Tesla, Crypto, Inflation & Investing Like a Pro | Erik Averill, Brandon Averill, Justin Dyer | AWM Insights #62
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Episode Summary
Last week, three main stories sent shockwaves through the markets stoking anxiety for investors going forward.
Elon Musk shocked the crypto world announcing Tesla would not accept Bitcoin for the purchase of their vehicles.
Colonial Pipeline — operator of the nation's largest fuel pipeline network experienced a cyber-attack that sharply drove up the cost of gas nationwide.
U.S. consumer prices jumped to the fastest pace since 2008 stoking fears of rampant inflation in the future.
Listen in to this week’s episode as we breakdown the implications for your portfolio and how to bulletproof yourself from the amateur mistakes being made in the markets.
What’s Happening In The Markets
Elon Musk said Tesla will stop accepting Bitcoin for car purchases, citing carbon emission concerns.
Us consumer prices jump to fastest pace since 2008
A weekend cyber-attack sharply drove up the cost of gas nationwide while sparking shortages, and those fears were partly alleviated after Colonial Pipeline — operator of the nation's largest fuel pipeline network — said late Wednesday that it began restarting service to the East Coast.
Honest Co IPO and subsequent fall
Stay Connected
AWM Capital: IG | LinkedIn | Facebook | AWMCap.com
Erik Averill: LinkedIn | IG
Justin Dyer: LinkedIn
Brandon Averill: LinkedIn
+ Read the Transcript
Erik Averill (00:08)
Hey everyone. Welcome back to AWM Insights. It's your power three. Two CPWAs and a CFA. We are Eric, Brandon and Justin and at AWM we are a community of athletes, founders, and investors on a journey to be the best in the world at what we do and we believe that you deserve the same when it comes to your wealth. And so each week, here on this podcast, we cut through the noise of what Wall Street is selling you to bring you the knowledge, skills, and access you need to invest like a pro. And so today we are going to tackle the topic of managing your emotions. But before we do that, as we do every week, we're going to jump in to what's been going on in the markets, talking about managing emotions.
Erik Averill (00:55)
Elon Musk has sent the crypto world on an emotional roller coaster by announcing that Tesla will stop accepting Bitcoin for the purchases of their cars, citing carbon emission concerns. And so that is dominating the Twitter sphere over the last couple of days. Other news that we've seen is that U.S consumer prices have jumped to the fastest pace since 2008. And then last weekend, a cyber attack sharply drove up the cost of gas nationwide when the colonial pipeline had a ransomware hack. Thankfully it has begun service again. But what a constant reminder of just what a fragile world we live in when it comes to cybersecurity. And then for Jessica Alba announcing Honest Company, goes public. And so some fun things to go on in the market. But right around this topic, whether it's the public markets, the private markets or crypto, it's all about managing your emotions.
Brandon Averill (02:04)
Yeah, Erik. I think it's a really great point. And I promise to everybody we're going to actually try to manage our emotions on this episode.
Erik Averill (02:11):
It'll be tough. It'll be tough.
Brandon Averill (02:13):
Yeah, we had a lot of laughs as we were preparing for this. But there's just too much good material and to be clear we're going to poke some fun at some different people, some ideas. But, just to be clear, I mean, these are certainly a snapshot in time. It's in no way to be directed at them, but who can help attacking a little Greenlon and his whole Bitcoin deal or what I found out even more fascinating is good old reliable Dave Portnoy removing his emotion and just picking on Elon, going after him saying, "Hey, he's manipulating the prices here. We've got all this kind of haywire". And I had to laugh, right? Because we hit this on a podcast a few weeks ago, probably a couple months ago now. But Dave had his spaceship to the moon. He was launching his ETF and this is the greatest thing that's ever happened. And unfortunately the old BUZZ ETF is down 5.3% year to date. So not everything that Dave touches goes to the moon. And he was definitely the guy that was out there trying to manipulate prices in my opinion.
Brandon Averill (03:27)
So yeah, we got a lot of pots calling kettles black and all that good stuff. And then you turn to the more serious side and I'd love to hear your opinion on this, Justin, but we do have inflation kicking in and you see markets react and how do you not get caught up in all of this, right? You're just brought in by these short-term moves and how do you keep those emotions in check and make rational decisions?
Justin Dyer (03:51):
It's a great question. And first and foremost, you have to take a step back and make sure you have a plan in place. Whether that is a plan to invest into the market or a plan to manage your existing assets within the market that are already invested. But take a step back and ask yourself, "Do you have a plan in place". Right? That is so incredibly important to start with as an investor. And hopefully you start with that question, not in times like this because we are in almost the epitome of the wild West and noise and all these different headlines coming at you and tweets coming at you. And Eric, you say in the intro here, that we cut through the noise that Wall Street is trying to sell you. It's also the noise the media is trying to sell you, the influencers, the Dave Portnoy's even throw Elon Musk into that category. What they're trying to potentially sell you.
Justin Dyer (04:54)
And you do, you have to cut through all that. It's not to say don't acknowledge it, or don't be entertained by it. But take a step back, ask yourself what your plan is. How do you manage your money in a systematic way to deal with times of volatility? You referenced the colonial pipeline hack. I mean, if that's not a perfect example of how risk is out there, even though at times we can forget that, it's a microcosm of that example, but it's an incredible example of, "Hey, these things can come out of left field, right?". Elon Musk, the tweet backing away from Tesla accepting Bitcoin. I mean, arguably that came out of left field too.
Justin Dyer (05:38)
Risk is there whether it's a true economic event with inflation popping up and how the market reacts to that. Albeit, arguably short-term so far. Risk is there. Volatility is part of investing. If it wasn't, and I know we've mentioned this time and time again but you wouldn't expect more return from your equity portfolio, from your stock portfolio. So you need to take all of this stuff in a big formula, if you will, mental formula, take a step back and say, "Okay, what is my plan? How do I manage my money? How do we manage your money systematically to deal with times of stress?". Not trying to predict when market stress is going to pop up, or these one-off events are going to pop up. It's saying they will. We know they will pop up and there's going to be more and there's potentially going to be more significant ones. We experienced something like that with COVID last year. There's going to be more significant market stresses going forward. Can guarantee that. When they're going to happen, no clue.
Justin Dyer (06:47)
And so let's not have a plan of attack to react to these things, an inflation number that was higher than expectations or Elon Musk or Dave Portnoy tweeting one thing or the other. Or even IPO's going out of favor. You referenced the BUZZ ETF. There's an ETF that tracks IPO's. Guess what that is doing year to date? That thing's down 16% as of this recording. And so, hey, if you have a plan around participating in IPOs, hopefully you expect that and you have an idea and a plan to manage around that, potentially. And you're not reacting to that emotion or the emotion that's being verbal on that.
Erik Averill (07:27)
And Justin, to your point of why a plan is so important is because we have to recognize what is our natural tendency as humans. We were created in such a way to avoid everything that we fear or think is dangerous, right? And so our natural tendency, our default is not disciplined, intelligent decision-making. In the psychology of money it points out that croc brain is actually one of our biggest risks to our investment success. And so if you have not proactively understood taking the time to obtain the knowledge of how markets should operate or why investments are good investments, you're not going to have the skillset or the discipline to overcome what your body naturally wants to do. And so if we fear something or on the contrary, we see the herd sprinting in a certain direction and we feel like we're getting left out. Even if they're running off of a cliff, we're most likely going to follow, unless we have an alternative that’s set up that we took the time, the intelligence and the foresight to plan ahead. And so I think it's so important to recognize that if you've left yourself to try and just make decisions in the moment, you're default is most likely going to be failure. That's why having a proactive plan is so important.
Justin Dyer (09:05):
And the industry knows that. Let me jump in.
Brandon Averill (09:08):
Yeah.
Justin Dyer (09:09):
The industry knows that, and they are... They're going to pitch you these things that seize on that. They're transactional in nature and that's not how you build a long-term successful portfolio, build wealth, compound wealth and whatnot, right? There's so much transactional interaction here. And the average Joe broker does it all the time, Wall Street does it all the time. I mean, social media is the epitome of that, if you will. So anyway, sorry, Brandon. I jumped in there.
Brandon Averill (09:35)
No, no. You hit on the exact point where I was going to go. And it's we see this most oftentimes in the private markets, right? We see product pitches like, "Oh, I've got access to this company", right? And most often times it's through one of the wirehouses and we all know that by the time it's filtered all the way down to the retail it's certainly not worth the paper it's written on the vast majority of the time. But people don't look at it and go, "You know what?". They get really excited. It's really exciting to be a participant in the story of an IPO, right? A company, some founders came together, created something unbelievable and now you get to participate and be a part of this, but, and it's hard to peel back those layers and go, "Well, where is the actual money being made here?".
Brandon Averill (10:26)
Even go back to Elon. How did Elon make his money? He founded a couple of companies, that's where he made his money. Right? So he's giving investment advice... Who knows. Same with Dave Portnoy. The guy made his money because he's a hell of an advertising guy, right? It's not because he had some investment success. So I think it's right. You got to peel those layers back and sit going back to, as you mentioned, the plan, really understand what your priorities are and what you're trying to solve for them. What your family really needs from an outcomes perspective, right? I might need a 5% return to accomplish my family's priorities. And if I put them in a position where I'm expecting a 10% return, that means I'm putting far too much risk into my situation. I could blow the whole darn thing up. But Erik spends a lot more money than I do. So maybe he needs a 7% return.
Erik Averill (11:22)
Hey, cost of living in Arizona man.
Brandon Averill (11:23)
... and he needs to dial it up a little bit. Erik Averill (11:26)
Cost of living here in Arizona. It's a lot. Brandon Averill (11:28)
That's it.
Erik Averill (11:29)
Yeah.
Brandon Averill (11:30)
But I think it's individual, right? And you have to go back, it's all individualized. If you're not doing that work or, for a lot of people, right?, they don't want to do that work. And that's perfectly okay. I mean, we're thankful for it because that's why we exist, right? We get to come alongside families who are built to do other things, play sports, entertain, build companies, be surgeons. They get to do what God made them to do. And on the flip side, we get to help them usher in that wealth and help them identify the priorities, build the plan. So this isn't something you have to go home tonight with your spouse and sit down and figure out the world. But it is something that you need to get with your advisors and work your way through.
Erik Averill (12:15)
Yeah. And I think it's to your point is this isn't easy. We see the same thing happening when it comes to your health. A lot of times we know the outcomes that we want but the ability to even take the knowledge that you might read, you might be listening to this podcast. You might doing what you need to, to try and become educated on it, but it hasn't transferred into the skills and the discipline. And so that's where a coach comes in and so much helping is really the behavioral coaching, right? And studies have shown that this, when left to the own, as Dalbar states, this famous study that says when investors are left to their own to implement the advice that they know, they blow themselves up and it can cost them anywhere between one to 3% annualized returns. And so this is part of the value of a good advisor is making sure that they're helping you coach through your plan, which is so important.
Erik Averill (13:11)
And then just one last point is, Brandon, what you said, it comes down to priorities. I think a lot of times... I tell people this all the time, if money stresses you out because you're feeling like you're missing out on what's going on... I talked to a professional athlete yesterday and he's like, "You know what? I got out of the crypto space two years ago because I lost a bunch of money but now I'm feeling like it's a mistake and I can't really sleep at night". I'm like, "Man, that's stressful of this fear". And then I just asked him, I'm like, "Moneys just a tool, right? It's just to help you pay for things you want to do in life. Do you have enough money?". And his answer was, "Yes". I'm like, "Then turn off your Twitter. Don't worry about it". Right? Like money's just a tool. Don't become a slave to it. Right? It's a great resource. It's a horrible master. And I just think managing emotions is so important.
Justin Dyer (14:04)
Oh no, no. That's a great, great summary on this broader topic. And I think it's important to underscore that this isn't easy, right? Even when we're going to actually implement trade, whether it's for ourselves or our clients, go back to the COVID crash of last year, we had the plan in place. I know we've highlighted it. We have tolerance bands around our portfolios and we will trigger tax loss harvesting trades when certain asset classes drop. And when you're in the moment, mean, go back to March of last year, people thought the world was going to end for all intents and purposes, right? I mean, never had we shut down so much of the global economy. We had no idea what was going to happen. But we removed our emotion from the equation. We had put in place a plan, as we've said, time and time again here. And we trusted that plan. And that plan was based on all sorts of past data, representing all sorts of different market environments, good, bad, micro cycles, which you can call this is what we're seeing in the COVID world right now. And we just... We trusted that plan and it, so far, knock on wood, it's worked fantastically well.
Justin Dyer (15:24)
And so it is important. Just know that that even the professionals, if you will, it's difficult to, when you're in the middle of it, Howard Marks, who's a famed investor, one of the best investors out there, arguably. He wrote a memo, I think right around March, April of last year, basically expressing this exact thing. Like, "Hey, we know we should be doing this in times of market stress and we know what we should be doing in times of market euphoria". But it's difficult because the emotions are there and it's really important to have that team around you, that coach, even for us internally, right? And we stick with our plan, we go back to, "No, we have this in place for a reason" and reaffirm all that as a team. So I think it's really important to underscore that.
Brandon Averill (16:15)
Yeah. And one thing I'll say quickly, and I know we've got to close out, is just, your advisors might not be immune to the emotion as well. So you need to evaluate that, right? We had a plan in place as Justin, you mentioned, and it not only tested against all the historical, right? But it's also geared towards stuff that we have no idea what's going to happen next. How you couldn't have predicted, or some people think they predicted COVID for instance, how that's going to work, right? There's market outcomes that are going to happen that have never happened before. And so making sure that you have a plan in place that takes those into consideration. And, like I mentioned, make sure your advisor has that structure, that systematic approach, because if, for instance, they got burned in the 2008 correction and now they've decided they've come up with these portfolios. They're never going to let you lose and minimizing that downside is going to benefit you over time. We may know some people like this. The results haven't been there over the last decade, it's significantly underperformed and how do you come back from that? I don't know.
Brandon Averill (17:26)
So I think... And there's nothing wrong with that. Maybe that resonates with you, but at the end of the day, really make sure that you have people around you, your advisors, whoever you rely on for advice, just make sure that they are good at removing the emotion, going back to the systematic approach because as we're all talking, it's not an easy process.
Erik Averill (17:48)
And the good news for everybody is there is ample evidence of what works over the long-term of what builds multi-generational wealth, time and time again. And so head over to AWMinsights.com. We have been highlighting over the past six, seven, eight weeks, the 10 key principles to investing like a pro. And this is the roadmap for your game plan. And if you don't have a plan, reach out to us, we would love to sit down with you, help you think through your plan and if there's somebody more qualified for your specific situation, we'll make sure to get you in their hands. So until next time, own your wealth, make an impact and always be a pro.