00:00:00
[Applause]
00:00:01
[Music]
00:00:06
okay I'm going to go over seven mistakes
00:00:08
and then I'm going to finally conclude
00:00:11
with a um a case study of a sucker that
00:00:15
made just about all of these
00:00:17
mistakes okay it's not you reck don't
00:00:20
don't
00:00:22
panic but we we buy high sell low we
00:00:26
forget about
00:00:27
arithmetic um kind of like flies we
00:00:30
Chase shiny objects uh can we confuse
00:00:33
knowledge with unique knowledge that
00:00:35
hasn't already been priced into the
00:00:37
market um we suspend Common Sense we
00:00:40
create unnecessary
00:00:42
complexity and we sometimes speculate
00:00:45
instead of
00:00:49
invest now markets and behavior here's
00:00:52
the Vanguard Total stock market index
00:00:54
fund Total return dividends and
00:00:58
appreciation and if you look
00:01:01
at when people bought stock mutual funds
00:01:04
sold mutual
00:01:07
funds hits an all-time high do com
00:01:10
bubble cash flow no longer matters let's
00:01:13
get into stocks then they fall we sell
00:01:16
go up we buy sell Buy sell repeat till
00:01:21
broke when I was at Kellogg
00:01:25
Northwestern not not
00:01:28
Chicago we were told that you can't time
00:01:31
the market but it turns out we are
00:01:34
really really good at timing the market
00:01:36
really really
00:01:38
poorly and it pains me to say that we
00:01:42
men do it
00:01:46
worse we forget about
00:01:48
arithmetic if the market earns
00:01:51
10% guess what the average dollar
00:01:54
invested in the market before fees is
00:01:56
going to return 10%
00:02:01
so if we pay 2% in fees our expected
00:02:04
return is going to be
00:02:07
8% but of course you're not really
00:02:09
seeing those fees I'm taking them out
00:02:11
without you feeling the
00:02:13
pain John Bogle would call it the cost
00:02:16
ma matters hypothesis Noel laurat um
00:02:20
William sharp proves it in a
00:02:23
brilliant incredibly simple three-page
00:02:27
paper Google it it's free the arithmetic
00:02:31
of active management and we do not live
00:02:33
in Wake W beggon we're 90% or above
00:02:37
average however I am one of the 95% of
00:02:39
people that think I'm an above average
00:02:43
driver we Chase shiny
00:02:47
objects anybody here of Kathy Wood and
00:02:50
the arc Innovation fund I mean it was
00:02:54
hot and I saw her in a debate at morning
00:02:58
star with another adviser kind of on the
00:03:01
opposite side value uh and she was
00:03:04
absolutely
00:03:06
brilliant fact she got me excited about
00:03:09
AI this was over three years ago and the
00:03:13
returns that would have in the
00:03:15
market
00:03:19
brilliant now look at the blue line is
00:03:23
her Arc Innovation
00:03:25
fund do you see how wonderful it had
00:03:28
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
00:03:38
money than she ever made for
00:03:44
people now Morning Star does their
00:03:47
annual mind the gap survey and you can
00:03:50
see that on
00:03:51
average we know that expensive funds
00:03:55
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
00:04:10
knowledge I call it the markets are
00:04:12
stupid
00:04:15
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
00:04:34
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
00:04:44
IPO do you know
00:04:47
how my total stock index
00:04:51
fund as Jack boel would say don't look
00:04:54
for the needle and the hay stack buy the
00:04:56
hay
00:04:58
stack the FED is lowering rate so I know
00:05:00
stocks and bonds are going to increase
00:05:02
in
00:05:04
value the FED doesn't
00:05:07
control intermediate and long-term bonds
00:05:10
only the overnight rate only short-term
00:05:12
bonds and they've already announced it
00:05:15
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
00:06:08
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
00:06:16
let's say if 5050 is your allocation to
00:06:19
stocks 6% tolerance six percentage
00:06:23
points if you are below that you're in
00:06:26
breach of
00:06:27
contract So Co hit
00:06:31
my life had
00:06:33
changed everyone's lives had changed
00:06:36
what did I have to
00:06:39
do by stocks was it easy was it simple
00:06:44
Yes was it easy no it was incredibly
00:06:48
hard and the stock market ended up
00:06:52
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
00:07:04
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
00:07:21
you all of the upside of the market no
00:07:23
downside
00:07:27
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
00:08:04
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
00:08:34
accounts
00:08:36
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
