Sign up for the One Day In July newsletter to receive meaningful musings and investor insights from founder and CEO Dan Cunningham. Once a month, direct to your inbox.
To get right to the crux of the matter, let's go over some ways to process financial news and anxiety when every illuminated surface now seems to have a stock ticker.
The first thing to remember is that as an investor, you are not buying a super-charged CD. Markets do not go up in straight lines and also have returns better than something like a savings account. There is no financial system in history that has offered that (though lots of salespeople have!), as the return would be high and the risk low. Historically you have gotten better results over years and decades by accepting volatility. (If you want the equivalent of a CD but not super-charged, we can do that, but your after-tax result will approximate inflation. So you're not really making any money.)
Today the S&P 500 is back to where it was in September. And this is a critical point: Assuming equivalent corporate earnings, as equity markets decline, they get safer. They do not get riskier as they go down, they get riskier as they go up. Because equity markets rise when the news is good, you are paying more money per unit of corporate earnings, and while this feels good, it is quietly riskier.
The problem is that human beings are not wired for this. Emotion drives decisions. For example, only in a few periods since 1987 has economic bearishness polled as high as it is today:
Source: The American Association of Individual Investors Sentiment Survey as of 3/6/2025.
Note that bearish spike points historically have coincided with some solid buying opportunities: early '90s, the '08-'09 financial crisis, December 2018, Covid, and 2022.
On the contrary, in mid-2021, which was a banner investing year, a poll came out that people expected 17.3% returns above inflation, a near-mathematical impossibility! But the human brain maps recent events forward in time. What happened next? 2022, which was one of the worst investing years in four decades.
The takeaway point: media-driven emotion has no predictive ability and will not help you as an investor.
Our clients generally own indexes, and in the stock indexes, those are real businesses under the hood. While the price of those businesses varies, it almost never matches the real value. The price can be too high, and it can be too low. The beauty of the market is that it just takes the average point of hundreds of millions of daily investor opinions on this question. Over time the price will be close to the value, but not exact.
Modern markets are intensely democratic machines (1). No one can control them; they are pure voting systems. Unlike many other areas, you don't have to be in a position of power or brand to make a lot of money swimming against the tide. If you think you are right and everyone else is wrong and you are in fact right, you will make a lot of money. And the numerical earnings of businesses will be the judge, so you will get a fair grader.
As a firm, One Day In July is structured from the bottom up to mitigate emotional impact of news on the investor. This would be a difficult structure for competitors to copy, as it has taken a long time to implement, and it is designed deeply into the firm. But we see the news media and the emotions it creates as one of the biggest risks for the investor, and we are paid to remove risk that doesn't add return.
Though I can't do this for work due to my job, on a personal level I have started to look for ways to hedge off news risk. I found this engineer, building a dot-matrix printer that prints out the headlines once a day, like an old AP news terminal.
"But you must watch something!" you say. All right, all right, I'll give you a little peek.
1. First, rail car loadings. These are looking healthy.
2. S&P 500 dividends have been rising.
3. U.S. Treasury bond issuances. On Wednesday the U.S. government sold $39.7 billion in a standard auction. The bid-to-cover ratio was 2.69, which means there were 2.69 offers for each bond sold. This is above 2024's average of 2.53. There is still strong demand for U.S. debt in the immediate term.
Dan Cunningham
1. I say "modern markets" because early markets weren't so fair. Andrew Carnegie and Cornelius Vanderbilt, among others, made arguably the majority of their money through what today would be illegal insider trades.
Look at this beauty I found.
The abstract:
CIOs [Chief Investment Officers] and consultant-advisors oversee about $10 trillion of institutional assets in the US. They have underperformed passive management by one to two percentage points a year since the Global Financial Crisis of 2008 (GFC). They rely heavily on expensive alternative investments; and the more they have in alternatives, the worse they do. Large institutions use scores of managers, making them high-cost closet indexers. Inefficiency abounds.
The red color above is mine. Long-time readers of this newsletter know I don't use highlighter much, but I couldn't help myself.
So institutional firms that have large budgets for investment advice as a group did not outperform passive management. The key takeaway is that more money does not lead to a performance edge.
Also, good luck when someday they have to close out those alternative positions and mark them to market in the process. Some of our clients have discovered, as those positions get closed out, that the bids come in lower than recorded on the statements.
In credit to the institutional managers, their arguments are etymological showcases. Words like "alternatives," "color," "tail risk," and everyone's favorite: "synergy."1
What is going on here? All this high-powered talent and they can't outperform? All those years studying through school, getting the B- on the organic chemistry final and pulling the panic ripcord, switching to a finance track from pre-med but ending up at Chase instead of Goldman, eventually realizing that's ok but brushing up on the vocabulary (see above, I'm working on it) to get an in-house institutional position because it's going to be less pressure and also easier on kindergarten drop-off days? But then you become an institutional manager, and you can't beat the plain-vanilla index? What?
The problem they are trying to solve is exceedingly difficult. At its core, you can be correct in your investment thesis, but perhaps not correct enough. There are so many variables swimming around that you have to weigh them all accurately, an impossible task. The human mind likes stories and theses, and it attaches to storylines in securities analyses that sound reasonable. But it is all of the other storylines that you may not have weighed correctly that can overwhelm the choice you made.
There is another difficulty I have noticed over the years. A lot of securities analysts have been doing that job their whole lives. Many of them haven't been in operating businesses. And that's a disadvantage. For example, in high school I worked at CVS as a floor stocker. I would have to go through hundreds of little tubes of lipstick and repack the ones that didn't sell by a certain date. This was eye-opening to me one because I didn't know you could theoretically come up with that many variants of red, and two because I couldn't believe how many problems resulted just from this repack operation.
I could see the cost related to that complexity. When something like Trader Joe's shows up, with their simplified model versus Kroger, I intuitively know all the steps on the floor that no one has to do. In theory you can see this on paper, but sometimes doing the job itself, or experience in an industry, gives you insights that you believe more strongly.
Before signing off, I'll note that I'm not sure that an analyst with industry experience would matter anyway. The markets are so efficient that the benefit in today's world might be instantly competed away, and the passive indexes would still outperform you.
Dan Cunningham
1. I love the term "synergy." In 2001 Smucker's bought Jif Peanut Butter from Proctor & Gamble. The investment bankers were crowing about "the synergy between the peanut butter and the jelly." I thought "this is a job I can always do as a backup if needed."
Leo Tolstoy once wrote that "everyone thinks of changing the world, but no one thinks of changing himself.” I'm not sure that's true, as New Year's resolutions generally fall into the bucket of changing yourself. You have to focus on yourself here, making New Year's resolutions for others just isn't polite!
Resolutions tend to sort into things we are going to add, and things we plan to remove. Both buckets can feel difficult to implement. But in finance One Day In July generally prefers removal.
As a young sprite growing up and interested in art, I would draw large scenes using a form of realism. And I would really try to fill the scene - white space meant I hadn't done something; the art wasn't complete. My works would get busy, ending up like a cross between a Richard Scarry children's book and Bruegel the Elder's The Fight Between Carnival and Lent.
Later, my art teachers told me, begged me, to breathe a bit, and give the subject space. The lack of activity on the page also had meaning. I could remove things, and the art would get better.
Your investing works the same way. A la Tolstoy, the first thing most non-indexers should do is consider changing something. They are often stuck at firms or in investments that are sub-optimal, and they need to reach the activation energy level to make a change. This is why New Year's resolutions are great: they help people get through that hurdle.
But the next step is realizing that the positive change could be a complexity subtraction. Most of the time this is the case for new clients at One Day In July. More complexity and activity do not necessarily equal better returns. Not to throw Bruegel the Elder under the bus1, but complexity results in something that can be difficult to understand. Sometimes you need a little less Carnival and a little more Lent.
This approach works as an investor because finance is a broad and complex field. Your investments react to the economy and the news cycle in myriad ways. By simplifying the problem set to fewer items, we understand them well, and the understanding leads to confidence. We want clients to share that confidence with us, because the benefit shows up in periods of deep fear in markets. If you don't understand what you own, your confidence will crack under stress, and if that happens you will struggle to do well as an investor.
Dan Cunningham
1. Ok, ok. He painted this on boards of an oak tree. Just for that I need to cut him some slack.
v 2.4.93 | © One Day In July LLC. All Rights Reserved.
