Infantile Ignorance

What I said in Boca Raton... When 'buy the dip' was born... The brutal 1966 to 1982 slog... The S&P 500 today versus housing in 2006... Humans haven't changed... Beware of safe 'no-brainers'...

I (Dan Ferris) was in Boca Raton this week...

I traveled to Florida to speak at the Rule Symposium, which brings together some of the greatest legends of the mining industry every year.

I've known conference host Rick Rule since 1998, when I visited his offices in Carlsbad, California to learn about the companies that owned water rights.

Nobody knows more than Rick about investing in small, speculative mining stocks. And nobody knows more of the greatest mining entrepreneurs... or the people who provide them with capital.

This year marked my third year in a row speaking at the symposium.

Last year, I urged Rick's attendees to buy natural gas, specifically EQT (EQT), which we also own in The Ferris Report model portfolio. EQT is the U.S.'s largest gas producer, and conference-goers who took my advice are up nearly 50%.

Two years ago, I highlighted copper and told attendees to buy blue-chip copper stocks. Copper is up nearly 60% since then.

This year, I barely mentioned natural resources at all... except to reiterate that I love the idea of buying the best-of-the-best major global producers of copper, uranium, oil and gas, gold and silver, and other commodities and holding them for the next decade or so.

They're well-run, cash-gushing, dividend-paying businesses with great assets and balance sheets. So they're safer than other natural resource stocks... yet they still possess multibagger gain potential if you can hold them through the full cycle.

Instead, I shared an argument I've written about here many times...

I spent most of my time talking about why I think the U.S. stock market will deliver a decade-plus, potentially brutal, sideways market starting right about now.

You see, the S&P 500 Index is currently trading for a cyclically adjusted price-to-earnings ("CAPE") ratio of about 38 – one of its highest levels since 1871.

The other three most expensive moments were in September 1929 (at 32.6), December 1999 (44.2), and November 2021 (38.6). December 1999 is still the most expensive moment in U.S. stock market history.

Each of those egregiously expensive moments were followed by bear markets. The Dow Jones Industrial Average fell nearly 90% after peaking in September 1929. The Nasdaq Composite Index fell nearly 80% after it peaked in March 2000. And the S&P 500 fell 25% and the Nasdaq fell 36% after peaking in November 2021.

After the 1929 peak and decline, the Dow went sideways... and took 25 years to make a new all-time high. Likewise, the March 2000 peak in the Nasdaq preceded a 15-year sideways market.

The longer-term consequences of the 2021 and 2025 valuation peaks remain to be seen. It'll take at least 10 years to know if my warnings have been prudent or off the mark.

But there's another reason I think investors are ripe for an era of disappointment...

Many investors seem to think that stock market history started in 1982...

That year kicked off the most epic 18-year bull run, which didn't end until the dot-com bust took the Nasdaq down 78% and the S&P 500 down 49% from March 2000 to the fall of 2002.

Before the 2000 to 2002 bear market set in, the worst drawdown during the bull run was in October 1987, when the S&P 500 fell a total of 33%. The decline took about a month, but most of it happened on October 19, when the Dow fell by more than 22% and the S&P 500 fell by more than 20%. "Black Monday" is still the worst one-day performance in U.S. stock market history.

Besides October 1987, the S&P 500 fell about 19% on two other occasions during the bull market. One was during the 1990 recession and took about six months. The other was during the summer of 1998, when Long-Term Capital Management failed, and took about a month.

Otherwise, it was clear sailing – a massive two-decade bull run that taught the world that there's no better bet than U.S. stocks. By the late 1990s, stocks were all anybody could talk about at cocktail parties, and the entire world had learned to chant "buy the dip." (Maggie Mahar's Bull! A History of the Boom and Bust, 1982-2004 is a must-read for aspiring market historians.)

But I promise you...

Nobody was saying 'buy the dip' in the two decades before the 1982 to 2000 bull market...

The S&P 500 became a widely adopted global benchmark starting in the 1980s, shortly after the first S&P 500 index fund was created by Vanguard in 1976.

Until then, the Dow Jones Industrial Average was the benchmark. When people asked, "What did the market do today?" they were really asking if the Dow was up or down.

Vanguard choosing the S&P 500 for the first index fund certainly helped the S&P 500's reputation... as did the Dow's absolutely miserable performance from 1966 to 1982.

While the S&P 500 rose by more than 40% from February 1966 to November 1982, the Dow was flat. And it had five declines of between 24% and 45%, the latter being the bear market of 1973 to 1974.

BusinessWeek's cover declared "The Death of Equities" in 1979, capturing the public feeling toward the stock market well. I promise you, nobody was chanting "buy the dip" in 1982 after 16 years and five bear markets.

But nobody seems to think much about the brutal 1966 to 1982 sideways market anymore. It's ancient history and feels totally irrelevant in today's world.

People learned to buy the dips in the 1990s... and to chant "buy the dips" in the epic run that followed the 2007 to 2009 financial crisis bear market. The market rose steadily from 2009 to 2022... and the bear market in 2022 wasn't that terrible. The market bottomed within a year and hit a new all-time high by January 2024. After some mild unpleasantness in August of last year and April of this year, the market is back to hitting new all-time highs.

Skeptics like me seem to be totally out of touch with the reality of the unbeatable S&P 500. But, as I've said, the "relentless bid" of constant index fund buying in weekly 401(k) contributions is an important reason why the market seems so unstoppable.

I'm reminded of George Santayana's now-famous words from his 1951 philosophy classic The Life of Reason:

Progress, far from consisting in change, depends on retentiveness... and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it.

Were he alive today, Santayana might say it's a bit infantile to believe that "there is no alternative" to U.S. stocks, which you often hear today. A new idea is "Trump always chickens out," meaning whenever President Donald Trump starts making threats about a new round of tariffs and the market declines, you can always buy the dip because he'll always chicken out – especially when the bond market reacts poorly to the news.

With an infantile ignorance of history, everybody seems to think the S&P 500 is an absolute no-brainer that will never disappoint them. That's why I think the risk of a major stock market correction is higher than ever.

What if the S&P 500 today is analogous to housing in 2006?...

By 2006, the housing bubble was in full bloom. Everybody wanted to flip houses for a living. Investors were constantly reminding each other that U.S. home prices had never had a down year.

That wasn't true, of course. Folks just didn't remember the last time it happened. Just like today, everyone thought only in terms of the recent past. In their bullish frenzy, they forgot about the more distant – and ultimately far more relevant – past.

That past was remembered well, if a little too late, in a 2013 paper that reconstructed Manhattan real estate price indexes from 1920 to 1939 – the roaring twenties and the Great Depression. It concluded:

During the 1920s, prices reached their highest level in the third quarter of 1929 before falling by 67% at the end of 1932 and hovering around that value for most of the Great Depression. The value of high-end properties strongly co-moved with the stock market between 1929 and 1932. A typical property bought in 1920 would have retained only 56% of its initial value in nominal terms two decades later.

Other sources suggest nationwide housing prices declined 35% from 1929 to 1933, as a quarter of the workforce became unemployed and foreclosures soared.

The 2000s housing bubble finally started blowing up in 2008. But you might not remember that housing prices actually peaked in 2006:

Nationwide home prices didn't start to recover until 2012.

In short, investors made a huge mistake by either being ignorant of the distant past or, even worse, by knowing about it and dismissing its warnings as irrelevant.

The distant past will always hold important clues for the present for one simple reason: Humans were humans in the distant past, just as they are today. No matter how markets or technologies might change, and no matter how much those changes might appear to change attitudes about what happened decades, centuries, or millennia ago...

Humans haven't changed...

Too often in the past several years, I've heard the nonsensical notion that modern life has somehow changed human nature.

For example, some folks have suggested that the Bill of Rights doesn't apply to modern life because the founders didn't have modern tools like the Internet or semi-automatic rifles. That's a moronic view.

The founders had rapid enough communications networks to transmit messages throughout the 13 colonies in a matter of days, stoking the fires of revolution for years. And though not in widespread use, they had repeating firearms at the time of the Bill of Rights.

Sometimes, I'll hear folks tell me that valuations, market action, or some other aspect of financial markets before 1980 or 2000 are totally irrelevant to today's market.

That can't possibly be true. As I've pointed out before, humans didn't create or invent markets. Markets are simply what happens between humans when they're not trying to kill each other or isolate themselves from each other. Humans have had markets for a lot longer than a few decades.

It's silly to believe we behave differently in them now than in the distant past, or that the fundamentals of a particular industry or business no longer matter when allocating capital.

As author and mathematician Benoit Mandelbrot concluded in his must-read classic, The (Mis)Behavior of Markets: A Fractal View of Financial Turbulence:

Markets in all places and ages work alike.

Mandelbrot studied market data for decades. He didn't reach his conclusions quickly or state them lightly. He considered the above one of his "Ten Heresies of Finance." It underscores the fact that the popular understanding of financial markets is often deeply flawed. To navigate markets successfully, you must learn to zig at key moments when everybody else is zagging.

Right now is one of those moments. But there's another way to look at the S&P 500's vulnerability right now...

The safe, 'no-brainer' assets have the greatest potential to do the most harm...

The S&P 500 today reminds me of the "Nifty Fifty" stocks of the early 1970s. These growth stocks included names like Avon Products, Xerox, and Polaroid. It was believed at the time that it didn't matter if you paid 50 or even 100 times earnings for them. They'd just keep growing forever and generating excellent returns.

These stocks peaked in 1973. Some went out of business entirely. And years later, folks who'd held these no-brainer investments were down between 50% and 90% on nearly all of them.

Similarly, home ownership in 2006 was (and by many still is) thought of as a safe long-term investment that would protect you from inflation. By 2006, making quick capital gains flipping houses seemed normal.

Many more people owned homes than were invested in the stock market, partially because folks considered stocks riskier than homes. The ubiquitous confidence in the safety of housing helped investors get very comfortable with securities that contained large amounts of subprime mortgages. It helped ratings agencies adorn these securities with their highest ratings, reserved for only the very safest investments.

Then the housing bubble burst... mortgages defaulted... subprime mortgage lenders disappeared from stock exchanges... thousands lost their homes... dozens and dozens of banks failed... and home prices fell for six straight years.

The biggest financial crisis since the Great Depression happened because everybody thought housing and anything to do with it was one of the safest possible investments you could make.

Likewise, nobody today questions the safety of the S&P 500...

It is the ultimate no-brainer, can't lose investment. You can buy every dip and you will never be disappointed.

You'll never catch me predicting a bear market... but now more than ever, you need to learn to look around the corners and see the risks that aren't out in the open.

To me, the risk of the S&P 500 performing poorly for 10 years is out in the open, but I can tell by its valuation and price action that virtually nobody else feels that way.

Also, even though I remain bearish on the S&P 500, Mike Barrett and I continue to find excellent businesses trading at attractive prices for Extreme Value subscribers. And I continue to find new ways for The Ferris Report subscribers to build a truly diversified portfolio.

That way, if – and when – the S&P 500 finally starts rhyming with its sideways episodes of the distant past, our subscribers will be ready to survive and even thrive.

New 52-week highs (as of 7/10/25): ABB (ABBNY), Ansys (ANSS), Dimensional International Small Cap Value Fund (DISV), GE Vernova (GEV), Houlihan Lokey (HLI), iShares Convertible Bond Fund (ICVT), Lincoln Electric (LECO), Ormat Technologies (ORA), Sprott Physical Silver Trust (PSLV), Ryder System (R), ResMed (RMD), Sprott (SII), iShares Silver Trust (SLV), TransDigm (TDG), ProShares Ultra Semiconductors (USD), Vanguard S&P 500 Fund (VOO), and Industrial Select Sector SPDR Fund (XLI).

Our mailbag is overflowing with e-mails about your experiences dealing with tariffs (which we've also shared the past two days here and here). These notes paint a sour picture about tariffs' impact on small businesses... We'll keep the conversation going next week, so keep your stories, comments, and opinions coming to feedback@stansberryresearch.com.

"I am recently retired but my wife, god bless her, likes working. She is [a] buyer for [a] company supplying autos. Her company has lost 30% of business as major automakers cut back. She has had mandatory PTO days and, coming soon, major layoffs [for] 20-25% of staff and management.

"Tariffs don't work in automotive. As the big automakers cut back, it ripples down the supply chain and everyone suffers. Prices will rise!" – Subscriber Brian H.

"I also work in the Auto Industry for a Tier 1 supplier. We are extremely slow (slower than during the crash of 2009). We've been hit with a 1-2 punch. First overinvesting in electrification of cars and most recently the tariffs.

"We've had layoffs, many are leaving the company and there are very little open positions in the auto industry. Most people that I talk to in the Motor City are feeling the slowdown. We need the uncertainty of the tariffs to be resolved and soon." – Subscriber Rich D.

"I own a mobile home park in rural Ontario... I ordered three homes from [a company in Indiana] earlier this year. Once the countervailing tariffs were introduced (25%) we put our order on hold. It's hard to see how this benefits [the manufacturer's] employees in Indiana. And as for me, the mobile home park business is the AFFORDABLE HOUSING business. It's also hard to see how an extra $35,000 in costs benefits home buyers struggling to get in at the bottom end of the property market.

"We need another ten homes on top of those three. Not sure what we are going to do. In the short [term] we're doing nothing." – Subscriber D.S.

"Love your newsletter. I am in the wine and spirits importing business and most of what we import is from the EU where the weaker dollar is almost like a de facto 15% tariff. That, in addition to the 10% across the board tariffs, is forcing us to raise our prices. We will be fine, I think, but smaller importers will be hurt." – Subscriber R.B.

"We're a ball bearing manufacturer. We are seeing huge increases in some of the items used in [essential operations, maintenance, and repair] and our raw materials are set to skyrocket when the domestic inventory (in warehouses) runs out in August. We won't be competitive then and our customers will import finished goods at a lower tariff than we can get the raw materials, even though the raw materials are not even made in the U.S. We can't purchase the steel domestically.

"This will put a large part of our plant and maybe all of us out of work by the end of the year." – Subscriber J.P.

"I've seen mainly business owners write to you about the impact of tariffs.

"I am a business appraiser, and my consulting practice gets slow whenever there is uncertainty in the business community and business owners hit the pause (or perhaps panic) button. As a way to illustrate how much of an impact [tariffs have] had so far, new business calls and closings went from say 90 MPH for the four years leading up to the tariffs to 20 MPH now. The huge slowdown hit a few months ago when the tariffs were being announced so I am pretty confident tariffs are the culprit here. For the sanity of many business owners and managers out there, we need to get clarity on tariff policy as soon as possible." – Subscriber Greg T.

"As a small business owner in the home improvement space, I am not experiencing price increases due to tariffs. I am keeping my prices on the high side due to soft demand. (The few who are buying are willing to pay a premium.) If interest rates fell, demand would increase and I would actually lower prices as the bottom line would increase on higher volumes. Seems contrary, but true." – Subscriber J.M.

"If tariffs cause higher prices for consumers in the countries that have tariffs on U.S. products, how do those countries justify still having them (tariffs) for decades? Wouldn't all the arguments against the U.S. imposing tariffs also apply to those counties imposing tariffs on U.S. imports?" – Subscriber Mike C.

"When there is a huge gap between income levels in countries, how is it possible to achieve a trade balance with each country? Also, when country A produces tanks or planes and country B produces clothing, which product will be a continual reorder?" – Subscriber Jack G.

"Keep comments [coming] from all sides of the multi-faceted tariff issue. Can't trust the mainstream media to give a more complete picture. Personally, I think we won't have a clearer picture until at least a year from now." – Subscriber Francis M.

Corey McLaughlin comment: We will keep this going for sure. There are a lot of stories and takes about tariffs we haven't published yet. If you haven't seen yours yet, we'll likely get to it next week.

In the meantime, good luck to all of the business owners who are trying to navigate the tariff environment in the real world. Hearing all this, it's hard to believe the impacts won't show up in the economic "data" sooner than later.

Good investing,

Dan Ferris
Boca Raton, Florida
July 11, 2025