Protecting Your Portfolio in a Bubble, and Is a Move to America Worth the Money?

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Scott Galloway (1:29)

Welcome to Office Hours with Prop G where we answer your questions about business, big tech entrepreneurship, and whatever else is on your mind. If you have a question, send us a voice recording at officehoursofpropgmedia.com or post your question on the Scott Galloway sub-reddit. We just might feature it in an upcoming episode. Question number one comes from Whiskey Ejak. All right. Hey Scott, long time listener and fan. For someone who has done all the right things in the realm of investment for my entire life, it's starting to feel like the American economy is a ticking time bomb. Can you give me some feedback on why that might be an irrational or emotional feeling? Even adverse portfolio is starting to feel unsafe. I could handle a short-term 20% drop. How sure are you that we can bounce back and that a dollar cost average approach will still be the right way to invest in the coming years?

I think everyone's asking this question.

But as my friends at Ritholtz Management, Barry Ritholtz and Josh Brown say, if you had bought stocks on days where they hit all-time highs, you'd be up. You would have outperformed the market. In other words, yeah, is the market overvalued? Yes. But do we know when it's going to correct? No. Trying to time the market has proven to be impossible.

The best strategy is to always be in the market, but perhaps when it gets this frothy by most traditional metrics or all traditional metrics, you may want to think about further diversifying such that if and when there is a correction, you have the Kevlar diversification. But trying to guess when the top happens is dangerous. Probably my biggest investment mistake was the emotional reaction I had to the 2016 election of Donald Trump. I think that Donald Trump, and by the way, I've lost a lot of viewers here. I think it pays to be more tempered and not talk about politics on a show like this. But in sum, I think the president is a fucking idiot and a stain on the American experience, and that the grand sum of all of these head up your ass economic and foreign policy decisions will eventually crash this economy or result in long-term structural damage that will take decades if not generations to repair. So when he was elected in 2016, I sold all my stocks. That was stupid. The market ripped for the next year. There was so much insecurity about him actually winning that the fear had been priced in, stocks ripped up. The government is, or the economy is an iceberg where I think 90 to 95 percent of it is below the surface. And what the government does, does matter. But the majority of the economy just grinds on regardless of who is tweeting what or not tweeting what, or who has prostate cancer or doesn't have prostate cancer. By the way, that made sense for Joe Biden to run again. Who gets metastatic prostate cancer? 81 year olds or 82 year olds. When will these people, if all of a sudden every person over the age of 72 had to resign, if we had to lose Netanyahu, Putin and Trump, would the world be worse off? Anyways, enough already. But what we had for me was an emotional decision and I sold everything. I had at that point a lot of capital gains. So immediately I lost probably 20 I was living in New York at the time. So I lost probably a third of the gains to taxes. And then six months later, I ended up buying back in at a market that was 10 or 20 percent. So you could argue, at least notionally, that decision cost me 40 percent of my liquid net worth in stocks. So what do you do when you think things are way overvalued? You diversify. But I think you always want to be in the market. If you wanted some insurance, you could try and get sophisticated and buy some long-dated puts, or maybe sell covered calls against your existing positions. But generally speaking, I think what you want to do is diversify and recognize that just being in the S&P, it's not diversification because 40 percent of it is in a small number of companies. Valuations are elevated. The CAPE Ratio, that's the price of the market divided by 10 years of company earnings adjusted for inflation. It's meant to smooth out spikes.