Where Are We Heading?
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Welcome to Money for the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I'm your host, David Stein. Today is episode 520. It's titled, Where Are We Heading? Where are we heading? That's one of the three questions that I answer each month in the investment strategy report that I put together for Asset Camp and Money

money for the rest of us plus. I've been writing investment strategy commentary for over 20 years. I did it as an institutional investment advisor, chief investment strategist, and I still do it today. I find it very helpful to understand what happened, where are we now, and where are we heading when it comes to the economy and

and financial markets. Also, 20 years ago, I started my first blog. I used MovableType as the software, later WordPress. It was housed at the URL jdstein.com. I'll link to an archived version of it. It was called Global Wandering. Back in 2005, I met a

another blogger named Simmons Bunton. We had a lot in common. We each had young children. We both drove Subarus. We enjoyed photography and writing. He lived in Tucson and I lived in Idaho.

His writing and photography was influential and motivational for me to visit Tucson and eventually move here. But I hadn't ever met Simmons in person up until a couple months ago. LaPerle and I had dinner with him here in Tucson. Simmons has a book that was recently published by Trinity University Press. It's his fifth book called Satellite Essays on Fatherhood and Home Near and Far.

So Simmons is someone that I met that influenced one of my life decisions for us to spend much of the year here in Arizona.

Lapril and I pointed out the other day, one of her sisters sent her a list of all the houses that her father had lived in over the years. There were a lot of them. And in the first 10 years of Lapril's life, she moved eight times. I moved twice in 19 years. Her experience versus mine, she's much more

more willing to move, finds it easier to move than me, gets more restless to move than me because of her life experience. I, on the other hand, am more reticent to move. We are all influenced by the past, the things that happened, the people we met. There is a Greek word, ergotic. It's a mathematical and statistical term used in thermodynamics. Ergotic comes from the Greek word ergon, which

which means to work, and hodos, which is a path or a way. So, ergodic in Greek meant work along a path or a path through work. Recently, Michael Mubasin and Dan Callahan released a piece published by Morgan Stanley where they talked about what ergodic means. A process is ergodic if the

The average over time, what they call the ensemble average and the time average are the same. Here's an example what an ensemble average is. They said, imagine 100 people flipping a fair coin simultaneously and recording the outcomes. That's the ensemble, 100 people.

Now, imagine just one person flipping a coin 100 times. That one person going through time, flipping the coin, that's the time average. The 100 people flipping the coin at the same time, that's an ensemble average. If you average the outcome, what percent were tails? What percent were heads? Both 50%. Something is non-ergotic if the

the ensemble expected outcome, the average expected outcome, such as the average return for the stock market, if that ensemble average differs from the outcome through time, which it does for the stock market, the geometric average or mean or the compound return for the stock market is lower than the

the average return. If we just do the arithmetic average of the stock market, it's higher than the compound geometric mean. The time return, sometimes called the time-weighted return, is lower than the arithmetic return or the ensemble return.

Mauboussin and Callahan write that capital accumulation is a multiplicative process, which means that understanding geometric averages, risk management, and portfolio construction are all essential for compounding wealth. The wealth we have over time, financial wealth, time wealth, other types of wealth, it's a compounding effect as we pass through time. It's path dependent. What happens to

today will influence where we are tomorrow. And a technical term for that is non-ergotic. Before we continue, let me pause and share some words from one of this week's sponsors, NetSuite. What does the future hold for business? Ask nine experts and you'll get 10 answers. Bull market, bear market, rates will rise or fall, inflation up or down,

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Here is a numerical example from the book, The Missing Billionaires by Victor Haganini and James White. They say, suppose you start with $1 million and you get 25 coin flips and can decide how much of that million dollars you want to wager on each coin flip. If

If you decide to wager 10%, $100,000, if it turns up heads, you get $100,000. Now, here's the trick. This isn't a fair coin. The coin is weighted such that there's a 60% chance of coming up heads. So over a long enough period of time, heads will show up more, six out of 10 times. So the question is how much to bet.

Now, this is not an ensemble average. This is not 100 people flipping the coin once. This is one person flipping the coin 25 times. And their question in the book is, well, how much should you bet? The best case scenario is if someone bets 100 percent each time and then get

gets heads 25 times in a row. The amount of wealth is just, it's astronomical. I actually don't have the number, but I can tell you that the expected wealth, enough people wagering 100% each and every time, the average expected outcome is $94 million. But the median, the middle outcome, in fact, the most outcomes was zero because you

You get one tail and you lost all the money. If you bet your house and you lose, you lose your house. You can't bet it again. And that's why the median outcome is zero. Now, if you bet half the million dollars on each coin flip, the average outcome is 10.8 million.

over 10 times the original amount. But the median outcome is only $427,000. So half the starting amount. Again, this is an example of something that is positively skewed. A few of the outcomes do incredibly well. So the expected outcome is much higher than the median outcome. That is the

the definition of something that's positively skewed, that the extreme events bring up the average, whereas the median event is much lower than that. And that's because, at least in financial returns, what's known as volatility drag. Big losses can bring down the average. It's a multiplicative process. You lose half the money in

In the stock market, you need 100% return to get back to even. That procession of returns through time is what brings down the compound return, the geometric return, lower than the average or arithmetic return, non-ergotic. That is the financial market. And that's why, because of the non-ergotic nature of life, we buy insurance to protect accountants.

against the outcome. So we don't lose our home in a fire or don't have the resources, health insurance for some type of medical treatment and take a significant blow to our wealth. We get one shot through time. It's non-ergodic.

Now, from the insurance company's perspective, it's an ensemble. They insure many people, many homes, and know what the loss rate over time is with those houses and set premiums at a rate so they can cover losses on houses that burn, but also make a profit.

And then if they can't, as we've done episodes on the California insurance market, then they'll pull out. But it's an ensemble process because it's spread out among many. Financial returns for us individually and our life is non-ergotic. Nassim Nicholas Taleb talked about ergodicity in his book, Black Swan. Gives example of a gambler at a casino.

For the casino itself, it's ergodic. It's lots of individuals making bets. They know what the probability is, and over time, they know the house will win. But from the perspective of the gambler, it's non-ergodic. He writes, someone playing roulette in the casino can become very rich. But if he keeps playing, given that the house has an advantage, he will eventually go bust as that gambler passes through time.

He writes, a non-orgotic system is path dependent. There is no long run when it comes to non-orgotic systems because in the long run for a complex system, something always new will emerge, something unexpected that can change the system.

It's non-orgotic. Take blogging. I mentioned I started a blog 20 years ago. In 2008, three years later, I started a second blog, a personal finance blog called Now Squared. I wrote it during the great financial crisis. I did it anonymously because I was still working at an institutional advisory firm and I didn't want to get every blog post approved by compliance. There were others that started personal finance blog around the same time and they stuck with it. I did not.

And I have friends that have sold their personal finance blog for millions of dollars. They wrote articles. It attracted Google traffic. They had affiliate relationships. So if somebody found their article, read about a particular credit card or a particular brokerage or some other topic, and the individual signed up for a credit card, then the blogger got money. It was very lucrative. Back

That business model has been upended by AI. A link to an article from Forbes that shows that AI overviews on Google, you search something, Google just gives the answer via AI. That has led to a 15 to 64 percent decline in organic traffic.

and a 60% decline in clicks to a website from search traffic, which means that companies or bloggers that were dependent on search engine optimization, organic search traffic, they're not getting it anymore.

And their business model has been completely upended, including the business model of all the freelance writers that were writing articles for these blogs. Their compensation has been cut. An example is NerdWallet, one of the sites that came out in early 2010s, I believe, maybe earlier. It went public. In their latest public release, they said monthly unique users for non-paid traffic are

Organic traffic fell 20% year over year. In fact, they aren't even going to report monthly unique users anymore because they don't believe it's relevant because it's search engine, organic search is dead. So there are focus on paid traffic now and other ways to get users to their site. The podcasting business has been upended. Typical podcast has seen listens drop 30 to 50%. Clue.

including ours. More podcast listeners, they don't listen to podcasts. They watch a podcast. So more are consuming video podcasts on Spotify and YouTube. Those platforms, they don't want embedded ads.

from the podcast, and some suggest that they're not promoting podcasts that have embedded ads because Spotify and YouTube want to show their own ads on podcast. What podcast means is very different than it was 10, 11 years ago when I launched a podcast. Then most podcasts were audio only, and our podcast has generally been a solo show. Occasionally we do an interview, but a

A solo show, as I sit here in my little sound dampening box, does not make compelling video. Many podcasts have pivoted to video and gone video only or video focused for several years now, and they've done very, very well. So that's been a challenge to our business, and I'll talk in a little bit what we're doing about it, where we're heading. We've seen it in movies.

movies, movie business. I'll link to an article in the Wall Street Journal titled, Hollywood is Cranking Out Original Movies, Audiences Aren't Showing Up. And they write, nearly every movie released by a major studio in the past year based on an original script or a little-known book has been a box office disappointment. And overall, movie revenue in the first three months of the year hasn't been this low since 1996, with the exception of the pandemic.

The movies that are doing the best are the ones that already have a built-in franchise. Either it's a sequel or it's something very well-known. Video game. Minecraft, for example, has done extremely well. The box office. But original movies, they're not doing very well. Late Night Talk Show isn't doing very well. The Tonight Show with Jimmy Fallon has lost close to 50% of its viewership since 2018-2019.

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A big success in the streaming business was Severance, the series. I signed up for Apple TV Plus to watch it. It was watched by over 5 million people, and every week I would watch season two. I got hooked on the series during the pandemic. I binged on all the episodes, watched them in a week, but now they're releasing them once a week. So I kept that Apple Plus subscription up until this month when they released the final, the seventh episode or the eighth episode.

And then I canceled Apple Plus. Over 5 million people, that's considered a huge success. But you compare that to the 106 million people that watched the final episode of

of MASH that aired in 1983, or the 76 million that watched the final episode of the finale of Seinfeld in 1998, or the remarkable 127 million people that watched the last Super Bowl. One of the few events where masses of people watch it.

There's more fragmentation today, less focus, less willingness to try something new. There's more short-form video. Properties emerge, which is why life is non-ergotic. As we pass through time, what happened to us, what's happening now, influences where we're heading.

There's a term in Buddhism called karma. And I like this quote by Mark Mullenix. It's commentary in a translation he did of the Tao Te Ching. He writes, Buddhists regard karma, one's record of action, as a syllabus for the present moment. The actions we had in the past, what we did, that influences the present moment. He writes, one's karma is the curriculum for living in this moment. Now,

Now, I use ChatGPT. I was discussing this concept of karma and non-orgotic economics. And it, on its own, I didn't ask it to, it came up with the table, comparing the two. With Buddhist karma, karma is a syllabus. Your past shapes your current learning experience. With

With non-orgotic economics, it's path dependent. Where you've been determines where you are and can go. For karma, the present moment holds all karmic force. For non-orgotic economics, initial conditions and historical shocks matter. You just can't ignore them.

With Buddhist karma, how you engage now affects all future experiences. With non-orgotic economics, choices today lock in future trajectories. Outcomes compound through time. And finally, karma is lived, not abstract. And with non-orgotic economics, economic life is lived. It's not average. Individual experiences matter more than the statistical expectation of the ensemble. Now,

Now, AI is one of those emerging forces, and I'm sure most, if not all of us, are using it in some regard, if anything, getting the AI overview on a Google search. I use ChatGPT to search first for anything and have that search the web. But one of the recent articles I read was talking about AI.

And it was Bloomberg Peace. They were interviewing Sendhil Moolanathan, who is an economist at Yale, I believe. And he referred to Steve Jobs, who, when he first read about computers, felt it was equivalent to a bicycle for the mind. And Moolanathan, that's how it sees AI.

as a bicycle for the mind, something that will augment what we do rather than replace what we do. At least that's what he would like to see. He writes, people imagine that AI is going to automate things, but they don't appreciate that automation is just one path. There's nothing intrinsic about machine learning or AI that puts us on that path. The other path is really the path of augmentation by

bicycle for the mind. But if you look at what Anthropic or OpenAI or Google, when they release a new model, well, Nathan points out that what do they focus on? What's their benchmark? Can it do this thing as well as people? Can it replace people in doing this, taking the SAT or some other complicated test?

rather than focusing on how does this AI make people better at doing what they're doing. So where are we heading? AI is going to be a part of it, but we don't know. Is it going to be a replacement? In some cases, yes. Coaching, for example. I use AI as sort of a coach. We go back and forth as we discuss various topics. One of the interesting things about AI that I never realized

I saw a reel and it was some new age philosopher having a discussion with ChatGPT and ChatGPT was providing responses that made chat sound like a new age philosopher.

And I didn't realize that these chatbots mimic the language you use. It's almost like a mirror. And it says things in a way that I would say it. So in some ways, it becomes a really good coach that requires caution, though, in how it's used. I had a recent experience with AI. I smashed my finger in the door. Turns out I broke the tip of my finger. I went to the urgent care center.

and they looked at it, they drained it, and said, you might want to get an x-ray. And I said, well, what happens if I get an x-ray? If it's broken, what are they going to do? And they said, probably they might put a splint on it, but it'll fix itself. So I decided not to get an x-ray, and then I used ChatGPT as my doctor for the next two weeks until the finger got infected. So then I went to

CVS, I was traveling. They prescribed some antibiotics. And when I got back to town, I went to the doctor, the PA, and she looked at my finger and she was horrified. It was swollen. It was large. And she said, you got to get that x-ray and get to a hand surgeon.

urgently, you could lose your finger. What I didn't know and what ChatGPT didn't tell me, nor the initial caregiver, that if the fingertip was broken, that's considered an open wound and potentially could get infected. And if that got into the bone, I thought it had a minor injury and then...

potential for the finger to get infected or even to lose the finger. And I went back to chat GPT, my AI doctor, and said, hey, how come you didn't tell me this? And one of the few times it admitted it was wrong. He says, yeah, I should have. I own this. But then it pointed out, so should the initial urgent care person. It's not a replacement. AI is an augmentation to help us do better. And I learned a lesson.

as I passed through time. I didn't follow my own rule of thumb. I should have just got it x-rayed right away. There was no reason not to. The urgent care was later at night. They didn't have an x-ray. I could have just scheduled it with the doctor and got it done. And that was my fault. Would have been the buffer that I needed, that extra insurance. So I didn't have to go through the hassle of going to repeated visits now to the doctor and the hand surgeon. And the finger's fine. It's not infected anymore. I'm not going to lose it.

One other example of non-ergotic how context matters is by Gautam Mukunda. He's with Yale. He writes in corporate management and innovation. He talks about the omni-genius, the idea that somebody is successful in one domain and they can take that success and apply it somewhere else. Think Elon Musk heading up the Doge committee. Think Gervais.

John Sculley, who was brilliant at Pepsi, but when he ran Apple, it didn't go so well. He writes, the halo effect makes us attribute success solely to the person rather than to the combination in that person and the context he or she inhabits. The context is virtually always overwhelmingly important. As we pass through time in this non-orgotic world, the

The context matters. Launching a podcast, an audio-only solo podcast in 2014 was the right show at the right time, and it's been successful. Launching an audio-only podcast in 2025 would not be successful. In fact, it would fail just as our podcast doesn't fit the proper context. And

anymore because it's not video first. We don't do interviews. It doesn't go viral. So what do we do? Instead of trying to broaden, we're going to go deep. We're focusing on asset camp, software, and marketing that tool and investment strategy commentary that help that expertise toward financial advisors, building out deeper relationships there. So it's not algorithm based. I'm still going to do the podcast, but it will

will most likely not be ad driven. And maybe in the years ahead, it won't be as frequent. We'll see. But we're going to build a durable business based on software and investment insight. And podcasting is just one element of that. But that will allow us to slow down, to focus on deeper rhythms. I'm spending more time now on investment commentary and strategy and insights than I ever have. Our tools are better than they've ever been. But we have to change. We have to pivot

Because of the emergent properties that we've seen with AI, we have to do stuff that can't be replicated by AI, that isn't readily available. There is no historical valuation and earnings data that AI can index. Not available because index providers have always kept it locked.

behind paywalls, and ours is too. So that gives us a moat to some extent. We'll see if it stays. So where are we heading? We don't know what's going to happen with the economy, with financial markets. We do our best to figure out what current conditions are, what the context is, what's shifting, where is the momentum, where is the trends. And then we do our best to do the next most logical thing, to take that next step and then adapt. That's all we can do.

There is no long run that we can predict. It's a series of short runs and we have to be adaptable, flexible, and use what has happened in the past, our skills, our experiences, our empathy to guide us into the future where we're heading. That's episode 520. Thanks for listening.

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