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 36: Fashions and Investment Folly.

LEARNING: Do not be swayed by herd mentality.

 

“Markets can remain irrational longer than you can remain solvent. So do not bet against bubbles, because they can get bigger and bigger, totally irrational eventually, like a rubber band that gets stretched too far, it snaps back, and all those fake gains that weren’t fundamentally based get erased and investors get wiped out.”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 36: Fashions and Investment Folly.

Chapter 36: Fashions and Investment Folly

In this chapter, Larry explains why investors allow themselves to be influenced by the herd mentality or the madness of crowds.

Perfectly rational people can be influenced by a herd mentality

When it comes to investing, otherwise perfectly rational people can be influenced by a herd mentality. The potential for significant financial rewards plays on the human emotions of greed and envy. In investing, as in fashion, fluctuations in attitudes often spread widely without any apparent logic.

Larry notes that one of the most remarkable statistics about the world of investing is that there are many more mutual funds than stocks, and there are also more hedge fund managers than stocks. There are also thousands of separate account managers. The question is: Why are there so many managers and so many funds?

Effects of recency bias

According to Larry, there are several explanations for the high number of managers and funds. The first is the all-too-human tendency to fall subject to “recency.” This is the tendency to give too much weight to recent experience while ignoring the lessons of long-term historical evidence. Larry says that investors subject to recency bias make the mistake of extrapolating the most recent past into the future, almost as if it is preordained that the recent trend will continue.

The result is that whenever a hot sector emerges, investors rush to jump on the bandwagon, and money flows into that sector. Inevitably, the fad (fashion) passes and ends badly. The bubble inevitably bursts.

Investment ads create demand where there is none

Another reason, Larry notes, is that the advertising machines of Wall Street’s investment firms are great at developing products to meet demand. The record indicates they are even great at creating demand where none should exist.

The internet became the greatest craze of all, and internet funds were designed to exploit the demand. Investors lost more fortunes in the craze. The latest fashions include cloud computing, electric vehicles, and artificial intelligence.

However, this trend, at least for mutual funds, has changed, and there are now fewer funds than there were at the height of the internet frenzy. This is a result of many poor performers being either merged out of existence (to erase their track record) or closed due to a lack of sufficient funds to keep them operational.

Inconsistent performance by active managers

Another reason for the proliferation of funds is that Wall Street machines recognize active managers’ track records as inconsistent (and often poor) performance. Thus, a family of funds may create several funds in the same category, hoping that at least one will be randomly hot at any given time.

How to beat herd mentality

To overcome herd mentality, Larry advises investors to craft a comprehensive investment plan that factors in their risk tolerance. By building a globally diversified portfolio and sticking to this plan, investors can navigate the market’s noise and emotional triggers, such as greed and envy during bull markets and fear and panic during bear markets.

He also adds that investors will benefit more from using passively managed funds to implement the plan; this is the only way to ensure they do not underperform the market. Minimizing this risk gives them the best chance to achieve their goals. If investors adopt the winner’s game of passive investing, they will no longer have to spend time searching for that hot fund. They can spend time on far more critical issues.

Further reading

1. Charles MacKay, Extraordinary Popular Delusions and the Madness
2. Quoted in Edward Chancellor, Devil Take the Hindmost, (Farrar, Straus and Giroux, 1999).

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
• Enrich Your Future 26: Should You Invest Now or Spread It Out?
• Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities
• Enrich Your Future 28 & 29: How to Outsmart Your Investing Biases
• Enrich Your Future 30: The Hidden Cost of Chasing Dividend Stocks
• Enrich Your Future 31: Risk vs. Uncertainty: The Investor’s Blind Spot

Part IV: Playing the Winner’s Game in Life and Investing

• Enrich Your Future 32: Trying to Beat the Market Is a Fool’s Errand
• Enrich Your Future 33: The Market Doesn’t Care How Smart You Are
• Enrich Your Future 34: Embrace the Bear: Why Market Crashes Are Your Silent Ally
• Enrich Your Future 35: Market Gurus Are Just Expensive Entertainers

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

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 35: Mad Money.

LEARNING: Investors are naive, and Cramer is an entertainer, not a financial advisor who adds value.

 

“Do not confuse information with value-added information. If you know something because it was in the newspaper, everyone else knows it as well. So it has no value.”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 35: Mad Money.

Chapter 35: Mad Money

In this chapter, Larry explains why investment advice from so-called market experts is often worthless.

The infamous Jim Cramer

Jim Cramer, a former hedge fund manager, has become one of the most recognizable faces in the investment world. He dispenses rapid-fire investment advice on the show “Mad Money.” Since it premiered in March 2005, it has been one of CNBC’s most-watched shows. But has his advice been as successful for the investors who follow it? Larry shares a couple of research studies that answer this question.

It pays more to invest in an S&P than in Cramer’s fund

Cramer manages a portfolio that invests in many of the stock recommendations he makes on TV. Established in August 2001 with approximately $3 million, the Action Alerts PLUS (AAP) portfolio has been the centerpiece of Cramer’s media company, TheStreet, which sells his financial advice, giving subscribers in the millions access to each trade the portfolio makes ahead of time. Jonathan Hartley and Matthew Olson, authors of the 2018 study “Jim Cramer’s Mad Money Charitable Trust Performance and Factor Attribution,” examined the AAP portfolio’s historical performance. Their study covered the period from August 1, 2001, the AAP portfolio’s inception, through December 31, 2017. The study found that the fund returned a total of 97%. During that same period, an investment in the S&P would have returned 204%.

No real stock-picking skill, just entertainment

In another study, “How Mad Is Mad Money?”, Paul Bolster, Emery Trahan, and Anand Venkateswaran examined Cramer’s buy and sell recommendations for the period from July 28, 2005, through December 31, 2008. They also constructed a portfolio of his recommendations and compared it to a market index. The researchers came to three key conclusions:

• Investors were paying attention, as the stocks he recommended had abnormal returns of almost 2% on the day following his recommendations.
• The returns for the recommended stocks were both positive and significant for the day of the show and the 30 days preceding the show. So, it seems he was recommending stocks with short-term momentum.
• The returns were negative and significant, at -0.33% and -2.1%, for days 2 through 5 and days 2 through 30 following the recommendation. After 30 days, the results are insignificant.

There is no evidence of any stock-picking skill—Cramer’s picks are neither good nor bad. In the end, it’s just entertainment.

A third study, “Is the Market Mad? Evidence from Mad Money,” conducted in 2005, found the same result as the second study: prices rise overnight, and they are quickly corrected. This means that Cramer added negative value for the people who tried to implement his advice because they drove the price up in their buying frenzy. Then the smart money comes in, and the price reverts to basically where it was before he made the recommendation.

Do stock market experts reliably provide stock market timing guidance?

In a fourth study, CXO Advisory Group set out to determine if stock market experts, whether self-proclaimed or endorsed by others (such as in the financial media), reliably provide stock market timing guidance.

To find the answer, from 2005 through 2012, they collected and investigated 6,584 forecasts for the US stock market offered publicly by 68 experts (including Cramer), employing technical, fundamental, and sentiment indicators. Their collection included forecasts, all of which were publicly available on the internet, dating back to the end of 1998. They selected experts, both bulls and bears, based on web searches for public archives that contained enough forecasts spanning various market conditions to gauge their accuracy. Basically, they found there are no real experts.

The distribution of their accuracy looks virtually identical to a bell curve but slightly to the left, meaning, on average, they do worse. The average accuracy was 47%, which happened to be the same score as Cramer’s. So, of all the non-expert experts, Cramer was average at being non-expert.

The market is highly efficient for any guru

According to Larry, all these studies indicate that investors are naive, Cramer is an entertainer, not a financial advisor, who adds value, and that the market is highly efficient, making it very hard to beat it.

They also show that being highly intelligent (and entertaining, in Cramer’s case) is not a sufficient condition to outperform the market. The reason is simple. There are many other highly intelligent money managers whose price discovery actions work to keep the market highly efficient (meaning market prices are the best estimate we have of the right price). That makes it unlikely any active money manager will outperform on a risk-adjusted basis.

The research shows that gurus’ only value is to make weathermen look good, whether it involves predicting economic growth, interest rates, currencies, or the stock market, or even picking individual stocks.

Ignore the prognosticators

Larry concludes that while Cramer might provide entertainment, those following his recommendations are like lambs being led to slaughter by more sophisticated institutional investors. He urges investors to keep this in mind the next time they find themselves paying attention to some guru’s latest forecast. You’re best served by ignoring it, he says.

The prudent strategy, Larry adds, is to develop a well-thought-out plan and to have the discipline to adhere to it, ignoring the market noise, whether it comes from Jim Cramer or any other prognosticator.

Further reading

1. Michael Learmonth, “Ratings Flood for Fox, CNN,” Variety, September 27, 2005.
2. Jonathan Hartley and Matthew Olson, “Jim Cramer’s Mad Money Charitable Trust Performance and Factor Attribution,” The Journal of Retirement (Summer 2018).
3. Paul Bolster, Emery Trahan and Anand Venkateswaran, “How Mad Is Mad Money?”The Journal of Investing (Summer 2012).
4. Joseph Engelberg, Caroline Sasseville and Jared Williams, “Is the Market Mad? Evidence from Mad Money,” March 22, 2006.
5. Bill Alpert, “Shorting Cramer,” Barron’s (August 20, 2007).
6. Jim Cramer, “Cramer vs. Cramer,” New York, May 25, 2007.
7. CXO Advisory Group, “Guru Grades,” www.cxoadvisory.com/gurus.

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
• Enrich Your Future 26: Should You Invest Now or Spread It Out?
• Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities
• Enrich Your Future 28 & 29: How to Outsmart Your Investing Biases
• Enrich Your Future 30: The Hidden Cost of Chasing Dividend Stocks
• Enrich Your Future 31: Risk vs. Uncertainty: The Investor’s Blind Spot

Part IV: Playing the Winner’s Game in Life and Investing

• Enrich Your Future 32: Trying to Beat the Market Is a Fool’s Errand
• Enrich Your Future 33: The Market Doesn’t Care How Smart You Are
• Enrich Your Future 34: Embrace the Bear: Why Market Crashes Are Your Silent Ally

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...

BIO: Mike Koenigs is a serial entrepreneur with five successful exits, a 19-time bestselling author, and a top strategist for founders post-exit.

STORY: Mike invested big in a SaaS startup set up for success, but infighting brought it to its knees.

LEARNING: Character is bigger than charisma.

 

“If you’re a shareholder, your best exit is for a big company to come and buy what they believe is money at a discount.”Mike Koenigs

 

Guest profile

Mike Koenigs is a serial entrepreneur with five successful exits, a 19-time bestselling author, and a top strategist for founders post-exit. He helps build powerful personal brands in just one week and pioneers Generative AI for executives, speaking at elite events like Abundance 360, MIT, and Tony Robbins’ gatherings.

Worst investment ever

Mike learned about a SaaS startup from a client with whom he had spent time and had gotten to know, like, and trust him. So, when the client introduced Mike to this deal, he got interested.

The startup looked great, so he invested a substantial amount of money and then doubled down because it got even better.

Off to a promising start

The basic premise was that it was a pool. The founders would find SaaS companies with customers, momentum, technology, and a bit of a moat. They had much experience and success, such as a 10x dividend to investors in three years.

Infighting paralyzes everything

Unfortunately, the two founders started fighting. One of them locked the other one out of everything. They had the majority and equal shareholding, making infighting even worse. The remaining partner started emptying the coffers.

Someone doing the books became a whistleblower and revealed the shenanigans going on. The partner was siphoning off money, building a house, going on big trips, using private jets everywhere, etc. It got uglier and uglier, causing the shareholders to file lawsuits, and the FTC got involved. Years have gone by, and things are still shut down.

Lessons learned

• Time kills deals.
• Character is bigger than charisma. Crooked founders will gut you faster than any market downturn.
• Put all that money into index funds and let it compound.

Andrew’s takeaways

• The only way to invest as an angel investor is to invest in 10 startups. Don’t do it if you are not prepared with the money and time to do that.

Actionable advice

Unless you’re a full-time VC with deal flow, customer channels, or an exit mapped out, keep your money in things you can control. If you’re a shareholder, your best exit is for a big company to come and buy what they believe is money at a discount.

Mike’s recommendations

Mike recommends learning to build a brand that will elevate everything you touch for the rest of your life. He suggests reading his book, Your Next Act: The Six Growth Accelerators for Creating a Business You’ll Love for the Rest of Your Life, to help you build your brand. He also recommends immersing yourself in AI and learning how to use it effectively.

No.1 goal for the next 12 months

Mike’s number one goal for the next 12 months is to become an international citizen. He wants to continue living his beautiful life in multiple locations and working with more entrepreneurs worldwide.

Parting words

 

“Go out and build your brand. You will get access to better deals faster at a discounted price.”Mike Koenigs

 

[spp-transcript]

 

Connect with Mike Koenigs

• LinkedIn
• Facebook
• Instagram
• Podcast
• 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

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 34: Bear Markets: A Necessary Evil.

LEARNING: Investors must view bear markets as necessary evils.

 

“If stocks didn’t experience the kind of bear markets that we have, investors would be very unhappy.”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 34: Bear Markets: A Necessary Evil.

Chapter 34: Bear Markets: A Necessary Evil

In this chapter, Larry explains why investors must view bear markets as necessary evils. He says that if stocks didn’t experience the kind of bear markets that we have, investors would be very unhappy.

Larry further explains that the most basic finance principle is the relationship between risk and expected, but not guaranteed, return. So, the higher the risk, the higher the expected return, which means that if the risk is high, investors will apply a bigger risk premium, which will lead to the denominator in the formula of the Net Present Value. The numerator is the expected earnings. The denominator is the risk-free rate plus the risk premium.

The higher the risk, the higher the premiums

Larry highlights historical bear markets, noting the U.S. has experienced losses exceeding 34% during the COVID crisis and 51% from 2007 to 2009. He argues that these losses are essential for investors to demand higher risk premiums. The very fact that investors have experienced such significant losses leads them to price stocks with a large risk premium.

From 1926 through 2022, the S&P provided an annual risk premium over one-month Treasury bills of 8.2% and an annualized premium of 6.9%. If the losses that investors experienced had been smaller, the risk premium would also have been smaller. And the smaller the losses experienced, the smaller the premium would have been.

In other words, the less risk investors perceive, the higher the price they are willing to pay for stocks. And the higher the market’s price-to-earnings ratio, the lower the future returns.

Staying the course during underperformance

The bottom line, Larry says, is that bear markets are necessary for the creation of the large equity risk premium we have experienced. Thus, if investors want stocks to provide high expected returns, bear markets (while painful to endure) should be considered a necessary evil.

However, Larry notes that it is during the periods of underperformance that investor discipline is tested. Unfortunately, the evidence suggests that most investors significantly underperform the stock market and the mutual funds they invest in. The underperformance is because investors act like generals fighting the last war.

Subject to recency bias (the tendency to overweight recent events/trends and ignore long-term evidence), they observe yesterday’s winners and jump on the bandwagon—buying high—and they observe yesterday’s losers and abandon ship—selling low. It is almost as if investors believe they can buy yesterday’s returns when they can only buy tomorrow’s.

Keys to successful investing

Larry shares three keys to successful investing to ensure you get the most from your investments even during bear markets.

The first key is to have a well-thought-out plan that includes understanding the nature of the risks of investing. That means accepting that bear markets are inevitable and must be built into the plan.

This understanding will help you feel prepared and less anxious when bear markets occur. It also means having the discipline to stay the course when it is most difficult (partly because the media will be filled with stories of economic doom and gloom).

What is particularly difficult is that staying the course does not just mean buying and holding. Adhering to a plan requires that investors rebalance their portfolio, maintaining their desired asset allocation. That means that investors must buy stocks during bear markets and sell them in bull markets.

The second key to successful investing, Larry suggests, is to avoid taking more risk than you have the ability, willingness, and need to take. By steering clear of excessive risk, investors are more likely to stay the course and avoid the common buy high/sell low pattern that most investors fall into.

The last key is to understand that trying to time the market is a loser’s game—one that is possible to win but not prudent to try because the odds of doing so are so poor.

Further reading

1. 1996 Annual Report of Berkshire Hathaway.
2. 1992 Annual Report of Berkshire Hathaway.
3. 1991 Annual Report of Berkshire Hathaway.
4. 2006 Annual Report of Berkshire Hathaway.
5. 2004 Annual Report of Berkshire Hathaway.

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
• Enrich Your Future 26: Should You Invest Now or Spread It Out?
• Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities
• Enrich Your Future 28 & 29: How to Outsmart Your Investing Biases
• Enrich Your Future 30: The Hidden Cost of Chasing Dividend Stocks
• Enrich Your Future 31: Risk vs. Uncertainty: The Investor’s Blind Spot

Part IV: Playing the Winner’s Game in Life and Investing

• Enrich Your Future 32: Trying to Beat the Market Is a Fool’s Errand
• Enrich Your Future 33: The Market Doesn’t Care How Smart You Are

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
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• YouTube
• My Worst Investment Ever Podcast

BIO: Jeff Sarti, CEO of Morton Wealth, leads a firm managing over $3 billion in assets. With a mission to empower better investors, Jeff helps clients achieve their financial goals while supporting employees in their career growth.

STORY: Jeff bought a few dot-com companies, thinking it was smart and safe because he bought the big brands. All of the companies dropped 90%+.

LEARNING: Don’t let greed, FOMO, and a lack of imagination drive you to a bad investment.

 

“Don’t take shortcuts. If you do, at least know that you’re gambling and speculating. That’s different from investing.”Jeff Sarti

 

Guest profile

Jeff Sarti, CEO of Morton Wealth, leads a firm managing over $3 billion in assets. With a mission to empower better investors, Jeff helps clients achieve their financial goals while supporting employees in their career growth. A CFA charterholder, Jeff shares his insights through his Perspective newsletter. His expertise emphasizes challenging the status quo and fostering long-term, resilient investment strategies.

Worst investment ever

In the late 90s, during the dot-com boom, Jeff had just started making a bit of money. He bought a few dot-com companies, thinking it was smart and safe because he bought the big brands. All of the companies dropped 90%+ after a while.

Lessons learned

• Don’t let greed, FOMO, and a lack of imagination drive you to a bad investment.
• Always do your research.

Andrew’s takeaways

• When prices get untethered from earnings growth, our expectation of the future is what matters.

Actionable advice

The only way you can learn is by doing and making mistakes. But before you start doing, do the research, understand the underlying risk factors of your investments, and don’t take shortcuts.

If you do, at least know you’re speculating and not investing. Keep that speculative piece of your portfolio small. It’s always a good idea to balance speculative investments with more traditional, long-term investment strategies for a more secure financial future.

Jeff’s recommendations

Jeff recommends checking out resources on his website, such as his investment guides and market analysis, and signing up for his quarterly newsletter if you want financial education.

He also recommends reading Thinking Fast and Slow by Daniel Kahneman and books by Morgan Housel to understand how emotions drive investment decisions.

No.1 goal for the next 12 months

Jeff’s number one goal for the next 12 months is to continue traveling the country with his investment team, uncovering some new niche opportunities.

Parting words

 

“I really enjoyed the conversation. It was a lot of fun.”Jeff Sarti

 

[spp-transcript]

 

Connect with Jeff Sarti

• LinkedIn
• Blog

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 33: An Investor’s Worst Enemy.

LEARNING: You are your own worst enemy when it comes to investing.

 

“The right strategy is to avoid the loser’s game. Don’t try to pick individual stocks or time the market, just invest in a disciplined way, and you will win by getting the market’s return.”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 33: An Investor’s Worst Enemy.

Chapter 33: An Investor’s Worst Enemy

In this chapter, Larry demonstrates why investors are their own worst enemies. He observes that many people think the key to investing is identifying the stocks that will outperform the market and avoiding the ones that will underperform.

Yet the vast body of evidence says that’s playing the losers’ game. He adds that most professionals with advanced degrees in finance and mathematics, with access to the best databases and huge advantages over individuals, often think they’re smart enough to beat the market.

They do so by attempting to uncover individual securities they believe the rest of the market has somehow mispriced (the price is too high or too low). They also try to time their investment decisions to buy when the market is “undervalued” and sell when it is “overvalued.”

However, evidence shows that 98% of them fail to outperform in any statistically significant way on a risk-adjusted basis, even before taxes. As historian and author Peter Bernstein puts it: “The essence of investment theory is that being smart is not a sufficient condition for being rich.”

Why do people keep playing the loser’s game?

In the face of such overwhelming evidence, the puzzling question is why people keep trying to play a game they are likely to lose. From Larry’s perspective, there are four explanations:

1. Because our education system has failed investors and Wall Street, and most financial media want to conceal the evidence, people are unaware of it.
2. While the evidence suggests that playing the game of active management is the triumph of hope over wisdom and experience, hope does spring eternal—after all, a small minority succeed.
3. Active management is exciting, while passive management is boring.
4. Investors are overconfident—a normal human condition, not limited to investing. While each investor might admit that it’s hard to beat the market, each believes he will be one of the few who succeed.

So, what is the right strategy?

In light of the evidence presented, Larry’s advice is clear: avoid the losers’ game. Instead of trying to pick individual stocks or time the market, he advocates for a disciplined approach to investing. Investors can win by staying the course through bear markets by simply getting the market’s returns. This, he argues, is the right strategy for successful investing.

Suppose you choose to play the game of active investing. In that case, Larry warns, the only ones likely to benefit are your financial advisor, broker-dealer, the manager of the actively managed fund, and the publisher of the newsletter or ratings service you subscribe to. The odds are overwhelmingly against individual investors in this game, making it a futile endeavor.

Further reading

1. Jonathan Fuerbringer, “Investing It,” New York Times, March 30, 1997.
2. Robert McGough, “The Secret (Active) Dreams of an Indexer,” Wall Street Journal, February 25, 1997.
3. Peter Bernstein, The Portable MBA in Investment (Wiley, 1995).
4. Jonathan Clements, 25 Myths You’ve Got to Avoid (Simon & Schuster, 1998).
5. James H. Smalhout, “Too Close to Your Money?” Bloomberg Personal (November 1997).
6. Gary Belsky and Thomas Gilovich, Why Smart People Make Big Money Mistakes (Simon & Schuster, 1999).
7. Peter L. Bernstein and Aswath Damodaran (editors), Investment Management (Wiley, 1998).
8. Ron Ross, The Unbeatable Market (Optimum Press, 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
• 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
• Enrich Your Future 26: Should You Invest Now or Spread It Out?
• Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities
• Enrich Your Future 28 & 29: How to Outsmart Your Investing Biases
• Enrich Your Future 30: The Hidden Cost of Chasing Dividend Stocks
• Enrich Your Future 31: Risk vs. Uncertainty: The Investor’s Blind Spot

Part IV: Playing the Winner’s Game in Life and Investing

• Enrich Your Future 32: Trying to Beat the Market Is a Fool’s Errand

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

A retailer in Bangkok was staring down a cash crunch after COVID. He was ready to sign for a loan, convinced it was his only option.

Instead, we dug into his numbers and found $30,000 in unsold inventory gathering dust and $8,000 in overpayments to suppliers. That cash was enough to stabilize his business; no debt was needed. The money was there; he just couldn’t see it.

Download The Profit Gap for free at TheProfitBootCamp.com to see 5 hidden reasons family businesses work hard but still fall short of profit.

Find hidden profit before you borrow

When cash flow gets tight, panic sets in. Your mind races, layoffs, loans, maybe even shutting down. But fear isn’t a strategy. The truth is, your business is probably sitting on hidden profit, even in tough times. You just need to find it.

Start with a zero-based budget. That means you begin each budget line at zero, not last year’s number, and build it up based on what’s actually needed. Each team member justifies every expense from scratch. No assumptions. No carryovers. Just what drives results. Look at your expenses, inventory, and contracts. What’s wasting money?

Maybe it’s unused subscriptions, overstocked supplies, or a vendor charging too much. One client found $500 a month in duplicate software licenses. Canceling them took one email and saved $6,000 a year.

Cut smart, not deep

Don’t just cut costs mindlessly; focus on waste, not muscle. Keep what drives value, like your best staff or marketing, that works. I’ve seen owners slash their top salespeople in a panic, only to tank revenue. Instead, realign spending to what moves profit.

For example, shift the budget from low-margin products to high-margin ones. One business I worked with dropped a product line that was barely breaking even. That freed up $20,000 for ads, bringing in $100,000 in new sales.

Small wins create momentum. Even saving $1,000 can shift your mindset from panic to possibility. Try this: call your top five vendors this week. Ask for a 10% discount or better payment terms. Most will say no, but some will say yes to keep your business.

A client of mine negotiated $5,000 off his annual shipping costs in one 15-minute call. That’s cash you can use to grow, not just survive.

Discipline is your secret weapon

Discipline beats loans every time. Borrowing might feel like a lifeline, but it’s a weight around your neck if you don’t fix the root problems. A logistics firm I worked with was desperate for a loan. Instead, we audited their spending and found $8,600 in waste, unused equipment leases, and overpaid utilities. That cash funded a marketing push that brought in new clients without debt. They weren’t out of options; they just needed clarity.

Here’s one last story. That same logistics firm thought they were done. But that $8,600 audit changed everything. They used the savings to relaunch ads, landing three new contracts monthly. The owner told me, “I thought we were stuck. Turns out, we just needed to look closer.” What’s hiding in your business?

You’ve now faced the five hard truths holding your business back. You know no one’s coming to save you, that delay kills profit, that family dynamics can trap you, that leadership drives results, and that you have options even in a cash crunch. Now, it’s time to act. Pick one step this week, cut an expense, fix a meeting, check your P&L, and do it. Your business depends on you.

Actions from prior episodes

• Cut one cost: Block 30 minutes, review P&L, and cut one expense. Just one. Lead by example.
• Find one drain: Review finances weekly, searching for one hidden loss. Act now.
• Align the family: Hold a monthly, one-hour family meeting. Ask: “What will drive next month’s profit?” Prioritize profit over family tension.
• Lead the team: Run focused weekly meetings with a clear agenda and one action item. Drive results.

The next action

• Zero-based budgeting: Justify all expenses to free cash for growth.

Download The Profit Gap for free at TheProfitBootCamp.com to see 5 hidden reasons family businesses work hard but still fall short of profit.

 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: Oeystein Kalleklev is the outgoing CEO of Flex LNG and Avance Gas. He has prior experience as CFO of Knutsen NYK Offshore Tankers and Umoe Group and Chairman General Partner of MLP KNOT Offshore Partners.

STORY: Oeystein has been part of some terrible investments made by his employers. One invested $150 million to become the biggest shareholder of a mine in Guinea, which was lost due to a bad regime. During the great financial crisis, another invested $300 million into a bioethanol plant in Brazil.

LEARNING: In a dynamic industry like shipping, you must think more about adapting and being tactical rather than strategic.

 

“You have to be really disciplined when you are in a cyclical industry. Observe where the market is going, and learn how to adapt.”Oeystein Kalleklev

 

Guest profile

Oeystein Kalleklev is the outgoing CEO of Flex LNG (NYSE/OSE: FLNG) and Avance Gas (OSE: AGAS). He has prior experience as CFO of Knutsen NYK Offshore Tankers and Umoe Group, as well as Chairman General Partner of MLP KNOT Offshore Partners (NYSE: KNOP).

Worst investment ever

Oeystein has been part of some terrible investments. In one case, a family Oeystein worked for had invested about $150 million to become the biggest shareholder of a mine in Guinea. The country was under an unstable regime, and the leader was assassinated. There were also so many operational hiccups operationally. That $150 million turned out to be like $3 million when they sold their last share.

He has also been involved in bioethanol production in Brazil, where a company he worked for invested about $300 million into a bioethanol plant in Brazil during the great financial crisis. The bosses had to restructure the whole company, and Oeystein had to go to the US to talk to bondholders, trying to get them to choose whether to become shareholders or take a big hit on the bond loans.

In another case, Oeystein was involved in a nickel mine in the Philippines where the company he was working for was building a floating production ship for oil. The budget was $280 million, but the company spent $500 million on that building project, and it also took one and a half extra years to complete.

Lessons learned

• When you have such a dynamic industry as shipping, you must think more about adapting and being tactical rather than strategic.
• Focus on running your ships efficiently—it’s a critical success factor.
• Shipping is a lot about market timing. Read the market, know where it is going, when you should exit, and when you should invest.
• You have to be knowledgeable about technology because technology changes quite often in shipping.
• Be smart about running a shipping company. Do it lean and follow the technology.

Andrew’s takeaways

• It’s hard to set a long-term strategy in an industry such as shipping because you’ve got to adapt to what’s happening in the market.
• You have to run ships efficiently, or else you will miss the core aspect of your business.

Actionable advice

If you want to venture into the shipping industry, you must properly understand shipping because it’s not as straightforward as people think. It’s not just about moving goods from A to B.

No.1 goal for the next 12 months

Oeystein’s number one goal for the next 12 months is to read more books to be on top of contemporary issues and be a successful shipping investor.

Parting words

 

“Thank you for inviting me. I will be listening to a few more episodes.”Oeystein Kalleklev

 

[spp-transcript]

 

Connect with Oeystein Kalleklev

• LinkedIn
• X

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

I once sat down with a furious business owner. “My team’s useless,” he said. “They never deliver.” I asked him two simple questions: “Who hired them? Who sets their goals?”

He went quiet. He admitted he hadn’t run a proper meeting in months, and his priorities changed weekly. His team wasn’t failing; they were confused.

Once he got clear and consistent, everything shifted. Execution improved, morale spiked, and profit followed. The problem wasn’t his team; it was his leadership.

Download The Profit Gap for free at TheProfitBootCamp.com to see 5 hidden reasons family businesses work hard but still fall short of profit.

It starts with you

When the same issues keep popping up: missed deadlines, low margins, and sloppy execution, it’s easy to blame your team or the market. But nine times out of ten, those problems point to your systems, not your people. If your business feels stuck in a loop, you haven’t built the structure to break free. Leadership isn’t about charisma or barking orders. It’s about clarity and follow-through.

Start by auditing yourself. Are your priorities clear to your team? Do you track progress, or just hope things get done?

I’ve seen owners delegate tasks and then forget about them, leaving their teams guessing. That’s not leadership. That’s abdication. One client delegated a pricing review but never checked in. Six months later, nothing had changed, and they’d lost $50,000 in potential profit. Set clear goals, assign owners, and follow up. It’s not sexy, but it works.

Fix your meetings, fix your profit

Here’s a game-changer: fix your meetings. Most business meetings are a mess, with endless venting or no focus. Better meetings lead to better profit. Try this: run one weekly meeting with a tight agenda. Pick one metric, like cash flow, gross margin, or overdue invoices, and identify three actions to move them.

One client’s meetings were just complaint sessions. We set a new rule: every meeting ends with three clear next steps. Four weeks later, the execution was sharper, and he told me, “We didn’t need more staff, just a real plan.” Focused action works.

Build momentum with better habits

You don’t need a new team, just better habits. Your people are probably capable, but they need direction. A weekly rhythm, like Monday priorities, Wednesday short check-ins, and Friday results, builds momentum fast. It’s not about working harder; it’s about working smarter. And start writing down what works. That’s your playbook for scaling.

One owner I know documented his best sales process. It took an hour, but it cut training time for new hires and boosted close rates by 10%. That’s leadership in action.

You’re leading with clarity now, but what if cash is still tight? In our final episode, we’ll tackle how to turn things around when money’s low and pressure’s high. Don’t miss it.

Actions from prior episodes

• Cut one cost: Block 30 minutes, review P&L, and cut one expense. Just one. Lead by example.
• Find one drain: Review finances weekly, searching for one hidden loss. Act now.
• Align the family: Hold a monthly, one-hour family meeting. Ask: “What will drive next month’s profit?” Prioritize profit over family tension.

The next action

• Lead the team: Run focused weekly meetings with a clear agenda and one action item. Drive results.

Download The Profit Gap for free at TheProfitBootCamp.com to see 5 hidden reasons family businesses work hard but still fall short of profit.

 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 32: The Twenty-Dollar Bill.

LEARNING: Trade as if the markets are efficient, even though they are not.

 

“If the markets were perfectly efficient, then no one would discover anything about a mispriced stock. There would be no abnormal behaviors or biases, such as investors preferring to buy lottery stocks; therefore, there would be no incentive for investors to conduct any research. This would make the market inefficient.”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 32: The Twenty-Dollar Bill.

Chapter 32: The Uncertainty of Investing

In this chapter, Larry explains the efficient markets hypothesis (EMH) and why successful trading strategies often self-destruct due to their inherent limitations.

According to Larry, one of the fundamental tenets of the EMH is that in a competitive financial environment, successful trading strategies self-destruct because they are self-limiting—when they are discovered, they are eliminated by exploiting the strategy.

He shares the example of Andrew Lo’s adaptive markets hypothesis, which acknowledges that while the EMH may not necessarily hold in the short term, it does predict that inefficiencies will self-correct over time as arbitrageurs exploit them after publication. This understanding leads us to the inevitable conclusion that financial markets trend toward efficiency in the long run.

Efficient markets rapidly eliminate opportunities for abnormal profits

To demonstrate how the efficiency of markets rapidly eliminates opportunities for abnormal profits, Larry shares the following example:

Imagine that an investor discovers that small-cap stocks have historically outperformed the market in January. To take advantage of this anomaly, that investor would have to buy small-cap stocks at the end of December, before the period of outperformance. After achieving some success with this strategy, other investors would take note—with the large dollars at stake, Wall Street is quick to copy successful strategies. An academic paper might even be published. Since the effect is now known to more than just the original discoverer of the anomaly, one would have to buy before others do to generate abnormal profits. Now, prices start to rise in November. But the next group of investors, recognizing this was going to happen, would have to buy even earlier.

As you can see, the very act of exploiting an anomaly has the effect of making it disappear, making the market more efficient. This underscores the significant role investors play in shaping market efficiency.

Behave as if equity markets are perfectly efficient

Larry surmises that while equity markets may not be perfectly efficient, the winning investment strategy is to behave as if they were. This reaffirms the importance of the EMH in guiding investment strategy, providing investors with a sound approach to market participation.

In conclusion, Larry advises investors to consider carefully these words from Richard Roll, financial economist and principal of the portfolio management firm Roll and Ross Asset Management:

 

“I have personally tried to invest money, my clients’ and my own, in every single anomaly and predictive result that academics have dreamed up. And I have yet to make a nickel on any of these supposed market inefficiencies. An inefficiency ought to be an exploitable opportunity. If there is nothing investors can systematically exploit, time and time again, then it’s tough to say that information is not being properly incorporated into stock prices. Real money investment strategies don’t produce the results that academic papers say they should.”

 

Further reading

1. Andrew Lo, “The Adoptive Markets Hypothesis,” The Journal of Portfolio Management (30th Anniversary Edition, 2004).
2. Dwight Lee and James Verbrugge, “The Efficient Market Theory Thrives on Criticism,” Journal of Applied Corporate Finance (Spring 1996).
3. Burton G. Malkiel, “Are Markets Efficient? Yes, Even If They Make Errors,” Wall Street Journal, December 28, 2000.

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
• Enrich Your Future 26: Should You Invest Now or Spread It Out?
• Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities
• Enrich Your Future 28 & 29: How to Outsmart Your Investing Biases
• Enrich Your Future 30: The Hidden Cost of Chasing Dividend Stocks
• Enrich Your Future 31: Risk vs. Uncertainty: The Investor’s Blind Spot

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.

 

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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