The Richest 50 Percent (EP.64)

Episode Summary

Executive Summary: The episode covers market and behavioral lessons through WeWork’s soft-bank funding cut, Sears’ rise and decline, housing wealth, Japan’s demographic surprise, portfolio allocation realism, fake news and aging investors, and the limits of trend-following and factor investing. The hosts repeatedly emphasize that investor behavior and time horizon matter more than chasing perfect allocations or indicators.

Main Topics: WeWork and SoftBank’s pullback (Priority: 5/5): The hosts discuss WeWork’s forced reorganization and SoftBank reducing its planned funding from $16 billion to $2 billion, reading it as a warning sign about venture excess, scale-at-all-costs business models, and eventual down rounds. Sears, retail history, and corporate obsolescence (Priority: 4/5): They highlight Derek Thompson’s Atlantic piece on Sears, noting how Sears pioneered consumer demand observation but was overtaken by Walmart and Amazon. The conversation frames Sears as a giant that survived longer than expected but failed to adapt. Housing wealth, mortgage rates, and spending (Priority: 4/5): A discussion of Zillow’s housing-market gains and whether rising home values change spending behavior, along with a debate over whether low rates increase or decrease housing volatility and how mortgage affordability shapes price levels. Demographics, Japan, and retirement fears (Priority: 5/5): Using a Wall Street Journal piece on Japan, they challenge the idea that demographics alone determine economic outcomes. They also push back on the popular view that baby boomers dumping stocks will break markets, arguing buyers, longer lifespans, and stock concentration matter. Asset allocation and risk tolerance (Priority: 5/5): A listener question leads to a practical review of stock/bond allocations using YCharts model portfolios. Their conclusion: modest allocation changes don’t matter much; sticking with an allocation you can endure matters far more than optimizing every percentage point. Misinformation, age, and finance Twitter behavior (Priority: 3/5): They note a study showing older adults share the most fake news online and connect it to family anecdotes and broader concerns about digital literacy, surveys, and how online discourse evolves. Trend-following, factors, and tactical investing (Priority: 4/5): They answer listener questions about trend-following and the overlap among quality, low-vol, and momentum ETFs, arguing that time horizon, regime, and methodology explain much of the apparent contradiction.

Key Arguments: WeWork’s reduced SoftBank funding is a sign that aggressive growth-at-all-costs models can break when capital becomes less abundant. Sears succeeded early by building tools to understand consumer demand, but Amazon and Walmart built better systems and outcompeted it. Rising home values may affect spending more through psychology and retirement planning than through month-to-month cash flow. Low mortgage rates and high home prices may make housing more rate-sensitive, but the relationship is not simple and can work in both directions. Japan’s labor-force story shows demographics are not destiny; higher labor participation among women, older workers, and immigrants can offset population decline. The boomers-sell-stocks narrative is overstated because buyers exist, wealth is concentrated, and retirees may need more equity exposure given longer lifespans. Small shifts in stock/bond mix are less important than choosing a portfolio you can actually hold through drawdowns. Older adults appear more vulnerable to fake news online, reinforcing the importance of media skepticism and digital literacy. Trend-following isn’t doomed; longer-term signals may still work better than very fast tactical strategies in a crowded market. Factor ETFs can overlap substantially because factor definitions depend on the market regime and rebalancing rules.

Data Points: WeWork planned SoftBank investment: $16 billion reduced to $2 billion - SoftBank cut back its intended takeover/funding package for WeWork. WeWork 2018 revenue: $1.2 billion - Wall Street Journal data cited for the first nine months of 2018. WeWork 2018 net loss: about $1.2 billion - Same period, showing losses roughly matched revenue. Sears share of U.S. spending: 1 in every $100 spent - Peak scale in the middle of the century. U.S. housing market value increase in 2018: $1.9 trillion - Zillow data on the annual change in total housing market value. Total U.S. housing market value: $33.3 trillion - Zillow estimate for 2018. California share of U.S. housing market value: about one-third - A striking geographic concentration noted from the housing data. Japan working-age population change: down 4.7 million since 2012 - From the WSJ/Japan demographics discussion. Japan number of people working: up 4.4 million since 2012 - Offsetting the shrinking working-age population. Millennials with debt expecting to die before repaying: 1 in 5 - CNBC survey discussed in the segment on debt. Average millennial personal debt: about $32,000 - Same CNBC survey. Fake news sharing by age 65+: 11% of users - Study cited in The Verge piece on misinformation. Fake news sharing by age 18-29: 3% of users - Comparison group in the same study. Active mutual fund outflows in 2018: $513 billion - Eric Balchunas tweet cited on active fund redemptions. Share of active outflows in Nov-Dec: over half - Most of the 2018 active outflows occurred in the last two months. Model portfolio return gap: not that great from 90/10 to 70/30 over 10 years - Conclusion from YCharts model portfolio comparison. Drawdown on 90/10 portfolio: 16.4% - Peak-to-trough drawdown from late September to Christmas Eve in the example. Drawdown on 80/20 portfolio: 14.4% - Same drawdown comparison in the model portfolios. Drawdown on 70/30 portfolio: 12.5% - Same drawdown comparison in the model portfolios. Drawdown on 40/60 portfolio: 6.5% - Lowest-risk example in the portfolio comparison. Quality/low-vol/momentum overlap: 22 stocks in all three ETFs - Tom Serafagus tweet on factor overlap. Low-vol stocks in quality ETF: 47 stocks - Same factor-overlap tweet. Momentum names within low-vol subset: 30 stocks - Same factor-overlap tweet.

Pivotal Quotes: "Sears built a vehicle for surveilling American consumer tastes. But in the past few decades, Walmart and Amazon built better tools for observing and anticipating shopping habits and tastes." — Michael Batnick quoting Derek Thompson: Used to explain Sears’ rise and the superior data and logistics advantages of modern retailers. "The stock market is screwed because they're going to sell all their stocks." — Ben Carlson paraphrasing a common argument: Introduced to challenge the idea that boomer retirement will mechanically crush equities. "The thing is, with any of these tactical strategies, you're never going to time it perfectly." — Michael Batnick: Part of the discussion on trend-following and indicator-based timing.

Implications: Investors should focus less on headline narratives and more on behavior, adaptability, and portfolio discipline. The episode argues that markets are shaped by regime, participation, and human psychology more than simple rules or demographics.