The Single Most Important Factor to Retiring Rich and Staying Rich in Retirement

NYSE: SPY | SPDR S&P 500 ETF Trust News, Ratings, and Charts

SPY – Today I’m going to give you some clear examples of just how certainty can not just lead you to poorer returns, but could even crush your retirement dreams if you let it…

Each week I watch a lot of big macro sources, such as the Ritholtz Wealth Management trifecta of Animal Spirits, The Compound, and Friends, and What are Your Thoughts. 

I also watch Real Vision’s Daily market recap, with a rotating cast of regular economists and analysts who provide me with a big picture view of the global financial system and major trends worth keeping an eye on. 

This week’s special report was inspired by what economist Darius Dale of 42 Macro recently said on Real Vision. 

There’s a bubble in certainty”. – Darus Dale 

This brings me to the single most important factor that can help you retire rich and stay rich in retirement. 

The Templeton-Marks 80% Certainty Limit 

John Templeton and Howard Marks are two of the greatest investors in history. They noted that about “20% of the time this time really is different”. 

In other words, even if all the available facts say that something is as close to a “sure thing” as you’ve ever seen, there is a 1 in 5 chance that you’re missing something important. 

Or even if you’re not, there’s a 20% chance that fundamentals will shift in such a way as to make you wrong over the long term. 

All models are wrong but some models are useful.” – British Statistician George E.P Box 

The world is so complex that even the most advanced models, that prove the most accurate over time, can only be right most of the time. 

For example, Renaissance Tech, the greatest quant hedge fund of all time, is right with just 52% of all trades. Yet being right must be 52% of the time, and limiting all trades to 1% gains or 1% losses and making millions of trades per day helped them achieve a 71.8% CAGR return from 1994 through 2014, the single best investment record in human history. 

By the way, since 1926 the S&P is up 52% of all days, showing the truth of what Buffett once said. 

It’s better to be approximately right than precisely wrong.” – Warren Buffett 

Now let me give you some clear examples of just how certainty can not just lead you to poorer returns, but could even crush your retirement dreams if you let it.  

How Certainty Can Kill Your Retirement Dreams 

Every year since the Great Recession GMO has put out its seven-year forecast. And each time they predicted horrible market returns. 

Their model is complex but basically assumes that margin mean reversion will crush corporate profits in the next seven years, and result in the S&P 500 falling 40% by the end of 2028. 

While margin mean reversion has been true for over 100 years, there is one major reason why their model has been dead wrong for 12 years in a row. 

  • in 2010 (lowest valuations in decades) they predicted 2% annual returns for the S&P 500 through 2017
  • they were off by 87% 

Last year GMO predicted -7% CAGR returns for stocks over the next seven years. That’s the same forecast they just put out for 2021. 

Here’s the biggest reason why margin mean reversion for the S&P 500 might not happen and thus explain how GMO can be wrong for 12 consecutive years and counting. 

  • statistically speaking any mode that’s wrong for 10+ years is 90% to 91% likely to be fundamentally flawed

FANNG stocks now make up 25% of the S&P 500 by market cap. These hyper-growth tech giants have returns on capital that are 144% compared to the S&P 500’s 13%. 

In other words, 11X was profitable. And guess what? While the S&P 500 is expected to grow earnings 8.5% CAGR over time FANG is expected to grow at 21.6%. 

Deutsche Bank is skeptical that corporate earnings can grow faster than the 6.5% average since 1935. 

However, if FANG, dominated by high-margin, fast-growing wide-moat businesses, grows even half as fast as analysts currently expect, then eventually FANG will become an even larger portion of the market. 

And that 11X higher profitability will cause the S&P’s margins to keep posting new highs year after year. 

Here’s a classic example of smart people making bold, and certain claims, including up to 90% market crashes, that would have ruined your financial future if you listened to them. 

How about Robert Kiyosaki, author of the very popular “Rich Dad, Poor Dad” series? 

He just made a very high confidence prediction about a major market crash.

Guess what? Like GMO, he’s been making such predictions for a decade. 

(Source: Nick Maggiulli)

How about John Hussman who has been looking at historical valuation data going back 200 years and creating his own proprietary valuation metrics that predict 50% to 70% market crashes every few years? 

A larger decline than the Great Recession? If your model keeps forecasting that for over 10 years and it never happens, it’s time to rethink your model. 

Hussman’s strategic growth fund, his flagship fund, has lost 97% of assets since it peaked in 2010 when he once more predicted yet another major market crash.

Now Hussman has been calling and investing for expected market crashes since 2000. We’ve had 2 of the largest crashes in market history, 3 bear markets, three recessions, and dozens of healthy and normal corrections. 

How did investors who entrusted their money with Hussman over such a crazy two decades do? Surely they at least made money right, in this hedge fund?

-2% Inflation-Adjusted Returns For 21 Years Despite 3 Recessionary Bear Markets 

(Source: Morningstar)

Anyone who invested with Hussman in July 2000 when he started, after inflation, has lost 35% of their money over half an investing lifetime. 

Wall Street knows only three languages, and none of them are certainty. 

  • probability
  • margin of safety
  • risk-adjusted expected returns 

In part two of this series, we’ll see how you can not only survive in a complex and uncertain world in which even the best models and smartest experts are never 100% right, but how you can retire rich, and stay rich in retirement. 


SPY shares were trading at $456.19 per share on Wednesday morning, up $0.23 (+0.05%). Year-to-date, SPY has gained 23.21%, versus a % rise in the benchmark S&P 500 index during the same period.


About the Author: Adam Galas


Adam has spent years as a writer for The Motley Fool, Simply Safe Dividends, Seeking Alpha, and Dividend Sensei. His goal is to help people learn how to harness the power of dividend growth investing. Learn more about Adam’s background, along with links to his most recent articles. More...


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