Bogleheads University 101 2024 Key Portfolio Mistakes to Avoid with Allan Roth

00:16:28
https://www.youtube.com/watch?v=64eXCs5t_74

Zusammenfassung

TLDRThe video addresses seven common mistakes in investing, such as buying high and selling low, misunderstanding market arithmetic, and confusing knowledge with unique insights. It warns against chasing trendy investments and creating complexity in portfolios. Highlighting the importance of discipline, it advocates for a strategy focused on minimal expenses and emotional control. Through examples, it emphasizes avoiding speculation and the pitfalls of market timing, advocating for a diversified and disciplined approach to maximize returns.

Mitbringsel

  • 🔍 Making financial decisions without fully understanding arithmetic can lead to losses.
  • 📈 Many investors make the mistake of buying high and selling low, often due to market timing errors.
  • 🤔 Confusing common financial knowledge with unique insights can mislead investors into making poor decisions.
  • ⚠️ Suspending common sense in investment decisions, such as ignoring fees, can lead to unexpected declines in returns.
  • 🔄 Repeatedly chasing 'shiny objects', or trendy investments, tends to lead to underperformance.
  • 📜 Creating unnecessary complexity in investments often results in inefficiency and confusion.
  • 🎲 Speculating rather than investing is a common pitfall, such as investing in commodities like gold instead of equities.
  • ❌ Inadequate risk assessment and emotional reactions during market downturns can hinder rebalancing efforts.
  • 🧠 Predicting past financial events is easy, but predicting the future is not; many are influenced by cognitive biases.
  • 💼 Investing should focus on minimizing expenses, emotional biases, and maximizing diversification and discipline.

Zeitleiste

  • 00:00:00 - 00:05:00

    The speaker begins by outlining seven common investment mistakes, such as buying high and selling low, chasing shiny objects, confusing knowledge with unique insights, and creating unnecessary complexity. They discuss how investors often forget about arithmetic, leading to poor market timing and financial losses, and reference the Vanguard Total Stock Market Index Fund as an example. The speaker recalls advice from their time at Kellogg Northwestern, emphasizing that poor market timing is a widespread issue, particularly among male investors.

  • 00:05:00 - 00:10:00

    Further discussing challenges in investment, the speaker highlights the flawed reasoning and emotional biases that can affect decision-making, such as predicting market behaviors inaccurately. They recall the rapid stock market recovery post-COVID, illustrating the market's unpredictable nature. The speaker stresses the importance of maintaining a balanced portfolio and rebalancing according to set allocations, even amidst external pressures and changing circumstances.

  • 00:10:00 - 00:16:28

    A personal case study is used to reflect on past investment errors, primarily buying gold under misguided assumptions. The speaker critiques their naivety in equating speculation with investing, illustrating how long-held beliefs about financial products can lead to suboptimal returns compared to investing in diversified stock funds. The talk concludes by advocating for simple yet disciplined investment strategies focused on minimizing emotions, costs, and maximizing diversification, reiterating the unpredictability of market behaviors and the irrational nature of human investors.

Mind Map

Video-Fragen und Antworten

  • What are the seven investing mistakes mentioned in the video?

    The mistakes include buying high and selling low, confusing common knowledge with unique insights, suspending common sense, creating unnecessary complexity, speculating instead of investing, misunderstanding arithmetic, and losing emotional control.

  • Why is it bad to chase 'shiny objects' in investing?

    Chasing shiny objects, or trendy investments, often leads to buying at high prices and underperforming, as the trend may already be priced into the market.

  • How can misunderstanding arithmetic lead to poor investment outcomes?

    Failing to account for fees and real returns can result in lower-than-expected performance. For example, a 10% market return could shrink to 8% after 2% fees, which might not be immediately apparent.

  • What example does the speaker provide to illustrate speculative investment?

    The speaker shares a personal story where they invested in gold due to economic fears, only to find over decades that it didn't keep up with inflation compared to investing in the S&P 500.

  • How does emotional control affect investment decisions?

    Emotional reactions, especially during market volatility, can lead to poor decision-making, like not rebalancing when necessary, which can erode long-term financial gains.

  • What is the 'markets are stupid hypothesis'?

    It's the belief that one has unique knowledge about the market that isn't already priced in, which often is not the case, leading to misguided investment decisions.

  • What comparison does the speaker make to illustrate fee impact?

    The speaker references John Bogle's cost matters hypothesis, emphasizing that fees decrease overall investment returns.

  • How does the speaker suggest simplifying investments?

    The speaker argues for minimizing complexity in portfolios, avoiding needless diversification or overly complex strategies.

  • What is the recommended investment strategy according to the speaker?

    The speaker advises focusing on minimizing expenses, maintaining emotional discipline, maximizing diversification, and avoiding speculation.

  • Why is market timing often unsuccessful according to the video?

    Investors often execute it poorly, buying high and selling low, and market events are unpredictable, making timing very challenging.

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Untertitel
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Automatisches Blättern:
  • 00:00:00
    [Applause]
  • 00:00:01
    [Music]
  • 00:00:06
    okay I'm going to go over seven mistakes
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    and then I'm going to finally conclude
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    with a um a case study of a sucker that
  • 00:00:15
    made just about all of these
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    mistakes okay it's not you reck don't
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    don't
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    panic but we we buy high sell low we
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    forget about
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    arithmetic um kind of like flies we
  • 00:00:30
    Chase shiny objects uh can we confuse
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    knowledge with unique knowledge that
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    hasn't already been priced into the
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    market um we suspend Common Sense we
  • 00:00:40
    create unnecessary
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    complexity and we sometimes speculate
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    instead of
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    invest now markets and behavior here's
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    the Vanguard Total stock market index
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    fund Total return dividends and
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    appreciation and if you look
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    at when people bought stock mutual funds
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    sold mutual
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    funds hits an all-time high do com
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    bubble cash flow no longer matters let's
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    get into stocks then they fall we sell
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    go up we buy sell Buy sell repeat till
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    broke when I was at Kellogg
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    Northwestern not not
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    Chicago we were told that you can't time
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    the market but it turns out we are
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    really really good at timing the market
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    really really
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    poorly and it pains me to say that we
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    men do it
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    worse we forget about
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    arithmetic if the market earns
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    10% guess what the average dollar
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    invested in the market before fees is
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    going to return 10%
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    so if we pay 2% in fees our expected
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    return is going to be
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    8% but of course you're not really
  • 00:02:09
    seeing those fees I'm taking them out
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    without you feeling the
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    pain John Bogle would call it the cost
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    ma matters hypothesis Noel laurat um
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    William sharp proves it in a
  • 00:02:23
    brilliant incredibly simple three-page
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    paper Google it it's free the arithmetic
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    of active management and we do not live
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    in Wake W beggon we're 90% or above
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    average however I am one of the 95% of
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    people that think I'm an above average
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    driver we Chase shiny
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    objects anybody here of Kathy Wood and
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    the arc Innovation fund I mean it was
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    hot and I saw her in a debate at morning
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    star with another adviser kind of on the
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    opposite side value uh and she was
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    absolutely
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    brilliant fact she got me excited about
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    AI this was over three years ago and the
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    returns that would have in the
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    market
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    brilliant now look at the blue line is
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    her Arc Innovation
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    fund do you see how wonderful it had
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    done when I heard her speak
  • 00:03:30
    when do you think money poured into her
  • 00:03:34
    fund at the very top she destroyed more
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    money than she ever made for
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    people now Morning Star does their
  • 00:03:47
    annual mind the gap survey and you can
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    see that on
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    average we know that expensive funds
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    underperform the market but we
  • 00:03:57
    individuals underperform the funds
  • 00:04:00
    themselves by putting money into what
  • 00:04:03
    has done well in the
  • 00:04:06
    past we confuse knowledge with unique
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    knowledge I call it the markets are
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    stupid
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    hypothesis um I don't want to own
  • 00:04:18
    International stocks there's two Wars
  • 00:04:20
    going on with such turmoil there's a
  • 00:04:23
    little turmoil here in the US with an
  • 00:04:26
    election coming up um AI is going to
  • 00:04:30
    change the world I want more
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    Nvidia I think that's already priced
  • 00:04:37
    into the market but I'm going to show
  • 00:04:39
    you how I owned Nvidia from its
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    IPO do you know
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    how my total stock index
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    fund as Jack boel would say don't look
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    for the needle and the hay stack buy the
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    hay
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    stack the FED is lowering rate so I know
  • 00:05:00
    stocks and bonds are going to increase
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    in
  • 00:05:04
    value the FED doesn't
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    control intermediate and long-term bonds
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    only the overnight rate only short-term
  • 00:05:12
    bonds and they've already announced it
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    it's priced into the
  • 00:05:19
    market all right here is where I'm going
  • 00:05:21
    to brag a little bit when it comes to
  • 00:05:23
    making predictions I am
  • 00:05:27
    absolutely brilliant
  • 00:05:30
    I can predict the past with uncanny
  • 00:05:33
    accuracy it's only the future I can't
  • 00:05:36
    do but beyond that I can't even explain
  • 00:05:41
    the past remember when covid
  • 00:05:44
    hit stocks fell 35% in 33 days between
  • 00:05:50
    February 19th and March 23rd
  • 00:05:56
    2020 I had an asset allocation Target
  • 00:06:01
    and by the way there is no one perfect
  • 00:06:03
    method of rebalancing but I like you can
  • 00:06:07
    rebalance as often as you want I have
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    some clients that like to do it very
  • 00:06:10
    frequently but think of it as a a
  • 00:06:14
    contract where you have to stay within
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    let's say if 5050 is your allocation to
  • 00:06:19
    stocks 6% tolerance six percentage
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    points if you are below that you're in
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    breach of
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    contract So Co hit
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    my life had
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    changed everyone's lives had changed
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    what did I have to
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    do by stocks was it easy was it simple
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    Yes was it easy no it was incredibly
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    hard and the stock market ended up
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    quickly recovered before a vaccine and
  • 00:06:55
    ended up having a very good year
  • 00:07:00
    now I had another slide I had to cut
  • 00:07:02
    that out but it was all the headlines on
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    covid during the year things were pretty
  • 00:07:07
    pretty bleak why did the stock market
  • 00:07:10
    recover I don't know because the stock
  • 00:07:13
    market fools us
  • 00:07:18
    often suspending common sense I can get
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    you all of the upside of the market no
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    downside
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    risk just sign this1 44 page disclaimer
  • 00:07:31
    document that says you read
  • 00:07:35
    everything by the way the disclosure
  • 00:07:38
    document who's it written
  • 00:07:42
    by attorneys and actuaries do you think
  • 00:07:45
    they're doing it to protect their
  • 00:07:46
    company or protect
  • 00:07:49
    you and then Market
  • 00:07:53
    gurus I I've been chewed out by Jim
  • 00:07:56
    Kramer's SVP of media relations twice
  • 00:08:00
    he's told me that Jim Kramer reads
  • 00:08:03
    everything I write about him and I said
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    Thank
  • 00:08:06
    you or
  • 00:08:09
    newsletters if I knew how to beat the
  • 00:08:12
    market would I be pitching trying to
  • 00:08:15
    sell you a one-year subscription to my
  • 00:08:17
    newsletter at
  • 00:08:19
    $199 a
  • 00:08:26
    year creating complexity with the 50
  • 00:08:29
    page monthly statement 43 different
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    accounts
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    Simplicity almost always is
  • 00:08:40
    better speculating rather than investing
  • 00:08:45
    why does gold have
  • 00:08:51
    value because people say it has value
  • 00:08:53
    it's pretty it's
  • 00:08:55
    rare it's shiny yeah chasing shiny
  • 00:09:00
    objects belly button lint that's pretty
  • 00:09:04
    rare just not as pretty darn
  • 00:09:07
    it uh
  • 00:09:09
    crypto you know there are thousands and
  • 00:09:12
    Bitcoin is the vast is you is the giant
  • 00:09:16
    ethereum is second it does have some
  • 00:09:19
    utility value also has a lot of
  • 00:09:22
    fraud but it's same sort of
  • 00:09:26
    thing Bitcoin especially is rare but
  • 00:09:28
    there are thousands and thousands of
  • 00:09:30
    different Bitcoins I'm coming out with
  • 00:09:32
    Roth coin by the way at the end of the
  • 00:09:35
    conference there'll be a coupon for 10%
  • 00:09:38
    off
  • 00:09:41
    Commodities Commodities are
  • 00:09:43
    important if you're let's say an oil
  • 00:09:47
    company and an
  • 00:09:50
    airline but most Comm a few Commodities
  • 00:09:53
    you can actually buy like gold silver
  • 00:09:56
    Platinum but my HOA doesn't actually
  • 00:09:58
    allow me to put an oil storage tank in
  • 00:10:01
    my
  • 00:10:03
    backyard so what you're doing is buying
  • 00:10:06
    commodity
  • 00:10:07
    Futures where in the Aggregate and
  • 00:10:10
    before fees not a penny has ever been
  • 00:10:14
    made all right I'm going to show you a
  • 00:10:16
    case study this is a real
  • 00:10:18
    sucker it's not Rick Rick you're gonna
  • 00:10:22
    enjoy this because it's
  • 00:10:24
    me I used to know everything shortly
  • 00:10:27
    after I graduated from University of
  • 00:10:36
    Colorado my parents were very generous
  • 00:10:38
    they gave me some money and rather I was
  • 00:10:41
    Frugal still am rather than blow it
  • 00:10:45
    all I thought I was investing
  • 00:10:48
    it so I bought 10 ounces of gold at
  • 00:10:53
    684 dollars an ounce it had about a
  • 00:10:57
    20% pullback from over 800 so I thought
  • 00:11:01
    I was buying it
  • 00:11:02
    low why did I buy it because we're
  • 00:11:05
    printing all this money paper fiat
  • 00:11:08
    currency was going to be
  • 00:11:10
    worthless I was going to be rich in 44
  • 00:11:17
    years I made over
  • 00:11:20
    $116,000 that may sound like a lot but
  • 00:11:23
    it didn't keep up with inflation I lost
  • 00:11:25
    buying
  • 00:11:27
    power had I
  • 00:11:30
    invested in Jack bogle's S&P 500 Index
  • 00:11:34
    Fund how much more money do you think
  • 00:11:36
    that I would
  • 00:11:38
    have raise your hand if it's
  • 00:11:41
    a
  • 00:11:43
    b
  • 00:11:45
    c
  • 00:11:47
    d d is right almost a million dooll
  • 00:11:53
    mistake what was I guilty
  • 00:11:56
    of number one I thought I was buying low
  • 00:12:00
    because it went down about 20% but that
  • 00:12:02
    was over a very short time period I
  • 00:12:05
    should have had a longer term
  • 00:12:07
    perspective arguably I don't highlight
  • 00:12:10
    for forgetting arithmetic because it's
  • 00:12:12
    not the same as the 10 minus two uh but
  • 00:12:15
    someone had to sell me the gold the
  • 00:12:17
    person who sold me the gold did better
  • 00:12:20
    than me buying the gold literally
  • 00:12:23
    chasing shiny
  • 00:12:26
    objects confusing knowledge with unique
  • 00:12:29
    knowledge I wasn't the only one that
  • 00:12:33
    knew that we were running at a deficit
  • 00:12:36
    and printing
  • 00:12:38
    money suspending common
  • 00:12:41
    sense like I'm going to show up to
  • 00:12:44
    Safeway and buy milk with my
  • 00:12:49
    gold um creating complexity yes another
  • 00:12:52
    holding I had to put in my safe dep
  • 00:12:54
    posit box uh carry with me whenever we
  • 00:12:57
    moved um and confusing speculation with
  • 00:13:02
    investing stocks are wonderful those
  • 00:13:05
    companies produce products goods and
  • 00:13:08
    services that keep the economy going
  • 00:13:11
    give us things that have value create
  • 00:13:14
    jobs it's wonderful gold crypto doesn't
  • 00:13:18
    do
  • 00:13:20
    it so I should have bet on
  • 00:13:26
    capitalism um and by the way in that
  • 00:13:29
    that asset allocation I do push back on
  • 00:13:32
    my
  • 00:13:33
    clients because a client there's two
  • 00:13:36
    issues number one a client may
  • 00:13:40
    say I know I have a lot of risk
  • 00:13:43
    tolerance I've taken risk tolerance
  • 00:13:46
    questionnaires I know I'll rebalance
  • 00:13:48
    when stocks dive versus those that say I
  • 00:13:52
    know it's going to be painful I hope
  • 00:13:54
    I'll rebalance when stocks Dives which
  • 00:13:57
    ones do you think actually do it
  • 00:14:00
    the ones that understand the Financial
  • 00:14:03
    Freedom that has evaporated during a
  • 00:14:05
    bare market and how they might feel so I
  • 00:14:09
    also look at need to take risk or as
  • 00:14:13
    William Bernstein would say when you've
  • 00:14:15
    won the game quit playing doesn't mean
  • 00:14:17
    go all in bonds it just means you have a
  • 00:14:20
    more conservative portfolio although if
  • 00:14:22
    you have enough wealth you're Investing
  • 00:14:23
    For future Generations I too have a
  • 00:14:27
    client in his 90s who's over 0%
  • 00:14:32
    stocks so you know
  • 00:14:36
    in eight words investing is simply
  • 00:14:39
    minimizing expenses and emotions and as
  • 00:14:42
    Rick said taxes are part of those
  • 00:14:44
    expenses and maximize
  • 00:14:46
    diversification and
  • 00:14:48
    discipline simple but not so easy and
  • 00:14:53
    remember we humans are predictably
  • 00:14:56
    irrational I can't predict the market
  • 00:14:59
    but in the next
  • 00:15:00
    beer what do I think people are going to
  • 00:15:03
    be doing with their stock mutual funds
  • 00:15:05
    and
  • 00:15:06
    ETFs what should you be
  • 00:15:08
    doing
  • 00:15:11
    absolutely that's it thank
  • 00:15:13
    [Applause]
  • 00:15:20
    you okay one
  • 00:15:24
    clarification when I talked about asset
  • 00:15:26
    allocation and I asked the client where
  • 00:15:28
    they think should be that's the
  • 00:15:30
    beginning of the discussion not the end
  • 00:15:32
    of it because then I
  • 00:15:34
    listen and we have a conversation about
  • 00:15:37
    it so I want to make sure I don't give
  • 00:15:39
    the impression that we just go with what
  • 00:15:40
    the client says anyway
  • 00:15:45
    okay oh absolutely not go
  • 00:15:49
    ahead Believe It or Not sometimes I
  • 00:15:51
    negotiate with a client with their own
  • 00:15:53
    money so if they want 70% stocks and I
  • 00:15:58
    think 60% is more appropriate what I do
  • 00:16:02
    is I say okay let's start with 60% and
  • 00:16:06
    when the market is down 20% or more from
  • 00:16:08
    today you can buy more stocks I'm not
  • 00:16:11
    timing the market I'm testing the
  • 00:16:13
    resolve guess how many people have come
  • 00:16:16
    back to me once we were in that bare
  • 00:16:18
    Market to buy more
  • 00:16:20
    stocks zero
Tags
  • Investing
  • Market Timing
  • Speculation
  • Diversification
  • Arithmetic
  • Emotional Control
  • Expenses
  • Complexity
  • Discipline
  • Mistakes