- Publisher |
- Andrew Stotz
- Media Type |
- audio
- Categories Via RSS |
- Business,
- Education,
- How To,
- Investing,
- Management
Your Worst Podcast Host, Andrew Stotz, Ph.D., CFA, is also the CEO of A. Stotz Investment Research and A. Stotz Academy, which helps people create, grow, measure, and protect their wealth.
To find more stories like this, previous episodes, and resources to help you reduce your risk, visit https://myworstinvestmentever.com/
- People |
- Country Of Origin |
- Thailand
- Produced In |
- Bangkok, Central Thailand
- Premiere Date |
- 2018-07-24
- Frequency |
- Weekly
- Explicit |
- No
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Submit ReviewIn this episode of Investment Strategy Made Simple (ISMS), Andrew gets into part two of his discussion with Larry Swedroe: Ignorance is Bliss. Today, they discuss three chapters of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this series, they discuss mistake number 32: Are You Subject to the Money Illusion? Mistake 33: Do You Believe Demographics Are Destiny? And mistake 34: Do You Follow a Prudent Process When Choosing a Financial Advisory Firm?
LEARNING: Understand how the money illusion works to avoid making financial mistakes. Focus on managing risk and not trying to manage returns. Past performance is meaningless for active managers.
“What amazes me is that I can’t think of anybody who has ever asked the advisor to show them how they invest personally. That’s an absolute necessity because if they’re not putting their money where their mouth is and eating their own cooking, why should you?”
Larry Swedroe
In this episode of Investment Strategy Made Simple (ISMS), Andrew gets into part two of his discussion with Larry Swedroe: Ignorance is Bliss. Larry is the head of financial and economic research at Buckingham Wealth Partners. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss three chapters of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this series, they discuss mistake number 32: Are You Subject to the Money Illusion? Mistake 33: Do You Believe Demographics Are Destiny? And mistake 34: Do You Follow a Prudent Process When Choosing a Financial Advisory Firm?
Mistake number 32: Are You Subject to the Money Illusion?
According to Larry, one of the illusions with great potential for creating investment mistakes is the money illusion. Money illusion occurs when people confuse inflation returns, nominal or real returns, and how the economy is impacted differently. It has great potential for creating mistakes because it relates to one of the most popular indicators used by investors to determine if the market is undervalued or overvalued, known as the Fed Model.
The problem with the Fed Model, leading to a false conclusion, is that it fails to consider that inflation has a different impact on corporate earnings than it does on the return on fixed-income instruments. Over the long term, the nominal growth rate of corporate earnings has been in line with the economy’s nominal growth rate, and the real growth rate of corporate earnings has been in line with the economy’s real growth. Thus, the real growth rate of earnings is not impacted by inflation in the long term. On the other hand, the yield to maturity on a 10-year bond is a nominal return, and, therefore, the real return on the bond will be negatively impacted by inflation. The error of comparing a number that is not impacted by inflation to one that is leads to the “money illusion.”
Larry says the empirical evidence and logic are pretty simple: Corporate earnings grow in line with the GDP. If they grew much faster, they would dominate the whole economy, and there’d be nothing left for wages.
While gaining knowledge of how a magical illusion works has the negative effect of ruining the illusion, understanding the “magic” of financial illusions is beneficial to investors as it should help them avoid mistakes. In the case of the money illusion, understanding how the money illusion is created will prevent investors from believing that an environment of low (high) interest rates allows for either high (low) valuations or for high (low) future stock returns. Instead, if the current level of prices is high (a high P/E ratio), that should lead one to conclude that future returns to equities are likely to be lower than has historically been the case and vice versa. It is also important to note that this does not mean that investors should either avoid equities because they are “overvalued” or increase their allocations because they are “undervalued.” It simply means that if the P/E is higher than the historical average, investors should not expect future returns to be as great as their historical average.
Mistake number 33: Do You Believe Demographics Are Destiny?
Unlike economic forecasting, demographic forecasting can be considered a science. It’s for this reason that Larry cautions investors to avoid the mistake of confusing information with value-added information. He says before leaping to invest in individual stocks or mutual funds based on any guru’s insightful analysis, investors need to consider the following:
- Is this guru the only person who knows the demand for health care—for example—will rise as the population ages?
- Aren’t all investors aware of this? Doesn’t the market already incorporate this knowledge into current prices?
- If the market is aware of this information, it has already been incorporated into prices. Therefore, the knowledge cannot be exploited. In other words, if it’s just information—even if you think it’s going to have a positive or negative impact—ask yourself again, am I the only one who knows this?
Larry adds that you should never confuse information with knowledge. Possession of an insight is not sufficient. You can only benefit if other traders do not have the insight yet. And if you have such information, it is highly likely to be inside information, which is illegal to trade.
The vast majority of individuals and professional investors make investment decisions based on their forecasts, ignoring all the evidence that there are no good forecasters. Larry’s advice is to stop trying to forecast and, instead, think about what risks you’re most concerned about. So if you’re most concerned about, let’s say, inflation because you live on a fixed income, then you need to build a portfolio that’s more resilient to inflation risks. So don’t own long-term bonds in your portfolio; keep short-term bonds, have a bit of commodities, and maybe even a bit of gold. This way, you don’t confuse before-the-fact strategy with after-the-fact outcomes because you’ve designed a portfolio to protect you against the risks you are concerned about, not what somebody else is. People must focus on managing risk and not trying to manage returns.
Mistake number 34: Do You Follow a Prudent Process When Choosing a Financial Advisory Firm?
Larry observes that one big problem for investors when choosing advisors is that they typically look at somebody’s track record in investing and project that into the future, ignoring all of the evidence that past performance is (for active managers) meaningless.
Larry recommends you require potential financial advisory firms to make the following 11 commitments to you. Doing so will allow you to avoid conflicts of interest and achieve your financial goals.
- Our guiding principle is that our advice will always be in your best interest.
- We provide you with care following a fiduciary standard — the highest legal duty that one party can have to another.
- We are a fee-only investment advisor — avoiding the conflicts that commissioned-based compensation can create.
- We fully disclose potential conflicts.
- Our advice is based on the latest academic research, not on our opinions.
- We are client-centric—we don’t sell any products; we only advise.
- We provide a high level of personal attention — each client works with a team of professionals and will develop strong personal relationships with team members.
- We invest our personal assets, including our profit-sharing plan, based on the same investment principles and in the same or comparable securities that we recommend to our clients.
- We will develop an investment plan that is integrated into estate, tax, and risk management (insurance) plans. The overall plan will be tailored to your unique situation.
- Our advice is always goal-oriented—evaluating each decision not in isolation but in terms of its impact on the likelihood of success of the overall plan.
- Our comprehensive wealth management services are provided by individuals who have the CFP, PFS, or other comparable designations.
If you can’t get all 11 of those points, Larry insists you simply walk out the door.
Did you miss out on previous mistakes? Check them out:
- ISMS 8: Larry Swedroe – Are You Overconfident in Your Skills?
- ISMS 17: Larry Swedroe – Do You Project Recent Trends Indefinitely Into the Future?
- ISMS 20: Larry Swedroe – Do You Extrapolate From Small Samples and Trust Your Intuition?
- ISMS 23: Larry Swedroe – Do You Allow Yourself to Be Influenced by Your Ego and Herd Mentality?
- ISMS 24: Larry Swedroe – Confusing Skill and Luck Can Stop You From Investing Wisely
- ISMS 25: Larry Swedroe – Admit Your Mistakes and Don’t Listen to Fake Experts
- ISMS 26: Larry Swedroe – Are You Subject to the Endowment Effect or the Hot Streak Fallacy?
- ISMS 27: Larry Swedroe – Familiar Doesn’t Make It Safe and You’re Not Playing With the House’s Money
- ISMS 29: Larry Swedroe – The Shiny Apple is Poisonous and Information is Not Knowledge
- ISMS 30: Larry Swedroe – Do You Believe Your Fortune Is in the Stars or Rely on Misleading Information?
- ISMS 34: Larry Swedroe – Consider All Hidden Costs Before You Invest
- ISMS 35: Larry Swedroe – Great Companies Are Not Always High-Return Investments
- ISMS 36: Larry Swedroe – Two Heads Are Not Better Than One When Investing
- ISMS 37: Larry Swedroe – Pay Attention to a Fund’s Proper Benchmarks and Taxes
- ISMS 38: Larry Swedroe – The Self-healing Mechanism of Risk Assets
- ISMS 39: Larry Swedroe – Don’t Choose a Fund by Its Descriptive Name
- ISMS 40: Larry Swedroe – Market vs. Hedge Fund Managers’ Efficiency
About Larry Swedroe
Larry Swedroe is head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.
Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.
Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.
Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.
[spp-transcript]
Connect with Larry Swedroe
Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- The Become a Better Investor Community
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- FVMR Investing: Quantamental Investing Across the World
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points
- Achieve Your Goals
Connect with Andrew Stotz:
Further reading mentioned
- Larry Swedroe and RC Balaban, Investment Mistakes Even Smart Investors Make and How to Avoid Them
- Philip E. Tetlock, Expert Political Judgment: How Good Is It? How Can We Know?
- Gary Belsky and Thomas Gilovich, Why Smart People Make Big Money Mistakes and How to Correct Them: Lessons from the Life-Changing Science of Behavioral Economics
- Larry Swedroe, Think, Act, and Invest Like Warren Buffett: The Winning Strategy to Help You Achieve Your Financial and Life Goals
- Larry Swedroe and Kevin Grogan, Reducing the Risk of Black Swans: Using the Science of Investing to Capture Returns with Less Volatility
BIO: Chris Ball started his career in 2004 as a tax adviser with KPMG LLP. He then transitioned and founded Hoxton Capital Management in 2018. The group’s sole emphasis is helping HNW and UHNW clients with borderless global financial advice. Chris’ specialty is assisting individuals with their retirement planning needs.
STORY: When Chris started his career young and fresh, he got into spread betting. That didn’t go so well, and he lost 10,000 pounds, which was a lot of money in 2008. In terms of business, he wasted over $750,000 on bad hiring decisions.
LEARNING: Don’t enter markets that you don’t understand. If someone is not 100% right, don’t hire them.
“Hire and fire fast. If they’re not right, and you spot it, don’t keep giving people chance after chance or trying to fit a round peg into a square hole, which doesn’t work.”
Chris Ball
Guest profile
Chris Ball started his career in 2004 as a tax adviser with KPMG LLP. After seven years with KPMG, Chris moved to the Middle East to join the deVere Group, where he continued his work as an IFA. He started in their Abu Dhabi offices and eventually headed up the Qatar operations for the group, which dealt with HNW and UHNW individuals.
Chris then transitioned and founded Hoxton Capital Management in 2018. The group’s sole emphasis is helping HNW and UHNW clients with borderless global financial advice. Chris’ specialty is assisting individuals with their retirement planning needs.
Chris has three children with his wife.
Worst investment ever
When Chris started his career young and fresh, he got into spread betting. That didn’t go so well, and he lost 10,000 pounds, which was a lot of money in 2008. In terms of business, he wasted over $750,000 on bad hiring decisions.
Lessons learned
- Don’t enter markets that you don’t understand.
- If someone is not 100% right, don’t hire them.
- Playing at things never produces good results. You have to be 100% dedicated and focused on your work.
Actionable advice
Hire and fire quickly. If someone is not suitable and you spot it, fire immediately. Don’t keep giving people a chance after chance.
Chris’s recommendations
Chris recommends using his recently launched Hoxton Wealth App, available on iTunes, Apple App Store, Google Store, and the company’s website. It’s completely free. The app enables people with accounts in different countries to live link those accounts and view them in a currency of their choice. It also has cash flow modeling, which enables people to see if they have enough money saved for various goals.
No.1 goal for the next 12 months
Chris’s number one goal for the next 12 months is to launch a wealth app and attract 100,000 users.
Parting words
“Thank you very much for having me on. I really enjoyed it, and I wish you all the best.”
Chris Ball
[spp-transcript]
Connect with Chris Ball
Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- The Become a Better Investor Community
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- FVMR Investing: Quantamental Investing Across the World
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points
- Achieve Your Goals
Connect with Andrew Stotz:
BIO: Vivek Raina is a seasoned veteran with over two decades of experience in the broadband industry. As the CEO and Co-Founder of Excitel, he leads the mission to connect BHARAT, propelling the company to the top three ISPs in India—a remarkable feat in just eight years.
STORY: Vivek spent 10 years finding an investor to fund his business idea. He wishes he had spent these years advancing his corporate career.
LEARNING: Working for somebody is fragile. Every failure teaches you something and makes you a better version of yourself. Do something you’re passionate about.
“In entrepreneurship, every failure teaches you something. It makes you stronger and better in doing what you’re doing.”
Vivek Raina
Guest profile
Vivek Raina is a seasoned veteran with over two decades of experience in the broadband industry. As the CEO and Co-Founder of Excitel, he leads the mission to connect BHARAT, propelling the company to the top three ISPs in India—a remarkable feat in just eight years. With a million subscribers spanning 55+ cities, Vivek’s leadership has revolutionized lives through pioneering unlimited internet broadband.
Vivek hails from Kashmir and is now based in Delhi. His journey includes impactful roles at Hathway, Reliance, and Pacenet, highlighting his exceptional leadership skills.
Worst investment ever
Within two years of employment, Vivek had decided he would not stay employed—he would do something independently. Vivek started showing his ideas to people, hoping that someone would be interested in funding him. Some of the ideas were really bad, while others were good. Vivek didn’t manage to get an investor. Most people would offer him a salary or some incentives to work with him. It took Vivek 10 years to convince somebody to invest money in his idea. It took another three years to convince them to start a company, and in 2014, he got his first investment.
Vivek considers the 10 years he spent making this foundation his worst investment ever because if he had concentrated on a corporate job instead, he would be a millionaire by now. It’s also his best investment because if he had not gone through the grind and learned what he learned, he wouldn’t have been the successful entrepreneur he is today.
Lessons learned
- Working for somebody is fragile.
- Every failure teaches you something and makes you a better version of yourself.
- Do something you’re passionate about—nobody can beat you at what you’re good at.
Andrew’s takeaways
- Don’t be too harsh on yourself when you fail. Remember, you did your best with what you knew at the time.
Actionable advice
To succeed, you need to be where the action is. Secondly, decide what to do because this is a once-in-a-lifetime shot. If you get it wrong, you lose many years. So choose carefully, and pick the stuff you’re naturally good at.
Vivek’s recommendations
If you’re interested in startups and want to be successful in business, Vivek recommends reading Nicholas Taleb’s Taleb’s books. They will change your perspective.
If you need to be aware of your own biases and how your mind plays with you, read Daniel Kahneman’s Thinking, Fast and Slow, and The Almanack of Naval Ravikant: A Guide to Wealth and Happiness. Vivek believes that once you have read these three people, you will be a changed and much better person, not just in business but as a human being.
No.1 goal for the next 12 months
Vivek’s number one goal for the next 12 months is to double the user base.
Parting words
“Focus on your goal. Look at the leverage inherent in the ecosystem and make your mark in the world.”
Vivek Raina
[spp-transcript]
Connect with Vivek Raina
Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- The Become a Better Investor Community
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- FVMR Investing: Quantamental Investing Across the World
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points
- Achieve Your Goals
Connect with Andrew Stotz:
BIO: William D. Cohan, a former senior Wall Street M&A investment banker for 17 years at Lazard Frères & Co., Merrill Lynch, and JPMorgan Chase, is the New York Times bestselling author of seven nonfiction narratives, including his most recent book, Power Failure: The Rise and Fall of An American Icon.
STORY: William discusses lessons from his most recent book, which is a story of General Electric (GE), a former global company with facilities worldwide. In his book, William focuses on former GE CEO Jack Welch, who took over the company in 1981 and increased its market value from $12 billion to $650 billion. This company became one of the world’s most valuable and respected companies, and then it all fell apart.
LEARNING: Leadership matters. You are not always right. Achieve the numbers in an ethical manner.
“I try to write books that I like to read, with great characters and great stories. And, yes, it’s a long book, but I think it’s a great story and worth your time.”
William Cohan
Guest profile
William D. Cohan, a former senior Wall Street M&A investment banker for 17 years at Lazard Frères & Co., Merrill Lynch, and JPMorgan Chase, is the New York Times bestselling author of seven nonfiction narratives, including his most recent book, Power Failure: The Rise and Fall of An American Icon.
William is a former guest on the show on episode 739: Get the Numbers Right Before You Invest. Today, he’s back to discuss lessons from his most recent book, which is a story of General Electric (GE), a former global company with facilities worldwide. In his book, William focuses on former GE CEO Jack Welch, who took over the company in 1981 and increased its market value from $12 billion to $650 billion. This company became one of the most valuable and respected companies in the world, and then it kind of all fell apart.
Leadership matters
The ability of a company to adapt and flexibly evolve in response to market changes is crucial for sustained success. This is vividly illustrated through the leadership tenures of Jack Welch and Jeff Immelt at General Electric (GE), where Welch’s strategic boldness and Immelt’s subsequent decisions markedly impacted the company’s fortunes. The two leaders demonstrate the importance of getting the right man on the right job.
Welch was among five candidates vying to become CEO in 1981. He was picked as the CEO because he was potentially the most disruptive—he was going to be this change agent, there was no doubt about it. Welch had pledged to disrupt things to change how GE was run, and he was frankly a fantastic leader. People loved working for him, and he got more out of people than they thought possible. Welch was beloved, feared, respected, and delivered.
When choosing a successor, Welch gravitated towards Immelt because he went to Dartmouth and Harvard Business School, got his Ph.D. from the University of Illinois, and was generally intelligent. However, Immelt didn’t understand GE Capital. He didn’t understand finance well or know the dangers of borrowing short and lending long.
Borrowing in the commercial paper market is like a 30-day liability, and lending out 7-10 years means that if something happens and dries up your source of capital, you’re toast. This saw him make wrong decisions, which significantly impacted the company.
In comparison, when Jack Welch made big decisions, he made the right decisions. When Jeff Immelt had big decisions to make, he made the wrong decisions, by and large.
You are not always right
The value of dissent and dynamic team interactions cannot be overstated; fostering an environment where open debate and criticism are encouraged catalyzes innovation and helps circumvent potential strategic missteps. These elements underscore the complex interplay between leadership style, strategic adaptability, and the importance of a culture that champions constructive debate within an organization.
Welch encouraged dissent. Many people in organizations are afraid to speak up, dissent, and share what they think because there will be consequences for their careers. Welch encouraged people to express their opinions, and though he was whip-smart, he would allow his mind to be changed. And there were plenty of examples where his mind was changed.
Sometimes, the separation of the Chairman of the Board and the CEO is justified; other times not
The debate over whether to separate the roles of CEO and Chairman is critical in corporate governance, aiming to boost board independence by clear role division: the CEO manages daily operations, while the chairman leads board strategy and oversight. The CEO’s primary focus is growth, and the chairman’s is risk. This separation, supported by major shareholders and advisory firms like BlackRock, Vanguard, and Glass Lewis, aims to enhance decision-making and governance, particularly when a board’s independence is questioned.
However, some see benefits in combining these roles for efficiency and unified leadership, a stance shaped by personal experience and shareholder views. The increasing focus on ESG criteria has intensified calls for role separation, though it’s debated whether this could have impacted significant leadership decisions in major companies. It is hard to say if a stronger board and a separated Chairman would have prevented Welch from making what he called the biggest mistake of his career, hiring Jeff Immelt.
At GE, the board was aware of Welch’s succession process and the candidates and had a role in vetting them. Welch was not only the CEO but also the chairman of the board, and whatever he wanted, he got.
As the CEO, Welch wanted Immelt as his successor, and even though there was some dissension on the board, it didn’t amount to much—it wasn’t enough to win the day. Then, when Immelt became the CEO, he kicked out board members who had actively dissented from his appointment, such as Ken Langone and Sandy Warner, the head of JP Morgan at the time.
Achieve the numbers in an ethical manner
The General Electric narrative illustrates the vital link between ethical standards and sound financial management in corporate governance. GE’s decline from a beacon of innovation to facing financial turmoil and ethical scrutiny is a cautionary tale. It highlights the dangers of prioritizing profits without robust ethical and financial oversight, mainly seen in the complex operations of GE Capital and its repercussions on the company’s stability and stakeholder trust.
This case stresses the importance of integrating ethical considerations into financial strategies to ensure long-term corporate success and integrity. GE’s experience is a critical reminder for businesses to uphold financial prudence and a strong ethical culture, ensuring decisions contribute to sustainable growth and maintain corporate integrity rather than compromising it for short-term benefits.
You are not invincible
The downfall of a corporation can often be traced to a mix of hubris and a disconnect between its public persona and internal realities. This phenomenon is particularly evident in the case of General Electric, where a sense of invincibility stemming from past achievements led to complacency and overconfidence.
This corporate hubris, or excessive pride, can blind a company to emerging challenges and necessary evolutions, setting the stage for decline. Furthermore, GE’s experience underscores the significance of aligning its outward image with its internal operations and culture. The disparity between GE’s celebrated public image as a beacon of innovation and its many internal challenges illustrates the dangerous gap that can develop when a company loses sight of its foundational values and operational integrity in pursuit of maintaining a facade of success.
[spp-transcript]
Connect with William Cohan
Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- The Become a Better Investor Community
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- FVMR Investing: Quantamental Investing Across the World
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points
- Achieve Your Goals
Connect with Andrew Stotz:
BIO: Tony Fish is a neuro-minority and a leading expert on decision-making, governance, and entrepreneurship in uncertain environments. His 30-year sense-making and foresight track record means he has been ahead on several technical revolutions.
STORY: In this episode, Tony talks about his newest book, Decision Making in Uncertain Times. How can we become more aware of the consequences of our actions tomorrow?
LEARNING: Ask better questions.
“It’s only through conversations with people like you, Andrew, that I can refine my questions. I love all the people you put on the show because they helped me articulate better what I think I’m optimizing for.”
Tony Fish
Guest profile
Tony Fish is a neuro-minority and a leading expert on decision-making, governance, and entrepreneurship in uncertain environments. His 30-year sense-making and foresight track record means he has been ahead on several technical revolutions. His enthusiasm and drive are contagious & inspiring, especially for wicked problems. He has written and published six books, remains a visiting Fellow at Henley Business School for Entrepreneurship and Innovation, Entrepreneurs-in-residence (EIR) at Bradford School of Management, teaches at London Business School and the London School of Economics in AI and Ethics, and is a European Commission (EC) expert for Big Data.
Tony was a guest on Ep261: CEOs Can Defraud a Business in Very Hard to Detect Ways. In this episode, Tony talks about his newest book, Decision Making in Uncertain Times - How can we become more aware of the consequences of our actions on tomorrow?
The unsaid questions
Tony struggled with how to ask better questions. He says there are two forms of questions. There are questions that we all ask, such as how are you performing? What are you doing? How are you feeling?
Then there’s a pile of what Tony termed the unsaid questions. He says that we don’t ask these questions because, politically, we can’t ask them. We emotionally feel we’re not able to, especially if we don’t know the person well enough or when somebody tells us not to ask that type of question. The trouble with a board is that if members don’t ask the unsaid, they won’t be able to discharge their fiduciary duties. Therefore, we need better frameworks to find questions we didn’t know we needed to ask.
So, how do we ask those questions? Tony has a whole book on how he does it. When the book gets shared, other people will read it, and they’ll come up with better questions than he has.
Principle versus risk
According to Tony, when a board starts, it has all these principles outlined and tries to uphold them. But you realize later on as a board that you can’t manage principles. What you can manage is risk frameworks. But you can’t manage risk rating frameworks without rules. So, you create rules that allow you to manage risk. After creating the rules, you become managed against the free-risk framework you believe in because it aligns with your principles.
However, over time, the rules stop working, and those rules have to have another rule because there’s an exception to a rule. Tony says that when a new rule is created, or a new procedure or methodology comes along, a board should go back and question if that rule is aligned with its purpose, not whether it is helping the board manage the risk framework better.
Over time, you’ll have your purpose clearly and start seeing a massive drift between what you believe you set up and what the risk frameworks and rules allow you to manage. Tony’s challenge to boards is that every time a new rule is created, it should go to the board, and the board should make a judgment call on whether that rule is aligned with its purpose.
Role of a board
According to Tony, a board needs clarity on the tasks, the processes, the strategy, the purpose, and the North Star. It’s easy for boards to focus on tasks, processes, and strategy, but they find it difficult to focus on purpose and North Star. Most times, people only question whether they’re doing the right thing. He adds that a board has to be guided by data, rules, and regulations. But then it has to be directed by the values it wants and the organization’s values, which then comes back to the principles. The issue most boards face is that others’ values, principles, and behaviors are far more instrumental in a board’s values than they ever realized.
Then you’ve got a fundamental issue: Too many people end up on boards without board training. The untrained board members end up replicating management meetings as board meetings, believing that’s what they should be doing.
How to set up a board
Tony believes that everybody follows an S curve. When you’re in the different phases of going up the S curve, you need other types of governance. However, many people don’t transition as they go up the S curve.
When in a particular phase, try to find the board that can do the next part, not the current one. And therein lies the difficulty for so many board members because they want to do what they’re good at and, therefore, stay in their comfort zones. This curtails the ability of the company to scale. What the board should be doing is asking: what do you do? Where are the transitions? How do you go about thinking? What are the processes and procedures? What skills do you need at the different layers as you go up?
About the book
Tony’s book contains ten short frameworks. The idea is not to explain everything but to help the reader peel back the layers of the falsehood that they think they know what they’re doing, yet they haven’t got a clue. Tony wants you to make better choices and decisions by asking better questions.
The book is most accessible on Amazon, where you can purchase it in hardcover, softcover, or Kindle. You can also get a free PDF copy at www.peakparadox.com/book. If you want to reach out to Tony, he’s on LinkedIn.
[spp-transcript]
Connect with Tony Fish
Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- The Become a Better Investor Community
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- FVMR Investing: Quantamental Investing Across the World
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points
- Achieve Your Goals
Connect with Andrew Stotz:
In this episode of Investment Strategy Made Simple (ISMS), Andrew gets into part two of his discussion with Larry Swedroe: Ignorance is Bliss. Today, they discuss two chapters of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this series, they discuss mistake 30: Do You Fail to Understand the Tyranny of the Efficiency of the Market? And mistake 31: Do You Believe Hedge Fund Managers Deliver Superior Performance?
LEARNING: Discovering anomalies or mistakes reinforces and makes the market more efficient. Hedge fund managers demonstrate no greater ability to deliver above-market returns than do active mutual fund managers.
“Unfortunately, the evidence is hedge fund managers demonstrate no greater ability to deliver above-market returns than do active mutual fund managers.”
Larry Swedroe
In this episode of Investment Strategy Made Simple (ISMS), Andrew gets into part two of his discussion with Larry Swedroe: Ignorance is Bliss. Larry is the head of financial and economic research at Buckingham Wealth Partners. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss two chapters of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this series, they discuss mistake number 30: Do You Fail to Understand the Tyranny of the Efficiency of the Market? And mistake 31: Do You Believe Hedge Fund Managers Deliver Superior Performance?
Did you miss out on previous mistakes? Check them out:
- ISMS 8: Larry Swedroe – Are You Overconfident in Your Skills?
- ISMS 17: Larry Swedroe – Do You Project Recent Trends Indefinitely Into the Future?
- ISMS 20: Larry Swedroe – Do You Extrapolate From Small Samples and Trust Your Intuition?
- ISMS 23: Larry Swedroe – Do You Allow Yourself to Be Influenced by Your Ego and Herd Mentality?
- ISMS 24: Larry Swedroe – Confusing Skill and Luck Can Stop You From Investing Wisely
- ISMS 25: Larry Swedroe – Admit Your Mistakes and Don’t Listen to Fake Experts
- ISMS 26: Larry Swedroe – Are You Subject to the Endowment Effect or the Hot Streak Fallacy?
- ISMS 27: Larry Swedroe – Familiar Doesn’t Make It Safe and You’re Not Playing With the House’s Money
- ISMS 29: Larry Swedroe – The Shiny Apple is Poisonous and Information is Not Knowledge
- ISMS 30: Larry Swedroe – Do You Believe Your Fortune Is in the Stars or Rely on Misleading Information?
- ISMS 34: Larry Swedroe – Consider All Hidden Costs Before You Invest
- ISMS 35: Larry Swedroe – Great Companies Are Not Always High-Return Investments
- ISMS 36: Larry Swedroe – Two Heads Are Not Better Than One When Investing
- ISMS 37: Larry Swedroe – Pay Attention to a Fund’s Proper Benchmarks and Taxes
- ISMS 38: Larry Swedroe – The Self-healing Mechanism of Risk Assets
- ISMS 39: Larry Swedroe – Don’t Choose a Fund by Its Descriptive Name
Mistake number 30: Do You Fail to Understand the Tyranny of the Efficiency of the Market?
According to Larry, the Efficient Market Hypothesis (EMH) is the most powerful hypothesis or theory because the very act of discovering anomalies or mistakes reinforces and makes the market more efficient. When somebody discovers an anomaly, it gets published, people read about it, exploit it, and the anomaly typically will disappear or shrink dramatically.
Pricing anomalies present a problem for those who believe in EMH. However, the real question for investors is not whether the market persistently makes pricing errors. Instead, the real question is: are the anomalies exploitable after considering real-world costs?
Mistake number 31: Do You Believe Hedge Fund Managers Deliver Superior Performance?
Hedge funds, a small and specialized niche within the investment fund arena, attract lots of attention. Hedge fund managers seek to outperform market indices such as the S&P 500 Index by exploiting what they perceive to be market mispricings. Studying their performance would seem to be one way of testing the EMH and the ability of active managers to outperform their respective benchmarks.
Over the last 20 years, hedge fund managers have underperformed one-month Treasury bills by something like 1.4% for T-bills to 1.2% for hedge funds. A study by AQR Capital Management covered the five-year period ending January 31, 2001. The study found the average hedge fund had returned 14.7% per year, lagging the S&P 500 Index by almost 4 ppts per year.
The 2006 study, “The A, B, Cs of Hedge Funds: Alphas, Betas, and Costs,” covered the period from January 1995 through March 2006 and found the average hedge fund had returned 8.98% per year, lagging the S&P 500 Index by 2.6 ppts per year.
Hedge fund investing appeals to investors because of the exclusive nature of the club. It also offers the potential of great rewards. Unfortunately, the evidence is hedge fund managers demonstrate no greater ability to deliver above-market returns than do active mutual fund managers. At the same time, investors in hedge funds were earning below-market returns. They were (in many cases) assuming far more risk — although they were probably unaware they were doing so.
In addition to these risks, hedge funds also tend to be highly tax inefficient and show no persistent performance beyond the randomly expected, meaning there is no way to identify the few winners ahead of time.
About Larry Swedroe
Larry Swedroe is head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.
Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.
Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.
Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.
[spp-transcript]
Connect with Larry Swedroe
Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- The Become a Better Investor Community
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- FVMR Investing: Quantamental Investing Across the World
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points
- Achieve Your Goals
Connect with Andrew Stotz:
Further reading mentioned
- Larry Swedroe and RC Balaban, Investment Mistakes Even Smart Investors Make and How to Avoid Them
- Philip E. Tetlock, Expert Political Judgment: How Good Is It? How Can We Know?
- Gary Belsky and Thomas Gilovich, Why Smart People Make Big Money Mistakes and How to Correct Them: Lessons from the Life-Changing Science of Behavioral Economics
- Larry Swedroe, Think, Act, and Invest Like Warren Buffett: The Winning Strategy to Help You Achieve Your Financial and Life Goals
- Larry Swedroe and Kevin Grogan, Reducing the Risk of Black Swans: Using the Science of Investing to Capture Returns with Less Volatility
BIO: Chris Kendall is the CEO of the Australian outsourced accounting group Aretex. Aretex helps businesses grow and scale with best-practice accounting, bookkeeping, and real-time access to accurate financial information.
STORY: Chris invested in the idea of a reality TV show piloted around finding baseball players. Chris believed in his friend’s vision and was so caught up in the emotional attachment that he didn’t do any due diligence on the idea.
LEARNING: If you’re going to fail, fail quickly, be honest about the failure, figure out what happened, and then move on to the next step. Don’t underestimate the funding needed to go big time.
“There’s a balance between raising enough money to reduce dilution and raising enough money to ensure you can get to the next hurdle.”
Chris Kendall
Guest profile
Chris Kendall is the CEO of the Australian outsourced accounting group Aretex. Aretex helps businesses grow and scale with best-practice accounting, bookkeeping, and real-time access to accurate financial information.
He is also the host of The Anti-Failure Podcasts, which examine the lessons from failure in business and life that ultimately allow us to succeed.
Worst investment ever
Chris’s worst investment is the one he didn’t make, which was not buying property in the ’90s before he left Australia. His advice to anybody out there is to find a way to get into the property market as early as possible, go through the struggle of pulling together all of the resources you’ve got access to, and put them in a property.
Chris shares one investment he made through passion and emotional attachment. The investment was a reality TV show piloted around finding baseball players. The TV show was created by a friend who envisioned creating a reality show intended to describe how professional athletes look through the ringers to determine where they end up playing a professional sport. The friend had some of the big names in baseball. He needed money to make the pilot, and his friends (including Chris) and family put some money in and gave it a shot. But he couldn’t get the traction to turn it into the TV show that everyone thought it was capable of.
Chris believed in his friend’s vision and was so caught up in the emotional attachment that he didn’t do any due diligence on the idea.
Lessons learned
- When looking at property, ask yourself: Does this appeal to you? Does it meet your immediate needs? Is there an opportunity to leverage that in a growing market?
- There’s a balance between raising enough money to reduce dilution and raising enough money to ensure you can reach the next hurdle.
- If you’re going to fail, fail quickly, be honest about the failure, figure out what happened, and then move on to the next step.
Andrew’s takeaways
- Don’t underestimate the funding needed to go big time.
No.1 goal for the next 12 months
Chris’s number one goal for the next 12 months is to continue working with small business owners and helping clients get the best information they need to run their businesses.
Parting words
“Have the courage to turn up and give your best.”
Chris Kendall
[spp-transcript]
Connect with Chris Kendall
Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- The Become a Better Investor Community
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- FVMR Investing: Quantamental Investing Across the World
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points
- Achieve Your Goals
Connect with Andrew Stotz:
BIO: Riggs Eckelberry is a nationally renowned entrepreneur who deploys his personal Break To Build™ process to help rebuild the water industry, which has reached a critical breaking point in recent years despite being essential to the planet’s survival.
STORY: Riggs met this wonderful lady who asked him to sit down with her money manager. He showed up at this money manager’s office, who told him he had a great business going and advised him to go public. Riggs said that would be impossible because he wasn’t profitable yet. Turning down this opportunity turned out to be Riggs’s worst investment.
LEARNING: You have to get that monthly recurring revenue. Don’t enter any industry unprepared.
“Your greatest expense is the money you don’t make, the opportunity cost.”
Riggs Eckelberry
Guest profile
Riggs Eckelberry is a nationally renowned entrepreneur who deploys his personal Break To Build™ process to help rebuild the water industry, which has reached a critical breaking point in recent years despite being essential to the planet’s survival. As the founding CEO of OriginClear, Riggs has developed innovative solutions to help businesses face rising water bills by tapping into new investment markets. He is even pioneering the development of “water stablecoins,” a cryptocurrency backed by water assets. With a diverse background in nonprofit management, oceangoing navigation, and technology disruption, Riggs is uniquely qualified to bring change to an outdated and overrun industry.
Worst investment ever
In the early 1980s, Riggs realized that technology was going to be the linchpin for all change, and he wanted to be a part of it, so he moved to New York City. This was the period when companies were moving from the old safeguard ledger to microcomputer-type accounting systems. A lot of people needed help making that migration. Riggs created a series of companies that tried to help these people.
Riggs happened to meet this wonderful lady who asked him to have a sit down with her money manager. He showed up at this money manager’s office, who told him he had a great business going and advised him to go public. Riggs insisted that would be impossible because he was yet to be profitable. Turning down this opportunity turned out to be Riggs’s worst investment. Unfortunately, Riggs didn’t know that in this industry, they’re not very profitable at the outset, but the real money is in the monthly revenue.
Interestingly, Riggs gave the business to his best salesman. Years later, he told Riggs that he still had some of the accounts they opened together, and he’d become a millionaire from that recurring monthly revenue.
Lessons learned
- You’ve got to look for that monthly recurring revenue.
- Wall Street bets on the future.
- Don’t enter any industry unprepared; get to know the space first.
- If you have a great team, you’ll have a life.
- Put an engineer’s mind to the scaling problem.
Andrew’s takeaways
- You’ve got to be able to paint a vision of the scalability of your venture.
Actionable advice
You need to like what you’re going into because you will be stuck with it for years, especially if you succeed. Also, have a strong familiarity with the trade’s ins and outs.
Riggs’s recommendations
Riggs recommends reading The Innovator’s Dilemma. The seed of the destruction of every enterprise is in that enterprise, and the existing business model is actively suppressing it. The book will help you liberate this seed and even create a new business.
No.1 goal for the next 12 months
Riggs’s number one goal for the next 12 months is to pivot the mother company OriginClear, to an incubator role and move to the NASDAQ.
Parting words
“Today is the best of times as the world globalizes and becomes completely chaotic. That’s an opportunity. Grab it.”
Riggs Eckelberry
[spp-transcript]
Connect with Riggs Eckelberry
Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- The Become a Better Investor Community
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- FVMR Investing: Quantamental Investing Across the World
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points
- Achieve Your Goals
Connect with Andrew Stotz:
In this episode of Investment Strategy Made Simple (ISMS), Andrew gets into part two of his discussion with Larry Swedroe: Ignorance is Bliss. Today, they discuss two chapters of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this series, they discuss mistake number 28: Do You Fail to Compare Your Funds to Proper Benchmarks? And mistake 29: Do You Believe Active Management Is a Winner’s Game in Inefficient Markets?
LEARNING: Don’t choose a fund by its name. Active management is highly unlikely to outperform even in inefficient emerging markets.
“Don’t choose a fund, even an index fund, by its name. Instead, you should carefully check its weighted average book-to-market and market capitalization levels.”
Larry Swedroe
In this episode of Investment Strategy Made Simple (ISMS), Andrew gets into part two of his discussion with Larry Swedroe: Ignorance is Bliss. Larry is the head of financial and economic research at Buckingham Wealth Partners. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss two chapters of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this series, they discuss mistake number 28: Do You Fail to Compare Your Funds to Proper Benchmarks? And mistake 29:
Did you miss out on previous mistakes? Check them out:
- ISMS 8: Larry Swedroe – Are You Overconfident in Your Skills?
- ISMS 17: Larry Swedroe – Do You Project Recent Trends Indefinitely Into the Future?
- ISMS 20: Larry Swedroe – Do You Extrapolate From Small Samples and Trust Your Intuition?
- ISMS 23: Larry Swedroe – Do You Allow Yourself to Be Influenced by Your Ego and Herd Mentality?
- ISMS 24: Larry Swedroe – Confusing Skill and Luck Can Stop You From Investing Wisely
- ISMS 25: Larry Swedroe – Admit Your Mistakes and Don’t Listen to Fake Experts
- ISMS 26: Larry Swedroe – Are You Subject to the Endowment Effect or the Hot Streak Fallacy?
- ISMS 27: Larry Swedroe – Familiar Doesn’t Make It Safe and You’re Not Playing With the House’s Money
- ISMS 29: Larry Swedroe – The Shiny Apple is Poisonous and Information is Not Knowledge
- ISMS 30: Larry Swedroe – Do You Believe Your Fortune Is in the Stars or Rely on Misleading Information?
- ISMS 34: Larry Swedroe – Consider All Hidden Costs Before You Invest
- ISMS 35: Larry Swedroe – Great Companies Are Not Always High-Return Investments
- ISMS 36: Larry Swedroe – Two Heads Are Not Better Than One When Investing
- ISMS 37: Larry Swedroe – Pay Attention to a Fund’s Proper Benchmarks and Taxes
- ISMS 38: Larry Swedroe – The Self-healing Mechanism of Risk Assets
Mistake number 28: Do You Rely on a Fund’s Descriptive Name When Making Purchase Decisions?
According to Larry, most investors tend to rely on the name of a fund and its descriptive value. So they’ll look at a small-cap fund and assume it invests exclusively in small or mid-cap stocks. However, the SEC allows sufficient leeway that can cause dramatic differences in that a large-cap fund can own a large-cap value fund and even some small-cap growth stocks. In such a case, you’ll not get the asset allocation you think you should and desire. And that’s especially true, of course, of active managers who have freedom to roam.
Several academic studies have concluded that asset allocation determines the vast majority of the returns and risks of a portfolio and its long-term performance. Larry says that once investors decide on their investment policy (asset allocation), they must choose which funds to use as the building blocks of their portfolio. One choice involves implementing the strategy with active or passive managers. If investors choose passive managers, they can be highly confident that the specific investment style will be adhered to, as the fund will replicate the asset class or index it represents. There is no such assurance with active managers. With active managers, you cannot even rely on the fund’s name when making a choice.
Larry advises that you should not choose a fund, even an index fund, by its name. Instead, you should carefully check its weighted average book-to-market and market capitalization levels. That’s the simplest way to tell the true nature of a fund.
Mistake number 29: Do You Believe Active Management Is a Winner’s Game in Inefficient Markets?
The efficiency of the market for U.S. large-cap stocks is so great that attempting to add value through active management is unlikely to produce positive results. However, investors cling to the idea that active management will likely add value in less efficient markets. Unfortunately, research shows that active managers in emerging markets tend to lose over whatever period, and the longer the horizon, the worse the performance.
The asset class for which the active management argument is made most strongly is the emerging markets — an “inefficient” asset class if there ever was one. Many myths are perpetuated by the Wall Street establishment and the financial media, and that active management is the winning strategy in less efficient markets is just one of them. As the historical evidence demonstrates, active management is highly unlikely to outperform in even the allegedly inefficient emerging markets. In fact, the evidence suggests that active managers perform just as poorly in the “inefficient” markets as they do in the more efficient markets of the developed nations. Larry concludes that active managers don’t lose because they’re dumb; they lose because they’re expensive.
About Larry Swedroe
Larry Swedroe is head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.
Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.
Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.
Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.
[spp-transcript]
Connect with Larry Swedroe
Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- The Become a Better Investor Community
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- FVMR Investing: Quantamental Investing Across the World
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points
- Achieve Your Goals
Connect with Andrew Stotz:
Further reading mentioned
- Larry Swedroe and RC Balaban, Investment Mistakes Even Smart Investors Make and How to Avoid Them
- Philip E. Tetlock, Expert Political Judgment: How Good Is It? How Can We Know?
- Gary Belsky and Thomas Gilovich, Why Smart People Make Big Money Mistakes and How to Correct Them: Lessons from the Life-Changing Science of Behavioral Economics
- Larry Swedroe, Think, Act, and Invest Like Warren Buffett: The Winning Strategy to Help You Achieve Your Financial and Life Goals
- Larry Swedroe and Kevin Grogan, Reducing the Risk of Black Swans: Using the Science of Investing to Capture Returns with Less Volatility
BIO: Lark Davis is the Founder of the weekly crypto newsletter Wealth Mastery, which combines insider insights and in-depth market analysis to offer cryptocurrency investors the best opportunities to grow their wealth, stay ahead of the curve, and avoid costly mistakes.
STORY: Lark invested in the Terra Luna cryptocurrency, which had a famous implosion. The volatility of the crypto market saw him lose all his profits and part of his capital.
LEARNING: Never put your profits into something that could go down. Fully understand all aspects of risk exposure.
“The learning curve is massive in crypto, and even after years in the industry, I still get surprised by how I can get screwed.”
Lark Davis
Guest profile
Lark Davis is the Founder of the weekly crypto newsletter Wealth Mastery, which combines insider insights and in-depth market analysis to offer cryptocurrency investors the best opportunities to grow their wealth, stay ahead of the curve, and avoid costly mistakes.
The newsletter has 100K+ subscribers and covers DeFi, NFTs, Altcoins, Technical Analysis, and more. Lark has been a crypto investor for more than seven years and has made millions of dollars—while also suffering significant losses—in the markets.
He has been featured in leading digital currencies media platforms, including Coinpedia and CoinDesk, providing insights that help audiences consistently make money from cryptocurrency investments.
You can find him on Twitter and YouTube.
Worst investment ever
Lark invested in the Terra Luna cryptocurrency, which had a famous implosion. The currency went up, and the investment was worth hundreds of thousands of dollars. The company also had a stable coin worth $1 linked to the Luna cryptocurrency. The more stablecoins were minted, the more the Luna token was taken off, and the market price increased. The reverse eventually, of course, applied as well. But this was the big hype coin everybody was talking about. Big venture capital firms were in it, and the Founder was the poster child on social media.
It all came tumbling down eventually. Interestingly, shortly before Lark invested, his research assistant, who does the deep dives for the Wealth Mastery reports, did a report on the Luna crypto and concluded that it smelled fishy and didn’t like the idea of investing in it. Lark, however, went ahead and invested.
By the time the coin started going on a downward spiral, Lark’s Luna position was around $100,000. That went to zero in about three days. Luckily, he didn’t ride them to zero. He sold them for around $6, but his profit fell to zero. He also had about $700,000 of stablecoins, in which he took a 20% loss.
Lessons learned
- Never put your profits into something that could go down.
- Take your profits, put it in your bank, and run away.
- Fully understand all aspects of risk exposure.
- Crypto’s learning curve is massive.
Andrew’s takeaways
- Separate your wealth or profit from speculation money and put it in a safe place that won’t go down.
- When it comes to human behavior, always expect a herd mentality.
Actionable advice
Go slow on-chain and test the waters first before you put 100% of your money into it. You’re not missing out on anything; there’s always going to be something new happening tomorrow.
Lark’s recommendations
Lark recommends reading his newsletter, Wealth Mastery, for updates on the latest market trends. He also recommends checking out various local exchanges to learn how trading indicators and coin mechanics work and all sorts of things regarding cryptocurrencies.
No.1 goal for the next 12 months
Lark’s number one goal for the next 12 months is to 10x his crypto portfolio in this bull market.
Parting words
“With crypto, remember to take your profits, or the market will take them for you.”
Lark Davis
[spp-transcript]
Connect with Lark Davis
Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- The Become a Better Investor Community
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- FVMR Investing: Quantamental Investing Across the World
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points
- Achieve Your Goals
Connect with Andrew Stotz:
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