The Best Stocks in History (EP. 457)

Episode Summary

Executive Summary: The episode centered on how markets are being driven by geopolitics, policy, and psychology more than fundamentals, with the hosts arguing that oil shocks, war headlines, and Fed expectations are being absorbed surprisingly well by equities. They also discussed concentration in stock returns, housing weakness, AI’s mixed effects on work and education, private credit and tax strategy trends, and lighter culture topics like movies and birthdays.

Main Topics: Markets, geopolitics, and the 'Trump put' (Priority: 5/5): The hosts argued that markets increasingly dictate the timing and framing of major geopolitical announcements, with the Iran conflict and oil prices influencing risk assets, yields, and policy reactions. They emphasized that markets are unusually resilient and may be pricing through bad news rather than reacting to it. Oil, inflation, and Fed expectations (Priority: 5/5): They debated whether higher oil prices could meaningfully damage the economy, noting that energy is a smaller share of household budgets than in past shocks. They also questioned why markets are pricing rate hikes rather than cuts, given the shock is exogenous and not demand-driven. Market concentration and stock-picking risk (Priority: 4/5): Using the updated Bessembinder research, they discussed how an even smaller number of stocks now account for most long-term wealth creation, reinforcing the case for indexing and the difficulty of holding individual stocks forever. Housing market stagnation and homeownership regret (Priority: 4/5): They highlighted weak pending home sales, the burden of high mortgage rates, and stories of accidental landlords and buyers regretting purchases. The discussion stressed how expensive and operationally difficult homeownership can be, especially in high-cost markets. AI’s impact on work and education (Priority: 4/5): The hosts contrasted AI as a productivity tool versus a force that can intensify workloads, reduce thinking, and widen skill gaps. They shared a teacher’s perspective that many students use AI to avoid learning, while others may use it to become more capable. Private credit, tax strategy, and financial industry moats (Priority: 3/5): They previewed future problems in private credit, discussed the growth of tax-aware investing strategies for wealthy clients, and noted that some financial products and institutions still have durable moats despite AI disruption. Culture and entertainment breaks (Priority: 2/5): The episode also included lighter discussion of birthdays, home service responsiveness, robots, and movie/TV recommendations such as Project Hail Mary, Rooster, DTF, and Hamnet.

Key Arguments: Markets now react to geopolitical events through the lens of oil, inflation, and bond yields, so policy and war announcements are increasingly coordinated around market hours. The market has shown unusual resilience; even with war headlines and oil spikes, the S&P did not fully roll over, suggesting investors are still looking through the noise. Higher oil prices are less damaging than in the 1970s because energy is a much smaller share of household spending today. A rate hike would be a strange response to an exogenous oil shock because it would suppress demand without fixing the supply problem. Bessembinder-style research continues to show that a tiny number of stocks create most long-term wealth, which supports indexing and cautions against buy-and-hold in individual names. Housing remains structurally weak: high rates, low affordability, and low transaction volume are creating accidental landlords and buyer regret. AI is likely to intensify work and may create a temporary productivity boom, but it can also make students and workers more dependent on automation and less intellectually engaged. Private credit and tax-efficient investing are both large, growing areas, but they are slow-moving and often misunderstood by outsiders. Service businesses that respond quickly and solve small problems well can build strong word-of-mouth moats without heavy marketing. Some financial and political actors should be barred from owning individual stocks because of obvious conflicts of interest.

Data Points: S&P 500 intraday move: up about 2.5% at the highs - Reaction to the administration’s statement about the Iran conflict S&P 500 drawdown: down 6.8% at the lows - Largest drawdown mentioned for the year so far Market breadth: 40% of the index is in a bear market - Under-the-surface weakness despite index resilience Energy spending share of household budgets: over 6% in the early 1980s vs. about 2% now - Used to argue households can better absorb higher oil prices today Inflation expectation: above 5% over the next 12 months - Implied inflation pricing from one-year breakevens Rate-cut/rate-hike expectations: market shifted from 3 cuts in 2026 to pricing a hike - Illustrates how quickly Fed expectations changed Bessembinder update: 46 firms account for half of $91 trillion in net wealth creation - Updated long-run stock market concentration research Earlier Bessembinder result: 89 firms accounted for $43 trillion in net wealth creation - Prior version of the study through 2016 Top 10% household expenditures share: 22% to 23% - Ernie Tedeschi’s correction to the Moody’s-style claim that the top 10% spend 50% of all money Pending home sales: lowest level in history - Evidence of severe housing market weakness Home Depot stock performance: 0% cumulative return since April 2021 - Used as an example of pulled-forward housing/renovation demand Cumulative U.S. home sales: $9 trillion since April 2021 - Contrasted with Home Depot’s flat stock performance Average monthly new car payment: $774 in January - Up from $588 in January 2021 Share of new car borrowers paying over $1,000/month: 20% - Record level at the end of last year AI study sample: 164,000 workers and 443 million hours - WSJ-reported analysis of AI’s effect on work habits AI work intensity changes: email/chat time more than doubled; business management tool use rose 94% - AI appeared to intensify rather than reduce work Bitcoin buffer ETF example: 0% downside buffer product used by the host - Illustration of structured crypto exposure Cliffwater Direct Lending Index worst year: -6.5% in 2008 - Used to contextualize private credit risk Calamos/crypto-related asset: Bitcoin buffer ETFs worked during a crash - Host noted the downside protection functioned as intended New York Stock Exchange tokenization effort: partnership with Securitize - Mentioned as a sign of institutional adoption of tokenized securities

Pivotal Quotes: "There is a vast conspiracy to grow the economy over bears and increase asset prices. It's called society." — Dan McMurtry (quoted by hosts): Used to argue that markets and policy tend to support growth and asset prices over time "Do not be fooled by the psychological games of people seeking to dominate attention." — Dan McMurtry (quoted by hosts): Commentary on bear narratives and attention-driven media "The market is in purgatory." — Ben Carlson: Describing the market’s indecision amid war, oil, and inflation uncertainty

Implications: Listeners should expect markets to remain highly headline-driven, with oil, inflation, and Fed expectations dominating near-term moves. The episode reinforces indexing, caution on individual stocks and housing, and skepticism toward simplistic AI or crisis narratives.