Cutting Through the Investment FOMO | Erik Averill, Brandon Averill, Justin Dyer | AWM Insights #51
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Episode Summary
Are there days you feel like everyone is making money, except for you? The stories of friends turned day traders, the insane rise of the NBA’s Top Shop NFT (non-fungible tokens) craze and of course, Bitcoin skyrocketing can leave even the most seasoned investor with a bit of FOMO.
Open Twitter, Reddit or YouTube and everyone is spewing advice on what to invest in next. In this information age, there is practically an infinite number of places and people giving financial advice.
As Warren Buffett famously says, “It’s only when the tide goes out that you learn who has been swimming naked.”
Everyone appears to be an expert until they’re not. How do you know who to trust? We breakdown the answers in this week’s podcast.
Episode Highlights
(02:33): Where are you getting your advice? What are their incentives?
(04:32): Study of where people go to for their investment advice
(08:32): Questions you should ask before accepting advice
(15:50): How to conduct real due diligence on investment advisors
(22:04): Advice every investor deserves
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Erik Averill: LinkedIn
Brandon Averill: LinkedIn
Justin Dyer: LinkedIn
+ Read the Transcript
Erik Averill (00:00): Hey, everyone. Welcome back to another episode of AWM Insights. It's your power three, two CPWAs and a CFA. We are Erik, Brandon and Justin. And each week we aim to cut through the noise of the news and what Wall Street is selling you to ultimately bring you what you actually need to know to invest like a pro. And here at AWM, we like to emphasize that we are not loyal to Wall Street, we are loyal to you. And you've worked extremely hard for your money, and we're here to help you capture the returns you deserve. And so today in this information age, there's practically an infinite amount of places and people giving financial advice. And so what we've learned is yes, we don't trust hedge funds, but now are we about to trust the person on YouTube, Reddit, Twitter. And so today we're going to tackle the topic of who should you actually trust when it comes to investment advice. But before we jump into that topic, let's at least recap what's going on in the market. It's the middle of earning season, which has been relatively strong. There was an expected drop of about 7%, but we're tracking for just over 3% growth right now. We had a resurgence by GameStop all of a sudden on Wednesday, we're up 200%. So we'll talk about, should you get back in or actually you should have probably never participated. And then we've got Bitcoin. We saw a high of 58,000 about a week ago, but it actually retreated 15% last week. So we'll talk a little bit about that. Fed Chair Jerome Powell actually has been talking to Congress about developing a digital dollar. So some interesting news coming about from the government around Bitcoin. And then of course, we can't forget about Coinbase files to go public via direct listing. And then on that front, we've also seen the latest spec Bonanza with Lucid Motors next in line. And so there's a lot going on, which means there's a lot of places to try and figure out what are the professional moves, how do you make sure that you're not missing out on all of these exciting things going on? And so that's the conversation we're going to jump into. Justin, who should we be listening to when it comes to investment advice?
Justin Dyer (02:33): Well, yeah, you said we're not loyal to Wall Street and in that same category, I'd say we're also not loyal to social media companies, right? So those platforms are the perfect place to spout off advice that really peaks your interest. It hits that FOMO nerve, right? And that is most definitely place you should not be going for investment advice. Can you find interesting things and good things on the internet? By all means, yes. And I would even say social media, so I'm contradicting myself a little bit there. But by far, the biggest platforms or the biggest, let me say voices if you will, on social media, they're no different than CNBC. They're no different than Bloomberg, right? You have to think about what are their incentives? What are they really selling? They're not selling advice, right? They're trying to get your attention, right? They're selling your click, your engagement, and they want to keep you on the edge of your seat tuning in each and every day. And they're not necessarily held accountable to really what they've advised you, right? They're not putting their money where their mouth is. They're not necessarily truly managing client portfolios. And at the end of the day, really what they're doing is they know what's going to hit that nerve, that FOMO nerve that's going to keep you tuning in each and every day. It's not new either, right? Newspapers have been doing this for ages. We have the television, not a new technology and financial channels, CNBC, Bloomberg, and whatnot, doing the exact same thing. And now you have social media platforms to add a new layer, new dimension to this whole thing. So definitely, not great places to turn for advice first and foremost, to answer your question. Sorry, I kind of rambled there, but definitely not the best place to start.
Brandon Averill (04:32): I think that's fascinating, Justin, because us in the professional industry, we go through all these certifications. We go through this whole process to become educated, to be able to deliver advice for our clients and we're held to all these standards, right? If we post something on the internet or we do a post-
Erik Averill (04:51): Or record a podcast.
Brandon Averill (04:51): Yeah, a podcast, we got to list out, right, "This is not financial advice," yada, yada. You go on Tik Tok, you can get a wealth of financial advice, with no disclosures from Johnny next door. And I thought it was really interesting as we were preparing for this, this podcast to start to frame a little bit. And this was shocking to me, but Dimensional Fund Advisors, one of the largest financial firms out there, does a study every year with the end investors. So these are clients of advisors that work with Dimensional and they asked, "Where do you go for advice or ideas about your savings and investments?" And only 30% of people said, "I go to my advisor." The remaining 70% go somewhere else. And I just found this absolutely stunning, especially since the second place coming very closely was 23%, "I do my own research online." And to me, when I started to look at this then right behind that was actually 19%, "I get my advice from publications, television and the internet," it's really interesting to me because it just starts to show the power of marketing. And I think your point around, you got to think what's the incentive here. Why, if we're selling a bunch of advertisements on this podcast, you may ask, "Hey, are these guys just trying to hype up some interest here?" It's a big reason we don't do sponsorships because this is meant to be an unbiased source. But you have to start to ask those questions, right? Are you trying to get Tik Tok followers? Are you trying to endorse this company? Are you trying to sell an ad on CNBC? I think it kind of goes back, it's not always wrong, you got to have a little discernment on who you're turning to. And I think the other part of this, and relating it back to at least the athlete world that we so often work with is if you were facing Tommy John surgery as a professional athlete, professional pitcher, are you really going to go on web MD and try and diagnosis this thing yourself? Or you can go to your teammate and be like, "Hey buddy, you've had TJ, you want to grab the scalpel and head on in tomorrow?" No. And that sounds super ridiculous. But when you start to step back, that's exactly what you're doing. You're taking advice from somebody that has no idea what the hell they're talking about. So anyways, I rambled too. You're going to get a lot of that from us today.
Justin Dyer (07:15): Yeah. But I want to jump in and potentially hypothesize here on why those numbers are the way they are. Right? And I would say because a lot of our industry, not as specifically, and we'll get into why we believe this and how we've structured ourselves, they don't provide advice. Right? They're selling a product. They're listening to what you're saying and saying, "Oh, I have a product to match that goal." Right? Whether it's actual advice that's truly well thought out and in your best interest is completely secondary, let's say. Probably even farther down the list than secondary. But I think as an industry, we specifically have structured our firm to be completely anti that whole idea. But as an industry, financial services overall, it's no better than the talking heads on CNBC. Right? That's the Wall Street aspect of it. Right? They want to be able to take a new idea, take a new product, take a new fear and capitalize that and sell that to you as quote unquote advice, when it really isn't. And maybe people don't realize it or maybe they do and good for them, but it could be why only 30% actually go to an advisor because they probably don't really have an advisor. Right?
Erik Averill (08:32): Yeah. And I think both of your guys' points, it really comes back to intent and incentives. And for us, anytime we're accepting advice, anything, whether it comes from our health, it comes from our finances, is it's taking the step back and saying, "The person I'm about to turn to, are they aligned with me? Do they even know who I am? Do they have an understanding of my priorities? Do they have an understanding of how to help me?" And so Justin, when you talk about aligning incentives from an advisor standpoint, for those listening, your advisors should not be paid commissions based off of you and buying and selling a specific investment. And their compensation should not change if you buy real estate versus a publicly traded company, or if you invest in venture, is your advisor really should only be compensated for the advice they're providing, not the product that you end up investing in. I'd read some interesting stats. When we start to think about how good advertising is and how good the media is, you have to also ask the question, "Is this advice for me?" One of the biggest things that we see happening, of what we would call malpractice, is that when you are an individual who maybe isn't the highest tax bracket actually is making a lot of money, has complexity, are you accepting advice that's actually tailored towards the general public? And I think this is going to be staggering. So we looked up in the media kits of some of the companies and news sites that people focus on for their information. So Fox News, they target, this is all public information. You can go on their website, download their media kit, and you'll see Fox News targets a median household income of $70,000, CNN, $76,000 MSNBC, $75,000. Finally, The Wall Street Journal at least targets household average income of $253,000. Forbes, $146,000. So all of these huge financial companies are targeting people who make less than $250,000 a year. And that should speak volumes because our listeners are the ones that are founders, they're business owners, they're athletes, they're doctors, they're people who are in the highest tax bracket that this information is inappropriate for them. And I think that that's very important. And then you flip it to the social media markets. They're really trying to grow their platform. They're not committed to your individual wealth. So I just think that that's really important, like anything, the medical analogy, when you go to the doctor, you don't start talking to the pharmaceutical rep who's in the waiting room trying to push their product on the doctor to sell, right? You're actually there to see the doctor. Yet, in the financial world, we find ourselves taking advice from the pharmaceutical rep who's just trying to stuff pills down your throat, whether it's good for you or not.
Justin Dyer (11:42): Yeah. And right, to your point, it can be dangerous, right? Take Lucid Motors, which you highlighted. They're going to go public via SPAC, which again, that's the hot way to do it nowadays. And there's some reason behind that. But that's SPAC, which is sponsored by a company called Churchill. CCIV is the ticker of that company. And the retail social media hive mind took that stock up to something like $60 a share. A SPAC trades at $10 a share. So sixfold. And then that was before the deals of this IPO even came out, right? It was all speculation. Once the deals of this IPO with Lucid Motors actually hit the news, hit the press, everyone realized they had been way, way, way out of line. And the thing now is trading in the $20 range. And it's unfortunate, right? Because you see, I'm not going to name names, there are literally guys, I've seen a video of some guy talking up this stock. And then basically the day the news hit, trying to explain why the quote unquote suits, Wall Street, which again is not us, were wrong and why they screwed the little guy. And he's just completely rationalizing his bad advice. The guy doesn't really know what's going on and he's out there with millions of subscribers to his YouTube channel, giving bad advice. That's unfortunate, man. It's dangerous in my opinion.
Brandon Averill (13:15): Yeah. And we see evidence of this everywhere, right? There's some really good on Twitter, right? But it's some really good people giving advice to teachers and they highlight all the time, all these knuckleheads out there probably at the wirehouses, quite frankly, but that are putting annuities, deferred annuities into 403(b)s and doing all this kind of stuff. I think it just comes back, what we're not saying to everybody is don't educate yourself. There is a lot of good advice out there and you should have checks and balances and you should do your research. It's not, don't go do your own research online, but it's just making sure you're doing it through the right lens. And I think something we always help people through, and I think when you're going to select your financial team and we've got a great resource on this, I'm sure we'll link to it in the show notes and get it sent out to you if you request it, but just think through this. There are over 300,000 people in the US that call themselves financial advisors. And we're not even talking about the business managers. You probably don't want to get us started, especially me, on that. But these are people that have no freaking idea and very often don't have any designations. There are good ones out there, but the vast majority of them, you should run for the hills, buyer beware. But let's turn back to the financial advisors. 300,000, right? Well they are 80,000 CFPs. That's still a big number. Do yourself the favor and at least find a CFP. If you don't have a CFP, it doesn't mean they're a bad person. Maybe they're even a good advisor, but you know what? They didn't do the work to go get the designation to show you that they're dedicated to their craft. And then even if you want to go further than that, something like the certified private wealth advisor or the CFA, you just start to whittle down your numbers. And if you think about that, right, do you want to work with the masses or do you want to work with somebody that's more specialized? And again, designations alone shouldn't qualify you as someone that everybody should trust or go to for advice. But kind of back to that doctor analogy, I'd question everybody, are you going to a doctor that doesn't have an MD or some sort of medical designation? Most of us would think that's absolutely preposterous and yet we're taking our financial lives, which could I wouldn't say as important as your health, but darn near close, and you're turning it over to somebody, you're taking advice from somebody that just doesn't have the credentials, doesn't have the experience, hasn't been through this and given really high quality advice. So anyways, I just think, hopefully that's a good framework for everybody to start to work through.
Erik Averill (15:50): As Brandon mentioned, we'll make sure to put this resource in the show notes. We've constructed a whole really it's a chapter from a book that we wrote on who is qualified to give you your advice, that there are great resources out there. Two of them to start with that blows my mind, most people don't even look up, it's called the SEC and FINRA. You can actually look up who are the people you're about to take advice from. And I can tell you, we had a situation where we had an opportunity to sit down with someone worth north of $40 million. You look at the report of who their advisor is, and this person's got a litany of customer complaints against it, right? And lawsuits. Right? And so whether it's the big wirehouses, I heard somebody other day say, "Hey, you know what? Well, the reason they have so many lawsuits is because they just have a lot of clients." And I'm like, "Yeah, that's a one way to justify it." But I think to Brandon's point, shifting from how terrible it is and how scary it is, is we want to be able to say, "Here's the good news. There are some really good resources and there's this evidence and there is this history of how people have become very wealthy, and how people have made very good decisions when it comes to their money and investing. And it's long-term, it's after tax awareness, it's diversified, it's low cost." And I think these are the type of things that we want to re-orient to is there is a foundation, there are building blocks of how you pursue wealth and what it's not, it's not making somebody else rich. There's this famous book that says, "Where all the customers' yachts?" And it really details how all of the investment world and Wall Street's getting rich while the clients who worked hard for the money are the ones not getting the growth. And so I just want to point that, we'll make sure that you guys have that access to that resource.
Justin Dyer (17:48): Yeah. Kind of along those lines, a great question to ask, I think you guys both kind of alluded to is, is your advisor appealing to your emotions, right? Where's the source of their advice coming from? Is it objective? Is it independent? Is it really taking that step back and saying, "Okay, let's look at your comprehensive situation. What are your desired outcomes?" Let's think about this from the big picture, and then not only big picture today, but big picture over generations. Right? And let's set all that stuff up for success longterm, like Erik just underscored.
Erik Averill (18:24): And there are so many great analogies to the health, right, health community, is we just know this is a universal truth, that very good things don't come overnight, right? We all want the pill. We all want the Weight Watchers, 30 day strategic thing. But we all know if we're being honest with ourselves, is that it takes a very long time in a discipline non-emotional approach to have success. And here's the irony about the FOMO, the FOMO of am I in the latest crypto craze? Am I going to miss out on GameStop? Is your fear of missing out is that you're not going to be wealthy, but ultimately if you would actually just do the principles, you spend less than you make, right? You invest for the longterm. You diversify, you play the long game is you'll end up in very much, that's been detailed in the book, The Millionaire Next Door, it's those that were disciplined that saved. And your personal savings is far more important than the investment return that you're trying to trade and get in the short-term. And so I think that should be more of an encouragement that, hey, you know what? You can shut down your social media. It's okay that you don't have a Robinhood account that you have gone to these time tested principles of paying yourself first, of taking advantage of compound interest. We covered on this podcast recently, Warren Buffett, it's something crazy like 95% of his net worth has come after the age of 60. Right?
Brandon Averill (20:02): It's 99%, 99% of his net worth.
Erik Averill (20:06): Yeah. And so, these are the things that I think are very important too, you're not missing out. And if anything, you don't have to participate in having this anxiety around your money is money's just a tool. We talk a lot about it here at AWM that money is a tool to help you achieve your priorities, your short-term, your midterm, your long-term priorities. And that's how we define success is did you realize the outcomes that were important to you? You know what? You stressing out and having anxiety over your money, that's no way to live and you don't have to live that way because it's fool's gold, it's a complete lie. And so think that that's really where we try to spend time educating is saying that there's just a better way.
Justin Dyer (20:53): Yeah, like on the education front too, Brandon hit on it and you just were talking about it as well. It's not to say that there aren't great resources out there. There definitely are. You should be cautious around it. But let's take Bitcoin. Don't get caught up in Bitcoin itself. The technology behind it is fascinating. How that will actually play out, what I'm talking about is blockchain and non-fungible tokens and all this interesting stuff that's coming about, it's almost impossible to say what that truly is going to look like. It's fascinating. We can talk about that. Whether or not it's actually a prudent investment in your portfolio at this point in time, those are interesting conversations to have. But don't get sucked into that FOMO. Right? Don't worry. Don't let that anxiety take you over. Let's maybe take the source of that anxiety, throw it out there as a topic for us to discuss. We'll unpack it as best as we can. Maybe we'll learn something from it as well. It's taking the source of this information through the proper lens, I guess, is really what I'm trying to say. And that's critical, right?
Erik Averill (22:04): Yeah. And hopefully this has been helpful. The intent of why we started this podcast over a year ago is when there's a lot of craziness going on in the world, there's a lot of uncertainty. Finances can be overwhelming, they can be stressful. And then to add on that layer of now you feel like, you know what, am I missing out? Am I not giving my family the best opportunity? And so you try to make the quick buck is we wanted to cut through that noise. We wanted to say, you know what, there are sound financial principles here, and they are highly qualified people. So as we point you to resources, a few final things as we close out here. First and foremost, we would say this is true for every single individual, whether you have 10 bucks or 10 million bucks, is you deserve to work with an advisor who is aligned with you on the same side of the table. And so that means they're an independent advisor. You want to ask the question, "Are you a registered investment advisor that is overseen by the Securities and Exchange Commission, the SEC?" If you are a brokerage firm, if you're a registered representative, if you're one of the big names on Wall Street, pass go, they do not have your best interest at heart. There are really good people that work within those firms, but they're going to be selling you pills because they get commissions off of them. And then the second thing I would say is some of the best resources, go to the certified financial planning website, it's letsmakeaplan.org, where there is incredible resources of all the financial planning stuff. If you want to nerd out and you want to go deeper, the Chartered Financial Analyst, the CFA charterholders, these are the creme de la creme, these are the gold standard of when it gets into an investment analysis. And so those are two incredible websites that you can go to. And even on the SEC website, investor.gov, you can look up all of these advisors, the people you're turning to trust, and they have basic investment education on there. And so you guys have worked so incredibly hard for this money, you deserve to capture the returns that you have worked so hard for, and to make sure that you're going to achieve the priorities for your family. And so until next time, stay humble, stay hungry and always be a pro.