RPF0231-Stock_Market_Gyrations
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00:00:14.840 | I'm a little late to the party, but not too late.
00:00:18.080 | And I've decided to go ahead and take the bait and talk stocks today.
00:00:23.060 | Global stock markets all over the place.
00:00:25.820 | US stock markets also all over the place.
00:00:28.760 | And today I'm going to share with you some ideas and some thoughts that I hope
00:00:32.440 | will be useful to you as you try to figure out if you should be changing
00:00:36.620 | anything in your portfolio.
00:00:38.920 | Welcome to the radical personal finance podcast.
00:00:57.280 | My name is Joshua sheets and I'm your host.
00:00:58.960 | This is the show where we work each and every day to help you clarify your
00:01:04.240 | path to financial independence.
00:01:05.800 | And today we're going to talk about that within the context of investing
00:01:09.440 | quite frequently, actually, you get these opportunities to do that.
00:01:14.080 | And it's always interesting to try to tackle a current event with a long-term
00:01:19.160 | perspective, but let's see if we can do that today.
00:01:21.240 | Been a busy last couple of weeks around the sheets household here and around the
00:01:31.560 | radical personal finance global headquarters.
00:01:33.360 | We have indeed moved, as I mentioned to you on a recent show.
00:01:36.920 | And so the move has been, uh, it's been great, but it's also been more
00:01:41.120 | challenging than I thought.
00:01:42.080 | The biggest challenge in our lives right now is working with a colicky baby.
00:01:44.920 | Uh, and that's really been a major impact.
00:01:47.360 | And also I have been working day and night to get our old house ready to list and
00:01:52.200 | ready to sell and have been moving as fast as possible, had a goal of having it
00:01:55.880 | finished.
00:01:56.320 | As I record this, it's Tuesday, August 25, 2015, had a goal of being finished by last
00:02:01.680 | Friday, but had some things come up, uh, that the house wasn't quite ready.
00:02:05.200 | So now I'm working hard to get done by the middle or realistically end of this
00:02:09.200 | week.
00:02:09.480 | So that's the biggest priority for me right now is to get that house on the market.
00:02:13.680 | And so as such radical personal finance has taken the toll and I apologize to you
00:02:18.400 | for that.
00:02:18.800 | Hopefully, uh, you will all be able to understand.
00:02:21.000 | I am convinced that it's a great move just as I see how much my situation, my
00:02:27.800 | time is going to be freed up with being just in the future, being able to produce
00:02:31.560 | the show and being able to bring you more content.
00:02:33.640 | I'm, I'm extremely excited about it and I'm learning a lot of things about the
00:02:36.920 | real estate process and a lot about myself.
00:02:38.760 | I'll bring you all those details on a future show, but, uh, the, the show content
00:02:43.320 | here has been spotty and hopefully, uh, you can understand and bear with me.
00:02:46.880 | I expect, uh, after August, September ish year, I expect, uh, things to be much
00:02:52.480 | more consistent and hopefully we'll, we'll turn the corner both with personal
00:02:56.280 | life and, and, uh, business life.
00:02:58.760 | Uh, but I want to talk about a stock market.
00:03:01.240 | Now it's been a little tough.
00:03:02.040 | I didn't get my studio fully set up and had some issues even getting it, uh,
00:03:06.560 | working here in the new house.
00:03:08.160 | And so it hasn't been easy for me to get things set up and I've been watching
00:03:12.600 | the, uh, stock market drops over the last few days.
00:03:15.480 | If you're not familiar, it started late end of last week.
00:03:18.240 | Uh, and then yesterday, Monday, uh, was, uh, the market open was in the United
00:03:23.200 | States was marked by greater than a thousand point decline in the, in the Dow.
00:03:26.800 | And so this obviously is food for fodder from all, all perspectives with finance.
00:03:32.880 | And this is an interesting, an interesting time for me to be watching
00:03:38.080 | things because I'm in a unique position, which I've never been in, uh, through
00:03:43.080 | the course of my adult life, ever since I started paying attention to money.
00:03:46.040 | And I'm in the unique place of sitting on the sidelines completely and absolutely
00:03:51.600 | of this, uh, of these market changes.
00:03:54.920 | Uh, ever since I was, I guess I'd say probably about 18, I've been an investor
00:04:00.440 | in public and trade of securities.
00:04:01.760 | Uh, so I've owned stocks through every market change since I was 18, which
00:04:08.000 | would have been 95, 95.
00:04:10.440 | So it would have been about the end of the nineties, uh, that, uh, I was born in
00:04:14.040 | 1985.
00:04:14.880 | So end of the nineties was about 98, I guess would be when I was 18.
00:04:18.160 | And I started to purchase my first mutual funds.
00:04:20.800 | Then I've been for the last six years in the marketplace as a professional
00:04:26.280 | investment advisor, uh, having a direct financial interest in the movements of my
00:04:31.400 | clients and being a steward of their funds.
00:04:33.920 | And so those are different perspectives that bring different potential biases
00:04:39.040 | into, uh, into my own life.
00:04:41.640 | As an investor, we often are going to have a, uh, a bias and a desire to kind of see
00:04:46.600 | ourselves doing the right thing.
00:04:47.920 | And so we're going to have, usually if you listen to most people talk about
00:04:51.200 | investments, they've got their way that is what they're convinced is right for
00:04:54.920 | them, but they're not able to step back and be objective about it because the pain
00:04:58.760 | of a change or the pain of admitting that they might be wrong about something is
00:05:02.520 | too deep, too difficult.
00:05:04.200 | Also, uh, there are conflicts of interest as a financial advisor.
00:05:08.840 | Uh, there are conflicts of interest with, uh, where your fees come from, with where
00:05:13.400 | your markets come, where your, just your revenue comes from with the actions of
00:05:17.440 | your clients.
00:05:18.080 | This is a constant challenge that financial advisors face.
00:05:20.920 | And it really is truly, uh, a challenge.
00:05:24.360 | If you're, if you get paid fees based upon your clients being invested in
00:05:29.000 | stocks, and that's the bulk of your earnings.
00:05:31.920 | And if you get paid fees based upon your clients continuing to be invested in
00:05:35.600 | stocks, that does create a powerful incentive for you to encourage your
00:05:40.720 | clients to stay the course.
00:05:42.640 | And you've got to recognize that.
00:05:44.640 | Doesn't mean you can't surpass it, but you've got to recognize the conflict of
00:05:48.880 | interest.
00:05:49.400 | But the interesting thing is for the last year, I've had no personal financial
00:05:53.880 | connection to anybody else's investment accounts.
00:05:56.680 | I don't earn any fees off of anybody's investments.
00:05:59.200 | I don't do any, uh, asset management services.
00:06:02.480 | So I make, I have no financial incentive to, uh, to maintain a certain course of
00:06:07.760 | action with regard to investments.
00:06:09.200 | Doesn't mean that I don't still have biases.
00:06:11.320 | So for example, one of the interesting things I've, I've been giving time as
00:06:14.240 | I've transitioned here on radical personal finance, I've gone, been going
00:06:18.240 | back and kind of examining some of my own biases, examining some of the things
00:06:21.920 | that I previously believed to see, do I still believe these things?
00:06:25.040 | Uh, just so if you walk away from a certain way of, of, of acting and
00:06:29.640 | thinking, it doesn't mean that immediately, just because you don't have
00:06:31.960 | a financial incentive, uh, that all of a sudden you can walk away from your
00:06:35.800 | pattern of thinking.
00:06:36.680 | Best example to illustrate that, that I can think of is if you, uh, let's say
00:06:41.200 | that you're raised in a, uh, a devoutly religious family, a Christian family or
00:06:45.560 | a Muslim family or Jewish family, and then you decide, well, I need to change a
00:06:49.760 | course.
00:06:50.280 | And I've decided that the way I was taught is not how things are.
00:06:54.240 | And you become atheist.
00:06:56.040 | So you transition doesn't mean that all of a sudden now the entire way of
00:07:00.480 | thinking in which you were trained is suddenly changed.
00:07:02.920 | Or if you go the other way, you're raised in atheist and, uh, you're
00:07:05.920 | converted to become a believer.
00:07:07.200 | Then all of a sudden you're not entirely different.
00:07:11.280 | There's a new way of thinking that you have to take on and adopt.
00:07:14.200 | And I have the same experience with, uh, the, the place of being a professional
00:07:18.920 | financial advisor.
00:07:20.400 | However, the other aspect of it is, as I've stated here on the show, as of a
00:07:25.360 | number of months ago, I can't remember the exact date.
00:07:27.760 | I'm no longer invested in any publicly traded securities.
00:07:31.800 | So at the moment, currently in August of 2015, all of my family's household
00:07:39.360 | investment accounts are in cash.
00:07:41.120 | I don't own any bonds.
00:07:42.120 | I don't own any stocks.
00:07:42.960 | Everything is in cash as I've readjusted and reoriented my own personal
00:07:46.840 | investment strategy.
00:07:48.320 | And I don't intend to give on the show here, the blow by blow of exactly what
00:07:53.120 | I'm doing with my money and why, but I will give some big picture and try to
00:07:57.040 | share some, some lessons from that.
00:07:58.680 | But what that means is that when I went ahead and sold a number of months ago,
00:08:03.720 | I've got money sitting on the sidelines.
00:08:05.760 | So I can watch these gyrations in the market with a somewhat more dispassionate
00:08:12.640 | eye, which is interesting because since I was 18, I haven't been in that position.
00:08:15.840 | I've had my money on the line every step of the way.
00:08:19.400 | My point in sharing these things with you is just simply to say that it's, I
00:08:24.320 | have a unique perspective and I'm going to try to share some of that with you.
00:08:27.480 | In addition to my own personal experience, I want to tell you just a
00:08:30.560 | little bit about systems of thought and schools of thought and how that also
00:08:34.080 | gives me a unique perspective.
00:08:35.480 | I am personally intensely suspicious of mainstream thought.
00:08:41.600 | I, any long time listener of the show is going to know that.
00:08:46.320 | I'm very suspicious.
00:08:47.600 | I'm very suspicious of propaganda.
00:08:49.960 | I'm very suspicious of how societies are controlled, but I'm also
00:08:53.760 | trained in mainstream thinking.
00:08:55.120 | So when I watch the different perspectives and I read people's opinions and
00:09:01.040 | philosophies on different sides, I can relate to most of them.
00:09:04.000 | I can relate to the hardcore mainstream financial advisor on CNBC, and I can
00:09:09.040 | also relate to the hardcore conspiracy theorist on CNBC if they make it there.
00:09:13.720 | So I can understand what's behind those.
00:09:17.120 | And so what I'm going to try to do here is give you some ideas that are filtered
00:09:22.920 | through the fact that I understand where you might be coming from.
00:09:25.800 | And I don't claim to be an expert.
00:09:28.680 | I don't claim to have a crystal ball for the future, but I do have some
00:09:33.160 | observations that I believe will be helpful for you as you try to make sense
00:09:36.880 | of the things that are going on, specifically as you try to figure out,
00:09:40.520 | should you be making any changes in your own personal portfolio based upon
00:09:45.640 | the events of the last few days?
00:09:47.080 | That's my hope and my purpose, and you can let me know how I do.
00:09:52.240 | First, I'd like to point out to you that the news engine, the
00:09:59.520 | news industry thrives on disaster.
00:10:04.240 | This makes it very, very challenging to be able to make excellent decisions.
00:10:08.320 | If you are at all connected to the news machinery, you're going to be
00:10:15.400 | influenced by the messages therein, whether that's mainstream news or
00:10:21.200 | whether that's just simply the internet news that comes out most of us through
00:10:25.080 | our Twitter feed or Facebook feed.
00:10:26.640 | You're going to be influenced by what you see and times of disaster and times of
00:10:31.880 | crisis make for the best headlines.
00:10:34.200 | Now, I can make some arguments that are going to put you into a panic.
00:10:38.600 | I can talk about the ephemeral value of money, how the fact that our entire
00:10:43.640 | society is built on valueless paper money.
00:10:46.440 | I can talk about the indicators of global collapse.
00:10:49.560 | I can talk about the manipulation of the economy, and I can work you into a frenzy
00:10:55.680 | and say, "Well, it's time to sell everything and get gold coins and move to the
00:11:00.920 | mountains."
00:11:02.080 | But I can also flip it around and talk about why everything is great and why
00:11:08.400 | you should simply stay the course.
00:11:11.840 | Both of those messages – and there are many more messages that could be done.
00:11:15.080 | Both of those messages can be powerful because depending on your background,
00:11:20.240 | they might feed a bias that you have.
00:11:22.280 | If you're already inherently suspicious of government and political control of
00:11:27.920 | society, then when I talk about the fact that the whole financial world is very
00:11:32.760 | much a scam and that the whole idea of telling you as an investor to do nothing,
00:11:38.000 | to stay investment, that's just part of the financial company fee assurance
00:11:42.200 | program to make sure that the investment management fees keep coming in.
00:11:45.480 | Or if I talk with you about how you've got to stay invested, stay invested, and
00:11:49.360 | you say, "Well, wait a second.
00:11:50.160 | Who's making money off of my staying invested until retirement?
00:11:53.760 | Why is all my money locked up?"
00:11:54.840 | That's going to feed a certain bias of you.
00:11:57.280 | But if you are – if you have a perspective on the world where you say
00:12:01.600 | everything is going to be great no matter what, I'm just going to keep doing what
00:12:04.560 | I'm doing and I talk about staying the course, staying the course, and that's
00:12:07.240 | also going to feed a confirmation bias where you just want to continue on.
00:12:10.000 | And so I want to just point out that the information that you expose yourself to
00:12:14.480 | is going to have an influence on your thinking.
00:12:16.160 | You need to be very careful with the information that you expose yourself to.
00:12:19.440 | With regard to the market, one thing I believe to be pretty much true is that
00:12:27.600 | all of the opinions that you hear about why people are buying and selling today
00:12:32.640 | in the markets are simply unfounded lies.
00:12:37.120 | Nobody has a clue why people are buying and selling.
00:12:41.440 | There are millions and millions and millions of people who are participating
00:12:47.200 | in the public securities markets and each one of them has their own individual
00:12:52.240 | perspective on why they're going to buy or why they're going to sell.
00:12:57.360 | Remember that in times of market panic.
00:12:59.600 | Now it may be true indeed that various pieces of news might have an impact on
00:13:06.600 | the market, so China's markets might be changing and correcting and therefore
00:13:11.160 | that's going to have an influence on the U.S.
00:13:13.160 | stock markets.
00:13:13.760 | That might be true, but that doesn't necessarily indicate what's going on on
00:13:17.840 | any moment to moment, day to day basis in the market.
00:13:21.320 | So for example, you might have two traders and both of them have
00:13:25.600 | predicted this trade, but they've set themselves up in opposing positions,
00:13:29.920 | one to profit from the rise and one to profit from the fall in stock prices.
00:13:33.600 | So people are making money both ways.
00:13:36.240 | Professional traders make money on the upside and on the downside,
00:13:39.200 | depending on their perspective.
00:13:40.920 | That is going to exert an influence on the market prices of stocks and those
00:13:48.040 | people are in the same market as the little old lady who just sits back and
00:13:52.080 | cashes her Coca-Cola dividend checks and then she dies and then her son or
00:13:56.880 | daughter as the executor or executrix of her estate feels the need to go ahead
00:14:01.400 | and sell those shares and that sale might be taking place on the same day for a
00:14:06.560 | totally different reason.
00:14:07.560 | Multiply that times millions and millions of people and nobody has a clue why the
00:14:13.480 | markets are moving in a certain direction.
00:14:17.520 | If you acknowledge that as being true in any sense, then it will make it very
00:14:23.640 | annoying to you to watch the news because what happens is that when you see
00:14:27.800 | somebody reporting on financial news, you can quickly see that people are mixing
00:14:32.760 | up their strategies and they might be reporting on here's what these
00:14:36.120 | professional traders from this company are doing and that's an accurate
00:14:40.200 | assessment.
00:14:40.720 | But in the aggregate, the market is just simply a giant auction house and people
00:14:45.200 | are all buying and selling for their own different reasons.
00:14:47.600 | When those things are shaking out in the short term, it's very difficult to
00:14:52.520 | pinpoint what's going on.
00:14:53.760 | In the long term, you can pull back and look and get a broader assessment of the
00:14:59.000 | aggregate, but in the short term, it's very difficult to know what's actually
00:15:02.320 | going on.
00:15:02.840 | The biggest lesson that I'd like you to take from this, from the last few days,
00:15:11.200 | is ask you a question.
00:15:12.400 | Do you know what you own, why you own it, and what your plans are with it?
00:15:19.680 | If you do, then we'll know how to respond and that's where I'm going right now
00:15:24.040 | with some responses.
00:15:24.960 | You need to know what you own, why you own it, and what the value is.
00:15:29.760 | If you do that, then you won't be knocked off your feet by market movements like
00:15:36.480 | the last few days.
00:15:38.560 | This, I believe, is one of the fundamental problems with our modern
00:15:42.560 | investment culture.
00:15:43.920 | We've taken the realm of investing from experienced professionals, pension fund
00:15:49.800 | managers, large corporate investors like insurance companies, and we moved it into
00:15:56.880 | the realm of everybody.
00:15:58.640 | But there hasn't been a corresponding transfer of knowledge and experience and
00:16:03.120 | temperament from a professional investor to an individual investor.
00:16:07.240 | One of the most damaging things, I believe, that has happened to many people's
00:16:10.960 | personal finances is instead of being enrolled in a professionally managed
00:16:16.000 | pension portfolio, now many people have a privately run 401(k) account.
00:16:20.160 | And so with a press of a smartphone app or a click of a mouse, you can open up
00:16:25.520 | your 401(k) balance and you can see everything that's in there and you can
00:16:28.440 | buy and sell at a moment's notice.
00:16:30.720 | If you haven't developed the education and the temperament to be able to respond
00:16:35.000 | to market conditions appropriately, that can be a death trap.
00:16:38.280 | And statistics indicate and the analysis of the real life returns of many
00:16:45.920 | investors indicates that most investors simply don't have the temperament or the
00:16:50.760 | experience to be able to handle it.
00:16:52.440 | So you need to be confident what you own and understand it.
00:16:56.360 | Now, should you respond to the last few days of trading losses?
00:17:00.200 | And as I record this, right now it's 1.38 PM on August 25, 2015.
00:17:06.720 | Lots of trading losses the last few days.
00:17:09.760 | Today, the Dow is up 1.5%.
00:17:12.680 | The S&P is up by a percent and a half.
00:17:15.000 | So today they're trading gains.
00:17:17.760 | Who knows?
00:17:18.880 | That's often to be expected after a day like yesterday.
00:17:22.000 | But should you respond?
00:17:23.960 | That's the question that you might be asking.
00:17:27.280 | My answer is yes, you should respond.
00:17:31.120 | You should take a look at what's been going on and then you should respond to
00:17:36.120 | the last few days of market activity.
00:17:37.920 | Now, those of you who are extremely astute will notice I didn't say how to
00:17:44.920 | respond.
00:17:45.320 | So let's ask that question next.
00:17:46.560 | How should you respond?
00:17:47.920 | Is Joshua Sheets going to tell you to buy stocks now that they're down?
00:17:51.960 | Or Joshua Sheets going to tell you to sell stocks now because this is the
00:17:55.640 | beginning of the end?
00:17:56.520 | Well, here's my answer.
00:17:59.200 | Yes, you should respond to the market conditions and your response should be
00:18:05.360 | the exact precise response that is outlined in your written investment
00:18:12.680 | policy statement, which has been crafted based upon your overall investment
00:18:18.600 | strategy.
00:18:19.280 | So you should open up your written investment policy statement.
00:18:23.840 | You should take a look at the parameters, the goals, the decisions that you've
00:18:28.160 | made surrounding the portfolio and then you should respond as you previously
00:18:32.720 | planned to respond.
00:18:34.040 | Frustrating, isn't it?
00:18:39.280 | But this is the difference between professional investors and amateur
00:18:44.320 | investors.
00:18:45.000 | An amateur moves constantly based upon the whims of the moment.
00:18:50.920 | This is how many people – this is interesting.
00:18:53.000 | We also – I believe one of the major differences between people who are
00:18:55.760 | successful in life and people who are unsuccessful in life.
00:18:58.840 | The amateur investor takes the news of the day and reacts to it.
00:19:03.480 | That reaction is unpredictable because it's non-premeditated.
00:19:07.960 | It's random.
00:19:09.720 | It's based upon whatever the last little bit of information is that slid into
00:19:14.240 | that person's line of sight.
00:19:17.800 | But a professional doesn't react.
00:19:20.600 | A professional responds.
00:19:22.920 | A professional investor has a clearly written investment objective.
00:19:28.280 | Here is something that I am working to accomplish.
00:19:32.000 | Then they have a clearly written investment strategic plan and they have
00:19:36.640 | parameters in that plan.
00:19:37.680 | Now, that doesn't mean that they're not going to adjust in the moment.
00:19:40.280 | There may be reasons to change the investment policy statement.
00:19:43.040 | There may be reasons to change the plan.
00:19:45.000 | But you don't do those things in reaction to what's going on.
00:19:48.400 | You do them when it's appropriate to change the plan.
00:19:52.240 | Let's compare this for sake of illustration to goal setting.
00:19:55.760 | Let's talk about something like an exercise program.
00:20:00.040 | An amateur like me goes out and exercises based upon how they feel on a given day.
00:20:06.080 | Well, I feel like doing this today.
00:20:08.520 | I feel like doing that today.
00:20:10.120 | I feel like doing the other exercise.
00:20:11.760 | Today I don't feel so much like this.
00:20:13.280 | There's no – generally from many – most people who work out in a gym, there's no
00:20:18.680 | clear objective.
00:20:19.880 | Most people aren't working towards a specific goal.
00:20:22.680 | They're not working towards a specific athletic event.
00:20:26.960 | They're not working towards a specific biomarker that they're trying to improve,
00:20:30.960 | their weight, their body fat percentage.
00:20:33.160 | They're just kind of working out because they know that they should exercise.
00:20:35.840 | And so their results are random and their approach is random.
00:20:42.000 | Some days they feel like running, so they run.
00:20:46.160 | Some days they feel like lifting weights, so they lift weights.
00:20:48.760 | But a professional doesn't do that.
00:20:49.960 | A professional athlete has a clearly written objective.
00:20:53.320 | I am going to compete in the Olympics.
00:20:56.280 | I am going to compete in this weightlifting competition.
00:20:59.120 | I'm going to compete in this bodybuilding competition.
00:21:01.000 | They have a clear objective for what they're trying to do.
00:21:04.000 | They also have a clearly developed plan.
00:21:07.080 | If they're training for a marathon, they have a marathon training schedule.
00:21:10.240 | If they're working towards a specific weightlifting competition goal, they have a
00:21:15.120 | training schedule.
00:21:17.080 | Now, within that training schedule, they have some flexibility.
00:21:19.800 | So if they have a particularly heavy day on Monday and then they have a light day
00:21:24.320 | on Tuesday and they're supposed to have a heavy day on Wednesday, they come in on
00:21:27.520 | Wednesday and they really aren't feeling like lifting heavy that day.
00:21:30.560 | They have a consultation with their coach and they sit down and they say, "I don't
00:21:34.080 | feel -- I just don't think we should do that."
00:21:35.480 | And the coach adjusts a few things.
00:21:37.000 | But it's not random.
00:21:39.440 | It's planned.
00:21:40.520 | Now, look at the results that a professional athlete gets as compared to the results
00:21:46.360 | of an amateur athlete or even just an average person and compare those to
00:21:51.520 | investing.
00:21:52.080 | If you're investing professionally, you're investing with a clear objective.
00:21:57.760 | So that means that your portfolio has an objective.
00:22:00.480 | For one portfolio, let's -- as an example, let's say that you're managing a trust
00:22:05.120 | account for a trust that is designated and your intention is this trust account is
00:22:12.760 | going to be transferred to your grandchildren.
00:22:17.080 | Well, in that account, you now have -- let's say that I've done that.
00:22:21.000 | I'm 30 years old and I'm thinking about my grandchildren.
00:22:23.520 | So I've got a now 100-year time investing perspective.
00:22:26.480 | If that's my goal for the funds, then I'm going to sit down and I'm going to create
00:22:32.840 | a strategy that I believe will help this trust fund to grow long-term with an eye
00:22:41.200 | on those 100-year returns.
00:22:44.800 | Now, in light of that, this is why we talk so much about time horizon in
00:22:49.560 | investing.
00:22:50.040 | In light of that 100-year goal, does it make any sense for me to change my
00:22:54.880 | portfolio based upon the market correction this week or next week?
00:23:00.960 | If I've got a 100-year time horizon, hopefully the investment strategy that
00:23:05.960 | I've outlined for myself is going to have taken that into account.
00:23:10.480 | If not, I don't know what I'm doing.
00:23:13.040 | Now, compare that to a fund that I've set aside and let's say I've shared on the
00:23:17.920 | show at some point I plan to take a year or two off and take my family and we're
00:23:21.920 | going to travel to all 50 state capitals.
00:23:23.720 | It's going to be part of Joshua's home education plan of U.S.
00:23:27.360 | American education to understand the U.S.
00:23:29.360 | American culture.
00:23:30.080 | We're going to take a year.
00:23:31.200 | We're going to travel to all 50 state capitals.
00:23:32.880 | Well, the funds that I've set aside for that, I definitely need to have a plan
00:23:37.040 | that's going to account for short-term market corrections.
00:23:39.960 | If we were leaving on a trip next week, I'd be in trouble if that money was all
00:23:43.440 | sitting in a Dow Jones ETF.
00:23:46.320 | But my response is going to be dictated by the strategic objective and the plan.
00:23:52.640 | So the same thing should be the case with your portfolios.
00:23:55.960 | Each portfolio should have a clear objective, a clear goal, and then a
00:24:02.600 | clearly written investment policy statement.
00:24:05.120 | No professional invests without a written policy statement.
00:24:10.120 | In fact, I could probably make that the difference between a professional and
00:24:13.840 | an amateur.
00:24:14.320 | My point is you should respond based upon the plan that you've already
00:24:23.040 | established.
00:24:23.960 | You should not react.
00:24:26.840 | Now, what if you – what if all the – everything I've just said for the last
00:24:33.440 | 10 minutes is going over your head because you don't have an objective, you
00:24:37.360 | don't have a clearly stated goal, you don't have an investment policy
00:24:40.280 | statement, you don't have a written plan.
00:24:42.120 | What if all that is true?
00:24:43.440 | Well, my plea to you is don't do anything.
00:24:46.000 | Don't start with saying, "Okay, I'm going to cash my investment accounts out.
00:24:52.120 | I'm going to change these things.
00:24:53.280 | I'm going to go over why."
00:24:54.280 | But don't just react to this.
00:24:56.480 | Rather, take this as a learning experience and start at what actually
00:25:00.640 | matters, which is building out an objective, creating a plan, and then
00:25:05.600 | implementing the plan in an intelligent way.
00:25:07.760 | Now, let's talk about some responses to market – current market conditions.
00:25:14.320 | I want to – and I want to illustrate to you how depending on your plan, your
00:25:19.360 | response will differ.
00:25:20.760 | What you actually do will differ based upon your plan.
00:25:24.760 | And I believe this will show some of the distinctions that there are among
00:25:29.200 | investors, but it will be broad enough that it will be applicable to many of you.
00:25:34.560 | And I'm going to go over four major strategies.
00:25:37.600 | Now, there are an infinite number of variations of each of these.
00:25:41.120 | So for example, my first of the four that I'm going to cover is I'm just
00:25:44.040 | lumping it together as a short-term trading strategy.
00:25:46.640 | We could talk about dozens and dozens and dozens of short-term trading strategies.
00:25:51.200 | I'm just trying to teach you a framework for looking at things, not focus on the
00:25:55.440 | specifics.
00:25:55.960 | But the four strategies I want to cover are what if you have a short-term
00:25:59.200 | trading strategy?
00:26:00.120 | What if you have a long-term single-stock ownership strategy?
00:26:03.800 | What if you're pursuing an active mutual fund ownership management strategy?
00:26:07.880 | Or what if you have a passive mutual fund management strategy?
00:26:11.160 | Now, I want to illustrate how your responses will vary dramatically
00:26:15.640 | depending on which of these strategies.
00:26:16.840 | So let's start with a short-term trading strategy.
00:26:18.720 | Now, this is obviously very nebulous.
00:26:22.040 | What are we trading?
00:26:23.200 | You could be trading any number of things.
00:26:25.360 | Here I'm just going to be talking big picture about stocks.
00:26:28.240 | But you could be trading options.
00:26:30.840 | You could be trading commodities.
00:26:31.880 | You could be trading futures.
00:26:32.720 | There are so many different markets that you could be trading and any of those
00:26:36.640 | markets could be moving independently.
00:26:40.840 | So here I just want to emphasize the fact that your trading strategy is going to
00:26:47.320 | dictate your move.
00:26:50.840 | And for some of you, the last few days could have been the most profitable days
00:26:56.360 | ever.
00:26:58.200 | For some of you, they could have been the most destructive days.
00:27:01.520 | Some strategies that you might pursue thrive on volatility.
00:27:07.280 | Some strategies die on volatility.
00:27:10.800 | You can put in place some options trades that are only in the money if markets
00:27:15.520 | stay flat.
00:27:16.200 | You can put in place some trades that are only in the money if markets move and it
00:27:20.080 | doesn't matter which way they move.
00:27:22.080 | That's a very specific segment of the trading population.
00:27:30.840 | I'm not going to go any deeper into this.
00:27:32.600 | But you're not the ones listening to this show for investment advice at least.
00:27:38.440 | But I only mention it because to point out that many of you have been making a
00:27:44.920 | lot of money the last few days.
00:27:47.200 | I should qualify the statement.
00:27:48.360 | Some of you might have been making a lot of money the last few days if you've
00:27:51.480 | established your trades based upon volatility.
00:27:54.360 | Most people are not pursuing a short-term trading strategy.
00:27:57.560 | I mention it just to be fair.
00:27:58.760 | But what about if you have a long-term ownership strategy?
00:28:02.200 | So simplistically, you're taking a long position with individual stocks.
00:28:06.840 | Well, then here, your response to the gyrations of the market the last few days
00:28:11.520 | would be to ask yourself, "Has something fundamentally changed with the companies
00:28:15.920 | that you own?"
00:28:18.880 | That's a key question.
00:28:20.960 | Because just because the market price of what the auction called the stock market
00:28:27.920 | says they're willing to pay – the infamous Mr. Market says he's willing to pay for
00:28:33.200 | your company.
00:28:34.960 | Just because the market price has changed doesn't mean that anything
00:28:38.520 | fundamentally has changed.
00:28:39.520 | So you want to ask yourself the question, "Has anything fundamentally changed with
00:28:45.040 | one of the companies that I own?"
00:28:46.360 | This is the reason I short-circuited short-term trading strategies is that although
00:28:50.960 | I have a cursory interest in it, interest in strategies and I enjoy reading
00:28:55.240 | overviews of them, the nuts and bolts of trading strategies, short-term strategies
00:29:00.880 | do not appeal to my temperament.
00:29:02.640 | So I like to interview people on the show from time to time about them, but they
00:29:04.960 | don't appeal to my temperament.
00:29:06.440 | My temperament is most suited personally with long-term ownership of carefully
00:29:12.400 | chosen companies.
00:29:14.240 | So this type of long-term going long on individual companies, this is most suited
00:29:19.800 | to my personal investment temperament.
00:29:22.600 | So given that, the way that I'm going to approach it is I'm going to say, "Has
00:29:26.920 | something changed?"
00:29:27.920 | If something has changed, then I might want to buy or if something has changed, I
00:29:33.280 | might want to sell.
00:29:35.280 | Excuse me.
00:29:37.960 | I mixed that up.
00:29:40.960 | If I own a company, let's say I own Apple Computers, the most loved stock on
00:29:45.960 | Wall Street, I'm going to ask myself, "Has something fundamentally changed with
00:29:49.440 | Apple's business model, with their ability to earn money and create profits for
00:29:55.840 | me?"
00:29:56.840 | Because ultimately, that's the only thing that a company is, is just simply
00:30:00.440 | something to generate cash for me to fund my lifestyle goals.
00:30:04.880 | If something has fundamentally changed for the negative, I might want to sell.
00:30:09.880 | Now on the flip side, if something hasn't fundamentally changed, then when the
00:30:13.320 | market price goes down, that might give me an opportunity to want to buy.
00:30:17.880 | Someone said that I own Apple Computer and I love owning Apple Computer.
00:30:20.600 | I'm convinced that the fundamentals of the Apple Computer company are
00:30:24.400 | incredibly strong.
00:30:25.400 | Well, I turn around and the market price was destroyed.
00:30:28.160 | Well, now it's a buying opportunity.
00:30:31.960 | But you've got to know that based upon the fundamentals of the company.
00:30:35.080 | Ideally, those trades were possibly already established in the sense that
00:30:40.200 | perhaps you'd collared your position and you had it ready to sell at a certain
00:30:45.280 | decline or you'd already established the fact that you want to buy more Apple
00:30:50.160 | Computer and you've got money sitting aside in your cash account and you're
00:30:54.400 | just waiting for a price but you knew that if Apple were to ever hit this
00:30:57.280 | price, then you'd be ready to buy in.
00:31:01.120 | So that's how you respond based upon your strategy.
00:31:07.560 | Those short-term and long-term strategies, the people who are involved on
00:31:11.320 | either side, usually they don't seem to mix much, at least the ones – the
00:31:16.240 | traders that I talk to.
00:31:18.000 | Many traders can't even conceive of how they would own a company for weeks
00:31:21.600 | and months and some traders can't conceive of why they would ever pay any
00:31:25.200 | attention to the daily stock price or the weekly or even the monthly stock
00:31:28.720 | price.
00:31:29.720 | They just read the annual report once – some investors read the annual
00:31:31.840 | report once a year.
00:31:33.040 | That's more my temperament is to read the annual report once a year and ask
00:31:36.040 | myself has something fundamentally changed.
00:31:39.520 | But your strategy will dictate your response.
00:31:41.680 | What about the strategies that most people in the United States are engaged
00:31:45.280 | in whether knowingly or unknowingly?
00:31:47.480 | Here I'm just simply thinking of the 401(k) accounts, the IRA accounts of
00:31:51.640 | most individual investors.
00:31:53.320 | Well, here primarily you're going to be having mutual funds and those mutual
00:31:58.440 | funds are either going to be active or passively managed mutual funds.
00:32:01.320 | So let's talk about what do you do if you have a portfolio of actively
00:32:05.640 | managed mutual funds, say within your 401(k).
00:32:09.160 | How do you respond to gyrations in the market?
00:32:14.400 | Very simply, you must do nothing and trust your managers.
00:32:21.960 | This is the one that annoys me more than anything because people forget
00:32:24.320 | about the fact that if you've purchased a mutual fund, by definition you've
00:32:28.000 | hired a professional portfolio manager.
00:32:32.420 | If you don't trust them to do their job, you should sell.
00:32:37.480 | But if you trust them to do their job, do nothing because what happens is –
00:32:44.160 | this is actually a major contributor I think to market volatility is if you
00:32:50.320 | sell your mutual fund, your fund manager has to liquidate their underlying
00:32:54.440 | investments.
00:32:56.320 | Mutual funds will keep a certain amount of cash on hand in order to handle
00:32:59.680 | redemptions.
00:33:00.680 | But if all of a sudden many of their subscribers to the mutual fund
00:33:04.480 | start selling shares, then they have to go and they have to liquidate
00:33:07.440 | investments.
00:33:08.440 | Don't put your mutual fund manager in the position where they've got to
00:33:10.520 | go and liquidate their investments when the market is down.
00:33:13.440 | That's one of the more difficult aspects of managing a mutual fund,
00:33:18.520 | which is one of the reasons why many of the great investors and portfolio
00:33:23.400 | managers can be drawn to hedge funds because in a hedge fund, they can have
00:33:27.800 | a lockup period and they can make it so that you can't redeem your money.
00:33:31.140 | That way, they can work their way through the times of market volatility.
00:33:34.680 | But if you've chosen a portfolio of actively managed mutual funds and you
00:33:38.900 | just invest within your 401(k), trust your managers.
00:33:44.240 | Do nothing.
00:33:46.480 | What about the argument – I often hear this one that the managers are stuck
00:33:50.000 | in their asset class.
00:33:51.280 | That's true.
00:33:52.540 | So the argument goes like this.
00:33:54.560 | And so when someone like me starts saying, "Trust your managers.
00:33:58.580 | Do nothing.
00:33:59.580 | Let them invest the money."
00:34:00.580 | That's what you hired them to do.
00:34:01.580 | It's what you're paying them lots of money to do.
00:34:03.320 | I say, "Well, don't you know that the fund manager can only invest in
00:34:07.440 | large cap stocks?
00:34:08.440 | So even if they think large cap stocks are going to tank, they have to
00:34:11.440 | sell a certain number – excuse me.
00:34:12.960 | They have to maintain a certain percentage of their portfolio in large
00:34:15.200 | cap stocks."
00:34:16.200 | It's true, which means if that bothers you, you should have chosen a
00:34:21.560 | mutual fund that had a different investment strategy where the fund
00:34:25.840 | manager was given more leeway.
00:34:28.180 | But if you chose that mutual fund, you chose them because you wanted
00:34:32.880 | your money invested in large cap stocks.
00:34:36.200 | And so you should have read your prospectus and your prospectus says the
00:34:39.760 | restrictions that are on your manager and the manager is just simply doing
00:34:43.040 | the job for you.
00:34:44.520 | And so ideally you've intelligently constructed a portfolio that's
00:34:48.480 | going to match your goals and if you're choosing an asset allocation
00:34:51.880 | strategy, you're saying that I don't know what the future holds.
00:34:55.260 | So I always want 20% of my assets to be invested in large cap stocks
00:34:59.560 | and because of that, I want my fund manager to maintain their funds, at
00:35:03.440 | least 80% of their investable funds in large cap stocks.
00:35:07.340 | If you want a fund manager who is going to be trading the account and
00:35:11.160 | saying, "We're getting out of large cap stocks and moving into small cap,"
00:35:14.360 | you should choose a different mutual fund and you should have chosen
00:35:18.280 | one.
00:35:19.520 | But trust your mutual fund managers.
00:35:24.580 | At the end – on the end of my outline today, I'm going to emphasize
00:35:27.240 | this point but I'll go ahead and say it here.
00:35:31.760 | You are the small guy or gal in the world of investing.
00:35:37.080 | You have no possible chance or hope of competing in the stock market and
00:35:44.260 | intelligently trading ahead as an individual layperson listening to this
00:35:49.020 | show.
00:35:50.020 | Don't think for an instant that you're going to be able to pull open
00:35:53.820 | your Fidelity app on your smartphone and you're going to see the stocks
00:35:57.220 | are going down and you're going to be able to intelligently trade your
00:36:00.660 | 401(k) dollars out of the account.
00:36:03.660 | You're not going to be able to say, "I'm going to move from my large cap
00:36:07.900 | US stock mutual fund into bonds right now because I'm going to predict
00:36:11.140 | the market gyrations."
00:36:14.320 | You don't have enough information.
00:36:15.800 | You don't have a plan.
00:36:16.800 | You don't have enough expertise.
00:36:19.060 | So the number one thing you can do in that situation is do nothing and
00:36:23.380 | trust your managers.
00:36:27.580 | Now a tiny proportion of you get really annoyed when I say something like
00:36:31.340 | that.
00:36:32.340 | You're the portion who should change.
00:36:33.780 | You should not buy mutual funds and you should go and manage your money.
00:36:38.620 | But the vast majority of the listeners of this show, you have no possibility
00:36:42.740 | of competing effectively in this market which is why I encourage you,
00:36:47.860 | compete effectively in a market where you do have an outsized advantage.
00:36:52.180 | Compete where you're the big dog.
00:36:54.660 | That might mean in your company of salespeople, you become the key salesperson.
00:36:58.740 | It might mean in your local real estate market, you compete there.
00:37:01.420 | It might mean that you look around and notice that your city or town has a
00:37:04.580 | dearth of hot dog vendors and so you start a hot dog vending business.
00:37:08.020 | But you're not going to compete in the mainstream US stock market.
00:37:13.500 | So recognize that and trust your managers.
00:37:16.020 | Let's move on to the fourth one.
00:37:18.060 | I belabored that point a little bit too much but I just – I hate it.
00:37:21.220 | I hate seeing it because what happens is so many people think, "Oh, I'm
00:37:25.260 | going to manage this fund in and out and I'm going to buy and sell my mutual
00:37:28.460 | funds within my 401(k)."
00:37:30.180 | You're not going to effectively do that.
00:37:32.380 | Your only choice when you bought into that account and you invested through your
00:37:35.820 | 401(k) and you chose a portfolio of mutual funds, in order for that strategy
00:37:40.820 | to work and it can and should work, you must trust your managers.
00:37:46.780 | They're the ones who are looking at the underlying performance of Apple
00:37:50.660 | computer and saying, "We're going to bet on Dell because Dell is taking over
00:37:54.460 | from Apple."
00:37:55.460 | They're the ones who have investment research teams and what happens is you
00:37:59.140 | pay them all this money to do their job for you and they've carefully positioned
00:38:03.620 | the portfolio.
00:38:04.620 | They've got all kinds of analysts that are out beating the streets
00:38:06.940 | and then you say, "Oh, the news is going on and the Dow is down 500 points.
00:38:12.300 | So I'm going to go ahead and sell my funds."
00:38:16.840 | You destroy your strategy.
00:38:19.800 | What if you've got passive funds?
00:38:22.460 | Let's say that you don't have an actively managed mutual fund where your portfolio
00:38:27.340 | manager is sending somebody out and they're going to this company and
00:38:30.820 | interviewing the management and they've got their researchers and they're
00:38:33.300 | having – you just bought some index funds.
00:38:36.140 | Well, here again, recognize your strategy.
00:38:41.100 | If you're pursuing this strategy, you are betting on the long-term growth of
00:38:46.020 | the US American and world economies.
00:38:48.200 | You're betting on an efficient market and you're betting on your asset
00:38:51.380 | allocation strategy.
00:38:54.020 | And so again, sit tight.
00:38:58.340 | That strategy is predicated upon the long-term efficiency of the markets and
00:39:05.100 | what's happening in the last few days is that the markets are correcting to
00:39:11.500 | the proper appropriate valuations.
00:39:14.980 | That's your strategy.
00:39:17.300 | Now if you don't believe those things to be true, you're not betting on the
00:39:20.380 | long-term growth of the US American economy or the global economy.
00:39:23.900 | If you're not betting on an efficient market, then you should change your
00:39:26.020 | strategy.
00:39:27.980 | But don't do it in a panic and reaction to the last few days of market
00:39:31.180 | gyrations.
00:39:33.500 | So what practically can you do?
00:39:35.500 | Well, here the key is to maintain an appropriate asset allocation strategy.
00:39:40.260 | I'm not just talking about managing what percentage should be in long-term
00:39:44.260 | large cap versus mid cap versus small cap.
00:39:47.900 | I'm talking about in your life.
00:39:51.140 | If all your money right now is in stocks and that's the extent of your net
00:39:54.940 | worth and then you get fired and you don't have any cash, you're screwed.
00:40:01.400 | So that's why you keep cash on the side.
00:40:04.300 | Don't have money invested that you're going to need in the short-term.
00:40:07.060 | The five-year rule of don't invest the money – have any money invested that
00:40:11.020 | you think you might need in the next five years is a legitimate rule.
00:40:16.540 | Think about – anytime there's a market crash, think about what five years of
00:40:20.980 | change can do.
00:40:22.380 | If you go back, one of the most interesting things, if you go back to 1929
00:40:26.660 | and if you factor in and you look at what – if you had invested everything
00:40:31.860 | right before the crash of 1929, it takes – depending on which data set you look
00:40:36.340 | at, if you factor in the deflation of money and the dividend growth – excuse
00:40:41.380 | me, the dividends paid from stocks, the average investor in 1929 took just
00:40:46.320 | under five years to break even right through the Great Depression.
00:40:51.020 | That's when you factor in dividends and deflation.
00:40:54.700 | You can't just take the straight stock price.
00:40:56.340 | It's much longer there.
00:40:58.140 | But if you stay invested five years, you broke even through the Great
00:41:01.300 | Depression.
00:41:02.300 | I only point that out because it's a little bit sensationalistic to – but
00:41:07.060 | it's an indication of look how much things can change in five years.
00:41:11.500 | So if you've decided that you're going to need your entire portfolio
00:41:14.220 | tomorrow, then yes, you should sell and take it and run.
00:41:18.300 | But if you're going to need your entire portfolio in 20 years, then you should
00:41:24.580 | sit tight and maintain your approach to your investment policy statement.
00:41:31.340 | The only time that you change your investment approach is when your goals
00:41:36.020 | change.
00:41:37.940 | So when I changed my personal investment approach, I did so over a long
00:41:42.740 | period of time because my goals changed.
00:41:45.500 | My goals and my plan have changed from what they were five years ago.
00:41:49.620 | So I waited for what I thought and guessed to be an intelligent time, period
00:41:53.500 | where markets were strong, prices felt high to me, didn't see a lot of
00:41:58.500 | upside, I vaguely timed the market, then I went ahead and sold because my
00:42:03.300 | goals had changed.
00:42:06.980 | Your goals don't change when there's a five-day market correction.
00:42:10.740 | Your goals change when the long-term strategic objective changes and then
00:42:13.980 | you adjust the portfolio to fund that.
00:42:16.060 | You have to remember that volatility is the price of the larger stock
00:42:21.100 | market returns that you get.
00:42:23.260 | You only get the returns if you're willing to sit in for the volatility.
00:42:28.420 | I didn't pull the statistics at my fingertips but these are fairly
00:42:33.540 | accurate.
00:42:34.540 | I'm pretty accurate with numbers.
00:42:36.980 | Someone can check me out and find the actual data and post it in the show
00:42:39.500 | notes if you want to.
00:42:40.500 | But the average intra-year decline of the stock market is something
00:42:43.260 | like 14%.
00:42:44.260 | It's like 10% to 15%.
00:42:46.340 | I think the number that sticks out in my mind is 14%.
00:42:48.860 | That means on any random year, you should expect the market value of your
00:42:54.220 | investments to wander up and down by about 14%.
00:42:59.780 | Every three years, you should expect about a 33% drop.
00:43:03.900 | So what you should always do with percentages in stocks is put them into
00:43:08.420 | your portfolio with regard to actual numbers, cold, hard numbers.
00:43:12.620 | Let's say that you got a half a million bucks sitting in your 401(k).
00:43:17.380 | Well, about every few years, you should expect to see a 33% drop, which
00:43:23.940 | means that if you have a half a million bucks in your 401(k), it would be
00:43:26.620 | entirely normal to watch that account go down from $500,000 to $330,000 on
00:43:35.420 | your statements.
00:43:38.820 | That's normal.
00:43:43.500 | If you're not willing to sit in with that, you ought to get out of stocks.
00:43:49.060 | If your investment advisor isn't warning you that that is normal, you
00:43:54.140 | ought to find a new investment advisor.
00:43:56.940 | That's the price that you pay to get the higher return to the markets.
00:44:01.540 | Now, that is not comfortable for most people.
00:44:06.100 | If it's not comfortable for you, get out and go somewhere where you can
00:44:09.100 | compete effectively where you're going to be comfortable.
00:44:11.660 | This is one of the things that makes me angry when people just automatically
00:44:15.340 | recommend stocks for people and they don't hold open the idea that some
00:44:20.300 | other people might have a much better wealth-producing plan.
00:44:25.280 | If you can't deal with a 33% drop just about every three years, you ought
00:44:29.860 | to go somewhere else.
00:44:31.780 | You ought to buy some insurance contracts.
00:44:33.540 | You ought to build your own business and keep your money in cash.
00:44:38.420 | You ought to go buy and sell rental properties.
00:44:40.780 | You ought to go do something else.
00:44:43.140 | But if you can't sit and watch your $500,000 portfolio drop to $330,000,
00:44:50.220 | you should not be in stocks.
00:44:54.440 | You should expect it.
00:44:55.440 | If you go out in the long term, you should expect at some point in your
00:44:57.640 | lifetime, at least a few times over the average course of an investment
00:45:00.900 | lifetime, your portfolio to drop by half.
00:45:04.980 | That is normal, which is why I've said on the show previously the primary
00:45:10.580 | job that I see of a good investment advisor is helping you to predict that
00:45:15.500 | and understand how it's going to feel when times are good.
00:45:18.060 | What happens is if you've never anticipated market declines like it
00:45:22.780 | happened in the last few days, you sit there wondering is the world coming
00:45:26.820 | apart.
00:45:29.460 | But if six months ago your investment advisor walked you through and said,
00:45:32.780 | "Hey, guess what?
00:45:33.780 | You got a million dollars sitting in this account or you got $100,000
00:45:36.260 | sitting in this account.
00:45:37.260 | How are you going to feel?
00:45:38.900 | What are you going to do if six months from now this portfolio
00:45:41.900 | drops by 30% or 40%?"
00:45:45.460 | Well, if you thought through it, back to war gaming, if you thought it
00:45:49.420 | through and you said, "Well, I'm not going to feel great, but as long as
00:45:53.340 | I've got $100,000 in cash sitting in a bank account, then I'm going to
00:45:56.180 | feel better.
00:45:57.180 | Okay, I'm going to just make sure we got the $100,000 in the bank
00:46:00.180 | account."
00:46:01.180 | That's why financial planning is such a powerful tool for an investment
00:46:04.540 | advisor to be able to help divert attention from what is causing
00:46:10.540 | problems.
00:46:12.020 | I hope some of this is useful to you.
00:46:16.900 | It's difficult for me to do the type of show that I've just done, which is
00:46:21.460 | trying to give a broad overview because realistically, there's so much – I
00:46:31.340 | could argue from different strategies.
00:46:32.700 | What happens is people have blinders because they just have their
00:46:34.740 | strategy.
00:46:37.980 | Some people are of the mind that I'm going to make a little bit of
00:46:40.580 | profit every year and then the next year, I'm going to go ahead and once
00:46:44.300 | I've made my profit for the year, I'm going to pull back.
00:46:45.980 | There's nothing wrong with that.
00:46:47.140 | If that's your strategy, follow it.
00:46:50.620 | So what often happens is with punditry, commentators try to talk to
00:46:54.580 | everyone all at once without zoning in and saying, "Here's who I'm
00:46:59.140 | talking to."
00:47:00.140 | If you are pursuing an active trading strategy, ignore the advice to
00:47:04.540 | sit tight and pursue your trading strategy.
00:47:08.100 | But if you are like one of the mainstream, straightforward, average
00:47:13.660 | US Americans, just has some money in a 401(k), you've got to stick with
00:47:18.180 | your strategy.
00:47:19.180 | You're doomed if you try to strike out on your own.
00:47:25.660 | You've got to do your best to ignore market gyrations like this.
00:47:33.380 | The good news is this.
00:47:34.820 | Remember that for every seller, there's a buyer.
00:47:37.860 | So some of you are going to be making a lot of money in these few days.
00:47:42.860 | Remember that if the gloom and doom predictions of the future are right,
00:47:47.300 | the good news is you're stuck with everyone else.
00:47:51.040 | Is the whole concept of stock investing illusory?
00:47:54.820 | Is it all fake?
00:47:55.820 | Well, if it is, you have no possible chance of out-competing it.
00:48:01.620 | So you're just along for the ride with everyone else and you can benefit
00:48:05.060 | from the political control over the aggregate markets just like everyone
00:48:09.020 | else is going to.
00:48:12.740 | Hopefully that will make a few of you feel a little bit better.
00:48:16.460 | I sincerely hope that you have not been blindsided by the events of the
00:48:20.380 | last few days.
00:48:21.660 | I've tried on this show up till now to emphasize to you the things that you
00:48:26.300 | can do to protect yourself.
00:48:27.860 | I tried to bring you different positions and perspectives and I hope that you've
00:48:31.460 | been implementing the advice that I've been giving.
00:48:33.260 | I don't – I don't intend – I don't plan this show ever become the type of
00:48:38.060 | day-to-day commentary of what you should do because I don't have a clue about
00:48:43.420 | what the future holds.
00:48:44.420 | I don't have a clue.
00:48:47.460 | But I do hope that this show is the type of content and education and
00:48:51.820 | information that you can use to position yourself so that no matter what the
00:48:57.060 | future holds, you can thrive and prosper.
00:48:59.540 | I used to love when Jim Rohn would talk about the seasons of life.
00:49:05.940 | Sometimes there's summer.
00:49:07.420 | Sometimes there's fall.
00:49:08.900 | Sometimes there's winter and sometimes there's spring.
00:49:12.000 | The fundamental of economic analysis is the idea that there are cycles.
00:49:15.260 | There are economic and business cycles and we'll go through them.
00:49:20.380 | When I talked about recession a few months ago, my effort to say prepare for it, I
00:49:26.820 | think we'll be heading into recession in the future.
00:49:29.340 | I'm not predicting whether that's this month or next month or next year.
00:49:35.620 | I am saying prepare for it.
00:49:39.340 | If you really get the deeper level focus of strategy, which is built around
00:49:45.180 | objectives, goals, plans, if you get that life planning strategy, then you can
00:49:53.580 | apply the specifics that are appropriate for you.
00:49:57.300 | Remember that stocks are just simply one thing that you can own and buy and they
00:50:02.700 | do some things for you.
00:50:05.420 | But basically all they do is they just print cash.
00:50:09.620 | So you should be comparing their merits and their demerits with every other option and
00:50:14.460 | opportunity that you have.
00:50:19.820 | Some of you are not well suited to the stock market.
00:50:23.260 | If you're sweating over the last few days, that's probably you.
00:50:28.020 | It doesn't mean you're a bad person.
00:50:30.660 | It doesn't mean that you can't become comfortable with stocks.
00:50:36.260 | But it might also mean that you should recognize that and build and pursue a different strategy.
00:50:41.180 | So I won't belabor the point because I've emphasized that.
00:50:43.660 | But to calm yourself in times of fluctuation, go back and look at the plan.
00:50:51.580 | I'm not the oldest guy out there.
00:50:52.820 | I'm 30 years old.
00:50:54.460 | But I'll tell you, in my adult lifetime, I've seen so many times that the time to be looking
00:51:00.600 | at the plan is when you're in the middle and everything is going wrong.
00:51:03.960 | That's why you plan.
00:51:05.380 | You lay out the vision.
00:51:06.740 | You lay out the goal.
00:51:08.140 | You lay out the action plan that you believe will get you towards that goal.
00:51:12.340 | And then you work your way through it.
00:51:15.060 | There's always a dip right when you're in the middle of the action plan.
00:51:18.740 | But that's not the time to abandon the plan unless circumstances have significantly changed.
00:51:23.260 | It is the time to assess the plan.
00:51:25.820 | But it's not the time to abandon the plan.
00:51:28.820 | The athlete who has a couple bad workouts is not doomed.
00:51:32.980 | The athlete who abandons the plan and decides to do what they feel like probably is.
00:51:40.280 | Please consider that carefully as you assess your strategy, assess your financial plan,
00:51:46.100 | and figure out what your response should be to recent market conditions.
00:51:52.300 | Hope has been useful.
00:51:54.460 | It's always so challenging to do shows like this.
00:51:56.660 | It'll be interesting to see.
00:51:58.140 | I had planned to do this last night before markets had rebounded.
00:52:03.300 | Anyway, it's always challenging to do time-bound content.
00:52:07.940 | But hopefully this content is timeless and I'm just simply building off of recent events.
00:52:13.700 | Stay focused on your plans.
00:52:15.580 | Recognize that you can build wealth in good times and in bad.
00:52:18.700 | And it really only matters a little bit.
00:52:20.500 | It does affect your plan, but it only matters a little bit.
00:52:23.380 | Thank you all for listening today.
00:52:24.380 | I've done my best for you today, but if it's a little bit choppy, forgive me.
00:52:27.620 | I'll be back in the normal flow of show creation very soon.
00:52:32.140 | I want to thank you to each and every one of you who over the last weeks and months,
00:52:36.500 | but specifically last week, has signed up as a Patreon supporter.
00:52:40.540 | That has been incredibly encouraging.
00:52:42.500 | As I've been away from the microphone for the last week, I get an email every time one
00:52:46.600 | of you signs up as a patron.
00:52:48.380 | Right now we're up to 218 patrons, 218 individual patrons who are supporting the show.
00:52:56.260 | I would love to get that number to 250.
00:52:58.620 | The dollar amount is less important to me.
00:53:00.740 | Obviously, the dollar amount is what pays my bills.
00:53:02.580 | But what I mean is it's less important to me than the aggregate number because it's
00:53:08.060 | a different type of person who listens to a show casually versus somebody who takes
00:53:12.720 | the time and the effort to go to a webpage, pull out their credit card, put it in and
00:53:16.540 | say, "I'm going to support Joshua at a certain level."
00:53:19.740 | For all of you who are supporting the show on Patreon, I have been neglectful of properly
00:53:24.900 | delivering the benefits there.
00:53:26.620 | I apologize.
00:53:27.620 | I've just been overwhelmed and I haven't been able to keep up with it.
00:53:30.780 | It's high on my list as I get the house sold here and get the business fleshed out, as
00:53:35.660 | I get the business properly staffed.
00:53:37.100 | It's very high on my list to do a much better job of delivering the benefits to you, the
00:53:41.420 | advanced notifications of shows, things like that.
00:53:44.120 | Just know that I'm embarrassed about it, but growth pains.
00:53:49.480 | But if you're not supporting the show, please consider going to RadicalPersonalFinance.com/patreon
00:53:54.680 | and you can sign up there with little as a buck a month.
00:53:56.800 | We're at 218 patrons right now.
00:53:59.600 | Working hard.
00:54:00.600 | I'd love to see that number at 250.
00:54:01.600 | It would be so encouraging to me.
00:54:03.000 | So if you would like to support the show, please go to RadicalPersonalFinance.com/patron.
00:54:06.600 | Cheers, y'all.
00:54:07.600 | Be back soon.
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