The Princess Bride and Market Pundits

By Michal Emory on July 19, 2018

Michal Emory
One of my wife’s all-time favorite movies is The Princess Bride.  The movie is based on a farm girl named Buttercup who is chosen to marry Prince Humperdinck. Only she does not want to marry the Prince because she is in love with Westley who she thinks was killed by the Dread Pirate Roberts  five years earlier. Buttercup gets kidnapped by the witty Vizzini and his two associates Inigo Montoya and Fezzik. They are pursued by the Dread Pirate Roberts (Man in Black), while the Prince is chasing them all.  In the end….well, I do not want to give away the ending. Needless to say, it is a wonderful, whimsical movie that your family can watch.  

I bring up this movie because there are lines and scenes from the movie that I think of when I hear market pundits tell us that we are facing impending doom.It seems that everywhere I look there is a new doomsday prediction. If you google “next bear market for the stock market” you get over 151 million results! But what if they are wrong? What if you follow their advice and those doomsday predictions do not become reality? Since at least 2013, there has been a steady drumbeat of why our next recession is right around the corner. In the meantime, the S&P 500 has risen over 90%!

Here are some of my favorite quotes that are brought to my mind when I hear the permabears tell us that we are facing impending doom.

 

Vizzini: He didn’t fall?! Inconceivable!
Inigo Montoya: You keep using that word. I do not think it means what you think it means.


Princess Bride and Pundits
This line comes to mind often as the permabears get trotted out to explain why, even though their last 10 predictions were wrong, you should follow their every word because we are about to have a 40% or 50% crash in the stock market.  They like to use words/phrases like “unprecedented,” “always,” and “never seen before.” Every time I hear them utter things like this I want to say to them, “I do not think it means what you think it means”.

Let’s say someone followed that advice in 2013 and went to cash. When do you go back to stocks? If you thought the market was expensive when it was at 1460, then how do you get back in at 1800 much less the 2800 we are today?  

The reality is that no one knows what will happen, and we can do more harm than good to our financial plan by following these types of guesses.  A solid financial plan is one that can withstand and adapt to different market environments without needing to be upended at the first sign of volatility.  

Man in Black: All right. Where is the poison? The battle of wits has begun. It ends when you decide and we both drink and find out who is right... and who is dead.

Vizzini: But it’s so simple. All I have to do is divine from what I know of you: are you the sort of man who would put the poison into his own goblet or his enemy’s? Now, a clever man would put the poison into his own goblet, because he would know that only a great fool would reach for what he was given. I am not a great fool, so I can clearly not choose the wine in front of you. But you must have known I was not a great fool, you would have counted on it, so I can clearly not choose the wine in front of me.

Man in Black: You’ve made your decision then?

Vizzini: Not remotely. Because iocane comes from Australia, as everyone knows, and Australia is entirely peopled with criminals, and criminals are used to having people not trust them, as you are not trusted by me, so I can clearly not choose the wine in front of you.

Man in Black: Truly, you have a dizzying intellect.



This is one of my favorite scenes in the movie. The Man in Black (Westley) catches up to Vizzini and his gang to rescue Buttercup. After the Man in Black bests Montoya and Fezzik, Vizzini challenges him to a battle of wits for Buttercup. To which, the Man in Black pours poison into a glass of wine, sets two glasses of wine in front of them, and tells Vizzini to choose which glass they will each drink from. Depending on who is left standing, either Buttercup is saved or kidnapped forever.

Princess Bride and Pundits
My favorite line in the scene is “truly, you have a dizzying intellect.” I think of this line when I read some of the rationale about why you should leave ‘insert asset class here.’  They throw around a whirlwind of rationale, opaque data, and try to connect dots with obscure info like the migrant patterns of wildebeests.  Okay, that may be a bit of a stretch, but I think you understand my point.


Instead, try a simple plan. If you are still working, save as much as you can even if that means some delayed gratification. If you are retired and living on your investments, then live on an amount that will give your portfolio a chance to continue to grow. Invest with a rules-based plan and be diligent with that plan.  

That is what we want to do when working with you. Have a financial plan that can work in the variety of situations that life will throw at you. Use a rules-based investment approach to guide our decisions and give your portfolio the best probability at success.

 

Inigo Montoya: He’s dead. He can’t talk.


Miracle Max: Whoo-hoo-hoo, look who knows so much. It just so happens that your friend here is only MOSTLY dead. There’s a big difference between mostly dead and all dead. Mostly dead is slightly alive. With all dead, well, with all dead there’s usually only one thing you can do.

Inigo Montoya: What’s that?

Miracle Max: Go through his clothes and look for loose change.


Princess Bride and Pundits
In this scene, Westley had been captured by Prince Humperdinck and tortured. After Westley won the battle of wits versus Vizzini, Montoya and Fezzik started helping Westley save Buttercup. They think Westley is dead and take him to Miracle Max, who is a mystical healer. Miracle Max is hilariously played by Billy Crystal and the entire scene is Billy Crystal at his finest.

I think of Miracle Max’s line, “Our friend here is only MOSTLY dead,” whenever I hear pundits talk about why some tenet of investing is dead. For instance, growth stocks have been on a remarkable tear the past couple of years.  Now, I see a myriad of articles that talk about how value investing is dead or why you should not have any money in fixed income. Given the outperformance of U.S. large growth over the past couple years, I can understand why someone might think that way.   

At our current point in the cycle, there is likely a strong temptation to abandon diversification. But it is important to remember the long-term benefits of diversification. One benefit is ensuring that your financial plan stays intact and that you can achieve your financial goals. The cost of that benefit is not having 100% of your portfolio in the current best performing segment. The other benefit is that as market environments change, you are already invested in the current “best” performing segment.

Inigo Montoya: Let me explain….No, there is too much. Let me sum up.

Princess Bride and Pundits
Next time you hear a pundit claim that X must happen because something “unprecedented” just happened, I hope you think, “Inconceivable.” Or the next time someone comes up with a farfetched reason that you should do Y, you are thinking, “You truly have a dizzying intellect.” Or the next time you read someone insinuate that all your money should be in one area because diversification is dead, you remember that during calm periods diversification is only MOSTLY dead.

In the meantime, The Trust Company will continue working hard to help you reach your financial goals and creating investment portfolios that offer the proper risk-reward for those financial goals.