By Matthew Gutierrez and Shawn O’Malley
Happy Monday, everybody.
Gold keeps soaring — now past $2,500 an ounce after the Fed’s anticipated rate cuts, the return of traditional market drivers like lower yields, and more investment from Western markets.
The precious metal has been a standout among major commodities this year, breaking record after record. ETF inflows are also really picking up.
— Matthew & Shawn
Here’s today’s rundown:
Today, we'll discuss the biggest stories in markets:
The closest thing to a sure thing
How much do CEOs really matter?
This, and more, in just 5 minutes to read.
POP QUIZ
Chart of the Day
Secure Your Future: The FNRP Edge
Tired of volatile investments or meager returns? Dive into the world of commercial real estate with First National Realty Partners. Our curated, high-yield opportunities offer:
Steady, passive income streams
Robust portfolio diversification
Tax-advantaged growth potential
Join savvy investors nationwide. Let FNRP's expert team navigate the complexities while you reap the rewards.
In The News
💡 Messing Up the Closest Thing to a Sure Thing
Not everyone in index funds actually matches the market return
Index investing is easy. Many investors buy the basket of stocks that tracks the S&P 500, for instance, and never bother to analyze or pick individual stocks. The average person can outperform virtually all professional money managers and traders by sticking to the strategy over long periods.
But that’s not always the case. A recent Morningstar study reveals something pretty surprising. Or concerning, depending on how you look at it: Over the last 10 years, investors earned an average of 6.3% annually, 1.1 percentage points less than the mutual funds and ETFs they owned.
How? Investors tend to underperform their investments in ETFs, mutual funds, and even individual stocks. Just because a fund rises 250% over a set period of time doesn’t mean all of its investors matched that result.
Buy and hold? Yes, you’ll match the funds’ reported return. But buy high or sell low, just before it turns around? Then you’ll likely post a lower return than the fund you own.
For sector index funds, investor returns fell behind even more total returns — by 2.9 percentage points annually over 10 years, worse than the 2.0 percentage point gap for actively managed sector funds.
For the Invesco S&P 500 Low Volatility ETF, investors as a group underperformed the fund itself by 1.2% annually over the period.
Why it matters:
Index investing has steadily grown in popularity. But that doesn’t mean that the human behavior that shapes investing and financial markets isn’t relevant.
The Morningstar study proves that while index funds offer low fees and tax efficiency, they can still be tempting to trade frequently. Investors often underperform their own investments due to poor trade timing; they tend to buy high and sell low. Chasing gains often leads to capturing losses.
Financial columnist Jason Zweig recommends investors stay more patient through the market’s ups and downs, without trying to time the market — even when invested in indexes.
“Too many investors aren’t patient, however, and often bet on narrower slices of the market,” Zweig writes. “Because index funds are cheaper and diverge less from their benchmarks than actively managed funds do, they’ve become the vehicle of choice for these short-term bets.”
Bottom line: Yes, index funds have simplified investing, but they haven't necessarily made it easier for investors to avoid behavioral mistakes that lead to underperformance.
More Headlines
📈 Nvidia gets ready to take over the stock market (again)
😬 Only 15% of Gen Z regularly saves a portion of their paycheck
💡 Paul Tudor Jones on the mental obstacles of investing
🛢️ U.S. crude oil jumps 3% on Libya production halt, Israel-Hezbollah attacks
⚡ More Americans are having to choose between food and energy bills
☕ Starbucks’ New CEO and How CEOs Matter
Incoming Starbucks CEO Brian Niccol
Heads turned when it got out that new Starbucks CEO Brian Niccol would take on quite the super commute: He’s taking a corporate jet from his Southern California home to the Seattle office — a 1,000-mile journey.
He’s also accepting a pay package worth about $100 million. That’s a lot of money. Does Niccol deserve it?
Best day: He might. Starbucks’ valuation soared by $27 billion in response to his hiring after the coffee giant lured him away from Chipotle. That day, Chipotle stock dipped 7.5% while Starbucks rose 24.5% — the company’s best day ever on the stock market.
The big question: But even if Niccol is a wonderful CEO, is he really that much of a difference-maker? After all, Starbucks is a company of 380,000 people. Many believe CEOs are interchangeable, too. In one survey, about half of CEOs said most or all of the CEO role could be replaced by artificial intelligence.
Some evidence suggests CEOs very much do impact a business, or at least its stock price. As The Wall Street Journal’s Ben Cohen writes, “Because the job of a CEO today is really about deciding which bets to make. The frenetic pace of business and opportunities presented by technological shifts have given CEOs across various industries the power to determine the fate of their companies—a concept known as managerial discretion. The more discretion they have, the more of a difference they can make.”
Look, the market isn’t always right. Disney soared by $10 billion in value when Bob Iger returned two years ago, yet now the stock is lower than when he returned.
On the flip side, investors weren’t sure about Satya Nadella’s ability to lift Microsoft. Yet Microsoft’s revenue growth (and stock) has done better than almost every other major company over the past decade.
“If you’re working at a utility company, maybe the CEO doesn’t matter much,” said one business professor. “If you’re working for Apple, CEOs matter a lot.”
Less is more: In Niccol’s six years at Chipotle, the stock rose 773% as revenue and profits soared thanks to savvy marketing and keeping it simple. Rather than add breakfast foods or expand to frozen ingredients, Niccol became known for what he didn’t do.
“We knew not to do any of those things,” Niccol wrote in Harvard Business Review. “We just needed to get even better at doing what people already loved us for.”
Starbucks is a different challenge. Prices are high, competition is stiff, and many customers are fed up with Starbucks wait times. But if Niccol can pull off another turnaround for a food giant, his $100 million package could be a bargain.
From The Wall Street Journal
Why it matters:
Niccol’s package drew criticism from analysts and customers who point to the enormous pay disparity between a CEO and the rest of a company’s workforce. The typical CEO earns about 200 times more than their workers.
Part of the discrepancy is that CEO pay packages are closely tied to stock price: Stock awards comprise roughly 70% of their total compensation packages. At least in theory, that makes sense — if a CEO helps create billions of dollars in wealth for shareholders, shouldn’t they be rewarded handsomely?
From WSJ
Pay divergence: Critics point out that CEO pay has jumped about 1,209% since 1978 compared with a 15% bump for the typical worker. Reasons average workers haven’t seen major pay increases (inflation-adjusted) include:
Globalization
Erosion of unions
Low labor standards
Outsourcing
Tech and automation
Final thoughts: Whether CEOs are overpaid is “really up to shareholders to decide,” says one senior director. “One may argue that paying a CEO adequately is critical to the success of an organization, ensuring long-term stability and growth, particularly during economic downturns.”
Together With Kenny Flowers
Elevate Your Summer Style
Whether you're teeing off on the golf course or lounging poolside, Kenny Flowers offers the quintessential tropical attire to make a statement this summer. Slip into their iconic, 19th-hole-approved polos, and experience a slice of paradise wherever you go.
But their commitment to excellence doesn't stop at style – they're all about quality, too. Each garment is ethically made with meticulous attention to detail, ensuring unmatched comfort and durability that lasts from one vacation to the next.
This summer, indulge yourself and your loved ones with their latest vacation pieces, including their popular matching sets. Bonus: As a reader of We Study Markets, enjoy an exclusive 10% off with code FLOWERS10.
Quick Poll
How much should a CEO's compensation be tied to company performance?
On Friday, we asked: Do you own any bank stocks or financial sector ETFs? Why or why not?
— More than half of all respondents own at least one bank stock or financial sector ETF. One investor wrote, “Bought the dip last year.”
— Added another who owned Signature Bank, which collapsed in 2023: “I tried to catch a falling knife with SBNY shortly before the price collapsed. My shares have lost 98% of their value, but I keep them as an uncomfortable reminder of the lesson learned.”
TRIVIA ANSWER
See you next time!
That's it for today on We Study Markets!
Enjoy reading this newsletter? Forward it to a friend.
Was this newsletter forwarded to you? Sign up here.
Use the promo code STOCKS15 at checkout for 15% off our popular course “How To Get Started With Stocks.”
Advertise with us.
Follow us on Twitter.
Keep an eye on your inbox for our newsletters on weekdays around 6pm EST and on weekends. If you have any feedback for us, simply respond to this email.
You can also leave your comments/suggestions/feedback anonymously here.
What did you think of today's newsletter?
All the best,
P.S. The Investor's Podcast Network is excited to launch a subreddit devoted to our fans in discussing financial markets, stock picks, questions for our hosts, and much more!
Join our subreddit r/TheInvestorsPodcast today!
© The Investor's Podcast Network content is for educational purposes only. The calculators, videos, recommendations, and general investment ideas are not to be actioned with real money. Contact a professional and certified financial advisor before making any financial decisions. No one at The Investor's Podcast Network are professional money managers or financial advisors. The Investor’s Podcast Network and parent companies that own The Investor’s Podcast Network are not responsible for financial decisions made from using the materials provided in this email or on the website.
