Superpowers of Investing | Brandon Averill, Justin Dyer | AWM Insights #89
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Episode Summary
To be able to invest like a pro for the long-term you must adopt three investment philosophies:
Let Data Drive Investment Decisions
This means ignoring chasing the hot stock or crypto of the month and following the data that produces the best returns.
Anyone that has chased COVID stocks this year like Robinhood, Peloton, or Teladoc has lost a ton of money. The same is true for those chasing the recent fund performance of Cathie Wood and ARK ETFs (tickers: ARKK, ARKF, ARKG) which have massively underperformed the market index.
This same story plays out year after year in the markets and the costs to investors is painful to watch for experienced advisors. A new generation of investors gets sold the same false promise of shortcuts to wealth every market cycle.
Stay Long-Term Focused
Time is the greatest superpower in investing. Being patient and ignoring the short-term is always easier said than done. It allows an investor to ignore their FOMO in the greed cycle of markets and suppress their panic when the fear cycle follows.
Planning early and understanding how time can greatly benefit your wealth is not easy to understand for anyone yet it is and will always be the biggest driver to wealth creation.
Customized Diversification Matters
Excessive concentration creates unnecessary risk for generational wealth. Investing according to priorities reduces uncertainty while creating a tailored and superior investment experience.
Risk tolerance questionnaires or age based investing philosophies completely ignore what’s important to you. This type of investment advice isn’t proper planning and does not set you up to create generational wealth.
Episode Highlights
(0:47) News: The Omicron variant of COVID has created uncertainty which rocked global stock markets on Friday. This is a big dose of uncertainty and markets react quickly to these type of events.
(1:39) IPO stocks so far this year are below their initial listing price. This is to be expected as the data on buying IPOs is not good for investor’s returns.
(3:10) Jack Dorsey has stepped down as CEO of Twitter.
(3:45) Being data driven is an investing superpower. This is a principle of investing that should be a part of your philosophy.
(4:14) Long-term focus is another superpower. It is natural to overly focus on the short-term. Reframing your mindset to care only about the long-term can be learned and will produce better outcomes.
(5:06) You can’t solve heart disease with a weight loss pill at age 65. You achieve better results by starting at a younger age with establishing discipline.
(6:57) Why is it so hard to appreciate the long-term.
(7:57) A portion of your portfolio should be invested in very risky assets to grow.
(8:20) Dave Ramsey telling people to invest everything in equities and nothing in bonds without knowing anything about what they want to achieve in life is idiotic.
(9:48) Time is the superpower of investing. Years and years of compounding returns creates exceptional results. Determining what “long-term” is for you is the key.
(10:25) Don’t wait to plan. Use time to your advantage.
(10:54) How time helps with FOMO (Fear of Missing Out).
(12:51) Taking your entire salary in Bitcoin is dumb. Excessive concentration of your wealth is never smart and will end badly.
(14:07) Just owning bonds isn’t customized diversification. High quality bonds owned to meet a priority is how a customized portfolio removes uncertainty.
(15:58) Anyone that tells you they can pick the next Tesla is full of it.
(17:00) Whether luck or skill created massive wealth is irrelevant. The risk to your priorities is too great to stay over-concentrated in 1 or 2 stocks. This applies to anyone including founders, venture capitalists, stock pickers, early crypto adopters.
(18:45) An investment philosophy built with your priorities as the goalpost and invested according to those priorities removes the worry and a more satisfying investing experience along the way to generational wealth.
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+ Read the Transcript
Brandon Averill (00:09):
Hey, everybody, welcome back to AWM Insights. It's your host, Brandon and Justin. And as you know, each week we cut through the noise that Wall Street is trying to sell you to bring you the knowledge, skills, and access that you need to invest like a pro. And today we're going to tackle the interesting topic of your investing superpower. That's the lead in, we'll let you know what that actually means in a bit, but before we get there, Justin, what's going on in the news.
Justin Dyer (00:35):
Well, big news over the usually quiet Thanksgiving holiday, even Friday to be more specific, the day after Thanksgiving, which is typically quiet, the markets were pretty rattled from the news of the... I keep wanting to say Omicrom, but it's Omicrom I believe, Omicrom variant, the variant of concern. New COVID variant out there coming out of South Africa. And we talked about this internally actually, before we recorded that markets hate uncertainty and this is a big pill of uncertainty, if you will. The disruption that we saw on Friday has calmed as of this recording so hopefully that will continue and we'll get, as I call it the Santa Claus rally into the end of the year here. But your guess is as good as mine on that one.
Justin Dyer (01:26):
And not something that's immediately relevant necessarily is going back to the IPO topic, which we've touched on plenty throughout the year. And looking at what's happened so far this year in the IPO market, we always see the headlines, Robin Hood was rocketed or Rivian, that's the most recent example, great example where I think it almost doubled in price or did double in price a couple days after the IPO. But half of all companies that raised more than a billion dollars in IPOs so far this year are trading below their listing price. And that's not unexpected, again, we're going to talk about this. I think this is somewhat relevant to the topic at hand today, but the data generally shows IPOs aren't great investments, but the headlines really lead us to believe differently just because of that. They'll highlight the one or two that actually succeed incredibly well, or they'll just highlight it on the day it actually does succeed and not follow up a month or two down the road and say, "Oh, actually this one's down.
Justin Dyer (02:35):
Not unexpected, but again, the appreciation of data is definitely an investing superpower and we're going to get into that in a little bit.
Brandon Averill (02:46):
You can hit on that quickly, Justin. That's the number one sales tool for most of Goldman and Morgan brokers out there. I can get you this hot IPO and get you an allocation, right. They just ignore the data.
Justin Dyer (02:58):
Yeah, exactly. Hey, again, the bright, shiny object. Last item on the news front, Twitter founder and CEO, Jack Dorsey been at the helm for quite some time is stepping down, so not sure exactly what his plans are, probably...
Brandon Averill (03:16):
Just running his other company.
Justin Dyer (03:17):
Run his other companies, Square and Booster, Crypto and Blockchain, or we'll see. Anyway, so those are some relevant news topics as we turn the calendar to December here. And I think this is an interesting topic that, like I said, touches on some of these headlines that we've just highlighted and really important as we enter the end of the year here.
Brandon Averill (03:40):
Yeah, no, I think it's a great point, Justin. And I think getting into these superpowers, you already hit on one of them, right? It's been data driven and actually paying attention to the data and making decisions based upon that. Really what that ultimately culminates with, I think, at a very high level is actually having a plan for what you're doing. We call it an investment philosophy in our world, but really just having a good set of principles that you're going to make decisions on. And one place I'd love to start is really that long-term focus, because I think it gets talked about a lot, be a long-term investor, blah, blah, blah.
Brandon Averill (04:20):
And I think it gets thrown all around a lot, but people don't really understand it because we're emotional, because we still get impacted by Friday's pullback, there's another COVID variant that might shut down the world. I get nervous. I see markets fall, all of that's super normal, but then we're sitting there going, don't worry, it's about the long-term, it's about the long-term. It's sometimes hard to reconcile those two. And I would love to just hear you hit on a little bit, when we're talking about long-term, it's how are we thinking about framing that? Is long-term five years? Is it 10 years? Is it 20? Is it different for every person? We know the short term, right? I made the joke with you earlier. We know the fat guy that's just trying to stop heart disease at 65 years old, he's looking for the next weight loss pill, bad decision. But most of us are out there without a good sense of a real long-term plan. We're looking for that weight loss pill, and we're trying to catch a market here or there. Maybe frame for us what long-term actually means in our view.
Justin Dyer (05:28):
We were saying it before while we were prepping, our tagline, our intro should be, or we should add, to invest like a pro, it's invest like a pro for the long-term. And it is, it's hard because our brains aren't wired for this. But to answer your question or your point directly, the long-term in general in our world is multi-generational. But that being said, there's a definition that is unique and specific to each and every client. And that gets back to custom portfolio management with your priorities in mind and not just trying to chase a return or fill out a questionnaire that says, okay, yeah, you're in this, you're 30 years old, you have a risk tolerance score of X, you go into an 80/20 portfolio.
Justin Dyer (06:19):
It's taking all of that, a layer and a level deeper to figure out your priorities, put them into a well thought through structure, financial structure, with the appropriate data inputs to support it, and that gives you a portfolio that is built for the long-term. That could be a portfolio that's built for 20, 30 years. In general that's probably where I would put the cap on the downside of the long-term, but we're talking for over very long periods of time. And especially in this day and age, it's so difficult to appreciate what that truly means. My wife has actually given me a hard time, she's, "You talk about long-term a lot," and it's so true because that is incredibly important. However, it's hard to always reframe your mind, your thoughts, the day-to-day chatter, the new investment opportunity with the long-term focus in mind. It's something we'll continue to talk about a ton because it is incredibly difficult to appreciate.
Brandon Averill (07:36):
I love what you hit on there because, and I was hoping that's where you were going to go is the long-term really matters on your personal situation. And so it does go back to what long-term affords us is the ability to go through Friday and not worry about it and allow our assets to grow over time. And so there is a portion of your portfolio you want to grow over the long-term. You want to be rewarded, you want to take those rides. If you're not taking those rides, you're not maximizing what the ability is of that allocation of assets. Yet, you don't want to take that ride with everything. Somebody sent me a post from Dave Ramsey over the weekend and it's. "Put all your money in 100% equities, don't ever invest in bonds." That's the most idiotic thing I've ever heard. You know nothing about somebody's situation.
Brandon Averill (08:30):
It's like, well, yeah, if you saw a bunch of media sites and newsletters, Dave, and you're making money off others, sure, maybe his allocation should be 100% equities, but for most of us it's actually the opposite. We need to figure out what our priorities are in the short term, so that we invest in the proper way for those priorities. And then take the longer term approach with the assets that we're willing to ride the ride with and essentially grow over time. And if we're fortunate enough to have multi-generational wealth, which most of the people listening to this do, it's maximizing the priorities, making sure you achieve all those essential and important priorities for yourself, but then it's looking at the places where you really truly can outperform the private markets like we often talk about that your timeframe out even beyond that 20 or 30 years that you talked about Justin. This is two, three, four, five generations down the line. It really is the superpower is certainly long-term focus, but more so understanding what is long-term for you in the context of your overall customized individual investment philosophy?
Justin Dyer (09:44):
Well, and even putting maybe more of a bow on it too. Time is the superpower, the ability and length of time that we have. And people that are listening to this are hopefully engaged in and listening to this because they want to think through this, they want to plan, they want to get ahead. The time to look for a weight loss pill, I can't remember the example you were highlighting, the time to figure out your diet is not when you're 65, 70, 80 years old, you should have figured out your diet when you were 30. Get ahead of it. It's the same type of mindset, don't plan when your goal is tomorrow or when your goal is next year, plan when your goal is 30 years away so you can benefit from that element of time, that super power of time when it comes to investing.
Justin Dyer (10:37):
Switching topics a little bit, because I think,... Or not topics, switching superpowers, if you will, because I think it's relevant to what we've touched on now is also not having this fear of missing out. Because FOMO, as we call it now, it relates to time, and all these things do relate to each other and really at the end of the day it all relates to having a philosophy which I think we'll probably conclude with, is not introducing frictions to the portfolio and chasing a fad that, hey, oh, Bitcoin is now at that $60,000 per coin, I'm going to cha I'm going to put my money into that now. Chances are that that's somewhere near the top or who knows, I'm not trying to predict the future, but time and time again, if you go back to the data and you look at how money moves in and out of whatever asset that has positive momentum or positive performance over the recent period of time, money moves into it at the absolute wrong time or near the top and then it comes down and money moves out of it.
Justin Dyer (11:49):
It's just this constant chasing the tail type thing, keeping up with the Jones's, whatever phrase you want to come up with. We all know one phrase that speaks to this fear of missing out concept. And really at the end of the day, it's taking a step back, looking at market data over long periods of time, understanding that you have an incredibly long period of time to invest and have an expected rate of return, positive rate of return that will benefit you, and your portfolio is geared towards meeting your priorities should help you understand and put those fads into a better context. Now, again, all of this is incredibly difficult, but this is why we're doing the as podcast.
Brandon Averill (12:34):
Yeah. I think it's a great point and to sum it up it sounds like, and I very much believe this, it's framing what are your... Going back to the priorities, and I know we hit on this a lot, but what's the impact to your priorities? I got another text from a client this weekend, "What do you think about some of these NFL guys taking all their salary in Bitcoin?" And it's, "Well, I'll go on record, I think it's dumb." It doesn't make any sense, however what we also don't know is the background. They're being endorsed by these companies, how much of that is being mitigated, the potential downfall, et cetera?
Brandon Averill (13:12):
But I bring it up because it really goes back to what's the impact on your priorities. If it has an outsize impact, if things go wrong, if you're homeless, if things go wrong, if Bitcoin goes to zero for some reason tomorrow and all of your wealth is tied up in Bitcoin, or if Apple turns into the next Enron somehow and there's a bunch of financial engineering and the company blows up, but you've got all your wealth in Apple, same difference there. You're basically putting your entire financial structure in the hands of a very small probability of happening, but catastrophic if it does happen.
Brandon Averill (13:55):
On the flip side, it's going back to this diversification with Friday's pullback there's a lot of advisors out there talking about diversification and this being a benefit, we got reminded why people have bonds in their portfolio on Friday. We're taking it a step further and saying that just simple diversification doesn't even really get you all the way there, it's tying it back to your priorities to say, what are the range of outcomes and how big of an impact does that actually have on my life, my priorities, et cetera?
Brandon Averill (14:26):
That's the real superpower because understanding those impacts allows you to maximize on both sides. Maybe it's you live such a simple life, we all know the story of the hypothetical janitor and Indiana that saved every dollar he had, he passed away and gave 10 million back to charity. And the reason he was able to do that is he lived a very simple life and saved everything and compounded it very simply over time versus the person, the CEO that makes millions of dollars a year flying around on his private jets and the dude's homeless at some point. It really just comes back to framing those priorities and the impact that your decision making could have on those priorities.
Justin Dyer (15:11):
Totally. And I'm going to go back to the, what we call a philosophy, what you're hitting on is building a portfolio around priorities. Give us feedback on this because this is, I think, really, truly the goal of this podcast is to help understand or move the understanding away from the speculative part of the markets, if you will, which is generally what you see in the headlines to the, at least the way we think about, long-term investing side of the market. And it relates to the priorities that you have, the unique priorities you have and how we then take those and build a portfolio to support them. It's way different than, okay, what's the next Tesla? There's no way, and anyone who tells you that they can pick the next Tesla is full of absolute BS, but that's another conversation. But what really is important, again hopefully we're slowly advancing the ball down the field in this endeavor where, what matters is your unique priorities.
Justin Dyer (16:20):
We're working through a case right now where it's actually kind of exactly what you just hit on, this individual has two positions that make up roughly a third of his net worth and they are incredibly, highly appreciated, sitting on a big capital gain. But the way the estate plan has to be structured, it potentially puts this individual's priorities at risk holding on, or it does put his priorities at risk holding onto these two positions. They've done incredibly well, he's been very, very lucky and benefited from maybe he was right and picked the right stock, or maybe he was lucky, doesn't really matter. He's benefited from it. He's sitting on this appreciated asset, but in order for him and his family to reach those priorities, those assets need to be invested in a different way than I would argue what was more of a speculative type decision he made early on, again, worked out in his benefit, but it needs to be invested in a different way for the long-term to now support his priority.
Justin Dyer (17:26):
Holding onto these two stocks, that if they went down 20%, 30% tomorrow, which is a very, very real probability or real possibility rather, would put him and his family at risk. And that's really where the rubber meets the road here, it's a tangible example of investing for the long-term to support your priorities instead of just chasing fads or chasing hot topics, if you will.
Brandon Averill (17:52):
I think it's a great place to sum it all up, Justin, and going back to Friday, market pullback day after Thanksgiving, new COVID variant likely the cause for the angst in the markets, which is a healthy thing. New information presented, the market adjusts, that's how it should work. Excuse me. But it's a good reminder of going back to the ultimate superpower. The ultimate superpower is having a plan, having what we call an investment philosophy that identifies all these different areas for you individually to customize that portfolio. What is your timeframe? What are your priorities? How do we actually implement here so that we go through a market disruption like we did on Friday, you rest easy, you have your leftover Turkey, you watch some more football and you don't worry about it because at the end of the day, you have a portfolio that is built for you, it's built for your priorities and really to maximize your wealth.
Brandon Averill (18:52):
With that, we want to thank you again for tuning in. We encourage you to head over to awminsights.com. We've got some resources there that you can download. We'd love to hear from you, give us feedback. We're obviously headed into the end of the year. We would love to know what you'd like us to focus on in the new year. We've got some big plans for the podcast, but we'd love your feedback. But until next time, own your wealth, make an impact and always invest like a pro.
Speaker 3 (19:34):
The information in this podcast is educational and general in nature and does not take into consideration the listener's personal circumstances. Therefore it is not intended to be a substitute for specific individualized financial, legal, or tax advice. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a final decision.