Episode summary
Ben Carlson: Exploring Risk and Reward
The Long View
· · Hosts: Ben Johnson, Christine Benz, Amy Arnott · Guests: Ben Carlson
Summary
Ben Carlson argues that market history is most useful as preparation, not prediction: it teaches investors to expect surprise, understand extremes, and respect mean reversion. He uses Japan’s 1980s asset bubble and the 1970s inflationary bear market to show how far valuations can run and how painful it is when stocks, bonds, and cash all get squeezed at once.
A major theme is the rise of the automatic investing revolution. Carlson says 401(k)s, IRAs, target-date funds, and automated contributions have improved behavior and helped keep money flowing into equities, but he also thinks that same system can lull investors into complacency. He worries the next recessionary bear market could expose how much risk investors are taking now that recent drawdowns have been relatively shallow and brief.
Carlson also argues that patience is harder in an on-demand, information-saturated world, which pushes some investors toward speculation. He favors boring defenses like cash for short-term resilience, but says true protection against inflation comes mostly from controlling housing and transportation costs and, more broadly, increasing earning power and staying invested for the long run.
Key takeaways
- Carlson says studying history helps investors widen their sense of outcomes, not forecast the future.
- He points to Japan as proof that bubbles can go far beyond investors’ expectations and that mean reversion can be brutal.
- He argues the automatic investing revolution has improved behavior through 401(k)s, IRAs, target-date funds, and automatic rebalancing.
- Carlson thinks a future recessionary bear market could be more painful because today’s investors may be more complacent.
- He says cash is valuable for liquidity and sleep-at-night comfort, especially as retirement approaches.
- He believes inflation defense starts with the biggest budget items, especially housing and transportation.
Notable quotes
“the biggest thing for studying market history is not necessarily that it's going to help you predict the future cuz it can't”
“it's okay to be surprised, but don't be surprised that you are surprised by the markets”
“I call it's kind of like the automatic investing revolution where automation is now such a big part of investing for people”
“most people don't want to get rich slowly”
“drinking from the fire hose is not a long-term winning strategy”
How the episode opens
Please stay tuned for important disclosure information at the conclusion of this episode. Hi and welcome to the long view. I'm Christine Benz, director of personal finance and retirement planning for Morning Star. — And I'm Ben Johnson, head of client solutions for Morning Star.
Today on the podcast, we welcome back Ben Carlson, who's the author of a new book called Risk and Reward. Ben is the director of institutional asset management for Rit Holtz Wealth Management. In addition, Ben's a prolific creator of content.
His blog is called A Wealth of Common Sense. He also co-hosts the podcast Animal Spirits with Michael Batnik. Ben is the author of four books about investing in money and he's a CFA charter holder.
Ben, welcome back to the Long View.
Glad to be here. — We're glad to have you here and congratulations on your new book, Risk and Reward. The book has a lot of market history in it. You're obviously a huge student of market history. Why do you think understanding history can make us better investors?
I originally started reading market history because I was such a new inexperienced investor when I was young and just out of school. And I thought the way for me to kind of learn about markets is to understand what came before me. And I think the biggest thing for studying market history is not necessarily that it's going to help you predict the future cuz it can't.
I think it just gives you this idea that there's a range of outcomes and that usually the risks are relatively surprising and the way that things play out are surprising and I think you can use that to sort of color your thinking about the future. Certainly just this decade alone, no one could have possibly predicted how much a pandemic would change the course of the world and that we'd have 40-year high inflation and all all these things that have happened that were completely unknown and surprising.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- automatic investing revolution
- market history and bubbles
- complacency
- inflation psychology
- private asset investing
Watch the episode
Watch “Ben Carlson: Exploring Risk and Reward” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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The Long View, this episode and its artwork belong to Morningstar, Christine Benz - Director of Personal Finance and Retirement Planning, Ben Johnson - Head of Client Solutions, Amy Arnott - Portfolio Strategist. Octagon is not affiliated with the show; this page is an independent summary.
