into a bar. Three stories that illustrate how blurry the line between investing and gambling has become — and why smart people keep ending up on the wrong side of it.

March 27 | The Price Is the Risk - Gold doubled in two years and got labeled a “safe haven.” Then it dropped 20% in three weeks. When an asset surges because people are nervous, the risk isn’t the geopolitics — it’s the price you’re paying to get in.

Quote We Love:

“Investing in an unknowable future as an agnostic is a daunting prospect, but if foreknowledge is elusive, investing as if you know what’s coming is close to nuts.” - Howard Marks

Tax Return Reminder

If you haven't done so already, when you file your tax return, use this link to securely send us a copy. The numbers from the return greatly help with the planning we do on our side.

I see a lot of articles about why opening a stock trading account for your child is a good way to teach financial literacy, investing, and the value of long-term planning.

As a father of a 13-year-old, I mostly disagree.

First, investing should be very boring, and kids hate boring. If you put money in an account and let them have access to it, they will eventually find a way to make it exciting.

Second, most stock trading education is terrible. Just about every school district has a stock trading competition, and the team with the highest returns at the end of the semester wins.

What they don’t mention is that short-term gains and short-term losses are potential impostors, as neither is necessarily indicative of real investment ability (or the lack thereof). The kids who win by using leverage and betting on memes probably will come away having learned a lot of bad habits.

Third, judgments that prove correct don’t necessarily do so promptly, so even the best investors look wrong a lot of the time.

If you want the kids to learn the right things (and they feel the need to make it a competition), have them enter an event like the Wharton Global High School Investment Competition, where they do the trading, but winners are selected on the strength and articulation of their team strategies, not on the growth of their portfolios.

Finally, it is worth noting that I am probably biased. When I was in middle school, a relative gave me an envelope filled with old stock and bond certificates. Nobody could tell me whether they were worth anything, so I started researching them, only to discover that all the issuers had gone bankrupt during the Great Depression.

But as part of my research, I found out that people called scripophilists collected these things, and even though the shares and coupons may not be worth anything, the certificates themselves might be.

So, rather than giving up on my hopes and dreams of instant riches, I changed my AOL screen name from SwimKid622 to Scripo22, pretended I was a wizened expert in old stocks and bonds, and started selling them to people in chat rooms.

Fortunately, this was around 1997, and there were limits to how much trouble I could get into and how many schemes I could concoct. Today, I imagine I would have sold the certificates on eBay, used the cash to start trading crypto, and probably developed a habit that looked a lot like a gambling addiction.

But you never know.

What I do know is that one of the hardest skills for professional investors to master is showing up to work each day and doing nothing.

If you think you can teach your kids this restraint by opening a trading account for them on a gamified platform like Robinhood and letting them track it in an app on their phone, go for it. But be careful. What you are trying to teach and what you end up teaching could be very different things.

Personal note:

In addition to being the President of TSA Wealth Management, I moonlight as the President of my kids’ lacrosse program. I recently did an interview with USA Lacrosse about our focus on creating opportunities outside expensive, overly intense travel programs, and Paul Ohanian wrote a very nice article.

Feel free to check it out.

The greatest risk doesn’t come from low quality or high volatility. It comes from paying prices that are too high. This isn’t a theoretical risk; it’s very real. – Howard Marks

Over the last several weeks, I’ve noticed a trend in which financial prognosticators describe their strategy as moving into “risk-off trades” or “safe haven assets.”

It sounds like an appealing strategy during a time of war until you look at what they’ve actually been buying.

Gold As a Safe Haven

At the beginning of 2024, an ounce of gold cost a little over $2,000. By 2025, it was up to $2,700. On February 28, 2026, when military strikes started in Iran, the price had risen to around $5,300.

In a little over two years, gold rose 150%. Nothing about the metal changed. Its weight, shine, and industrial use were identical. The only difference was how much people were willing to pay for it. And that is precisely where the risk lived. Not in geopolitics and not in central bank policy, but in the price itself.

Howard Marks has written that investing is a popularity contest, and the most dangerous thing is to buy something at the peak of its popularity. At that point, all favorable facts and opinions have already been factored into its price, and no new buyers remain.

I don’t know if gold reached its near-term peak popularity at the start of the war, but today, as I write this note, the price of gold has fallen to a recent low around $4,100. A decline of roughly 20% in three weeks.

None of this is to pick on gold or suggest that owning some of it is foolish. Diversification is important. But when you hear the word “safe haven,” it should be in reference to something like a short-term treasury that doesn’t move much in price or have much upside.

When you hear “safe haven” applied to an asset that has recently doubled in price because people are nervous, it just means you are a late mover into a popular trade with a lot of risk.

Personal Note:

As I mentioned at the end of last week’s note, we took a cruise with my parents for our kids’ spring break. My dad doesn’t usually smile for pictures, so I consider this one a notable success.

Also, we had a client social event on the patio of Sylvia’s Enchilada Kitchen last night. I forgot to take pictures, but I had a great time and would like to give a huge thank-you to everyone who came out.

Nothing so undermines your financial judgement as the sight of your neighbor getting rich.” – JP Morgan

Today’s note is just a compilation of three stories I find entertaining. Each reminds me that, for many people, the line between investing and gambling is very blurry.

• My lobster lost $450,000 this weekend.

A developer gave an AI agent named Lobstar Wilde money and social media access. A meme coin was created that fed additional money to the AI. The AI got rich off the token and accidentally sent $450,000 to a random stranger on Twitter.

That stranger sold the $LOBSTAR tokens, crashing the price, which made the AI lobster go even more viral, and the price rose again. According to CoinMarketCap, there are currently over 12,000 holders of the coin, and the current value of $LOBSTAR is around $4,000,000 (down from a high of roughly $14,000,000).

• Derivative contracts on Jesus.

Polymarket is a cryptocurrency-based prediction market where users can place real-money wagers on almost any event imaginable. One of those wagers is that Jesus Christ will return before 2027.

According to the platform, there is a 4% chance of his return.

These odds (and this bet in general) don’t make sense until you realize there is also a derivative market where people place wagers on how high they can get the odds of Jesus’ return to climb.

Most of the money on the yes side of the trade doesn’t truly believe Jesus is returning. They simply think other people will bid up the price so they can get out at a profit before the deadline.

• Just because a company gets listed on an exchange doesn’t mean it is legitimate.

Any IPO on Nasdaq that is raising less than $15 million is pretty much a pump and dump scheme. And there are a lot of them. Last December, Barron’s published this article with the details. Over 230 offerings below $15 million apiece have occurred on Nasdaq since 2023. Last year, eight were halted by the SEC, and over 20 of the new issues fell more than 60% in a single day.

I suspect there are plenty of smart people who hold $LOBSTAR, bet on Jesus, and buy micro-cap IPOs. But, as I’m often reminded, being a smart person and a smart investor are often two very different things.

Personal note:

My kids’ spring break was this week. We used the time off to take a cruise with my parents.

I’ll be back in the office on Monday.

Back in November of 2023, I did an interview with Greg Greenberg from InvestmentNews on the topic of private credit.

The resulting article (found here - “Rising rates have advisors sprinting toward private credit”) ended with my note of caution:

No matter how far private credit outpaces other alternative investments in terms of popularity or asset accumulation, Jon Swanburg, president of TSA Wealth Management, is avoiding them altogether. That’s not because of their credit quality today, but because of the direction it may move in the future.

“I worry that issuers are going to continue lowering their lending standards to get the new inflows of cash put to work,” Swanburg said. “Given the limited regulation, the opacity of the underlying loans, and today’s high interest rates, I wouldn’t be surprised to see some sizable blowups in the years ahead.”

For two years, this statement looked pretty dumb. Private credit continued to outperform with low volatility and seemingly minimal risk.

And then, at the end of 2025, the blowups started. We are now a few months later, and the headlines for private credit haven’t gotten any better.

I have no idea what happens next for private credit. It may recover, and today’s fears will have been for nothing. Or it may continue to fall, and funds will collapse under mountains of defaults.

Either way, I’m certain there will eventually be a new hot trade that promises higher returns and less risk. And when your friends and neighbors are getting rich piling into that new trade, my best advice is to ignore the temptation.

Don’t bet on it and don’t bet against it. Just ignore it.

A well-constructed portfolio, built around your actual financial goals and grounded in assets you understand, doesn’t require chasing the trade of the moment. Investors who sidestep the excitement, absorb a little short-term embarrassment for being “too cautious,” and stay focused on the long game tend to arrive at their destination in much better shape than those who couldn’t resist the eternal promise of easy money.

A note on liquidity:

The other issue with the private credit trade is that illiquid investments are being packaged in semi-liquid products for retail investors. Nobody sees this as a problem when times are good. But when times are bad, it causes trouble.

A good rule of thumb is to avoid any investment that promises to be more liquid than its underlying holdings.

Dog updates:

Another day, another opportunity for my wife to bring home a new foster dog. This one is named Puggy, and she is available for adoption through Jenni’s Rescue Ranch.

This week, I received a few calls and emails from clients asking whether we should increase our allocation to cash until things with Iran become less scary.

The short answer is no.

First, as we wrote about over the last few weeks, we never know what will cause the volatility, but we always expect it.

Second, while there are no facts about the future, historical evidence suggests that now is not the time to sell.

Back in 2022, after Russia invaded Ukraine (and before I published these notes to Substack), I sent out a version of this chart that went back to WWII, making the case that 83% of the time, the S&P 500 is positive one year after major geopolitical events.

Below is a consolidated version that is a little easier to read:

This is not to cheer for bad things or to minimize the potential human impact of conflict. This is simply a reminder that the world has been ending, one headline at a time, for as long as markets have existed. Successful investing requires consistency in the face of uncertainty and never reacting out of fear.

But what if this time is different?

Negative years can and will happen following a conflict. The largest negative return above was in the year following 9/11.

But context matters. The September 2001 attacks didn’t happen in a vacuum. The dot-com bubble had already begun deflating in early 2000. Corporate accounting scandals were multiplying. The economy was already fragile. 9/11 was the event that broke investor confidence in an already-stressed system.

What you’re walking into matters as much as the shock itself. A healthy economy can absorb tremendous disruption. A stretched one is more vulnerable.

Personal Note:

The tiny long-haired chihuahua we’ve been fostering has been adopted by someone in Tennessee. This dog has admittedly been one of my favorites. It has no paw on the front right, and the front left looks like a crab claw, but it still leaps with the best of them.