Bad Investor

You won't be a good investor if you can't think clealry about the world. The world is a compelx palce, so you've got to get your information from outside sources (you obviously can't gather all the info you need on your own). But, not all news sources are equal. You should know this already if you consume the news, but too many people don't. In this episode, I'll take you on a brief journey from far left (Jacobin) to far right (The American Spectator) news -- stopping by purportedly moderate news (CNN) in between -- so we can see how different news outlets/blogs/magazines approach news in different ways. 

Don't try to time the markets. Yes - the market can drop or rise tomorrow, but that's not something that you're going to be able to predict. Instead, focus your energies and efforts on finding great companies to invest in. Dollar cost averaging still makes sense today and it will help you avoid the risks related to deploying all of your capital into the market at one time. 

Investors who are truly sophisticated with a deep understanding of risk (and history) will include a bit of gold and silver in their portfolios to hedge against low probability but very severe tails risks. Those that think that there is no place for these ancient metals in their portfolios must explain why they assume the future will be more similar to the last 100 years as opposed to almost any other time in human history.

Every investor knows the importance of diversification for risk mitigation. But, if you really know what you're doing -- and most investors don't -- then too much diversification may prevent you from getting really wild returns. A more narrow or concentrated portfolio is required if you want to get truly stunning returns. This concentration comes with more risk, however, so prudence and clarity is key. 

In the beginning of an investor's life, saving money matters far more than rates of return. Chasing an extra few percent return is a fruitless effort if you're not able to put aside a substantial amount of money. Focus on accumulating capital first - after a number of years, when you have a strong base of capital, you can transition your efforts over to seeking better rates of return. Don't mix these stages up. 

This is the first episode in which I actually wrote down some notes before I started speak - previous ones were totally off the cuff. Not sure which approach I like better.

Most people fear recessions, but recessions are where real wealth is built in the stock market. During recessions, both good companies and bad companies are battered and cheap. If you have cash and you're able to find the good companies -- those that are innovative and are set up for success in the coming decades -- you'll make a killing in recessions and will not fear them. For everyone else, they'll sell off, sit on their cash, and wonder why they are never able to succeed at investing. 

It's important to be able to take a step back and see the bigger picture when investing -- otherwise you're at risk of making fear-based or greed-based decisions. How can you become a better investor? By learning more, including about market ups and downs throughout history. Studying market history will make you a more well-rounded and better-prepared investor.

Sorry about the bad audio - I recorded this in the car. 

To be a good investor, you need to have perspective about what can go wrong with your portfolio and how severe this will be. Too many people have severe recency biases that prevent them from having broad and realistic outlooks - they think the market will keep going up and ignore the many times in modern finance and investing that catastrophic losses occurred (let alone losses that occurred pre-modern era). This episode will give you a very brief intro into the idea of stress testing your portfolio along with some basic concepts you'll need to know to do it effectively. 

You hear a lot about the actions the Federal Reserve is taking to keep this global pandemic from causing a financial crisis. You also hear about the potential economic stimulus package that's being discussed in Congress. One of these is monetary stimulus and the other is fiscal stimulus - learn more about this key distinction in this episode.