BIO: Wes Schaeffer is The Business Fixer®. He sees the message you want to convey but can’t find the words and gives them to you because if you don’t toot your own horn, there is no music.

STORY: Wes discusses the evolving landscape of business and marketing, emphasizing the importance of human connection, trust, and information.

LEARNING: Future-proof your business with trust, strategy, and agility.

 

“It is time to spring clean your business. Get light, get lean, get focused, and build a legacy.”Wes Schaeffer

 

Guest profile

Wes Schaeffer is The Business Fixer®. He sees the message you want to convey but can’t find the words and gives them to you because if you don’t toot your own horn, there is no music. He’s a brown belt in Brazilian Jiu-Jitsu and the president of his HOA, so mow your lawn and pay attention to what this AF veteran, father of 7, and grandfather of three has to say. He’s written a couple of books, spoken around the world, published over 700 podcasts, and was once duct-taped to a bar in Korea.

Join his free 12 Weeks to Peak program designed to help individuals and teams build a life cadence and achieve their goals.

Worst investment ever

In today’s episode, Wes, who previously appeared on the podcast on episode Ep280: Do Your Research and Trust Your Gut, discusses the evolving landscape of business and marketing, emphasizing the importance of human connection, trust, and information.

Effects of technology on marketing

Wes starts the discussion by noting how the salesperson’s role has evolved since the internet came around. Before the internet, he says, salespeople were the keepers of the knowledge. If you wanted to buy a car, you had to go down to the dealership. Now you have CarFax and online shopping in comparison, and you can compare models and negotiate before you get there. People freely share information online, so salespeople are no longer the keeper of knowledge.

Despite the abundance of knowledge, buyers often find themselves in a state of confusion. In the past, this confusion stemmed from a lack of information. However, in today’s digital age, the problem has shifted to an overwhelming amount of information.

This is where the salesperson’s role becomes crucial. As a salesperson, you have the opportunity to step in as a trusted advisor. Your role is to help your customers navigate the sea of information available online, assuage their fears, and instill in them the confidence that they are making the right decision.

The role of trust and information in marketing

Andrew and Wes delve into the significance of trust in marketing, with Wes underlining that trust is the cornerstone of purchasing decisions. He points out that despite the advancements in technology, people still crave individualized treatment.

As a salesperson, it’s crucial to ask yourself: What am I doing to connect with the human being on the other side of the screen? This connection, built on trust, is what reassures customers and gives them the confidence to make a purchase.

Wes reminds salespersons that customers don’t want to be treated like numbers, so they should be consistent and congruent in their approach to marketing and spend enough time building trust.

Adapting to market changes and future-proofing businesses

Wes and Andrew discuss the impact of global competition, particularly from China, on family businesses. They explore the idea of repositioning companies from low-cost leaders to higher-value-added brands, emphasizing the need for differentiation and strategic planning. Wes suggests leveraging current political and technological changes to improve business efficiency and adapt to new market realities.

They also discuss the importance of businesses being nimble and responsive to market changes, with Wes highlighting the need for businesses to streamline and focus on their core strengths. This proactive approach ensures that businesses are not just surviving but thriving in the face of market shifts.

Building a life cadence and personal development

Wes introduces his program, “12 Weeks to Peak,” which helps individuals create a life cadence by scheduling time for self-improvement, relaxation, and other essential activities. This program has been proven to enhance productivity, reduce stress, and improve overall well-being.

He shares insights from successful individuals like Warren Buffett and sports figures who maintain consistent routines and regimens.

Wes emphasizes the importance of intentionality in life, suggesting that people should schedule time for activities that matter to them, such as calling friends and family.

Andrew’s takeaways

• You can build a happy life and great work.
• If you’re sitting in a lousy job you’re unsatisfied with, leave.

No.1 goal for the next 12 months

Wes’s number one goal for the next 12 months is to ensure that his 12 Weeks to Peak program becomes recognizable. He aims to achieve this by helping more people create a life cadence that prioritizes self-improvement, relaxation, and other essential activities. By doing so, he hopes to make a significant impact on people’s lives and well-being.

Parting words

 

“Just take action. If this speaks to you, then do it. Don’t wait. You’ve got to become a good decision-maker, so listen to your little voice.”Wes Schaeffer

 

[spp-transcript]

 

Connect with Wes Schaeffer

• LinkedIn
• Facebook
• Instagram 
• X
• Podcast
• YouTube
• Book 
• Website

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:

• astotz.com
• LinkedIn
• Facebook
• Instagram
• Threads
• X
• YouTube
• My Worst Investment Ever Podcast

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 26: Dollar Cost Averaging.

LEARNING: Invest all your money whenever you have it.

 

“If you want to put the odds in your favor, which is the best we can do because we don’t have clear crystal balls, you should put all your money in whenever you have it to invest.”Larry Swedroe

 

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. 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 Chapter 26: Dollar Cost Averaging.

Chapter 26: Dollar Cost Averaging

In this chapter, Larry discusses why lump sum investing is better than dollar cost averaging.

Should you invest your money all at once or spread it over time?

According to Larry, the issue of Dollar Cost Averaging (DCA) typically arises when an investor receives a large lump sum of money and wonders if they should invest it all at once or spread it over time. The same problem arises when an investor panics and sells when confronted with a bear market, but then there are two questions: How does the investor decide when it is safe to reenter the market? And does she reinvest all at once or by DCA?

Constantinides, a University of Chicago professor in the 1960s, studied this question. He demonstrated that DCA is an inferior strategy to lump sum investing. He termed it logically dumb as it makes no sense based on an expected return outcome. From a purely financial perspective, the logical answer is that if you have money to invest, you should always invest it whenever it’s available.

Another paper by John Knight and Lewis Mandell compared DCA to a buy-and-hold strategy. Then, it analyzed the strategies across a series of investor profiles from risk-averse to aggressive. They concluded that DCA had no advantage over the two alternative investment strategies. Combined with their graphical analysis, their numerical trial and empirical evidence favored optimal rebalancing and buy-and-hold strategy over dollar cost averaging. Optimal rebalancing refers to the strategy of adjusting the proportions of assets in a portfolio to maintain a desired level of risk and return.

Dollar cost averaging versus lump sum investing

Knight and Mandell conducted a backtest to compare the performance of DCA versus LSI (lump sum investing). Backtesting is a simulation technique to evaluate the performance of a trading strategy using historical data. They backtested the two strategies between 1926 and 2010. Transaction costs were ignored (favoring DCA, which involves more trading). The authors assumed the initial portfolio was $1 million in cash, and the only investment available was the S&P 500 Index:

• DCA Strategy: At the beginning of each month, one-twelfth of the initial portfolio was invested—the entire $1 million was invested by the end of the 12th month.
• LSI Strategy: The $1 million portfolio was invested on day one.

The study covered 781 rolling 20-year periods. The LSI strategy outperformed in 552 of them—over 70 percent of the time. In addition, in the roughly 30 percent of instances in which DCA outperformed, the magnitude of that outperformance was less than when LSI outperformed.

Specifically, during the 552 20-year periods in which LSI did better than DCA, the average cumulative outperformance was $940,301 on the initial $1 million investment. During the 229 periods in which DCA did better than LSI, the average cumulative outperformance was $769,311.

When dollar cost averaging is the better option

Larry notes that there is an argument to be made in favor of DCA when it is the lesser of two evils—when an investor cannot “take the plunge” because they are sure that if they were to invest all at one time, that day would turn out to be the high not exceeded until the next millennium. That fear causes paralysis.

If the market rises after they delay, how can they buy now at even higher prices? And if the market falls, how can they buy now because the bear market they feared has arrived? Once a decision has been made not to buy, how do you decide to buy?

There is a solution to this dilemma that addresses both the logical and the emotional issues. Larry advises an investor to write a business plan for their lump sum. The plan should lay out a schedule with regularly planned investments. The plan might look like one of these alternatives:

• Invest one-third of the investment immediately and invest the remainder one-third at a time during the next two months or the next two quarters.
• Invest one-quarter today and spread the remainder equally over the next three quarters.
• Invest one-sixth each month for six months or every other month.

Adopt a glass is half-full perspective

Having accomplished these objectives, Larry says, the investor should adopt a “glass is half full” perspective. If the market rises after the initial investment, they can feel good about how their portfolio has performed. She can also feel good about how smart she was not to delay investing.

If, on the other hand, the market has fallen, the investor can feel good about the opportunity they now have to buy at lower prices and about being smart enough not to have put all of their money in at one time. Either way, the investor wins from a psychological perspective. This is an important consideration because emotions play an essential role in how individuals view outcomes.

Lump sum investing is the way to go

While DCA may sometimes work, Larry insists that putting all your money at once gives you the best odds of having the most money. If you want to put the odds in your favor, which is the best we can do because we don’t have clear crystal balls, he says, you should put all your money in whenever you have it to invest. Unfortunately, despite all the evidence, investors and advisors still recommend DCA.

Further reading

1. George Constantinides, “A Note On The SubOptimality Of Dollar Cost Averaging as an Investment Policy,” The Journal of Financial and Quantitative Analysis, June 1979.
2. John Ross Knight and Lewis Mandell, “Nobody Gains From Dollar Cost Averaging: Analytical, Numerical and Empirical Results,” Financial Services Review, Volume 2, Issue 1 (1992-1993) pp. 1-71.
3. Gerstein Fisher, “Does Dollar Cost Averaging Make Sense For Investors?” 2011.

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform

• Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds
• Enrich Your Future 02: How Markets Set Prices
• Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers
• Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find?
• Enrich Your Future 05: Great Companies Do Not Make High-Return Investments
• Enrich Your Future 06: Market Efficiency and the Case of Pete Rose
• Enrich Your Future 07: The Value of Security Analysis
• Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return
• Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions

• Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t
• Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill
• Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play
• Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance
• Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon
• Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe
• Enrich Your Future 16: The Estimated Return Is Not Inevitable
• Enrich Your Future 17: Take a Portfolio Approach to Your Investments
• Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans
• Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe
• Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us

• Enrich Your Future 21: Think You Can Beat the Market? Think Again
• Enrich Your Future 22: Some Risks Are Not Worth Taking
• Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions
• Enrich Your Future 24: Why Smart People Do Dumb Things
• Enrich Your Future 25: Stock Crashes Happen—Be Prepared

About Larry Swedroe

Larry Swedroe was 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

• LinkedIn
• X
• Website
• Books

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:

• astotz.com
• LinkedIn
• Facebook
• Instagram
• Threads
• X
• YouTube
• My Worst Investment Ever Podcast

BIO: Elvi Caperonis is a former Harvard University Analyst and Technical Program Manager at Amazon and LinkedIn’s top Voice and a career strategist who has mastered the art of storytelling to create a six-figure personal brand on LinkedIn.

STORY: Elvi decided to be her own boss and started an e-commerce business for which she had no knowledge or passion. It turned out to be a nightmare that cost her $30,000.

LEARNING: If you don’t have passion for something, don’t do it. Happiness and delivering value should be the ultimate goal, not just making money.

 

“Yes, you want to start a business. But first, sit back and ask yourself, “Will I enjoy this? Is this going to tell the story that I want to live in the world?”Elvi Caperonis

 

Guest profile

Elvi Caperonis is a former Harvard University Analyst and Technical Program Manager at Amazon and LinkedIn’s top Voice and a career strategist who has mastered the art of storytelling to create a six-figure personal brand on LinkedIn.

With a track record of helping job seekers land their dream jobs and supporting millions across the globe through her content on Linkedin, Elvi Caperonis has become the go-to expert for those looking to build a personal brand and land their dream job.

The ability to connect with her audience through storytelling and content strategies has made an impact and helped build her brand. Elvi is passionate about helping and inspiring others to achieve results similar to hers.

Land Your Dream Job and Succeed 10X Faster!: Access the same strategies that transformed my career Growth by landing jobs at top companies like Harvard University and Amazon—all for a fraction of the price.

Worst investment ever

A few years ago, Elvi decided she wanted to be an entrepreneur and her own boss. She discussed it with her husband, who was very supportive. Elvi chose to launch an E-commerce business. She had heard many people say it was a fun and profitable business and believed she could do it.

Elvi took an online course and started learning about E-commerce and how to do it step by step. She did her due diligence. Unfortunately, Elvi didn’t have a passion for E-commerce. It was a lot of work, and it was a nightmare at the end because she was putting in a lot of hours and didn’t turn a profit. She lost about $30,000 in that business.

Lessons learned

• If you don’t have passion for something, question yourself 1,000 times before starting that business. Passion allows you to tell a story that resonates with your customers.
• Learn from people who have done it before and get a mentor.
• If you don’t have experience in the kind of business you want to start, don’t go all in; be agile and try to sell a few units of your product, then double down as you continue to grow and adapt.
• Happiness and delivering value should be the ultimate goal, not just making money.

Andrew’s takeaways

• Whatever job or business you start, ensure it’s built around the core thing you do naturally today.

No.1 goal for the next 12 months

Elvi’s number one goal for the next 12 months is to spend more time with her kids, husband, mom, sisters, aunts, and whole family.

Parting words

 

“Even if you cannot see it now, whatever you are going through will be okay. Just keep reminding yourself of this.”Elvi Caperonis

 

[spp-transcript]

 

Connect with Elvi Caperonis

• LinkedIn
• Website

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:

• astotz.com
• LinkedIn
• Facebook
• Instagram
• Threads
• X
• YouTube
• My Worst Investment Ever Podcast

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 25: Battles are Won Before They Are Fought.

LEARNING: Be well-prepared for potential disruptions in the market.

 

“Many investors let emotions drive their decisions, and they end up buying high and selling low—the opposite of what you are doing when rebalancing.”Larry Swedroe

 

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. 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 Chapter 25: Battles are Won Before They Are Fought.

Chapter 25: Battles Are Won Before They Are Fought

In this chapter, Larry emphasizes the importance of strategic planning to anticipate market shocks, which occur approximately once every three or four years. This proactive approach ensures that investors are well-prepared for potential disruptions in the market.

Historical distribution of stock returns

Gene Fama studied the historical distribution of stock returns and found that the population of price changes if it was strictly normal on any stock, then a standard deviation shift from the mean of five standard deviations should occur about once every 7,000 years.

The reality, though, is it occurs about once every three or four years in the US equity markets. That means the distribution of returns is not normally distributed. To illustrate this, Larry shares evidence of big fat tails in the distribution. From 1926–2022, in 26 out of the 97 years, the S&P 500 Index produced negative returns. In 11 of those years, the losses were greater than 10%. In six of the years, the losses exceeded 20%. In three of the years, the losses exceeded 30%. In one year, the loss exceeded 40%.

Prepare to live through a big market downturn

According to Larry, the data unequivocally shows that stocks are risky assets, with risks that are more prevalent than historical volatility would suggest. Investors must be prepared to face severe losses at some point. It’s not a matter of if these risks will manifest, but when, how sharp the declines will be, and when they will subside.

For investors, Larry underscores the importance of winning the big fat tails battle in the planning stage. Successful investors know that bear markets will happen and that they cannot be predicted with a high degree of accuracy. Thus, they build bear markets into their plans. They determine their ability, willingness, and need to take risks.

Larry notes that, on average, prudent investors prepare to live through a big market shock once every three or four years. They ensure that their asset allocation does not cause them to take so much risk that when a bear market inevitably shows up, they might sell in a panic. They also make sure that they don’t take so much risk that they lose sleep when emotions caused by bear markets run high.

The best way to invest during crises

While global diversification across equity asset classes is a prudent strategy that reduces risk over the long term, this benefit diminishes during crises. The only reliable refuge during such periods is high-quality fixed-income investments, such as Treasuries, government agency securities, and FDIC-insured CDs. This emphasis on diversification should instill a sense of security and protection in investors.

Riskier fixed-income assets such as junk and emerging market bonds also suffer from flights-to-quality and liquidity. This is why the prudent strategy is to ensure that your portfolio contains a sufficient amount of safe bonds to dampen the overall portfolio’s risk to an acceptable level—winning the battle before the fight begins.

Further reading

1. Wall Street Journal, “One ‘Quant’ Sees Shakeout For the Ages—’10,000 Years,’ August 11-12, 2007.
2. Roger Lowenstein, When Genius Failed, Random House (1st edition, September 2000).
3. Worth (September 1995).
4. Stephen Gould, Full House.

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform

• Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds
• Enrich Your Future 02: How Markets Set Prices
• Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers
• Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find?
• Enrich Your Future 05: Great Companies Do Not Make High-Return Investments
• Enrich Your Future 06: Market Efficiency and the Case of Pete Rose
• Enrich Your Future 07: The Value of Security Analysis
• Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return
• Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions

• Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t
• Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill
• Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play
• Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance
• Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon
• Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe
• Enrich Your Future 16: The Estimated Return Is Not Inevitable
• Enrich Your Future 17: Take a Portfolio Approach to Your Investments
• Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans
• Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe
• Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us

• Enrich Your Future 21: Think You Can Beat the Market? Think Again
• Enrich Your Future 22: Some Risks Are Not Worth Taking
• Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions
• Enrich Your Future 24: Why Smart People Do Dumb Things

About Larry Swedroe

Larry Swedroe was 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

• LinkedIn
• X
• Website
• Books

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:

• astotz.com
• LinkedIn
• Facebook
• Instagram
• Threads
• X
• YouTube
• My Worst Investment Ever Podcast

BIO: Fabrizio has always wanted to fly jets and has had a career flying both private jets and for various airlines worldwide. He has shared the cockpit with pilots from over 65 nationalities, giving him a broader perspective on people and life.

STORY: Fabrizio invested in a luxury car business in Italy but chose the wrong person to run the show, and because of this, he lost all his money and a very good friend.

LEARNING: Do not mix business with friendship. Hire the right people.

 

“Business decisions need to be made to make money. If that money helps people as well, great. But trying to mix charity with business is a very bad idea.”Fabrizio Poli

 

Guest profile

Fabrizio Poli has always wanted to fly jets and has had a career flying both private jets and for various airlines worldwide. He has shared the cockpit with pilots from over 65 nationalities, giving him a broader perspective on people and life. For the last 14 years, Fabrizio has been buying, selling, leasing, and chartering private jets for the ultra-wealthy.

Fabrizio is the author of “The Quantum Economy” and other books. He often shares his aviation expertise in the media and is featured in the Financial Times, Bloomberg, Social Media Examiner, and Chicago Tribune.

Worst investment ever

Being in the private jet business, Fabrizio decided to venture into the car business a few years ago. He figured people who buy private jets also collect cars. Fabrizio teamed up with a friend of his in Italy. The idea was to buy Vespers, Alfa Romeos, and Ferraris in Italy and sell them internationally. They bought a bunch of cars and opened a showroom in Italy on the road where the first Ferrari was driven. However, Fabrizio was in England at the time. He assumed that his friend was doing things properly.

Since the showroom was on a popular road with all these flashy cars parked outside, many people were walking into the showroom, unfortunately not to buy but to look at them.

Fabrizio sent over a web designer to help tweak the website and suggested that his partner let people into the showroom by appointment only. This way, he’d avoid spending 90% of his day talking to people who are not there to buy a car. The friend did not heed his advice, and eventually, the business went under.

Fabrizio had invested in the right business but in the wrong person, and because of this, he lost all his money and a very good friend.

Lessons learned

• Hire the right people and create a supportive environment for them.
• Separate business decisions from personal emotions and make independent evaluations.
• The product and the process can be great, but if you pick the wrong people to run it, they’ll screw the whole thing up.

Andrew’s takeaways

• Find an independent, objective, knowledgeable third party to help pick a business partner.
• Separate the business idea from the person in charge of bringing it to life.

Actionable advice

If you are going to invest with your friend, you are emotionally engaged, and that’s dangerous. Bring somebody else to play the bad guy, someone who can make tough decisions and keep emotions in check if you cannot take the emotion out.

Fabrizio’s recommendations

Fabrizio recommends reading a lot—both fiction and nonfiction—to open up new possibilities and perspectives. He also recommends listening to other business leaders to learn from their experiences. This practice can inspire and inform your business decisions.

No.1 goal for the next 12 months

Fabrizio’s number one goal for the next 12 months is to start and launch a new business by September. He is also planning on publishing another book this year.

Parting words

 

“Fly high. Think high.”Fabrizio Poli

 

[spp-transcript]

 

Connect with Fabrizio Poli

• LinkedIn
• Podcast
• YouTube

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:

• astotz.com
• LinkedIn
• Facebook
• Instagram
• Threads
• X
• YouTube
• My Worst Investment Ever Podcast

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 24: Why Do Smart People Do Dumb Things?

LEARNING: Past performance does not guarantee future results. Change the criteria you use to select managers.

 

“There are only two things that are infinite, the universe and man’s capacity for stupidity.”Larry Swedroe

 

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. 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 Chapter 24: Why Do Smart People Do Dumb Things?

Chapter 24: Why Do Smart People Do Dumb Things?

In this chapter, Larry discusses why investors still make mistakes despite multiple SEC warnings.

The past performance delusion

Larry explains that it’s normal for most investors to make mistakes when investing, often due to behavioral errors like overconfidence. Being overconfident can cause investors to take too much risk, trade too much, and confuse the familiar with the safe. Those are explainable errors.

However, there’s one mistake that Larry finds hard to explain. Most investors ignore the SEC’s required warning that accompanies all mutual fund advertising: “Past performance does not guarantee future results.” Despite an overwhelming body of evidence, including the annual S&P’s Active Versus Passive Scorecards, that demonstrates that active managers’ past mutual fund returns are not prologue and the SEC’s warning, investors still flock to funds that have performed well in the past.

Today’s underperforming manager may be tomorrow’s outperformer

According to Larry, various researchers have found that the common selection methodology is detrimental to performance. The greater benchmark-adjusted return to investing in ‘loser funds’ over ‘winner funds’ is statistically and economically large and robust to reasonable variations in the evaluation and holding periods and standard risk adjustments.

Additionally, the standard practice of firing managers who have recently underperformed actually eliminates those managers who are more likely to outperform in the future.

Why Are Warnings Worthless?

Larry quotes the study “Worthless Warnings? Testing the Effectiveness of Disclaimers in Mutual Fund Advertisements,” which provided some interesting results. The authors found that people viewing the advertisement with the current SEC disclaimer were just as likely to invest in a fund and had the exact expectations regarding a fund’s future returns as people viewing the advertisement with no disclaimer whatsoever.

The authors concluded that the SEC-mandating disclaimer is completely ineffective. The disclaimer neither reduces investors’ propensity to invest in advertised funds nor diminishes their expectations regarding future returns.

The current SEC disclaimer is too weak

The authors noted that the current disclaimer fails because it is too weak. It only conveys that high past returns don’t guarantee high future returns and that investors in the fund could lose money, things that almost all investors already know.

It fails to convey what investors need to understand: high past returns are a poor predictor of high future returns. In the authors’ opinion, a stronger disclaimer—one that informs investors that high fund returns generally don’t persist (they are often a matter of chance)—would be much more effective.

The insane investor

In conclusion, Larry observes that many investors do the same thing over and over again and expect a different outcome. Most seem never to stop and ask: If the managers I hired based on their past outperformance have underperformed after being hired, why do I think the new managers I hire to replace them will outperform if I use the same criteria that have repeatedly failed? And, if I am not doing anything different, why should I expect a different outcome?

Change the criteria you use to select managers

Larry advises investors to change the criteria they use to select managers. Instead of relying mainly, if not solely, on past performance, they should use criteria such as fund expenses and the fund’s degree of exposure to well-documented factors (such as size, value, momentum, profitability, and quality) that have been shown to have provided premiums.

These premiums should have evidence that they have been persistent, pervasive, robust to various definitions, implementable (they survive transaction costs) and that they have intuitive explanations for why you should expect the premium to persist.

By using criteria that lead to superior results, investors can avoid actively managed funds and significantly increase their chances of achieving better investment outcomes.

Further reading

1. Itzhak Ben-David, Jiacui Li, Andrea Rossi, and Yang Son, “Advice-Driven Demand and Systematic Price Fluctuations,” February 2021.
2. Bradford Cornell, Jason Hsu and David Nanigian, “Does Past Performance Matter in Investment Manager Selection?” Journal of Portfolio Management, Summer 2017.
3. Rob Bauer, Rik Frehen, Hurber Lum and Roger Otten, “The Performance of U.S. Pension Plans,” 2008.
4. Amit Goyal and Sunil Wahal, “The Selection and Termination of Investment Management Firms by Plan Sponsors,” Journal of Portfolio Management (August 2008).
5. Molly Mercer, Alan R. Palmer and Ahmed E. Taha, “Worthless Warnings? Testing the Effectiveness of Disclaimers in Mutual Fund Advertisements,” Journal of Empirical Legal Studies (September 2010).

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform

• Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds
• Enrich Your Future 02: How Markets Set Prices
• Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers
• Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find?
• Enrich Your Future 05: Great Companies Do Not Make High-Return Investments
• Enrich Your Future 06: Market Efficiency and the Case of Pete Rose
• Enrich Your Future 07: The Value of Security Analysis
• Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return
• Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions

• Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t
• Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill
• Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play
• Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance
• Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon
• Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe
• Enrich Your Future 16: The Estimated Return Is Not Inevitable
• Enrich Your Future 17: Take a Portfolio Approach to Your Investments
• Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans
• Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe
• Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us

• Enrich Your Future 21: Think You Can Beat the Market? Think Again
• Enrich Your Future 22: Some Risks Are Not Worth Taking
• Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions

About Larry Swedroe

Larry Swedroe was 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

• LinkedIn
• X
• Website
• Books

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:

• astotz.com
• LinkedIn
• Facebook
• Instagram
• Threads
• X
• YouTube
• My Worst Investment Ever Podcast

BIO: James “Jimmy” Milliron is Co-Founder & President of National Brokerage Atlantic, specializing in Wealth Enhancement, Estate Planning, and Asset Protection.

STORY: Jimmy wanted to invest $100,000 in Bitcoin, but when he couldn’t find an easy way to do it, he bought a car instead.

LEARNING: Research and learn all you can about investment opportunities before investing.

 

“Don’t be afraid to pick up the phone and make a few calls. There’s nothing like picking up the phone and talking to a real person on the other end instead of just texting them.”Jimmy Milliron

 

Guest profile

James “Jimmy” Milliron is Co-Founder & President of National Brokerage Atlantic, specializing in Wealth Enhancement, Estate Planning, and Asset Protection. An insurance veteran, he previously served as Executive Vice President at NexTier Bank, building a $400 million premium finance portfolio. He holds a BA from VMI and various securities and insurance licenses.

Worst investment ever

Jimmy’s worst investment is a mix between marrying a second wife and buying a car in 2016. He invested many resources in his second marriage, but it did not last that long.

When Jimmy married his second ex-wife, he wanted to invest about $100,000 in Bitcoin. But he was busy and did not have time to research and learn more about Bitcoin. When Jimmy could not find an easy way to do it, he purchased a car instead with that cash.

Lessons learned

• Go the extra mile in research and learning about investment opportunities before investing.
• Consider all the investment options available.

Actionable advice

If you’re young, seek advice from a mentor or your parents about what they would do instead of arbitrarily investing in a make-me-feel-good investment. Their guidance can be invaluable in navigating the complex world of investments.

Jimmy’s recommendations

Jimmy recommends reading Donald Trump’s Art of the Deal as a valuable resource for negotiation and decision-making.

No.1 goal for the next 12 months

Jimmy’s number one goal for the next 12 months is losing weight.

Parting words

 

“Thank you very much. Andrew and I wish everyone well.”Jimmy Milliron

 

[spp-transcript]

 

Connect with Jimmy Milliron

• LinkedIn
• Website

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:

• astotz.com
• LinkedIn
• Facebook
• Instagram
• Threads
• X
• YouTube
• My Worst Investment Ever Podcast

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 23: Framing the Problem.

LEARNING: Understand how each indexed annuity feature works before buying one.

 

“I would never buy an annuity that didn’t give me full inflation protection.”Larry Swedroe

 

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. 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 Chapter 23: Framing the Problem.

Chapter 23: Framing the Problem

In this chapter, Larry discusses how we, as human beings, are subject to biases and mistakes that we’re almost certainly not aware of. He introduces the concept of ‘framing’ in the context of behavioral finance, which refers to how a question or a problem is presented and how this presentation can influence our decision-making, often leading us to answer how the questioner wants us to.

Examples of framing

Larry shares the following examples from Jason Zweig’s book Your Money & Your Brain to support the theory of framing in decision-making. These examples illustrate how the same information, when presented in different ways, can lead to significantly different decisions, highlighting the impact of framing on our perceptions and choices.

• A group of people was told ground beef was “75% lean.” Another was told the same meat was “25% fat.” The “fat” group estimated the meat would be 31% lower in quality and taste 22% worse than the “lean” group estimated.
• Pregnant women are more willing to agree to amniocentesis if told they face a 20% chance of having a Down syndrome child than if told there is an 80% chance they will have a “normal” baby.
• A study asked more than 400 doctors whether they would prefer radiation or surgery if they became cancer patients themselves. Among the physicians who were informed that 10% would die from surgery, 50% said they would prefer radiation. Among those who were told that 90% would survive the surgery, only 16% chose radiation.

The evidence from the three examples shows that if a situation is framed from a negative viewpoint, people focus on that. On the other hand, if a problem is framed positively, the results are pretty different.

The indexed annuities fallacy

Larry Swedroe goes on to connect the concept of framing to investing, particularly in the context of indexed annuities. He explains how annuities are often presented with hidden costs and benefits, leading to misleading conclusions for investors.

According to Larry, indexed annuities are products that salesmen describe as providing “the best of both worlds”—the potential rewards of equity investing without the downside risks. Unfortunately, indexed annuities contain many negative features, making them an unfavorable investment option.

The SEC’s warning against indexed annuities

Larry points out that the typical indexed annuity is so intricate and filled with negative features that it is challenging for most investors to fully comprehend. He highlights a bulletin warning issued by the SEC in July 2020, urging people to be cautious about investing in indexed annuities, fostering a sense of careful consideration.

The bulletin advised investors to read the contract before buying an indexed annuity and, if the annuity is a security, to read the prospectus. Investors should understand how each feature works and what impact it and the other features may have on the annuity’s potential return. The SEC also suggested asking an insurance agent, broker, or other financial professional questions to understand how the annuity works.

The agency also reminded investors that indexed annuity contracts commonly allow the insurance company to periodically change some of these features, such as the rate cap. Such changes can affect your return. So, read your contract carefully to determine what changes the insurance company may make to your annuity.

So why do investors still love indexed annuities?

Despite the negatives, why do investors continue to be drawn to this product, purchasing tens of billions year after year? Larry offers a straightforward explanation. The insurance industry presents the investment decision in a way that directs investors’ attention to the potential for significant gains, the principal protection, and the guaranteed minimum return offered by annuities, instilling a sense of hope.

Further, all the products sold by the typical insurance company and Wall Street firms are laden with glitzy features. In each case, you’re paying an excessive fee to get that benefit, but they’re framing it, and you’re getting it without being told that the costs far exceed the mathematical odds of your getting it. This makes you lose sight of the costs and the lost upside potential. In other words, “you’ve been framed.”

Better alternatives to indexed annuities

Larry advises investors and financial advisors to frame problems in a way that allows for analysis from various perspectives. This is the best way to ensure investors consider all the pros and cons. He emphasizes that financial advisors can add value by understanding how human beings make mistakes and helping them avoid them, instilling a sense of responsibility.

He also discusses alternative ways to create a similar financial outcome to annuities, such as investing in Treasury Inflation-Protected Securities (TIPS).

Further reading

1. Jason Zweig, Your Money & Your Brain (Simon & Schuster 2007), pp. 134–5.

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform

• Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds
• Enrich Your Future 02: How Markets Set Prices
• Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers
• Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find?
• Enrich Your Future 05: Great Companies Do Not Make High-Return Investments
• Enrich Your Future 06: Market Efficiency and the Case of Pete Rose
• Enrich Your Future 07: The Value of Security Analysis
• Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return
• Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions

• Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t
• Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill
• Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play
• Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance
• Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon
• Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe
• Enrich Your Future 16: The Estimated Return Is Not Inevitable
• Enrich Your Future 17: Take a Portfolio Approach to Your Investments
• Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans
• Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe
• Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us

• Enrich Your Future 21: Think You Can Beat the Market? Think Again
• Enrich Your Future 22: Some Risks Are Not Worth Taking

About Larry Swedroe

Larry Swedroe was 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

• LinkedIn
• X
• Website
• Books

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:

• astotz.com
• LinkedIn
• Facebook
• Instagram
• Threads
• X
• YouTube
• My Worst Investment Ever Podcast

BIO: Mitch Russo is a serial entrepreneur who built and sold his first software company for eight figures, scaled a $25M business with Tony Robbins and Chet Holmes, and was twice nominated for Inc. Entrepreneur of the Year.

STORY: Mitch bought several Amazon stores to make passive income, which he did for a while. Unfortunately, the lucky streak ended after Amazon significantly reduced the commissions it paid to its resellers, and Google changed its algorithm. Now, Mitch’s SEO pages were not working, and nobody was finding them.

LEARNING: Never start a business without knowing who will buy the product. Try to sell your product/service before you build it.

 

“Please do not create a product until you understand exactly what the client needs. Try and sell it first before you build it.”Mitch Russo

 

Guest profile

Mitch Russo is a serial entrepreneur who built and sold his first software company for eight figures, scaled a $25M business with Tony Robbins and Chet Holmes, and was twice nominated for Inc. Entrepreneur of the Year. He’s the author of four books and the creator of ClientFol.io.

Worst investment ever

Mitch highlighted two particular investments that have left a lasting mark on his life as an investor.

The Amazon stores

A couple of years ago, Mitch embarked on an exhilarating journey to create recurring revenue by investing in businesses that required minimal participation. The Amazon stores, a hot trend at the time, became his focus. With significant investments, these stores flourished, and Mitch was able to generate a substantial monthly income of $18,000 to $20,000, almost passively.

Then the whole thing came crashing down. Two things happened simultaneously: Amazon significantly reduced the commissions it paid to its resellers, and Google changed its algorithm. Now, Mitch’s SEO pages were not working, and nobody was finding them.

The peer-to-peer accountability platform

Mitch created an earlier version of ClientFol.io called resultsbreakthrough.com, a peer-to-peer accountability platform. Mitch had to invent some technology to do it. At the time, the platform worked fantastic.

To succeed with the the peer-to-peer accountability platform, Mitch poured his heart and soul into it. He was deeply passionate about what he had created. However, the platform did not receive the response he had hoped for. Despite his belief in the platform’s potential, it remained unsold, a stark reminder that success is not guaranteed, no matter how brilliant the idea.

Lessons learned

• Never start a business without knowing who will buy the product first.
• Try to sell your product/service before you build it.
• It’s never over until you quit.
• Hire a coach to accelerate business growth and learn valuable lessons quickly.

Andrew’s takeaways

• Solving a problem is not enough; you must ensure your target customer can pay for the product. Is the pain valuable enough that they’ll pay high enough prices?

Actionable advice

• If you are smart and you can see what’s happening around you, you can make almost any mistake, recover from it, learn from it, and grow from it.

Mitch’s recommendations

Mitch recommends reading Crossing the Chasm, which beautifully encapsulates the power of focus.

No.1 goal for the next 12 months

Mitch’s number one goal for the next 12 months is to continue building recurring revenue through internet processes and funnels, a path he is deeply passionate about. Additionally, he is on the verge of publishing two fiction books, one of which he believes will be adapted into a movie. He is actively working to lay the groundwork for this promising future.

Parting words

 

“Keep on tracking.”Mitch Russo

 

[spp-transcript]

 

Connect with Mitch Russo

• LinkedIn
• X
• Facebook
• Instagram
• Website
• Podcast
• Books

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:

• astotz.com
• LinkedIn
• Facebook
• Instagram
• Threads
• X
• YouTube
• My Worst Investment Ever Podcast

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 22: Some Risks are Not Worth Taking.

LEARNING: Don’t put all your eggs in one basket; diversify your portfolio.

 

“Once you have enough to live a high-quality life and enjoy things, taking unwarranted risks becomes unnecessary.”Larry Swedroe

 

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. 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 Chapter 22: Some Risks are Not Worth Taking.

Chapter 22: Some Risks Are Not Worth Taking

In this chapter, Larry discusses the importance of investors knowing which risks are worth taking and which are not.

The $10 million bet that almost didn’t pay off

To kick off this episode, Larry shared a story of an executive who put his entire $10 million portfolio in one stock.

Around the late 1999 and early 2000s, Larry was a consultant to a registered investment advisor in Atlanta, and one of their clients was a very senior Intel executive. This executive’s net worth was about $13 million, and $10 million was an Intel stock. To Larry’s shock, the executive would not consider selling even a small%age of his stock to diversify his portfolio. He was confident that this stock was the best company despite acknowledging the risks of this concentrated strategy. It was, in fact, the NVIDIA of its day. It was trading at spectacular levels. The executive had watched it go up and up and up.

Learning from the past

Larry pointed out that there were similar situations not long ago, from the 60s, for example, when we had the Nifty 50 bubble, and, once great companies like Xerox, Polaroid Kodak, and many others disappeared, and these were among the leading stocks.

Like this executive, many had invested all their money in a single company and had seen their net worth suffer greatly when these companies crumbled.

This history serves as a powerful lesson, enlightening us about the risks of overconfidence and the importance of diversification.

The Intel stock comes tumbling down

Since he was a senior executive, he believed he would know if Intel was ever in trouble. Larry went ahead and told him some risks were not worth taking. He advised him to sell most of his stock and build a nice, safe, diversified portfolio, mostly even bonds.

The executive could withdraw half a million bucks a year from it pretty safely because interest rates were higher, and that was far more than he needed. Larry’s advice didn’t matter—he couldn’t convince him.

Within two and a half years, Intel’s stock was trading at about $10, falling about 75%. It was not until late in 2017 that it once again reached $40.

Some risks are just not worth taking

Over the period from March 2000 through September 2020, while an investment in Vanguard’s 500 Index Fund (VFINX) returned 6.4% per annum, Intel returned just 1.8% per annum. This stark contrast highlights the consequences of overconfidence and the importance of diversification, making it clear that some risks are simply not worth taking.

Overconfidence blurs out the risk

Larry advises against such overconfidence, stressing the importance of considering the consequences of being wrong. He points out that investing is about taking risks. However, prudent investors know some risks are worth taking, and some are not. And they know the difference.

Thus, Larry adds, when the cost of a negative outcome is greater than you can bear, you should not take the risk, no matter how great the odds appear to be of a favorable outcome. In other words, the consequences of your investment decisions should dominate the probabilities, no matter how favorable you think the odds are.

Marginal utility of wealth

Larry also discusses the marginal utility of wealth, explaining that once basic needs are met, additional wealth provides little extra value. He argues that taking unwarranted risks becomes unnecessary once you have enough to live comfortably.

Larry emphasizes the importance of considering both the ability to take risks and the potential consequences of being wrong. He explains that while youth provides a longer investment horizon, the cost of being wrong is higher when young. He recommends a balanced approach that includes some risk-taking and a stable investment plan, encouraging the audience to think carefully about their investment strategies.

Further reading

1. Laurence Gonzalez, Deep Survival (W. W. Norton & Company, October 2003).
2. Wall Street Journal, “Portrait of a Loss: Chicago Art Institute Learns Tough Lesson About Hedge Funds,” (February 1, 2002).

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform

• Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds
• Enrich Your Future 02: How Markets Set Prices
• Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers
• Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find?
• Enrich Your Future 05: Great Companies Do Not Make High-Return Investments
• Enrich Your Future 06: Market Efficiency and the Case of Pete Rose
• Enrich Your Future 07: The Value of Security Analysis
• Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return
• Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions

• Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t
• Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill
• Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play
• Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance
• Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon
• Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe
• Enrich Your Future 16: The Estimated Return Is Not Inevitable
• Enrich Your Future 17: Take a Portfolio Approach to Your Investments
• Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans
• Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe
• Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us

• Enrich Your Future 21: Think You Can Beat the Market? Think Again

About Larry Swedroe

Larry Swedroe was 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

• LinkedIn
• X
• Website
• Books

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:

• astotz.com
• LinkedIn
• Facebook
• Instagram
• Threads
• X
• YouTube
• My Worst Investment Ever Podcast