With the Rest of My Time, I Want to Be the One

Time moves slower when things happen faster... Applying this concept to life and the markets... Three implications from 2020's wild ride... Great investors tend to do this better than others... The future is worse than unpredictable for these folks... With the rest of my time, I want to be the one...

Albert Einstein taught us that time is relative to each observer...

This is not "just a theory." It's how the universe works... Two working clocks traveling at different rates of acceleration will show the passing of different lengths of time.

For example, the International Space Station ("ISS") is orbiting the Earth at about 17,000 miles an hour. And at Earth's equator, it spins at about 1,000 miles per hour.

The ISS's greater acceleration is why time moves about 0.01 seconds slower every 12 months there than at the Earth's equator. So astronauts who've spent time on the ISS have aged slower than those of us on Earth... just barely, but a difference, nonetheless.

(Acceleration involves a change in either of velocity's two components – speed and direction. An elliptical orbit requires constantly changing direction... Therefore, to maintain orbit at a constant speed, the ISS is in a state of constant acceleration.)

The effect gets even more dramatic as one observer approaches the speed of light.

The famous "twin paradox" is another way to look at this concept. Imagine one twin remains on Earth and the other travels through space at high speeds before returning... At the end of the trip, the space-traveling twin is younger than the Earthbound twin.

That's because the space-traveling twin needs to accelerate three times during the trip – at the start, when he changes directions, and at the end... He ages less in those stretches.

Time moves slower when things happen faster.

I (Dan Ferris) can't help but notice an interesting life principle in play here...

The faster you move, the slower you age... That's like saying the less time you waste, the farther you move through time relative to those who waste more of life's precious moments.

Roman Stoic philosopher Seneca the Younger made a similar revelation roughly 2,000 years ago. He reasoned in his essay, "De Brevitate Vitae," that life is long if you know how to live it... implying that living well affects your perception of time.

According to Seneca, everyone gets enough time to do what's important.

It's up to the individual to use that time wisely... And Seneca reasons that time is used best by living in the moment in pursuit of an intentional, purposeful life.

Financial markets seem to behave like those Earthbound and space-traveling clocks and twins, too...

Time seems to speed up and slow down depending on what's happening in the markets. As math genius Benoit Mandelbrot noted in his landmark book, The (Mis)Behavior of Markets...

In [his field, called] fractal analysis, time is flexible. The multifractal model describes market as deforming time – expanding it here, contracting it there. The more dramatic the price changes, the more trading time-scale expands. The duller the price chart, the slower runs the market clock...

Time does not run in a straight line, like the markings on a wooden ruler. It stretches and shrinks, as if the ruler were made of balloon rubber. This is true in daily life: We perk up during high drama, nod off when bored. Markets do the same.

Bear markets will perk you right up... You'll see the expansion and contraction of time that Mandelbrot described play out in every single bear market (whether you want to or not).

For example, the bear market from 2007 to 2009 lasted 17 months... And it wiped out all the gains from September 1996 to October 2007 – a span of 133 months.

If Einstein were still alive, he might have said that "bull market time" moved slower than "bear market time"... since it took nearly eight times as long to move stock prices the same distance (in the opposite direction).

After a recent episode of the Stansberry Investor Hour podcast, a listener e-mailed in a quote often attributed to Russian revolutionary Vladimir Lenin. While it's unclear whether Lenin actually ever said these words, the accuracy of their message is indisputable...

There are decades when nothing happens, and there are weeks when decades happen.

Einstein, Mandelbrot, and Lenin all would've understood 2020 better than most...

The benchmark S&P 500 Index's 34% descent through March 23 happened faster than any bear market in history... It took just 33 days to go from the February peak to the bottom.

Then, over the next 262 days (through yesterday's close), the S&P 500 rose 64%.

And it didn't take nearly that long for the fastest market recovery ever... The S&P 500 hit that milestone on August 18, when it eclipsed its previous all-time high from February.

Given how fast the market recovered, and what Mandelbrot and Lenin have taught us about time, the past nine months felt more like a decade or so of regular market time.

If we were to use the calendar up to the beginning of 2020 and then Mandelbrot and Lenin's insights for the rest of the year, perhaps the greatest bull market ever isn't merely 11 years old right now... Maybe in market time, it's more like 15 or 16 years along.

If we look at it that way, three potentially powerful implications follow from that observation...

1. The bull market that started at the March 2009 bottom is a lot longer than the calendar says, since 2020 adds relative years of market time, not mere months.

2. For the same reason, the bull market's end could be nearer in time than anyone today would ever believe.

3. If this bull market soon becomes a bear market, the bull period after that is unlikely to resemble the last decade or so.

The first two points overlap... One shouldn't ever pretend to know what "inning" the market is in. The game can change at any time.

All the price and fundamental data points that market participants study each day are history. All the models and testing that they do are hypothetical.

The future doesn't care about any of that. Reality unfolds without regard for the past, the models, or the tests. The future will surprise us. That will influence how we perceive time.

That's why I always say, "Prepare. Don't predict."

You must prepare for the future precisely because you can't predict it...

If you're prepared, it's more likely that you won't be caught off guard if we get another episode like March 2020... or worse, another day like "Black Monday" on October 19, 1987, when the Dow Jones Industrial Average lost almost 22% in a single day.

Investors today have no sense that such an event, though unlikely, is far more likely than they imagine. The cognitive dissonance of "though unlikely" and "far more likely than they imagine" is too subtle for folks buying call options at a record pace and pushing Tesla's (TSLA) market cap past that of any of the profitable automakers producing many more cars.

They're partying at the roulette table... ordering another round of drinks and doubling up their bets. They don't have time for philosophy and high-minded talk about time.

Thankfully, we can channel Mandelbrot again on this topic. In The (Mis)Behavior of Markets, he also addressed the idea that markets are riskier than most participants can imagine...

According to the standard model of finance, in which prices vary according to the bell curve, the odds of ruin are about... one chance in a hundred billion billion. With odds like that, you are more likely to get vaporized by a meteorite landing on your house than you are to go bankrupt in a financial market. But if prices vary widely... the odds of ruin soar: they are on the order of one in ten or one in thirty.

The third point above – about how the next decade will look – isn't on anyone's mind today...

It deals with a period too far into the future for most folks. But history suggests it's not a point you can afford to ignore...

You see, the market won't just keep going higher forever. As my friend and fellow value investor Vitaliy Katsenelson noted in his book, The Little Book of Sideways Markets...

During the twentieth century, almost every protracted bull market lasted about a decade and a half or so and was followed by a cowardly lion [sideways] market that lasted just as long.

For example, the Dow Jones Industrial Average traded in a range between about 600 and around 1,000 from January 1966 to December 1982. If you were investing your hard-earned money in stocks during that span, you had little to show for it for roughly 17 years.

Great investors tend to show a flexible understanding of time compared with the rest of the market...

During a recent Bloomberg interview, famed short seller Jim Chanos commented on how time in bull markets changes investors' behavior. He referred to the current moment as "the golden age of fraud" before explaining...

The fraud cycle follows the financial cycle with a lag. The longer that a bull market goes, the more people's sense of disbelief erodes, and they begin to believe things that are too good to be true.

And I think we're seeing that now, more than we've probably ever seen before, in terms of the willingness of markets to buy outright frauds, or where there's evidence of fraud, or even where the evidence of fraud is sort of laid out for you.

It's easy to miss the fact that time is the main ingredient here...

Without enough time passing, investors might retain enough skepticism to keep from getting caught up in the mania and duped by frauds. But as more time goes by, they'll start to treat the insanity as normal and consider veterans like Chanos as simply fossils from a long-gone era.

Demonstrating a flexible view of time, Chanos also commented on the bull case for stocks as being rather odd in that it seems to rest on the proposition that people can behave in crazy ways a lot longer than you'd expect.

Most investors are caught in the moment and can't project themselves years (or maybe just months) forward to the ultimate reckoning... But Chanos sees the reckoning with crystal clarity, as though it's happening right now.

Asset-management firm GMO's Jeremy Grantham understands time, too. In a recent client letter, my friend and portfolio manager Chris Pavese of Broyhill Asset Management quoted Grantham...

As the opportunities to add value increase so does the personal risk, the career risk and the business risk, until finally there will be incredible opportunities to make money... that no one will dare to take advantage of. We would like at least to be the last ones trying.

If you've ever heard the phrase "time arbitrage"... that's what Grantham is talking about. He is saying that if you can just buy the dirt-cheap assets everyone loathes and hold them until a time when they're not cheap or loathed, you'll do well.

Like Chanos, Grantham can project his behavior and asset values forward in time.

The future is worse than unpredictable for those who can't embrace a more flexible view of time...

It's almost guaranteed to catch them off guard.

That's because humans tend to be lousy at guessing their future emotional states, even when outcomes are favorable. The foible is compounded when big things happen over short periods of time...

Lottery winners are a prime example. If you buy a lottery ticket, you imagine in your head that winning will be a positive experience. Who doesn't want to win a bunch of money?

But the National Endowment for Financial Education says about 70% of those who receive a cash windfall will lose it in a few years. And Don McNay, author of Life Lessons from the Lottery, says of lottery winners...

So many of them wind up unhappy or broke... People commit suicide. People run through their money... It's just upheaval that they're not ready for.

In other words, good or bad, sudden "upheaval" is a problem. These lottery winners were unprepared for so much change in such a short period of time... and they suffered for it.

In the end, the lottery winners were like the clock and the twin stuck on Earth. The rest of the world seemed to them like their space-traveling counterparts... moving faster through time, aging slower, and moving further along in life.

Once again, time was relative.

Maybe you just can't rush Mother Nature...

Time might be flexible or relative, but we're all on her schedule in the end.

If you're the sort that doesn't like to hear warnings and bearish talk as the market sits near all-time highs, I understand. We're only human, after all... We can only process so many different viewpoints. But I won't change my tune unless the market changes...

You see, over the past few months (since dear old mom's passing), I've gained a new glimmer of what I might actually be doing in this world. It's one that I couldn't see before... And it's well-summed in a recent tweet by economist Thomas Sowell and my reply to it.

Sowell tweeted... "Have you noticed that there seem to be an ever growing number of things we are not supposed to say in public?" And I replied that... "Yes, I have. Saying them often and loudly is the lowest hanging fruit in global media."

When speech – the ultimate act of creation, which brings order to chaos – is banned on college campuses, social media platforms, and other venues... I want to be the one to recommend you speak up loudly and often.

When the folks in charge of the Nasdaq Composite Index try to cure alleged systemic racism and sexism by embedding racism and sexism in the law... I want to be the one to cry foul.

When know-nothing, locked-down investors hopped up on stimulus checks want to buy call options, bankrupt companies, and frauds sitting in plain sight... I want to be the one to point out that time in markets plays tricks on you, and the results are more likely to ruin you than you might know.

When too many people want to say something as silly as "follow the science," totally unaware that following is the act of sheep, not a scientist... I want to be the one to point it out.

I don't want to come to the end of my life, whether it's tomorrow, next year, or 50 years from now (at age 109!)... look back on everything that has happened as time passed in my decades on Earth... and regret not having used what God gave me...

That is, a voice and a pretty substantial soapbox to stand on here at Stansberry Research.

So if I ever seem too preachy or too bearish in the Digest, you know why. But remember, in the end, time is relative to each observer... And I just want to help you make the most of it.

New 52-week highs (as of 12/10/20): Bunge (BG), BlackLine (BL), Crispr Therapeutics (CRSP), Disney (DIS), Editas Medicine (EDIT), ProShares Ultra MSCI Emerging Markets Fund (EET), Fortescue Metals (FMG.AX), Green Thumb Industries (GTBIF), Innovative Industrial Properties (IIPR), Maxar Technologies (MAXR), MongoDB (MDB), Match Group (MTCH), Cloudflare (NET), Intellia Therapeutics (NTLA), Invitae (NVTA), OptimizeRx (OPRX), Starbucks (SBUX), First Trust Cloud Computing Fund (SKYY), Scotts Miracle-Gro (SMG), Spotify Technology (SPOT), Square (SQ), Seagate Technology (STX), TFI International (TFII), The Trade Desk (TTD), Take-Two Interactive Software (TTWO), Vanguard Inflation-Protected Securities Fund (VIPSX), Vanguard Short-Term Inflation-Protected Securities Index Fund (VTIP), and Zendesk (ZEN).

In today's mailbag, more feedback on my Digest from last week. Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Aloha Dan Ferris, you write the best Digests, in my opinion! With all the media's 'woke' perspective it was refreshing to read the truth, eloquently stated. If you put your opinions on social media you would probably be attacked and cancelled (which only seem to matter if one needs social media). Please keep speaking the truth with the same conviction for those of us who want your perspective as part of our world understanding.

"As to your caution that stocks are overbought, every stock I currently hold is a BUY or a HOLD in the portfolio recommendations of some Stansberry [advisories], with the sell stop in place at the recommended price... After a 200%+ gain in DOCU I sold my shares in early Sept. and late November because DOCU's valuation was ridiculous and I was delighted with the gain, despite Porter's recommendation to hold DOCU without a trailing stop. I have been using DOCU's tech for a decade, totally believe in the value of their product, and will buy shares again when they present a value proposition." – Paid-up subscriber James P.

"Dan, loved your article. My fiancé and I wondered if you had somehow been listening to our conversations as we often voice the same thoughts and concerns about the current mindset of the nation. We absolutely agree with all that you said. Thank you for having the courage to say it. This article is definitely going into my keeper file." – Paid-up subscriber Eric H.

"In the 70s I was working for a high-tech firm in San Diego. Our HR guy called me in one day and said: 'I see from your security clearance renewal form that your mother was born in Indian Territory (now Oklahoma). Can I count you as Indian on my minority quota?' I assured him that I am of English and Scottish decent." – Paid-up subscriber Wade S.

"Thanks Dan for speaking out... Never thought we would see so many who want to let bureaucrats tell them what to think." – Paid-up subscriber Bob R.

"Best article I have read in a while. It saddens me to think that anyone could be offended by your honesty. However, that is their right as we are free to choose." – Paid-up subscriber Doug K.

"I agree with you wholeheartedly. I'm willing to accept others' 'freedom of expression' as long as they (and the government) don't force me to agree with them or support their point of view." – Paid-up subscriber Robert F.

Good investing,

Dan Ferris
Vancouver, Washington
December 11, 2020