Is A Market Crash Inevitable? | Erik Averill, Brandon Averill | AWM Insights #20

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Episode Notes

With a looming election this fall, an ongoing global pandemic, and companies declaring bankruptcy left and right; there is currently no shortage of speculation framed as certain advice everywhere you look. Mainstream media pundits and social media influencers alike are quick to share the latest stock tip, advice on market timing, speculations on bankrupting companies, or even urge you to exit the markets entirely and wait until they calm back down.

While it is entirely likely there will be market impacts from the upcoming presidential debates and election, COVID-19 vaccine trials, and whether or not the government adopts an additional stimulus plan – the full effect of those impacts and even how they play together are entirely speculative. The truth remains that no one has a crystal ball.

So what should you do in the midst of all the noise?

Don’t abandon your plan.

In this week’s episode, Brandon and Erik address some of these speculations and cover other topics and questions like:

  • Was Peter Schiff correct when he recently said that a market crash is inevitable?

  • How to avoid FOMO (fear of missing out) in the current market climate

  • The greatest dangers investors face

  • The difference between being an investor and a speculator

  • Understanding how to participate well in public markets

  • Why the mainstream media is not the best source of financial advice

  • What advice can you give on having confidence in my investment plan?

  • How can I wade through all of the speculation that I’m receiving the economy, stock market, and investing?

+ Read the Transcript

Erik Averill (00:00):
Hey, everyone. Welcome back to another episode of AWM Insights, where we cover all things investing. We are excited. This is episode 20 and we are still in the middle of COVID. It really is where we want to pick up the conversation is talking about in these tumultuous times, where we have still this high level of uncertainty, and we have some big events coming around the corner with the election in November. Right now there's a big conversation of whether or not there's going to be a second round of stimulus. We're being asked by a lot of clients, "What should we be doing? Should there be a change in the plan? How do we take advantage of this?" And Brandon, what would you say to our investors right now that are trying to put together their next action plans with their investments?

Brandon Averill (00:44):
Yeah, Erik, I think it's a confusing time. It's hard for investors at a whole to know what to do right now. There's so much noise in the media. There's so much going on. We're seeing on one side speculation, which is one of the biggest dangers in investing. I was reminded of a quote from Benjamin Graham, who is the mentor to, who most people know Warren Buffett, taught his first securities class. He talked about even the investing public not knowing, but professionals also not being able to make the distinction between investing in speculation and has a quote. "The greatest dangers that investors face is acquiring speculative habits without actually knowing that they've done so."

Brandon Averill (01:28):
I think we've seen this through a lot of events this year. 2020 has really spawned a market where there's a lot of speculative activity. There's millions of new brokerage accounts. We've seen all the things around Robinhood and day trading. Options activity is through the roof. I'm getting questions about dark trades and all these different types of things. It's pretty crazy. We even see people that are speculating on bankrupt companies, and we know how that turns out.

Brandon Averill (01:57):
In fact, I just got a text from a client, "Hey, what's your take on just holding cash right now with all the volatility in the market?" I think this goes back to one of the other dangers is time in the market. There's been some good information on that. We've seen how difficult that is just considering what's going on this year.

Brandon Averill (02:14):
And then there's no shortage of looking for stock tips. I heard one yesterday, like, "Everybody knew Zoom was going to do well, given we're all going to work from home," but they forget all the details that go into truly making an investment, the position, size, the timing, when to get in, when to get out. It's just really, really difficult. And you may hit a home run with something, but what did you give up if you weren't diversified? What did you not participate in? I think people forget about that. So I think there's just a lot going on right now. It's not an easy environment for the end investor to navigate.

Erik Averill (02:48):
It's a crazy paradox for most investors because whether it's somebody asking, "Hey, should we go to cash?" because they don't want to catch the proverbial falling knife. It's, "Can I just sit on the sidelines until there's an indicator that things are going to get better? But at the same time, I also want to take a position in an individual company that we know there's this concentrated risk."

Erik Averill (03:12):
And so I think it's one of the difficult things as an investor is to go, "How do I actually take a step back? How do I understand what has been true over the last 100 years of what it means to invest in the public markets?" On the Joe Rogan podcast this past week, Peter Schiff was on there talking about how he absolutely knows the U.S. economy is horrible, that this next round of stimulus, that there's going to be so much debt that, of course, the U.S. economy is going to tank and rightfully so. A client asks of like, "What do we do in that situation?"

Erik Averill (03:47):
We had covered this on a previous podcast, just talking about how disconnected the economy could be from stock market returns, and then also the importance of global investing. But, Brandon, what do you say to these investors that it does seem like, hey, interest rates can only go in one way over the long term, or what do we do with all of this debt? What do we do with the election in November? What advice can you give them that can provide some confidence in their investment plan?

Brandon Averill (04:15):
I think the advice is just having that investment plan. I think this is where so many people miss out is there's always going to be a story. The media is always going to be blowing something up. They have to. Their job's to sell ads. So really it sounds boring, but turn back to that plan and keep that long term investment horizon. If you're investing for five, 10, 15, 20 years, you're always going to have noise. It's about silencing that noise and making good, rational investment decisions for the long term.

Brandon Averill (04:45):
If you're trying to day trade, if you're trying to make a quick buck, you're trying to invest for the next couple years, that's where it becomes increasingly difficult. It's really speculative at that point. I don't know that I have any advice for that. We've seen study after study that's come out just about if you're investing day traders, it's pretty remarkable. 1% really outperform and it's not very consistent.

Brandon Averill (05:12):
There's studies out of Taiwan and Brazil that speak to that and give us the evidence around that. I think that's really a differentiator you have to make. Are you an investor? Are you a speculator? If you're an investor, I think this is about being patient right now. We saw that earlier in the year. It's having a plan, being diversified, sticking to it, and don't have a case of the FOMO because I think that's what really gets people into trouble.

Erik Averill (05:35):
Yeah, that last point is so good. Don't have a case of the FOMO. For our audience, I think this goes back to really trying to accomplish anything in life is understanding that it is personal. We all have our individualized goals. And so as an action item, I'd say start there. Take out a pen, take out a paper, and write down what is success mean when it comes to investing based off of your current net worth, based off of your liquidity, based off of when you're going to be using this money, how should you be invested in both the public and in the private markets, and what would be success? What is the rate of return that you expect to be able to accomplish your goals? What type of risk are you willing to take?

Erik Averill (06:18):
And the good news is we have a lot of historical record that can give you a very good understanding of what is the probability of the risk return that you should earn in these different markets. It's what we drive on is don't speculate. Don't have fear of missing out. Because the good news is there is a lot of evidence out there that can help you maximize and capture the returns that you deserve after tax and after expenses.

Erik Averill (06:42):
And so, as always, every week we love having these conversations. We would love to hear from you. If you want to access these show notes, go ahead over to AWMinsights.com. There you'll find this current episode show notes, previous episodes that we've referenced. And, of course, we'd love to hear from you. If there's something you want us to cover or even reach out on your own personal situation, we'd love to have a conversation. So until next time, stay humble, stay hungry, and always be a pro.

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