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.

Need to Shred Things?

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.

https://calendly.com/cmckeon-tsawm/15min

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.

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.

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