Why the “Bond King” Says “It’s OK to Make Money Slowly”
When it comes to investing, most people want the shortest path between them and the day they make money. Of course, what they really want is the quickest possible path to having a fortune.
We’ve all heard stories of people making millions seemingly overnight, but hopefully, you’re smart enough to know that the majority of these tales simply aren’t true.
Instead, I try to focus on this sage advice from DoubleLine Capital CEO, Jeffrey Gundlach:
“The markets take the stairs up and the elevator down. It’s important not to be in the elevator.”
This is good counsel because it highlights how investing should always be based on a long-term strategy, not the type of approach you’d bring to the craps table. I’m by no means unique in this opinion either. Jeffrey Gundlach, the “Bond King”, also recommends that you make money slowly.
Make Money, Don’t Gamble
I think this advice is especially relevant in today’s current economic climate. As I’ll cover a little bit more below, people are incredibly bullish at the moment despite what cold hard facts would suggest. If you feel pretty good about the market right now, please keep reading; the rest of this article could save you a lot of money.
Now I know no one truly tries to gamble when they go to invest in stocks, but that’s exactly what a lot of people are doing right now. In their rush to make money, they’re losing sight of what is truly happening with the economy and what strategies would make far more sense.
If you want to make money quickly, I honestly wish you the best of luck. Personally, I’d be more concerned about simply trying to keep your money this year.
That and the other reasons I have mentioned – plus a few more below – is why I still heavily recommend people put their money into investment-grade corporate bonds.
Why I Still Love Bonds
To me, Bonds encapsulate the above advice, given by the Bond King himself, that it’s okay to make money slowly. In fact, I’d insist that making money slowly is the only reliable way to do it. When you hear analysts or others tell you that a stock is about to explode in popularity and provide huge yields – basically, a get-rich-quick scheme – it’s time to consider listening to someone else.
Keep in mind, too, that even though Gundlach is the “Bond King”, he’s been skeptical about them as of late – so it’s not as though he has a natural bias just because of his “Bond King” moniker.
Still, he recently advised:
“You don’t have to be out there making speculative bets on Tesla all time, it’s OK to make money slowly.”
If you were trying to play the market by aggressively looking for stocks you could buy low and quickly sell high, this kind of unforeseen incident probably rocked your portfolio pretty hard. Maybe you’re even still struggling to recover.
Taking the slow approach doesn’t mean these sorts of things won’t happen or won’t hurt the overall value of your portfolio. It does mean, though, that you have plenty of time to come back. And, actually, in a lot of cases, your portfolio will hardly even notice depending on the types of bonds you own.
Where Is the Stock Market Current Headed?
Trying to predict where the stock market is headed is a good approach if you want to make money from investing. While plenty of theories abound about how to do this, one of the best-known investors in the world – and, consequently, one of the richest men alive – is generally a good place to start.
According to Warren E. Buffett, the TMC/GNP is where we should be focusing. He has even gone so far as to say that U.S. TMC/GNP is “probably the best single measure of where valuations stand at any given moment.”
In that case, let’s look at the graph that shows us the GNP for the past 40 years.
Chart Source: GuruFocus.com
As shown by the chart above, the TMC stands at 21.4 trillion, and the last reported GNP stands at 18.4 trillion. During the past 40 years, the ratio of TMC/GNP has fluctuated within a wide range.
Chart Source: GuruFocus.com
As shown in the chart above, this range hit a low of 0.33 in 1982 and a high of 1.41 in 2000. Now the ratio (21.4/18.4) stands at 1.16.
That number is historically quite high and signals that the market is potentially overvalued.
This certainly seems to beat other theories about the market at the moment.
My take goes back to what we covered above: the market may look good, but it also helps that so many analysts, investors, and brokers seem to have their own reasons for pushing this perspective.
Here’s another great line from Jeffrey Gundlach:
“”What I think is happening … is there is a bear market in confidence in market manipulators, central bankers and politicians broadly. And I think there’s a bear market in confidence in planning. That’s why I’ve been long gold and gold miners all year.”
For my money – literally – there is still no beating bonds. They continue to be the most reliable investment asset, especially as the market seems to become more uncertain. In fact, in the coming year, I believe my argument will only continue to be bolstered.
Sadly, a lot of people will have to learn its merits the hard way.
While it’s always wise to keep an eye on the market, I don’t see a downside right now to putting money into high-quality corporate bonds.