Best of the Week – 10/15/20

New weekly post summarizing the best podcasts I enjoyed over the prior few days. Hopefully some good content or a way for everyone to find something new. I will try to keep it to the best 3 for each week that I have enjoyed.


The Knowledge Project – Chamath Palihapitiya talks through finding happiness is what you do in live and trying to find meaning.


How I Built This with Guy Raz – This is a replay but it was great relistening to how the method cleaning company started.


Pivot – Kara and Scott talk through a potential spin off of Google Chrome. Also, the interview with Fareed Zakaria is excellent.


Short and sweet for this week. More to come next week!

Look Down, Not Up


How do we evaluate our investments to understand how we are doing? For most, we compete with a stock market index, our friends, or maybe some publication we follow. But how do we know if we are doing well? Or, more importantly, what should we be aiming at when it comes to our investment returns?

Why we are all investing in the first place and what people believe they are investing for are two totally different things. For most people, investing has now become gambling. We seek high returns, we seek multiples of our money returned to us, and we assume the time it takes to grow our wealth we grow shorter and shorter.

So where should we be focusing our attention when it comes to our investments….? The answer is inflation.


Source: Getty Images

Inflation is a relatively simple concept. In a nutshell, price out a basket of goods (food, coffee, housing, furniture, etc.), then reprice it year over year. To put that in a visual context, check out this chart from Investopedia.


A coffee was a $0.25 in 1970 and probably closer to $4.00 in 2020. As of this morning, Starbucks charged me $4.54 for a large cold brew. So yes, cost do rise over time.

Now with inflation, there is a lot going on under the hood. Everything from changing market dynamics, consumer tastes and preferences, and how the world evolves. But pricing out this basket of goods give us an idea or projection of how much money we may need in the future.

The money you have in your pocket today might not cover the cost of coffee a few years down the road. So instead, we invest our money for the future to allow it to grow and keep up with inflation.


Now, here is where our investments tie in. Keeping up with inflation is the bare minimum we should aim for with our investment returns. Allowing us to keep up with rising costs, is what we want our money to do.

The issue most investors face is not picking which stocks, bonds, or some alternative to grow their wealth but instead the inability to take any some action. I see clients every week who are piling money into savings and checking accounts with the mindset they are “saving for the future”.

Cash pays virtually nothing and hoping your savings account keeps up with inflation is a fool’s errand. See online savings rates as of this month.

Source: BankRate.com

So here is where the idea of “look down, not up” comes into play. While most investors keep striving for a higher and higher investment return, we continue to move away from what we are really aiming for. We aim our sights on a more volatile benchmark or a higher risk tolerance with the goal of more returns!

Why am I not outperforming the S&P 500?

This quote is bounced off the walls in my office over and over again. Most of the time due to sheer confusion as to who we are actually competing with. Our entire portfolio does not need to outperform everyone and every benchmark, instead, it just has to outpace rising costs over your lifetime.

The chart above shows who your enemy actually is. Hint hint…its inflation (the blue line).

Our goal is not to chase the S&P 500 or outperform every small cap portfolio. Instead, our goal is to put as much space between the inflation and our portfolio to reduce the time we have to work, or whatever goal we are working on easier to achieve.

Time is on our side when it comes to winning this battle. But the more time spent pacing with inflation, the less time we have to outpace inflation.

The more time you can compound your investments, the more you put inflation in its place!

For disclosure information please visit: https://hindsightbiased.com/disclosures/

Best of the Week – 10/8/20

New weekly post summarizing the best podcasts I enjoyed over the prior few days. Hopefully some good content or a way for everyone to find something new. I will try to keep it to the best 3 for each week that I have enjoyed.


The Time Ferris Show – Steve Rinella & Tim Ferris talking about the economics of Hunting. I knew absolutely nothing about the economics of hunting, fish and wildlife, and the conservation efforts across the US.


Infinite Loops Podcast – Brent Beshore talks small business during COVID. Succession planning and how business valuations were impacted during this pandemic.


Masters in Business – Interview with Dave Portnoy of Barstool Sports. This is an investment focused approach to hear Dave’s investment philosophy and company evolution.


Short and sweet for this week. More to come next week!

How Much is Enough?

I recently started rereading the book Flow by Mihaly Csikszentmihalyi. The book stems around the idea of how to find happiness in life. In the first section of the book, you can find this amazing quote that really resonates with the world today. (sorry it’s long)


But as soon as these basic problems of survival are solved, merely having enough food and a comfortable shelter is no longer sufficient to make people content. New needs are felt, new desires arise. With affluence and power come escalating expectations, and as our level of wealth and comforts keep increasing, the sense of well-being we hoped to achieve keep receding into the distance. When Cyrus the Great had ten thousand cooks prepare new dishes for his table, the rest of Persia had barely enough to eat. These days every household in the “first world” has access to the recipes of the most diverse lands and can duplicate the feasts of past emperors. But does this make us more satisfied?

MIHALY CSIKSZENTMIHALYI – FLOW

With personal finances, we talk about a concept called “lifestyle creep”. Simply put, people tend to hop on a rollercoaster of overspending as their earnings rise over time. Most investors facing “lifestyle creep” tend to follow a simple pattern of 4 steps that dig them deeper and deeper into overspending.

  1. Work hard
  2. Get a raise
  3. Get more money
  4. Spend more money

If you rinse and repeat this process long enough and you are eventually broke. But lifestyle creep is easy to avoid as long as you can automate some savings ahead of those raises. Having some fixed way to put money aside for savings and retirement eliminates being broke.

But I’d like to look at the other side of the coin. The saving part…

How much is really enough?

How much do we need?

How much do we want?

If you remember that 2018 survey from TD Ameritrade, almost every millennial expects to be a millionaire. But what are we going to do with all of that money?

Source: TD Ameritrade

Today, more than ever, fame and riches are flaunted in our face all day long. From Instagram to Tiktok, the allure of fast cars, expensive dinners, and lavish trips is all we see. People flock by the millions to track famous celebrities and hopefully impersonate them with success.

Take Fyre Festival for example; the modern day con. Almost 5000 people spent thousands of dollars for the chance to eat cheese sandwiches on the beach with celebrities. Everyone attending looking to show their status and success. The hype of the lavish lifestyle pushed common sense right out of everyone’s mind.


From investing advice on Tiktok, to financial planning on Reddit, the world is now hyper focused on getting rich quick and living the good life. Nobody wants to focus on the long-game anymore and instead wants quick results. Building wealth slowly is the best way for most individuals to become rich but like I said…it’s boring.


Where I’m going with all this is that the mindset that being rich will make you happy is a load of crap. Research study after research study continues to show the same themes. Money doesn’t provide happiness.

Harvard surveyed 4000 millionaires and most respondents found more happiness from giving away their money. Another study shows a huge reduction in happiness once income crosses the $200k threshold.

Source: CNBC

Obviously, some families may need to be millionaires to afford their lifetime of retirement. Any retirement plan will show the amount people need to live with. Maybe it’s $500k or $5M, but what do we do with all of the excess?


When it comes to wealth, I think everyone should take a page from Chuck Feeney. This story was amazing, and someone I had never heard of. Feeney made billions during his lifetime launching duty-free shops in airports across the globe. And with his billions, he made a goal to die broke. Giving all of his money away before he died.

I see little reason to delay giving when so much good can be achieved through supporting worthwhile causes. Besides, it’s a lot more fun to give while you live than give while you’re dead.

Chuck feeney
Source: Forbes

So, how much is enough? Really, there is no answer unless you know what you want out of life. For some, its enough to make the world a better place. For others, it might be to live a comfortable retirement. But the key is, wealth doesn’t equal happiness. So figure out what you want out of life and let that drive your wealth.

For Feeney, the goal was to spend all of his amassed fortune before he died. His story is aspiring and gives a clear understanding of how wealth should be managed.

Read more here: https://www.forbes.com/sites/stevenbertoni/2020/09/15/exclusive-the-billionaire-who-wanted-to-die-brokeis-now-officially-broke/#19bcfb283a2a

Please ignore typo’s, I will be editing grammar as I go!
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

Intensity vs Consistency


Stumbling through Twitter, I came across a great quote from James Clear. The message is simple, easy to understand, and really fits with a lot of the messaging I try to get across for clients when it comes to their finances.


https://twitter.com/JamesClear/status/1140030869328936960

A pretty simple message but it can be applied to every part of our day. I told myself earlier this year that I was going to train to run a triathlon. Do I really need to do that? Or instead, should I be focusing on not missing a single day of exercise for the remainder of the year. Instead of a triathlon, should I do 200 5k’s?


Most people need consistency more than they need intensity

James clear

Think of this like training for a marathon or long distance race. You don’t start out immediately sprinting 6-7 minute miles. Instead, we have to get our body used to both aerobic and anaerobic training.

Aerobic training is lower heart rate training. You run at about 80% of your max. And the beauty here is its relatively low stress and makes you can feel like you can do this forever. It’s a slower pace but the consistency of training in your aerobic zone amplifies the rate at how far or long we can run.

Aerobic training also doesn’t seem like progress but it is. Sure, its not a sexy as sprinting your heart out past people on the trail but even the best runners on the planet focus heavily on these small steps.

Our elite marathoners typically run 85-90% of their training volume in the aerobic zone

Andrew Kastor, Head Coach of the Mammoth Track Club in Mammoth, California, US

The goal is to train small and let your body adapt to the continued punishment. The more you get comfortable with these periods of aerobic training, the better your performance will be when you need to kick into the anaerobic zone.

Too much time in the anaerobic zone without enough aerobic training will turn you into a hot mess limping across the finishing line…

Me getting crushed at the end of a Spartan Super

As I have been working to improve my conditioning and ability to run distances, I keep finding so many parallels to investing. Everyone focuses on the big wins, the home run stocks, or trying to win the lottery. Nobody enjoys putting in the work and focusing on the building blocks of building wealth.

..everyday progress, even a small win, can make all the difference…

Harvard Business Review

The consistency of regularly investing will vastly outperform the intensity of aiming your sights only on big wins. Forcing yourself to just continue to put money away has an immense outcome if you can be patient!

This idea of “retirement” or saving for a home, sometimes seems like eating an elephant. But everyone knows exactly how its done..

So, stop trying to focus on the home run hits and instead focus on regular consistent action!

Please ignore typo’s, I will be editing grammar as I go!
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

Boring Wealth

Nobody likes boring.

Boring people, boring conferences, boring sporting events, boring shows.

Boring sucks…

But… is boring what we need?


As a society, we have lost patience. Any kind of patience….

  • When the gas pump takes longer to put gas in the car
  • When our internet connect slows down
  • When a text message won’t send
  • When customer service tell us to hold for more than a minute

And as the technology age advances, the lag time in our decision making is almost completely eradicated…

  • Venmo lets us send money to anyone we want…instantly
  • Instagram lets us post anything about our lives…instantly
  • Twitter shares us the news from any part of the globe…instantly
  • And Robinhood lets us trade stocks…instantly

I could go on for hours with more examples of instant gratification we receive.

Now, all of those platforms have dramatically increased the quality of our lives but at the same time they are building in habits that are difficult to break. If you reread my post on making investing a habit, it takes almost 21 days to build a habit. And it takes longer to break a habit. So, how the heck are we going to be patient enough to let our investments grow?


In the investing world, we talk at nauseum about compound interest. Simply put, your investment earns money, reinvests that money, then the next round of earnings should have compounded on themselves. Here is a chart for those visual learners who already lost patience reading this article.


Source: Google Images

My point being, if we have instant access to do just about anything we want with our investments, how do we let compound interest do its thing? The key to compound interest is time and the amount we trade negatively impacts the amount of time we are compounding.

There are also millions of signs that investors are losing patience. Those signs are in the form of trading volumes which continue to grow out of control. Investors are trading at higher and higher volumes almost every year.


Source: CNBC

With boring investing, you really need to find quality companies to own for the long hall. If that’s too hard, find your favorite index fund and call it a day. There is a lot of wealth that can be generated outside of the sexy AI, machine learning, and biotech companies investors flocks towards. Sometimes a little bit of patience coupled with a great product is all investors need.



Take WD-40 for example. My guess is almost everyone reading this article didn’t even realize this was a public company. Also, probably everyone reading this article doesn’t know what the product they sell actually is. Most of us just think of “WD-40” the same way we think of Goo Gone, Velcro or Bubble Wrap. Its become a verb.

“I have no idea what I’m spraying on my door hinges but it works!”

Everyone owns the product but nobody knows what the heck it actually is. BUT, for those investors who spend the time sifting through the misinformation, an amazing investment has compounded on itself for over 30 years.


Source: Koyfin – WDFC

I know its boring.

We all know its boring.

But leave your investments alone and focus your instant gratification elsewhere.


Please ignore typo’s, I will be editing grammar as I go!
I have no positions in any securities discuss or plan to initiate positions in any securities discussed in the next 30 days.
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

Craft Advice

Beer - Thompson

In Florida, craft beer has completely dominated the marketplace and it’s literally impossible to find a restaurant menu without something from a local brewery. If I rewind back to my college years, there was no option besides Budweiser, Miller Light, or maybe Coors when it came to ordering a beer.

What has occurred over the past decade has been nothing short but amazing. Within about 10 years, craft breweries have popped up all across America and consumed a serious chunk out of the market share of the goliaths (Anheuser-Busch, MillerCoors, Heineken, Pabst, and Diageo, which owns Guinness).

Source: CraftBeer.com

Craft beer went from being a hobby in the mid-90’s to one of the hottest markets shortly after 2012. And with this revolution, came ancillary benefits in job creation for towns across America.

Capture

According to Bart Watson, chief economist at the Brewers Association, “We’ve seen three main markers in the rise of craft beer—fuller flavor, greater variety, and more intense support for local businesses.”

Instead of heading down to your local chain restaurant, this “craft” movement has been picking up steam. From craft restaurants to craft cocktails, everyone is chasing after the concept of locally sourced and created themes.


So, what does this have to do with financial advisors?

In my job, I am lucky enough to be able to speak with advisors from all across the country. From insurance experts to asset managers, estate planners to small business experts, everyone has started facing the trends of fee compression, automation, and artificial intelligence. A large portion of the advisors I speak with see these as threats and think the profession is dead in just a few years.

But I tend to look at the financial advice industry a lot like craft beer. The beauty of craft beer is that some entrepreneur, deeply embedded in the local culture, understands the tastes, interests, and feelings of their community. Most of these breweries are now central hubs of their towns and provide a valuable gathering place for community members. The beers, all

Financial advice is exactly the same. The same way American Express incentivizes “shopping local”, investors prefer to “invest local”. We see small micro-networks of clients, attorneys, accountants and advisors, working together to share this craft advice. Yes, the ideas may be nationwide or even global, but it’s no different than a brewery getting a seed investment from Sam Adams or Anheiser-Busch.

The Misinformation Age


Peter Lynch is famously quoted saying “buy what you know”. A simple statement to help investors find a path forward among the confusion of the investing world. In the 1970’s, when Peter Lynch ran Fidelity’s Magellan fund, investing was a platform for the ultra rich and highly educated. Today, anyone with a smartphone can trade complex options with about 3 clicks.

Investing has never been easier…

Yet, investing has never been more confusing…


A few years back, I wrote a piece about Information Overload. The idea was that as we enter the information age, we are completely overwhelmed on every possible topic. Whether trying to set our fantasy football team or finding a good recipe for dinner, the available information is absolutely insane. Some of it creates a sort of confirmation bias, while the other makes us immediately regret our decisions.

This year, as soon as my fantasy football draft was completed, the Yahoo Sports algorithm immediately scored my picks and gave me a B-. All that time researching my team, and Yahoo comes along and tells you “your a B- student”. Did I pick the wrong players?!?

Source: Yahoo

Since March, I probably get 5-10 messages a week from some client asking about company they know or admire. This is following the Peter Lynch approach of buying what you know, however, the confusion is shocking. Enter Tesla..

Source: Tesla

Tesla is a remarkable company. Revolutionizing the automotive and electrical industry with a focus on saving the planet. Elon Musk, the visionary founder, is adored by investors everywhere. He is quoted in the past as saying Tesla is his experiment to force sustainability change across the globe. Simply put, the only way to get the automotive industry to focus on saving our planet is to beat them at their game. This approach has now been replicated with the launch of Impossible Foods and Beyond Meat and will surely be replicated over and over again.

Now, Tesla makes fantastic cars, amazing software, and has extremely innovative take on roofing but a great company and a great stock are two different things. Over the past year, Tesla is up an astonishing 800%+. A large portion of that run up came shortly after its breakout in May.

Source: Koyfin – 2020 YTD Chart of TSLA

At the start of June, Tesla broke out of its trading range and seemed to “rocket” higher almost every day. From $150 to $200, to $300 to $400+ per share, the stock kept climbing. (split adjusted)

Now, for stocks to move, they need some sort catalyst. Some surprise earnings news or some new product, but really the only major news was almost from another planet…

Source: Nasa

To close out May, SpaceX has the first successful private launch of astronauts in history. No longer were major governments the only organizations launching astronauts into space, now private capital is funding our future expansion into outer space. A huge accomplishment for society but unfortunately, a lot of investors confused SpaceX and Tesla as the same thing. See Barron’s article from June:

SpaceX Makes Tesla Stock Look Even Better. Just Ask Wall Street.

The success for SpaceX was seen as a success for Tesla, even though they are separate companies. Now, for a Wall Street firm to extrapolate success across businesses is one thing. But for the average “mom and pop” investors, the lines are so blurry that any misinformation just fuels the confusion. This is where the “buy what you know” theory flies out of control.

Was Peter Lynch saying buy companies we know of?

Or are he saying buy companies we know well?


Misinformation is something investors face daily and I would expect no slowdown anytime soon. I guess you could look at it through the same lens as fake news. How can you really be sure the news you are reading is going to impact an investment you are looking to make?

All investment decisions you make should be vetted just as well as you would prepare for a home or car purchase. However, the majority of investors buy a investment off the advice of a comment on Reddit, Yahoo Message Boards, or Twitter. Decisions that should be informed and should take weeks to evaluate are instead decided within seconds.

I would recommend investors begin with Peter Lynch’s advice and research companies we already know. Instead of blinding throwing money at companies, start to learn more about the businesses you already know. You will then evolve from knowing companies to knowing companies well and identify many new avenues for investment.


Please ignore typo’s, I will be editing grammar as I go!
I have no positions in any securities discuss or plan to initiate positions in any securities discussed in the next 30 days.
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

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Stay Calm, Stay Invested, and Focus on The Long-Term

During times of market volatility, it is always best to focus on your long-term goals. Markets are always irrational and tend to overreact and even become emotion. What we are seeing now is concern about the Coronavirus and what I would consider panic. Decisions made with investing must be made based on your long-term goals, not short-term concerns. Whether its retirement, your family, a legacy, or a major purchase, the focus of where you want to be in the future. As Warren Buffet always says:

Remember, we are investing in individual businesses at the end of the day. Each of them is focused on the continued growth of their business. As businesses grow, the stock price goes up. As businesses slow down, the stock price goes down. With the Coronavirus, we a have nothing more than a reset in how we thought businesses were going to perform. If you are Starbucks, you sell less coffee overseas. If you are McDonalds, you close a few stores. A lot of workers taking time off and not helping their businesses grow. Nothing more than that!

As you can see from the chart below, this is not an uncommon event, just a loud one!

First Trust Securities

Here are two articles I wrote a few years back during similar periods of volatility. These are also good reads on how to manage emotions during periods like this if you want more to read.

  1. A blog post I wrote in 2018: https://hindsightbiased.com/2018/11/16/the-urge-to-act/
  2. A second post I wrote in 2018: https://hindsightbiased.com/2018/12/06/managing-our-emotions/
Please ignore typo’s, I will be editing grammar as I go!
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

Positive Outcomes

The desire for more positive experience is itself a negative experience. And, paradoxically, the acceptance of one’s negative experience is itself a positive experience

Mark Manson – The Subtle Art of Not Giving a F*ck

Think about that for a second….

  • Wanting a positive experience is actually negative
  • Accepting a negative experience is a positive experience

This quote comes from a great book titled “The Subtle Art of Not Giving a F*ck“. It’s been sitting on my shelf for a few months, staring me right in the face. I decided today to crack it open and hopefully get the creative process moving again.

Source: Amazon.com

As I read this book, I kept thinking about clients I deal with and how they almost seem to have a backwards approach to looking at their investments.

If we take Mark’s quote and adjust it a bit, we see a lot of commonalities:

  • The desire for positive investment results is actually a negative investing behavior
  • Accepting the risk of negative investment results is actually a positive investing behavior.

I kept throwing this thought around in my head and it resonates so well.

When investors understand the risk of their investment decisions, and how losses can be expected over certain periods of time, the tend to show better behavior around maintaining an investment strategy.

While on the opposite end, investors that only expecting positive investment results seem to jump ship at the immediate sign of a loss or strategy going to wrong direction.

Take Bitcoin for example, how many of your Uber drivers are still recommending it?


Avoid being a statistic and focus from the on-start on a proper investment strategy. When I say strategy, I’m not talking about the batting order of you’re investments but rather the strategy behind why you plan to make some specific investment.

Whether you are investing for college, a home, retirement, or fun, make sure you understand the outcomes before you take the first step.

  • How much can you lose?
  • How long can you invest?
  • What happens if your investment strategy doesn’t work out?

Study after study keeps showing we are all emotional wrecks and we need some way to THINK before we make decisions. So focus on both the positive and negative aspect of your investment. Odds are, if you thoroughly research your investment decision, your behavior around the investment should dramatically improve.

Source: JPMorgan Guide to the Markets 2019
Please ignore typo’s, I will be editing grammar as I go!
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.