This week I’ll keep it short and offer two reminders about tax-free municipal bonds:

1. If you are in the highest tax bracket, tax-free muni bonds look better today than they have in a long time.

2. If you aren’t in the highest tax bracket, you need to do some math to understand whether they still make sense.

Calculating Tax-Equivalent Yield

Here is a chart from Tuesday showing the Treasury rates compared to the generic AA-rated municipal bond curve. TEY in the right column stands for tax-equivalent yield, and the number tells us the annual return you would need to receive on a taxable bond to get the same result at today’s highest federal tax rate (37% + a 3.8% ACA surtax, for a total of 40.8%).

If you were considering bonds or CDs in your taxable account, and you are in this highest tax bracket, muni bonds are very much worth a look.

But Remember: Most Retirees Aren’t in the Highest Tax Bracket

It doesn’t matter if you have a $10,000,000 net worth. If you are married and your taxable income after deductions falls between $100,800 and $211,400, you are in the 22% tax bracket. If your taxable income is lower, your tax bracket is lower.

Here is a chart showing how tax-equivalent yields compare for each level of taxable income.

The bond generating a tax-equivalent yield of 7.6% for someone with $770,000 of taxable income in the 40.8% bracket generates only a 5.92% tax-equivalent yield for someone in the 24% bracket and 5.11% for someone in the 12% bracket.

So, before you get too excited about the idea of tax-free income, do some tax planning, evaluate the relative credit risks, and figure out which bonds make the most sense for you.

Disclaimer: This note isn’t intended as a recommendation to buy or sell munis. Muni bonds have default risk, and some are extremely risky. If you pay state income tax, that impacts the calculation. My goal is to show you where munis are today and remind you to do the math.

Personal Note:

On Monday nights for the next few weeks, I get to coach lacrosse teams for my 6th- and 8th-graders. We’re playing indoors at Rice in their air-conditioned practice facility, and I never want to go back outside to another 105-degree field ever again.

Yesterday we hosted a seminar at our office. The first part was a market recap; the second reminded us that humans are wired to be terrible investors; and the third explained how politics (and the upcoming midterms) can affect our decision-making.

You can find a full copy of the slides here.

For today’s note, I’ll jump to two stories from the last section:

The first is about betting on elections.

In 2016, Sam Bankman-Fried - who later became famous for founding the FTX crypto exchange and committing fraud - worked at Jane Street. He designed a system that predicted Trump’s victory before major news outlets did.

Jane Street’s thesis was that if Trump won, the markets would tank. So, they used that insight and placed billions of dollars in short bets that would benefit when the market fell.

They were right about Trump winning, but wrong about the market reaction, and they lost $300 million.

The second is about consumer confidence.

Back in April, I wrote a note titled “Investing While Sad” and made the comment that the Michigan Consumer Sentiment Index was at record lows.

Mason, our rockstar intern, broke the numbers down further so I could talk about them in the presentation. What he found was that:

Young people are a little less confident than older people. (52 v 58)

Lower-income people are a little less confident than higher-income people. (45 v 61)

And lower-wealth people are also a little less confident than higher-wealth people. (46 v 67)

But the real divide is Republicans versus Democrats. Republicans are currently at 90, and Democrats are currently at 32.

This is the widest gap in history, and whether someone feels confident in our economy right now doesn’t really depend on how old they are, how much money they make, or how much wealth they have; it depends almost entirely on who they vote for.

Keep these points in mind before you start rebalancing your portfolio. Neither your predictions nor your feelings tell you anything about what the markets will do next.

__

Personal Note:

Big thank you to everyone who came out to yesterday’s seminar, and special thanks to Mason for help with the charts.

This week, every news organization wrote a headline that said something like, “ Anthropic Researchers Believe More Than 10% Chance AI Kills Us All.”

This sounds scary until you remember that nobody knows anything.

Music industry experts didn’t think the Beatles would be any good. Movie industry experts didn’t think John Wick or Star Wars would make any money. The experts in the NFL didn’t think Kurt Warner, NFL and Super Bowl MVP, was worth a draft pick.

Barry Ritholtz’s book, “How Not to Invest,” uses some great stories to make this point, and Ben Carlson’s recent blog post does the same.

In The End of a Golden Era for Investors, Ben cites a McKinsey study that said:

A coming collapse in investment returns means that people that age today will have to work seven years longer or save almost twice as much to end up with the same nest egg as those of roughly a generation ago.

The punchline: the study was originally published in 2016 and turned out to be completely wrong.

The world is full of similar examples.

In February, the Fed projected rates would fall. By June, they changed their minds and projected rates would go higher.

This change largely happened because they didn’t predict we would invade Iran.

The truth is, nobody knows how AI will impact society, and as a financial advisor, I have no idea how markets will react to whatever does happen. But that is nothing new.

As Howard Marks pointed out in his memo, The Folly of Certainty

The rare person who in October 2022 correctly predicted that the Fed wouldn’t cut interest rates over the next 20 months was absolutely right . . . and if that prediction kept them out of the market, they’ve missed out on a gain of roughly 50% in the Standard & Poor’s 500 index. The rate-cut optimist, on the other hand, was absolutely wrong about rates but is likely much richer today.

Economists and AI researchers are usually very smart, but that doesn’t make them any better at predicting the future. Between now and the time AI is supposed to kill us all, an infinite number of things will change. Some will be good, and some will be bad. All we can know for sure is that predictions about the world ending rarely come true, and investors need to plan accordingly.

Personal Note:

Lacrosse is back! I’m still the President of Fort Bend Lacrosse and now the VP of the Houston Youth Area Lacrosse League. These are community rec programs.

My passion project is trying to create something in my area where kids can play for fun, without getting involved in the private equity-fueled travel sports complex. Maybe that means most of these kids won’t become professional lacrosse players, but that is probably okay.

If you aren’t familiar with the state of youth sports in the US, check out this article from the NY Times:

The Pay-to-Play Childhood - Private leagues have made youth sports expensive, hypercompetitive, and all-consuming. Investors are making a killing.

While I’m all for long-term optimism, the short term still matters, and proper planning still requires some amount of caution.

Difference Between Accumulating & Spending

When someone describes a portfolio that will accumulate over time, the order of gains and losses doesn’t affect the outcome.

Take this hypothetical from the Trump account website as an example:

Put $1,000 in when a child is born, and it will be worth $243,000 by the time they are 55 if returns are historically average over the long term.

It doesn’t matter whether any particular year is good or bad. The long-term average is the only thing that counts.

However, that changes once an investor begins making regular withdrawals.

The three portfolios in the chart above all start with $1 million, have the same average return of 7%, and withdraw $60,000 plus inflation each year. The orange-line investor, who benefited from large early gains, had a wonderful retirement. The yellow-line investor, who suffered large early losses, ran out of money.

There are two primary solutions:

1. Maintain a sufficient emergency reserve you can use in a downturn.

2. Create a flexible spending plan that allows you to reduce expenses when your portfolio declines.

Neither option feels good or necessary when the market is going higher, and neither will prevent the next bear market. But when the stock market has its next major decline, you’ll rest a little easier knowing you have a plan.

Personal Note:

Last weekend I was in DC for my fantasy football draft with friends from law school.

I may have picked a terrible team, but I had a great time doing it.

Weekly Notes

August 7 — Situational Awareness: Using the recent implosion of the Situational Awareness hedge fund, the piece walks through how 400% leverage on a concentrated set of AI-related positions turned sound long-term theses into a forced liquidation once margin calls hit.

August 14 — Your Portfolio Doesn’t Care Who Wins: With midterm elections approaching, the note pushes back on the idea that political outcomes should drive investment strategy.

August 21 — Remembering Why We Own Bonds: After a year where stocks posted double-digit gains and bonds lost 0.69% through July, the piece revisits why an allocation to bonds still matters.

August 28 — The Market Went Up. It Also Got Cheaper. A breakdown of the S&P 500’s year-to-date return shows nearly all of the return has come from earnings growth rather than rising valuations.

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Sometimes it may feel like the stock market is going up because we’re in a bubble where everything is getting irrationally more expensive. But this chart tells a completely different story.

The green bar on the right shows the Year-To-Date total return of the S&P 500. The three blue bars to the left break that total return into its three components.

1. Dividends. The cash flow is distributed to the shareholders

2. Earnings. The profits the companies are generating.

3. Optimism About the Future (Price / Earnings Multiple). The amount investors are willing to pay for today’s earnings based on their expectations for the future.

Of the S&P 500’s year-to-date total return, .85% came from dividends, and 21.89% came from earnings.

The crazy part is that if investors were willing to pay as much for those earnings today as they were at the beginning of the year, the market would be 9.74% higher than it is right now.

In other words, the stock market has gone up, AND it has also gotten less expensive.

As random as share prices can feel day-to-day, long-term results are driven almost entirely by earnings. And today’s earnings have been really good.

We can debate where the earnings are coming from and where they will go from here, but the fact that earnings, not investor enthusiasm, have been doing the heavy lifting is a good sign.

That doesn’t mean the ride will always be smooth, or that multiples can’t compress from here. But it’s a reminder that under the daily noise, the market still makes sense.

Personal Note:

This afternoon I'm heading to Washington, DC for my annual fantasy football draft with 11 friends from law school. This will be our league’s 19th season.

I can’t tell you a single player’s stats, and my selections are usually not the best, but I suspect it will be a good time.

But stocks and bonds are very different tools that serve very different purposes, and sometimes you just need a reminder of why we have an allocation to bonds in the first place.

1. Regret Minimization

Prof. Harry Markowitz won the Nobel Prize in economics in 1990 for his pioneering work on diversification and Modern Portfolio Theory. However, when describing how he first set the asset allocation for his portfolio in the mid-1950s, he told Jason Zweig,

“I should have computed the historical covariances of the asset classes and drawn an efficient frontier. Instead, I visualized my grief if the stock market went way up and I wasn’t in it–or if it went way down and I was completely in it. My intention was to minimize my future regret. So I split my contributions fifty-fifty between bonds and equities.”

In other words, we have no idea what the future holds. The stock market may keep going up, or it could fall. Interest rates may keep rising, or they could go back to zero.

Given the inherent uncertainty about what happens next, an allocation to bonds is an effective tool for managing future regret.

2. Cash Flow Needs

My belief that stocks will outperform bonds over the next 30 years is nice, but completely irrelevant to an investor with near-term goals and spending needs. Owning some amount of high-quality short-term bonds is a good way to manage the risk of being forced to sell stocks when they are down.

3. Take Advantage of Higher Interest Rates

Bond prices have fallen because interest rates have risen. If you liked bonds during COVID when the ten-year US Treasury was near 0.5%, you should love the same bonds today now that they’ve climbed back to over 4.7%. In dollar terms, $1 million of a ten-year Treasury in 2020 generated $5,000 per year in income. Today those same bonds would generate $47,000.

But What If Interest Rates Keep Going Up?

Humans tend to over-index to whatever has recently happened. When things go down in value, people tend to think they will go down forever, and when things go up, people tend to buy thinking prices will go up forever.

But change is inevitable.

That is why diversification matters: if we do it right, at any given moment, at least one asset in the portfolio will disappoint us. If everything is going up at the same time, we may be taking more risk than we realize.

We’re less than three months away from midterm elections, and since nothing inspires people to make terrible investment decisions like their political beliefs, here are some preemptive charts to remind you that the market probably won’t collapse if your preferred candidates don’t win.

First up, volatility around the midterms is normal, and the third quarter has historically been among the weakest.

But that doesn’t mean you should sell.

If you had sold after the first quarter of this year anticipating a bad 2Q, you missed more than 17% of upside in the S&P 500. I just bring it up as a reminder that it would be historically normal for the market to trend down before trending back up.

Second, the strategy should not change based on who you think will win.

Roughly 50% of the time, your preferred party is not in power, and I suspect it will always be that way.

Since 1926, the stock market has trended higher regardless of which party has been in office.

And if you only invested when your preferred party held the presidency, you’d be notably worse off.

It is easy to feel that this midterm election and this moment in history are different. But the world rarely ends, and the best investment strategy is generally the one you can stick with regardless of who is in office.

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If you’re in the Houston area and have documents to be shredded, feel free to bring them to our office.

You can bring them with you if you attend our seminar on September 17th; you can bring them with you if you have an account review; or, if you just want to bring them up at another time, you can block off time using the link below, and we’ll make sure we’re ready for you.

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Personal Note:

Summer is over, and my kids went back to school this week.

They are now 3rd-, 6th-, and 8th-graders.

Leopold Aschenbrenner enrolled at Columbia at 15 and graduated valedictorian at 19 with a B.A. in economics, mathematics, and statistics. He is a notably smart person with interesting ideas.

In 2024, at age 23, he wrote a viral manifesto on the future of AI and used that as a white paper to launch a hedge fund. By October of 2025, Fortune had written a lengthy profile of the new wunderkind, and the fund grew exponentially.

But being smart and having interesting ideas did not prevent him from losing $35 billion dollars last week when his hedge fund, Situational Awareness, was forced to liquidate its positions in response to margin calls.

There is a lot to be written about the details of the blow-up, but for the purposes of this note, I’ll simply emphasize that his trading ideas were not the problem and his long-term projections for the stocks he selected may prove to be perfectly correct over the next ten years.

However, by using 400% leverage on a concentrated set of positions, he severely narrowed his fund’s range of survivability. And being right in the long term never matters if you can’t survive all the short-term events along the way.

So while the AI trade is novel, and the fund’s gains and losses are staggering in size, we’ve seen this story before. The lesson Leopold learned last week is no different than the one homeowners learned in 2008.

Just because the bank is willing to lend you money doesn’t mean it is a good idea to take it.

Personal Note:

The kids are back from camp, and we all survived. This is their last weekend of summer, and then it is back to school.

Weekly Notes

July 3 — Two Years Too Early: Small caps underperformed large caps by 8.8% in 2023, 13.5% in 2024, and 8% in 2025 — then flipped to outperform by 12.3% in the first half of this year. The reversal is used as a reminder that a trend being directionally correct and being timeable are two very different things.

July 10 — Jim Rogers & The Only Way to Make Money Off Pessimism: Revisiting an annual tradition, the note tracks fifteen straight years of media coverage in which Jim Rogers predicts an imminent, “worst in his lifetime” market crash. The pattern is offered as a case study in why prognosticators who traffic in doom rarely face consequences for being wrong.

July 17 — Trump Accounts: Take the Free Money, But . . . Using an 8-year-old as an example, the piece runs the numbers on a $5,000/year Trump account that grows to nearly $4 million by age 70 — and compares the tax outcome under a Roth conversion versus simply using a taxable custodial account or a 529 instead. The takeaway: opening an account is a no-brainer since the free money requires nothing else, but funding it is a separate decision that depends on the specific goal.

July 24 — When Society Gets Margin Called: In South Korea, 1.2 million retail trading accounts were margin-called last month, and roughly 360,000 were wiped out entirely after two major tech stocks plunged. The note draws a line from that episode to record leveraged-ETF issuance and retail trading volume in the US, arguing the same dynamics aren’t unique to one country.

July 31 — Different Incentives, Different Advice: A Morgan Stanley analyst’s $300–$600 price target on SpaceX is used to illustrate a broader point: the firm earned over $100 million in advisory fees on the IPO and brought in more than $70 billion in new wealth-division assets last quarter. The piece argues that advice isn’t necessarily wrong just because the source has different incentives — but the distinction matters.

Idea Worth Revisiting

From When Society Gets Margin Called:

Media Feature: Crystal McKeon Quoted Across National Outlets

Crystal McKeon, Chief Compliance Officer at TSA Wealth Management, was featured this month in four separate publications covering retirement planning and investing: MarketWatch (on what not to do if you’re behind on retirement savings), ThinkAdvisor (on the DOL’s proposal for alternatives in 401(k)s), PLANADVISER (on the risks of retirees investing in adult children’s business ventures), and MarketWatch again (on why a $100,000 portfolio doesn’t stretch as far for young investors as it used to).

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When I listen to people talk about their investment strategies, it seems that a lot of them take advice from people with incentives very different from their own.

For example, the other day I was talking to someone about SpaceX, and they argued it was a good buy at today’s levels because a Morgan Stanley analyst had put a price target on SpaceX between $300 and $600 per share.

The analyst is a very smart person, and I’m sure his spreadsheets are beautiful. But Morgan Stanley, the company writing the analyst’s paycheck, made over $100 million in direct advisory fees for orchestrating the SpaceX debut, and their wealth division brought in more than $70 billion in new assets in Q2, thanks in part to promising new clients access to a share allocation in the IPO. They also help manage the SpaceX workplace plan, which will continue to provide a significant source of revenue for the company in the years ahead.

This isn’t to say the analyst is wrong, and I certainly don’t accuse him of lying. What a man wishes he generally believes to be true. But he is incentivized to love and believe in SpaceX more than most.

It is also worth remembering:

• The billionaire crypto entrepreneur who forecasts Bitcoin reaching $1 million has much different incentives than you.

• The CEO who is excited about his company’s business outlook has much different incentives than you.

• The YouTube personality who is revealing “all the secrets the big banks don’t want you to know” has much different incentives than you.

• The person who has nothing to lose has much different incentives than you.

Again, just because they have different incentives doesn’t automatically make them wrong. It just means that what makes sense for them may not make sense for you. And that is a very important distinction.

For whatever it is worth, at this point in my career, my incentive is for my business to be as sustainable as possible, which means not doing anything that is incredibly risky, cutting edge, or without historical precedent. And since I work primarily with stocks and bonds, I’m biased to believe those are the best tools for an investor to use.

This means I will never be the advisor who encourages his clients to use their 401(k) s to speculate on a new food truck venture or buy a bunch of apartment buildings.

Those things may be right for some people, but probably never me.

And since I mentioned SpaceX, here is an updated chart (See Houston, We Have an IPO and Price vs. Valuation) comparing the current SpaceX listing to the average path of the top 10 US IPOs by size.

Be careful out there.

Personal Note:

I don’t pick up my kids from camp until tomorrow but here is a picture from drop off.

Hopefully they still remember us.

Last week in South Korea, 1.2 million retail accounts (roughly 1 in every 30 adults in the nation) experienced a margin call, where their broker required they cover some of the trading losses they racked up with borrowed money. Roughly 360,000 of those accounts were entirely wiped out as the country’s two major tech stocks, Samsung and SK Hynix, plunged.

My favorite article to come out of the mess is probably this one from Reuters.

It starts with interviewing a 24-year-old University student who used 500% margin loans to 15x his money and then lost it all in a matter of weeks. The article ends by saying,

“Lee says he understands [the risk of leveraged investment products] but remains convinced leverage is the ​best route forward.

“I’ve often compared this to poker: if you go all-in every single time, you are bound to lose.

“But if you have the discipline to only deploy that capital when the mathematical odds are ​heavily in your favour, it is actually quite difficult to get repeatedly wiped out in a single shot.”

I love his optimism, and the idea that next time he’ll use math to gain an edge. But it completely ignores the reality that improbable things happen all the time, and you only need to be wiped out once to lose everything.

Will something like this eventually happen in the US?

Absolutely. Today in the US:

• ETFs account for 27.6% of all trade volume.

• 40% of that ETF volume is in leveraged products.

• More than 400 of 700 US leveraged ETFs in existence have been launched in the last two years

• Polymarket has applied for a license to offer margin trading in prediction markets

• Retail traders are deploying capital at a record pace.

• 9 of the 10 most active trading days observed on the Citadel platform occurred within the past two months.

In other words, the problem of degenerate gamblers using the stock market as a casino is not a South Korean problem. It is a human problem. And it seems to be getting worse.

As a species, we have yet to learn that:

1. Debt narrows the range of survivable outcomes.

2. Long-term results don’t matter if you can’t survive whatever happens in the short-term.

Maybe this time will be different, and everyone will be fine. But I wouldn’t bet on it.

The above is not to say the US stock market is going to collapse or that now is the time to be selling. For context, here is a chart showing the Korean stock market (KOSPI) v the S&P 500 on a YTD basis as of yesterday. Leveraged investors in short-term trading vehicles lost everything. Boring investors who have bought and held are still up 68%. A far cry from the 100%+ they were up roughly a month ago, but they will live.

Personal Note:

Tomorrow we drive out to Bandera to drop the kids off at camp. We’ll see if they miss hanging out with me.

We have been getting questions about Trump accounts and the most effective way to use them.

If you want a deep dive into the nuances of these accounts, I suggest this article from Nerd’s Eye View - Why Taxable Custodial Accounts Are Better Than OBBBA “Trump Accounts” For Kids’ Savings

If you just want my shorter version, here it is1:

If you have a child under 18, opening a Trump account makes sense. Every child should have one. Employers might fund it, the government might fund it, a billionaire philanthropist might fund it. The only way to receive the free money is to have an account open, so it makes sense to open one. It doesn’t cost anything to open or maintain, and you never know what may happen in the future. So, you should open one, even if your kids aren’t eligible for any of the initial deposits today.

Whether you should fund that account with your own money is a different question entirely, and the answer depends heavily on your goals.

For example, if the money is for education, a 529 probably makes the most sense. If the money is for a new house when they are 30, a taxable custodial account probably makes the most sense. If the money is intended for the child’s future retirement, a Trump account converted to a Roth after they turn 18 may be part of the answer.

My 8-Year-Old Daughter as An Example

My daughter is 8 years old. If I were to contribute $5,000 to her Trump account every year until she was 18, I would have contributed $50,000, and at an 8% growth rate, it would be worth almost $73,000.

At that point, the account becomes an IRA.

If she never contributes another penny and lets the account continue to grow until she is 70, the account would be worth nearly $4 million. That sounds great, but since it is an IRA, all the money that comes out would be taxed as ordinary income, likely at or near the highest marginal rates. If she leaves the account to her kids or grandkids, they will be responsible for distributing the account over 10 years and paying ordinary income tax on the entire amount.

The Roth Conversion

If she were to convert the account to a Roth when she turned 18, she would have to pay tax on the $23k of gains at my tax rate (kiddie tax rules would likely apply) with funds outside the Trump account; otherwise, the money used to pay tax on the conversion would be subject to an additional 10% penalty.

Assuming I am feeling very generous and choose to gift her the money to pay the tax bill on her conversion (probably an extra $8 or $9k), by the time she was 70, she would still have the same $4 million, but none of it would be subject to income tax for her or her heirs.

The Taxable Custodial Account Option

Of course, if I had just put the money in a taxable custodial account for her, her income would be low enough that she would have owed no tax on the annual dividends, and she would likely be able to sell after graduating from college and pay 0% tax on her capital gains and have no restrictions on when she could use the money.

And the best part is, I would have saved the $8k or $9k I paid toward the tax bill for the conversion.

If the money continues to grow in a taxable account, it would be subject to tax, but those taxes would likely be at the more favorable rates associated with long-term capital gains and qualified dividends. The assets would receive a stepped-up basis upon her death, and her heirs would receive the proceeds tax-free.

The 529 Option

And even if my only goal was to get some money into her Roth account, I could leave $35,000 in a 529 account beyond what was needed for her education, use the money to fund her Roth contributions for a few years after she graduates, and avoid paying tax on the conversion like I would have needed to do had I used the Trump account.

Every Situation is Different

If there is ever a chance to get free money from a Trump account, you should take it. However, if you are considering gifting your child or grandchild money to give them a head start in their future, a Trump account may or may not be the answer. The right approach will depend entirely on your goals and coordinating the strategy with the rest of your financial plan.

Personal Note:

Just about everyone in my wife’s family was born in July. My wife, her sister, her mom, and her dad all have birthdays within a couple of weeks of each other.

So this week has been a celebration of everyone.

Every year around this time, I write a note explaining how there is an industry of famous financial prognosticators who make money shouting scary words that help them book speaking engagements, sell newsletters, and convince people to make terrible financial decisions.

One of those people is Jim Rogers. Every year, he makes the same catastrophic predictions, and every year the financial media gleefully prints his warnings with a lead sentence describing him as a “legendary investor” and “co-founder of the Quantum Fund.”

Since we’re now more than halfway through 2026, I figured I’d update my annual Jim Rogers Prediction List with this May 14^th article from Yahoo Finance: Jim Rogers issues dire warning over Trump’s stock market: ‘The end will probably come soon.’ What he likes for safety.

What the article says and what he suggests are not important. I’m just reposting as a reminder that there will always be people and publications trying to convince you the sky is falling, and it is important you tune them out.

In case you don’t have last year’s email handy, here are similar articles going back to 2011.

• 2011: 100% Chance of Crisis, Worse Than 2008: Jim Rogers

• 2012: Jim Rogers: It’s Going To Get Really “Bad After The Next Election”

• 2013: Jim Rogers Warns: “Run for the Hills Now, I’m Doing It

• 2014: Jim Rogers Wants to Put All His Money Into North Korea

• 2015: Jim Rogers: “We’re Overdue” for a Stock Market Crash ((original link no longer works)

• 2016: $68 TRILLION “BIBLICAL CRASH” Dead Ahead? Jim Rogers Issues a DIRE WARNING (original link no longer works)

• 2017: THE BOTTOM LINE: Legendary investor Jim Rogers expects the worst crash in our lifetime

• 2018: Jim Rogers says the next bear market will be ‘the worst in our lifetime’

• 2019: Jim Rogers on US Economic Crisis, Gold & Bitcoin - Jim predicts that the next bear market will be in the worst in his lifetime.

• 2020: ‘The next one has to be worse than 2008’: Legendary investor Jim Rogers says you shouldn’t trust the stock market’s rally — and warns of a scenario where ‘everything collapses for a while’

• 2021: Jim Rogers: Next bear market will be ‘the worst in my lifetime’ — here are 3 keys to survive it

• 2022: Jim Rogers warns of the ‘worst bear market’ in his lifetime – these are the ‘least dangerous’ assets to own today

• 2023: ‘You Should Be Extremely Worried’: Jim Rogers Warns That The Next Bear Market Will Be The ‘Worst In His Lifetime,’ Suggests A Bigger Crash Than 2008. Here’s What He Owns Now

• 2024: America is long overdue for a problem’: Jim Rogers says next market crash will be ‘the worst’ — names 2 safe assets

• 2025: Jim Rogers sold all his US stock holdings, saying he’s ‘seen this party’ before — how to shockproof your money

So, as I say every year, take these and other cataclysmic articles with a grain of salt. It is generally the optimists who make money investing, and the pessimists who make money selling books.

Personal Note:

Happy birthday to my beautiful, amazing, animal-loving wife!

She doesn’t read the financial planning section of these notes, but she will scroll to the bottom to see what I put down here. So this personal note section is dedicated to her.

Weekly Notes

June 5 — Houston, We Have an IPO
Of the ten largest IPOs in U.S. history, the average one-year return was a loss of 27.8%. With SpaceX set to price the largest IPO ever at a $1.785 trillion valuation, that historical track record is a reason for retail investors to approach with caution.

June 12 — Plan for the Plan Falling Apart
A widely-cited BofA note warning investors to “take profits” turned out to project the S&P 500 falling just 4% from current levels. The piece uses that gap between headline and substance to make the case that pullbacks are a normal, recurring feature of markets, and that avoiding them entirely has historically cost far more than it’s saved.

June 19 — Price vs. Valuation
A $200 share price sounds modest, but at SpaceX’s scale, it reflects a $2.5 trillion valuation on $30 billion in revenue — equivalent to valuing a $3 million-revenue startup at $250 million. The note argues that human brains struggle to intuit numbers at that scale, and that a low-looking share price can mask a very aggressive valuation.

June 26 — Search For the Infinite Money Glitch
Strategy’s “Stretch” preferred shares were pitched as a way to fund Bitcoin dividends indefinitely, but the dividend has already been raised five times, from 9% to 11.5%, and the stock is down roughly 75% since the strategy was first covered here last summer. The episode is framed as a reminder that leverage-based shortcuts to outsized returns tend to unwind the same way they always have.

Idea Worth Revisiting

From April’s Vibes & Valuations:

Seminar Recap: Navigating Market Volatility

On June 3, we hosted a seminar at our office titled “Navigating Market Volatility.” Thanks to everyone who came out — the full slide deck is available here.

The general idea that value and small-cap companies will outperform large growth companies will eventually be true. However, timing is everything, and the pain of being early is often indistinguishable from the pain of being wrong.

That turned out to be correct.

In 2023, small caps underperformed large caps by 8.8%. In 2024, they underperformed by 13.5%. In 2025, they underperformed by another 8%.

And just as many investors were giving up on small caps entirely, the asset class turned around and outperformed large caps by 12.3% in the first 6 months of this year.

I don’t bring this up because I have strong feelings about the merits of large caps or small caps. My only point is to remind you that things that cannot go on forever will eventually stop, but the markets can stay irrational longer than you can stay solvent, and betting on exactly when things will change is generally a terrible way to try to make money.

Personal Note:

Thanks to Starlink, my temporary office has moved to a cottage in Ontario, Canada. I think my kids have liked the change. In-person meetings in Houston will restart on July 15th.

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.