Categories
Investing Master Class

Valuation in Four Lessons: Aswath Damodaran

Aswath Damodaran (born 23 September 1957), is a Professor of Finance at the Stern School of Business at New York University (Kerschner Family Chair in Finance Education), where he teaches corporate finance and equity valuation.

Known as “Dean of Valuation” due to his expertise in that subject, Damodaran is best known as author of several widely used academic and practitioner texts on Valuation, Corporate Finance and Investment Management; he is widely quoted on the subject of valuation, with “a great reputation as a teacher and authority”. He has written several books on equity valuation, as well as on corporate finance and investments. He is widely published in leading journals of finance, including The Journal of Financial and Quantitative Analysis, The Journal of Finance, The Journal of Financial Economics and the Review of Financial Studies. He is also known as being a resource on valuation and analysis to investment banks on Wall Street.

Categories
Work

The Great Resignation is Upon Us

It’s happening.

People have had it and they’re dropping their jobs like a bad habit. 18 months of downsizing, ill treatment and growing workloads have finally tipped the scale. 18 months of working from home and people have learned there’s a better life to be had. 18 months of watching your coworkers get sick and die because Scrooge McDuck didn’t provide paid sick days.

People are saying: “Fuck it!”

The chart below shows the huge increase in the level of quits in the worst hit sectors in the United States: manufacturing, leisure & hospitality and accommodation & food services. I’d expect to see a similar trend in Canada. These were the front-line workers. The war heroes who were cheered as they put their families’ health on the line, only to get shit on in the end.

People have realized it’s not worth staying loyal to an employer that pays garbage, doesn’t care and treats staff as disposable.

Moreover, people built cash piles over the past year as they sat home twiddling their thumbs. Now that the economy is roaring, people are confident enough to make moves.

Of course, now that people are quitting suddenly companies are scrambling. Positions are unfillable.

Just over the past week alone I’ve witnessed 2 top employees quit and 2 offers fall apart. Companies are getting more short-staffed by the day.

Still, I think the brunt of the departures are in the sectors shown in the chart above. While the business services sector is turning over quicker than normal, many of these workers were well supported (and still are) during the pandemic. Many white-collar employers are baking work-life flexibility into their DNA. For example, Sun Life Financial just announced a permanent flex work arrangement (i.e. WFH if you want to). Manulife has been flexible for years. Other big Canadian employers are doing the same.

Nevertheless, white collar employers are feeling the pressure. They’re just doing a better job at proactively mitigating their risk. Despite how hard they’re trying, these companies are still facing new competition. This is particularly true for companies with head offices in Toronto, as big tech firms open offices in the city adding new competition for talent.

Bottom line: it’s an employees market. Regardless of where you work, now might be a good time to ask for a raise.

Categories
Master Class

The Psychology of Human Misjudgement – Charlie Munger Full Speech

Charles Thomas Munger is an American billionaire investor, businessman, former real estate attorney, architectural designer, and philanthropist. He is vice chairman of Berkshire Hathaway, the conglomerate controlled by Warren Buffett; Buffett has described Munger as his closest partner and right-hand man.

The following is audio of the often referred to speech by Charlie Munger on the psychology of human misjudgement given to an audience at Harvard University circa Jun 1995. Mr. Munger speaks about the framework for decision making and the factors contributing to misjudgements.

Categories
ETFs and Funds Investing

Buyer Beware: The Different Types of ESG Funds

The problem is that “ESG” is becoming a catch-all for “doing good”, and this is a big mistake.

As the ravages of climate change become increasingly apparent, investor interest in sustainable investing (aka ESG – Environmental, Social, Governance) is growing at an exponential rate. Seeing this trend, asset managers are launching a ton of ESG products.

The problem is that “ESG” is becoming a catch-all for “doing good”, and this is a big mistake. Investors see brochures with pretty pictures of trees, windmills and solar panels and assume that their investment in ESG products will help save the planet.

Trending Up for ESG

I hate to say it, but greenwashing in the investing business is rampant.

The twist is that a lot of it is unintentional.

You see, there are very few people within the asset management industry that truly understand the mechanics of what they’re building and selling. Many industry participants might have an above-average (i.e. more than the general population) understanding, but not deep enough to really get the nuances.

Consequently, product features and benefits can be misrepresented and many investors buying these products don’t have a complete understanding of what they’re buying.

Of those who are more knowledgeable about investing, many appear quite skeptical of the real value of ESG products. A recent informal survey shows this:

The goal of this article isn’t to rip anyone a new one (I’ll save that for other articles). Most people – asset managers and investors – have the best intentions. So instead, I’d like to provide a quick summary of major types of ESG investment products.

Values-Based ESG Funds

Most ESG investment funds use a set of screens to filter out sin stocks, like tobacco, energy and gambling companies. Some use a sweeping approach that removes entire sectors. Others look at revenue sources for individual companies to determine exposure. Regardless of the stringency of the filter, the general idea is to eliminate exposure to companies and industries that don’t align with an investor’s values.

These strategies were originally created to service religions endowments and foundations with strict values-based rules. The purpose is to avoid values conflicts and the effects are largely superficial.

Risk-Based ESG Funds

Similar to Values-Based ESG funds, these funds exclude certain companies or industries based on a set of pre-determined factors. The types of companies or sectors that are excluded might closely resemble those of values-based ESG funds. The main difference is the intent of the fund. While values-based funds seek to align with a set of morals, risk-based ESG funds seek to reduce exposure to risk.

While values-based funds seek to align with a set of morals, risk-based ESG funds seek to reduce exposure to risk.

Companies with poor ESG practices may theoretically be exposed to greater regulation, litigation or reputation risk. These potential challenges affect the ongoing profitability and financial position of certain companies, negatively changing their risk-return profiles. A devastating announcement, for example, could push a the stock of one of these companies down 5, 10, 20% or more. Many ESG funds seek to avoid exposure to these risks.

Conceptually, this is something all fund managers have been doing regardless of whether or not their funds are labeled ‘ESG’. Risk management is part of the investing DNA and ESG risks are simply one of many that are evaluated. Given this, drawing particular attention to ESG risks is more-or-less a outward manifestation of what was already taking place, but perhaps to a more explicit degree.

Values-based and Risk-based ESG funds generally avoid exposure but don’t create change.

Values-based and Risk-based ESG funds generally avoid exposure but don’t create change. This is because the market is not heterogeneous. There are investors that care about ESG considerations and others solely focused on profitability. Therefore, there will always be a class of investors willing to invest in companies with profitable business models, regardless of their ESG practices.

With that said, if a large enough cohort of investors avoids an ESG-offending company its cost of capital could rise. This may prompt company executives to alter business practices (if possible) if company stock trades at a persistent discount. However, avoiding prime offenders like oil producers might only create a market where energy companies trade at a discount, but with little fundamental change to the underlying business. After all, an oil producer exists to produce oil. As long as it has access to capital – which has been proven the case with both the energy and tobacco industries – business will go on with little change (or worse, corporate window dressing).

It is important to understand cause and effect. Cigarette smoking has declined significantly over the decades, but not because Altria’s cost of capital has risen. Altria hasn’t changed its primary business model because many investors have avoided tobacco stocks since the 1990s. Rather, regulation, taxation, education and litigation forced dramatic change to both supply and demand, reduced smoking rates in the developed world.

Impact ESG Funds

The vast majority of ESG funds provide some combination of values-based and risk-based filtering. However, what many ESG investors believe they are actually getting (and what many asset management companies believe they are providing) are Impact ESG Funds.

Most ESG fund investors want to make a difference, but most ESG funds don’t make any difference at all.

Contrary to popular belief, investment funds that seek to make change must actually buy shares of ESG offenders.

Contrary to popular belief, investment funds that seek to make change must actually buy shares of ESG offenders. The recent proxy challenge started by activist investor Engine No. 1 is a perfect example of an investment manager actually making change. Via an activist approach, Engine No. 1 was able to secure 3 seats on Exxon’s board. This could only be done because Engine No. 1 owned Exxon shares, made a shareholder proposal and rallied other shareholders around its cause. These directors will help push Exxon to transform its business to address the risks of climate change. Engine No. 1 recently launched an ETF (VOTE) that will continue with these types of challenges.

How to Choose an ESG Fund?

Before you invest in an ESG fund you must first know what you’re trying to achieve. A good starting point is determining whether you want to align with personal values, mitigate specific risks or create positive change.

From there, look at the company that manages the fund. Who are the portfolio managers and what is their history with respect to environmental, social and governance issues?

What is the company’s historical environmental practices, beyond specific product offerings? Do executives fly in private jets, for example? Does the company have other business lines (e.g. investment banking) that services clients with opposing interests and how will the company overcome these conflicts?

Perhaps most importantly, use of ESG funds doesn’t absolve one of personal responsibility, nor does it replace government regulation and policy. To reduce carbon emissions, communities – individuals, businesses, governments – must work together to achieve common goals.

Categories
Investing

Bonds for the Long Run?

If you look up Professor Jeremy Siegel’s work you’ll find one thing: He firmly believes that stocks are the best long-term asset class.

In 1994, Seigel published a classic book that helped shape his investing view and asset allocation decisions for millions investors around the world. “Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies” continues to be a top-selling investment book. His conclusions are based on stock market data going back about 200 years.

New research has compiled stock market data going back to 1793, adjusts for some erroneous methodologies and reaches a different conclusion – one that contradicts Siegel’s long-standing belief that stocks are the preferred asset class over the long run.

…both common stocks and long bonds are risk assets, capable of outperforming or underperforming over any human time horizon.

Edward F. McQuarrie, Professor Emeritus, Santa Clara University, presents these findings in a recent paper called “New Lessons from Market History: Sometimes Bonds Win“.

McQuarrie summarizes his findings as follows:

When Jeremy Siegel published his Stocks for the Long Run thesis, little information was available on stocks before 1871 or bonds before 1926. But today, digital archives have made it possible to compute real total
return on stock and bond indexes back to 1793. This paper presents that new market history and compares it to Siegel’s narrative. The new historical record shows that over multi-decade periods, sometimes stocks outperformed bonds, sometimes bonds outperformed stocks, and sometimes they performed about the same. More generally, the pattern of asset returns in the modern era, as seen in the Ibbotson SBBI and other datasets that begin in 1926, emerges as distinctly different from what came before. Contrary to Siegel, the pattern of asset returns seen in the 20th century does not generalize to the 19th century. A regime perspective is introduced to make sense of the augmented historical record. It argues that both common stocks and long bonds are risk assets, capable of outperforming or underperforming over any human time horizon.

Source: New Lessons from Market History: Sometimes Bonds Win, Edward McQuarrie

For most investors, it’s not news that bonds sometimes outperform stocks. Indeed, this is why we hold bonds within a portfolio – to diversify sources of risk and return. However, for most that’s as deep as the asset allocation decision goes, and bonds – particularly Treasury bonds – are simply viewed as a safety mechanism for short periods of risk asset downside. It remains that, over the long-run, the common view is one that aligns with Siegel’s thesis that equities is the better asset class over long periods of time.

…bonds can outperform for the duration of a human lifespan. It is therefore financially dangerous to adhere to the ideology that stocks are always the better choice.

McQuarrie disagrees: Simply, he finds that there are long periods of time during which bonds outperform stocks. The particularly troubling finding is that bonds can outperform for the duration of a human lifespan. It is therefore financially dangerous to adhere to the ideology that stocks are always the better choice.

History is an important guide, but it cannot predict the future. The purpose of this research is not to identify what will outperform over the next decade. Rather, it is to shift portfolio construction from a monolithic to multi-faceted choice.

The crux of Siegel’s case for stocks is exhibited by the following chart. Looking at this alone, it is understandable that someone might conclude that stocks are the better investment. McQuarrie, however, argues that Siegel’s methodology was misleading and the reality is that stocks and bonds performed in parallel until the post-war period (second chart below). Moreover, much of the final stocks-bonds cumulative performance variance is explained by a single time period from post WWII to around 1982, with bonds subsequently resuming parallel performance. (I.e. if you re-started the chart from 1983, the stocks and bonds lines would follow a similar path.) The difference flips the investing paradigm on its head.

It is critical to understand why the results are so different.

McQuarrie’s explanation for the superiority of his bond data is as follows:

Explanation: I observe municipal bond prices from 1857 to 1897 as compiled by the Boston stockbroker, Joseph G. Martin. Siegel relied on a tertiary source, the summary table in Sidney Homer’s History of Interest Rates. Homer does not state there that the municipal bond index he had tabled represents a theoretical construction erected by Macaulay upon Martin’s compilation rather than an observed portfolio. I also adjust for the greenback price of interest paid in gold coin—a distinguishing feature of Federal and some municipal bonds between 1862 and Finally, I use an aggregate bond portfolio up to 1897, and corporate bonds after that point. Corporate bonds returned more than the government bonds used by Siegel, especially when government bond yields were depressed by tax and other privileges.

Essentially, McQuarrie used actual bond portfolio data, whereas Siegel used computed theoretical data.

McQuarrie’s data also adjusts for the striking survivorship bias found within Siegel’s stock market data:

Here most of the variation comes before the Civil War, and this deviation is readily explained: Siegel’s sources omitted the largest single stock that traded before the Panic of 1837, the 2nd Bank of the United States. At the peak before the Panic hit, the 2nd BUS accounted for almost 30% of total market capitalization. It failed spectacularly as the Panic proceeded, with shares dropping in price from $120 to $1.50, and never recovered. To duplicate this omission in the contemporary stock market, it would be necessary to drop Microsoft, Apple, Amazon, Alphabet/Google, and Facebook from the S&P 500; and even these five would not account for as high a percentage of S&P 500 capitalization as did the 2nd BUS at its peak. Omission of the BUS is the single most glaring error I found in Siegel’s stock market sources. More generally, I found and corrected survivorship bias. Banks failed during panics, turnpikes and canals succumbed to railroads, and struggling railroads went bust in the 1840s and 1850s to an extent not previously understood. In short, Siegel’s sources had left out the bad parts, producing an overly rosy picture of antebellum stock returns.

Few probably realize that Siegel’s data contains such biases – especially when it’s standard practice to adjust accordingly. For example, modern fund performance evaluation, like Morningstar’s SPIVA reports, always account for survivorship bias. To read that Siegel excluded failed companies in his analysis is material. To be fair, however, this survivorship bias exists in many historical analyses as it is an embedded feature within index data.

Let’s not make hasty conclusions and throw out all of Siegel’s conclusions. Stocks do outperform bonds during a meaningful range of time periods and scenarios. Stocks are still a core component to an investing portfolio. McQuarrie’s analysis simply illustrates that the probabilities have shifted away from stocks’ favour. This is an important consideration for professional asset allocators and Joe Smith saving for retirement.

Using McQuarrie’s new data, the table below shows the odds of stocks outperforming bonds across a range of rolling 1, 5, 10, 20, 30 and 50 year periods. The odds remain in stocks’ favour across all rolling periods between 1793-2019, and those odds increase with the length of period. However, it is critical to observe that these results are time-period sensitive. The pre-war experience is markedly different, especially prior to the US Civil War.

Modern-day assurances that stocks always outperform over the long run are based on post-war data (1943-2019). In contrast, the full history shows there’s a 32% chance that someone investing in stocks over 30 years – a lifetime of investing – would underperform bonds.

Why did stocks outperform during the post-war years?

During that period, the US dominated the world with military and economic hegemony acting as the global arbiter and enforcer of transnational trade and globalization, creating a ‘peace dividend’ for risk assets around the world. As that power fades, it’s quite possible the structural forces that created that environment will someday no longer exist.

The following chart shows something similar to the table above, focusing on rolling 10yr performance differentials between stocks and bonds. Again, it is apparent that stocks can underperform for life-altering periods of time.

How bad can stock market returns get?

If one asset goes up by 20% and the other by 10%, the second asset underperformed but still provided a decent return. Unfortunately, history shows that the stock market can provide dismal returns for very long periods of time.

The table below shows the worst 20, 30 and 50 year real total returns for stocks. The results show that stocks can perform poorly in both relative and absolute terms over investing lifetimes.

Real total returns

The standardization of time periods in the previous chart, however, doesn’t show the true extent of weak stock market performance potential over long periods of time. One only has to go back to the 13 year period ending 2013 to have witnessed one of the worst periods ever for US stocks. The table below shows the worst six periods for US stocks.

The implications for asset allocation decisions are immense, yet intuitive: Don’t rely on history alone to guide asset allocation decisions.

Investors must look at the prevailing environment to determine how to construct portfolios, understanding that long-term performance characteristics can change. Perhaps the most challenging part of this effort is understanding the relative variability of stocks and bonds, as illustrated by long-run correlations. Correlations change markedly over time, so the idea that one simply dumps a portion of a wealth into bonds with the purpose of creating a portfolio ballast is wrong. Stocks don’t always outperform and bonds don’t always move opposite to stocks. This is strikingly apparent (but shockingly rarely discussed) during the recent Covid-19 market crash, when US Treasuries (using TLT as a proxy) declined by almost 10% from March 1st to March 8th, while US stocks simultaneously declined by 8.8%. US Treasuries soon recovered and rallied as stocks continued to plunge, but this relative performance aberration – when the correlation between stocks and risk-free assets moved to 1 – is an example of how historical relationships can and do change. It is a critically important example of how expectations based on long histories can be false.

Will bonds outperform stocks? Are bonds still a good tool for diversifying portfolios?

Without spending considerable amounts of time and effort deciphering the current economic regime and its implications on forward asset prices, a more pragmatic approach to asset allocation might be to ensure broad representation across assets that have fundamentally different risk exposures. Stocks are probably still good to hold for the long run. Probably so are bonds (both corporate and a variety of sovereign). But it’s entirely possible that neither will perform as you expect.

Categories
Investing

Inflation Today, But Deflation Tomorrow | Lacy Hunt

Lacy Harris Hunt is an economist and Executive Vice President of Hoisington Investment Management Company (HIMCO). He is Vice-Chairman of HIMCO’s strategic investment policy committee and also Chief Economist for the Wasatch Hoisington Treasury Bond Fund. He has authored two books, A Time to Be Rich and Dynamics of Forecasting: Financial Cycles, Theory and Techniques, and has had articles published in Barron’s, The Wall Street Journal, The New York Times, The Journal of Finance, the Financial Analysts Journal, the Journal of Portfolio Management, among other publication outlets. He received the Abramson Award from the National Association for Business Economics for “outstanding contributions in the field of business economics.”

Categories
Life

How Toronto Crime Changed During the Pandemic

    Violent crimes down.

    Mental health and drug-related issues up.

    I would normally write a couple hundred words to go along with charts and graphs, but I think the two charts below convey all necessary information. So I’ll save you the time and simply share the charts below:

    Source: DumbWealth.com and Statistics Canada. Table 35-10-0169-01 Selected police-reported crime and calls for service during the COVID-19 pandemic
    Source: DumbWealth.com and Statistics Canada. Table 35-10-0169-01 Selected police-reported crime and calls for service during the COVID-19 pandemic
    Categories
    Work

    7 Workplace Trends According to Microsoft

    Did you know:

    • 46% of the workforce planning to move because they can now work remotely.
    • Remote job postings on LinkedIn have increased over 5X since the pandemic.
    • Weekly meeting time has more than doubled for Teams users since February 2020.
    • There was a 40.6b increase in emails delivered in Feb. 2020 vs. Feb 2021.

    According to research conducted by Microsoft, the year 2020 introduced dramatic workplace shifts that are here to stay.

    I’ve provided the key excerpts below:

    1. Flexible work is here to stay

    Over the past year, no area has undergone more rapid transformation than the way we work. Employee expectations are changing, and we will need to define productivity much more broadly — inclusive of collaboration, learning, and wellbeing to drive career advancement for every worker, including frontline and knowledge workers, as well as for new graduates and those who are in the workforce today. All this needs to be done with flexibility in when, where, and how people work.

    Satya Nadella, CEO at Microsoft

    2. Leaders are out of touch with employees and need a wake-up call

    “Many business leaders are faring better than their employees. Sixty-one percent of leaders say they are “thriving” right now — 23 percentage points higher than those without decision-making authority. They also report building stronger relationships with colleagues (+11 percentage points) and leadership (+19 percentage points), earning higher incomes (+17 percentage points), and taking all or more of their allotted vacation days (+12 percentage points).”

    3. High productivity is masking an exhausted workforce

    “Self-assessed productivity has remained the same or higher for many employees over the past year, but at a human cost. One in five global survey respondents say their employer doesn’t care about their work-life balance. Fifty-four percent feel overworked. Thirty-nine percent feel exhausted.”

    4. Gen Z is at risk and will need to be re-energized

    “Sixty percent of this generation — those between the ages of 18 and 25 — say they are merely surviving or flat-out struggling right now.”

    5. Shrinking networks are endangering innovation

    “…companies became more siloed than they were before the pandemic. And while interactions with our close networks are still more frequent than they were before the pandemic, the trend shows even these close team interactions have started to diminish over time.”

    When you lose connections, you stop innovating. It’s harder for new ideas to get in and groupthink becomes a serious possibility.

    Dr. Nancy Baym, Senior Principal Researcher at Microsoft

    6. Authenticity will spur productivity and wellbeing

    Before the pandemic, we encouraged people to ‘bring their whole self to work,’ but it was tough to truly empower them to do that. The shared vulnerability of this time has given us a huge opportunity to bring real authenticity to company culture and transform work for the better.

    Jared Spataro, CVP at Microsoft 365

    “Compared to one year ago, 39 percent of people say they’re more likely to be their full, authentic selves at work and 31 percent are less likely to feel embarrassed or ashamed when their home life shows up at work. And people who interacted with their coworkers more closely than before not only experienced stronger work relationships, but also reported higher productivity and better overall wellbeing.”

    7. Talent is everywhere in a hybrid work world

    This shift is likely to stick, and it’s good for democratizing access to opportunity. Companies in major cities can hire talent from underrepresented groups that may not have the means or desire to move to a big city. And in smaller cities, companies will now have access to talent that may have a different set of skills than they had before.

    Karin Kimbrough, Chief Economist at LinkedIn

    The Consequence: Employees are More Willing to Quit

    Categories
    Investing Wealth

    How Do You Invest within an RESP?

    I’ll have to admit that I’ve thought and re-thought about how I should invest my kids’ education money. I feel an extra sense of responsibility because I don’t consider the money ‘mine’.

    While I control the account and I can get the money back now or if the kids don’t go to school, for its intended purpose – funding an education – it’s not mine anymore, and that’s how I treat it.

    If I allocated $20,000 towards my childrens’ education, the last thing I want is for them to end up with less than $20,000. The second-last thing I want is the stress of trying to earn back losses. While some argue that kids can take on debt to fund their education, I’ve seen how huge college debts can be debilitating. When a fresh graduate needs to start repaying big student loans within six months of graduating, they don’t have the time to be picky. They take the first decent job they can get and become debt-slaves for the rest of their lives. Many probably won’t be debt-free again until retirement – and debt is the antithesis to freedom.

    Student loans –> credit cards –> car loans –> mortgage

    Everyone I know who graduated with big student loan debts has not lived a free life. All these people have dreamt about ‘doing what they love’ but none could because they could never get a break from their debt repayments. I don’t want my kids to go through that.

    So, if I put in $20k I want my kids to receive at least $20k. Of course, if invested in equities the probability that I accomplish this rises with my kids’ investing time horizon. Research has shown that very few historical 5yr equity market returns are negative.

    How do you invest within an RESP?

    The first step is simple. Simply put money into an RESP account and get that sweet, sweet Canadian Education Savings Grant (CESG) of up to $500 per child per year. This easy first step nets an instant 20% ROI.

    Next, consider when your child(ren) will need the money. If it’s in less than 5 years I would suggest being very conservative. More than 5 years? Then you can start to take a little more risk.

    Personally, I add an extra layer of conservatism on top of my baseline allocation. For example, if I considered a baseline allocation for a particular person with a 7 year time horizon to be 70/30 then I might ratchet down to 60/40. Also, within this mix, despite ridiculously low rates, I consider an allocation to risk free deposits (high interest savings accounts, GICs, CDs).

    I know I’ll get flack for being too conservative, but I do this because time-lines are fixed. When a child graduates from high school they immediately (usually) go to college and have to pay a fixed cost. In contrast, I can delay retirement or adjust my expenses to live off less if I mess up my retirement account.

    Categories
    Investing Life Wealth

    Investing, Hope and Climate Catastrophe

    There was a time when an HIV+ diagnosis was a death sentence.

    Not anymore.

    According to Elizabeth Ranes, RN, “life expectancy for a person infected with HIV now extends to 70 years of age. That’s a remarkable improvement from the early days of HIV, when many men succumbed to the disease in their 30s.”

    Someone diagnosed with HIV in 1989 would have little to look forward to, and no need for retirement planning at all. Anyone with any savings would spend it all, as most had no heirs and many were isolated from their families.

    However, as diagnosis and treatments quickly improved during the 1990s, a subset of HIV patients started to outlive their wealth. This subset had planned for the worst, but unexpectedly benefited from new treatments. This new hope was a mixed blessing, as many of these people were now penniless.

    Today, a growing number of teenagers are increasingly hopeless about the future. Instead of a disease, a convergence of global warming, resource shortages, political extremism and wealth disparity is painting a bleak picture.

    Guidance counselors and therapists have commented on a growing number of young people seeking help amid existential gloom. Like it or not, agree or disagree, Greta Thunberg is the poster child for global teenage grief, anger and hopelessness.

    The thread below illustrates what’s going on:

    I know people love to hate on Greta, but remember she is a child. The value she provides might not necessarily be her arguments. Rather, the fact she is expressing her worry is what we need to take away. She is a barometer for the psychology of a growing portion of tomorrow’s leaders.

    As I’ve explained by looking at the AIDS epidemic, when people lose hope they adjust their behaviours. They live like they have no future.

    What does that mean for teenagers today?

    And what if they are wrong?

    Let me tell you a secret. When I was a teenager I had little hope for my future. I’m not entirely sure why. Perhaps I received no encouragement or help. Maybe I had pessimistic tendencies. I definitely had no path in front of me.

    So I behaved like I had no future. I did many stupid things. Luckily I snapped out of it and doubled-down on forging my own path. But I could have easily gone the other way and simply continued to be a burden to those around me. Or worse.

    What happens when a big segment of the population feels this way for similar reason, thus reinforcing their belief? They certainly won’t be thinking about retirement savings. More likely, they’ll be drop-outs, criminals and pot-heads. Not all. But more than under normal circumstances.

    Maybe they’ll be proven right in the end. Maybe there is no future. But if they’re wrong, they’re basically cornering themselves into a pretty shitty life. In the end, it becomes a self fulfilling prophesy.

    I’m not blind to the problems we face, but I think it’s important to maintain some hope. We each have our ways. Acceptance, action, religion.

    We must continue saving and investing like we have a future. Perhaps the nature of those investments and the way we budget for risk change. We need to broaden our definition beyond financial instruments and invest in skills, resiliency and self sufficiency. We also need to plan for a greater number of contingencies and develop a better understanding of ‘risk’.

    As we’ve learned during the AIDS crisis, simply dropping the ball to sulk on the sidelines won’t do anyone any good.