Given the nature of the conversation, let's put an extra disclaimer up front. I give financial advice to clients. People whose circumstances I understand personally and with whom I have in-depth conversations to get to alignment in a world where there is a lot we don't know. My public writing is never financial advice. NEVER… What follows are insights from someone who has spent over 4 decades doing academic-level research on claims people make about the stock markets, etc. Someone whose circle of peers includes enough Nobel Prize winners that I think we could easily lose count. This is education of the highest form. And still… it is NOT financial advice. With that said, let's jump in.

I hope summer is treating everyone well so far.

We just came back from a few weeks of traveling as a family, which was everything that we had wished it would be: magical, invigorating, and life-affirming.

(We even got to welcome the latest addition to our extended family while we were at my mother's house. Welcome, Paul. You are as loved as you were wanted. Things are off to a good start!)

I wish you all the opportunity to do the things you love, in the places you love, with the people you love. It makes the world a pretty wonderful place.

And now I cannot wait to get back to it fully, serving clients with care and attention (bordering on obsessiveness? 😊), all the while trying to make sense of the world around us together.

While I was away, I released a very special episode of TREUSSARD TALKS with the one and only Zvi Bodie. Zvi was Professor of Finance at Boston University for decades.

This episode is also on Spotify and YouTube.

During his truly extraordinary career, Zvi co-authored the leading textbook on investments — the "Bodie-Kane-Marcus" as it's known, which continues to be a staple at MBA programs in the US and around the world.

Not one to rest on his laurels, and now in his 80s, Zvi just released a new textbook co-authored with his lifelong research partner (and Nobel Prize winner) Bob Merton, alongside University of Minnesota professor Richard Thakor.

The new book Principles of Finance aims to bring a more modern and integrated introduction to finance to students.

But that barely scratches the surface of what makes Zvi stand out among economists, among educators, and among humans.

(Yes, Zvi is my father-in-law. But that alone is not enough to explain the use of superlatives).

In our conversation, we talked about his growing up in Brooklyn, the son of a plumber and a homemaker. We talked about his academic journey, from Brooklyn College to the Hebrew University in Jerusalem to MIT.

Zvi also shared the story of how he and his wife Judy were married in a group ceremony in Israel on the 4th of July, back in 1967. Please join me in wishing them a very happy 58th wedding anniversary!

Then we got into the crux of his work.

This is what convinced me long ago that Zvi deserves the title I reserve for very few people in the world of finance: "Advocate for the American Investor."

Zvi cares deeply about the impact of finance and investing on people's actual lives.

We talked about his research on a number of topics and I hope you'll listen to the whole thing. (The thing I haven't said about Zvi yet is that he is deeply committed to communicating clearly, so this is a conversation you'll "get" even if you don't have a Ph.D. from MIT.)

But here are two topics that have immediate and high-impact relevance to everyone with personal wealth and who's felt that the "education" they receive from the wealth management industrial complex doesn't always make complete sense.

→ Are stocks reliable INFLATION HEDGES?

→ Are stocks "SAFE IN THE LONG RUN?"

Getting the answer right to those questions matters hugely. Because this is your wealth, your life—and if things don't pan out as expected, there is no easy do-over like they do in computer simulations.

Also, the moment you use the present tense (as in "ARE safe in the long run"), this becomes a scientific conversation about the intrinsic properties of things… The answer "sometimes" doesn't qualify you for present-tense treatment.

Here is what Zvi has to say about all of this…

Are Stocks an Inflation Hedge?

For stocks to be credible "inflation hedges," they would have to reliably make you richer when inflation goes up.

They would have to mechanically compensate you for the loss in wealth you experience when the dollar buys you less at the grocery store.

No such thing can be relied on to happen, certainly not mechanically.

Not during the 1970s when Zvi was studying this as a grad student at MIT, and not in 2021-2022, when the run-up in inflation came with a nasty turn for the stock market.

Sure, there is a reasonable argument (and one that’s panned out in the past) for the genius of capitalism and the relentless drive of American enterprise to succeed (aka grow earnings) no matter the environment, but thinking of that as an inflation hedge is closer to "hopefully eventually." That is not insurance, as the phrase would suggest.

Are Stocks “Safe” in the Long-Run?

Oh boy, that's a big one.

It's a basic thing that people hang on to, right?

Again, it might feel like I'm being nit-picky, but that present tense can really get you off base.

Yes, if you look at the history of the stock market in the U.S., indeed, despite precipitous declines along the way (the Great Depression, the 1970s inflation-era wipeout, the Tech Bubble burst, the Great Financial Crisis, etc.), we have been very good at making up the lost ground and taking the value of stocks higher over time.

In fact, after a very proper decline in April of this year, we are now hitting new highs.

But is that a rule of nature?

This is where some math comes in.

Zvi showed back in the mid-1990s that the price of a put option on a stock index (like the S&P 500) goes up with time to maturity.

In short, it costs you more to insure stocks for ten years than it does for one year.

But here is a riddle for you. If stocks got mechanically safer over time, why would the cost of insurance go up?

Right… If the cost of insurance goes up, it means that the risk goes up. Stocks are not safer in the long run.

Which makes sense when you remember what Yogi Berra wisely said: "Predictions are hard, especially about the future." 😉 

Now let me point something out here.

Back in the middle of the Great Financial Crisis, Warren Buffett sold a whole bunch of long-dated put options on U.S. stocks.

He basically provided term-insurance on U.S. stocks all over town.

Does that mean that Buffett had to believe that stocks were "safe in the long run?"

Nope.

Warren Buffett is in the insurance business.

Given the amount of fear in the system then, the pricing on those put options made it attractive for someone in Buffett's position to sell the insurance and pocket the premium, even if the outcome was uncertain.

I repeat, insurance is one of his main lines of business.

I am just saying this because sometimes two things that are seemingly in conflict can be true at the same time. That's called walking and chewing gum…

Zvi Bodie could be right that stocks are not safe in the long run. And Warren Buffett could be right that selling long-run puts on stocks made a lot of sense then.

And that takes us to today.

Yes, the future of America and her core institutions may be uncertain, including the place of free markets and enterprise in American society… and still betting on America's future might be the right move (though not the only move).

Now as always, we should think like Warren Buffett — prices matter. Buying at “good prices” reduces the risk of disappointment, though disappointment is always and forever possible. As financial types say, current valuations inform long-term return expectations.

But whatever happens next, with any luck, we'll find out together.

And until then, I hope you're enjoying this July 4th weekend and I really hope you'll listen to my conversation with the one and only Zvi Bodie. There is so much value in learning from a lifetime of wisdom.

Visit Zvi’s personal website: https://zvibodie.com/.

If you want to go beyond headlines and build investment decisions on real understanding—not cliché—let’s keep the conversation going.

Subscribe to the ‘Wealth, Empowered’ newsletter and to the ‘Treussard Talks’ podcast—each issue and episode unpacks tricky questions like this one, so you can become informed and think critically when it comes to your wealth.

If you have friends or colleagues who would benefit from this kind of rigor and insights, send them this post or introduce them to me directly.

And if you’re wrestling with big questions about your own portfolio or risk tolerance, I’m always happy to have a candid, no-obligation conversation.

Either way, join the newsletter here or forward to a friend and let’s tackle the real questions together.

Be well and talk soon,
Jonathan 👋