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uh this is an unusual cycle because it was not caused by business considerations usually uh business is too good optimism goes too far and that causes uh a top to be reached and then there's some disappointment and things fall and so forth uh but this uh cycle if you will is the result of the pandemic and the government actions and so nothing related to or native to the economy um the government actions to fight uh the economic slowdown resulting from the pandemic or the lockdown were very successful and uh our economy is doing very well in the states for the last uh few quarters and of course the markets have done fabulously the s p 500 equity index has more than doubled from the low which was set on march 23rd of 2020.
um the interesting thing is this so usually the uh the market stock market if you will and the economy move pretty much together and not exactly together and there are leads and there are legs and one does better than the other but for the most part they move together now uh this time they are not together because the stock market has exploded upward doubling as i said but the economy is just at the beginning of of uh of an upcycle now one of the what does that mean normally we would say that if the stock market is very high and the economy has done well for several years uh that we're uh prone to have a problem today we could say the the bad news is that even though the economy hasn't risen stocks have they're already high that's the bad news but you could also look at it from a positive point of view usually when stocks are high the economy is also which means it's going to fall today the economy has plenty of room to run uh so even though the stock market is high most markets are high the uh the uh the risk of a recession or an economic slowdown is is is not substantial so that's healthier than most periods among my the memos of last year i talked about the fact that uh you know the government spending sending out trillions of dollars in in relief uh payments to workers and to companies um and the injection of liquidity as you describe uh in particular through bond buying at the fed and also interest rate cuts all of these things that were done to stimulate the economy and support the economy have negative possible consequences called mostly inflation uh reducing interest rates for example subsidizes borrowers and encourages leverage penalizes savers and retirees on pensions and so forth so everything has pluses and minuses um but you know there there was there's concern that that uh you know um last year for example the the government ran a deficit uh of over three trillion dollars uh and there's concern that that that can bring on inflation uh negatively affect the value of the dollar um put in perhaps in the extreme jeopardize the role of the dollar as the world's uh reserve currency so there are lots of complications lots of negative possible consequences but i made it clear in one of my memos last year that just because something has negative possible consequences doesn't mean you shouldn't do it and i want to be absolutely clear today at expert that that if the government of the us had and the other central banks hadn't done what they did last year we would probably be in a global depression today so it was the right thing to do it only has risks attached i'm glad they did it now uh you know when the economy is stronger and this life support is not as necessary i think it's desirable for the government and especially the fed to do less of it i'm not here at expert to say i'm gonna make investing easy for you i'm not even gonna say it's easy for me investing is complicated and uh many of the most important aspects of investing are counter-intuitive uh and and that's what that's what uh second level thinking is all about investing is a funny place because it's very easy to do average and it's very hard to do above average and uh if you want to do average very easy buy an index fund and you're guaranteed to do average if you want to do better than the average if you're more competitive or if you have higher aspirations or you want to make more money or if you're like me you're a professional investor and you have to get clients and retain clients then the key is to do better than average so the point is that the combined wisdom of all investors is present in the market and together the opinions of all investors set determine the price of every asset so if general motor stock sells for 64 that means the optimists are happy to buy there and the pessimists are happy to sell there 64.
that's your price if you want to do average and you put a little general motors in your portfolio and you're kind of agnostic as to whether it's cheap or rich but you put it there to be represented if i want to outperform as a superior investor i have to say general motors is cheap i'm going to buy twice as much as its representation in the index or it's expensive i'm not going to hold any so i have to have an opinion which diverges from the consensus opinion which sets the market price but that's the background on on this so in other words if you if you think the same as everybody else you'll invest the same as everybody else if you invest the same as everybody else you'll perform the same as everybody else that's not a very good recipe for out performance in order to outperform you have to see things different from others but just seeing them different is not enough you have to be different but better your judgments have to be different but more correct than others and that's that's not easy but it's what you have to do if you if you want to outperform you
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