My Worst Investment Ever Podcast: Recent Episodes

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BIO: Laurie Barkman is a Certified Exit Planner, M&A Advisor, and founder of The Business Transition Sherpa®.

STORY: Laurie explains why it's important to start planning your exit plan five to seven years before and what you need to do during that period.

LEARNING: Don't wait until you're exiting to plan your exit.

"Don't wait to do exit planning when you're exiting, it will be too late. Start five to seven years out. This gives you time to make an impact for change, make the business more attractive and ready, and to also make yourself more ready."

Laurie Barkman

Guest profileLaurie Barkman is a Certified Exit Planner, M&A Advisor, and founder of The Business Transition Sherpa®. As the former CEO who led a $100 million company through acquisition, she helps business owners build valuable, sellable companies and exit on their terms.

Laurie is the Amazon best-selling author of The Business Transition Handbook: How to Avoid Succession Pitfalls and Create Valuable Exit Options and hosts the award-winning podcast Succession Stories, rated in the top 2.5% of podcasts globally.

Get a complimentary business assessment. See how an acquirer would evaluate your business, enabling you to focus today on what will be important down the road. Learn what changes could double the value of your business.

Return visit: what's changed and what hasn'tThree years ago, Laurie joined Andrew on Ep727: Quit Often Quit Fast to share her own worst investment ever. This time, she's back with something arguably more valuable: a masterclass on the single most common mistake business owners make: waiting too long to plan their exit.

"I wish I knew this sooner." That phrase, Laurie says, is the number one thing she hears from business owners who've gone through a transition without proper planning. By the time they're ready to sell, it's already too late to improve the business, attract better buyers, or close the wealth gap they've been quietly ignoring.

If you haven't heard Episode 727, go back and listen to Laurie's personal story. In this episode, she brings that same honesty, this time pointed squarely at what you, as a business owner, need to be doing right now.

Exit planning is not an exit-day activityThe most important insight Laurie delivers in this episode is deceptively simple: exit planning needs to start long before you're planning to exit.

If a prospective client tells her they're thinking about selling their business in one to three years, her response is direct: "You're already behind." A well-structured exit takes five to seven years to execute properly. That's not because the paperwork is complicated. It's because building a more attractive, more valuable, more transferable business takes time. And so does getting you personally ready for what comes after.

Laurie works with two very different kinds of readiness:

• Business readiness: Making the business more attractive, more operationally independent, and more valuable to a future buyer.
• Personal readiness: Preparing the owner emotionally and financially for the life that comes after the company. Too many founders kick this can down the road, only to find the finish line overwhelming when it finally arrives.

The exit timeline exerciseOne of Laurie's most practical tools is what she calls the Exit Timeline Exercise. She sits with clients and literally maps out, year by year, what needs to happen (both in the business and in their personal lives) to set them up for a successful transition.

This isn't a generic checklist. It's built around the owner's specific situation: their age, their family's ages, their life stage, and what they actually want their next chapter to look like.

Understanding the numbers: wealth gap vs. value gapLaurie walks through two key calculations every business owner should understand:

The wealth gapThis is the difference between what you need for retirement and what you currently have. Many business owners have most of their net worth tied up in their company, which means selling the business isn't just an exit; it's a financial planning event. The net proceeds (after taxes, transaction fees, and other costs) need to be factored into the nest egg calculation. As Laurie reminds us, it's the net number that counts, not the headline price.

The value gapOnce you know your wealth gap, you can figure out what your business needs to be worth—and compare that to what it's actually worth today. The difference is the value gap. Closing that gap is the work of exit planning.

What buyers are actually buyingOne of Laurie's most counterintuitive insights: when you're selling your business, stop thinking about your products and services. Start thinking about what problem your company solves for another company.

Buyers, particularly strategic buyers, are acquiring capabilities, not catalogs. They might want your customer list, your talent, your geographic footprint, your intellectual property, or your distribution network. A European acquirer once offered Andrew a revenue multiple (not EBITDA) because he didn't care about the coffee margins. He wanted the distribution infrastructure to pour his own volume through.

That's a strategic buyer making a strategic bet. Understanding who might want to buy you, and why, should shape how you build and present your business years before any transaction.

Transferable assets: do an inventory nowOne of the most actionable practices Laurie recommends is a transferable assets audit. Go through every major asset in your business (contracts, customer relationships, intellectual property, talent, equipment) and rate each on a scale of 1 to 5 for how transferable it is to a new owner.

A score of 1 isn't a crisis. It's a to-do item—one you can now address if you start the process early enough.

A common example: contracts that aren't transferable. Many business owners have never thought about whether their agreements include a transferability clause. Without one, a sale can be significantly complicated. With a transferability clause added proactively at renewal, the problem simply goes away.

Keep your financial records in orderAnother practical piece of advice comes from Andrew's observations of businesses in Thailand, echoed by Laurie's US experience: messy financial records are a serious exit liability.

Buyers expect the last three full years of clean financials, current year data, and a credible forecast. If your monthly books aren't closed, your expense categories are inconsistent across years, or your numbers are tied up with personal expenses, you've created friction in the due diligence process. This friction costs you time, trust, and money.

Laurie recommends moving toward reviewed financials as an early milestone. For many businesses, it's not a high incremental cost, and it signals credibility to buyers.

Lessons learned Don't wait to plan your exit until you're ready to exit. By that point, it's already too late to make meaningful improvements to the business. Start five to seven years out. * Personal readiness matters as much as business readiness. Too many owners focus entirely on the company and are blindsided by the emotional and lifestyle changes that come with stepping back. * Know your wealth gap and your value gap. These two numbers are the foundation of any honest exit plan. * Buyers buy on their timeline, not yours. When someone comes calling, they're ready. You may not be. The goal of exit planning is to close that readiness gap before the call comes. * Recurring revenue commands a premium, but know the difference between recurring and reoccurring. Contracted, predictable cash flows are what buyers pay top dollar for. * Take an inventory of your transferable assets. Find the gaps now, while you still have time to close them. * Clean, consistent financial records are non-negotiable.* Start with reviewed financials and build from there.

Andrew's takeaways* Profitability and growth are both required. Profitability without growth isn't particularly valuable, and growth without profitability doesn't justify the premium either. It's the combination that drives multiple expansion. * The $25 million revenue threshold is a real inflection point in buyer perception. Businesses that cross it are seen as market-proven in a way that smaller companies, however promising, simply aren't. * When a strategic buyer sets a revenue multiple, they may not be interested in your margins at all. They're buying your footprint. Understanding which type of buyer is most interested in your business helps you position it effectively. * Always ask: a multiple of what? EBITDA, revenue, and seller discretionary earnings are not interchangeable, and misunderstanding that difference can lead to serious miscalculations of what your business is actually worth.

Actionable advice1. Do the exit timeline exercise today. Sit down with a piece of paper and map out, year by year, what your business and your personal life need to look like over the next five to seven years for your exit to go the way you want. 2. Know your numbers. Calculate your wealth gap (what you need versus what you have) and get a realistic estimate of your business's current value. Then close the gap deliberately. 3. Audit your transferable assets. Rate each major asset in the business on transferability from 1 to 5. Address the 1s and 2s now, while time is on your side. 4. Get your books in order. Commit to monthly close, consistent expense categorization, and review financials at tax time. Don't wait for a buyer's due diligence request to discover the mess. 5. If you're a financial advisor working with business owner clients, check out builtbydesign.info and consider joining the founding cohort.

Laurie's recommendationsLaurie also recommends checking out her free guide for financial advisors if you're looking for a more consistent way to have conversations about business growth and transition.

No. 1 goal for the next 12 monthsLaurie's number one goal for the next 12 months is to create a flywheel of partnerships and marketing efforts to grow her Built by Design toolkit.

Connect with Laurie Barkman* LinkedIn * Facebook * YouTube * Podcast * Blog * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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BIO: Tony Martignetti is the evangelist for Planned Giving fundraising for small- and mid-size nonprofits.

STORY: Two years into building his business, Tony convinced himself he could become the nation's thought leader on planned giving fundraising — not just for nonprofits, but for all Americans. He walked into a swanky Midtown Manhattan PR agency, got dazzled by a four-inch binder, and signed up at $6,750 per month. Two months and $13,500 later, his only return was a single bylined op-ed in a free subway newspaper.

LEARNING: Check your ego. Vet your big ideas with honest, trusted people before spending any money. Understand that PR, even when it works, rarely converts to actual revenue.

"This was an ego investment. I did it for my vanity project. I got one placement in a giveaway newspaper on a federal holiday when nobody was in the subway. That was it."

Tony Martignetti

Guest profileTony Martignetti is the evangelist for Planned Giving fundraising for small- and mid-size nonprofits. Connect with him on LinkedIn.

Check out Tony's free How-to Guide on Planned Giving Fundraising.

Worst investment everTwo years into running his consultancy, Tony had a big idea. He didn't just want to serve the nonprofit sector; he wanted to reach all Americans and make planned giving a concept that everyday citizens (not just charity insiders) would understand and act on.

To do that, Tony decided he needed PR, the kind that lands you on 60 Minutes and gets Charlie Rose calling.

He found his way to a prestigious agency in Midtown Manhattan, far from his own modest office in the Flatiron neighborhood. They had an 80-story skyscraper overhead to match. At the pitch meeting, they brought out what Tony describes as a four-inch-thick three-ring binder, every page in a plastic sleeve. Client on The Today Show. Client on Good Morning America. Client on 60 Minutes. Client with Charlie Rose.

All this sucked Tony in, and he bought it all—hook, line, and sinker. They kept feeding his ego. He signed on at $6,750 per month.

What he got for $13,500After two months, Tony canceled the contract. His total return: one bylined op-ed in AM New York, a free newspaper distributed in New York City subway stations. The placement ran on Martin Luther King Day. A federal holiday when subway ridership was a fraction of normal on a Tuesday.

No leads from Good Morning America. No call from 60 Minutes. No magazine profiles. No newspaper reporters are following up. Nothing promising on the horizon. Just $13,500 lighter and one op-ed that almost nobody read.

Why the agency let it happenThe agency saw a solo entrepreneur with ideas far bigger than the media landscape could realistically support, and instead of managing Tony's expectations honestly, they kept stoking his enthusiasm to secure the fee. They should have talked him down to what's reasonable to expect. Instead, they completely mismanaged his expectations and kept feeding his ego to capture a fee.

The fundamental problem was that Tony's ambition—to educate ordinary Americans about the value of nonprofits, then about the value of supporting them long-term, then to direct them toward specific giving vehicles—was a multi-step awareness campaign that no single PR placement could accomplish. It was simply too much to ask of the media.

The uncomfortable truth about PR and revenueYears after the failed agency experiment, Tony had better PR results. He hired a skilled freelance publicist who secured quotes for him in The New York Times, the Wall Street Journal, and the Chronicle of Philanthropy, the leading trade publication in his sector. Reporters on the nonprofit beat came to know him and called him when they needed a source.

And yet: not one new client ever picked up the phone because they saw Tony's name in the Times. This taught him a lesson: PR is more about reputation and awareness than revenue.

Lessons learned* PR might get done right, and it still won't save you. It can build reputation and awareness over the years. It is not a customer acquisition channel. * For early-stage founders, the honest question to ask before writing a large check is: Is this actually going to build the business, or is this about making me feel like I've arrived? * Don't go check your idea with the people who are going to get a fee for capitalizing on your pie-in-the-sky idea. The people most likely to validate an idea are often the ones most financially motivated to tell you it's great. Lawyers, consultants, vendors, agencies—all have a stake in your enthusiasm. The honest input has to come from people with nothing to gain: trusted colleagues, mentors, or experienced friends who will tell you what they actually think.

Andrew's takeaways Ego investments are a universal founder trap. Almost every entrepreneur who has started a business has made at least one purchase driven more by identity and aspiration than by clear ROI thinking. Naming it "a vanity investment" is the first step to catching it before it costs you. * PR almost never converts to customers. This is one of the most consistent findings across hundreds of My Worst Investment Ever PR can build credibility and awareness over time. But it is not a sales channel, and expecting it to deliver clients, especially early in a business, is a setup for disappointment. * The stage of business matters for marketing strategy. Early-stage businesses need direct, efficient client acquisition, not brand awareness campaigns aimed at broad audiences. Align your marketing spend with where you actually are, not where you imagine yourself to be. * The media landscape has to be ready for your idea.* Tony's vision of educating all Americans about planned giving required multiple layers of awareness-building before a single TV segment could have any effect. Even flawless PR execution couldn't shortcut that process.

Actionable advice* Ask yourself: Is this a business investment or an ego investment? Before any significant marketing or PR spend, write down the specific customer acquisition outcome you expect. If you can't describe a clear path from the spend to a paying client, it's probably a vanity investment. * Match your marketing strategy to your business stage. In the first two to three years, most professional service firms grow through direct outreach, referrals, and relationship-building rather than mass media. Invest accordingly. * Understand what PR actually does. PR builds reputation and credibility over the long term. If that's your goal, it can be worth it. If your goal is revenue next quarter, look elsewhere. * If you're going to do PR, set explicit expectations in writing. What placements will they pursue? In what timeframe? What counts as success? If the agency won't commit to specifics, that tells you something important.

No. 1 goal for the next 12 monthsTony's number one goal for the next 12 months is to publish his first self-published book: Planned Giving Accelerated, due out in September. A companion course will follow the book's release.

Parting words

"Thank you very much, Andrew. This was great, great fun. It's very different than what I've done."

Tony Martignetti

Connect with Tony Martignetti* LinkedIn * YouTube * Podcast

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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BIO: David Siegel is a Silicon Valley entrepreneur who has founded more than a dozen companies. He has written five books on technology and business, was once a candidate for the dean of Stanford Business School, and is now an AI thought leader leading an AI startup he hopes will pave the way for the agentic economy.

STORY: Nine months after David's last appearance on the podcast, the conversation has shifted from "what are LLMs?" to agents that act. 60-65% of NYSE trades are already fully machine-to-machine—a preview of where all commerce is headed.

LEARNING: You don't need to know exactly how AI works, but you need to get in the game.

"The biggest investment mistake everyone is making right now is not appreciating the exponential nature of what we're in and what is coming. The next 12 months will be nothing like any 12 months that have ever happened in human history."

David Siegel

David Siegel is a Silicon Valley entrepreneur who has founded more than a dozen companies. He has written five books on technology and business, was once a candidate for the dean of Stanford Business School, and is now an AI thought leader leading an AI startup he hopes will pave the way for the agentic economy.

David joins the podcast for the fourth time and discusses his latest progress in AI with Andrew.

The health reset before we beginBefore diving into AI, David opened with an invitation that even Andrew found surprising: a free online water-fasting event starting on April 20, 2026, with a preliminary strategy session on April 12.

What is a water fast? David explains that it's not a diet or a weight-loss tool; it's a physiological reset. For three to six days, your body enters ketosis and "cleans house," activating suppressed systems and energizing you. David does this three to four times per year, emphasizing it's not a monthly practice but a strategic reset aligned with your health journey.

The coaching program makes fasting easier and more fun through group accountability, with no obligation, just information to help anyone at any point in their health journey. Learn about fasting, or just join a group of people doing the same thing at the same time. It's designed for people from the West Coast to Europe. Please register for the event and feel free to invite anyone: https://us02web.zoom.us/meeting/register/Tk-zp9ZERomWb0643Sypmw.

The agentic economy: what's coming in 20 yearsDavid's core message centers on a profound shift: we're entering the agentic economy, where machine-to-machine communication replaces human-to-website interaction. He notes that in 20 years, you won't shop on Amazon. There won't be advertising or marketing for humans. All those "Cialdini mind tricks" of urgency, storytelling, and Russell Brunson funnels will vanish. Everything will be machine-to-machine, just like the stock market today, where 65% of NYSE trades open and close in less than one second.

Even driving will be prohibited because human reaction times cannot match the frequency of machine communication. We're in an awkward transitional period where humans and machines must coexist. Nobody likes it, but it's taking us toward a future where drudge work is automated.

What is an AI agent?David clarified a critical distinction that many miss: LLMs (Large Language Models) talk back, type responses, and generate images and videos—but don't do anything outside your interaction.

AI Agent, on the other hand, is an LLM connected to APIs that can actually take action: send emails, order meals, book travel, make purchases, and run ads. Think of it as a virtual remote assistant working 24/7 while you sleep.

OpenClaw: The framework powering the revolutionOpenClaw (CLAW = agents, inspired by lobsters from a forward-thinking fiction book) is an open-source framework created by Peter Steinberger on GitHub. It connects LLMs (the thinking entities) to APIs (the conduits for doing).

This is revolutionary because it allows AI to take real-world actions. Previously, AI was confined to conversation. It can now execute tasks across systems. David strongly warns that OpenClaw is highly technical and requires API configuration. It's not designed for humans to use directly. It's for engineers building agent infrastructure.

The security risks nobody is talking aboutDavid explains that agents introduce entirely new cybersecurity vulnerabilities that differ from traditional threats, such as social-engineering attacks against agents. For instance, impersonation via spoofed emails: "David wants a trip to Phoenix, book a flight," or multi-day, persistent attacks in which bots repeatedly try to extract secrets.

David's approach with Claw Studio is to use APIs rather than scraping. Wherever possible, he attaches LLMs to official APIs with guardrails. This is safer and more sustainable than screen scraping, which violates Terms of Service and risks a shutdown.

How to get started (without blowing yourself up)David's advice is clear: Don't do it yourself. That's suicide. With great power comes great responsibility. An agent can do almost anything, including deleting its own installation, wiping your disk clean, or draining your bank account. You want it to do almost nothing initially, then gradually widen the guardrails.

The Redshift Labs/Claw Studio approach:1. Done-for-you setup like Red Hat for Linux 2. Dedicated Chief of Staff agent with its own phone number 3. Onboarding period of 1-2 weeks, where you download your life into the agent: 4. Birthday, family members' emails, and daily routines 5. It can research you online to build context. 6. Separate setups for personal and business 7. Forever memory, unlike standard LLM context windows that forget: 8. Every Zoom call transcript gets piped in word-for-word. 9. Searchable memory: "Who was I talking to about Tahoe skiing in November?" 10. Agent retrieves exact conversations and can follow up. 11. Reverse prompting—the paradigm shift: 12. Instead of you telling the agent what to do, it tells you. 13. Morning briefing: what happened overnight, what's coming up, what's changed 14. Manages your calendar, project management, and priorities 15. Breaks long-term goals into daily deliverables 16. You're no longer the to-do list keeper. 17. Security architecture: 18. Virtual Private Server (VPS) hosting, not local machines 19. Two-account system: one for operations, one for immutable backups 20. All logs are piped to a one-way backup account. 21. "Go back six hours" restore button, in case things go wrong. 22. Humans in the loop for critical actions (e.g., agent queues payments, human approves)

The biggest investment mistake everyone is makingTo conclude, David talked about the biggest investment mistake everyone is making right now: not appreciating the exponential nature of what we're in and what is coming. He noted that the next 12 months will be unlike any 12 months in business history. He stated that we're entering a recursive self-improvement phase, in which software will write the next generation of itself. The singularity isn't theoretical; it's happening now.

David's advice is to stop thinking six months ahead. The pace is too fast. Instead:

1. Take baby steps to position yourself.
2. Prepare to accelerate like never before
3. Invest in agent infrastructure now, while it "doesn't suck too bad", it will only get dramatically better.

Andrew's takeaways1. The transition period is awkward but temporary. Humans and machines must coexist for now, but we're heading toward a world where machines handle most drudge work, freeing humans for higher-level thinking. 2. API-based agents are safer than screen-scraping. While scraping demonstrates what's possible, it violates Terms of Service and is unsustainable. API integration with guardrails is the professional approach. 3. Forever memory changes everything. The ability to search through your entire life's conversations and have the agent permanently remember context transforms productivity and decision-making. 4. Reverse prompting is a paradigm shift. Moving from taskmaster to collaborator—where the agent manages you toward your goals—fundamentally changes how work gets done. 5. Exponential growth demands immediate action. Waiting to understand everything before starting means missing the wave. Begin with small, safe use cases and expand as capabilities mature.

Actionable advice1. Start with simple use cases and expand gradually. Don't plan everything up front. Do your calendar, manage birthdays, and track expenses. Each month will reveal new possibilities. 2. Separate personal from business. Maintain firewall segregation between your personal Chief of Staff and business Chief of Staff. Each business unit can be compartmentalized under the business agent. 3. Think exponential, not linear. Most people underestimate the velocity of change ahead. Position yourself now to ride the wave rather than chase it later. 4. Humans in the loop for critical decisions. Agents can research, recommend, and prepare, but major financial commitments should require human approval via text or voice confirmation.

No. 1 goal for the next 12 monthsClaw Studio is David's primary focus. Listeners can explore resources at:

1. com: White-glove OpenClaw installation and configuration
2. io: Byron and other agent demonstrations

David is producing video updates and executive briefings for companies, and a new PDF guide on getting started with OpenClaw is available on the website. To continue with his commitment to holistic performance, David is launching a longevity coaching program in April.

Connect with David Siegel1. LinkedIn 2. X 3. YouTube 4. Website

Andrew’s books1. How to Start Building Your Wealth Investing in the Stock Market 2. My Worst Investment Ever 3. 9 Valuation Mistakes and How to Avoid Them 4. Transform Your Business with Dr.Deming’s 14 Points

Andrew’s online programs1. Valuation Master Class 2. The Become a Better Investor Community 3. How to Start Building Your Wealth Investing in the Stock Market 4. Finance Made Ridiculously Simple 5. FVMR Investing: Quantamental Investing Across the World 6. Become a Great Presenter and Increase Your Influence 7. Transform Your Business with Dr. Deming’s 14 Points 8. Achieve Your Goals

Connect with Andrew Stotz:1. astotz.com 2. LinkedIn 3. Facebook 4. Instagram 5. Threads 6. X 7. YouTube 8. My Worst Investment Ever Podcast

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BIO: Athena Brownson is a Denver realtor, investor, developer, and former professional skier whose resilience through chronic illness fuels her refined, strategic, and client-focused approach to real estate.

STORY: Athena lost $130,000 in her first development project when a builder she considered a friend vanished with the upfront funds. Her trust and incomplete due diligence led to a total loss, teaching her that personal relationships can create dangerous blind spots in business.

LEARNING: Due diligence is non-negotiable. Trust is a liability.

“A simple conversation with someone that we know, like, and trust is invaluable, because they can point out to us the blind spots that we may have missed in our excitement.”

Athena Brownson

Guest profileAthena Brownson is a Denver realtor, investor, developer, and former professional skier whose resilience through chronic illness fuels her refined, strategic, and client-focused approach to real estate.

Worst investment everAthena Brownson entered her first development project with confidence and a seemingly dream team. With a 45-year veteran developer—her father—by her side, she felt prepared. She had saved diligently, owned the land, and chose a builder she’d known for three years, a dear friend’s business partner.

After multiple interviews where her father asked all the right questions, they felt secure. They signed a contract and paid $130,000 upfront for site clearing, asbestos abatement, and foundation work.

Initial excitement turned to unease as progress was glacial. A blue fence went up, and some abatement started, but then communication stopped. Phone lines went dead. Subcontractors began calling Athena directly, asking why they hadn’t been paid.

The devastating truth emerged: the builder had vanished with the funds. Athena later discovered she was one of eight victims of the same scam. Despite her real estate expertise and her father’s decades of experience, they had been outmaneuvered by a trusted contact.

Lessons learned1. Due diligence is non-negotiable: Trust is not a replacement for verification. Athena’s key takeaway was the need for exhaustive due diligence: calling not just a few references, but a comprehensive list of past and current clients to hear the unfiltered story of their experiences. 2. Friendship clouds judgment: A personal connection created a dangerous blind spot. It made her and her experienced team less likely to probe aggressively or assume the worst, a bias scammers often exploit. 3. Assume the worst, hope for the best: The mindset must shift from “I trust you until you prove me wrong” to “Show me consistent, verifiable proof that you are trustworthy.” In business, healthy skepticism is a necessary form of self-defense. 4. Measure twice, cut once: This adage applies to money and contracts. Double and triple-check every detail, every claim, and every line item before funds change hands.

Andrew’s takeaways1. Money is life energy: Andrew referenced the classic book Your Money or Your Life, emphasizing that money represents hours of your life traded for it. Guarding it fiercely is an act of self-preservation. 2. Trust is a liability: Stories like Athena’s and others show that misplaced trust is a common thread in catastrophic losses. Systems and verification must replace blind faith. 3. Seek counsel, not confirmation: When making big decisions, actively seek advisors who will challenge you and point out blind spots, not just those who will validate your excitement.

Actionable adviceAthena advises investors to do these three things when vetting any partner:

1. Demand a list of 10 past and current clients/vendors and call them all. Don’t settle for 2-3 curated references. Ask specific questions about communication, budgeting, and problem-solving.
2. Before major investments, formally run the deal by a small group of mentors or experienced peers whose explicit role is to find flaws and ask the tough questions you might be avoiding.
3. Impose a mandatory 48-72 hour “cooling-off” period between agreeing to a deal and signing or funding. Use that time to conduct the extra due diligence that your initial excitement may have skipped.

Athena’s recommendationsAthena’s number one recommendation is to invest in mentorship and continuous education. Whether through formal coaching, podcasts, masterclasses, or peer groups, constantly feed your knowledge.

She advocates for finding a community that provides both accountability and the ability to see your own blind spots, which are invisible to you alone. For her, this approach, ingrained from her athletic career, is pivotal for professional growth and risk mitigation.

No. 1 goal for the next 12 monthsAthena’s number one goal for the next 12 months is to deepen her impact by building a powerful, trusted referral network. She aims to serve more clients in building long-term wealth through strategic real estate and to expand her team. A core part of this mission is to pay forward the mentorship she received by guiding younger agents, helping them avoid the costly pitfalls she endured.

Parting words

“Don’t make rash decisions. Take your time and know that the right thing is going to come into place at the right time.”

Athena Brownson

Connect with Athena Brownson1. LinkedIn 2. Instagram 3. YouTube

Andrew’s books1. How to Start Building Your Wealth Investing in the Stock Market 2. My Worst Investment Ever 3. 9 Valuation Mistakes and How to Avoid Them 4. Transform Your Business with Dr.Deming’s 14 Points

Andrew’s online programs1. Valuation Master Class 2. The Become a Better Investor Community 3. How to Start Building Your Wealth Investing in the Stock Market 4. Finance Made Ridiculously Simple 5. FVMR Investing: Quantamental Investing Across the World 6. Become a Great Presenter and Increase Your Influence 7. Transform Your Business with Dr. Deming’s 14 Points 8. Achieve Your Goals

Connect with Andrew Stotz:1. astotz.com 2. LinkedIn 3. Facebook 4. Instagram 5. Threads 6. X 7. YouTube 8. My Worst Investment Ever Podcast

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BIO: Jon is the Founder and CEO of FranBridge Consulting, a 2-time Inc. 5000 company, and a leading franchise consultant.

STORY: Jon believes franchising remains one of the most effective ways to build durable income, especially when investors focus on operational discipline and unit economics. He shares his top franchise categories for 2026.

LEARNING: Look for businesses with repeat customers, operational discipline, proven unit economics, and leadership teams that have already made their mistakes.

Guest profileJon Ostenson is the Founder and CEO of FranBridge Consulting, a 2-time Inc. 5000 company, and he is a top 1% franchise consultant. Jon is also the author of the bestselling book, Non-Food Franchising. Jon draws on his experience as a former Inc. 500 Franchise President and Multi-Brand Franchisee in helping his clients select their franchise investments.

For many aspiring business owners, the biggest financial losses don't come from bad intentions. They come from underestimating complexity, overestimating scalability, or betting everything on an unproven idea. Jon Ostenson knows this lesson intimately.

As the founder and CEO of FranBridge Consulting and franchise consultant, Jon has spent years helping entrepreneurs shortcut costly mistakes by investing in proven, non-food franchise models.

In Episode 815: I Built a Million-Dollar Business That Never Made a Profit, he openly shared how he once built a million-dollar business that never made a profit. That experience now informs how he evaluates opportunities with discipline, structure, and risk control.

Looking ahead to 2026, Jon believes franchising remains one of the most effective ways to build a durable income stream, especially when investors focus on operational discipline and unit economics. Below are his top franchise categories for 2026, and more importantly, why they help investors avoid the common traps that sink new businesses.

Why Franchising Can Help Investors Avoid Big MistakesOne of the most common investment errors is assuming passion alone will overcome operational complexity. Many entrepreneurs love an idea but underestimate the systems, staffing, pricing discipline, and capital required to make it profitable.

Franchising addresses this risk by offering something rare: a business model with historical data. Instead of guessing whether pricing works or whether customers will pay, franchisees can examine real-world performance, talk to existing owners, and follow systems that have already survived market cycles, helping investors feel confident in demand-driven, structured opportunities.

Jon emphasizes that franchising is not about eliminating risk. It's about trading unbounded risk for structured risk, supported by systems, training, and benchmarks.

1. Cost Mitigation Consulting: Profits Without PayrollCost-mitigation franchises help small and medium-sized businesses reduce expenses by analyzing vendor contracts, utility bills, shipping costs, and other fees. Clients pay nothing up front and instead share a percentage of the savings.

What makes this model compelling is its simplicity. There's no inventory, no employees required, and no large infrastructure investment. Franchisees focus on business-to-business sales while the franchisor provides analytical support and benchmarking tools.

From an investment standpoint, this avoids two common mistakes: high fixed costs and overstaffing before revenue stabilizes.

1. Freight Brokerage: Leveraging Collective Buying PowerShipping costs remain a pain point for businesses, and freight brokerage franchises sit neatly between companies and major carriers like UPS, FedEx, and DHL.

Rather than competing on price alone, franchisees act as trusted advisors, simplifying logistics and negotiating better rates using collective buying power. Technology and systems are already in place, preventing the trial-and-error phase that sinks many startups.

This model rewards consultative selling skills while insulating owners from volatile commodity pricing.

1. Digital Billboard Advertising: Recurring Local RevenueDigital billboard franchises install advertising screens in high-traffic locations such as medical offices, oil change centers, and waiting rooms. The screens are free for host businesses, while advertisers pay for exposure.

The appeal here lies in predictable recurring revenue and minimal staffing. Franchisees sell local advertising while the franchisor handles content delivery, technology, and procurement.

It's a classic example of monetizing attention without carrying inventory or managing complex operations.

1. Senior Fitness and Stretching Services: Demographics at WorkWith thousands of Americans turning 65 every day, senior-focused services remain one of the strongest secular growth trends. One franchise Jon highlights provides on-site stretching and fitness programs inside senior living communities.

Revenue is recurring, demand is non-discretionary, and the business directly improves quality of life. For investors, this reduces reliance on consumer whims and economic cycles.

1. Home Mobility Solutions: Aging in Place Is the FutureAnother senior-focused opportunity involves installing wheelchair ramps, stair lifts, and bathroom modifications to help seniors stay in their homes longer.

Jon favors this franchise because the leadership team brings decades of industry experience, and market demand is structural rather than trendy. These services align closely with healthcare, reverse mortgages, and long-term aging trends.

For investors, it's a reminder that boring, needs-based businesses often outperform exciting ideas.

1. Pilates Studios: Premium Wellness With Predictable RevenuePilates franchises continue to stand out as one of the strongest performers in the wellness space heading into 2026. Unlike trend-driven fitness concepts, Pilates benefits from longevity, broad demographic appeal, and a reputation for low-impact, high-value results. Clients range from young professionals to older adults focused on mobility, posture, and injury prevention.

What makes this model attractive from an investment perspective is its membership-based recurring revenue and disciplined unit economics. Franchise systems have refined pricing, instructor certification, class capacity, and studio layout to maximise margins while maintaining quality. Jon highlights that these brands succeed not because fitness is exciting, but because their business models are structured, repeatable, and proven across multiple markets.

For investors looking to avoid the mistake of underestimating operating complexity, Pilates franchises offer a clear framework for scaling without reinventing the wheel.

1. Recovery and Wellness Studios: Riding the Longevity EconomyRecovery-focused wellness franchises are another category Jon believes will accelerate into 2026. These studios offer services such as cold plunges, infrared saunas, cryotherapy, compression therapy, and contrast bathing, all designed to support recovery, performance, and long-term health.

Unlike traditional spas, these franchises position themselves as ongoing wellness memberships rather than one-off luxury visits. Customers come weekly, sometimes multiple times per week, creating predictable cash flow and strong client retention. Demand is driven by athletes, busy professionals, and aging consumers who prioritise longevity and preventative health.

From an investment standpoint, these franchises succeed when operators follow disciplined rollout plans, resist overbuilding too quickly, and rely on franchisor-tested marketing and pricing strategies. Jon notes that many independent wellness studios fail not because the demand isn't there, but because owners misjudge costs, staffing, or market readiness, mistakes that strong franchise systems are designed to prevent.

1. Music Education Studios: Community-Based Recurring IncomeMusic lesson franchises create centralized spaces where instructors teach children and adults under a standardized curriculum. Parents are willing to invest in their children regardless of economic conditions, making this category resilient.

The franchise advantage lies in marketing systems, scheduling technology, and curriculum design. Owners focus on community engagement rather than building everything from scratch.

1. Teen Driving Schools: Regulation Meets OpportunityIn many US states, formal driver education is required for teens to obtain a driver's license. Yet the market remains fragmented and unsophisticated.

Franchised teen driving schools offer standardized training, vetted instructors, and strong brand trust. For parents, safety matters. For investors, regulation-backed demand provides stability.

1. Property Services: Flooring and Junk Hauling ReinventedJon closes his list with two property services franchises that stand out due to operational innovation. One refinishes hardwood floors in a single day without sanding. The other reimagines junk hauling by charging by weight rather than volume, dramatically improving margins.

These businesses benefit from strong cash flow, fragmented competition, and clear differentiation. They also attract private equity interest, which supports higher exit multiples down the road.

The Bigger Lesson: Avoiding the Same Investment MistakesAcross all ten opportunities, Jon's philosophy is consistent:

1. Don't chase novelty.
2. Don't underestimate complexity.
3. Don't assume growth equals profit.

Instead, look for businesses with repeat customers, operational discipline, proven unit economics, and leadership teams that have already made their mistakes.

Franchising doesn't guarantee success, but it dramatically improves the odds by replacing guesswork with structure.

Final ThoughtIf there's one lesson Jon Ostenson's journey reinforces, it's this: the most expensive investment mistakes usually come from building alone. Learning from others' failures, using proven systems, and choosing businesses with real demand can mean the difference between surviving and thriving in 2026 and beyond.

Connect with Jon Ostenson1. LinkedIn 2. X 3. Facebook 4. YouTube 5. Book 6. Website

Andrew’s books1. How to Start Building Your Wealth Investing in the Stock Market 2. My Worst Investment Ever 3. 9 Valuation Mistakes and How to Avoid Them 4. Transform Your Business with Dr.Deming’s 14 Points

Andrew’s online programs1. Valuation Master Class 2. The Become a Better Investor Community 3. How to Start Building Your Wealth Investing in the Stock Market 4. Finance Made Ridiculously Simple 5. FVMR Investing: Quantamental Investing Across the World 6. Become a Great Presenter and Increase Your Influence 7. Transform Your Business with Dr. Deming’s 14 Points 8. Achieve Your Goals

Connect with Andrew Stotz:1. astotz.com 2. LinkedIn 3. Facebook 4. Instagram 5. Threads 6. X 7. YouTube 8. My Worst Investment Ever Podcast

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BIO: David Siegel is a Silicon Valley entrepreneur who has founded more than a dozen companies. He has written five books on technology and business, was once a candidate for the dean of Stanford Business School, and is now an AI thought leader leading an AI startup he hopes will pave the way for the agentic economy.

STORY: David invested heavily in launching a longevity coaching business, believing people would pay to extend their lives through lifestyle change. Despite strong science, personal results, and significant marketing spend, demand proved nearly nonexistent.

LEARNING: A great idea without real demand is still a bad investment.

“There will be many new problems, and whenever there are new problems, there’s a new economic opportunity for many people.”

David Siegel

Guest profileDavid Siegel is a Silicon Valley entrepreneur who has founded more than a dozen companies. He has written five books on technology and business, was once a candidate for the dean of Stanford Business School, and is now an AI thought leader leading an AI startup he hopes will pave the way for the agentic economy.

Worst investment everAfter years of building companies and studying major technological shifts, David found himself pulled deeply into the longevity movement. This wasn’t casual curiosity. He read more than 20 books, radically transformed his lifestyle, and developed a deep understanding of insulin resistance, nutrition, exercise, and long-term health.

The results were personal and visible. David was fit, disciplined, and energized. The idea that science could help people live 10 to 15 years longer, with a higher quality of life, felt not only possible but urgent. Helping others do the same seemed like a natural next chapter.

Turning passion into a businessConfident in both the science and his own experience, David decided to turn longevity coaching into a scalable business. His target audience was people in their 50s and 60s, individuals who were pre-diabetic or heading toward serious health issues and stood to benefit the most from early intervention.

He approached the venture like a seasoned entrepreneur. He built funnels, ran Facebook ads, spoke at retirement communities, and spent months on discovery calls explaining how lifestyle changes could dramatically reduce the risk of cancer, Alzheimer’s, and diabetes.

This wasn’t guesswork; it was disciplined execution.

The painful reality checkThen reality set in.

Despite spending over $100,000 on advertising and investing countless hours in conversations, demand was almost nonexistent. People listened. They nodded. They agreed the logic made sense. Then they walked away.

Many believed the healthcare system would save them. Others hoped for a pill instead of discipline. Even those clearly facing insulin resistance weren’t willing to make sustained lifestyle changes.

The most sobering realization wasn’t about marketing or pricing. It was this: most people don’t actually want to live longer if it requires consistent effort.

Accepting the lossIn the end, only about one percent of the people David spoke to were already doing the work and didn’t need coaching. Everyone else opted out, fully aware of the consequences.

The investment failed not because the science was wrong, but because the market wasn’t there. David ultimately gave the information away for free and walked away from the business, having learned an expensive but clarifying lesson about belief versus demand.

Lessons learned1. Even the most compelling solution will fail if it requires behavior that people are unwilling to change. 2. Logic, evidence, and outcomes don’t matter if the market emotionally resists effort. 3. A great idea without real demand is still a bad investment.

Andrew’s takeaways1. Andrew highlights that people consistently search for shortcuts rather than long-term solutions. Whether in health or investing, most people prefer convenience over discipline, even when the stakes are life-altering.

Actionable adviceBefore scaling any idea, test for real demand, not polite interest. Ask whether people are willing to pay, change their habits, and put in effort. If behavior change is central to your offering, validate that reality early or risk learning the hard way.

David’s recommendationsDavid encourages understanding your own health data, particularly insulin resistance, through proper testing, such as an oral glucose tolerance test. While the business failed, the knowledge remains powerful and freely available for those willing to act.

Parting words

“Keep looking for new problems that didn’t exist six months ago and jump in after them.”

David Siegel

Connect with David Siegel1. LinkedIn 2. X 3. YouTube 4. Website

Andrew’s books1. How to Start Building Your Wealth Investing in the Stock Market 2. My Worst Investment Ever 3. 9 Valuation Mistakes and How to Avoid Them 4. Transform Your Business with Dr.Deming’s 14 Points

Andrew’s online programs1. Valuation Master Class 2. The Become a Better Investor Community 3. How to Start Building Your Wealth Investing in the Stock Market 4. Finance Made Ridiculously Simple 5. FVMR Investing: Quantamental Investing Across the World 6. Become a Great Presenter and Increase Your Influence 7. Transform Your Business with Dr. Deming’s 14 Points 8. Achieve Your Goals

Connect with Andrew Stotz:1. astotz.com 2. LinkedIn 3. Facebook 4. Instagram 5. Threads 6. X 7. YouTube 8. My Worst Investment Ever Podcast

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BIO: Jon is the Founder and CEO of FranBridge Consulting, a 2-time Inc. 5000 company, and he is a top 1% franchise consultant.

STORY: Jon co-founded a marketing and call-center business that appeared successful on the surface, growing to millions in revenue and dozens of employees. However, excessive customization and an inability to charge prices that matched rising costs meant the business never became sustainably profitable.

LEARNING: Profitability is oxygen. Knowing when to admit you’re wrong matters just as much as knowing how to start.

“Humble yourself and admit when you’re wrong, course correct, and pivot.”

Jon Ostenson

Guest profileJon Ostenson is the Founder and CEO of FranBridge Consulting, a 2-time Inc. 5000 company, and he is a top 1% franchise consultant. Jon is also the author of the bestselling book, Non-Food Franchising. Jon draws on his experience as a former Inc. 500 Franchise President and Multi-Brand Franchisee in helping his clients select their franchise investments.

Worst investment everLeaving the corporate world felt like freedom. After years of structure, predictability, and steady paychecks, you finally get to build something of your own. That was precisely where Jon found himself: grateful for his corporate experience, energized by the idea of business ownership, and eager to prove he could create something meaningful on his own terms.

A promising partnership and a compelling business visionShortly after leaving corporate life, Jon partnered with a colleague to launch a marketing and sales company. He owned 60 percent of the business and ran day-to-day operations, while his partner held the remaining 40 percent.

The vision was compelling. The company would help franchise businesses grow by handling their marketing, answering inbound calls through an in-house call center, and booking appointments directly for clients. The promise was simple: make the phones ring and convert those calls into revenue.

Early momentum and the illusion of successAt first, it worked. The business grew quickly, attracting a strong leadership team and building a culture Jon was proud of. With around 35 employees and annual revenues of $3 million to $4 million, the company appeared successful from the outside. The team was energized, clients were signing on, and the pace was exciting.

When growth didn’t translate into profitBut beneath the surface, there was a quiet, persistent problem.

The business wasn’t profitable.

Despite all the effort, the long hours, and the constant tweaking, the company hovered around breakeven. Some months it lost money. Others it barely scraped by. Payroll was always looming, and profitability felt just out of reach. Jon tried adjusting pricing, shifting emphasis between marketing and call center services, and introducing new technology to increase value.

But every fix only delayed the inevitable question he didn’t want to answer: What if the model itself was broken?

The hidden cost of customization and complexityThe core issue turned out to be customization. The business was designed to scale by serving franchise systems with repeatable processes. Instead, each franchisee insisted their market was different, their staff was unique, and their customers required special handling. Wanting to please early clients and drive revenue, Jon said yes. Again and again.

Over time, the company became highly customized, operationally complex, and increasingly expensive to run. Pricing no longer matched costs. The more the business grew, the harder it became to make money. What looked like top-line success was masking a model that couldn’t sustain itself.

The hard decision to walk away with integrityEventually, Jon made the difficult decision to wind down the business. There was no dramatic exit or acquisition, but there was integrity. The team helped place employees in new roles and transitioned clients responsibly. Still, it was a painful experience.

The failure wasn’t just financial; it was an ego hit. This was Jon’s first true experience of business ownership, and letting it go meant admitting that the original idea wasn’t as strong as he believed.

Lessons learned1. The biggest lesson came from contrast. After running his own startup without a proven product-market fit, Jon developed a deep appreciation for franchising. Unlike a startup built on assumptions, franchises offer historical data, real performance benchmarks, and access to owners who have already walked the path. You can see results before you ever invest. 2. There were personal lessons, too. Knowing when to admit you’re wrong matters just as much as knowing how to start. Humility, course correction, and the willingness to pivot are not weaknesses in entrepreneurship; they’re survival skills. 3. Profitability, Jon learned, is oxygen. A business that can’t consistently operate in the black eventually suffocates, no matter how exciting the vision or how talented the team.

Andrew’s takeaways1. One of the most important disciplines for any business owner is accurately closing the books each month. That means reviewing not just the profit and loss statement, but also the balance sheet. If your accountant can’t do that, it’s time for a new one. Monthly financial clarity allows you to identify problems early, before they become fatal. 2. Another insight comes from scale. Based on analysis of tens of thousands of companies globally, Andrew points to $7.5 million in annual revenue as a critical threshold. Below that level, it’s tough to afford the management talent and infrastructure required to run a scalable business. If you can’t get there efficiently, it may be time to rethink the model. 3. Finally, complexity is the silent killer. Businesses naturally drift toward offering more products, more services, and more custom solutions. Every added layer increases costs and erodes margins. Only disciplined leadership can stop complexity from overwhelming profitability.

Actionable adviceIf you’re building a business, be honest about whether you’re chasing revenue or building something scalable. Early customization can help you survive, but staying there too long can trap you in a low-margin cycle that’s hard to escape.

Focus on creating profitable top-line growth, not just growth for its own sake. Learn to say no, even when opportunities feel exciting. And remember: there is no perfect time to start a business. The best way to learn is to get in the game early, without betting everything, and build experience that you can compound over time.

Jon’s recommendationsJon recommends starting with education and proven frameworks. He offers a free downloadable copy of his book, Non-Food Franchising, in a concise 90-page guide. The book has received strong feedback and provides practical insights for anyone considering business ownership.

Listeners can download the PDF or audio version by visiting FranBridgeConsulting.com and sharing their email address. Those who prefer a physical copy can purchase it on Amazon, with all proceeds supporting Hope International.

No.1 goal for the next 12 monthsJon’s goal for the next 12 months is to grow passive income across multiple asset classes, including franchising. His goal is to build sustainable revenue streams that create freedom across all areas of life: faith, family, fitness, finances, and future ventures.

Passive income, for Jon, isn’t just about money. It’s about capacity—the ability to choose how you spend your time and energy.

Parting words

“There’s never a good time to start a business. Get off the couch, dip your toe in the water, read our book, get in the game, and start thinking about it.”

Jon Ostenson

Connect with Jon Ostenson1. LinkedIn 2. Twitter 3. Facebook 4. YouTube 5. Book 6. Website

Andrew’s books1. How to Start Building Your Wealth Investing in the Stock Market 2. My Worst Investment Ever 3. 9 Valuation Mistakes and How to Avoid Them 4. Transform Your Business with Dr.Deming’s 14 Points

Andrew’s online programs1. Valuation Master Class 2. The Become a Better Investor Community 3. How to Start Building Your Wealth Investing in the Stock Market 4. Finance Made Ridiculously Simple 5. FVMR Investing: Quantamental Investing Across the World 6. Become a Great Presenter and Increase Your Influence 7. Transform Your Business with Dr. Deming’s 14 Points 8. Achieve Your Goals

Connect with Andrew Stotz:1. astotz.com 2. LinkedIn 3. Facebook 4. Instagram 5. Threads 6. X 7. YouTube 8. My Worst Investment Ever Podcast

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BIO: Edwin Endlich is the Chief Marketing Officer of Wysh and President of the National Alliance for Financial Literacy and Inclusion.

STORY: Edwin’s worst investment was buying Tilray stock at $143 during the early hype of legal cannabis investing. Swept up in the excitement of a “new frontier,” he held on as the price crashed—eventually selling at around 30 cents and losing over 99% of his investment.

LEARNING: The fundamentals always apply, even in new or exciting industries. Don’t let hype replace due diligence.

“We’re in this AI conversation, let’s not forget the fundamentals of the market. Learn from what has happened in this space before. And don’t get too cocky.”

Edwin Endlich

Guest profileEdwin Endlich is the Chief Marketing Officer of Wysh and President of the National Alliance for Financial Literacy and Inclusion. Edwin has spent his career at the intersection of marketing, fintech, and AI, helping financial institutions tell more human stories in an increasingly digital world. He’s passionate about making financial protection simple, accessible, and even a little more fun — proving you don’t need buzzwords or hype to make banking and technology relevant.

Worst investment everThere’s nothing quite like the rush of feeling early—early to a trend, early to a movement, early to a once-in-a-lifetime opportunity. That’s precisely what Edwin felt in 2015–2016, when investing in legal cannabis became possible in parts of the United States.

For the first time, regular people could invest in a newly legalized industry. It felt like history happening in real time, a frontier market ready to explode. Edwin and his friends didn’t want to miss out, especially when companies were going public, and their share prices seemed destined to skyrocket.

One of those stocks was Tilray. At $143 a share, Edwin was convinced he was buying the future. He imagined stock splits, booming demand, and a cannabis empire rising from the ground floor. Instead, he watched that $143 tumble month after month, until he finally sold it for around 30 cents. The emotional rollercoaster of hope, disappointment, and finally acceptance was a journey Edwin will never forget.

A 99.3% loss.

He now calls it his worst investment—not just because of the financial hit, but because of how powerfully excitement and hype clouded his judgment.

Lessons learned* Every investor thinks their situation is unique. But in reality, the same patterns repeat again and again. * Markets take time to mature. * Regulation can shift overnight. * Early doesn’t always mean right. * Excitement is not a strategy.

Andrew’s takeaways* A portfolio isn’t just about diversification by industry or geography; it’s also about diversifying across stages of maturity. * Stable, well-regulated companies like Coca-Cola or Pepsi behave very differently from early-stage, hype-driven industries, such as the cannabis sector. * Even large companies, with teams of top analysts, often get it wrong.

Actionable adviceIf Edwin could offer one piece of advice to anyone starry-eyed over the next big thing, it would be this:

Do your due diligence. Seriously.

Before you invest in anything—especially something exciting, futuristic, or rapidly trending—slow down and ask:

• Has this been done before?
• What can I learn from past bubbles?
• What does history say about similar innovations?
• Am I investing in fundamentals—or feelings?

Whether it’s cannabis in 2016 or AI in 2024, the pattern is the same. Booms become bubbles. Investors overestimate how fast an industry will mature. And emotion often wins over discipline. But with the right mindset and discipline, you can avoid these pitfalls.

Edwin’s recommendationsEdwin encourages people to empower themselves with real financial knowledge. That’s why he co-founded the National Alliance for Financial Literacy and Inclusion (NAFLI)—a nonprofit dedicated to helping individuals understand money, investing, and financial products.

Whether you’re new to investing or leading a financial institution, NAFLI offers education, tools, and resources to help individuals make more informed financial decisions.

No.1 goal for the next 12 monthsEdwin’s goal for the next 12 months is to have a full, uninterrupted conversation with his daughter, one that lasts longer than 10 minutes and isn’t broken by phones, notifications, or distractions. Edwin wants to rebuild community and presence—starting at home.

Parting words

“Stay focused and look to the past.”

Edwin Endlich

Connect with Edwin Endlich* LinkedIn * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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BIO: Scott Alldridge is CEO of IP Services and President of the IT Process Institute, a bestselling author of the VisibleOps series, and a Certified Chief Information Security Officer.

STORY: Scott’s worst investment was a stake in a startup promising to deliver hot coffee by drone. Excited by the futuristic idea, he invested before the concept was proven—but the project quickly crashed when the FAA banned drone deliveries and a prototype failed spectacularly.

LEARNING: Being first doesn’t always mean being right. Due diligence is non-negotiable.

“You don’t have to jump in. Being the first with the most doesn’t matter if it’s a bad idea—you’ll lose money anyway.”

Scott Alldridge

Guest profileScott Alldridge is CEO of IP Services and President of the IT Process Institute, a bestselling author of the VisibleOps series, and a Certified Chief Information Security Officer. He holds an MBA in cybersecurity and has over 30 years of experience in IT and cybersecurity leadership. Scott empowers organizations to achieve resilience through process excellence, Zero Trust, and AI-driven security.

Worst investment everIf you live in the Pacific Northwest, coffee isn’t just a drink; it’s a way of life. Seattle is home to Starbucks, and in Oregon, coffee culture runs deep. So when Scott was pitched an idea that combined coffee and technology—delivering hot coffee via drone—he couldn’t resist.

The concept sounded revolutionary: push a button on your phone, and a drone drops off your piping-hot Americano right at your doorstep. It felt like the future—part Amazon innovation, part TED Talk dream.

Excited, Scott invested for a 3% stake in the startup. The founders promised a caffeinated empire built on convenience and cutting-edge tech.

But just three months later, the buzz wore off. The FAA issued a cease-and-desist order on all drone delivery experiments, particularly those involving liquids.

And then came the final straw: the company’s prototype drone spilled an entire cup of hot coffee mid-flight, grounding both the drone and Scott’s hopes. The “coffee drone revolution” turned into a $10,000 lesson in wishful thinking. Delivering hot coffee by drone was never going to fly—literally.

Lessons learned* Being first doesn’t always mean being right. * It’s tempting to jump into the next big idea, especially when it sounds exciting and visionary. However, early-stage innovation carries significant risk, especially when the concept hasn’t been tested or proven. * Enthusiasm can cloud judgment. Instead of investing based on a slick pitch deck or futuristic concept, it’s smarter to wait until an idea is validated, tested, and compliant with regulations.

Andrew’s takeaways* Every idea looks brilliant until reality—and regulation—show up. * Even in large corporations, where top analysts and executives lead multi-million-dollar mergers, success isn’t guaranteed. Only about 20% of them added value within three to five years. * Business is hard, and due diligence is non-negotiable.

Actionable adviceAlways do your due diligence. Before investing in any idea—no matter how exciting—slow down and dig deep:

• Validate the concept. Is there a working prototype, or just a fancy pitch?
• Check the regulations, especially if the business operates in a grey area (like drones or cannabis).
• Assess the risk. What happens if laws, markets, or consumer behaviour change?
• Stay patient. If it’s truly a good idea, it will still be good when it’s proven.

Scott’s recommendationsScott recommends his Amazon bestseller, Visible Ops Cybersecurity: Practical Ways to Enhance Your Cybersecurity Posture, which breaks down complex IT security concepts into real-world strategies that leaders can actually apply.

For executives who don’t speak “tech,” he’s also written The Visible Ops Executive Companion Guide, a concise 105-page edition with zero “geek speak”—just actionable guidance.

And coming soon: Visible Ops AI: Artificial Intelligence Governance with Practical Guidance, where Scott explores how businesses can safely and responsibly integrate AI while protecting data integrity.

No.1 goal for the next 12 monthsScott’s goal for the next 12 months is to double down on two things: growth and impact.

On the business side, his goal is to expand the top-line revenue of his IT services firm and bring in new client partnerships. But there’s also a bigger mission driving him—making the world a safer place through smarter, more disciplined cybersecurity practices.

Parting words

“Thank you for having me today. Let’s keep the world a cyber-safe place.”

Scott Alldridge

Connect with Scott Alldridge* LinkedIn * Instagram * Facebook * Website * Book

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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BIO: Thomas J. Powell, founder of The Powell Perspective™, is a seasoned entrepreneur, investor, and advocate for founders, bringing clarity, strategy, and resilience to leaders building at scale.

STORY: Thomas invested $3.6M in a friend’s cannabis company, where he ignored his own due diligence framework. Because he skipped key governance protections and didn’t document alignment or exit terms, the investment became frustrating, hard to control, and nearly impossible to fix—proving that breaking your own rules is the most expensive mistake.

LEARNING: Never mix friendship and business. Make sure both you and the founder are solving the same problem.

“They say good fences make good neighbors, good documents keep good friendships.”

Thomas Powell

Guest profileImagine navigating the high-stakes world of capital, strategy, and legacy with a guide who has raised billions and structured ventures worldwide. Thomas J. Powell, founder of The Powell Perspective™, is a seasoned entrepreneur, investor, and advocate for founders, bringing clarity, strategy, and resilience to leaders building at scale.

Worst investment everYou’ve probably heard the saying, “Never mix friendship and business.” Thomas learned that lesson the hard way.

His story starts with good intentions. When his kids’ grandmother battled breast cancer, cannabis was the only thing that eased her treatment side effects. So when medical marijuana became legal in a few US states, investing in the cannabis industry felt like the right thing to do.

But here’s where things went wrong.

A close friend brought him the deal, and because of that personal connection, Thomas skipped many of the due diligence steps he usually followed through his family office. No detailed governance clauses. No proper reporting framework. No accountability structure.

It wasn’t a small investment either—about $3.6 million. As time went on, the cracks began to show. The company missed financial reports, accounting systems were weak, and when COVID hit, things only got messier. To make matters worse, taking over the business wasn’t even an option since he didn’t have a cannabis license. The emotional toll of this situation was significant, as Thomas had to face the reality of his investment failing due to trusting a friend blindly.

The worst part? Having to look a friend in the eye, knowing he’d broken his own investment rules.

Lessons learned Verify alignment: Make sure both you and the founder are solving the same problem, and that you share the same exit goals. Ask questions like, “If someone offered to buy this company for $25 million today, would you sell?” If your answers don’t match, you’re not aligned. * Watch the hubris: Just because you’re smart or successful doesn’t mean you can see around every corner. Understand the legal and regulatory landscape before investing, especially in industries like cannabis, where compliance is complex. * Enforce accountability:* Set clear reporting expectations from day one and include consequences for missed deadlines. Thomas admits that if his deal had stricter enforcement clauses, it would’ve saved him time, money, and frustration later on.

Andrew’s takeaways* Many startups underpay themselves. It might sound noble, but it actually distorts valuation and creates problems later. * Make sure founders are paying themselves a market-rate salary. That way, when the business is valued or acquired, there are no nasty surprises about hidden costs. * Define roles clearly. Being a founder is different from being an employee. A salary compensates for your work; ownership rewards your risk. Mixing the two confuses things.

Actionable adviceAlign the capital and exit terms from day one—and write them down, even on a napkin. You don’t need a 30-page legal contract to start. Even a handwritten summary that defines the key terms, goals, and triggers for selling or exiting can prevent misunderstandings later. Because once the ink dries, or worse, once the money’s wired, it’s too late to wish you’d had that conversation.

Thomas’s recommendationsThomas recommends these books, principles, and resources for smarter investing.

• Read The Richest Man in Babylon – A timeless classic that teaches simple, lasting lessons about money management and investing in what you understand.
• Invest in problems you understand. Don’t chase hype. If you know how an industry works, you’ll see both the risks and opportunities clearly.
• Take advice from people with a “bigger pile.” In other words, learn from those who’ve already achieved more than you in that field. Theory is cheap—experience is priceless.
• Use structured tools. Thomas’s Founders Office provides frameworks that evaluate pitch decks for both founders and investors, helping you spot weaknesses and strengths before committing capital.

No.1 goal for the next 12 monthsThomas’s goal for the next 12 months is to expand his Founders Office cohort program, connecting entrepreneurs and investors to create better capital alignment. He’s passionate about free enterprise and founder advocacy, believing that capitalism—done right—can lift people out of poverty and fuel innovation worldwide. Whether in the US, Europe, or Sub-Saharan Africa, his mission is the same: empower founders and investors to build lasting, ethical wealth together.

Parting words

“Learn from other people’s experiences. When you see someone make a mistake, don’t repeat it because we don’t learn from the wins, we learn from the failures.”

Thomas Powell

Connect with Dr. Thomas Powell* LinkedIn * Instagram * Website * Master Class

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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BIO: As Co-Founder & CEO of Mode Mobile, Dan Novaes is leading the transformation of how people interact with technology. His “Earn As You Go” software empowers millions of consumers to turn daily habits into passive income.

STORY: Dan decided to take the bold move of turning his treasury into a long-term crypto strategy. What started as $2 million in Bitcoin and Ethereum ballooned to $30 million, but the 2022 crash and business pressures forced him to liquidate at low prices—missing out on what could have been a $100 million windfall.

LEARNING: Don’t chase aggressive expansion without a clear path to profitability. Stick to your core business. Separate your business from speculative bets.

“Everyone has a plan until they get punched in the face. Take a moment of deep thinking every week when things are going well, think about everything that could go wrong, and then reassess your position.”

Dan Novaes

Guest profileAs Co-Founder & CEO of Mode Mobile, Dan Novaes is leading the transformation of how people interact with technology. His “Earn As You Go” software empowers millions of consumers to turn daily habits into passive income. Under his leadership, Mode achieved 32,481% revenue growth from 2019 to 2022 and ranked #1 in Software on Deloitte’s Technology Fast 500 in North America.

Worst investment everIn today’s rapidly evolving and highly interconnected business world, companies are increasingly relying on external partnerships to drive growth and innovation.

Dan’s story begins in the early days of crypto. His company had raised funds through Bitcoin and Ethereum when Bitcoin was valued at just a few thousand dollars and Ethereum at only a few hundred. This early success in the crypto market was a testament to the potential for significant growth that these investments could bring.

Once the business had a comfortable runway, Dan made a bold move—he turned their treasury, which is the accumulated profits and cash reserves, into a long-term crypto strategy, much like what companies like MicroStrategy would later become known for.

Riding the waveAt first, the decision looked genius. That $1–2 million ballooned into $30 million. Dan was on CNBC, celebrating as Bitcoin crossed $10,000, and his company seemed unstoppable. They never had to fundraise again—until the 2022 crash.

The crashIn 2022, Bitcoin’s price fell from $63,000 to $18,000, and pressure mounted. Compounding the pain, many of Dan’s advertising partners went bankrupt, leaving unpaid bills. This was a significant blow to the company’s financial stability. To survive, Dan’s company had to liquidate almost the entire treasury at depressed prices.

Had Dan managed his growth and financials more cautiously, that crypto position could have grown to $100 million or more. Instead, he walked away with far less—and a bitter lesson.

Lessons learned* Growth at all costs is dangerous. Chasing aggressive expansion without a clear path to profitability can leave your company vulnerable when market conditions shift. * Profit-taking matters. Riding the wave without ever securing gains turned paper wealth into a forced liquidation. * Stick to your core business. * Discipline is everything. Not letting market euphoria dictate strategy is critical to long-term survival.

Andrew’s takeaways* Separate your business from speculative bets. Don’t gamble with your excess cash on foreign exchange trades. Instead, hedge your risks because trading currencies isn’t your core business. * Have cash discipline for survival through decades of ups and downs. * Guard your cash, respect your core business, and don’t confuse speculative opportunities with sustainable operations.

Actionable adviceTake time every week for deep thinking. When things are going well, take a moment to ask: What could go wrong? By slowing down and imagining worst-case scenarios, you can prepare contingency plans before you get “punched in the face” by reality. This proactive approach to risk management will keep you prepared for any eventuality.

Dan’s recommendationsDan recommends building the habit of scheduled deep thinking. Carve out one or two hours weekly—whether it’s through running or quiet reflection. The practice isn’t just for investing; it sharpens decision-making across life and business.

No.1 goal for the next 12 monthsDan’s goal for the next 12 months is to double revenue and triple EBITDA through acquiring and growing new businesses. It’s a bold target, but one grounded in the hard lessons of the past. This time, growth will come with more balance, more discipline, and a stronger focus on sustainability.

Parting words

“Thank you for having me. Feel free to reach out.”

Dan Novaes

Connect with Dan Novaes* LinkedIn * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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BIO: Dr. Gilbert A. Guzmán is a business strategist and systems thinker. He is the founder of IntraQ AI, a SaaS solution designed to eliminate knowledge gaps within the workplace, and the author of Atomic Impact: Systems for Transformative Productivity.

STORY: In 2012, Gilbert envisioned a portable charger vending system for airports, universities, and theaters—a “Redbox for power.” He over-engineered, over-researched, and waited for “perfect”—while another company launched the same concept. By the time he moved, they dominated airports with a first-mover advantage.

LEARNING: Jump in and get things going. Don’t be afraid to fail. Iterate, and get your product to market.

“Don’t be afraid to iterate. Maintain the course, and you’ll see your product through.”

Dr. Gilbert A. Guzmán

Guest profileDr. Gilbert A. Guzmán is a business strategist and systems thinker. He is the founder of IntraQ AI, a SaaS solution designed to eliminate knowledge gaps within the workplace, and the author of Atomic Impact: Systems for Transformative Productivity, which you can get for free using the code: Stotz.

With a doctorate in business and experience leading large teams, he helps organizations boost productivity through practical systems built for real-world constraints. His work bridges people, data, and technology for lasting operational success.

Worst investment everIn 2012, Gilbert envisioned a portable charger vending system for airports, universities, and theaters—a “Redbox for power.” Users would rent charged batteries and return them to kiosks for reuse.

Ironically, Gilbert is a very impatient man, but when it comes to business ideas, he takes his sweet time, sometimes too long. This is exactly what happened with the portable charger idea.

Gilbert over-engineered, over-researched, and waited for “perfect”—while Fuel Rod launched the same concept. By the time he moved, they dominated airports with a first-mover advantage. He invented the wheel but didn’t roll it.

Lessons learned* Jump in, do what you need to do, stay up late, work hard, do the research, and get things going. Ultimately, everything will come to fruition. * Manage your risks. * You can earn back cash, but you can’t earn back lost time. * In startups, a bad launch always beats no launch. Waiting for no flaws means 100% flaw: no product. * You can’t be a risk-averse leader.

Andrew’s takeaways* MVPs beat masterpieces because if you’re not embarrassed by the first version of your product, you launched too late. * The market doesn’t care who invented a product—it cares who shipped it.

Actionable advice* Don’t be afraid to fail. Iterate, get your product to market, and find out if it makes sense and is relevant. * Don’t get scared of the big names, the Googles of the world, and think that they will crush you. * You don’t have to be horizontal. You can go vertical. You can find a niche and dedicate your time to it.

Gilbert’s recommendationsGilbert recommends his e-book Atomic Impact: Systems for Transformative Productivity (remember to use code Stotz for a free copy).

He also recommends visiting his website for additional resources. Additionally, reading Edwards Deming’s Out of the Crisis can help you apply systems thinking to your personal and work life, ultimately changing the way you view life, society, and work, and becoming a little more solution-oriented.

No.1 goal for the next 12 monthsGilbert’s goal for the next 12 months is to further enhance the success of Atomic Impact and IntraQ AI by creating speaking engagements and workshops that will reinvigorate the concepts he has developed and transform the way people work.

Parting words

“I appreciate you having me on, Andrew. It’s been a pleasure. I look forward to the future. Go split some atoms.”

Gilbert

Connect with Dr. Gilbert Guzman* LinkedIn * Podcast * YouTube * Blog * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they conclude the lessons from the book.

LEARNING: Investing isn’t about chasing the next hot stock—it’s about building a resilient, well-diversified portfolio you can live with in good times and bad.

“Once you have enough, stop playing the game as if you don’t. Reduce risk, enjoy life, and make your money serve you—not the other way around.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. In this series, they conclude on the lessons from the book.

Enrich Your Future: Larry’s Timeless Guide to Smarter InvestingIf you’ve ever wondered how to cut through the noise of investment hype and build a portfolio that actually works for you, Larry’s Enrich Your Future is the blueprint you’ve been looking for. Here’s a distilled look at the wisdom from his book.

Start with core principlesLarry insists there are only a handful of fundamental truths in investing—and if you master them, you’ll avoid most costly mistakes:

• Markets are highly efficient – While not perfect, markets price assets so effectively that consistently beating them on a risk-adjusted basis is near impossible. So don’t engage in individual security selection or market timing.
• All risk assets offer similar risk-adjusted returns – Whether it’s US stocks, Thai stocks, or corporate bonds, the relationship between risk and return holds steady over time. Invest in assets based upon your ability, willingness, and need to take risks. If you’re willing to take more risk and have the ability and maybe the need to, then you can load up on more risky, higher expected-returning assets. It doesn’t mean they’re better assets; rather, they have higher expected returns at the cost of higher risk.
• Diversification is non-negotiable – Since all risk assets have similar risk-adjusted returns, it makes no sense to concentrate all of your risk in one basket. Concentrating your risk in a single asset class or geography is a recipe for trouble.

Build a portfolio that fits YOUForget cookie-cutter solutions—Larry believes the “right” portfolio depends on three factors:

1. Ability to take risk – Your financial capacity to weather market downturns is influenced by factors like investment horizon and job stability.
2. Willingness to take risk – Your psychological comfort level with market volatility.
3. Need to take risk – Whether you require high returns to meet your financial goals.

Larry’s rule? Let the lowest of these three determine your equity exposure. If you don’t need to take big risks, don’t.

Think global, but stay rationalA total global market portfolio is an ideal starting point—currently about 65% US, 27% developed international, and 8% emerging markets. Adjust only slightly if you have a reasoned view, but avoid drastic tilts that imply you “know better” than the market.

Beyond stocks and bondsLarry is a big believer in alternative investments—if you can access them at reasonable costs. These include:

• Private credit – Lending directly to companies, often with double-digit returns and lower volatility than equities.
• Reinsurance – Returns tied to natural disaster risks, uncorrelated with stock markets.
• Infrastructure funds – Assets like toll roads, dams, and utilities with stable cash flows.

His own portfolio now includes a significant allocation to alternatives, reducing reliance on traditional stocks and bonds.

Focus on risk sources, not just labelsInstead of obsessing over “asset classes,” Larry advises analysing the risks each investment brings—economic cycle risk, credit risk, inflation risk—and blending assets with low correlations to one another.

Integrate factors, don’t isolate themWhile factor investing (such as value, small-cap, quality, and momentum) is powerful, buying single-factor funds separately can create costly and contradictory trades. Larry favours integrated factor funds that combine multiple factors into one systematic strategy, reducing costs and improving efficiency.

Master your behaviourEven the best portfolio fails if you can’t stick with it. Larry warns that there is no one right portfolio. The right portfolio for you is the one you are most likely to stick with.

That means:

• Avoid assets you can’t hold for at least 10–15 years.
• Expect long stretches of underperformance from every risk asset.
• Continue to buy during downturns to maintain your target allocation.

Don’t DIY unless you’re truly qualifiedLess than 1% of investors have the skill, time, and emotional discipline to manage their investments entirely on their own. Larry recommends working with a true fiduciary adviser—one who:

• Is paid only by you (no commissions).
• Invests in the same funds they recommend.
• Backs every decision with empirical evidence.

Education beats ignorance every timeYou don’t need to read all 18 of Larry’s books, but three or four will give you the foundational knowledge to make better decisions. Investing ignorance, he warns, is far costlier than the price of a good book.

The takeawayEnrich Your Future: The Keys to Successful Investing isn’t about chasing the next hot stock—it’s about building a resilient, well-diversified portfolio you can live with in good times and bad. Follow Larry’s principles, and you’ll not only protect your wealth but also position yourself for long-term financial peace of mind.

As Larry himself says:

“Once you have enough, stop playing the game as if you don’t. Reduce risk, enjoy life, and make your money serve you—not the other way around.”

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us* Enrich Your Future 21: Think You Can Beat the Market? Think Again * Enrich Your Future 22: Some Risks Are Not Worth Taking * Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions * Enrich Your Future 24: Why Smart People Do Dumb Things * Enrich Your Future 25: Stock Crashes Happen—Be Prepared * Enrich Your Future 26: Should You Invest Now or Spread It Out? * Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities * Enrich Your Future 28 & 29: How to Outsmart Your Investing Biases * Enrich Your Future 30: The Hidden Cost of Chasing Dividend Stocks * Enrich Your Future 31: Risk vs. Uncertainty: The Investor’s Blind Spot

Part IV: Playing the Winner’s Game in Life and Investing

• Enrich Your Future 32: Trying to Beat the Market Is a Fool’s Errand
• Enrich Your Future 33: The Market Doesn’t Care How Smart You Are
• Enrich Your Future 34: Embrace the Bear: Why Market Crashes Are Your Silent Ally
• Enrich Your Future 35: Market Gurus Are Just Expensive Entertainers
• Enrich Your Future 36: The Madness of Crowded Trades
• Enrich Your Future 37 & 38: The Calendar Is a Crook & Hot Funds Are a Trap
• Enrich Your Future 39: More Wealth Does Not Give You More Happiness
• Enrich Your Future 40: Why Passive Investing Gives You Back What Wall Street Steals
• Enrich Your Future 41 & 42: DIY Investing or Hire an Advisor? How to Avoid the Costliest Mistakes

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master...*

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 41: A Tale of Two Strategies and Chapter 42: How to Identify an Advisor You Can Trust.

LEARNING: Passive investing is still the winner. If something is worth doing, it’s worth paying someone to do it for you.

“A good wealth advisor helps you build a plan and choose the best investment vehicles that’ll give you the best chance of achieving your life and financial goals.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 41: A Tale of Two Strategies and Chapter 42: How to Identify an Advisor You Can Trust.

Chapter 41: A Tale of Two StrategiesIn Chapter 41, Larry explains why investors who have implemented the types of passive strategies recommended in his book have experienced “the best of times.” On the other hand, for those who continue to play the game of active investing, it has generally been the “worst of times.”

“It was the best of times, it was the worst of times.” Charles Dickens may have been writing about the French Revolution, but Larry observes that that line rings true for today’s investors, too. Depending on how you approach the market, your experience can feel like either a triumph or a disaster.

If you’re betting on active management, it’s the worst of timesAccording to Larry, people who still believe in the promise of active fund managers as the winning strategy are likely to find themselves in the “season of Darkness.” Over the years, the ability of active managers to consistently outperform has dwindled significantly.

You may be surprised to learn that in 1998, when Charles Ellis wrote his famous book “Winning the Loser’s Game”, about 20% of actively managed funds produced statistically significant returns after adjusting for risk. That figure was already discouraging.

A later study in 2014 (Conviction in Equity Investing) found that the percentage of managers producing any net alpha had dropped from 20% in 1993 to just 1.6%.

Larry reminds investors who are holding on to the hope that active management will deliver the goods that they are swimming against a strong current. The odds aren’t in their favour—and neither are the expenses.

It’s the best of times for passive investorsIf you’ve embraced passive investing, it’s the best of times. The resounding success of this strategy, backed by a wealth of data and real-world results, should instill a strong sense of confidence in your investment decisions.

For investors who believe that markets are efficient and that passive investing is the winning strategy, it has been the best of times. The availability of passively managed funds—index funds, exchange-traded funds (ETFs), and passive asset class funds-has dramatically increased. These funds cover a broader range of asset classes and factors, giving you more effective tools to diversify your portfolio.

Passive funds are not only inherently more tax-efficient because of their low turnover, but some are also specifically managed with tax efficiency in mind. And if you’re using ETF versions, they become even more efficient.

Then there’s the cost. Famous fund companies like BlackRock, Vanguard, and Fidelity are in fierce competition for your investment dollars. That competition has driven expense ratios down dramatically.

Chapter 42: How to Identify an Advisor You Can TrustIn Chapter 42, Larry provides guidance to those investors who believe they are best served by working with a financial advisor. He shares a roadmap to help them identify one they can trust.

In Larry’s opinion, investing is like home repairs.

There are two types of people: the do-it-yourselfers and those who hire professionals. You might fall into the DIY camp because you believe you can save money or because you enjoy the process.

But, Larry adds, some people who try to do it themselves simply shouldn’t. If you don’t have the right skills, the cost of fixing mistakes can be much greater than hiring a professional in the first place.

The Swedroe PrincipleHere’s where Larry’s encouragement to use the Swedroe Principle comes in: If something is worth doing, it’s worth paying someone to do it for you. The Swedroe Principle advocates for the use of professional financial advisors for tasks that are complex or require specialized knowledge. This advice can empower you to make confident investment decisions.

You may value your free time. Maybe you just don’t enjoy managing investments. Or maybe, like many, you’ve come to realize that if something can be messed up, you’ll find a way to do it. Whatever the reason, Larry says it’s okay to admit that managing your finances on your own may not be the best route.

Studies show that few individuals possess both the knowledge and the discipline needed to be successful investors. If investing were compared to home repair skills, DIY investors would likely fare worse than DIY handypersons. And the financial consequences of poor investment decisions can be far greater than the cost of fixing a leaky faucet.

On the other hand, if you do recognize your limitations, you can still come out ahead—if you choose the right financial advisor.

How to identify a financial advisor you can trustChoosing a financial advisor, Larry emphasizes, is one of the most important decisions you’ll ever make. Surveys show that, in addition to financial expertise, trust is at the top of the list of what people want in an advisor.

Trust is intangible and hard to measure, but it’s crucial. That’s why it’s important to ask the right questions and insist on the right commitments when choosing an advisor.

Larry shares a checklist to guide your decision. He says when interviewing an advisor, ask them to commit to the following:

1. Client-first philosophy: The advisor should demonstrate that their core principle is to act in your best interest.
2. Fiduciary duty: They must follow a fiduciary standard, the highest legal duty of care, which is very different from the “suitability standard” used by many brokers.
3. Fee-only compensation: They should earn no commissions—just fees paid directly by you. This avoids the temptation to recommend products that benefit them more than you.
4. Full disclosure: Any potential conflicts of interest must be clearly disclosed.
5. Evidence-based advice: Their investment philosophy should be grounded in rigorous academic research—not guesswork or opinions.
6. Client-centric service: Their only goal in offering solutions should be to serve your best interest.
7. Personal attention: They should build a strong personal relationship with you and provide access to a team of professionals.
8. Skin in the game: They should invest their own money based on the same principles they recommend to you.
9. Integrated planning: They should help you develop a plan that includes investments, estate planning, taxes, and risk management tailored to your unique needs.
10. Goal-oriented decisions: Every recommendation should be made with your long-term success in mind.
11. Qualified professionals: The people advising you should hold respected credentials like CFP, PFS, or similar.

Further reading1. Eugene Fama and Kenneth French, “Luck versus Skill in the Cross-Section of Mutual Fund Returns,” The Journal of Finance (October 2010). 2. Mike Sebastian and Sudhakar Attaluri, “Conviction in Equity Investing,” The Journal of Portfolio Management (Summer 2014).

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us* Enrich Your Future 21: Think You Can Beat the Market? Think Again * Enrich Your Future 22: Some Risks Are Not Worth Taking * Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions * Enrich Your Future 24: Why Smart People Do Dumb Things * Enrich Your Future 25: Stock Crashes Happen—Be Prepared * Enrich Your Future 26: Should You Invest Now or Spread It Out? * Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities * Enrich Your Future 28 & 29: How to Outsmart Your Investing Biases * Enrich Your Future 30: The Hidden Cost of Chasing Dividend Stocks * Enrich Your Future 31: Risk vs. Uncertainty: The Investor’s Blind Spot

Part IV: Playing the Winner’s Game in Life and Investing

• Enrich Your Future 32: Trying to Beat the Market Is a Fool’s Errand
• Enrich Your Future 33: The Market Doesn’t Care How Smart You Are
• Enrich Your Future 34: Embrace the Bear: Why Market Crashes Are Your Silent Ally
• Enrich Your Future 35: Market Gurus Are Just Expensive Entertainers
• Enrich Your Future 36: The Madness of Crowded Trades
• Enrich Your Future 37 & 38: The Calendar Is a Crook & Hot Funds Are a Trap
• Enrich Your Future 39: More Wealth Does Not Give You More Happiness
• Enrich Your Future 40: Why Passive Investing Gives You Back What Wall Street Steals

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made...

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BIO: Pieter Slegers is the founder of Compounding Quality Newsletter. Pieter worked for three years as a Belgian asset manager before focusing full-time on his investment newsletter, Compounding Quality, in July 2022. Compounding Quality has over 1 million followers across social media and nearly 500,000 email subscribers. The goal of the newsletter is to help other investors by focusing on Quality Investing.

STORY: At the age of 13, Peter convinced his parents to open a brokerage account. He picked the broker’s newest “hottest pick” stock—an oil/gas transport company. He invested everything, thinking the people running the company knew what they were doing. Weeks later, the 2008 financial crisis hit. Peter sold his stock after a year, taking a 60% loss.

LEARNING: Small losses are better than catastrophic ones. Knowledge is your only edge.

“People who invest in individual stocks will make mistakes. There’s no doubt about that, but it’s way better to make a mistake with a few hundred dollars compared to $100,000.”

Pieter Slegers

Guest profilePieter Slegers is the founder of Compounding Quality Newsletter. Pieter studied Financial Management at the KULeuven and graduated summa cum laude. He worked for three years as a Belgian asset manager before focusing full-time on his investment newsletter, Compounding Quality, in July 2022. Compounding Quality has over 1 million followers across social media and nearly 500,000 email subscribers. The goal of the newsletter is to help other investors by focusing on Quality Investing.

Worst investment everAt the age of 13, Peter earned his first paycheck by stocking shelves at a supermarket. Eager to grow his savings, he persuaded his parents to open a brokerage account (a feat for minors in Belgium).

Despite his lack of investing knowledge, he diligently explored his broker’s platform for ideas. A new stock caught his eye on the broker’s “hot picks” list—an oil/gas transport company. He invested all his earnings, believing in the company’s potential.

Peter didn’t conduct any research, despite his limited knowledge of oil and gas and his complete lack of investing experience. He simply trusted the “hot pick”.

The crashWeeks later, the 2008 financial crisis hit. Peter sold his stock after a year, taking a 60% loss. His family was not impressed by his poor investment skills and told him that investing was akin to gambling, and he should consider working for the government instead.

Pieter felt like such a failure. However, that $300 loss was his best investment. It hurt, but it taught him never to follow others blindly.

Lessons learned* Small losses are better than catastrophic ones. Losing $300 at the age of 13 beats losing $300,000 when you’re 40. Early pain builds immunity to big mistakes. * Knowledge is your only edge: If you don’t understand how a company makes money, you’re gambling, not investing. * Failure fuels obsession. That loss made Pieter devour investing books, 10-Ks, and financial news. Pain became his mentor.

Andrew’s takeaways* Allow young investors to make mistakes with small sums (e.g., companies they understand, such as Netflix or Coca-Cola). * Humility beats hubris. 90% of professional investors at Goldman Sachs underperform. What makes you different? It’s your checklists, not confidence. * Read biographies, study market history, and connect patterns. Wisdom compounds like interest.

Actionable adviceFor parents guiding young investors, start with brands that they are familiar with and use in their daily lives, such as Coca-Cola, Netflix, and McDonald’s. When they drink a Coke, say: “You own a piece of this.”

Cap play money at 5% and limit high-risk bets to cash they can afford to lose. Encourage young investors to do their homework. If they can’t explain the business model in two sentences, they shouldn’t own it.

Pieter’s recommendationsPieter recommends reading What I Learned About Investing From Darwin by Pulak Prasad if you want to perfect your investment skills. He also offers numerous free resources on CompoundingQuality.net.

Learning from others’ experiences, whether through books, online resources, or personal advice, is a valuable way to improve your own investing skills.

No.1 goal for the next 12 monthsPieter’s goal for the next 12 months is to continue his learning journey by reading books, listening to podcasts, and engaging in other educational activities. He understands that continuous learning is the key to successful investing.

Parting words

“It’s amazing what Andrew is doing. I had a lovely time. Please give him a hand, send him an email, or support him in any way you can. If people have questions for me, I’m always happy to help via combining quality.”

Pieter Slegers

Connect with Pieter Slegers* LinkedIn * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 40: The Big Rocks.

LEARNING: Passive investing will give you the freedom you need.

“Indexing and passive investing have the ‘disadvantage’ of being boring. I admit it. However, if anyone needs to get their excitement in life from investing, I’d suggest they might want to consider getting another life.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 40: The Big Rocks.

Chapter 40: The Big RocksIn Chapter 40, Larry explains why passive (systematic) investing is the winning strategy in life as well as investing.

Like all the other chapters in the book, this one begins with a story used as an analogy to help understand a financial issue. In this one, a time-management expert fills a mason jar with large rocks. “Full?” she asks. The class agrees. She adds gravel, sand, and water – each filling the spaces between. When a student suggests the lesson is about fitting more into busy schedules, she corrects them:

“If you don’t put the big rocks in first, they’ll never fit at all.”

The investor’s jarLarry explains the metaphor’s profound implication for wealth:

• Big rocks = Family, health, growth, legacy
• Gravel = Stock charts, earnings analysis
• Sand = Financial news, market commentary
• Water = Trading forums, portfolio tinkering

Larry explains that active investors start with gravel and sand, leaving insufficient time for the big rocks. They spend much of their precious leisure time watching the latest business news, studying the latest charts, scanning and posting on Internet investment discussion boards, reading financial trade publications and newsletters, and so on. Their jars fill with noise, leaving no room for life’s essentials.

Passive investors, on the other hand, ignore the ”noise” (the sand, the gravel, and the water) and place big rocks first. Their strategy operates quietly, driven by low-cost index funds and disciplined rebalancing. The result? Their jars hold what truly enriches life, giving them a sense of freedom and independence.

Two stories, one lesson1. The physician’s regretDuring the 1990s bull market, a doctor would spend nights analyzing stocks after 12-hour shifts. He turned $10,000 into $100,000 – but his marriage was on the verge of collapse. His wife no longer had a husband; his child lost a parent to the glow of stock charts. When the tech bubble burst, the money vanished.

The wake-up call was brutal: He had traded first steps and bedtime stories for digits on a screen. After reading Larry’s book, he switched to passive investing, which helped him salvage both his finances and his family. Now, he was playing the winners’ game in life and investing.

1. The executive’s discoveryA Wharton MBA and corporate treasurer spent decades analyzing stocks after work. Upon adopting passive investing, he calculated a shocking truth: He wasted 6.5 weeks per year on futile research.

Worse, this “gravel” wasn’t neutral – trading fees, taxes, and behavioral errors eroded returns. By eliminating the noise, he reclaimed 500+ annual hours for family and passions.

Why boring is the bravest choiceLarry notes that indexing and passive investing have the ‘disadvantage’ of being boring. However, he continues, investing was never meant to be exciting despite what Wall Street and the financial media want you to believe. Investing is supposed to be about achieving your financial goals with the least amount of risk.

Making the ‘boring’ choice in investing can actually be empowering, as it puts you in control and builds confidence in your financial future. Larry further explains that indexing, and passive investing in general, not only allows you to earn market returns in a low-cost and tax-efficient manner but also frees you from spending any time at all watching CNBC and reading financial publications that are essentially no more than what Jane Bryant Quinn called “investment porn.”

Play a winner’s gameIf you find that you need excitement from your investments, consider setting up a separate “entertainment” account. The assets inside that account should not exceed more than a few percent of your total portfolio. Invest the rest of your assets in what I believe to be the winner’s game.

Further reading1. Paul Samuelson, Quoted in Jonathan Burton, Investment Titans (McGraw-Hill, 2001).

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us* Enrich Your Future 21: Think You Can Beat the Market? Think Again * Enrich Your Future 22: Some Risks Are Not Worth Taking * Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions * Enrich Your Future 24: Why Smart People Do Dumb Things * Enrich Your Future 25: Stock Crashes Happen—Be Prepared * Enrich Your Future 26: Should You Invest Now or Spread It Out? * Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities * Enrich Your Future 28 & 29: How to Outsmart Your Investing Biases * Enrich Your Future 30: The Hidden Cost of Chasing Dividend Stocks * Enrich Your Future 31: Risk vs. Uncertainty: The Investor’s Blind Spot

Part IV: Playing the Winner’s Game in Life and Investing

• Enrich Your Future 32: Trying to Beat the Market Is a Fool’s Errand
• Enrich Your Future 33: The Market Doesn’t Care How Smart You Are
• Enrich Your Future 34: Embrace the Bear: Why Market Crashes Are Your Silent Ally
• Enrich Your Future 35: Market Gurus Are Just Expensive Entertainers
• Enrich Your Future 36: The Madness of Crowded Trades
• Enrich Your Future 37 & 38: The Calendar Is a Crook & Hot Funds Are a Trap
• Enrich Your Future 39: More Wealth Does Not Give You More Happiness

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 39: Enough.

LEARNING: More wealth does not give you more happiness.

“Prudent investors don’t take more risk than they have the ability, willingness, or need to take. If you’ve already won the game, why are you still playing?”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 39: Enough.

Chapter 39: EnoughIn Chapter 39, Larry discusses the importance of knowing that you have “enough,” a concept that, once understood, can enlighten and guide your financial decisions.

In 2009, Larry conducted an investment seminar for the Tiger 21 Group, America’s most exclusive wealth management group. One of the issues the group asked him to address was: How do the wealthy think about risk, and how should they approach it? Larry’s answer exposed a terrifying paradox.

More wealth will not make you happierAccording to Larry, self-made wealth follows a predictable script. Fortunes are built through extreme risk-taking: betting everything on one business, ignoring diversification, and trusting instinct over analysis. This breeds a dangerous confidence—the kind that whispers, “If I did it once, I can do it again.”

He explains that the utility of the wealth curve resembles an elephant from the side. It goes up quickly because when you have nothing, even a little extra money can significantly improve your life. If you’re homeless and someone gives you $25 to take a shower, get a meal, and stuff, that will make you much better off. But once you get to some level of net worth, like $2 million or $3 million, or whatever the number is for you, the extra wealth is better than less.

However, as you gain more wealth, your incremental level of happiness—just like the elephant’s back— flattens out. There’s virtually little or no improvement in your state of well-being and happiness.

The entrepreneur’s invisible trapLarry stresses that wealth building and wealth preservation demand opposite mindsets. Those with the greatest ability to take risks (resources to absorb losses) and willingness (confidence from past wins) often overlook the third critical factor: need. And therein lies the trap.

The wealthiest individuals have a near-zero need for further risk. Yet, they continually strive for more and take on significant risks that may not ultimately lead to an enhanced level of happiness. In reality, they do not need to take such a substantial risk. They can dial down the risk in their portfolio and be much happier, sleep better, not worry about markets, and enjoy their life.

When $13 million evaporatesLarry recounts meeting a couple in 2003. Three years earlier, their portfolio stood at $13 million, with a heavy concentration in tech stocks. By 2003? $3 million. An 80% collapse.

“Would doubling to $26 million have changed your lives?” Larry asked.

“No,” they admitted.

“Then why risk everything for gains that wouldn’t matter?”

Their fatal error? Never defining their “enough.” When desires—a larger yacht, a vineyard, or “legacy” projects—morph into perceived needs, they artificially inflate risk tolerance. This ignites a destructive cycle: greater “needs” demand riskier bets, which invite catastrophic losses.

The science of “enough”Larry points to research that reshapes wealth psychology: Beyond $75,000 per year (adjusted for inflation), happiness plateaus. After $10 million, diminishing returns accelerate violently. The billionaire’s third home brings no more joy than a latte at the bookstore.

This isn’t a theory. Psychologists confirm that true contentment comes from non-tradable assets. These are the experiences and relationships that money can’t buy. A walk in the park with your partner. Reading to grandchildren. The freedom to control your time. These cost little yet yield everything. A $100 bottle of wine? It can’t compete with a $10 one shared with friends.

Breaking the cycleLarry prescribes four antidotes for Tiger 21’s members:

• First, ask: “If I lost 80% tomorrow, would my core lifestyle survive? Would my relationships?” If the answer chills you, you’re over-risked.
• Second, map your marginal utility of wealth. Draw a curve tracking wealth against life satisfaction. Where does the line flatten? That’s your “enough.” For most, it’s far lower than imagined.
• Third, build a “fortress portfolio.” Replace concentrated bets with global diversification. Swap illiquid moonshots for Treasury bonds and index funds. Protect capital like a museum guards its masterpieces.
• Fourth, demote desires. Luxury items must never masquerade as needs. That vineyard? A want—funded only if cash flows cover it without gambling capital.

The unbreakable wealth paradoxLarry concludes by emphasizing that building wealth requires courage. Preserving it requires the courage to say: “No more.” The difference between the rich and the ruined isn’t intelligence—it’s knowing when you have enough.

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us* Enrich Your Future 21: Think You Can Beat the Market? Think Again * Enrich Your Future 22: Some Risks Are Not Worth Taking * Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions * Enrich Your Future 24: Why Smart People Do Dumb Things * Enrich Your Future 25: Stock Crashes Happen—Be Prepared * Enrich Your Future 26: Should You Invest Now or Spread It Out? * Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities * Enrich Your Future 28 & 29: How to Outsmart Your Investing Biases * Enrich Your Future 30: The Hidden Cost of Chasing Dividend Stocks * Enrich Your Future 31: Risk vs. Uncertainty: The Investor’s Blind Spot

Part IV: Playing the Winner’s Game in Life and Investing

• Enrich Your Future 32: Trying to Beat the Market Is a Fool’s Errand
• Enrich Your Future 33: The Market Doesn’t Care How Smart You Are
• Enrich Your Future 34: Embrace the Bear: Why Market Crashes Are Your Silent Ally
• Enrich Your Future 35: Market Gurus Are Just Expensive Entertainers
• Enrich Your Future 36: The Madness of Crowded Trades
• Enrich Your Future 37 & 38: The Calendar Is a Crook & Hot Funds Are a Trap

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram

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BIO: Blair LaCorte is a dynamic executive with experience across entertainment, aviation, AI, aerospace, consulting, and more.

STORY: Blair shares three catastrophic investment failures and the life-altering lessons that rewired his approach to wealth.

LEARNING: Chase knowledge, not hype, and don’t let greed hijack logic. Invest with friends only if you’re willing to lose both.

“The worst investment that you can make is to put your time into something that you don’t enjoy or that you know is not going to work out.”

Blair LaCorte

Guest profileBlair LaCorte is a dynamic executive with experience across entertainment, aviation, AI, aerospace, consulting, and more. He has held CEO roles at companies such as PRG, XOJET, and Autodesk, and led startups to successful IPOs. Currently, he’s training as an astronaut for Virgin Galactic and is Vice Chairman at the Buck Institute.

Worst investment everFresh out of college at 22, Blair met a smooth-talking investor who flaunted his “lifetime monthly checks” from an oil well. Blinded by dollar signs and zero industry knowledge, he poured his savings into a single well.

Blair ignored basic due diligence, diversification, and warnings about low-quality reserves. It was all about greed. He had seen someone make money where they got paid every month for the rest of their life, as long as the well lasted.

The greed kept him in and kept him investing in the well. At the end of the day, the oil was of below-average quality and was not as much as they thought it would be. Blair’s ignorance caused him a 100% loss. The well underperformed, and his greed trapped him in a sinking ship. Blair even commissioned a plaque to memorialize his shame—a daily reminder that “easy money” is a predator in disguise.

Burning $200k and a friendshipAfter Blair’s first IPO success in 1999, his roommate pitched him on Coffee.com—a visionary play on single-origin beans (decades before it became trendy). Blair invested early, then panicked as losses mounted. When the roommate begged for more capital, he refused because he did not think it would succeed, but guilt kept him from cutting ties.

After a while, the startup imploded. Worse? Blair’s friend never spoke to him again. He learned the hard truth from this unwise investment: mixing money with friendship is financial suicide.

The $59.50 ego taxAt the peak of the dot-com boom, Blair had just scored a top-tier IPO. His broker urgently called and advised him to sell immediately at $59.50 as he believed the boom would not last. But pride convinced him that the broker was just chasing commissions.

Blair held stubbornly as the stock bled out to $2. He lost $570,000 in vaporized gains. Blair’s ego had bet against reality, and reality won.

Lessons learned* Chase knowledge, not hype, and don’t let greed hijack logic. If you don’t understand how the money is made, you’re the exit strategy for someone else. * Friends + money = atomic risk. Invest with friends only if you’re willing to lose both on the same day. * Pride is the silent portfolio killer. The market doesn’t care about your ego, and exit signals don’t negotiate. * Your time is your ultimate currency. Grinding your years into a dying venture to ‘prove a point’ is the costliest investment of all.

Andrew’s takeaways* Macro trumps micro. Brilliant ideas fail if they’re too early or too late. Always ask: “Is the world ready for this?” * Preserve capital like your life depends on it. A young you can risk time; an older you must protect capital. * Passive high-risk bets (like an oil well) are gambling. Invest where you can influence outcomes.

Actionable adviceWhen temptation knocks:

• Demand the “Why You?” clause. If a “sure thing” lands in your lap, ask: Why me? Why now? What do they know that I don’t?
• Map the macro weather by using tools like Google Trends, industry reports, and Fed data to pressure-test timing.
• Cap the bleeding by allocating a max of 5% of net worth to high-risk plays. Set automatic exit triggers (e.g., “Sell if -25%”).
• Sign contracts, define failure clauses, and never mix personal loans with equity, especially if investing with pals.

Blair’s recommendationsBlair recommends checking out PPE Mastermind Talks (available for free at PPEmastermind.com) to learn business tactics from battle-tested CEOs. He also recommends reading biographies, examining companies’ histories, and watching documentaries or listening to speakers that prompt you to think differently about things, to accelerate your ability to learn.

No.1 goal for the next 12 monthsBlair’s goal for the next 12 months is radical self-care. Blair wants to do things for himself without feeling guilty.

Parting words

“Go out there and have fun, it’s a privilege. Approximately 50% of the world’s population lives on a subsistence level. Another 25% don’t get to make the decisions. If you have the financial or mental capability to try new things, you’re blessed. So go out there and have some fun.”

Blair LaCorte

Connect with Blair LaCorte* LinkedIn * Facebook * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 37: Sell in May and Go Away: Financial Astrology and Chapter 38: Chasing Spectacular Fund Performance.

LEARNING: Calendars don’t drive returns. Winners ignore hot funds.

“For you to believe in a strategy, there should be some economically logical reason for it to persist, so you can be confident it isn’t just some random outcome.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 37: Sell in May and Go Away: Financial Astrology and Chapter 38: Chasing Spectacular Fund Performance.

Chapter 37: Sell in May and Go Away: Financial AstrologyIn chapter 37, Larry explains why the idea of selling stocks in May and switching to cash, then buying back in November, is not a sound strategy.

What financial advisers insist on repeating, in Larry’s view, is: “Sell in May, go to cash, and reinvest in November.” It makes sense and is even logical. And, as the adage has it, numbers don’t lie. Figures, backed by reliable data, show that stocks gain more from November through April (a 5.7% average premium) than from May through October (a 2.6% average premium). So why not time the market?

Busting the mythLarry dismantles this advice, revealing that the ‘Sell in May’ strategy, despite its apparent logic, is a myth. He points out that stocks still outperform cash even during the May to October period, with stocks beating T-bills by 2.6% annually.

Selling stocks prematurely leads to missed gains, and the strategy of switching investments underperforms a simple buy-and-hold approach. In fact, a ‘Sell in May’ strategy yielded an average annual return of 8.3% from 1926 to 2023, while simply holding the S&P 500 returned 10.2%—a significant 1.9% yearly gap.

Larry adds that Taxes and fees make the strategy worse. Trading converts long-term gains (lower tax) into short-term gains (higher tax). Transaction costs always pile up.

Additionally, this strategy is rarely effective. Before 2022, the last “win” was 2011. A single outlier (2022’s bear market) does not make a strategy worthwhile.

The fatal flawAccording to Larry, one of the fundamental rules of finance is that expected return and risk are positively correlated. So if stocks actually do worse than cash between May and October, they’d need to be less risky for these six months, which is absurd because volatility doesn’t take summer vacations.

Why do people believe in this flawed strategy?Larry notes four reasons why people still believe in this flawed investment strategy:

• Recency bias: Media hypes the strategy after rare wins (like 2022).
• Pattern-seeking: Humans confuse coincidence with cause.
• “Free lunch” fantasy: Active investors crave simple shortcuts.

The proper investment to followLarry’s advice is to:

• Ignore the noise. Calendars don’t drive returns.
• Stay invested. Missing just 10 best days in 30 years slashes returns by 50%.
• Focus on what matters: Diversification, low costs, and tax efficiency.

Bottom line: The “Sell in May” strategy is a form of financial astrology. It confuses seasonal patterns with strategy. The market’s not a magic 8-ball. Stop gambling on folklore—and start compounding.

Chapter 38: Chasing Spectacular Fund PerformanceIn chapter 38, Larry explains why chasing spectacular performance is not a prudent investment strategy.

He starts the article by highlighting that 2020 was a phenomenal year for hot funds. During that year, 18 US stock funds posted gains of over 100%, attracting $19 billion in investor dollars in pursuit of recent performance. Their prior records seemed unstoppable—17 of 18 had reigned supreme over markets for three straight years.

The brutal realityA landmark Morningstar study by Jeffrey Ptak looked into equity funds that gained more than 100% in a calendar year. He found that of the 123 stock funds that gained at least 100% between 1990 and 2016, just 24 made money in the three years following their phenomenal return.

More adversely, the average fund subsequently lost around 17% each year. Ptak also found that funds that failed in the years before their big gain were far more likely to earn more money during the years after that big year, compared to money that had been profitable during the period preceding their big gain.

Why do hot funds implode?There are a few reasons why hot funds could implode. One is overvalued bets. For instance, the 2020 superstars held stocks trading at 3x the valuation of the Nasdaq 100. Another reason is the reversion to the mean. Extreme returns are statistical outliers, not a result of skill. Lastly, the crowd effect. Inflows surge after gains, forcing managers to buy at high prices.

The index fund quietly winsLarry observes that while speculators chased fireworks, Fidelity’s Total Market Index (FSKAX) returned 20.8% in 2020, beating 80% of active funds in its category. It did this with a 0.01% fee, 1/100th the cost of typical active funds.

In conclusion, Larry reminds investors that the race to spectacular returns is a marathon, not a sprint. Winners ignore the fireworks.

Further reading1. Jeffrey Ptak, “What Happens After Fund Managers Crush It?” The Evidence Based Investor, January 18, 2001.

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us* Enrich Your Future 21: Think You Can Beat the Market? Think Again * Enrich Your Future 22: Some Risks Are Not Worth Taking * Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions * Enrich Your Future 24: Why Smart People Do Dumb Things * Enrich Your Future 25: Stock Crashes Happen—Be Prepared * Enrich Your Future 26: Should You Invest Now or Spread It Out? * Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities * Enrich Your Future 28 & 29: How to Outsmart Your Investing Biases * Enrich Your Future 30: The Hidden Cost of Chasing Dividend Stocks * Enrich Your Future 31: Risk vs. Uncertainty: The Investor’s Blind Spot

Part IV: Playing the Winner’s Game in Life and Investing

• Enrich Your Future 32: Trying to Beat the Market Is a Fool’s Errand
• Enrich Your Future 33: The Market Doesn’t Care How Smart You Are
• Enrich Your Future 34: Embrace the Bear: Why Market Crashes Are Your Silent Ally
• Enrich Your Future 35: Market Gurus Are Just Expensive Entertainers
• Enrich Your Future 36: The Madness of Crowded Trades

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew...

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 36: Fashions and Investment Folly.

LEARNING: Do not be swayed by herd mentality.

“Markets can remain irrational longer than you can remain solvent. So do not bet against bubbles, because they can get bigger and bigger, totally irrational eventually, like a rubber band that gets stretched too far, it snaps back, and all those fake gains that weren’t fundamentally based get erased and investors get wiped out.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 36: Fashions and Investment Folly.

Chapter 36: Fashions and Investment FollyIn this chapter, Larry explains why investors allow themselves to be influenced by the herd mentality or the madness of crowds.

Perfectly rational people can be influenced by a herd mentalityWhen it comes to investing, otherwise perfectly rational people can be influenced by a herd mentality. The potential for significant financial rewards plays on the human emotions of greed and envy. In investing, as in fashion, fluctuations in attitudes often spread widely without any apparent logic.

Larry notes that one of the most remarkable statistics about the world of investing is that there are many more mutual funds than stocks, and there are also more hedge fund managers than stocks. There are also thousands of separate account managers. The question is: Why are there so many managers and so many funds?

Effects of recency biasAccording to Larry, there are several explanations for the high number of managers and funds. The first is the all-too-human tendency to fall subject to “recency.” This is the tendency to give too much weight to recent experience while ignoring the lessons of long-term historical evidence. Larry says that investors subject to recency bias make the mistake of extrapolating the most recent past into the future, almost as if it is preordained that the recent trend will continue.

The result is that whenever a hot sector emerges, investors rush to jump on the bandwagon, and money flows into that sector. Inevitably, the fad (fashion) passes and ends badly. The bubble inevitably bursts.

Investment ads create demand where there is noneAnother reason, Larry notes, is that the advertising machines of Wall Street’s investment firms are great at developing products to meet demand. The record indicates they are even great at creating demand where none should exist.

The internet became the greatest craze of all, and internet funds were designed to exploit the demand. Investors lost more fortunes in the craze. The latest fashions include cloud computing, electric vehicles, and artificial intelligence.

However, this trend, at least for mutual funds, has changed, and there are now fewer funds than there were at the height of the internet frenzy. This is a result of many poor performers being either merged out of existence (to erase their track record) or closed due to a lack of sufficient funds to keep them operational.

Inconsistent performance by active managersAnother reason for the proliferation of funds is that Wall Street machines recognize active managers’ track records as inconsistent (and often poor) performance. Thus, a family of funds may create several funds in the same category, hoping that at least one will be randomly hot at any given time.

How to beat herd mentalityTo overcome herd mentality, Larry advises investors to craft a comprehensive investment plan that factors in their risk tolerance. By building a globally diversified portfolio and sticking to this plan, investors can navigate the market’s noise and emotional triggers, such as greed and envy during bull markets and fear and panic during bear markets.

He also adds that investors will benefit more from using passively managed funds to implement the plan; this is the only way to ensure they do not underperform the market. Minimizing this risk gives them the best chance to achieve their goals. If investors adopt the winner’s game of passive investing, they will no longer have to spend time searching for that hot fund. They can spend time on far more critical issues.

Further reading1. Charles MacKay, Extraordinary Popular Delusions and the Madness 2. Quoted in Edward Chancellor, Devil Take the Hindmost, (Farrar, Straus and Giroux, 1999).

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us* Enrich Your Future 21: Think You Can Beat the Market? Think Again * Enrich Your Future 22: Some Risks Are Not Worth Taking * Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions * Enrich Your Future 24: Why Smart People Do Dumb Things * Enrich Your Future 25: Stock Crashes Happen—Be Prepared * Enrich Your Future 26: Should You Invest Now or Spread It Out? * Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities * Enrich Your Future 28 & 29: How to Outsmart Your Investing Biases * Enrich Your Future 30: The Hidden Cost of Chasing Dividend Stocks * Enrich Your Future 31: Risk vs. Uncertainty: The Investor’s Blind Spot

Part IV: Playing the Winner’s Game in Life and Investing

• Enrich Your Future 32: Trying to Beat the Market Is a Fool’s Errand
• Enrich Your Future 33: The Market Doesn’t Care How Smart You Are
• Enrich Your Future 34: Embrace the Bear: Why Market Crashes Are Your Silent Ally
• Enrich Your Future 35: Market Gurus Are Just Expensive Entertainers

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 35: Mad Money.

LEARNING: Investors are naive, and Cramer is an entertainer, not a financial advisor who adds value.

“Do not confuse information with value-added information. If you know something because it was in the newspaper, everyone else knows it as well. So it has no value.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 35: Mad Money.

Chapter 35: Mad MoneyIn this chapter, Larry explains why investment advice from so-called market experts is often worthless.

The infamous Jim CramerJim Cramer, a former hedge fund manager, has become one of the most recognizable faces in the investment world. He dispenses rapid-fire investment advice on the show “Mad Money.” Since it premiered in March 2005, it has been one of CNBC’s most-watched shows. But has his advice been as successful for the investors who follow it? Larry shares a couple of research studies that answer this question.

It pays more to invest in an S&P than in Cramer’s fundCramer manages a portfolio that invests in many of the stock recommendations he makes on TV. Established in August 2001 with approximately $3 million, the Action Alerts PLUS (AAP) portfolio has been the centerpiece of Cramer’s media company, TheStreet, which sells his financial advice, giving subscribers in the millions access to each trade the portfolio makes ahead of time. Jonathan Hartley and Matthew Olson, authors of the 2018 study “Jim Cramer’s Mad Money Charitable Trust Performance and Factor Attribution,” examined the AAP portfolio’s historical performance. Their study covered the period from August 1, 2001, the AAP portfolio’s inception, through December 31, 2017. The study found that the fund returned a total of 97%. During that same period, an investment in the S&P would have returned 204%.

No real stock-picking skill, just entertainmentIn another study, “How Mad Is Mad Money?”, Paul Bolster, Emery Trahan, and Anand Venkateswaran examined Cramer’s buy and sell recommendations for the period from July 28, 2005, through December 31, 2008. They also constructed a portfolio of his recommendations and compared it to a market index. The researchers came to three key conclusions:

• Investors were paying attention, as the stocks he recommended had abnormal returns of almost 2% on the day following his recommendations.
• The returns for the recommended stocks were both positive and significant for the day of the show and the 30 days preceding the show. So, it seems he was recommending stocks with short-term momentum.
• The returns were negative and significant, at -0.33% and -2.1%, for days 2 through 5 and days 2 through 30 following the recommendation. After 30 days, the results are insignificant.

There is no evidence of any stock-picking skill—Cramer’s picks are neither good nor bad. In the end, it’s just entertainment.

A third study, “Is the Market Mad? Evidence from Mad Money,” conducted in 2005, found the same result as the second study: prices rise overnight, and they are quickly corrected. This means that Cramer added negative value for the people who tried to implement his advice because they drove the price up in their buying frenzy. Then the smart money comes in, and the price reverts to basically where it was before he made the recommendation.

Do stock market experts reliably provide stock market timing guidance?In a fourth study, CXO Advisory Group set out to determine if stock market experts, whether self-proclaimed or endorsed by others (such as in the financial media), reliably provide stock market timing guidance.

To find the answer, from 2005 through 2012, they collected and investigated 6,584 forecasts for the US stock market offered publicly by 68 experts (including Cramer), employing technical, fundamental, and sentiment indicators. Their collection included forecasts, all of which were publicly available on the internet, dating back to the end of 1998. They selected experts, both bulls and bears, based on web searches for public archives that contained enough forecasts spanning various market conditions to gauge their accuracy. Basically, they found there are no real experts.

The distribution of their accuracy looks virtually identical to a bell curve but slightly to the left, meaning, on average, they do worse. The average accuracy was 47%, which happened to be the same score as Cramer’s. So, of all the non-expert experts, Cramer was average at being non-expert.

The market is highly efficient for any guruAccording to Larry, all these studies indicate that investors are naive, Cramer is an entertainer, not a financial advisor, who adds value, and that the market is highly efficient, making it very hard to beat it.

They also show that being highly intelligent (and entertaining, in Cramer’s case) is not a sufficient condition to outperform the market. The reason is simple. There are many other highly intelligent money managers whose price discovery actions work to keep the market highly efficient (meaning market prices are the best estimate we have of the right price). That makes it unlikely any active money manager will outperform on a risk-adjusted basis.

The research shows that gurus’ only value is to make weathermen look good, whether it involves predicting economic growth, interest rates, currencies, or the stock market, or even picking individual stocks.

Ignore the prognosticatorsLarry concludes that while Cramer might provide entertainment, those following his recommendations are like lambs being led to slaughter by more sophisticated institutional investors. He urges investors to keep this in mind the next time they find themselves paying attention to some guru’s latest forecast. You’re best served by ignoring it, he says.

The prudent strategy, Larry adds, is to develop a well-thought-out plan and to have the discipline to adhere to it, ignoring the market noise, whether it comes from Jim Cramer or any other prognosticator.

Further reading1. Michael Learmonth, “Ratings Flood for Fox, CNN,” Variety, September 27, 2005. 2. Jonathan Hartley and Matthew Olson, “Jim Cramer’s Mad Money Charitable Trust Performance and Factor Attribution,” The Journal of Retirement (Summer 2018). 3. Paul Bolster, Emery Trahan and Anand Venkateswaran, “How Mad Is Mad Money?”The Journal of Investing (Summer 2012). 4. Joseph Engelberg, Caroline Sasseville and Jared Williams, “Is the Market Mad? Evidence from Mad Money,” March 22, 2006. 5. Bill Alpert, “Shorting Cramer,” Barron’s (August 20, 2007). 6. Jim Cramer, “Cramer vs. Cramer,” New York, May 25, 2007. 7. CXO Advisory Group, “Guru Grades,” www.cxoadvisory.com/gurus.

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us* Enrich Your Future 21: Think You Can Beat the Market? Think Again * Enrich Your Future 22: Some Risks Are Not Worth Taking * Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions * Enrich Your Future 24: Why Smart People Do Dumb Things * Enrich Your Future 25: Stock Crashes Happen—Be Prepared * Enrich Your Future 26: Should You Invest Now or Spread It Out? * Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities * Enrich Your Future 28 & 29: How to Outsmart Your Investing Biases * Enrich Your Future 30: The Hidden Cost of Chasing Dividend Stocks * Enrich Your Future 31: Risk vs. Uncertainty: The Investor’s Blind Spot

Part IV: Playing the Winner’s Game in Life and Investing

• Enrich Your Future 32: Trying to Beat the Market Is a Fool’s Errand
• Enrich Your Future 33: The Market Doesn’t Care How Smart You Are
• Enrich Your Future 34: Embrace the Bear: Why Market Crashes Are Your Silent Ally

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with...*

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BIO: Mike Koenigs is a serial entrepreneur with five successful exits, a 19-time bestselling author, and a top strategist for founders post-exit.

STORY: Mike invested big in a SaaS startup set up for success, but infighting brought it to its knees.

LEARNING: Character is bigger than charisma.

“If you’re a shareholder, your best exit is for a big company to come and buy what they believe is money at a discount.”

Mike Koenigs

Guest profileMike Koenigs is a serial entrepreneur with five successful exits, a 19-time bestselling author, and a top strategist for founders post-exit. He helps build powerful personal brands in just one week and pioneers Generative AI for executives, speaking at elite events like Abundance 360, MIT, and Tony Robbins’ gatherings.

Worst investment everMike learned about a SaaS startup from a client with whom he had spent time and had gotten to know, like, and trust him. So, when the client introduced Mike to this deal, he got interested.

The startup looked great, so he invested a substantial amount of money and then doubled down because it got even better.

Off to a promising startThe basic premise was that it was a pool. The founders would find SaaS companies with customers, momentum, technology, and a bit of a moat. They had much experience and success, such as a 10x dividend to investors in three years.

Infighting paralyzes everythingUnfortunately, the two founders started fighting. One of them locked the other one out of everything. They had the majority and equal shareholding, making infighting even worse. The remaining partner started emptying the coffers.

Someone doing the books became a whistleblower and revealed the shenanigans going on. The partner was siphoning off money, building a house, going on big trips, using private jets everywhere, etc. It got uglier and uglier, causing the shareholders to file lawsuits, and the FTC got involved. Years have gone by, and things are still shut down.

Lessons learned* Time kills deals. * Character is bigger than charisma. Crooked founders will gut you faster than any market downturn. * Put all that money into index funds and let it compound.

Andrew’s takeaways* The only way to invest as an angel investor is to invest in 10 startups. Don’t do it if you are not prepared with the money and time to do that.

Actionable adviceUnless you’re a full-time VC with deal flow, customer channels, or an exit mapped out, keep your money in things you can control. If you’re a shareholder, your best exit is for a big company to come and buy what they believe is money at a discount.

Mike’s recommendationsMike recommends learning to build a brand that will elevate everything you touch for the rest of your life. He suggests reading his book, Your Next Act: The Six Growth Accelerators for Creating a Business You’ll Love for the Rest of Your Life, to help you build your brand. He also recommends immersing yourself in AI and learning how to use it effectively.

No.1 goal for the next 12 monthsMike’s number one goal for the next 12 months is to become an international citizen. He wants to continue living his beautiful life in multiple locations and working with more entrepreneurs worldwide.

Parting words

“Go out and build your brand. You will get access to better deals faster at a discounted price.”

Mike Koenigs

Connect with Mike Koenigs* LinkedIn * Facebook * Instagram * Podcast * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 34: Bear Markets: A Necessary Evil.

LEARNING: Investors must view bear markets as necessary evils.

“If stocks didn’t experience the kind of bear markets that we have, investors would be very unhappy.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 34: Bear Markets: A Necessary Evil.

Chapter 34: Bear Markets: A Necessary EvilIn this chapter, Larry explains why investors must view bear markets as necessary evils. He says that if stocks didn’t experience the kind of bear markets that we have, investors would be very unhappy.

Larry further explains that the most basic finance principle is the relationship between risk and expected, but not guaranteed, return. So, the higher the risk, the higher the expected return, which means that if the risk is high, investors will apply a bigger risk premium, which will lead to the denominator in the formula of the Net Present Value. The numerator is the expected earnings. The denominator is the risk-free rate plus the risk premium.

The higher the risk, the higher the premiumsLarry highlights historical bear markets, noting the U.S. has experienced losses exceeding 34% during the COVID crisis and 51% from 2007 to 2009. He argues that these losses are essential for investors to demand higher risk premiums. The very fact that investors have experienced such significant losses leads them to price stocks with a large risk premium.

From 1926 through 2022, the S&P provided an annual risk premium over one-month Treasury bills of 8.2% and an annualized premium of 6.9%. If the losses that investors experienced had been smaller, the risk premium would also have been smaller. And the smaller the losses experienced, the smaller the premium would have been.

In other words, the less risk investors perceive, the higher the price they are willing to pay for stocks. And the higher the market’s price-to-earnings ratio, the lower the future returns.

Staying the course during underperformanceThe bottom line, Larry says, is that bear markets are necessary for the creation of the large equity risk premium we have experienced. Thus, if investors want stocks to provide high expected returns, bear markets (while painful to endure) should be considered a necessary evil.

However, Larry notes that it is during the periods of underperformance that investor discipline is tested. Unfortunately, the evidence suggests that most investors significantly underperform the stock market and the mutual funds they invest in. The underperformance is because investors act like generals fighting the last war.

Subject to recency bias (the tendency to overweight recent events/trends and ignore long-term evidence), they observe yesterday’s winners and jump on the bandwagon—buying high—and they observe yesterday’s losers and abandon ship—selling low. It is almost as if investors believe they can buy yesterday’s returns when they can only buy tomorrow’s.

Keys to successful investingLarry shares three keys to successful investing to ensure you get the most from your investments even during bear markets.

The first key is to have a well-thought-out plan that includes understanding the nature of the risks of investing. That means accepting that bear markets are inevitable and must be built into the plan.

This understanding will help you feel prepared and less anxious when bear markets occur. It also means having the discipline to stay the course when it is most difficult (partly because the media will be filled with stories of economic doom and gloom).

What is particularly difficult is that staying the course does not just mean buying and holding. Adhering to a plan requires that investors rebalance their portfolio, maintaining their desired asset allocation. That means that investors must buy stocks during bear markets and sell them in bull markets.

The second key to successful investing, Larry suggests, is to avoid taking more risk than you have the ability, willingness, and need to take. By steering clear of excessive risk, investors are more likely to stay the course and avoid the common buy high/sell low pattern that most investors fall into.

The last key is to understand that trying to time the market is a loser’s game—one that is possible to win but not prudent to try because the odds of doing so are so poor.

Further reading1. 1996 Annual Report of Berkshire Hathaway. 2. 1992 Annual Report of Berkshire Hathaway. 3. 1991 Annual Report of Berkshire Hathaway. 4. 2006 Annual Report of Berkshire Hathaway. 5. 2004 Annual Report of Berkshire Hathaway.

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us* Enrich Your Future 21: Think You Can Beat the Market? Think Again * Enrich Your Future 22: Some Risks Are Not Worth Taking * Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions * Enrich Your Future 24: Why Smart People Do Dumb Things * Enrich Your Future 25: Stock Crashes Happen—Be Prepared * Enrich Your Future 26: Should You Invest Now or Spread It Out? * Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities * Enrich Your Future 28 & 29: How to Outsmart Your Investing Biases * Enrich Your Future 30: The Hidden Cost of Chasing Dividend Stocks * Enrich Your Future 31: Risk vs. Uncertainty: The Investor’s Blind Spot

Part IV: Playing the Winner’s Game in Life and Investing

• Enrich Your Future 32: Trying to Beat the Market Is a Fool’s Errand
• Enrich Your Future 33: The Market Doesn’t Care How Smart You Are

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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BIO: Jeff Sarti, CEO of Morton Wealth, leads a firm managing over $3 billion in assets. With a mission to empower better investors, Jeff helps clients achieve their financial goals while supporting employees in their career growth.

STORY: Jeff bought a few dot-com companies, thinking it was smart and safe because he bought the big brands. All of the companies dropped 90%+.

LEARNING: Don’t let greed, FOMO, and a lack of imagination drive you to a bad investment.

“Don’t take shortcuts. If you do, at least know that you’re gambling and speculating. That’s different from investing.”

Jeff Sarti

Guest profileJeff Sarti, CEO of Morton Wealth, leads a firm managing over $3 billion in assets. With a mission to empower better investors, Jeff helps clients achieve their financial goals while supporting employees in their career growth. A CFA charterholder, Jeff shares his insights through his Perspective newsletter. His expertise emphasizes challenging the status quo and fostering long-term, resilient investment strategies.

Worst investment everIn the late 90s, during the dot-com boom, Jeff had just started making a bit of money. He bought a few dot-com companies, thinking it was smart and safe because he bought the big brands. All of the companies dropped 90%+ after a while.

Lessons learned* Don’t let greed, FOMO, and a lack of imagination drive you to a bad investment. * Always do your research.

Andrew’s takeaways* When prices get untethered from earnings growth, our expectation of the future is what matters.

Actionable adviceThe only way you can learn is by doing and making mistakes. But before you start doing, do the research, understand the underlying risk factors of your investments, and don’t take shortcuts.

If you do, at least know you’re speculating and not investing. Keep that speculative piece of your portfolio small. It’s always a good idea to balance speculative investments with more traditional, long-term investment strategies for a more secure financial future.

Jeff’s recommendationsJeff recommends checking out resources on his website, such as his investment guides and market analysis, and signing up for his quarterly newsletter if you want financial education.

He also recommends reading Thinking Fast and Slow by Daniel Kahneman and books by Morgan Housel to understand how emotions drive investment decisions.

No.1 goal for the next 12 monthsJeff’s number one goal for the next 12 months is to continue traveling the country with his investment team, uncovering some new niche opportunities.

Parting words

“I really enjoyed the conversation. It was a lot of fun.”

Jeff Sarti

Connect with Jeff Sarti* LinkedIn * Blog

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 33: An Investor’s Worst Enemy.

LEARNING: You are your own worst enemy when it comes to investing.

“The right strategy is to avoid the loser’s game. Don’t try to pick individual stocks or time the market, just invest in a disciplined way, and you will win by getting the market’s return.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 33: An Investor’s Worst Enemy.

Chapter 33: An Investor’s Worst EnemyIn this chapter, Larry demonstrates why investors are their own worst enemies. He observes that many people think the key to investing is identifying the stocks that will outperform the market and avoiding the ones that will underperform.

Yet the vast body of evidence says that’s playing the losers’ game. He adds that most professionals with advanced degrees in finance and mathematics, with access to the best databases and huge advantages over individuals, often think they’re smart enough to beat the market.

They do so by attempting to uncover individual securities they believe the rest of the market has somehow mispriced (the price is too high or too low). They also try to time their investment decisions to buy when the market is “undervalued” and sell when it is “overvalued.”

However, evidence shows that 98% of them fail to outperform in any statistically significant way on a risk-adjusted basis, even before taxes. As historian and author Peter Bernstein puts it: “The essence of investment theory is that being smart is not a sufficient condition for being rich.”

Why do people keep playing the loser’s game?In the face of such overwhelming evidence, the puzzling question is why people keep trying to play a game they are likely to lose. From Larry’s perspective, there are four explanations:

1. Because our education system has failed investors and Wall Street, and most financial media want to conceal the evidence, people are unaware of it.
2. While the evidence suggests that playing the game of active management is the triumph of hope over wisdom and experience, hope does spring eternal—after all, a small minority succeed.
3. Active management is exciting, while passive management is boring.
4. Investors are overconfident—a normal human condition, not limited to investing. While each investor might admit that it’s hard to beat the market, each believes he will be one of the few who succeed.

So, what is the right strategy?In light of the evidence presented, Larry’s advice is clear: avoid the losers’ game. Instead of trying to pick individual stocks or time the market, he advocates for a disciplined approach to investing. Investors can win by staying the course through bear markets by simply getting the market’s returns. This, he argues, is the right strategy for successful investing.

Suppose you choose to play the game of active investing. In that case, Larry warns, the only ones likely to benefit are your financial advisor, broker-dealer, the manager of the actively managed fund, and the publisher of the newsletter or ratings service you subscribe to. The odds are overwhelmingly against individual investors in this game, making it a futile endeavor.

Further reading1. Jonathan Fuerbringer, “Investing It,” New York Times, March 30, 1997. 2. Robert McGough, “The Secret (Active) Dreams of an Indexer,” Wall Street Journal, February 25, 1997. 3. Peter Bernstein, The Portable MBA in Investment (Wiley, 1995). 4. Jonathan Clements, 25 Myths You’ve Got to Avoid (Simon & Schuster, 1998). 5. James H. Smalhout, “Too Close to Your Money?” Bloomberg Personal (November 1997). 6. Gary Belsky and Thomas Gilovich, Why Smart People Make Big Money Mistakes (Simon & Schuster, 1999). 7. Peter L. Bernstein and Aswath Damodaran (editors), Investment Management (Wiley, 1998). 8. Ron Ross, The Unbeatable Market (Optimum Press, 2002).

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us* Enrich Your Future 21: Think You Can Beat the Market? Think Again * Enrich Your Future 22: Some Risks Are Not Worth Taking * Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions * Enrich Your Future 24: Why Smart People Do Dumb Things * Enrich Your Future 25: Stock Crashes Happen—Be Prepared * Enrich Your Future 26: Should You Invest Now or Spread It Out? * Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities * Enrich Your Future 28 & 29: How to Outsmart Your Investing Biases * Enrich Your Future 30: The Hidden Cost of Chasing Dividend Stocks * Enrich Your Future 31: Risk vs. Uncertainty: The Investor’s Blind Spot

Part IV: Playing the Winner’s Game in Life and Investing

• Enrich Your Future 32: Trying to Beat the Market Is a Fool’s Errand

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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A retailer in Bangkok was staring down a cash crunch after COVID. He was ready to sign for a loan, convinced it was his only option.

Instead, we dug into his numbers and found $30,000 in unsold inventory gathering dust and $8,000 in overpayments to suppliers. That cash was enough to stabilize his business; no debt was needed. The money was there; he just couldn’t see it.

Download The Profit Gap for free at TheProfitBootCamp.com to see 5 hidden reasons family businesses work hard but still fall short of profit.

Find hidden profit before you borrowWhen cash flow gets tight, panic sets in. Your mind races, layoffs, loans, maybe even shutting down. But fear isn’t a strategy. The truth is, your business is probably sitting on hidden profit, even in tough times. You just need to find it.

Start with a zero-based budget. That means you begin each budget line at zero, not last year’s number, and build it up based on what’s actually needed. Each team member justifies every expense from scratch. No assumptions. No carryovers. Just what drives results. Look at your expenses, inventory, and contracts. What’s wasting money?

Maybe it’s unused subscriptions, overstocked supplies, or a vendor charging too much. One client found $500 a month in duplicate software licenses. Canceling them took one email and saved $6,000 a year.

Cut smart, not deepDon’t just cut costs mindlessly; focus on waste, not muscle. Keep what drives value, like your best staff or marketing, that works. I’ve seen owners slash their top salespeople in a panic, only to tank revenue. Instead, realign spending to what moves profit.

For example, shift the budget from low-margin products to high-margin ones. One business I worked with dropped a product line that was barely breaking even. That freed up $20,000 for ads, bringing in $100,000 in new sales.

Small wins create momentum. Even saving $1,000 can shift your mindset from panic to possibility. Try this: call your top five vendors this week. Ask for a 10% discount or better payment terms. Most will say no, but some will say yes to keep your business.

A client of mine negotiated $5,000 off his annual shipping costs in one 15-minute call. That’s cash you can use to grow, not just survive.

Discipline is your secret weaponDiscipline beats loans every time. Borrowing might feel like a lifeline, but it’s a weight around your neck if you don’t fix the root problems. A logistics firm I worked with was desperate for a loan. Instead, we audited their spending and found $8,600 in waste, unused equipment leases, and overpaid utilities. That cash funded a marketing push that brought in new clients without debt. They weren’t out of options; they just needed clarity.

Here’s one last story. That same logistics firm thought they were done. But that $8,600 audit changed everything. They used the savings to relaunch ads, landing three new contracts monthly. The owner told me, “I thought we were stuck. Turns out, we just needed to look closer.” What’s hiding in your business?

You’ve now faced the five hard truths holding your business back. You know no one’s coming to save you, that delay kills profit, that family dynamics can trap you, that leadership drives results, and that you have options even in a cash crunch. Now, it’s time to act. Pick one step this week, cut an expense, fix a meeting, check your P&L, and do it. Your business depends on you.

Actions from prior episodes Cut one cost: Block 30 minutes, review P&L, and cut one expense. Just one. Lead by example. * Find one drain: Review finances weekly, searching for one hidden loss. Act now. * Align the family: Hold a monthly, one-hour family meeting. Ask: “What will drive next month’s profit?” Prioritize profit over family tension. * Lead the team*: Run focused weekly meetings with a clear agenda and one action item. Drive results.

The next action Zero-based budgeting*: Justify all expenses to free cash for growth.

Download The Profit Gap for free at TheProfitBootCamp.com to see 5 hidden reasons family businesses work hard but still fall short of profit.

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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BIO: Oeystein Kalleklev is the outgoing CEO of Flex LNG and Avance Gas. He has prior experience as CFO of Knutsen NYK Offshore Tankers and Umoe Group and Chairman General Partner of MLP KNOT Offshore Partners.

STORY: Oeystein has been part of some terrible investments made by his employers. One invested $150 million to become the biggest shareholder of a mine in Guinea, which was lost due to a bad regime. During the great financial crisis, another invested $300 million into a bioethanol plant in Brazil.

LEARNING: In a dynamic industry like shipping, you must think more about adapting and being tactical rather than strategic.

“You have to be really disciplined when you are in a cyclical industry. Observe where the market is going, and learn how to adapt.”

Oeystein Kalleklev

Guest profileOeystein Kalleklev is the outgoing CEO of Flex LNG (NYSE/OSE: FLNG) and Avance Gas (OSE: AGAS). He has prior experience as CFO of Knutsen NYK Offshore Tankers and Umoe Group, as well as Chairman General Partner of MLP KNOT Offshore Partners (NYSE: KNOP).

Worst investment everOeystein has been part of some terrible investments. In one case, a family Oeystein worked for had invested about $150 million to become the biggest shareholder of a mine in Guinea. The country was under an unstable regime, and the leader was assassinated. There were also so many operational hiccups operationally. That $150 million turned out to be like $3 million when they sold their last share.

He has also been involved in bioethanol production in Brazil, where a company he worked for invested about $300 million into a bioethanol plant in Brazil during the great financial crisis. The bosses had to restructure the whole company, and Oeystein had to go to the US to talk to bondholders, trying to get them to choose whether to become shareholders or take a big hit on the bond loans.

In another case, Oeystein was involved in a nickel mine in the Philippines where the company he was working for was building a floating production ship for oil. The budget was $280 million, but the company spent $500 million on that building project, and it also took one and a half extra years to complete.

Lessons learned* When you have such a dynamic industry as shipping, you must think more about adapting and being tactical rather than strategic. * Focus on running your ships efficiently—it’s a critical success factor. * Shipping is a lot about market timing. Read the market, know where it is going, when you should exit, and when you should invest. * You have to be knowledgeable about technology because technology changes quite often in shipping. * Be smart about running a shipping company. Do it lean and follow the technology.

Andrew’s takeaways* It’s hard to set a long-term strategy in an industry such as shipping because you’ve got to adapt to what’s happening in the market. * You have to run ships efficiently, or else you will miss the core aspect of your business.

Actionable adviceIf you want to venture into the shipping industry, you must properly understand shipping because it’s not as straightforward as people think. It’s not just about moving goods from A to B.

No.1 goal for the next 12 monthsOeystein’s number one goal for the next 12 months is to read more books to be on top of contemporary issues and be a successful shipping investor.

Parting words

“Thank you for inviting me. I will be listening to a few more episodes.”

Oeystein Kalleklev

Connect with Oeystein Kalleklev* LinkedIn * X

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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I once sat down with a furious business owner. “My team’s useless,” he said. “They never deliver.” I asked him two simple questions: “Who hired them? Who sets their goals?”

He went quiet. He admitted he hadn’t run a proper meeting in months, and his priorities changed weekly. His team wasn’t failing; they were confused.

Once he got clear and consistent, everything shifted. Execution improved, morale spiked, and profit followed. The problem wasn’t his team; it was his leadership.

Download The Profit Gap for free at TheProfitBootCamp.com to see 5 hidden reasons family businesses work hard but still fall short of profit.

It starts with youWhen the same issues keep popping up: missed deadlines, low margins, and sloppy execution, it’s easy to blame your team or the market. But nine times out of ten, those problems point to your systems, not your people. If your business feels stuck in a loop, you haven’t built the structure to break free. Leadership isn’t about charisma or barking orders. It’s about clarity and follow-through.

Start by auditing yourself. Are your priorities clear to your team? Do you track progress, or just hope things get done?

I’ve seen owners delegate tasks and then forget about them, leaving their teams guessing. That’s not leadership. That’s abdication. One client delegated a pricing review but never checked in. Six months later, nothing had changed, and they’d lost $50,000 in potential profit. Set clear goals, assign owners, and follow up. It’s not sexy, but it works.

Fix your meetings, fix your profitHere’s a game-changer: fix your meetings. Most business meetings are a mess, with endless venting or no focus. Better meetings lead to better profit. Try this: run one weekly meeting with a tight agenda. Pick one metric, like cash flow, gross margin, or overdue invoices, and identify three actions to move them.

One client’s meetings were just complaint sessions. We set a new rule: every meeting ends with three clear next steps. Four weeks later, the execution was sharper, and he told me, “We didn’t need more staff, just a real plan.” Focused action works.

Build momentum with better habitsYou don’t need a new team, just better habits. Your people are probably capable, but they need direction. A weekly rhythm, like Monday priorities, Wednesday short check-ins, and Friday results, builds momentum fast. It’s not about working harder; it’s about working smarter. And start writing down what works. That’s your playbook for scaling.

One owner I know documented his best sales process. It took an hour, but it cut training time for new hires and boosted close rates by 10%. That’s leadership in action.

You’re leading with clarity now, but what if cash is still tight? In our final episode, we’ll tackle how to turn things around when money’s low and pressure’s high. Don’t miss it.

Actions from prior episodes Cut one cost: Block 30 minutes, review P&L, and cut one expense. Just one. Lead by example. * Find one drain: Review finances weekly, searching for one hidden loss. Act now. * Align the family*: Hold a monthly, one-hour family meeting. Ask: “What will drive next month’s profit?” Prioritize profit over family tension.

The next action Lead the team*: Run focused weekly meetings with a clear agenda and one action item. Drive results.

Download The Profit Gap for free at TheProfitBootCamp.com to see 5 hidden reasons family businesses work hard but still fall short of profit.

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 32: The Twenty-Dollar Bill.

LEARNING: Trade as if the markets are efficient, even though they are not.

“If the markets were perfectly efficient, then no one would discover anything about a mispriced stock. There would be no abnormal behaviors or biases, such as investors preferring to buy lottery stocks; therefore, there would be no incentive for investors to conduct any research. This would make the market inefficient.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 32: The Twenty-Dollar Bill.

Chapter 32: The Uncertainty of InvestingIn this chapter, Larry explains the efficient markets hypothesis (EMH) and why successful trading strategies often self-destruct due to their inherent limitations.

According to Larry, one of the fundamental tenets of the EMH is that in a competitive financial environment, successful trading strategies self-destruct because they are self-limiting—when they are discovered, they are eliminated by exploiting the strategy.

He shares the example of Andrew Lo’s adaptive markets hypothesis, which acknowledges that while the EMH may not necessarily hold in the short term, it does predict that inefficiencies will self-correct over time as arbitrageurs exploit them after publication. This understanding leads us to the inevitable conclusion that financial markets trend toward efficiency in the long run.

Efficient markets rapidly eliminate opportunities for abnormal profitsTo demonstrate how the efficiency of markets rapidly eliminates opportunities for abnormal profits, Larry shares the following example:

Imagine that an investor discovers that small-cap stocks have historically outperformed the market in January. To take advantage of this anomaly, that investor would have to buy small-cap stocks at the end of December, before the period of outperformance. After achieving some success with this strategy, other investors would take note—with the large dollars at stake, Wall Street is quick to copy successful strategies. An academic paper might even be published. Since the effect is now known to more than just the original discoverer of the anomaly, one would have to buy before others do to generate abnormal profits. Now, prices start to rise in November. But the next group of investors, recognizing this was going to happen, would have to buy even earlier.

As you can see, the very act of exploiting an anomaly has the effect of making it disappear, making the market more efficient. This underscores the significant role investors play in shaping market efficiency.

Behave as if equity markets are perfectly efficientLarry surmises that while equity markets may not be perfectly efficient, the winning investment strategy is to behave as if they were. This reaffirms the importance of the EMH in guiding investment strategy, providing investors with a sound approach to market participation.

In conclusion, Larry advises investors to consider carefully these words from Richard Roll, financial economist and principal of the portfolio management firm Roll and Ross Asset Management:

“I have personally tried to invest money, my clients’ and my own, in every single anomaly and predictive result that academics have dreamed up. And I have yet to make a nickel on any of these supposed market inefficiencies. An inefficiency ought to be an exploitable opportunity. If there is nothing investors can systematically exploit, time and time again, then it’s tough to say that information is not being properly incorporated into stock prices. Real money investment strategies don’t produce the results that academic papers say they should.”

Further reading1. Andrew Lo, “The Adoptive Markets Hypothesis,” The Journal of Portfolio Management (30th Anniversary Edition, 2004). 2. Dwight Lee and James Verbrugge, “The Efficient Market Theory Thrives on Criticism,” Journal of Applied Corporate Finance (Spring 1996). 3. Burton G. Malkiel, “Are Markets Efficient? Yes, Even If They Make Errors,” Wall Street Journal, December 28, 2000.

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us* Enrich Your Future 21: Think You Can Beat the Market? Think Again * Enrich Your Future 22: Some Risks Are Not Worth Taking * Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions * Enrich Your Future 24: Why Smart People Do Dumb Things * Enrich Your Future 25: Stock Crashes Happen—Be Prepared * Enrich Your Future 26: Should You Invest Now or Spread It Out? * Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities * Enrich Your Future 28 & 29: How to Outsmart Your Investing Biases * Enrich Your Future 30: The Hidden Cost of Chasing Dividend Stocks * Enrich Your Future 31: Risk vs. Uncertainty: The Investor’s Blind Spot

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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I once worked with a family business run by two brothers and a sister. The sister was a dreamer, pushing niche markets and creative ideas. Her CEO brother was all about landing big accounts to keep cash flowing. Every strategy meeting turned into a shouting match. Nothing got decided, and the business was stuck.

I pulled the creative sister aside and asked, “Do you want to be CEO?” She laughed, “No way.” That honesty was a game-changer. They finally aligned behind one leader, and the chaos started to fade. Is your family business stuck because no one’s steering the ship?

Download The Profit Gap for free at TheProfitBootCamp.com to see 5 hidden reasons family businesses work hard but still fall short of profit.

Survival mode kills profitFamily businesses are special, but they come with unique traps. The daily grind, orders, payroll, and customer complaints can bury any chance of big-picture thinking. You’re so busy keeping the lights on that you forget to ask: where’s this business going? That’s survival mode, and it’s a profit killer. Strategy takes a backseat when you’re just trying to get through the week.

Clear roles fix family chaosThen there’s the family dynamic. Loyalty and emotions can cloud tough calls. Maybe your cousin’s great at sales but terrible at managing people, yet no one says anything because he’s family. Or your parents are still on the payroll, even though they retired years ago. These are human issues, but they hurt your bottom line.

The fix? Write down everyone’s roles, even if it’s awkward. Be clear: who’s in charge of what? I’ve seen families transform their businesses just by putting this on paper. It’s not about cutting people out but giving everyone a lane so the company can move forward. Always return to the core principle that increasing profit increases value for all family members.

If every week feels like a scramble, you’re missing structure. Without a precise rhythm, you’re starting from zero every Monday. That’s exhausting, and it keeps you stuck. Try this: start one monthly owner profit check-in, 60 minutes max.

Focus on one question: what’s driving profit next month? It could be following up on late invoices, cutting a small cost, or pushing a high-margin product. Get your team thinking about profit, not just staying busy. Structure turns chaos into progress.

Family businesses also risk getting too comfortable. You might have a warm and loyal culture, but is it driving growth? Or is it just keeping the peace? Ask yourself: does our setup push us toward profit, or are we coasting on familiarity?

One family business I know kept a low-margin product line because it was “part of our history.” Dropping it felt like betraying the past, but it freed up cash for marketing that doubled their revenue. Logic has to win.

Structure over stressHere’s a quick story. I had a client who groaned, “Mondays are a mess.” Projects stalled, and he was micromanaging everything. We set a simple rhythm: Monday to set goals, Wednesday for updates, Friday to review wins. In just a few weeks, his team started owning their tasks. He wasn’t carrying the whole business anymore; he had breathing room. Structure doesn’t sound sexy, but it’s a game-changer.

Now you see the real traps keeping your family business stuck. But what if the real problem isn’t your family, it’s you? In our next episode, we’ll face the hard truth about leadership and profit. Don’t miss it.

Actions from prior episodes Cut one cost: Block 30 minutes, review P&L, and cut one expense. Just one. Lead by example. * Find one drain*: Review finances weekly, searching for one hidden loss. Act now.

The next action Align the family*: Hold a monthly, one-hour family meeting. Ask: “What will drive next month’s profit?” Prioritize profit over family tension.

Download The Profit Gap for free at TheProfitBootCamp.com to see 5 hidden reasons family businesses work hard but still fall short of profit.

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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BIO: Jeff Holman, founder of Intellectual Strategies, is revolutionizing legal support for startups and scaling businesses. His Fractional Legal Team model provides expert legal guidance without the cost of a full-time team.

STORY: Jeff started a cold plunge and sauna business during the pandemic. The company looked great, but he had employee issues, which affected its success. Soon, tens of other studios, brands, and franchises were all popping up within a mile of Jeff’s studio.

LEARNING: Create strategic alignment incrementally and iteratively.

“Create strategic alignment incrementally and iteratively because the business that you’re operating today might not be the business that you pivot to tomorrow.”

Jeff Holman

Guest profileJeff Holman, founder of Intellectual Strategies, is revolutionizing legal support for startups and scaling businesses. His Fractional Legal Team model provides expert legal guidance without the cost of a full-time team. With expertise in engineering, law, and business, Jeff helps companies navigate complex challenges, enabling them to grow with confidence.

Worst investment everDuring the COVID-19 pandemic, Jeff decided to find ways to spend his time and invest some of his money. He settled on a cold plunge and sauna business. The spreadsheet looked great, and the numbers were fantastic. The business model followed another business that Jeff had previously done, which had achieved considerable success.

Jeff found a local company in Utah that was manufacturing cold plunges at the time and secured a couple of investor friends to invest in the business. He rented an office space and converted one of the suites into a cold plunge and sauna studio.

The biggest mistake that cost Jeff this business was hiring employees and trying to get them more involved in marketing. He would help train and incentivize employees, ensure tasks were completed, have people submit reports, follow up for accountability, and more. It felt like he was babysitting his employees. This eventually brought his business down. However, the final nail in the coffin was a proliferation of other studios, brands, and franchises, all popping up within a mile of Jeff’s studio.

Lessons learned* If you’re part of a franchise, consider visiting other franchise businesses that may not be competing with yours or those a little further away from your customer base to observe how they operate. * If you’re pivoting your business, create strategic alignment incrementally and iteratively because the business you’re operating today might not be the one you pivot to tomorrow.

Andrew’s takeawaysFind a business that does what you want to do in another state and go work with them for a while.

Actionable adviceValidate the business idea you want to invest in well beyond the spreadsheet. Research regulations, test your MVP, identify channels that you’ll use to drive revenue, and much more.

Jeff’s recommended resourcesJeff’s journey has taught him the value of seeking expert advice. He recommends holding a strategy call with him if you need legal expertise to scale your business confidently. He also suggests reading Rocket Fuel and Traction: Get a Grip on Your Business by Gino Wickman to learn how to align intellectual property, assets, patents, trademarks, and copyrights with your business objectives and strategy. This advice can provide reassurance and confidence as you navigate the complexities of business.

No.1 goal for the next 12 monthsJeff’s number one goal for the next 12 months is to expand his law firm and also evangelize the fractional legal team model.

Parting words

“Innovate with confidence.”

Jeff Holman

Connect with Jeff Holman* LinkedIn * Facebook * Instagram * Youtube * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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I met a family business owner in the Philippines who was proud of his “stable” company. Two percent net profit, year after year. Sounds okay, right? Until I showed him the math: because his margin was deeply below average, he’d missed out on $1.2 million in potential profit over three years.

That “stability” was a slow bleed, draining his business while he didn’t even notice. Are you losing money you can’t see? That’s what this episode is all about: how profit problems silently grow while you’re looking the other way.

Download The Profit Gap for free at TheProfitBootCamp.com to see 5 hidden reasons family businesses work hard but still fall short of profit.

Small leaks, big lossesProfit problems don’t usually hit you like a freight train. They creep in quietly; a slight inefficiency here, a missed opportunity there. Maybe it’s a subscription you forgot to cancel or pricing that hasn’t budged in years. These leaks add up, and the longer you wait, the harder they are to fix. Think of it like a leaky pipe: today’s drip becomes a flood tomorrow.

The longer you delay, the more risk and complexity you’re piling on. Your margins shrink, your stress grows, and suddenly, you’re vulnerable to a bad month or a competitor’s move. I experienced this in my own business leading up to the government COVID lockdowns.

The good news? You don’t need a massive overhaul to start. Just find one recurring cost that’s dragging you down. It could be an overpriced vendor, software you barely use, or a process that wastes your team’s time.

One client I worked with found $1,500 monthly in unused cloud storage. Cutting it took 10 minutes and saved him $18,000 a year. That’s the kind of win you can grab right now. Small tweaks today prevent painful losses tomorrow.

Don’t overthink, just reviewHere’s a simple way to start: schedule a 30-minute profit review this month. Pull your profit and loss statement and look for one leak. Don’t overcomplicate it. Just ask: where’s money slipping away?

If you don’t know your P&L, ask your accountant to walk you through it. You may need a new accountant if your accountant can’t do that. This isn’t about being a finance wizard but knowing your business. One owner I know avoided his financials for years, trusting his bookkeeper. When we finally looked, we found $40,000 lost to outdated pricing. A 30-minute review fixed it. That’s the power of paying attention.

Don’t wait until you’re desperate. I’ve seen too many owners hold off until they’re scraping by, thinking they’ll fix profit when things “calm down.” Spoiler: things don’t calm down. The time to act is now when you still have options. If you wait until you’re broke, your choices shrink fast. You might have to cut staff, take a loan, or close up shop. Acting early keeps you in control.

Here’s a question to spark clarity: if a third party bought your business today, what’s the first thing they would fix?

Maybe it’s a product line barely breaking even or a client who pays late but demands your time. Write down one fix and tackle it this week. That mindset, seeing your business with fresh eyes, uncovers profit you didn’t know you had. Don’t wait for the third party to arrive. Fix your business now.

See your business with fresh eyesLet’s pause for a story. I worked with a client who never tracked profit by product. His team was convinced their manufactured products were the cash cow, way better than their imported products. We dug into the numbers, and guess what?

The imported products they sold were nearly twice as profitable. He immediately shifted strategy, focused on imports, raised prices on the manufactured stuff, and boosted gross profit by 17% in three months. That money was sitting there, waiting to be found. What’s hiding in your business?

You now see how delay kills profit, but why is breaking free from survival mode so hard? In our next episode, we’ll dig into why family businesses stay stuck and how to finally escape. Don’t miss it.

Action from the prior episode Cut one cost*: Block 30 minutes, review P&L, and cut one expense. Just one. Lead by example.

The next action Find one drain:* Review finances weekly, searching for one hidden loss. Act now.

Download The Profit Gap for free at TheProfitBootCamp.com to see 5 hidden reasons family businesses work hard but still fall short of profit.

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 31: The Uncertainty of Investing.

LEARNING: Equity investing is always about uncertainty.

“Most investors think of investing as much more like risk and forget there’s a lot of uncertainty. That’s a problem because investing is always about uncertainty. You have to recognize that we cannot rely on historical data to tell us that much about the future.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 31: The Uncertainty of Investing.

Chapter 31: The Uncertainty of InvestingIn this chapter, Larry explains the difference between risk and uncertainty. He highlights that one of the most important concepts to grasp is that investing is about dealing with both risk and uncertainty.

University of Chicago professor Frank Knight defined risk and uncertainty as follows: Risk is present when future events occur with measurable probability. Uncertainty is present when the likelihood of future events is indefinite or incalculable. Larry further explains that risk involves known probabilities, like casino odds or life insurance estimates, while uncertainty involves unknown outcomes, such as major events like the Great Depression or COVID-19.

Larry explains that we sometimes know the odds of an event occurring with certainty. For example, because of demographic data, we can reasonably estimate the odds that a 65-year-old couple will have at least one spouse live beyond 90. However, we cannot know the exact odds because future advances in medical science may extend life expectancy. Conversely, new diseases may arise that shorten life expectancy.

Why must you understand the difference between risk and uncertainty?Larry insists that it is crucial to understand the difference between risk and uncertainty. This understanding is key, as many investors mistakenly view equities as closer to risk, where the odds can be precisely calculated. This misconception often arises when economic conditions are favorable. The ability to estimate the odds gives investors a false sense of confidence, leading them to make decisions that exceed their ability, willingness, and need to take risks.

However, Larry adds that the perception of equity investing shifts from risk to uncertainty during crises. Since investors prefer risky bets (where they can calculate the odds, like investing in a stable company with a proven track record) to uncertain bets (where the odds cannot be calculated, like investing in a startup with an unpredictable future) when the markets begin to appear to investors to become uncertain, the risk premium demanded rises, and that is what causes severe bear markets.

Further, dramatic falls in prices lead to panicked selling. Larry says that investors tend to sell well after market declines have already occurred and buy well after rallies have long begun. The result is that they dramatically underperform the mutual funds they invest in.

How to stay safe despite risk and uncertaintyLarry emphasizes that one key to success is understanding that equity investing is always about uncertainty. Another crucial aspect is understanding the importance of choosing an equity allocation that doesn’t exceed your risk tolerance.

To further mitigate these uncertainties, Larry strongly recommends diversifying your portfolios. This strategy can provide a sense of security and preparedness in the face of market volatility. Additionally, he suggests using Monte Carlo simulations to account for various potential outcomes.

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us* Enrich Your Future 21: Think You Can Beat the Market? Think Again * Enrich Your Future 22: Some Risks Are Not Worth Taking * Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions * Enrich Your Future 24: Why Smart People Do Dumb Things * Enrich Your Future 25: Stock Crashes Happen—Be Prepared * Enrich Your Future 26: Should You Invest Now or Spread It Out? * Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities * Enrich Your Future 28 & 29: How to Outsmart Your Investing Biases * Enrich Your Future 30: The Hidden Cost of Chasing Dividend Stocks

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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I want to tell you about a midsize business owner drowning in consultants. He kept hiring them, one after another, each promising to turn things around. They’d show up, drop off a fancy report, and disappear. Meanwhile, his profit stayed flat, his team was overwhelmed, and he barely slept.

One night, he was alone in his office, staring at a payroll he wasn’t sure he could cover. That’s when it hit him. He told me, “I realized it’s on me. No one’s coming to save my business.” That moment was his turning point. So, what’s yours?

Download The Profit Gap for free at TheProfitBootCamp.com to see 5 hidden reasons family businesses work hard but still fall short of profit.

The turning point every owner needsLet’s be real: hoping someone else will fix your problems is tempting. A consultant, a new hire, maybe even some magic software. But here’s the truth: no one will care about your business as much as you do. Consultants can advise, pinpoint blind spots, and maybe even hand you a plan. But if you don’t act, nothing changes.

I’ve seen owners spend thousands on experts only to shelve their advice because it felt too hard or the timing wasn’t “perfect.” Waiting for the right moment is a trap. Your business doesn’t have time for that. The problems are piling up: low margins, stressed teams, endless emergencies, they’re not going away on their own. You have to step up.

Your calendar tells the truthI know what you’re thinking: “I’m already doing everything I can!” But are you? Pull up your calendar right now. What does it say? If it’s packed with meetings, emails, and putting out fires, you’re probably not leading; you’re reacting.

Your calendar tells the truth about your priorities. If there’s no time blocked for profit-focused work, like reviewing your P&L or cutting a bloated expense, you’re not owning the future of your business.

One client I worked with swore he had no time for strategy. His calendar showed 12 hours a week chasing emergencies, zero on profit. We carved out just 90 minutes a week to review his financials. Within months, his managers solved problems without him, and the whole business felt calmer and more focused. That’s the power of taking charge.

Here’s the thing: you can’t pay someone to care as much as you do. You can hire the best accountant and the sharpest operations manager, but responsibility for your business’s success rests with you.

It’s not about working harder; it’s about working smarter. Start small. Pick one profit-related task this week. Maybe it’s canceling an unused subscription, renegotiating a vendor contract, or reviewing your pricing. Do it by Friday. One task, done well, can shift your momentum.

A client thought he needed a complete overhaul to boost profit. Instead, we started with one thing: he cut a $900 monthly software he barely used. That small win gave him the confidence to tackle bigger issues.

Start small, lead strongYour team is watching you, too. They feed off your clarity and energy. If you’re scattered, putting out fires, they’ll be scattered too. But they’ll follow if you show up focused with a clear plan. That client I mentioned. Whose calendar was filled with firefighting?

Once he started those weekly financial reviews, his team noticed. They started coming to meetings prepared, pitching ideas to save money. Your leadership sets the tone. When you own your business’s future, you also allow your team to step up.

Owning your business isn’t just about responsibility; it’s your biggest advantage. No one knows your customers, team, or vision like you do. That’s your edge. But you have to use it. Stop waiting for a savior. Stop hoping the market will turn or a new hire will fix everything. The power to change your business is in your hands right now.

So, here’s your action step for this week: open your calendar and block 30 minutes to tackle one profit task. Review your P&L and look for one cost to cut. Maybe it’s calling a vendor to negotiate a better rate. Just do it. That’s how you start owning your business again.

You’re ready to step up, but here’s the catch: what if your business is already leaking cash? In our next episode, we’ll uncover the hidden ways your company is losing money and why waiting even one more month could cost you everything. Don’t miss it.

Action Cut one cost:* Block 30 minutes, review P&L, and cut one expense. Just one. Lead by example.

Download The Profit Gap for free at TheProfitBootCamp.com to see 5 hidden reasons family businesses work hard but still fall short of profit.

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 30: The Economically Irrational Investor Preference for Dividend-Paying Stocks.

LEARNING: The dividend policy is irrelevant to stock returns.

“Stock prices tend to rise in the month before they pay the dividend, because dumb retail investors overvalue dividends, and then they tend to revert back after the dividend gets paid.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 30: The Economically Irrational Investor Preference for Dividend-Paying Stocks.

Chapter 30: The Economically Irrational Investor Preference for Dividend-Paying StocksIn this chapter, Larry discusses why many investors prefer cash dividends, especially those using a cash flow approach to spending.

Larry explains that experts have established that dividend policy should be irrelevant to stock returns, which is supported by historical evidence. Stocks with the same exposure to common factors (such as size, value, momentum, and profitability/quality) have had the same returns, whether they pay dividends or not. Despite theory and evidence, many investors express a preference for dividend-paying stocks.

The fallacy of the free dividendAs Larry explains, investors tend to assume that dividends offer a safe hedge against the large price fluctuations that stocks experience. However, this assumption ignores that the dividend is offset by the fall in the stock price—the fallacy of the free dividend is a common misconception in the investment world.

Larry adds that stocks with the same “loading,” or exposure, to the four factors (size, value, momentum, and profitability/quality) have the same expected return regardless of their dividend policy. This has important implications because about 60% of US and 40% of international stocks do not pay dividends.

Thus, any screen that includes dividends results in far less diversified portfolios than they could be if they had not included dividends in the portfolio design. Less diversified portfolios are less efficient because they have a higher potential dispersion of returns without any compensation in the form of higher expected returns.

Taxes matterLarry notes that what is particularly puzzling about the preference for dividends is that taxable investors should favor the self-dividend (by selling shares) if cash flow is required. Taxes play a crucial role in investment decisions, and understanding their implications is essential for making informed choices.

Even in tax-advantaged accounts, investors who diversify globally (the prudent strategy) should prefer capital gains because the foreign tax credits associated with dividends have no value in tax-advantaged accounts.

Why do investors still prefer dividends?Hersh Shefrin and Meir Statman, two leaders in behavioral finance, attempted to explain the behavioral anomaly of a preference for cash dividends. The first explanation is that, in terms of their ability to control spending, investors may recognize that they have problems with the inability to delay gratification.

To address this problem, they adopt a cash flow approach to spending—they limit their spending to only the interest and dividends from their investment portfolio. In other words, the investor desires to defer spending but knows he doesn’t have the will, so he creates a situation that limits his opportunities and, thus, reduces the temptations.

The prospect theoryThe second explanation of why investors prefer dividends is based on “prospect theory.” Prospect theory states that people value gains and losses differently. As such, they will base decisions on perceived gains rather than losses.

Thus, if a person was given two equal choices, one expressed in terms of possible gains and the other in potential losses, they would choose the former. Because taking dividends doesn’t involve selling stock, it’s preferred to a total return approach, which may require self-created dividends through sales. The reason is that sales might affect the realization of losses, which are too painful for people to accept (they exhibit loss aversion).

Further reading1. Merton Miller and Franco Modigliani, “Dividend Policy, Growth, and the Valuation of Shares,” Journal of Business (October 1961). 2. Hersh Shefrin and Meir Statman, “Explaining Investor Preference for Cash Dividends,” Journal of Financial Economics (June 1984).

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us* Enrich Your Future 21: Think You Can Beat the Market? Think Again * Enrich Your Future 22: Some Risks Are Not Worth Taking * Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions * Enrich Your Future 24: Why Smart People Do Dumb Things * Enrich Your Future 25: Stock Crashes Happen—Be Prepared * Enrich Your Future 26: Should You Invest Now or Spread It Out? * Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities * Enrich Your Future 28 & 29: How to Outsmart Your Investing Biases

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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I, Coffee: The Capitalist Miracle Behind Your Morning CupI am the cup of coffee warming your hands right now. A simple drink with a story no government could brew. My journey from a cherry on a tree to your morning ritual is a testament to freedom, ambition, and human ingenuity.

I exist not because of a single plan by a government or business but because of countless decisions, risks, and exchanges made by individuals and companies.

I am the child of voluntary trade, fierce competition, and the pursuit of profit, all working without a master plan. These forces grow me, move me, roast me, and deliver me to you.

No single person could make me from start to finish, yet billions of cups like me are made every day.

Private ownership gives rise to ambitionI began as a cherry on a small farm in Costa Rica, grown by Manuel. Because he owns the land, he has reason to think long-term, studying prices, testing new methods, and planting varieties that take years to bear fruit. He’s not just farming for today; he’s betting on tomorrow. That’s what capitalism rewards: patience, planning, and the courage to take risks.

Manuel’s commitment to tomorrow propels his green coffee bean across borders, where profit and competition transform local harvests into global goods.

Profit connects personal effort to progressOnce picked, my journey begins from fruit to finished drink. I pass through the hands of workers and businesses, each driven by their own needs. No one is in it for love. They’re in it for a paycheck. And that’s precisely the point. The drive to earn a living keeps the whole system in motion.

Profit isn’t greed; it’s survival. Prices tell people what is scarce and wanted; markets change direction overnight. To survive, you adapt. To win, you innovate. That’s how competition works; it’s the quiet engine pushing new ideas forward. In capitalism, you don’t get to stand still. Evolve, and you’ll thrive. Stay stuck, and you’ll disappear.

Trade works without central controlAs I leave the processing facility, my journey goes global. I cross oceans and borders. The people along the way live in different countries, speak different languages, follow different beliefs, and may even hate each other, yet they still cooperate. Peace is the quiet miracle of capitalism. The market’s invisible hand turns individual pursuits into shared progress.

Each region plays to its strengths. Manuel grows coffee in Costa Rica. Luigi builds espresso machines in Italy. They’ve never met, but through trade, they both win. By trading rather than trying to do everything alone, both end up better off.

Consumers determine what survivesAt the roasting factory, experts dial in flavor. The process begins with precise heat control, powered by machines and fuels from distant places. Roasters adjust their methods to meet customer expectations because you, the consumer, decide who wins.

I don’t exist by chance. Every choice, a dark roast or a decaf, oat milk or cream, sends a signal. You’re the boss here. I’m shaped by what you sip. That’s why quality matters. Even minor errors lead to waste, lost sales, and the risk of being replaced by someone who gets it right.

Every job contributes to final valueEach role, from warehouse staff to maintenance teams, shapes the outcome. The technician who calibrates the roaster’s heat, the quality inspector who catches defects, and the logistics coordinator who ensures delivery affect how I taste in the end.

In this system, no task is too small. A green coffee warehouse worker in Indonesia who rotates inventory properly helps ensure I arrive fresh in Denver. One mistake and a competitor gets the next order.

Specialization turns effort into excellenceAt the café, baristas add their expertise, turning a roasted bean into your favorite cup: a bold black coffee, a tangy espresso, or a smooth latte. They steam, clean, pour, and seal. And they know: just one overheated shot or cracked lid, and everything I’ve been through goes to waste.

That’s the harsh reality of capitalism. Each choice leads towards profit or loss. Accountability isn’t imposed; it’s automatic.

Competition enforces accountabilitySome argue that markets need heavy rules, but I’ve seen competition shape behavior better than any bureaucracy. The people who move me act responsibly not because they’re forced to, but because trust pays off. Break that trust, and the market makes you pay.

Even sustainability depends on you. When you choose shade-grown beans or Rainforest Alliance-certified coffee, farms change. Your fair-trade purchases raise wages. Your demand for carbon-neutral shipping pushes the whole system forward. I’m not made greener by policy memos; I’m made greener by you. That’s capitalism.

Voluntary exchange creates something greaterSo here I am, your coffee, warming your hands just as I began this story. I started as a simple cherry on a tree, and through countless individual decisions, I’ve become your morning ritual. No one commanded my journey from Costa Rica to your cup, yet I arrived through millions of voluntary exchanges.

I’m not just a drink but living proof that capitalism, at its best, transforms strangers into partners and simple beans into something extraordinary.

As you sip me slowly, remember: every drop represents a quiet miracle of human cooperation, brewed not by force but by freedom, the same freedom that will bring your cup tomorrow and every morning after.

Essay by Andrew Stotz, loosely adapted from Leonard E. Read’s “I, Pencil”

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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BIO: Collin Plume, a precious metals expert and serial entrepreneur, helps investors maximize returns with minimal risk.

STORY: Collin inherited some money from his grandmother at 18. When two of his college friends came to him with the idea of creating a TV show, but on the internet, he cut them a check that was way too much than what he should have. The business didn’t work.

LEARNING: If you’re going to make a mistake in something, make it yourself and learn from it.

“If I’m going to make a mistake, I will make it myself. I will put my blood, sweat, and tears into it.”

Collin Plume

Guest profileCollin Plume, a precious metals expert and serial entrepreneur, helps investors maximize returns with minimal risk. Founder of Noble Gold Investments and My Digital Money, he champions alternative assets like metals, real estate, and crypto. He is a dedicated family man who prioritizes integrity and client success in navigating complex financial markets.

Worst investment everCollin inherited some money from his grandmother at 18. He did some traveling and a few other things with the money. Two of Collin’s college friends came to him with the idea of creating a TV show but on the internet. In theory, it made a lot of sense. They raised money, and Collin cut them a check that was way too much than what he should have.

Unfortunately, Collin didn’t fully engage with the idea beyond writing the check. He didn’t foresee the potential pitfalls. The business, however, didn’t pan out. Collin’s deepest regret in this investment was not actively participating in the business and learning from it. He lost money and the opportunity to grow as an entrepreneur.

Lessons learned* If you’re going to make a mistake in something, make it yourself. Don’t give money to someone else to make a mistake on your behalf—they will learn from it, you won’t. * Teach your kids how to make money from an early age.

Andrew’s takeaways* Families should take it upon themselves to protect the next generation.

Actionable adviceIf you get that opportunity, take it and learn from it, but know that if you invest, you’ll probably never see $1 come back to you. Also, you could jump on the bandwagon of a totally new and exciting idea, but there are some successful businesses out there that you can invest in.

Collin’s recommendationsCollin advises seeking out new mentors in different areas every year. Continuous learning and growth through mentorship is a powerful tool for personal development, and Collin himself has found it invaluable in his journey as an entrepreneur.

No.1 goal for the next 12 monthsCollin’s number one goal for the next 12 months is to train some people to take over more of the day-to-day operations in two of his businesses. On a personal level, he wants to go on one of the big hiking trips he’s never been able to do.

Parting words

“I love this show—everything about it. You’re a great guy to talk to. I appreciate you having me on; it’s been a pleasure to be with you.”

Collin Plume

Connect with Collin Plume* LinkedIn * Instagram * X * YouTube * Book * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 28: Buy, Hold, or Sell and the Endowment Effect and Chapter 29: The Drivers of Investor Behavior.

LEARNING: Smart people are humble and able to admit when they have made a mistake.

“As humans, we make all kinds of behavioral errors. Thus, it should not be surprising that we make them when investing. Smart people are, however, humble and able to admit when they have made a mistake.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 28: Buy, Hold, or Sell and the Endowment Effect and Chapter 29: The Drivers of Investor Behavior.

Chapter 28: Buy, Hold, or Sell and the Endowment EffectIn this chapter, Larry discusses one of the more frequent risk management problems: holding or selling an asset and how the endowment effect affects this decision.

The endowment effectLarry begins by empathetically explaining how the endowment effect, a common behavioral quirk, often causes individuals to make poor investment decisions. For example, it leads investors to hold onto assets they wouldn’t purchase if they didn’t already own them. Whether it’s because the assets don’t fit into their asset allocation plan or because they view them as overpriced, they’re no longer the best choice from a risk/reward perspective.

Larry shares the most common example of the endowment effect. People are often reluctant to sell stocks or mutual funds that they inherited or a deceased spouse purchased. Many people will usually say, “I can’t sell that stock; it was my grandfather’s favorite, and he’d owned it since 1952.” Or, “That stock has been in my family for generations.” Or, “My husband worked for that company for 40 years. I couldn’t possibly sell it.”

Another example of an investor subject to the endowment effect is stock accumulated through stock options or some type of profit-sharing/retirement plan.

How to avoid the endowment effectLarry says you can avoid the endowment effect by asking: If I didn’t already own this asset, how much would I buy today as part of my overall investment plan? If the answer is, “I wouldn’t buy any,” or, “I would buy less than I currently hold,” you should sell. The rule applies whether the asset is a bottle of wine, a stock, a bond, or a mutual fund.

He adds that you should only own an investment if it fits into your overall asset allocation plan.

Chapter 29: The Drivers of Investor BehaviorIn this chapter, Larry discusses how investors make errors simply because they are humans prone to behavioral mistakes. He reviews some of the more common ones to help you avoid making such mistakes.

Ego-driven investmentsIn this type of mistake, investors want more than returns from their investments.

For instance, some investors continue investing in hedge funds, despite their lousy performance, for the same reasons they buy a Rolex or carry a Gucci bag with an oversized logo—they are expressions of status, available only to the wealthy.

Such investment decisions are ego-driven, with demand fueled by the desire to be a “member of the club.”

The desire to be above-averageOverconfidence in our abilities is a very healthy attribute. It makes us feel good about ourselves, creating a positive framework for navigating life’s experiences. Unfortunately, being overconfident in our investment skills can lead to investment mistakes—and so does what seems to be the all-too-human desire to be above average.

Overconfidence is such a huge problem that it even causes people to delude themselves—the truth is so painful that the delusion allows them to continue to be overconfident. It leads to unrealistic optimism, causing investors to concentrate their portfolios on a handful of stocks rather than gain the benefits of diversification (the only free lunch in investing).

Framing the problemAccording to Larry, many errors we make as human beings and investors result from how we frame problems. “Framing the problem” refers to the way we perceive and interpret a situation, which can significantly influence our decisions. If a situation is framed from a negative viewpoint, people tend to focus on that. On the other hand, if a problem is framed positively, the results are pretty different. Consider the following example from Jason Zweig’s Your Money & Your Brain:

• Pregnant women are more willing to agree to amniocentesis if told they face a 20% chance of having a Down syndrome child than if told there is an 80% chance they will have a normal baby.

Regarding investing, the so-called professionals are framed as having all the advantages. The average investor then believes they stand no chance against the “professionals” and invests in active funds.

However, Larry quotes various investment gurus and researchers who believe that investors without knowledge of the stocks they buy can earn market returns by investing in index funds. Since the average fund underperforms its benchmark index fund, and the average active investor underperforms the very funds in which they invest, the know-nothing index investor earns above-average returns by simply earning market returns.

Confirmation biasAnother major cause of investment errors is “confirmation bias,” the tendency for people to favor information that confirms their preconceptions or hypotheses regardless of whether the information is true while disregarding evidence that is contrary to them. As a result, people gather evidence, recall information selectively from memory, and interpret it in a biased way.

For instance, investors who believe they can pick winning stocks are regularly oblivious to their losing record and record wins as evidence confirming their stock-picking skills. However, they neglect to record losses as disconfirming evidence. Similarly, investors may ignore negative news about a company they are invested in, focusing only on positive information that supports their investment decision.

Be humble and admit your mistakesIn conclusion, Larry reiterates that we’re all human and prone to behavioral mistakes. However, he underscores the importance of humility in admitting when we’ve made a mistake. He encourages us to see learning from our errors as a cause for celebration, as it means we’ll be less wrong in the future. He reminds us that what sets us apart from fools is our ability to learn and not repeat our mistakes, expecting different outcomes.

Further reading1. Meir Statman, “What Investors Really Want,” McGraw-Hill, 2010. 2. Jonathan Burton, “Investment Titans,” McGraw-Hill, 2000. 3. Jason Zweig, “Your Money and Your Brain,” Simon and Schuster, 2008. 4. Peter Lynch, “Is There Life After Babe Ruth,” Barron’s, April 2, 1990. 5. 1993 Berkshire Hathaway Annual Report. 6. Larry Swedroe and R.C. Balaban, “Investment Mistakes Even Smart People Make and How to Avoid Them,” McGraw-Hill, 2011.

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us* Enrich Your Future 21: Think You Can Beat the Market? Think Again * Enrich Your Future 22: Some Risks Are Not Worth Taking * Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions * Enrich Your Future 24: Why Smart People Do Dumb Things * Enrich Your Future 25: Stock Crashes Happen—Be Prepared * Enrich Your Future 26: Should You Invest Now or Spread It Out? * Enrich Your Future 27: Pascal’s Wager: Betting on Consequences Over Probabilities

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence*

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BIO: Stu Heinecke is the author of How to Get a Meeting with Anyone, named one of the top 64 sales books of all time and the #1 sales book ever written on prospecting.

STORY: Stu discusses his updated book edition, which caused a worldwide stir when the first edition was released in 2016. He talks about how to get a meeting with anyone.

LEARNING: Be audacious and try to get that meeting that seems impossible.

“When trying to get meetings, we have to make human-to-human connections. We must be audacious and surprise people and have them just say, wow.”

Stu Heinecke

Guest profileStu Heinecke is the author of How to Get a Meeting with Anyone, named one of the top 64 sales books of all time and the #1 sales book ever written on prospecting. A hall-of-fame-nominated marketer and Wall Street Journal cartoonist, he is known for oblique perspectives and utterly unique strategies for selling, entrepreneurship, explosive growth, and, of course, getting meetings.

Worst investment everIn today’s episode, Stu, who previously appeared on the podcast on episode Ep503: Never Cling to One-to-One Leverage, discusses his updated book edition, which caused a stir worldwide when the first edition was released in 2016. Stu shares how his book has inspired a global community, including the founder of Reach Desk, who raised $48 million in funding, and many others who have found inspiration in his work.

AI and B2B salesStu highlights the transformative role of AI in B2B sales, a significant development that is miraculously changing the landscape. As AI becomes more prolific, Stu believes there will be a clamor for uniquely human things.

He underscores the importance of human-to-human connections and creativity in making audacious and surprising efforts to get meetings in the new AI world, ensuring the audience is well-informed and prepared for the future.

Creativity and overcoming self-doubtGetting people to meet you can be overwhelming, and self-doubt may creep in occasionally. Stu encourages people to make breaking through part of their character. He adds that having a sense of mischief and adventure is essential because if you can’t get a meeting, you can’t sell. Stu urges people to get as good as possible at getting meetings and reaching out to people that they think they would never be able to reach. Just be audacious and try.

Stu also emphasizes the importance of involving assistants in outreach efforts and making them part of the process to extend your reach.

No.1 goal for the next 12 monthsStu’s number one goal for the next 12 months is to get into bodybuilder shape.

Parting words

“One of the best investments you can make is to get good at getting meetings with people that you might think are completely out of reach. Reach out, and you’ll see they aren’t out of reach.”

Stu Heinecke

Connect with Stu Heinecke* LinkedIn * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 27: Pascal’s Wager and the Making of Prudent Decisions.

LEARNING: Use Pascal’s wager to avoid making devastating mistakes.

“You have to think about the cost of being wrong versus giving up on that hope or the ability to brag about how you pick the best-performing stock. Pascal’s wager gives you the right way to think about the answer. And then, you get to enjoy your life much more.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 27: Pascal’s Wager and the Making of Prudent Decisions.

Chapter 27: Pascal’s Wager and the Making of Prudent DecisionsIn this chapter, Larry discusses Pascal’s wager, a suggestion posed by the French philosopher Blaise Pascal that emphasizes the importance of considering the consequences of decisions rather than just the probability of outcomes.

Pascal’s wagerIn Pascal’s wager, the philosopher asked how we should act when we cannot prove or disprove if God exists. To answer this question, the philosopher said: if a Supreme Being doesn’t exist, then all the devout have lost is the opportunity to fornicate, imbibe, and skip a lot of adult church services. But if God does exist, then the atheist roasts in hell for eternity.

Pascal concluded that the consequences of your actions matter far more than whatever you think the probabilities of the outcomes might be.

Using Pascal’s wager to make financial decisionsPascal’s wager empowers individuals to make informed financial decisions. It encourages us to carefully consider the consequences before accepting the risks involved in case we are wrong. This approach can be applied to a wide range of financial decisions, instilling confidence in our choices.

Buying life insuranceImagine you’re an average 28-year-old. You got married a few years ago and have your first child. Now, you must decide whether you should have life insurance. If you buy the life insurance, you know with a very high degree of certainty for the next 40 years, you’re going to be paying away a premium to the life insurance company and foregoing their earnings that you could get by taking that money investing in the stock market and maybe get a seven to 10% per annum return.

Yet, most people buy the insurance because of the consequences of their being wrong, and they happen to be unlucky enough to die, either through an accident or some disease that wasn’t forecasted for them. Then, their wives and children may live in poverty. And that’s just a consequence that’s not acceptable.

Asset allocationIn another example, Pascal discusses someone who has already achieved sufficient wealth to support a quality lifestyle. Should they focus on preserving capital by allocating a low amount to risky assets like equities or try to accumulate even more wealth by allocating a significant amount to risky assets?

To decide on which side of Pascal’s wager this individual wants to be with their portfolio, Larry advises to consider this insight from author Nassim Nicholas Taleb: “One cannot judge a performance in any given field by the results but by the costs of the alternative (i.e., if history played out differently).

Long-term care insuranceLarry also examines how Pascal’s wager can help us decide whether to purchase long-term care insurance. According to Larry, say a couple, both 65 years old, has a portfolio that is highly likely to provide sufficient assets to maintain their desired lifestyle if neither ever needs long-term care. If one or both need long-term care for an extended period, the portfolio will likely be strained or depleted.

If no insurance is needed, the costs of purchasing a long-term care policy increase the odds of running out of money by just 3% (from 94% to 91%). On the other hand, if long-term care is needed and no insurance is purchased, the odds of running out of money increase by 20%—the odds of success fall from 94% to 74%.

That is almost seven times the 3% increase in the likelihood of failure caused by the purchase of insurance. It seems clear that the purchase of the insurance is a prudent decision.

Purchasing TIPS or nominal bondsAnother decision investors should use Pascal’s wager to make is whether to purchase TIPS or nominal bonds. According to Larry, if you hold long-term nominal bonds, you win if deflation shows up (or even if inflation is less than expected). You lose, however, if inflation is greater than expected because your portfolio might not provide sufficient income to maintain your desired lifestyle.

On the other hand, with TIPS, you win either way. If inflation shows up, the return of your bonds keeps pace. Even with deflation, they do at least as well as in inflation because TIPS mature at par.

The consequences of your decision should dominate the probability of outcomes, making TIPS the prudent choice in most cases.

Let Pascal whisper in your earIn conclusion, Larry encourages investors to use Pascal’s wager to avoid making devastating mistakes that are sometimes impossible to recover from.

Further reading1. Jonathan Clements, “The Little Book of Main Street Money,” Wiley, 2009. 2. Nassim Nicholas Taleb, “Fooled by Randomness,” W. W. Norton & Company, 2001.

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us* Enrich Your Future 21: Think You Can Beat the Market? Think Again * Enrich Your Future 22: Some Risks Are Not Worth Taking * Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions * Enrich Your Future 24: Why Smart People Do Dumb Things * Enrich Your Future 25: Stock Crashes Happen—Be Prepared * Enrich Your Future 26: Should You Invest Now or Spread It Out?

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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BIO: Wes Schaeffer is The Business Fixer®. He sees the message you want to convey but can’t find the words and gives them to you because if you don’t toot your own horn, there is no music.

STORY: Wes discusses the evolving landscape of business and marketing, emphasizing the importance of human connection, trust, and information.

LEARNING: Future-proof your business with trust, strategy, and agility.

“It is time to spring clean your business. Get light, get lean, get focused, and build a legacy.”

Wes Schaeffer

Guest profileWes Schaeffer is The Business Fixer®. He sees the message you want to convey but can’t find the words and gives them to you because if you don’t toot your own horn, there is no music. He’s a brown belt in Brazilian Jiu-Jitsu and the president of his HOA, so mow your lawn and pay attention to what this AF veteran, father of 7, and grandfather of three has to say. He’s written a couple of books, spoken around the world, published over 700 podcasts, and was once duct-taped to a bar in Korea.

Join his free 12 Weeks to Peak program designed to help individuals and teams build a life cadence and achieve their goals.

Worst investment everIn today’s episode, Wes, who previously appeared on the podcast on episode Ep280: Do Your Research and Trust Your Gut, discusses the evolving landscape of business and marketing, emphasizing the importance of human connection, trust, and information.

Effects of technology on marketingWes starts the discussion by noting how the salesperson’s role has evolved since the internet came around. Before the internet, he says, salespeople were the keepers of the knowledge. If you wanted to buy a car, you had to go down to the dealership. Now you have CarFax and online shopping in comparison, and you can compare models and negotiate before you get there. People freely share information online, so salespeople are no longer the keeper of knowledge.

Despite the abundance of knowledge, buyers often find themselves in a state of confusion. In the past, this confusion stemmed from a lack of information. However, in today’s digital age, the problem has shifted to an overwhelming amount of information.

This is where the salesperson’s role becomes crucial. As a salesperson, you have the opportunity to step in as a trusted advisor. Your role is to help your customers navigate the sea of information available online, assuage their fears, and instill in them the confidence that they are making the right decision.

The role of trust and information in marketingAndrew and Wes delve into the significance of trust in marketing, with Wes underlining that trust is the cornerstone of purchasing decisions. He points out that despite the advancements in technology, people still crave individualized treatment.

As a salesperson, it’s crucial to ask yourself: What am I doing to connect with the human being on the other side of the screen? This connection, built on trust, is what reassures customers and gives them the confidence to make a purchase.

Wes reminds salespersons that customers don’t want to be treated like numbers, so they should be consistent and congruent in their approach to marketing and spend enough time building trust.

Adapting to market changes and future-proofing businessesWes and Andrew discuss the impact of global competition, particularly from China, on family businesses. They explore the idea of repositioning companies from low-cost leaders to higher-value-added brands, emphasizing the need for differentiation and strategic planning. Wes suggests leveraging current political and technological changes to improve business efficiency and adapt to new market realities.

They also discuss the importance of businesses being nimble and responsive to market changes, with Wes highlighting the need for businesses to streamline and focus on their core strengths. This proactive approach ensures that businesses are not just surviving but thriving in the face of market shifts.

Building a life cadence and personal developmentWes introduces his program, “12 Weeks to Peak,” which helps individuals create a life cadence by scheduling time for self-improvement, relaxation, and other essential activities. This program has been proven to enhance productivity, reduce stress, and improve overall well-being.

He shares insights from successful individuals like Warren Buffett and sports figures who maintain consistent routines and regimens.

Wes emphasizes the importance of intentionality in life, suggesting that people should schedule time for activities that matter to them, such as calling friends and family.

Andrew’s takeaways* You can build a happy life and great work. * If you’re sitting in a lousy job you’re unsatisfied with, leave.

No.1 goal for the next 12 monthsWes’s number one goal for the next 12 months is to ensure that his 12 Weeks to Peak program becomes recognizable. He aims to achieve this by helping more people create a life cadence that prioritizes self-improvement, relaxation, and other essential activities. By doing so, he hopes to make a significant impact on people’s lives and well-being.

Parting words

“Just take action. If this speaks to you, then do it. Don’t wait. You’ve got to become a good decision-maker, so listen to your little voice.”

Wes Schaeffer

Connect with Wes Schaeffer* LinkedIn * Facebook * Instagram * X * Podcast * YouTube * Book * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 26: Dollar Cost Averaging.

LEARNING: Invest all your money whenever you have it.

“If you want to put the odds in your favor, which is the best we can do because we don’t have clear crystal balls, you should put all your money in whenever you have it to invest.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 26: Dollar Cost Averaging.

Chapter 26: Dollar Cost AveragingIn this chapter, Larry discusses why lump sum investing is better than dollar cost averaging.

Should you invest your money all at once or spread it over time?According to Larry, the issue of Dollar Cost Averaging (DCA) typically arises when an investor receives a large lump sum of money and wonders if they should invest it all at once or spread it over time. The same problem arises when an investor panics and sells when confronted with a bear market, but then there are two questions: How does the investor decide when it is safe to reenter the market? And does she reinvest all at once or by DCA?

Constantinides, a University of Chicago professor in the 1960s, studied this question. He demonstrated that DCA is an inferior strategy to lump sum investing. He termed it logically dumb as it makes no sense based on an expected return outcome. From a purely financial perspective, the logical answer is that if you have money to invest, you should always invest it whenever it’s available.

Another paper by John Knight and Lewis Mandell compared DCA to a buy-and-hold strategy. Then, it analyzed the strategies across a series of investor profiles from risk-averse to aggressive. They concluded that DCA had no advantage over the two alternative investment strategies. Combined with their graphical analysis, their numerical trial and empirical evidence favored optimal rebalancing and buy-and-hold strategy over dollar cost averaging. Optimal rebalancing refers to the strategy of adjusting the proportions of assets in a portfolio to maintain a desired level of risk and return.

Dollar cost averaging versus lump sum investingKnight and Mandell conducted a backtest to compare the performance of DCA versus LSI (lump sum investing). Backtesting is a simulation technique to evaluate the performance of a trading strategy using historical data. They backtested the two strategies between 1926 and 2010. Transaction costs were ignored (favoring DCA, which involves more trading). The authors assumed the initial portfolio was $1 million in cash, and the only investment available was the S&P 500 Index:

• DCA Strategy: At the beginning of each month, one-twelfth of the initial portfolio was invested—the entire $1 million was invested by the end of the 12th month.
• LSI Strategy: The $1 million portfolio was invested on day one.

The study covered 781 rolling 20-year periods. The LSI strategy outperformed in 552 of them—over 70 percent of the time. In addition, in the roughly 30 percent of instances in which DCA outperformed, the magnitude of that outperformance was less than when LSI outperformed.

Specifically, during the 552 20-year periods in which LSI did better than DCA, the average cumulative outperformance was $940,301 on the initial $1 million investment. During the 229 periods in which DCA did better than LSI, the average cumulative outperformance was $769,311.

When dollar cost averaging is the better optionLarry notes that there is an argument to be made in favor of DCA when it is the lesser of two evils—when an investor cannot “take the plunge” because they are sure that if they were to invest all at one time, that day would turn out to be the high not exceeded until the next millennium. That fear causes paralysis.

If the market rises after they delay, how can they buy now at even higher prices? And if the market falls, how can they buy now because the bear market they feared has arrived? Once a decision has been made not to buy, how do you decide to buy?

There is a solution to this dilemma that addresses both the logical and the emotional issues. Larry advises an investor to write a business plan for their lump sum. The plan should lay out a schedule with regularly planned investments. The plan might look like one of these alternatives:

• Invest one-third of the investment immediately and invest the remainder one-third at a time during the next two months or the next two quarters.
• Invest one-quarter today and spread the remainder equally over the next three quarters.
• Invest one-sixth each month for six months or every other month.

Adopt a glass is half-full perspectiveHaving accomplished these objectives, Larry says, the investor should adopt a “glass is half full” perspective. If the market rises after the initial investment, they can feel good about how their portfolio has performed. She can also feel good about how smart she was not to delay investing.

If, on the other hand, the market has fallen, the investor can feel good about the opportunity they now have to buy at lower prices and about being smart enough not to have put all of their money in at one time. Either way, the investor wins from a psychological perspective. This is an important consideration because emotions play an essential role in how individuals view outcomes.

Lump sum investing is the way to goWhile DCA may sometimes work, Larry insists that putting all your money at once gives you the best odds of having the most money. If you want to put the odds in your favor, which is the best we can do because we don’t have clear crystal balls, he says, you should put all your money in whenever you have it to invest. Unfortunately, despite all the evidence, investors and advisors still recommend DCA.

Further reading1. George Constantinides, “A Note On The SubOptimality Of Dollar Cost Averaging as an Investment Policy,” The Journal of Financial and Quantitative Analysis, June 1979. 2. John Ross Knight and Lewis Mandell, “Nobody Gains From Dollar Cost Averaging: Analytical, Numerical and Empirical Results,” Financial Services Review, Volume 2, Issue 1 (1992-1993) pp. 1-71. 3. Gerstein Fisher, “Does Dollar Cost Averaging Make Sense For Investors?” 2011.

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us* Enrich Your Future 21: Think You Can Beat the Market? Think Again * Enrich Your Future 22: Some Risks Are Not Worth Taking * Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions * Enrich Your Future 24: Why Smart People Do Dumb Things * Enrich Your Future 25: Stock Crashes Happen—Be Prepared

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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BIO: Elvi Caperonis is a former Harvard University Analyst and Technical Program Manager at Amazon and LinkedIn’s top Voice and a career strategist who has mastered the art of storytelling to create a six-figure personal brand on LinkedIn.

STORY: Elvi decided to be her own boss and started an e-commerce business for which she had no knowledge or passion. It turned out to be a nightmare that cost her $30,000.

LEARNING: If you don’t have passion for something, don’t do it. Happiness and delivering value should be the ultimate goal, not just making money.

“Yes, you want to start a business. But first, sit back and ask yourself, “Will I enjoy this? Is this going to tell the story that I want to live in the world?”

Elvi Caperonis

Guest profileElvi Caperonis is a former Harvard University Analyst and Technical Program Manager at Amazon and LinkedIn’s top Voice and a career strategist who has mastered the art of storytelling to create a six-figure personal brand on LinkedIn.

With a track record of helping job seekers land their dream jobs and supporting millions across the globe through her content on Linkedin, Elvi Caperonis has become the go-to expert for those looking to build a personal brand and land their dream job.

The ability to connect with her audience through storytelling and content strategies has made an impact and helped build her brand. Elvi is passionate about helping and inspiring others to achieve results similar to hers.

Land Your Dream Job and Succeed 10X Faster!: Access the same strategies that transformed my career Growth by landing jobs at top companies like Harvard University and Amazon—all for a fraction of the price.

Worst investment everA few years ago, Elvi decided she wanted to be an entrepreneur and her own boss. She discussed it with her husband, who was very supportive. Elvi chose to launch an E-commerce business. She had heard many people say it was a fun and profitable business and believed she could do it.

Elvi took an online course and started learning about E-commerce and how to do it step by step. She did her due diligence. Unfortunately, Elvi didn’t have a passion for E-commerce. It was a lot of work, and it was a nightmare at the end because she was putting in a lot of hours and didn’t turn a profit. She lost about $30,000 in that business.

Lessons learned* If you don’t have passion for something, question yourself 1,000 times before starting that business. Passion allows you to tell a story that resonates with your customers. * Learn from people who have done it before and get a mentor. * If you don’t have experience in the kind of business you want to start, don’t go all in; be agile and try to sell a few units of your product, then double down as you continue to grow and adapt. * Happiness and delivering value should be the ultimate goal, not just making money.

Andrew’s takeaways* Whatever job or business you start, ensure it’s built around the core thing you do naturally today.

No.1 goal for the next 12 monthsElvi’s number one goal for the next 12 months is to spend more time with her kids, husband, mom, sisters, aunts, and whole family.

Parting words

“Even if you cannot see it now, whatever you are going through will be okay. Just keep reminding yourself of this.”

Elvi Caperonis

Connect with Elvi Caperonis* LinkedIn * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 25: Battles are Won Before They Are Fought.

LEARNING: Be well-prepared for potential disruptions in the market.

“Many investors let emotions drive their decisions, and they end up buying high and selling low—the opposite of what you are doing when rebalancing.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 25: Battles are Won Before They Are Fought.

Chapter 25: Battles Are Won Before They Are FoughtIn this chapter, Larry emphasizes the importance of strategic planning to anticipate market shocks, which occur approximately once every three or four years. This proactive approach ensures that investors are well-prepared for potential disruptions in the market.

Historical distribution of stock returnsGene Fama studied the historical distribution of stock returns and found that the population of price changes if it was strictly normal on any stock, then a standard deviation shift from the mean of five standard deviations should occur about once every 7,000 years.

The reality, though, is it occurs about once every three or four years in the US equity markets. That means the distribution of returns is not normally distributed. To illustrate this, Larry shares evidence of big fat tails in the distribution. From 1926–2022, in 26 out of the 97 years, the S&P 500 Index produced negative returns. In 11 of those years, the losses were greater than 10%. In six of the years, the losses exceeded 20%. In three of the years, the losses exceeded 30%. In one year, the loss exceeded 40%.

Prepare to live through a big market downturnAccording to Larry, the data unequivocally shows that stocks are risky assets, with risks that are more prevalent than historical volatility would suggest. Investors must be prepared to face severe losses at some point. It’s not a matter of if these risks will manifest, but when, how sharp the declines will be, and when they will subside.

For investors, Larry underscores the importance of winning the big fat tails battle in the planning stage. Successful investors know that bear markets will happen and that they cannot be predicted with a high degree of accuracy. Thus, they build bear markets into their plans. They determine their ability, willingness, and need to take risks.

Larry notes that, on average, prudent investors prepare to live through a big market shock once every three or four years. They ensure that their asset allocation does not cause them to take so much risk that when a bear market inevitably shows up, they might sell in a panic. They also make sure that they don’t take so much risk that they lose sleep when emotions caused by bear markets run high.

The best way to invest during crisesWhile global diversification across equity asset classes is a prudent strategy that reduces risk over the long term, this benefit diminishes during crises. The only reliable refuge during such periods is high-quality fixed-income investments, such as Treasuries, government agency securities, and FDIC-insured CDs. This emphasis on diversification should instill a sense of security and protection in investors.

Riskier fixed-income assets such as junk and emerging market bonds also suffer from flights-to-quality and liquidity. This is why the prudent strategy is to ensure that your portfolio contains a sufficient amount of safe bonds to dampen the overall portfolio’s risk to an acceptable level—winning the battle before the fight begins.

Further reading1. Wall Street Journal, “One ‘Quant’ Sees Shakeout For the Ages—’10,000 Years,’ August 11-12, 2007. 2. Roger Lowenstein, When Genius Failed, Random House (1st edition, September 2000). 3. Worth (September 1995). 4. Stephen Gould, Full House.

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us* Enrich Your Future 21: Think You Can Beat the Market? Think Again * Enrich Your Future 22: Some Risks Are Not Worth Taking * Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions * Enrich Your Future 24: Why Smart People Do Dumb Things

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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BIO: Fabrizio has always wanted to fly jets and has had a career flying both private jets and for various airlines worldwide. He has shared the cockpit with pilots from over 65 nationalities, giving him a broader perspective on people and life.

STORY: Fabrizio invested in a luxury car business in Italy but chose the wrong person to run the show, and because of this, he lost all his money and a very good friend.

LEARNING: Do not mix business with friendship. Hire the right people.

“Business decisions need to be made to make money. If that money helps people as well, great. But trying to mix charity with business is a very bad idea.”

Fabrizio Poli

Guest profileFabrizio Poli has always wanted to fly jets and has had a career flying both private jets and for various airlines worldwide. He has shared the cockpit with pilots from over 65 nationalities, giving him a broader perspective on people and life. For the last 14 years, Fabrizio has been buying, selling, leasing, and chartering private jets for the ultra-wealthy.

Fabrizio is the author of “The Quantum Economy” and other books. He often shares his aviation expertise in the media and is featured in the Financial Times, Bloomberg, Social Media Examiner, and Chicago Tribune.

Worst investment everBeing in the private jet business, Fabrizio decided to venture into the car business a few years ago. He figured people who buy private jets also collect cars. Fabrizio teamed up with a friend of his in Italy. The idea was to buy Vespers, Alfa Romeos, and Ferraris in Italy and sell them internationally. They bought a bunch of cars and opened a showroom in Italy on the road where the first Ferrari was driven. However, Fabrizio was in England at the time. He assumed that his friend was doing things properly.

Since the showroom was on a popular road with all these flashy cars parked outside, many people were walking into the showroom, unfortunately not to buy but to look at them.

Fabrizio sent over a web designer to help tweak the website and suggested that his partner let people into the showroom by appointment only. This way, he’d avoid spending 90% of his day talking to people who are not there to buy a car. The friend did not heed his advice, and eventually, the business went under.

Fabrizio had invested in the right business but in the wrong person, and because of this, he lost all his money and a very good friend.

Lessons learned* Hire the right people and create a supportive environment for them. * Separate business decisions from personal emotions and make independent evaluations. * The product and the process can be great, but if you pick the wrong people to run it, they’ll screw the whole thing up.

Andrew’s takeaways* Find an independent, objective, knowledgeable third party to help pick a business partner. * Separate the business idea from the person in charge of bringing it to life.

Actionable adviceIf you are going to invest with your friend, you are emotionally engaged, and that’s dangerous. Bring somebody else to play the bad guy, someone who can make tough decisions and keep emotions in check if you cannot take the emotion out.

Fabrizio’s recommendationsFabrizio recommends reading a lot—both fiction and nonfiction—to open up new possibilities and perspectives. He also recommends listening to other business leaders to learn from their experiences. This practice can inspire and inform your business decisions.

No.1 goal for the next 12 monthsFabrizio’s number one goal for the next 12 months is to start and launch a new business by September. He is also planning on publishing another book this year.

Parting words

“Fly high. Think high.”

Fabrizio Poli

Connect with Fabrizio Poli* LinkedIn * Podcast * YouTube

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 24: Why Do Smart People Do Dumb Things?

LEARNING: Past performance does not guarantee future results. Change the criteria you use to select managers.

“There are only two things that are infinite, the universe and man’s capacity for stupidity.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 24: Why Do Smart People Do Dumb Things?

Chapter 24: Why Do Smart People Do Dumb Things?In this chapter, Larry discusses why investors still make mistakes despite multiple SEC warnings.

The past performance delusionLarry explains that it’s normal for most investors to make mistakes when investing, often due to behavioral errors like overconfidence. Being overconfident can cause investors to take too much risk, trade too much, and confuse the familiar with the safe. Those are explainable errors.

However, there’s one mistake that Larry finds hard to explain. Most investors ignore the SEC’s required warning that accompanies all mutual fund advertising: “Past performance does not guarantee future results.” Despite an overwhelming body of evidence, including the annual S&P’s Active Versus Passive Scorecards, that demonstrates that active managers’ past mutual fund returns are not prologue and the SEC’s warning, investors still flock to funds that have performed well in the past.

Today’s underperforming manager may be tomorrow’s outperformerAccording to Larry, various researchers have found that the common selection methodology is detrimental to performance. The greater benchmark-adjusted return to investing in ‘loser funds’ over ‘winner funds’ is statistically and economically large and robust to reasonable variations in the evaluation and holding periods and standard risk adjustments.

Additionally, the standard practice of firing managers who have recently underperformed actually eliminates those managers who are more likely to outperform in the future.

Why Are Warnings Worthless?Larry quotes the study “Worthless Warnings? Testing the Effectiveness of Disclaimers in Mutual Fund Advertisements,” which provided some interesting results. The authors found that people viewing the advertisement with the current SEC disclaimer were just as likely to invest in a fund and had the exact expectations regarding a fund’s future returns as people viewing the advertisement with no disclaimer whatsoever.

The authors concluded that the SEC-mandating disclaimer is completely ineffective. The disclaimer neither reduces investors’ propensity to invest in advertised funds nor diminishes their expectations regarding future returns.

The current SEC disclaimer is too weakThe authors noted that the current disclaimer fails because it is too weak. It only conveys that high past returns don’t guarantee high future returns and that investors in the fund could lose money, things that almost all investors already know.

It fails to convey what investors need to understand: high past returns are a poor predictor of high future returns. In the authors’ opinion, a stronger disclaimer—one that informs investors that high fund returns generally don’t persist (they are often a matter of chance)—would be much more effective.

The insane investorIn conclusion, Larry observes that many investors do the same thing over and over again and expect a different outcome. Most seem never to stop and ask: If the managers I hired based on their past outperformance have underperformed after being hired, why do I think the new managers I hire to replace them will outperform if I use the same criteria that have repeatedly failed? And, if I am not doing anything different, why should I expect a different outcome?

Change the criteria you use to select managersLarry advises investors to change the criteria they use to select managers. Instead of relying mainly, if not solely, on past performance, they should use criteria such as fund expenses and the fund’s degree of exposure to well-documented factors (such as size, value, momentum, profitability, and quality) that have been shown to have provided premiums.

These premiums should have evidence that they have been persistent, pervasive, robust to various definitions, implementable (they survive transaction costs) and that they have intuitive explanations for why you should expect the premium to persist.

By using criteria that lead to superior results, investors can avoid actively managed funds and significantly increase their chances of achieving better investment outcomes.

Further reading1. Itzhak Ben-David, Jiacui Li, Andrea Rossi, and Yang Son, “Advice-Driven Demand and Systematic Price Fluctuations,” February 2021. 2. Bradford Cornell, Jason Hsu and David Nanigian, “Does Past Performance Matter in Investment Manager Selection?” Journal of Portfolio Management, Summer 2017. 3. Rob Bauer, Rik Frehen, Hurber Lum and Roger Otten, “The Performance of U.S. Pension Plans,” 2008. 4. Amit Goyal and Sunil Wahal, “The Selection and Termination of Investment Management Firms by Plan Sponsors,” Journal of Portfolio Management (August 2008). 5. Molly Mercer, Alan R. Palmer and Ahmed E. Taha, “Worthless Warnings? Testing the Effectiveness of Disclaimers in Mutual Fund Advertisements,” Journal of Empirical Legal Studies (September 2010).

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us* Enrich Your Future 21: Think You Can Beat the Market? Think Again * Enrich Your Future 22: Some Risks Are Not Worth Taking * Enrich Your Future 23: Seeing Through the Frame: Making Better Investment Decisions

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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BIO: James “Jimmy” Milliron is Co-Founder & President of National Brokerage Atlantic, specializing in Wealth Enhancement, Estate Planning, and Asset Protection.

STORY: Jimmy wanted to invest $100,000 in Bitcoin, but when he couldn’t find an easy way to do it, he bought a car instead.

LEARNING: Research and learn all you can about investment opportunities before investing.

“Don’t be afraid to pick up the phone and make a few calls. There’s nothing like picking up the phone and talking to a real person on the other end instead of just texting them.”

Jimmy Milliron

Guest profileJames “Jimmy” Milliron is Co-Founder & President of National Brokerage Atlantic, specializing in Wealth Enhancement, Estate Planning, and Asset Protection. An insurance veteran, he previously served as Executive Vice President at NexTier Bank, building a $400 million premium finance portfolio. He holds a BA from VMI and various securities and insurance licenses.

Worst investment everJimmy’s worst investment is a mix between marrying a second wife and buying a car in 2016. He invested many resources in his second marriage, but it did not last that long.

When Jimmy married his second ex-wife, he wanted to invest about $100,000 in Bitcoin. But he was busy and did not have time to research and learn more about Bitcoin. When Jimmy could not find an easy way to do it, he purchased a car instead with that cash.

Lessons learned* Go the extra mile in research and learning about investment opportunities before investing. * Consider all the investment options available.

Actionable adviceIf you’re young, seek advice from a mentor or your parents about what they would do instead of arbitrarily investing in a make-me-feel-good investment. Their guidance can be invaluable in navigating the complex world of investments.

Jimmy’s recommendationsJimmy recommends reading Donald Trump’s Art of the Deal as a valuable resource for negotiation and decision-making.

No.1 goal for the next 12 monthsJimmy’s number one goal for the next 12 months is losing weight.

Parting words

“Thank you very much. Andrew and I wish everyone well.”

Jimmy Milliron

Connect with Jimmy Milliron* LinkedIn * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 23: Framing the Problem.

LEARNING: Understand how each indexed annuity feature works before buying one.

“I would never buy an annuity that didn’t give me full inflation protection.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 23: Framing the Problem.

Chapter 23: Framing the ProblemIn this chapter, Larry discusses how we, as human beings, are subject to biases and mistakes that we’re almost certainly not aware of. He introduces the concept of ‘framing’ in the context of behavioral finance, which refers to how a question or a problem is presented and how this presentation can influence our decision-making, often leading us to answer how the questioner wants us to.

Examples of framingLarry shares the following examples from Jason Zweig’s book Your Money & Your Brain to support the theory of framing in decision-making. These examples illustrate how the same information, when presented in different ways, can lead to significantly different decisions, highlighting the impact of framing on our perceptions and choices.

• A group of people was told ground beef was “75% lean.” Another was told the same meat was “25% fat.” The “fat” group estimated the meat would be 31% lower in quality and taste 22% worse than the “lean” group estimated.
• Pregnant women are more willing to agree to amniocentesis if told they face a 20% chance of having a Down syndrome child than if told there is an 80% chance they will have a “normal” baby.
• A study asked more than 400 doctors whether they would prefer radiation or surgery if they became cancer patients themselves. Among the physicians who were informed that 10% would die from surgery, 50% said they would prefer radiation. Among those who were told that 90% would survive the surgery, only 16% chose radiation.

The evidence from the three examples shows that if a situation is framed from a negative viewpoint, people focus on that. On the other hand, if a problem is framed positively, the results are pretty different.

The indexed annuities fallacyLarry Swedroe goes on to connect the concept of framing to investing, particularly in the context of indexed annuities. He explains how annuities are often presented with hidden costs and benefits, leading to misleading conclusions for investors.

According to Larry, indexed annuities are products that salesmen describe as providing “the best of both worlds”—the potential rewards of equity investing without the downside risks. Unfortunately, indexed annuities contain many negative features, making them an unfavorable investment option.

The SEC’s warning against indexed annuitiesLarry points out that the typical indexed annuity is so intricate and filled with negative features that it is challenging for most investors to fully comprehend. He highlights a bulletin warning issued by the SEC in July 2020, urging people to be cautious about investing in indexed annuities, fostering a sense of careful consideration.

The bulletin advised investors to read the contract before buying an indexed annuity and, if the annuity is a security, to read the prospectus. Investors should understand how each feature works and what impact it and the other features may have on the annuity’s potential return. The SEC also suggested asking an insurance agent, broker, or other financial professional questions to understand how the annuity works.

The agency also reminded investors that indexed annuity contracts commonly allow the insurance company to periodically change some of these features, such as the rate cap. Such changes can affect your return. So, read your contract carefully to determine what changes the insurance company may make to your annuity.

So why do investors still love indexed annuities?Despite the negatives, why do investors continue to be drawn to this product, purchasing tens of billions year after year? Larry offers a straightforward explanation. The insurance industry presents the investment decision in a way that directs investors’ attention to the potential for significant gains, the principal protection, and the guaranteed minimum return offered by annuities, instilling a sense of hope.

Further, all the products sold by the typical insurance company and Wall Street firms are laden with glitzy features. In each case, you’re paying an excessive fee to get that benefit, but they’re framing it, and you’re getting it without being told that the costs far exceed the mathematical odds of your getting it. This makes you lose sight of the costs and the lost upside potential. In other words, “you’ve been framed.”

Better alternatives to indexed annuitiesLarry advises investors and financial advisors to frame problems in a way that allows for analysis from various perspectives. This is the best way to ensure investors consider all the pros and cons. He emphasizes that financial advisors can add value by understanding how human beings make mistakes and helping them avoid them, instilling a sense of responsibility.

He also discusses alternative ways to create a similar financial outcome to annuities, such as investing in Treasury Inflation-Protected Securities (TIPS).

Further reading1. Jason Zweig, Your Money & Your Brain (Simon & Schuster 2007), pp. 134–5.

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us* Enrich Your Future 21: Think You Can Beat the Market? Think Again * Enrich Your Future 22: Some Risks Are Not Worth Taking

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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BIO: Mitch Russo is a serial entrepreneur who built and sold his first software company for eight figures, scaled a $25M business with Tony Robbins and Chet Holmes, and was twice nominated for Inc. Entrepreneur of the Year.

STORY: Mitch bought several Amazon stores to make passive income, which he did for a while. Unfortunately, the lucky streak ended after Amazon significantly reduced the commissions it paid to its resellers, and Google changed its algorithm. Now, Mitch’s SEO pages were not working, and nobody was finding them.

LEARNING: Never start a business without knowing who will buy the product. Try to sell your product/service before you build it.

“Please do not create a product until you understand exactly what the client needs. Try and sell it first before you build it.”

Mitch Russo

Guest profileMitch Russo is a serial entrepreneur who built and sold his first software company for eight figures, scaled a $25M business with Tony Robbins and Chet Holmes, and was twice nominated for Inc. Entrepreneur of the Year. He’s the author of four books and the creator of ClientFol.io.

Worst investment everMitch highlighted two particular investments that have left a lasting mark on his life as an investor.

The Amazon storesA couple of years ago, Mitch embarked on an exhilarating journey to create recurring revenue by investing in businesses that required minimal participation. The Amazon stores, a hot trend at the time, became his focus. With significant investments, these stores flourished, and Mitch was able to generate a substantial monthly income of $18,000 to $20,000, almost passively.

Then the whole thing came crashing down. Two things happened simultaneously: Amazon significantly reduced the commissions it paid to its resellers, and Google changed its algorithm. Now, Mitch’s SEO pages were not working, and nobody was finding them.

The peer-to-peer accountability platformMitch created an earlier version of ClientFol.io called resultsbreakthrough.com, a peer-to-peer accountability platform. Mitch had to invent some technology to do it. At the time, the platform worked fantastic.

To succeed with the the peer-to-peer accountability platform, Mitch poured his heart and soul into it. He was deeply passionate about what he had created. However, the platform did not receive the response he had hoped for. Despite his belief in the platform’s potential, it remained unsold, a stark reminder that success is not guaranteed, no matter how brilliant the idea.

Lessons learned* Never start a business without knowing who will buy the product first. * Try to sell your product/service before you build it. * It’s never over until you quit. * Hire a coach to accelerate business growth and learn valuable lessons quickly.

Andrew’s takeaways* Solving a problem is not enough; you must ensure your target customer can pay for the product. Is the pain valuable enough that they’ll pay high enough prices?

Actionable advice* If you are smart and you can see what’s happening around you, you can make almost any mistake, recover from it, learn from it, and grow from it.

Mitch’s recommendationsMitch recommends reading Crossing the Chasm, which beautifully encapsulates the power of focus.

No.1 goal for the next 12 monthsMitch’s number one goal for the next 12 months is to continue building recurring revenue through internet processes and funnels, a path he is deeply passionate about. Additionally, he is on the verge of publishing two fiction books, one of which he believes will be adapted into a movie. He is actively working to lay the groundwork for this promising future.

Parting words

“Keep on tracking.”

Mitch Russo

Connect with Mitch Russo* LinkedIn * X * Facebook * Instagram * Website * Podcast * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 22: Some Risks are Not Worth Taking.

LEARNING: Don’t put all your eggs in one basket; diversify your portfolio.

“Once you have enough to live a high-quality life and enjoy things, taking unwarranted risks becomes unnecessary.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 22: Some Risks are Not Worth Taking.

Chapter 22: Some Risks Are Not Worth TakingIn this chapter, Larry discusses the importance of investors knowing which risks are worth taking and which are not.

The $10 million bet that almost didn’t pay offTo kick off this episode, Larry shared a story of an executive who put his entire $10 million portfolio in one stock.

Around the late 1999 and early 2000s, Larry was a consultant to a registered investment advisor in Atlanta, and one of their clients was a very senior Intel executive. This executive’s net worth was about $13 million, and $10 million was an Intel stock. To Larry’s shock, the executive would not consider selling even a small%age of his stock to diversify his portfolio. He was confident that this stock was the best company despite acknowledging the risks of this concentrated strategy. It was, in fact, the NVIDIA of its day. It was trading at spectacular levels. The executive had watched it go up and up and up.

Learning from the pastLarry pointed out that there were similar situations not long ago, from the 60s, for example, when we had the Nifty 50 bubble, and, once great companies like Xerox, Polaroid Kodak, and many others disappeared, and these were among the leading stocks.

Like this executive, many had invested all their money in a single company and had seen their net worth suffer greatly when these companies crumbled.

This history serves as a powerful lesson, enlightening us about the risks of overconfidence and the importance of diversification.

The Intel stock comes tumbling downSince he was a senior executive, he believed he would know if Intel was ever in trouble. Larry went ahead and told him some risks were not worth taking. He advised him to sell most of his stock and build a nice, safe, diversified portfolio, mostly even bonds.

The executive could withdraw half a million bucks a year from it pretty safely because interest rates were higher, and that was far more than he needed. Larry’s advice didn’t matter—he couldn’t convince him.

Within two and a half years, Intel’s stock was trading at about $10, falling about 75%. It was not until late in 2017 that it once again reached $40.

Some risks are just not worth takingOver the period from March 2000 through September 2020, while an investment in Vanguard’s 500 Index Fund (VFINX) returned 6.4% per annum, Intel returned just 1.8% per annum. This stark contrast highlights the consequences of overconfidence and the importance of diversification, making it clear that some risks are simply not worth taking.

Overconfidence blurs out the riskLarry advises against such overconfidence, stressing the importance of considering the consequences of being wrong. He points out that investing is about taking risks. However, prudent investors know some risks are worth taking, and some are not. And they know the difference.

Thus, Larry adds, when the cost of a negative outcome is greater than you can bear, you should not take the risk, no matter how great the odds appear to be of a favorable outcome. In other words, the consequences of your investment decisions should dominate the probabilities, no matter how favorable you think the odds are.

Marginal utility of wealthLarry also discusses the marginal utility of wealth, explaining that once basic needs are met, additional wealth provides little extra value. He argues that taking unwarranted risks becomes unnecessary once you have enough to live comfortably.

Larry emphasizes the importance of considering both the ability to take risks and the potential consequences of being wrong. He explains that while youth provides a longer investment horizon, the cost of being wrong is higher when young. He recommends a balanced approach that includes some risk-taking and a stable investment plan, encouraging the audience to think carefully about their investment strategies.

Further reading1. Laurence Gonzalez, Deep Survival (W. W. Norton & Company, October 2003). 2. Wall Street Journal, “Portrait of a Loss: Chicago Art Institute Learns Tough Lesson About Hedge Funds,” (February 1, 2002).

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

Part III: Behavioral Finance: We Have Met the Enemy and He Is Us

• Enrich Your Future 21: Think You Can Beat the Market? Think Again

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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BIO: Craig Cecilio is a visionary disruptor and CEO of DiversyFund, dedicated to democratizing wealth building. He has broken barriers in private markets, raising over $1 billion and offering investment opportunities once reserved for the elite.

STORY: Craig had a potential business partner introduced to him by a friend. The partner had a land deal and convinced Craig to invest $10,000. A couple of other people joined in and deposited about $250,000 into the land development deal in New Mexico. A week went by, and the investors got ghosted by the land deal owner.

LEARNING: Don’t mix friendship with business. Do your due diligence on all the parties involved in the transaction.

“Assume everybody is a crook and work backward. That’s the key to underwriting and any investment.”

Craig Cecilio

Guest profileCraig Cecilio is a visionary disruptor and CEO of DiversyFund, dedicated to democratizing wealth-building. He has broken barriers in private markets, raising over $1 billion and offering investment opportunities once reserved for the elite. Craig empowers others to reclaim financial control and make meaningful, lasting impact.

DiversyFund offers a unique opportunity to invest in multifamily real estate, making wealth-building accessible to everyone. By investing in DiversyFund, your audience can take part in a diversified real estate portfolio typically reserved for high-net-worth investors—no accreditation needed.

Worst investment everCraig had a potential business partner, and they were doing a land deal. The partner always liked to chase big deals, while Craig is a singles hitter. However, he decided to invest $10,000 in this deal. A couple of other people joined the deal and deposited about $250,000 into the land development deal in New Mexico. A week went by, and the investors got ghosted by the land deal owner.

Realizing the gravity of the situation, Craig took it upon himself to investigate the deal. He delved into the intricacies of the financial system, learning about wire transfers and the sequence of events. His thorough examination of the circumstances and the paperwork revealed crucial oversights in basic information and essential due diligence items.

While Craig lost $10,000, losing that potential partner and the trust was the biggest loss. Craig had to sever that relationship as well.

Lessons learned* When underwriting, ensure all the boxes get checked, and ask those questions a little more. * Don’t mix friendship with business.

Andrew’s takeaways* Before you transfer any money, stop and go through a checklist to make sure you know what you are doing. You have to assume that once it’s gone, it’s gone.

Actionable advice* Do your due diligence on all the parties involved in the transaction, and if it sounds too good to be true, it is not. * Assume everybody is the crook and work backward. That’s the key to underwriting and any investment.

Craig’s recommendationsCraig recommends checking out the online courses he plans to launch next month. He also recommends his upcoming book, You Know What You Got To Do.

No.1 goal for the next 12 monthsCraig’s number one goal for the next 12 months is to launch his online courses. He also plans to put them on the map.

Parting words

“Just get started. Lean into it and get started. Take the first step. Read about it. You have so many tools in your hand. So just get started.”

Craig Cecilio

Connect with Craig Cecilio* LinkedIn * Instagram * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 21: You Can’t Handle the Truth.

LEARNING: Overconfidence leads to poor investment decisions. Measure your returns against benchmarks.

“If you think you can forecast the future better than others, you’re going to ignore risks that you shouldn’t ignore because you’ll treat the unlikely as possible.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 21: You Can’t Handle the Truth.

Chapter 21: You Can’t Handle the TruthIn this chapter, Larry discusses how investors delude themselves about their skills and performance, leading to persistent and costly investment mistakes.

The deluded investorAccording to Larry, evidence from the field of behavioral finance suggests that investors persist in deluding themselves about their skills and performance. This persistent self-deception leads to costly investment mistakes, emphasizing the need for continuous vigilance in investment decisions.

Larry quotes a New York Times article in which professors Richard Thaler and Robert Shiller noted that individual investors and money managers persist in believing that they are endowed with more and better information than others and can profit by picking stocks. This insight helps explain why individual investors think they can:

• Pick stocks that will outperform the market.
• Time the market, so they’re in it when it’s rising and out of it when it’s falling.
• Identify the few active managers who will beat their respective benchmarks.

The overconfident investorLarry adds that even when individuals acknowledge the difficulty of beating the market, they are buoyed by the hope of success. He quotes noted economist Peter Bernstein: “Active management is extraordinarily difficult because there are so many knowledgeable investors and information does move so fast. The market is hard to beat. There are a lot of smart people trying to do the same thing. Nobody’s saying that it’s easy. But possible? Yes.”

This slim possibility keeps hope alive. Overconfidence, fueled by this hope, leads investors to believe they will be among the few who succeed.

Why investors spend so much time and money on actively managed mutual fundsLarry also examined another study, Positive Illusions and Forecasting Errors in Mutual Fund Investment Decisions, which sought to find out why investors spend so much time and money on actively managed mutual funds despite passively managed index funds outperforming the vast majority of these funds.

The authors concluded that the reason was that investors deluded themselves. They found that most participants had consistently overestimated their investments’ future and past performance.

In fact, more than a third who believed they had beaten the market had actually underperformed by at least 5 percent, and at least a fourth lagged by at least 15 percent. Biases such as this contribute to suboptimal investment decisions.

You are better off accepting market returnsWhile Larry agrees that it is undoubtedly possible for investors to outperform the market, the evidence demonstrates that the vast majority would be better off aligning their expectations with reality and simply accepting market returns.

At the very least, investors should know the odds of outperforming. Unfortunately, most investors delude themselves about those odds, highlighting the necessity of aligning expectations with reality.

One reason, Larry says, might be that investors are unaware of the evidence. Another is that they don’t know their own track records. Larry notes that this self-delusion helps explain why investors exhibit the common human trait of overconfidence.

Most people want to believe they are above average. Thus, the disconnect investors have between reality and illusion persists.

Always measure your investment returnsIn conclusion, Larry advises investors to measure their investment returns and compare them to appropriate benchmarks. Doing so will force you to confront reality rather than allow an illusion to undermine your ability to achieve your financial objectives.

Further reading1. Jason Zweig, Your Money & Your Brain, (Simon & Schuster 2007). 2. Jonathan Fuerbringer, “Why Both Bulls and Bears Can Act So Bird-Brained,” New York Times, March 30, 1997. 3. Jonathan Burton, Investment Titans, (McGraw-Hill, 2000). 4. Money, “Did You Beat the Market?” (January 1, 2000). 5. Don A. Moore, Terri R. Kurtzberg, Craig R. Fox, and Max H. Bazerman, “Positive Illusions and Forecasting Errors in Mutual Fund Investment Decisions,” Harvard Business School Working Paper. 6. Markus Glaser and Martin Weber, “Why Inexperienced Investors Do Not Learn: They Don’t Know Their Past Portfolio Performance,” (July 21, 2007).

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe * Enrich Your Future 20: Passive Investing Is the Key to Prudent Wealth Management

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * X * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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BIO: Michael Episcope is the co-CEO of Origin Investments. He co-chairs its investment committee and oversees investor relations and capital raising.

STORY: Michael invested in a multi-family property in Austin with a friend who had vouched for somebody else. Unbeknownst to Michael, the guy in Austin had taken a loan against his property to save other properties in his portfolio.

LEARNING: Do not justify the red flags because an investment opportunity looks great. Investing is about how you behave and not what you know.

“When looking at an investment opportunity, do not justify the red flags because the investor investment opportunity looks so great.”

Michael Episcope

Guest profileMichael Episcope is the co-CEO of Origin Investments. He co-chairs its investment committee and oversees investor relations and capital raising. Prior to Origin, Michael had a prolific derivatives trading career and was twice named one of the top 100 traders in the world. Michael earned his undergraduate and master’s degrees from DePaul University. He has more than 30 years of investment and risk management experience.

Worst investment everIn 2004, Michael, a commodities trader, ventured into an investment with a friend’s recommendation. His friend’s assurance and Michael’s financial stability made him believe he was impervious to mistakes.

The investment was a multi-family property in Austin, Texas. Michael trusted his friend and thought he did the due diligence, but he did not. The deal was okay, as they had the right city and the right piece of land. But then the communication from the individual in Austin was not going very well, and things just weren’t adding up. But Michael’s friend kept insisting everything was good.

Still, something didn’t sit well with Michael, so he went online and Googled his property. He saw his property was sitting on a bridge lender site. The guy in Austin had taken a loan against Michael’s property to save other properties in his portfolio.

The whole thing just went sideways. Michael took a lot of time and effort to wrangle away from that investment, wasting a year of his life. He got pennies on the dollar back from that investment.

Lessons learned* Investing is about people. * When looking at an investment opportunity, do not justify the red flags because the investment opportunity seems so great. * Investing is about how you behave and not what you know.

Andrew’s takeaways* Even though you may sometimes have the wrong outcome, it doesn’t mean you didn’t do the right thing.

Actionable advice* Do as much due diligence as possible. When investing with someone, ask yourself: * Do they have something to lose if the investment fails? * Do they have their skin in the game? * Do they have a balance sheet? * Do they have something here at risk more than you do?

Michael’s recommendationsMichael recommends that anyone wanting to learn about personal finance read Morgan Housel’s books. He also recommends downloading his free Comprehensive Guide to Real Estate Investing.

No.1 goal for the next 12 monthsMichael’s number one goal for the next 12 months is to deliver a great product and service to his investors. On the personal side, Michael has two kids in college and one still at home. He aims to spend as much time as possible with the son still at home and then enjoy life after kids as an empty nester with his wife.

Parting words

“Thank you so much for having me on today. It’s been great.”

Michael Episcope

Connect with Michael Episcope* LinkedIn * X * YouTube

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * X * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 20: A Higher Intelligence.

LEARNING: Choose passive investing over active investing.

“Passive investing involves systematic, transparent, and replicable strategies without individual stock selection or market timing. It’s the more ethical way to go.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 20: A Higher Intelligence.

Chapter 20: A Higher IntelligenceIn this chapter, Larry discusses prudent investing.

The Uniform Prudent Investor ActThe Uniform Prudent Investor Act, a cornerstone of prudent investment management, offers two key benefits.

Firstly, it underscores the importance of broad diversification in risk management, empowering trustees and investors to make informed decisions.

Secondly, it promotes cost control as a vital aspect of prudent investing, providing a clear roadmap for those who may lack the necessary knowledge, skill, time, or interest to manage a portfolio effectively.

Ethical malfeasance and misfeasance in investingIn this chapter, Larry sheds light on Michael G. Sher’s insights. Sher extensively discusses ethical malfeasance and misfeasance. He says ethical malfeasance occurs when an investment manager does something deliberately or conceals it (e.g., the manager knows that he’s too drunk to drive but drives anyway).

For example, consider the manager who invests intentionally at a higher level of risk than the client chose without informing them and then generates a subsequently higher return. The manager attributes the alpha or the excess return to his superior skill instead of the reality that he was taking more risk, so it was just more exposure to beta, not alpha.

On the other hand, ethical misfeasance occurs when an investment manager does something by accident (e.g., the manager really believes that he’s sober enough to drive). Thus, the manager doesn’t know what he’s doing and shouldn’t be managing money.

Avoid active investingLarry highly discourages active investing because the evidence shows that active managers who tend to outperform on average outperform by a little bit, and the ones that underperform tend to underperform by a lot.

Either they don’t have the skill, and they have higher expenses, and the ones who have enough skills to beat the market, most of that skill is offset by their higher costs. So it’s still really tough to generate alpha.

Passive investing is the ethical way to goAccording to Sher, managing money in an efficient market without investing passively is investment malfeasance. He also notes that not knowing that such a market is efficient is investment misfeasance because you should know it. It’s in the law books. Sher concludes that passive investing is a systematic, transparent, and replicable strategy that is more ethical.

Further reading1. W. Scott Simon, The Prudent Investor Act (Namborn Publishing, 2002)

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans * Enrich Your Future 19: The Gold Illusion: Why Investing in Gold May Not Be Safe

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 19: Is Gold a Safe Haven Asset?

LEARNING: Do not allocate more than 5% of gold to your portfolio.

“I don’t have a problem with people allocating a very small amount of gold to their portfolio, but they should only do it if they’re prepared to earn lousy returns most of the time.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 19: Is Gold a Safe Haven Asset?

Chapter 19: Is Gold a Safe Haven Asset?In this chapter, Larry explains why you should not buy gold because you think it’s a good inflation hedge. While he is fine with people allocating a minimal amount of gold to their portfolio, Larry cautions that they should only do it if they’re prepared to earn lousy returns most of the time.

Gold as an investment assetGold has long been used as a store of value, a unit of exchange, and as jewelry. More recently, many investors have come to believe that gold should be considered an investment asset, playing a potential role in the asset allocation decision by providing a hedge against currency risk, a hedge against inflation, and a haven of safety during severe economic recessions. Larry reviews various research findings to determine if the evidence supports those beliefs.

The evidenceIn their June 2012 study, “The Golden Dilemma,” Claude Erb and Campbell Harvey found that in terms of being a currency hedge, changes in the real price of gold were largely independent of the change in currency values—gold is not a good hedge against currency risk.

This means that the value of gold does not necessarily increase or decrease in response to changes in currency values, making it a less effective hedge than commonly believed.

Erb and Harvey also found gold isn’t quite the safe haven many investors think it is, as 17% of monthly stock returns fell into the category where gold dropped while stocks posted negative returns. If gold acted as a true safe haven, we would expect very few, if any, such observations. Still, 83% of the time, on the right side isn’t a bad record.

Gold is not an inflation hedge, no matter the trading horizonThe following example provides the answer regarding gold’s value as an inflation hedge. On January 21, 1980, the price of gold reached a then-record high of US$850. On March 19, 2002, gold traded at US$293, well below its price two decades earlier. The inflation rate for the period from 1980 through 2001 was 3.9%.

Thus, gold’s loss in real purchasing power, which refers to the amount of goods or services that can be purchased with a unit of gold, was about 85%. This means that the value of gold, in terms of what it can buy, decreased significantly over this period. Gold cannot be considered an inflation hedge over most investors’ horizons when it lost 85% in real terms over 22 years.

Gold is not as attractive an asset as many may thinkInvestors are often attracted to gold because they believe it provides hedging benefits—hedging inflation, hedging currency risk, and acting as a haven of safety in bad times. The evidence demonstrates that investors should be wary.

While gold might protect against inflation in the long run, 10 or 20 years is not the long run; you need a longer investment horizon to make actual returns. And there is no evidence that gold acts as a hedge against currency risk.

As to being a safe haven, gold is a volatile investment capable and likely to overshoot or undershoot any notion of fair value. Evidence of gold’s short-term volatility is that over the 17 years (2006-2022), the annual standard deviation of the iShares Gold Trust ETF (IAU), at 17.2%, was higher than the 15.6% annual standard deviation of Vanguard’s 500 Index Investor Fund (VFINX).

In addition, gold experienced a maximum drawdown of almost 43%—safe havens don’t experience losses of that magnitude.

Don’t allocate more than 5% gold in your portfolioWith this evidence in mind, Larry advises investors never to own more than 5% of gold in their portfolio. Further, investors should remember that gold only acts as a safe haven on occasion, but there are also many times when it doesn’t. Historically, the probability is close to a 50/50 coin toss, slightly favoring gold.

Alternative assets to own instead of goldLarry says investors are better off owning real assets than gold because they have expected actual returns. So, for example, real estate prices over the long term go up because part of the cost is land and buildings, making real estate an excellent long-term hedge.

Another asset Larry suggests instead of gold is infrastructure ETFs that, for example, own toll roads and water facilities. Such assets raise their prices with the inflation rate and can act as a hedge.

Further reading1. Claude Erb and Campbell Harvey, “The Golden Dilemma,” Financial Analysts Journal (July/August 2013). 2. Claude Erb and Campbell Harvey, “The Golden Constant,” May 2019. 3. Goldman Sachs, “Over the Horizon,” 2013 Investment Outlook. 4. Pim van Vliet and Harald Lohre, “The Golden Rule of Investing,” Jun 2023.

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments * Enrich Your Future 18: Build a Portfolio That Can Withstand the Black Swans

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 18: Black Swans and Fat Tails.

LEARNING: Never treat the unlikely as impossible. Diversify your portfolio to withstand black swans.

“If you build a portfolio that can withstand the black swans and is highly diversified, then psychological or economic events won’t force you to sell.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 18: Black Swans and Fat Tails.

Chapter 18: Black Swans and Fat TailsIn this chapter, Larry explains the importance of never treating the unlikely as impossible and ensuring your plan includes the near certainty that black swan events will appear. Thus, your plan should consider their risks and how to address them.

Understanding the risk of fat tailsIn terms of investing, Larry says, fat tails are distributions in which very low and high values are more frequent than a normal distribution predicts. In a normal distribution, the tails to the extreme left and extreme right of the mean become smaller, ultimately reaching zero occurrences.

However, the historical evidence on stock returns is that they demonstrate occurrences of low and high values that are far greater than theoretically expected by a normal distribution. Thus, understanding the risk of fat tails is essential to developing an appropriate asset allocation and investment plan. Unfortunately, Larry notes, many investors fail to account for the risks of fat tails.

History of the black swansWith the publication of Nassim Nicholas Taleb’s 2001 book Fooled by Randomness, the term black swan became part of the investment vernacular—virtually synonymous with the term fat tail. In his second book, The Black Swan, published in 2007, Taleb called a black swan an event with three attributes:

• It is an outlier, as it lies outside the realm of regular expectations because nothing in the past can convincingly point to its possibility.
• It carries an extreme impact.
• Despite its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

Taleb went on further to show that stock returns have big fat tails. Their distribution of returns is not normally distributed, and fat tails mean that what people think are unlikely events are much more likely to occur than people believe will.

To illustrate this, Larry uses an example: if you take stock returns, and in the last 100 years, you cut out one best month per year, which is 1% of the distribution, the assumption is that you wouldn’t lose all that much of the returns. But the fact is, you lose most of the returns. So that’s the good fat tails. Similarly, if you avoid the worst months, your returns become spectacular.

Do not try to time the marketHowever, Larry cautions investors that trying to time the market because of unpredictable events is the wrong strategy. The fact that you have fat tails in the data doesn’t mean you should try to time the market or engage in an active management strategy because evidence shows that it doesn’t work.

What it means, very simply put, is that your investment strategy, investment policy, and asset allocation decisions must take into account that these fat tails exist; they’re unpredictable, and therefore, don’t take more risks than you can stomach. Further, Larry adds, you must be prepared to rebalance the portfolio to take advantage of those drops and buy more when things are down.

Active management will not protect you from fat tailsThe existence of fat tails doesn’t change the prudent strategy of being a passive buy, hold, and rebalance investor. Active managers have demonstrated no ability to protect investors from fat tails.

However, the existence of fat tails is significant because of their effect on portfolios. The risks of black swans and the damage they can do to portfolios, especially for those in the withdrawal phase, must be considered when designing your asset allocation. With that in mind, Larry offers the following advice:

• Make sure your investment plan accounts for the existence of fat tails.
• Don’t take more risks than you have the ability, willingness, or need to take.
• Never treat the unlikely as impossible or the likely as certain.

Further reading1. Nassim Nicholas Taleb, Fooled by Randomness, Texere, 2001. 2. Javier Estrada, “Black Swans and Market Timing: How Not to Generate Alpha,” November 2007. 3. Nassim Nicholas Taleb, The Black Swan, Random House, 2007.

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable * Enrich Your Future 17: Take a Portfolio Approach to Your Investments

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 17: There is Only One Way to See Things Rightly.

LEARNING: Consider the overall impact of investments rather than focusing on individual metrics.

"There is only one right way to build a portfolio—by recognizing that the risk and return of any asset class by itself should be irrelevant."

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 17: There is Only One Way to See Things Rightly.

Chapter 17: There is Only One Way to See Things RightlyIn this chapter, Larry enlightens us on the benefits of considering the overall impact of investments rather than focusing on individual metrics. This holistic approach empowers investors and advisors to make more informed decisions.

Don’t view an asset class’s returns and risk in isolationA common mistake that investors and even professional advisors often make is viewing an asset class’s returns and risk in isolation. Larry emphasizes this point by giving the example of Vanguard’s popular index funds, the largest index funds in their respective categories, to make us all more cautious and aware of the potential pitfalls of this approach.

From 1998 through 2022, the Vanguard 500 Index Fund (VFINX) returned 7.53% per annum, outperforming Vanguard’s Emerging Markets Index Fund (VEIEX), which returned 6.14% per annum. VFINX also experienced lower volatility of 15.7% versus 22.6% for VEIEX. The result was that VFINX produced a much higher Sharpe ratio (risk-adjusted return measure) of 0.43 versus 0.30 for VEIEX.

Why more volatile emerging markets have a higher returnAccording to Larry, despite including an allocation to the lower returning and more volatile VEIEX, a portfolio of 90% VFINX/10% VEIEX, rebalanced annually, would have outperformed, returning 7.59%. And it did so while also producing the same Sharpe ratio of 0.43. Perhaps surprisingly, a 20% allocation to VEIEX would have done even better, returning 7.61% with a 0.43 Sharpe ratio.

Even a 30% allocation to VEIEX would have returned 7.59%, higher than the 7.53% return of VFINX (though the Sharpe ratio would have fallen slightly to 0.42 from 0.43). The portfolios that included an allocation to the lower-returning and more volatile emerging markets benefited from the imperfect correlation of returns (0.77) between the S&P 500 Index and the MSCI Emerging Markets Index.

The right way to build a portfolioLarry says there is only one right way to build a portfolio—by recognizing that the risk and return of any asset class by itself should be irrelevant. The only thing that should matter is considering how adding an asset class impacts the risk and return of the entire portfolio.

Further, Larry stresses the importance of global diversification, a strategy that can reassure and instill confidence in investors and advisors. He points out that if markets are efficient, all risky assets should have very similar risk-adjusted returns. This argument for broad global diversification, avoiding the home country bias, is a logical starting point for you to consider in your investment strategies.

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe * Enrich Your Future 16: The Estimated Return Is Not Inevitable

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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Quick takeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 16: All Crystal Balls are Cloudy.

LEARNING: Estimated return is not always inevitable.

“If returns are negative early on, don’t withdraw large amounts because when the market eventually recovers, you won’t have that money to earn your returns.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 16: All Crystal Balls are Cloudy.

Chapter 16: All crystal balls are cloudyIn this chapter, Larry illustrates why past returns are not crystal balls that predict future returns.

According to Larry, the problem with all forecasts that deal with estimations of probabilities is that people tend to think of them in a deterministic way. He says that as an investor, you should think about returns with the idea that distribution and estimate are only the middle points.

Your plan has to be prepared for either the good tail to show up, which is easy to deal with and usually will allow you to take chips off the table and reduce your risk because you’ll be well ahead of your goal. But if the bad tail shows up, you may have to either work longer, plan on saving more, or rebalance, which means buying stocks at a tough time.

The threat of sequence riskTo demonstrate the danger of sequence risk, Larry asks us to imagine it’s 1973, and stocks have returned 8% in real terms and 10% in nominal returns. We’ve had similar results over the next 50 years. Say an investor in that time frame decides to withdraw 7% yearly from their portfolio in real terms because they know with their clear crystal ball that they will get 8% for the next 50 years.

This means if they take out, say, $100,000 in the first year, and inflation is 3%, to keep their actual spending the same, they have to take out $103,000. According to Larry, this investor will be bankrupt within 10 years due to the sequence of returns, which is the order in which the returns occur, not the returns themselves.

As you can see in the table below, despite providing an 8.7% per annum real return over the 27 years, because the S&P 500 Index declined by more than 37% from January 1973 through December 1974, withdrawing an inflation-adjusted 7% per annum in the portfolio caused it to be depleted by the end of 1982—in just 10 years! (Note that from January 1973 through October 1974, when the bear market ended, the S&P 500 lost 48%.)

Sacrificing expected returnsLarry says this example shows the danger of sequence risk and illustrates that the order of returns matters significantly in the decumulation phase because systematic withdrawals work like a dollar-cost averaging program in reverse—market declines are accentuated. This can cause principal loss, which the portfolio may never recover from.

In this case, the combination of the bear market and relatively high inflation caused the portfolio to shrink by almost 56% in the first two years. For the portfolio to be restored to its original $1 million level, the S&P 500 Index would have had to return 127% in 1975. And because of the inflation experienced, the amount to be withdrawn would have needed to increase from $70,000 to over $90,000. In such cases, the odds of outliving one’s assets significantly increase if you don’t adjust the plan (such as increasing savings, delaying retirement, or reducing the spending goal).

The order of returns mattersAccording to Larry, our investor made the mistake of treating the single-point estimate as if it were an inevitable outcome and not a single potential outcome within a broad spectrum of potential outcomes.

Another mistake our investor made was failing to consider that his investment experience might be different from the return over the entire period because of the impact of his withdrawals. In other words, the order of returns matters, not just the returns over the entire period.

Estimated return is not inevitableLarry insists that since we live in a world with cloudy crystal balls, and all we can do is estimate returns, it is best to avoid treating a portfolio’s estimated return as inevitable. Consider the possible dispersion of likely returns and calculate the odds of successfully achieving the financial goal.

The goal is generally, though not always, defined as achieving and maintaining an acceptable lifestyle—not running out of money while still alive. In other words, the goal is not to retire with as much wealth as possible but to ensure you do not retire poor and risk running out of assets while still alive.

Using a Monte Carlo simulator to forecast the potential dispersion of returnsLarry says that forecasting the potential dispersion of returns is best accomplished through a Monte Carlo simulator—a computer simulation that uses random processes to model the impact of risk and uncertainty in financial and investment forecasting.

This tool allows one to see the probabilities of different possible outcomes of an investment strategy. The computer program will produce numerous random iterations (usually at least 1,000 and often many thousands), letting one see the odds of meeting a goal. Since thousands of iterations are run, one must think about probabilities instead of just one outcome.

Projecting the likelihood of successDivide the Monte Carlo simulation based on your investment life into an accumulation phase when you’re working and making contributions and a distribution phase that begins when you retire and lasts as long as you live. The inputs into the Monte Carlo simulation are:

• The investment assumptions (expected returns, standard deviations, and correlations)
• Future deposits into the investment account
• The desired annual withdrawal amount
• The years the account must last

The output is summarized by assigning probabilities to the various investment outcomes.

The ultimate goal is to ensure you are comfortable with the projected likelihood of success—the odds you can withdraw sufficient funds from the portfolio each year and still achieve your financial goal.

Nobody can predict the future when people are involvedIn conclusion, Larry reminds investors that crystal balls will always be cloudy when forecasting the future, be it the weather or stock market returns. He quotes Alan Greenspan’s advice: “Learn everything you can, collect all the data, crunch all the numbers before making a prediction or a financial forecast. Even then, accept and understand that nobody can predict the future when people are involved.”

However, Larry adds that the inability to forecast the future accurately does not render forecasting useless. It just means we must accept this shortcoming and take it into account. Another essential investment advice is to never make the mistake of treating even the highly likely as if it were inevitable.

Further reading1. Didier Sornette, Why Stock Markets Crash (Princeton University Press 2002), p. 322.

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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BIO: Damon Pistulka, co-founder of Exit Your Way, is known for his hands-on, practical approach to helping business owners maximize value and achieve successful exits.

STORY: Damon explains his journey into understanding technology and its role in business growth.

LEARNING: Stay informed and adapt to changing industry trends. Adapt to changing customer expectations and preferences.

“The simple things we can do with technology today make the customer experience so much better.”

Damon Pistulka

Guest profileDamon Pistulka, co-founder of Exit Your Way, is known for his hands-on, practical approach to helping business owners maximize value and achieve successful exits. With over 20 years of experience, Damon is dedicated to transforming businesses, enhancing profitability, and helping founders create lasting legacies​​.

Technology is your business allyIn today’s episode, Damon, who previously appeared on the podcast on episode Ep649: Be Careful of Concentration Risk, discusses the value of technology in running a business. He emphasizes the importance of robotic process automation, CRMs, and AI in modern business operations to accelerate value. In his opinion, technology allows businesses to do simple things that improve customer experience.

Damon highlights a couple of threats businesses face today that could be dealt with by adopting technology.

1. Rapid innovation is outpacing businesses. Those lagging behind will be overtaken by competitors who have adopted new technologies.
2. Aging workforce with limited new talent. There’s an aging workforce and limited new talent. As more people retire, businesses increasingly find it hard to replace the retirees with educated and qualified people.
3. Customers now expect top-tier service levels. Buyers are now demanding businesses provide instant feedback and real-time updates. Businesses that don’t meet customer expectations will not stay competitive.

Using technology to deal with the threatsDamon explains his approach to helping clients develop business growth strategies. He emphasizes the importance of starting with small, manageable changes and gradually scaling up.

Damon cautions entrepreneurs from trying to do it all. Instead, he advises starting with simple, practical changes, often referred to as ‘low-hanging fruits’—these are the tasks or opportunities that are the easiest to achieve and provide the quickest benefits. Gradually, as these are implemented, more complex systems can be adopted.

Seek out experts who can help you advanceFurther, Damon advises seeking out experts who can help you advance in the particular area you’re focusing on. Then, work your way up as you get your company, your people, and your supplier base comfortable with these changes.

Get educated before adopting new technologyDamon also underscores the importance of getting educated before adopting new technology. He advises becoming familiar and comfortable enough with it to try it, enabling you to identify potential areas where the technology could help your business.

This approach instills a sense of preparedness and confidence. Then, he suggests hiring an expert to help you implement your new technologies and strategies.

Move fastAnother way to deal with the business threats is to move fast. Damon says that speed sells, and businesses must adopt a speed and innovation culture. This culture is about encouraging and rewarding quick decision-making, rapid implementation of ideas, and a constant drive for improvement. Technology will help you do things in half the time and stay efficient and competitive in your operations, which is a key aspect of this culture.

Just get startedFinally, according to Damon, just get started. Business owners wake up knowing what they have to do every day. By cutting the distractions and focusing on your core strengths and capabilities, you can stay reassured and focused. As Damon says, there’s a lot of time in your day if you throw out the junk.

Connect with Damon Pistulka* Linkedin * Twitter * Facebook * YouTube * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 15: Individual Stocks Are Riskier Than Investors Believe.

LEARNING: Don’t invest in individual stocks. Instead, diversify your portfolio to reduce your risk.

“Diversification has been said to be the only free lunch in investing. Unfortunately, most investors fail to use the full buffet available.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 15: Individual Stocks Are Riskier Than Investors Believe.

Chapter 15: Individual Stocks Are Riskier Than Investors BelieveIn this chapter, Larry reveals the stark reality of investing in individual stocks, highlighting the significant risks involved. His aim is to help investors understand the potential pitfalls of this high-stakes game and why they should avoid it.

Given the apparent benefits of diversification, it’s baffling why investors don’t hold highly diversified portfolios. According to Larry, one reason is that most investors likely don’t understand how risky individual stocks are compared to owning a broad selection of hundreds or thousands of stocks.

Evidence that individual stocks are very riskyLarry notes that the stock market has returned roughly 10% per year over the last 100 years, and the standard deviation on an annual basis of a portfolio of a broad market of stocks has been about 20%. He observes that most people don’t understand that the average individual stock has a standard deviation of more than twice that.

In another study from 1983 to 2006 that covered the top 3,000 stocks, the stock market returned almost 13% per annum, but the median return was just 5.1%, nearly 8% below the market’s return. The mean annualized return was -1.1%. This means that if you randomly pick one stock, the odds would say you’re more likely to get -1.1%. However, if you own hundreds or thousands of stocks, the odds are in your favor, and you’ll get very close to that mean return.

Larry shares another stark example of the riskiness of individual stocks. Despite the 1990s being one of the greatest bull markets of all time, with the Russell 3000 providing an annualized return of 17.7% and a cumulative return of almost 410%, 22% of the 2,397 U.S. stocks in existence throughout the decade had negative absolute returns. This means they underperformed by at least 410%. Over the decade, inflation was a cumulative 33.5%, meaning they lost at least 33.5% in real terms.

In another study by Hendrik Bessembinder of all common stocks listed on the NYSE, Amex, and NASDAQ exchanges from 1926 through 2015 and included. He found:

• Only 47.7% of returns were more significant than the one-month Treasury rate.
• Even at the decade horizon, a minority of stocks outperformed Treasury bills.
• From the beginning of the sample or first appearance in the data through the end of the sample or delisting, and including delisting returns when appropriate, just 42.1% of common stocks had a holding period return greater than one-month Treasury bills.
• While more than 71% of individual stocks had a positive arithmetic average return over their entire life, only a minority (49.2%) of common stocks had a positive lifetime holding period return, and the median lifetime return was -3.7%. This is because of volatility and the difference in arithmetic (annual average) returns versus geometric (compound or annualized) returns. For example, if a stock loses 50% in the first year and then gains 60% in the second, it has a positive arithmetic return but has lost money (20%) and has a negative geometric return.

Bessembinder concluded that his results help to understand why active strategies, which tend to be poorly diversified, most often lead to underperformance. At the same time, he wrote that the results potentially justify a focus on less-diversified portfolios by investors who particularly value the possibility of “lottery-like” outcomes despite the knowledge that the poorly diversified portfolio will most likely underperform.

A diversified portfolio is the way to goThe results from the studies Larry has highlighted underscore the critical role of portfolio diversification. Diversification, often referred to as the only free lunch in investing, provides a sense of security and peace of mind. Unfortunately, many investors fail to fully utilize this powerful tool. They mistakenly believe that by limiting the number of stocks they hold, they can better manage their risks. In reality, a well-diversified portfolio is the key to long-term financial success.

Most professionals with PhDs in finance spend 100% of their time engaged in stock picking and have access to the world’s best databases and teams of professionals helping them. These individuals are unlikely to outperform. So why would an average investor think they have enough advantage over them? Larry’s stern advice to investors is not to play the game. His professional guidance is a beacon of reassurance in the complex world of investing, steering investors away from risky individual stocks and towards the safety of a diversified portfolio.

Investors make mistakes when they take idiosyncratic (unique), diversifiable, uncompensated risks. They do so because they are overconfident in their skills, overestimate the worth of their information, confuse the familiar with the safe, have the illusion of being in control, don’t understand how many individual stocks are needed to reduce diversifiable risks effectively, and don’t understand the difference between compensated and uncompensated risks (some risks are uncompensated because they are diversifiable).

Another likely explanation is that investors prefer skewness. They are willing to accept the high likelihood of underperformance in return for the small likelihood of owning the next Google. In other words, they like to buy lottery tickets. Larry says that if you have made any of these mistakes, you should do what all smart people do: Once they have learned that a behavior is a mistake, they correct it. So, steer away from risky individual stocks and go for the safety of a diversified portfolio.

Further reading1. Longboard Asset Management, “The Capitalism Distribution Observations of Individual Common Stock Returns, 1983 – 2006.” 2. Hendrik Bessembinder, “Do Stocks Outperform Treasury Bills?” Journal of Financial Economics (September 2018).

Did you miss out on the previous chapters? Check them out:Part I: How Markets Work: How Security Prices are Determined and Why It’s So Difficult to Outperform* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

Part II: Strategic Portfolio Decisions* Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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BIO: Ava Benesocky is an author, public speaker, educator, CEO, and Co-Founder of CPI Capital, a uniquely innovative real estate private equity firm that helps investors invest in multifamily assets.

STORY: Ava became passionate about real estate when she was young. At 15, she convinced her parents to invest $13,000 in a course by Scott McGillivray on renovating and selling homes. Ava never did anything with the course, which made it the worst investment ever.

LEARNING: If you invest in anything, ensure you’re ready to be committed, take action, and focus completely on it. Beware of shiny object syndrome.

“If you’re ever going to invest in something, you have to take action, or else it’s a total waste of time and money. And what’s the point?”

Ava Benesocky

Guest profileAva Benesocky is an author, public speaker, educator, CEO, and Co-Founder of CPI Capital, a uniquely innovative real estate private equity firm that helps investors invest in multifamily assets.

She is the Host of Real Estate Investing Demystified with August Biniaz, who was Ep 784.

Ava has been featured in publications such as Forbes, Yahoo Finance, and numerous PodCasts and YouTube shows. Ava helps busy professionals earn passive income through Multifamily Real Estate investments.

Worst investment everAva became passionate about real estate when she was young. At 15, she convinced her parents to invest $13,000 in a course by Scott McGillivray on renovating and selling homes. Ava never did anything with the course, which made it the worst investment ever.

She tried to get it started, but there were so many moving components, and the process was so convoluted that she got scared. It all fell through the cracks. Ava never ended up taking action on it.

Lessons learned* If you invest in anything, ensure you’re ready to be committed, take action, and focus completely on it. * Beware of shiny object syndrome.

Andrew’s takeaways* Embrace boring, dull, consistent, and regular assets. * Before buying a course, ask yourself if you have the time to commit to it or if it is better to get someone to help you achieve what you could if you took the course.

Actionable adviceRefrain from being impulsive when buying courses. Take your time and ask yourself if you have time for it. Can you block it off on your calendar? If not, do not get it.

Ava’s recommendationsAva recommends listening to her podcast Real Estate Investing Demystified, where she shares her personal experiences, interviews industry experts, and provides advice on real estate investing and other investment opportunities.

No.1 goal for the next 12 monthsAva’s number one goal for the next 12 months is to continue building a couple of departments in the company and closing on a couple more assets. On a personal level, she will continue taking care of her mind, body, and family.

Parting words

“Thank you so much for letting me be on your podcast, and good luck to everybody out there in whatever venture they decide to take.”

Ava Benesocky

Connect with Ava Benesocky* Linkedin * Facebook * Podcast * YouTube * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 14: Stocks Are Risky No Matter How Long the Horizon.

LEARNING: Stocks are risky no matter the length of your investment horizon

“Investors should never take more risk than is appropriate to their personal situation.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 14: Stocks Are Risky No Matter How Long the Horizon.

Chapter 14: Stocks Are Risky No Matter How Long the HorizonIn this chapter, Larry illustrates why stocks are risky no matter how long the investment horizon is.

According to Larry, the claim that stocks are not risky if one’s horizon is long is based on just one set of data (the U.S.) for one period (albeit a long one). It could be that the results were due to a ‘lucky draw.’ In other words, if stocks are only risky when one’s horizon is short, we should see evidence of this in other markets. Unfortunately, investors in many different markets did not receive the kind of returns U.S. investors did.

Historical examples of stock market risksLarry presents evidence from several markets, reinforcing the historical data that stocks are also risky over the long term.

First, Larry looks at U.S. equity returns 20 years back from 1949. The S&P 500 Index had returned 3.1 percent per year, underperforming long-term government bonds by 0.8 percent per year—so much for the argument that stocks always beat bonds if the horizon is 20 years or more.

In 1900, the Egyptian stock market was the fifth largest in the world, attracting significant capital inflows from global investors. However, those investors are still waiting for the return ON their capital, let alone the return OF their capital.

In the 1880s, two promising countries in the Western Hemisphere received capital inflows from Europe for development purposes: the U.S. and Argentina. One group of long-term investors was well rewarded, while the other was not.

Finally, in December 1989, the Nikkei index reached an intraday all-time high of 38,957. From 1990 through 2022, Japanese large-cap stocks (MSCI/Nomura) returned just 0.2 percent a year—a total return of just 6 percent. Considering cumulative inflation over the period was about 15 percent, Japanese large-cap stocks lost about 9 percent in real terms over the 33 years.

Taking the risk of equity ownershipLarry notes that the most crucial lesson investors need to learn from this evidence is that while it is true that the longer your investment horizon, the greater your ability to take the risk of investing in stocks (because you have a greater ability to wait out a bear market without having to sell to raise capital), stocks are risky no matter the length of your investment horizon.

In fact, that is precisely why U.S. stocks have generally (but not always) provided such great returns over the long term. Investors know that stocks are always risky, and thus, they price stocks in a manner that provides them with an expected (but not guaranteed) risk premium.

In other words, stocks must be priced low enough to attract investors with a risk premium large enough to compensate them for taking the risk of equity ownership. Because the majority of investors are risk-averse, the equity risk premium has historically been large.

Things that never happened before do happenLarry warns that investors should never take more risk than is appropriate to their personal situation. It is also important to remember these words of caution from Nassim Nicholas Taleb: “History teaches us that things that never happened before do happen.” With that in mind, you will be well served if you never treat the highly unlikely (a very long or permanent bear market) as impossible.

In addition, investors should diversify their portfolios against risks that can show up and not have all of their assets in any one country or asset class. This is because any of them can have very long periods of poor performance. He insists that having long periods of poor performance is not a reason to avoid an asset class. It’s a reason why investors should diversify.

Further reading1. Terry Burnham, Mean Markets and Lizard Brains (Wiley 2005). 2. Nassim Nicholas Taleb, Fooled by Randomness (Random House, 2005).

Did you miss out on the previous chapters? Check them out:* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion * Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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BIO: Pritesh Ruparel is the CEO of ALT21, a leading tech company in hedging and currency solutions.

STORY: Pritesh found a good trade and invested 100% in it. His manager later advised him to liquidate that position because it was too concentrated. A day after Pritesh liquidated, a natural disaster occurred, and the spread went from $10 to $250 in an hour.

LEARNING: Put yourself in a position to get lucky. Never decide against your gut. Stay grounded between the highs and the lows.

“The worst thing you can do is to trade on something or to make a decision that you don’t 100% agree with.”

Pritesh Ruparel

Guest profilePritesh Ruparel is the CEO of ALT21, a leading tech company in hedging and currency solutions. With two decades of expertise in financial derivatives and structured finance, he leverages technology to make financial products accessible and affordable, aiming to save small and medium-sized enterprises (SMEs) millions annually on international transactions.

Worst investment everPritesh’s first trading role was as a market maker in commodity relatives. One summer, he put a ton of analysis into a particular commodity spread trade. Pritesh thought the risk-to-reward looked good, but the trade was not doing anything. Nobody was marking the trade. Pritesh thought this was insane, so he went all in. He had the biggest position possible in that trade and it was 100% of his portfolio.

A manager advised Pritesh to liquidate the position because it was too concentrated. A day after Pritesh liquidated, a natural disaster occurred. The position benefited from this disaster and went from $10 to $250 in an hour. Unfortunately, Pritesh could have earned so much if only he had not liquidated.

Lessons learned* Put yourself in a position to get lucky. * When you start any role, listen, learn as much as possible, and take advice. * Never decide against your gut. * Never make a decision that you don’t agree with 100%.

Actionable adviceStay grounded between the highs and the lows. Ultimately, you’ll be fine if you make decisions that align with what you believe in. This can give you a sense of confidence and conviction in your decisions.

Pritesh’s recommendationsPritesh recommends building systems, processes, or resources that suit your risk appetite, emotional intelligence, and patience. This can enhance your decision-making and risk management, as it aligns with your personal attributes.

No.1 goal for the next 12 monthsPritesh’s number one goal for the next 12 months is to have repeatable, scalable processes for his go-to-market and use that to make an impact globally.

Parting words

“Remember, it’s a marathon, not a sprint.”

Pritesh Ruparel

Connect with Pritesh Ruparel* LinkedIn * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 13: Between a Rock and a Hard Place.

LEARNING: Past performance is not a strong predictor of future performance.

“If you must invest actively, find active funds that design their strategies more intelligently to take advantage of the problems and at least avoid pitfalls.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 13: Between a Rock and a Hard Place.

Chapter 13: Between a Rock and a Hard PlaceIn this chapter, Larry illustrates why past performance is not a strong predictor of future performance.

Academic research has found that prominent financial advisors, investment policy committees, and pension and retirement plans engage top academic practitioners to help them identify future managers who will outperform the market. Such entities only hire managers with a track record of outperforming. They analyze their performance to see if it is statistically significant.

However, research also shows that, on average, the active managers chosen based on outstanding track records have failed to live up to expectations. The underperformance relative to passive benchmarks invariably leads decision-makers to fire the active manager. And the process begins anew.

A new round of due diligence is performed, and a new manager is selected to replace the poorly performing one. And, almost invariably, the process is repeated a few years later. So whenever pension plans interview Larry and he notices this hiring pattern, he always asks them what their hiring process is and what they’re doing differently this time since, you know, the same process failed persistently, causing regular turnover of managers. Nobody has ever answered that question.

According to Larry, many individual investors go through the same motions of picking a manager and end up with the same results—a high likelihood of poor performance.

Doing the same thing over and over expecting a different result is insanityLarry observes that the conventional wisdom that past performance is a strong predictor of future performance is so firmly ingrained in our culture that it seems almost no one stops to ask if it is correct, even in the face of persistent failure. Larry wonders why investors aren’t asking themselves: “If the process I used to choose a manager that would deliver outperformance failed, and I use the same process the next time, why should I expect anything but failure the next time?”

The answer is painfully apparent. If you don’t do anything different, you should expect the same result. Yet, so many investors do not ask this simple question.

Larry insists that it is essential to understand that neither the purveyors of active management nor the gatekeepers want you to ask that question. If you did, they would go out of business. You, on the other hand, should ask that question. You must provide the best returns to yourself or to members of the plan for which you are a trustee, not to give the fund managers or consultants a living.

Break the cycle of repeating past mistakesLarry urges investors to reconsider their approach. The odds of selecting active managers who will outperform on a risk-adjusted basis over the long term are so poor that it’s not prudent to try. However, it doesn’t have to be that way. Investors would benefit from George Santayana’s advice: “Those who cannot remember the past are condemned to repeat it.”

Anyone who insists on hiring active managers should look for a manager with low costs, low turnover, no style drifting, systematic strategies, and broad diversification (i.e., investing in a wide range of assets to spread risk). You are better off trading with a fund that owns hundreds of stocks because that narrows the dispersion of outcomes, which means you’re taking less risk.

Further reading1. Herman Brodie and Klaus Harnack, “The Trust Mandate,” (Harriman House, 2018). 2. Howard Jones and Jose Vicente Martinez, “Institutional Investor Expectations, Manager Performance, and Fund Flows,” Journal of Financial and Quantitative Analysis (December 2017). 3. Amit Goyal and Sunil Wahal, “The Selection and Termination of Investment Management Firms by Plan Sponsors,” Journal of Finance (August 2008). 4. Tim Jenkinson, Howard Jones, and Jose Vicente Martinez, “Picking Winners? Investment Consultants’ Recommendations of Fund Managers,” Journal of Finance (October 2016).

Did you miss out on the previous chapters? Check them out:* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion * Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 12: Outfoxing the Box.

LEARNING: You don’t have to engage in active investing; instead, accept market returns by investing passively.

“You don’t have to play the game of active investing. You don’t have to try to overcome abysmal odds—odds that make the crap tables at Las Vegas seem appealing. Instead, you can outfox the box and accept market returns by investing passively.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 12: Outfoxing the Box.

Chapter 12: Outfoxing the BoxIn this chapter, Larry aims to guide investors toward a winning investment strategy: accepting market returns. He uses Bill Schultheis’s “Outfoxing the Box.” This is a simple game that you can choose to either play or not play. The box contains nine percentages, each representing a rate of return your financial assets are guaranteed to earn for the rest of your life.

As an investor, you have the following choice: Accept the 10 percent rate of return in the center box or be asked to leave the room. The boxes will be shuffled around, and you will have to choose a box, not knowing what return each box holds. You quickly calculate that the average return of the other eight boxes is 10 percent.

Thus, if thousands of people played the game and each chose a box, the expected average return would be the same as if they all decided not to play. Of course, some would earn a return of negative 3 percent per annum, while others would earn 23 percent. This is like the world of investing: if you choose an actively managed fund and the market returns 10 percent, you might be lucky and earn as much as 23 percent per annum, or you might be unlucky and lose 3 percent per annum. A rational risk-averse investor should logically decide to “outfox the box” and accept the average (market) return of 10 percent.

In all the years Larry has been an investment advisor, whenever he presents this game to an investor, not once has an investor chosen to play. Everyone decides to accept par or 10 percent. While they might be willing to spend a dollar on a lottery ticket, they become more prudent in their choice when it comes to investing their life’s savings.

Active investing is a loser’s gameActive investing is a game with low odds of success that many would consider a losing battle. It’s a game that, when compared to the ‘outfoxing the box’ game, seems like a futile endeavor. Larry’s advice is to avoid this game altogether.

In the “outfoxing the box” game, the average return of all choices was the same 10 percent as the 10 percent that would have been earned by choosing not to play. And 50 percent of those choosing to play would be expected to earn an above-average return and 50 percent a below-average return.

In his book The Incredible Shrinking Alpha, Larry shows that the odds are far worse than 50 percent. Today, only about 2 percent of actively managed funds generate statistically significant alphas on a pretax basis. If you would choose not to play a game when you have a 50 percent chance of success, what logic is there in choosing to play a game where the most sophisticated investors have a much higher failure rate? Yet, that is precisely the choice those playing the game of active management are making.

Larry adds that research has shown that even the big institutional investors, with all their resources, fail to outperform appropriate risk-adjusted benchmarks such as the S&P 500. In addition to their other advantages, institutional investors have one other significant advantage over individual investors—their returns are not taxable. However, if your equity investments are in a taxable account, the returns you earn are subject to taxes. The incremental tax cost of active funds further reduces your odds of success.

You don’t have to play the game of active investingLarry’s advice to investors is to avoid trying to overcome abysmal odds—odds that make the crap tables at Las Vegas seem appealing. Instead, he suggests outfoxing the box and accepting market returns by investing passively. Larry quotes Charles Ellis, author of Investment Policy: How to Win the Loser’s Game:

“In investment management, the real opportunity to achieve superior results is not in scrambling to outperform the market, but in establishing and adhering to appropriate investment policies over the long term—policies that position the portfolio to benefit from riding with the main long-term forces in the market.”

Further reading1. Robert D. Arnott, Andrew L. Berkin, and Jia Ye, “How Well Have Taxable Investors Been Served in the 1980s and 1990s?” Journal of Portfolio Management (Summer 2000). 2. Charles Ellis, Investment Policy: How to Win the Loser’s Game (Irwin, 1993) p. 24.

Did you miss out on the previous chapters? Check them out:* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion * Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 11: The Demon of Chance.

LEARNING: Don’t always attribute skill to success, sometimes it could be just luck.

“Just because there is a correlation doesn’t mean causation. You must be careful not to attribute skill and not luck to success.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 11: The Demon of Chance.

Chapter 11: The Demon of ChanceIn this chapter, Larry discusses why investors confuse skill with what he calls “the demon of luck,” a term he uses to describe the random and unpredictable nature of market outcomes.

Larry cautions that before concluding that because an investment strategy worked in the past, it will work in the future, investors should be aware of the uncertainty and ask if there is a rational explanation for the correlation between the outcome and strategy.

According to Larry, the assumption is that while short-term outperformance might be a matter of luck, long-term outperformance must be evidence of skill. However, a basic knowledge of statistics is crucial in understanding that with thousands of money managers playing the game, the odds are that a few, not just one, will produce a long-term performance record.

Today, there are more mutual funds than there are stocks. With so many active managers trying to win, statistical theory shows that it’s expected that some will likely outperform the market. However, beating the market is a zero-sum game before expenses since someone must own all stocks. And, if some group of active managers outperforms the market, there must be another group that underperforms. Therefore, the odds of any specific active manager being successful are, at best, 50/50 (before considering the burden of higher expenses active managers must overcome to outperform a benchmark index fund).

Skill or “the demon of luck?From probability, it’s expected that randomly, half the active managers would outperform in any one year, about one in four to outperform two years in a row, and one in eight to do so three years in a row. Fund managers who outperform for even three years in a row are often declared to be gurus by the financial media. But are they gurus, or is it just luck? According to Larry, it is hard to tell the difference between the two. Without this knowledge of statistics investors are likely to confuse skill with “the demon of luck.”

Bill Miller, the Legg Mason Value Trust manager, was acclaimed as the next Peter Lynch. He managed to do what no current manager has done—beat the S&P 500 Index 15 years in a row (1991–2005). Indeed, that could be luck. You can’t rely on that performance as a predictor of future greatness. Larry turns to academic research to test if this conclusion is correct.

In one example, the Lindner Large-Cap Fund outperformed the S&P 500 Index for 11 years (1974 through 1984). Over the next 18 years, the S&P 500 Index returned 12.6 percent. Believers in past performance as a prologue to future performance were not rewarded for their faith in the Lindner Large-Cap Fund with returns of just 4.1 percent, an underperformance of over 8 percent per annum for 18 years. After outperforming for 11 years in a row, the Lindner Large-Cap Fund beat the S&P 500 in just four of the next 18 years and none of the last nine—quite a price to pay for believing that past performance is a predictor of future performance.

In another example, David Baker’s 44 Wall Street was the top-performing diversified U.S. stock fund over the entire decade of the 1970s—even outperforming the legendary Peter Lynch, who ran Fidelity’s Magellan Fund. Faced with deciding which fund to invest in, why would anyone settle for Peter Lynch when they could have David Baker? Unfortunately, 44 Wall Street ranked as the worst-performing fund of the 1980s, losing 73 percent. During the same period, the S&P 500 grew 17.6 percent per annum. Each dollar invested in Baker’s fund fell to just $0.27. On the other hand, each dollar invested in the S&P 500 Index grew to over $5.

Belief in past performance as a predictor of future performance can be expensiveAs evidenced by the Linder Large-Cap Fund and the 44 Wall Street Fund examples, belief in the “hot hand” and past performance as a predictor of the future performance of actively managed funds and their managers can be pretty expensive. Larry points out that, unfortunately, the financial media and the public quickly assume that superior performance results from skill rather than the more likely assumption that it was a random outcome. The reason is that noise sells, and the financial media is in the business of selling. They are not in the business of providing prudent investment advice.

Larry concludes that while there will likely be future Peter Lynchs and Bill Millers, investors cannot identify them ahead of time. Also, unfortunately, investors can only buy future performance, not past performance. A perfect example of this apparent truism is that in 2006, Miller’s streak was broken as the Legg Mason Value Trust underperformed the S&P 500 Index by almost 10 percent. The fund’s performance was so poor that its cumulative three-year returns trailed the S&P 500 Index by 2.8 percent annually. This further proves that it is tough to tell whether past performance resulted from skill or the “demon of luck.”

Remember that relying on past performance as a guide to the future might lead you to invest with the next Peter Lynch, just as it might lead you to invest with the next David Baker. That is a risk that a prudent, risk-averse investor (probably you) should not be willing to accept.

Further reading1. Karen Damato and Allison Bisbey Colter, “Hedge Funds, Once Utterly Exclusive, Lure Less-Elite Investors,” Wall Street Journal, January 3, 2002. 2. Jonathan Clements, 25 Myths You’ve Got to Avoid (Simon & Schuster, 1998).

Did you miss out on the previous chapters? Check them out:* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion * Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 10: When Even the Best Aren’t Likely to Win the Game.

LEARNING: Refrain from the futile pursuit of trying to beat the market.

“Only play the game of active management if you can truly identify an advantage you have, like inside information, but you have to be careful because it’s illegal to trade on it. Also, play only if you place a very high value on the entertainment.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 10: When Even the Best Aren’t Likely to Win the Game.

Chapter 10: When Even the Best Aren’t Likely to Win the GameIn this chapter, Larry illustrates why individual investors should refrain from the futile pursuit of trying to beat the market.

It seems logical to believe that if anyone could beat the market, it would be the pension plans of the largest U.S. companies. Larry lists a few reasons this is a reasonable assumption:

1. These pension plans control large sums of money. They have access to the best and brightest portfolio managers, each clamoring to manage the billions of dollars in these plans (and earn hefty fees). Pension plans can also invest with managers that most individuals don’t have access to because they don’t have sufficient assets to meet the minimums of these superstar managers.
2. Pension plans always hire managers with a track record of outperforming their benchmarks or, at the very least, matching them. Not the ones with a record of underperformance.
3. Additionally, pension plans will always choose the manager who makes an excellent presentation, explaining why they succeeded and would continue to succeed.
4. Many, if not the majority, of these pension plans hire professional consultants such as Frank Russell, SEI, and Goldman Sachs to help them perform due diligence in interviewing, screening, and ultimately selecting the very best of the best. These consultants have considered every conceivable screen to find the best fund managers, such as performance records, management tenure, depth of staff, consistency of performance (to make sure that a long-term record is not the result of one or two lucky years), performance in bear markets, consistency of implementation of strategy, turnover, costs, etc. It is unlikely that there is something that you or your financial advisor would think of that they had not already considered.
5. As individuals, we rarely have the luxury of personally interviewing money managers and performing as thorough a due diligence as these consultants. We generally do not have professionals helping us avoid mistakes in the process.
6. The fees they pay for active management are typically lower than the fees individual investors pay.

So, how good are these pension funds at beating the market?So, how have the pension plans done in their quest to find the few managers that will persistently beat their benchmark? The evidence is compelling that they should have “taken par.” For example, Richard Ennis’s 2020 study found that public pension plans underperformed their benchmark return by 0.99%, and the endowments underperformed by 1.59%. He also found that of the 46 public pension plans he studied, just one generated statistically significant alpha, compared to the 17 that generated statistically significant negative alphas.

According to the study, the likelihood of underperforming over a decade is 98%.

Another researcher, Charles Ellis, declared that active investing is a loser’s game that is possible to win, but the odds of doing so are so poor that it isn’t prudent to try. In Larry’s opinion, it would be imprudent for you to try to succeed if institutional investors, with far greater resources than you (or your broker or financial advisor), fail with great persistence. This should make you feel cautious and less likely to take unnecessary risks.

Wall Street needs you to play the game of active investingAccording to Larry, Wall Street needs and wants you to play the game of active investing. They need you to try to beat par. They know that your odds of success are so low that it is not in your interest to play. But they need you to play so that they (not you) make the most money. They make it by charging high fees for active management that persistently delivers poor performance.

Larry insists that the only logical reason to play the game of active investing is that you place a high entertainment value on the effort. For some people, there might be another reason—they enjoy the bragging rights if they win. Of course, you rarely, if ever, hear when they lose. Investing, however, was never meant to be exciting. Wall Street and the media created that myth. Instead, it is intended to provide you with the greatest odds of achieving your financial and life goals with the least risk. That is what differentiates investing from speculating (gambling).

Further reading1. Richard Ennis, Institutional Investment Strategy and Manager Choice: A Critique,” Journal of Portfolio Management (Fund Manager Selection, 2020, 46 (5).

Did you miss out on the previous chapters? Check them out:* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return * Enrich Your Future 09: The Fed Model and the Money Illusion

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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BIO: Andrew Pek is a co-founder of Amiko XR Inc., a groundbreaking company that leverages VR and AI technologies to create immersive, personalized learning experiences available 24/7.

STORY: Andrew shared his worst investment ever story on episode 376: Build Revenue in Your Startup Before You Build Up Cost. Today, he discusses his new business.

LEARNING: Learning can be more immersive, sparking curiosity and excitement.

“Thank you so much, Andrew, for having me on your podcast. It’s great to see you. I am excited about the future.”

Andrew Pek

Guest profileAndrew Pek is a co-founder of Amiko XR Inc., a groundbreaking company that leverages VR and AI technologies to create immersive, personalized learning experiences available 24/7. He is a recognized C-Suite advisor on innovation and human transformation. Andrew’s insights on leadership and design thinking have been featured in prominent media outlets such as ABC, NBC, Forbes, and Entrepreneur.

Andrew shared his worst investment ever story on episode 376: Build Revenue in Your Startup Before You Build Up Cost. Today, he discusses his new business.

Worst investment everMuch of Andrew’s work has involved teaching leadership, innovation, product design, and business development skills. He’s always seeking new ways that technology can engage people to absorb learning and become more engaged—not just a boring, traditional training program, but something that would really involve learners in a more immersive way, sparking their curiosity and excitement.

Andrew and his team successfully prototyped a solution in which learners get an immersive learning experience through a headset and talk to a coach avatar who can teach just about anything.

So, if you’re interested in finance, investing, sales, leadership, career preparation, and just about any topic matter, you’ll find it on the app. This includes job-related skills, general management and leadership courses, and personal development topics.

You can obtain information at your fingertips through generative AI and large language models. What sets the application apart is the combination of artificial intelligence and a VR experience. Through simulations, role plays, or evaluation, learners can master any particular topic or get support in any particular challenge. Unlike mobile device applications, VR experiences significantly reduce distractions, leading to more focused and practical engagement.

The solution is also unique because it is curated and configured to the expert level. You teach the avatar, and the avatar then teaches others. It ingests your content to become a master in your subject and attain the same level of intelligence as you.

Learners who use the solution talk to someone as if they’re talking to you in an interactive, dynamic environment. If something is unclear or learners want to probe further or even get additional guidance or resources, the solution will facilitate that. Learners get videos and information transcripts and don’t have to take notes.

Andrew’s solution is a smart choice for mid-to-large-sized corporations or even smaller corporations that can’t afford expensive training or trainers. It’s a cost-effective solution for those looking to provide any training, such as onboarding new employees. Employees can use the application on an ongoing basis to access courses specific to their job or general management leadership courses, just like they’d access a course library, but at the convenience of their homes.

Most people nowadays are spending time at home or in the office. With this solution, they don’t have to worry about entering the physical space for an immersive learning experience. Unlike gaming, they can do that sitting on their couch without moving around, so you don’t have to worry about getting dizzy when using VR. It’s a much more stationary experience.

If you’re interested in understanding how Andrew’s solution can help your organization, check out amikoxr.com or contact Andrew at Andrewp@amikoxr.com.

Connect with Andrew Pek* LinkedIn * Twitter * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 09: The Fed Model and the Money Illusion.

LEARNING: Just because there is a correlation doesn’t mean that there’s causation.

“Just because there is a correlation doesn’t mean that there’s causation. The mere existence of a correlation doesn’t necessarily give it predictive value.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 09: The Fed Model and the Money Illusion.

Chapter 09: The Fed Model and the Money IllusionIn this chapter, Larry illustrates why the Fed Model should not be used to determine whether the market is at fair value and that the E/P ratio is a much better predictor of future real returns.

The FED modelThe stock and bond markets are filled with wrongheaded data mining. David Leinweber of First Quadrant famously illustrated this point with what he called “stupid data miner tricks.”

Leinweber sifted through a United Nations CD-ROM and discovered the single best predictor of the S&P 500 Index had been butter production in Bangladesh. His example perfectly illustrates that a correlation’s mere existence doesn’t necessarily give it predictive value. Some logical reason for the correlation is required for it to have credibility. Without a logical reason, the correlation is just a mere illusion.

According to Larry, the “money illusion” has the potential to create investment mistakes. It relates to one of the most popular indicators used by investors to determine whether the market is under or overvalued—what is known as “the Fed Model.”

The Federal Reserve was using the Fed model to determine if the market was fairly valued and how attractive stocks were priced relative to bonds. Using the “logic” that bonds and stocks are competing instruments, the model uses the yield on the 10-year Treasury bond to calculate “fair value,” comparing that rate to the earnings-price, or E/P, ratio (the inverse of the popular price-to-earnings, or P/E, ratio).

Larry points out two major problems with the Fed Model. The first relates to how the model is used by many investors. Edward Yardeni, at the time a market strategist for Morgan, Grenfell & Co. speculated that the Federal Reserve used the model to compare the valuation of stocks relative to bonds as competing instruments.

The model says nothing about absolute expected returns. Thus, stocks, using the Fed Model, might be priced under fair value relative to bonds, and they can have either high or low expected returns. The expected return of stocks is not determined by their relative value to bonds.

Instead, the expected real return is determined by the current dividend yield plus the expected real growth in dividends. To get the estimated nominal return, estimated inflation must be added. This is a critical point that seems to be lost on many investors. This leaves a trail of disappointed investors who believe low interest rates justify a high valuation for stocks without the high valuation impacting expected returns. The reality is that when P/Es are high, expected returns are low, and vice versa, regardless of the level of interest rates.

The second problem with the Fed Model, leading to a false conclusion, is that it fails to consider that inflation impacts corporate earnings differently than it does the return on fixed-income instruments.

Over the long term, the nominal growth rate of corporate earnings has been in line with the nominal growth rate of the economy. Similarly, the real growth rate of corporate earnings has been in line with the real growth of the economy. Thus, in the long term, the real growth rate of earnings is not impacted by inflation.

On the other hand, the yield to maturity on a 10-year bond is a nominal return—to get the real return, you must subtract inflation. The error of comparing a number that isn’t impacted by inflation to one that is, leads to the money illusion.

Understand how the money illusion is createdUnderstanding how the money illusion is created will prevent you from believing an environment of low interest rates allows for either high valuations or high future stock returns. Instead, if the current level of prices is high (a high P/E ratio), that should lead you to conclude that future returns to equities are likely to be lower than has historically been the case and vice versa. This doesn’t mean investors should avoid equities because they are highly valued or increase their allocations because they have low valuations.

Further reading1. Kiplinger’s Personal Finance, February 1997. 2. Humphrey-Hawkins Report, Section 2: Economic and Financial Developments in 1997 Alan Greenspan, July 22, 1997. 3. William Bernstein, “The Efficient Frontier,” (Summer 2002). 4. Clifford S. Asness, “Fight the Fed Model: The Relationship Between Stock Market Yields, Bond Market Yields, and Future Returns,” (December 2002).

Did you miss out on the previous chapters? Check them out:* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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BIO: Pavan Sukhdev’s remarkable journey from scientist to international banker to environmental economist has brought him to the forefront of the sustainability movement.

STORY: Pavan ignored his investment rules and invested in a bond, which caused him to lose almost his entire investment.

LEARNING: Don’t make exceptions; the rules are the essence. Set up concentration risk limits. Diversify.

“A lot of investment mistakes are about not following your own disciplines. Had I followed my own disciplines, I wouldn’t be telling you this story.”

Pavan Sukhdev

Guest profilePavan Sukhdev’s remarkable journey from scientist to international banker to environmental economist has brought him to the forefront of the sustainability movement. As CEO and Founder of GIST Impact, he collaborates with corporations and investors, leveraging impact economics and technology to measure a business’s holistic value contribution to the world.

Worst investment everPavan is a relatively disciplined investor who always tries to maintain his money’s principal value by investing it wisely. For this reason, Pavan follows a couple of personal investment rules.

First, wherever he invests, he either makes friends or has friends. Second, Pavan follows a strict logic when investing in financial assets—he only invests in sovereign bonds. Third, Pavan has set up a concentration risk limit of $100,000 for a single sovereign emerging market. He never invests more than $50,000 on a credit. Fourth, Pavan always reads about the company he wants to invest in to understand what it does and its credit rating. Fifth, Pavan typically invests in sectors where he would be above average in reading and knowledge about that company.

Once, a friend came along and asked Pavan if he knew of a particular company with a bond earning 8.75%. Pavan hadn’t heard about it. But he happened to know the family that owned it, and he was interested in it. Pavan decided to invest $100,000 instead of putting his maximum concentration of $50,000.

As part of his investment strategy, Pavan reads about companies. A news flash said that the company was involved in a contract in Malaysia. Pavan thought this was great, but that was that.

He never followed up on the news. It happens that the company lost the contract. Losing the contract was a big thing that caused the bond price to go down to $75 from $88. At this point, Pavan should have reduced his exposure by bringing the $100,000 down to $50,000, but he didn’t. He continued to sit on the losses and hung on, and the price kept dropping. Finally, at some point, when it was just too low for it to make any difference, the company stopped paying coupons.

Lessons learned* Don’t make exceptions; the rules are the essence. * Set up concentration risk limits and reflect the volatility of that asset. * Diversify * Don’t sit on losses.

Andrew’s takeaways* Follow and stick to a stop-loss system. * Don’t buy something just because you’ve sold something else.

Actionable adviceSet your concentration risk limits, put your trading style in place, and diversify.

No.1 goal for the next 12 monthsPavan’s number one goal for the next 12 months is to get his company profitable because it’s nice to be right, but it’s better to be profitable.

Parting words

“All the best, guys. Invest wisely and invest well, and when it works, do something useful with that money.”

Pavan Sukhdev

Connect with Pavan Sukhdev* Linkedin * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 08: Be Careful What You Ask For.

LEARNING: High growth rates don’t always mean high stock returns.

“Emerging markets are very much like the rest of the world’s capital markets—they do an excellent job of reflecting economic growth prospects into stock prices.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 08: Be Careful What You Ask For.

Chapter 08: Be Careful What You Ask ForIn this chapter, Larry cautions people to be careful what they wish for in investing. He emphasizes the daunting challenge of active management, a path many choose in the belief that they can accurately forecast market trends.

However, as Larry points out, the reality is far from this ideal. The unpredictability of the market makes it almost impossible to predict with 100% accuracy, a fact that investors should be acutely aware of.

High growth rates don’t always mean high stock returnsIt’s important to note that high growth rates don’t always translate into high stock returns, underscoring the unpredictability of market outcomes. According to Larry, for today’s investors, the equivalent of the “Midas touch” (the king who turned everything he touched into gold) might be the ability to forecast economic growth rates.

If investors could forecast with 100% certainty which countries would have the highest growth rates, they could invest in them and avoid those with low growth rates. This would lead to abnormal profits—or, perhaps not.

Nobody can predict with that accuracy. Even if one could make such a prediction, they may still not make the profits they think they will. This is because, as Larry explains, experts have found that there has been a slightly negative correlation between country growth rates and stock returns.

A 2006 study on emerging markets by Jim Davis of Dimensional Fund Advisors found that the high-growth countries from 1990 to 2005 returned 16.4%, and the low-growth countries returned the same 16.4%.

Such evidence has led Larry to conclude that it doesn’t matter if you can even forecast which countries will have high growth rates; the market will make the same forecast and adjust stock prices accordingly.

Therefore, to beat the market, you must be able to forecast better than the market already expects, and to do so, you need to gather information at a cost. In other words, you can’t just be smarter than the market; you have to be smarter than the market enough to overcome all your expenses of gathering information and trading costs.

Larry emphasizes that emerging markets are very much like the rest of the world’s capital markets—they do an excellent job of reflecting economic growth prospects into stock prices. The only advantage an investor would have is the ability to forecast surprises in growth rates, which, by definition, are unpredictable.

Did you miss out on the previous chapters? Check them out:* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose * Enrich Your Future 07: The Value of Security Analysis

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 07: The Value of Security Analysis.

LEARNING: Smart investors, like smart businesspeople, care about results, not efforts.

“Smart investors, like smart businesspeople, care about results, not efforts. That is why “smart money” invests in “passively managed,” structured portfolios that invest systematically in a transparent and replicable manner.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over the 30 years to help investors as the head of financial and economic research at Buckingham Wealth Partners. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 07: The Value of Security Analysis.

Chapter 07: The Value of Security AnalysisIn this chapter, Larry explains how to test the efficiency of the market by looking at how good security analysts are at predicting the future. If they can outsmart the markets, then the markets are not efficient.

Do investors who follow security analysts's recommendations outperform the market?In business, results are what matters— not effort. The same is true in investing because we cannot spend efforts, only results. The basic premise of active management is that, through their efforts, security analysts can identify and recommend undervalued stocks and avoid overvalued ones. As a result, investors who follow their recommendations will outperform the market. Is this premise myth or reality?

To answer this question, Larry relies on the robust findings of academic research in the paper Analysts and Anomalies. The authors meticulously examined the recommendations of U.S. security analysts over the period 1994 through 2017. Their findings debunk the myth of analysts' infallibility and shed light on the surprising ways analysts' predictions conflict with well-documented anomalies. They also found that buy recommendations did not predict returns, though sell recommendations did predict lower returns. Another intriguing finding was that among the group of "market" anomalies (such as momentum and idiosyncratic risk), which are based only on stock returns, price, and volume data, analysts produce more favorable recommendations and forecast higher returns among the stocks that are stronger buys according to market anomalies. This is perhaps surprising, as analysts are supposed to be experts in firms' fundamentals. Yet, they performed best with anomalies not based on accounting data.

The evidence in this academic paper suggests that analysts even contribute to mispricing, as their recommendations are systematically biased by favoring overvalued stocks according to anomaly-based composite mispricing scores. The authors concluded: "Analysts today are still overlooking a good deal of valuable, anomaly-related information."

Results are what matters not effortIn conclusion, Larry states that if corporate insiders (e.g., boards of directors), with access to far more information than any security analyst is likely to have, have such great difficulty in determining a "correct" valuation, then it is easy to understand why the results of active management are poor and inconsistent.

While security analysts and active portfolio managers make great efforts to beat the market, historical evidence shows that those efforts have proven counterproductive most of the time. And savvy investors, like smart businesspeople, care about results, not efforts. That is why "smart money" invests in "passively managed," structured portfolios that invest systematically in a transparent and replicable manner.

Further reading1. Joseph Engelberg, David McLean and Jeffrey Pontiff, “Analysts and Anomalies,” Journal of Accounting and Finance (February 2020).

Did you miss out on the previous chapters? Check them out:* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose

About Larry SwedroeLarry Swedroe was head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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Click here to get the PDF with all charts and graphs

• Introducing emerging markets
• Our FVMR framework
• Fundamentals: Emerging markets are about 20% less profitable
• Valuation: Emerging markets are about 41% cheaper
• Asset class and region/country allocations

Introducing emerging marketsOur FVMR frameworkFundamentals: Emerging markets are about 20% less profitableValuation: Emerging markets are about 41% cheaper* UK: Cheap and high profitability * Germany and Korea: Cheap and low profitability * Australia and US: Expensive but high profitability

Asset class and region/country allocations* This is

not

a

• recommendation

• My next rebalance is in early September

• Everything could change then

• This is

• not
• a
• recommendation
• My next rebalance is in early September
• Everything could change then

Click here to get the PDF with all charts and graphsAndrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Twitter * YouTube * My Worst Investment Ever Podcast

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BIO: Justus Hammer is the Group CEO and Co-founder of Mad Paws. Over the past two years, he has invested in over 45 startups. He has served as an advisor and early investor in Airtasker and a founding investor and advisor to VICE Golf.

STORY: Justus developed an idea to make real estate buying easier. He wanted to expand outside of Australia when COVID hit. Justus took a pause, thinking that the market would tank further. Instead, property prices doubled in the next 18 months.

LEARNING: What works in one asset class will not necessarily work in another. The real estate market dynamics are very different in each market. Timing matters, but you can never really know whether your timing is right until after.

“I don’t think there is a single truth or strategy that works for everyone. Just think about it and ask yourself what you want to achieve and what the most likely scenario is for you to get there.”

Justus Hammer

Guest profileJustus Hammer is the Group CEO and Co-founder of Mad Paws. He has invested in over 45 startups over the past two years, serving as an advisor and early investor to Airtasker and a founding investor and advisor to VICE Golf. He has not only been involved in starting more than ten companies in the tech space, like Spreets and Mad Paws, but has also developed a growing interest in cash flow businesses over the past ten years.

Worst investment everJustus saw a big opportunity in the real estate space to improve and make purchasing a property easier. There’s a whole lot of angst that goes with that, and many people are very scared about the process and sometimes get it wrong. So, Justus and his company wanted to create a better way to get buyers from property A into property B.

They spent time building the idea and even had some of Australia’s biggest real estate companies backing them. In the beginning, the company was working and managed to transact around 40 properties.

But it was a tough time in Australia’s real estate market, so Justus ran into many issues. One particular issue was timing. The market was going down, so they had to buy properties, try to improve them, and sell them quickly.

They also ran into the problem of not being aggressive enough on the buying side, so they couldn’t get many properties. Still, they made money on about 60 or 70% of their properties. But they also had a couple that really killed them.

Justus believed the market would improve, so they sat through it. The market kept dropping, and they started looking for other opportunities. They began to look closer into the numbers, the unit economics, and what had been working. They realized the model was working pretty well outside Australia.

His company decided to expand into Europe, but before they did, COVID hit. COVID changed the dynamics completely. Debt facility providers pulled back and refused to give them a loan. Their real estate partners decided to figure out the situation first, believing the market value would go down. The market turned out to be the opposite, and property prices doubled in the next 18 months.

Lessons learned* What works in one asset class will not necessarily work in another. * The real estate market dynamics are very different in the US, Europe, and Australia. * You can’t have regrets in investing. You’ve got to take the good and the bad. * There isn’t a single truth or strategy that works for everyone.

Andrew’s takeaways* Timing matters, but you can never really know whether your timing is right until after. * Transferring a business model doesn’t always work. * Investing is going to be a roller coaster, no matter what. It’s really a matter of holding on through the tough times.

Actionable adviceJustus underscores the value of pursuing activities that provide non-monetary benefits. He advises finding a balance between doing what you’re good at and what brings you joy. This advice serves as a guiding light, helping the audience navigate the complex terrain of work-life balance and personal fulfillment.

Justus’s recommendationsJustus recommends reading Atomic Habits to find structure and make your life easier. He also recommends The Subtle Art of Not Giving a Fck* if you want to focus on what matters and reducing suffering.

No.1 goal for the next 12 monthsJustus’s number one goal for the next 12 months is to get Mad Paws to a better position and to invest in cash-flow businesses.

Parting words

“You’ve got to take some risk, but ensure you measure it as much as possible.”

Justus Hammer

Connect with Justus Hammer* LinkedIn

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 06: Market Efficiency and the Case of Pete Rose.

LEARNING: Don’t try to pick stocks or time the market.

“The evidence is very clear. The stocks retail investors buy underperform after they buy them, and the stocks they sell go on to outperform at face value.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over the 30 years or so that he’s been trying to help investors. Larry is the head of financial and economic research at Buckingham Wealth Partners. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 06: Market Efficiency and the Case of Pete Rose.

Chapter 06: Market Efficiency and the Case of Pete RoseMany people have difficulty understanding why smart investors working hard cannot gain an advantage over average investors who simply accept market returns. In this chapter, Larry uses an analogy in the world of sports betting to explain why the “collective wisdom of the market” is a difficult competitor.

The case of Pete RosePete Rose was one of the greatest players in the history of baseball, finishing his career with more hits than any other player. It seems logical that Rose would have a significant advantage over other bettors.

Rose had 24 years of experience as a player and four years as a manager. In addition to having inside information on his own team, as a manager, he also studied the teams he competed against. Yet, despite these advantages, Rose lost $4,200 betting on his own team, $36,000 betting on other teams in the National League, and $7,000 betting on American League games.

This reveals that if an expert like Rose, who had access to private information, could not “beat the market,” then it’s very unlikely that ordinary individuals without similar knowledge would be able to do so.

Sports betting market efficiencyLarry shares other examples of the efficiency of sports betting markets. One such example is a study covering six NBA seasons in which Professor Raymond Sauer found that the average difference between point spreads and actual point differences was astonishingly low—less than one-quarter of one point.

In horse racing, the final odds, which reflect the judgment of all bettors, reliably predict the outcome—the favorite wins most often, the second favorite is next most likely to win, and so on. This predictability of the market further emphasizes the futility of trying to exploit mispricings and the need for a more reliable investment strategy.

Larry goes on to quote James Surowiecki, author of “The Wisdom of Crowds,” who demonstrated that as long as people are acting independently (not in herds), they exhibit what might be called “collective wisdom.” With regard to sports betting, that means the market’s collective wisdom in setting point spreads (or odds) is tough competition to overcome, especially after the expenses of the effort. Larry advises sports bettors to have a small entertainment account to bet on their favorite team and not to invest their entire retirement account. The same holds true of investing.

The market’s collective wisdom in setting prices is a difficult competition to overcome, especially after the expenses of the effort. Recognizing this, prudent investors don’t attempt to beat the market by trying to exploit mispricings. Instead, they invest in a globally diversified portfolio of funds (such as index funds) that invest systematically and do so in a transparent and replicable manner. In that way, they earn market returns and do so in a highly tax-efficient manner. And the evidence demonstrates that they outperform the vast majority of investors —institutional and individual.

No retail investors to exploitThe evidence is clear. On average, the stocks retail investors buy underperform after they buy them, and the stocks they sell outperform at face value. The problem is there aren’t enough retail investors to exploit because they’re smart, talented, and have access to the best databases. But still, the market is too efficient, and the competition’s too tough.

Larry insists that retail investors shouldn’t try to pick stocks or time the market unless they have true inside information. This advice is crucial for investors, guiding them away from risky strategies and towards more reliable investment methods.

Further reading1. Douglas Coate, “Market Efficiency in the Baseball Betting Market: The Case of Pete Rose,” Rutgers University Newark Working Paper 2008-003, January 2008. 2. Raymond D. Sauer, “The Economics of Wagering Markets,” Journal of Economic Literature, 36, p. 2021-64. 3. James Surowiecki, The Wisdom of Crowds (Doubleday, 2004).

Did you miss out on the previous chapters? Check them out:* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments

About Larry SwedroeLarry Swedroe is head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 05: Great Companies Do Not Make High-Return Investments.

LEARNING: A higher PE doesn’t mean a higher expected return.

“A higher PE doesn’t mean a higher expected return. It may mean that you’re paying a high price for high expected growth and safety because the company is really strong.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over the 30 years or so that he’s been trying to help investors. Larry is the head of financial and economic research at Buckingham Wealth Partners. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 05: Great Companies Do Not Make High-Return Investments

Chapter 05: Great Companies Do Not Make High-Return InvestmentsIn this chapter, Larry explains why investing in great companies doesn’t guarantee high returns.

When faced with the choice of buying the stocks of “great” companies or buying the stocks of “lousy” companies, Larry says most investors would instinctively choose the former.

This is an anomaly because people think the whole idea of investing is to identify a great company and, therefore, will get great returns. But if you understand finance, that doesn’t make any sense because the first basic rule of investing is that something you know is only information; it’s not value-added information unless the market doesn’t know it. This is because that information is already embedded in the price through the trading actions of all marketplace investors.

Small companies versus large companiesAccording to Larry, if it were true that markets provide returns commensurate with the amount of risk taken, one should expect great results if they invest in a passively managed portfolio consisting of small companies, which are intuitively riskier than large companies.

Small companies don’t have the economies of scale that large companies have, making them generally less efficient. They typically have weaker balance sheets and fewer sources of capital. When there is distress in the capital markets, smaller companies are generally the first to be cut off from access to capital, increasing the risk of bankruptcy. They don’t have the depth of management that larger companies do. They generally don’t have long track records from which investors can make judgments.

The cost of trading small stocks is much greater, increasing the risk of investing in them. When one compares the performance of the asset class of small companies with that of large companies, one gets the same results produced by the great companies versus value companies comparison.

Why great earnings don’t necessarily translate into great investment returnsThe simple explanation for why great earnings don’t necessarily translate into great investment returns is that investors discount the future expected earnings of value stocks at a higher rate than they discount the future expected earnings of growth stocks. This more than offsets the faster earnings growth rates of growth companies. The high discount rate results in low current valuations for value stocks and higher expected future returns relative to growth stocks.

Risk versus expected returnLarry talks of a simple principle that can help you avoid making poor investment decisions: Risk and expected return should be positively related. Value stocks have provided a premium over growth stocks for a logical reason: Value stocks are the stocks of riskier companies. That is why their stock prices are distressed. Investors refuse to buy them unless the prices are driven low enough so that they can expect to earn a rate of return that is high enough to compensate them for investing in risky companies. For similar reasons, small stocks have also provided a risk premium compared to large stocks.

Larry reminds investors that if prices are high, they reflect low perceived risk, and thus, they should expect low future returns and vice versa. This does not make a highly-priced stock a poor investment. It simply makes it an investment perceived to have low risk and, thus, low future returns. Thinking otherwise would be like assuming government bonds are poor investments when the alternative is junk bonds.

Larry advises investors not to engage in individual security selection. Instead, they should diversify and get the same risk-adjusted returns but with a much narrower dispersion of potential outcomes. Further, they should build a plan that incorporates the fact that when earnings yields are low, the investors expect low returns and adjust their asset allocation accordingly to make sure they have a good chance of achieving their investment goals when that’s the case. Larry also insists that if investors try to time the market, they should do it only at extremes and always remember that a higher PE doesn’t mean a higher expected return. The investor may be paying a high price for high expected growth and safety because the company is strong.

Did you miss out on the previous chapters? Check them out:* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find?

About Larry SwedroeLarry Swedroe is head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 04: Why Is Persistent Outperformance So Hard to Find?

LEARNING: Focus on building a robust asset allocation plan, regularly rebalancing it, and stick with it.

“Investors should just build an asset allocation plan, rebalance, and stick with it. So, when there’s a bubble, take advantage of it and sell some stock high to buy those that haven’t performed.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over the 30 years or so that he’s been trying to help investors. Larry is the head of financial and economic research at Buckingham Wealth Partners. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 04: Why Is Persistent Outperformance So Hard to Find?

Chapter 04: Why Is Persistent Outperformance So Hard to Find?In this chapter, Larry explains why persistent outperformance beyond the randomly expected is so hard to find.

According to Larry, the equivalent of the Holy Grail is finding the formula that allows many investors to time the market successfully. For others, it is finding the fund manager who can exploit market mispricings by buying undervalued stocks and perhaps shorting overvalued ones. However, markets are very highly efficient. An efficient market means that the price is the best estimate investors have of the right price. They don’t know the right price until after the fact.

The efficiency of the markets and the evidence of the effects of scale on trading costs explain why persistent outperformance beyond the randomly expected is so hard to find. Thus, the search by investors for persistent outperformance is likely to prove as successful as Sir Galahad’s search for the Holy Grail.

Larry adds that the only place we find the persistence of performance (beyond that which we would randomly expect) is at the very bottom—poorly performing funds tend to repeat. And the persistence of poor performance is not due to poor stock selection. Instead, it is due to high expenses.

The efficient market hypothesisLarry says the efficient market hypothesis (EMH) explains why all investors should expect a lack of persistence. It states that it is only by random good luck that a fund can persistently outperform after the expenses of its efforts. But there is also a practical reason for the lack of persistence: Successful active management sows the seeds of its own destruction.

Just as the EMH explains why investors cannot use publicly available information to beat the market (because all investors have access to that information, and it is therefore already embedded in prices), the same is true of active managers. Investors should not expect to outperform the market by using publicly available information to select active managers. Any excess return will go to the active manager (in the form of higher expenses).

Instead of fruitlessly chasing outperformance, Larry advocates for a more strategic approach. He advises investors to focus on building a robust asset allocation plan, regularly rebalancing it, and, most importantly, sticking with it. This approach helps investors take advantage of market bubbles and ensures they are well-positioned to buy stocks that haven’t performed well, thereby promoting a more balanced and sustainable investment strategy.

Further reading1. Amit Goyal and Sunil Wahal, “The Selection and Termination of Investment Management Firms by Plan Sponsors,” Journal of Finance (July 2008). 2. Jonathan B. Berk, “Five Myths of Active Portfolio Management.” 3. Roger Edelen, Richard Evans, and Gregory B. Kadlec, “Scale Effects in Mutual Fund performance: The Role of Trading Costs,” March 17, 2007.

Did you miss out on the previous chapters? Check them out:* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers

About Larry SwedroeLarry Swedroe is head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 03: Persistence of Performance: Athletes Versus Investment Managers.

LEARNING: The nature of the competition in the investment arena is so different that conventional wisdom does not apply. What works in one paradigm does not necessarily work in another.

“Active managers fail with great persistence not because they’re dumb, it’s just that they have a burden of costs, which makes it very difficult for them to outperform and overcome those costs.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over the 30 years or so that he’s been trying to help investors. Larry is the head of financial and economic research at Buckingham Wealth Partners. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 03: Persistence of Performance: Athletes Versus Investment Managers.

Chapter 03: Persistence of Performance: Athletes Versus Investment ManagersIn this chapter, Larry expounds on why we do not see the persistence of the outperformance of investment managers. He also tries to help investors understand how securities markets set prices.

Skills versus luckOne of the most strongly held beliefs is that successful people succeed not through luck but through the skill of persistence over time. So, people assume that successful active managers must also result from this skill, not just luck. Larry explains that while this may be true for athletes where competition is one-on-one, it is not the case when it comes to investing.

According to Dr. Mark Rubinstein, competition for an investment manager is not other individual investment managers but rather the market’s collective wisdom. Further, Rex Sinquefield states that just because there are some investors smarter than others, that advantage will not show up. The market is too vast and too informationally efficient. Many people fail to comprehend that in many forms of competition, such as chess, poker, or investing, the relative skill level plays the more critical role in determining outcomes, not the absolute level. The “paradox of skill” means that even as skill level rises, luck can become more crucial in determining outcomes if the level of competition also increases.

The cost of outperformanceWhen it comes to outperforming the market, Larry cautions that investment managers are not engaged in a zero-sum game. In pursuing market-beating returns, they face significantly higher expenses than passive investors. These costs, which include research expenses, other fund operating expenses, bid-offer spreads, commissions, market impact costs, and taxes, can pose significant financial risks. Investors must be aware of these potential pitfalls and factor them into their investment strategies.

According to Larry, small-cap stocks tend to outperform large stocks in the long term. This performance isn’t a size effect but a merger effect. Active managers fail with remarkable persistence in emerging markets because there are costs to exploit market inefficiencies, and the more inefficient the market is, the more the implementation costs.

Why conventional wisdom doesn’t apply in investingIn conclusion, Larry states that conventional wisdom states that past performance is a good predictor of future performance. It is conventional wisdom because it holds true in most endeavors, be it a sporting event or any other form of competition. The problem for investors who believe in conventional wisdom is that the nature of the competition in the investment arena is so different that conventional wisdom does not apply. What works in one paradigm does not necessarily work in another. Peter Bernstein said, “In the real world, investors seem to have great difficulty outperforming one another in any convincing or consistent fashion. Today’s hero is often tomorrow’s blockhead.”

Further reading1. Dr. Mark Rubinstein, “Rational Markets: Yes or No? The Affirmative Case,” Financial Analysts Journal (May-June 2001). 2. Ron Ross, The Unbeatable Market (Optimum Press, 2002). 3. Raymond Fazzi, “Going Their Own Way,” Financial Advisor (March 2001). 4. Tim Riley, “Can Mutual Fund Stars Still Pick Stocks?: A Replication and Extension of Kosowski, Timmermann, Wermers, and White (2006).” January 2019. 5. Robert Kosowski, Allan Timmermann, Russ Wermers and Hal White, “Can Mutual Fund ‘Stars’ Really Pick Stocks? New Evidence from a Bootstrap Analysis, Journal of Finance (December 2006) 6. Ralph Wanger, A Zebra in Lion Country (Simon & Schuster, 1997). 7. Peter Bernstein, Against the Gods (Wiley, 1996).

Did you miss out on the previous chapters? Check them out:* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds * Enrich Your Future 02: How Markets Set Prices

About Larry SwedroeLarry Swedroe is head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 02: How Markets Set Prices.

LEARNING: Invest in passively managed funds and adopt a simple buy, hold, and rebalance strategy. While gamblers make bets, investors let the markets work for them, not against them.

“The only way to beat an efficient market is to either know something the market doesn’t—such as the fact that a team’s best player is injured and will not be able to play—or to be able to interpret information about the teams better than the market (other gamblers collectively) does.”

Larry Swedroe

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over the 30 years or so that he’s been trying to help investors. Larry is the head of financial and economic research at Buckingham Wealth Partners. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 02: How Markets Set Prices.

Chapter 02: How Markets Set PricesIn this chapter, Larry explains how markets set prices—probably the most important thing investors need to learn before they invest a penny. Without this knowledge, investors won’t know whether the stock they buy is undervalued or overvalued. Larry insists that investors should have a good understanding of how the market gets to a specific price.

Point spread bettingTo explain the complicated concept of how markets set prices, Larry uses an analogy related to college basketball backed up by academic research. Duke is a perennial contender for the national championship. Every year, it’s ranked in the top 25. At the start of every season, most college teams that are good try to schedule a few of what are called “cupcake” games to give their players a chance to get in the routine, learn the plays, get to know each other, etc., before they meet tougher competition.

Duke often scheduled a game against Army. Army traveled down every year to Duke, where they would get a big payday, and Duke would have an easy win. No one in their right mind would bet on Army to win that game because they have played probably 30-40 times already, and Duke has won every game. And they could play another 30 or 40 times and win every game. However, people decide to entice others to bet on Army.

To make it an equal bet, they create a point spread. The bookies set the initial point spread where they think they can get an equal amount of money bet on both sides. The bookies do their analysis and set the initial spread, but they don’t set the actual spread, which is determined by the betters in their actions. So if a lot of money starts coming in betting on Duke, the bookies will raise the spread until money starts coming in on Army until they get an equal amount of money. Then, the winner has to put up $110 to win $100. If they win, you get their $110 back and the bookies’s $100. But if you lose, you lose $110, not $100. So the bookies collect that $10 on the total of $200. So, what happens is that the point spread is moving based on the collective wisdom of the markets.

It’s very easy to determine whether Duke is going to win or not. But it’s tough to beat that point spread. Very rarely does the point spread predict the actual outcome. However, it is an unbiased estimator of the outcome. An “unbiased estimator” is a statistic that is, on average, neither too high nor too low. Evidence from a study covering six NBA seasons shows that the average error was less than one-quarter of one point. So, there’s no way to exploit that information.

In terms of investing, Larry gives an example of when you want to buy a stock (making a bet on the company), you have to buy it from someone. A stockbroker will not sell that stock to you because he might lose money. Instead, they find someone who wants to sell the stock and match the buyer with the seller. He is taking bets, not making bets. In the process, he earns the vigorish (a commission). Like stockbrokers, bookies want to take bets, not make them. Thus, they set the initial point spread at the “price” they believe will balance the forces of supply and demand (the point at which an equal amount of money will be bet on Duke and Army).

How to beat an efficient marketA market in which it is difficult to persistently exploit mispricing after the expenses of the effort is called an “efficient” market. According to Larry, the only way to beat an efficient market is to either know something the market doesn’t—such as the fact that a team’s best player is injured and will not be able to play—or to be able to interpret information about the teams better than the market (other gamblers collectively) does.

The existence of an efficient public market in which the knowledge of all bettors (investors) is used to set prices protects the less informed bettors (investors) from being exploited. On the other hand, the existence of an efficient market prevents the sophisticated and more knowledgeable bettors (investors) from exploiting their less knowledgeable counterparts.

Since about 90 percent of all trading is done by large institutional traders, these sophisticated investors are setting prices, not amateur individual investors. The competition is undoubtedly tougher, with professionals (instead of amateurs) dominating the market. Every time an individual buys a stock, he should consider that he is competing with these giant institutional investors. The individual investor should also acknowledge that institutions have more resources, and thus, they will likely succeed.

However, study after study demonstrates that the majority of individual and institutional investors who attempt to beat the market by either picking stocks or timing the market fail miserably, and they do so with great persistence.

A study by University of California professors Brad Barber and Terrance Odean found that the stocks individual investors buy underperform the market after they buy them, and the stocks they sell outperform after they sell them. They also found that male investors underperform the market by about 3% per annum, and women (because they trade less and thus incur less costs) trail the market by about 2% per annum. In addition, they found that those investors who traded the most trailed the market on a risk-adjusted basis by over 10 percent per annum. And to prove that more heads are not better than one, they found that investment clubs trailed the market by almost 4% per annum.

Betting against an efficient marketBetting against an efficient market is a loser’s game. It doesn’t matter whether the “game” is betting on a sporting event or trying to identify which stocks will outperform the market. While it is possible to win by betting on sporting events, because the markets are highly efficient, the only likely winners are the bookies. In addition, the more you play the game, the more likely you will lose, and the bookies will win. The same is true of investing. And the reason is that the securities markets are also highly efficient.

If you try to time the market, pick stocks, or hire managers to engage in that activity for you, you are playing a loser’s game. Just as you can win by betting on sporting events, you can win (outperform) by picking stocks, timing the market, or using active managers to play the game on your behalf. However, the odds are poor. And just as with gambling, the more and the longer you play the game, the more likely you will lose (as the costs of playing compound). This makes accepting market returns (passive investing) the winner’s game.

Larry advises investors to invest in passively managed funds and adopt a simple buy, hold, and rebalance strategy. This way, you are guaranteed to earn market rates of returns at a low cost and relatively tax-efficient manner. You are also virtually guaranteed to outperform the majority of professional and individual investors. Thus, it is the strategy most likely to achieve the best results. The bottom line is that while gamblers make bets (speculate on individual stocks and actively managed funds), investors let the markets work for them, not against them.

Further reading1. William J. Bernstein, The Four Pillars of Investing (McGraw-Hill, 2002). 2. Raymond D. Sauer, “The Economics of Wagering Markets,” Journal of Economic Literature, 36. 3. Daniel C. Hickman, “Efficiency in the Madness? Examining the Betting Market for the NCAA Men’s Basketball Tournament,” Journal of Economics and Finance (July 2020). 4. Guy Elaad, James Reade, and Carl Singleton, “Information, Prices and Efficiency in an Online Betting Market,” Finance Research Letters (July 2020). 5. James Suroweicki, “The Wisdom of Crowds,” (Doubleday 2004). 6. Brad Barber and Terrance Odean, “Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment,” Quarterly Journal of Economics (February 2001). 7. Brad Barber and Terrance Odean, “Trading Is Hazardous to Your Wealth.” 8. Brad Barber and Terrance Odean, “Too Many Cooks Spoil the Profits: Investment Club Performance,” Financial Analysts Journal (January/February 2000). 9. Andrew Tobias, The Only Investment Book You Will Ever Need (Harcourt, 1978). 10. Fama, Eugene F., and Kenneth R. French. 2010. “Luck versus Skill in the Cross-Section of Mutual Fund Returns.” Journal of Finance, vol. 65, no. 5 (October):1915. 11. Meyer-Brauns, Philipp, “Mutual Fund Performance through a Five-Factor Lens.” Dimensional Fund Advisors white paper. 2016. 12. Andrew Berkin and Larry E. Swedroe, “The Incredible Shrinking Alpha,” Harriman House (2020). 13. William Berlind, “Bookies in Exile,” New York Times, August 17, 2003.

Did you miss out on the previous chapter? Check them out:* Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds

About Larry SwedroeLarry Swedroe is head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Twitter * YouTube * My Worst Investment Ever Podcast

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BIO: Rizwan Memon is the Founder and President of Riz International, a Canada-based financial education firm that helps thousands worldwide maximize their financial success through trading.

STORY: Rizwan shorted GameStop’s stock, believing the price wouldn’t exceed $300. However, when Elon Musk tweeted about GameStop, the price increased to $500. Rizwan suffered a $160,000 loss on a single trade.

LEARNING: When shorting naked calls, make sure you have enough liquidity. Control the amount of money you bet on any particular position. Don’t trade on emotions.

“Sometimes the math, the probabilities—everything—can make sense, and you still end up being wrong.”

Rizwan Memon

Guest profileRizwan Memon is the Founder and President of Riz International, a Canada-based financial education firm that helps thousands of people worldwide maximize their financial success through trading.

Having 17 years of experience behind him, Rizwan is a seasoned expert in 8-figure stocks and options trading. Starting at 16 with just $5,000, he has made $10.5M+ in trading profits.

With 123,000 followers on Instagram and a vast global audience tuned into his trading advice, Rizwan has established himself as a voice of authority in the financial market. In 2023, he secured solid returns of 70% on his 7-figure trading account.

Worst investment everRizwan’s personal investment journey took a hit in 2021 when he decided to buy GameStop stocks. He adopted a strategic approach, betting against the stock going above a certain ceiling. He believed that the stock would remain below $300 per share despite its already significant rise of 300%.

Gamestop was a disgruntled business that was not in great shape. It was on the verge of bankruptcy due to massive cash flow issues. Rizwan knew that this was unsustainable. So, he decided to put a ceiling on his investment, believing the stock would stay below $300. From a probability standpoint, the numbers were 99.5% in his favor. Rizwan shorted naked call options and loaded up a bit, but nothing substantive. After that, the stock went from $300 to $500 in about two days. This was after Elon Musk tweeted about GameStop. Rizwan knew he was in trouble. He remembers going to get groceries and sitting in the parking lot feeling miserable. Rizwan suffered a $160,000 loss on a single trade.

Lessons learned* When shorting naked calls, make sure you have enough liquidity. * Trading patterns are always rapidly evolving. * Sometimes, the math, the probabilities, and everything can make sense, and you still end up being wrong. * Don’t trade on emotions.

Andrew’s takeaways* Black Swans can happen. To handle such events from an investing perspective, ensure you’re diversified. * Control the amount of money you bet on any particular position.

Actionable adviceAvoid engaging in trades that may be complex or outside of your purview. Regardless of what influencers say, be skeptical and do your due diligence.

Rizwan’s recommendationsIf you have questions or want to learn more about investing in stock markets, Rizwan is readily available on LinkedIn and Instagram. He is committed to sharing his knowledge and experiences to help you navigate the complex world of stock market investing.

No.1 goal for the next 12 monthsRizwan’s number one goal for the next 12 months is consistently beating the markets again.

Parting words

“Manage risk and enjoy the process.”

Rizwan Memon

Connect with Rizwan Memon* LinkedIn * Instagram * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Investment Strategy Made Simple (ISMS), Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 1: The Determinants of the Risk and Return of Stocks and Bonds.

LEARNING: Look for key metrics, traits, or characteristics that help them identify stocks that will outperform the market.

“Intelligent people maintain open minds when it comes to new ideas. And they change strategies when there is compelling evidence demonstrating the ‘conventional wisdom’ is wrong.”

Larry Swedroe

In this episode of Investment Strategy Made Simple (ISMS), Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories Larry has developed over the 30+ years he’s been trying to help investors. Larry is the head of financial and economic research at Buckingham Wealth Partners. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 1: The Determinants of the Risk and Return of Stocks and Bonds.

Chapter 1: The Determinants of the Risk and Return of Stocks and BondsIn this chapter, Larry looks at research that revolutionized how people think about investing and how to build a winning portfolio. The goal is to help investors learn how to look for key metrics, traits, or characteristics that help them identify stocks that will outperform the market, at least in terms of delivering higher returns, not necessarily higher risk-adjusted returns.

The three-factor modelThe first research Larry talks about is by Eugene Fama and Kenneth French. Their paper “The Cross-Section of Expected Stock Returns” in The Journal of Finance focused on research that produced what has become known as the three-factor model. A factor is a common trait or characteristic of a stock or bond. The three factors explained by Fama and French are:

1. Market beta (the return of the market minus the return on one-month Treasury bills)
2. Size (the return on small stocks minus the return on large stocks)
3. Value (the return on value stocks minus the return on growth stocks).

The model can explain more than 90% of the variation of returns of diversified US equity portfolios. The research shows that ensemble funds are superior to individual funds. It’s better to have a multi-factor portfolio. So you could own, say, five different funds that have exposure to each individual factor, or you own one fund that gives you exposure to all those factors. The ensemble strategies always tend to do better.

The two-factor modelLarry also highlights a second model by professors Fama and French, the two-factor model that explains the variation of returns of fixed-income portfolios. The two risk factors are term and default (credit risk). According to the model, the longer the term to maturity, the greater the risk; the lower the credit rating, the greater the risk. Markets compensate investors for taking risks with higher expected returns. As with equities, individual security selection and market timing do not play a significant role in explaining returns of fixed-income portfolios and thus should not be expected to add value.

Buffett’s AlphaAnother significant academic research publication is the study “Buffett’s Alpha.” The authors, Andrea Frazzini, David Kabiller, and Lasse Pedersen, examined the performance of the stocks owned by legendary investor Warren Buffett’s Berkshire Hathaway. They found that, besides benefiting from using cheap leverage provided by Berkshire’s insurance operations, Buffett buys safe, cheap, high-quality, and large stocks. Their most interesting finding was that stocks with these characteristics tend to perform well in general, not just the stocks with these characteristics that Buffett buys. Larry observes that Buffett’s strategy, or exposure to factors, explains his success, not his stock-picking skills. Also, he never engages in panicked selling.

Larry says that investors don’t need to be stock pickers like Warren Buffett. They can simply buy stocks with the same characteristics as Warren Buffett’s stocks without doing all the research. Today, companies like AQR, Avantis, Bridgeway, Dimensional, and others use that research so that every investor can access those characteristics and decide which characteristics they want to invest in. The iShares MSCI USA Quality Factor ETF (QUAL) buys quality stocks. It has an expense ratio of just 0.15% and is highly tax-efficient as an ETF.

Luck versus skillAcademic research has demonstrated that efforts to outperform the market by either security selection or timing are improbable in proving productive after taking into account the costs, including taxes, of the efforts. For example, studies such as the “Luck versus Skill in the Cross-Section of Mutual Fund Returns” have found that fewer active managers (about 2%) can outperform their three-factor-model benchmark than would be expected by chance. That is even before considering the impact of taxes, which for taxable investors is typically the most significant expense of active management (greater than the fund’s expense ratio and/or trading costs).

Larry, therefore, recommends:

• Developing a portfolio that reflects your unique ability, willingness, and need to take risks. The equity portion should be globally diversified across multiple asset classes. The fixed-income portion should be diversified in terms of credit and term risk, as appropriate.
• Avoiding the use of actively managed funds. Instead, invest in funds that provide systematic exposure to the factors you seek exposure to, such as low-risk and tax-efficient index funds.
• In the case of fixed-income assets (for those individuals who have sufficient assets to do so), build a portfolio of individual Treasury securities and/or FDIC-insured CDs, and for taxable accounts, AAA- and AA-rated municipal bonds that are also either general obligation or essential service revenue bonds. Doing so dramatically reduces the credit risk and, therefore, the need for diversification (which is the benefit of a mutual fund).
• Having the discipline to stay the course, ignoring the noise of the markets and the emotions caused by the noise—emotions that cause investors to abandon even the most well-developed plans.

Notes

1. Michael Lewis, Moneyball (Norton 2003), p. 67.
2. Eugene Fama and Kenneth French, “The Cross-Section of Expected Stock Returns,” The Journal of Finance (June 1992).
3. Andrea Frazzini, David Kabiller and Lasse Pedersen, “Buffett’s Alpha,” Financial Analysts Journal (September 2018).
4. Eugene Fama and Kenneth French, “Luck versus Skill in the Cross-Section of Mutual Fund Returns,” The Journal of Finance (September 2010).

About Larry SwedroeLarry Swedroe is head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Twitter * YouTube * My Worst Investment Ever Podcast

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BIO: Mark Kohler, M.PR.A., C.P.A., J.D., is a highly respected Founding and Senior Partner at KKOS Lawyers, specializing in tax, legal, wealth, estate, and asset protection planning.

STORY: Mark and his partner bought two properties to put up on Airbnb. The first property needed just a bit of modification, but the second one required far more. It took them more time and money than expected to get it ready for renting.

LEARNING: Take ownership of your mistakes. If a problem occurs, admit it, step up, and try to solve it—don’t run away or stick your head in the sand. The majority of trouble we face in our lives will be caused by ourselves.

“When you’re pivoting in the face of a disaster or a bad investment, the first thing to do is give yourself some grace.”

Mark Kohler

Guest profileMark Kohler, M.PR.A., C.P.A., J.D., is a highly respected Founding and Senior Partner at KKOS Lawyers, specializing in tax, legal, wealth, estate, and asset protection planning.

With a reputation as a YouTube personality, best-selling author, and national speaker, Mark is dedicated to guiding clients through complex legal and financial landscapes to achieve their American Dream.

He also serves as the co-founder and Board Member of the Directed IRA Trust Company and has launched the Main Street Certified Tax Advisor Program to train CPAs and Enrolled Agents nationwide.

As the co-host of The Main Street Business Podcast and The Directed IRA Podcast, he simplifies intricate topics like legal and tax strategy, asset protection, retirement, investing, and wealth growth.

Mark Kohler’s commitment to helping entrepreneurs and small business owners attain success and financial security has made him a trusted expert in the field. He has helped countless individuals and businesses navigate the financial and business world with confidence.

Worst investment everMark and his partner bought two properties in Arizona to turn into Airbnbs. They aimed to modify them over two to three months and set them up on the Airbnb platform. They hoped to start renting them out during the winter, which is a great Airbnb season. The first property was beautiful and simply needed yard furnishings.

At the same time, 10 blocks away was the other property, which they thought would need some minor work, just like the first property. A few weeks later, they realized the property would take a ton of work, but the train had left the station, and there was no turning back. And so the damage began. The two partners added a lot of value to this property, but it was far more than they wanted to bite off and chew. Modifying the property took more time and money than expected.

Lessons learned* You can make a good investment, and something outside your control happens. * Take ownership of what you’re doing wrong. * If a problem occurs, admit it, step up, and try to solve it—don’t run away or stick your head in the sand.

Andrew’s takeaways* The majority of trouble we face in our lives will be caused by ourselves. * When you do something wrong, admit it to yourself as a first step. * If you cause damage to another person, you must amend and resolve it. * You can’t get help on something if you haven’t admitted it. * If your process is good and you keep improving, you progress.

Actionable adviceWhen you are pivoting in the face of a disaster or a bad investment, recognize that it’s not the end of the world, give yourself some grace, look for the silver lining, and get to work.

Mark’s recommendationsIf you’re in the Airbnb market, Mark recommends reading Daniel Rusteen’s books. He also recommends his podcast, The Main Street Business Podcast, which has some great interviews about Main Street business and investing strategies.

No.1 goal for the next 12 monthsMark’s number one goal for the next 12 months is to dial in the Main Street business tax pro certification. He wants to have 1,000 members by the end of the year. These are 1,000 business owners, tax professionals, and legal and financial professionals looking for a group of like-minded individuals and tribes.

Parting words

“Don’t give up no matter what.”

Mark Kohler

Connect with Mark Kohler* LinkedIn * Twitter * Facebook * Instagram * Podcast * YouTube * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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BIO: Jusper Machogu is a farmer in rural Kenya, an agricultural engineer by profession, and an advocate for Fossil Fuels for Africa.

STORY: In this episode of My Wost Podcast Ever, Andrew and Jusper discuss the potential of fossil fuels to drive economic growth and development in Africa.

LEARNING: Africa needs more fossil fuels not aid.

“60-70% of our population depends on agriculture for livelihood. So one of the easiest ways to improve livelihoods is to improve agriculture by having abundant, reliable energy rates.”

Jusper Machogu

Guest profileJusper Machogu is a farmer in rural Kenya, an agricultural engineer by profession, and an advocate for Fossil Fuels for Africa.

Why Africa needs fossil fuelsIn this episode of My Wost Podcast Ever, Andrew and Jusper discuss the potential of fossil fuels to drive economic growth and development in Africa. Jusper argued that reliable and affordable energy is crucial for progress. Jusper is all about economic development in Africa and wants Africans to have what the rest of the world has. He wants Africa to be able to feed itself, to have access to reliable, abundant energy, lots of food, and economic development.

Jusper says that Africa needs lots of fossil fuels to achieve this, and Africans have plenty of them, so they don’t need much aid. What they need is investors in Africa. For instance, Africans can use fossil fuels to power their industries, such as manufacturing and agriculture, leading to job creation and economic growth. Africans can also use fossil fuels to generate electricity, which will improve access to energy and enhance productivity. These are just a few examples of how fossil fuels can be harnessed for African self-sufficiency and empowerment.

Jusper emphasizes that once Africa utilizes nitrogenous fertilizer, it will not only produce more food but also significantly improve livelihoods and economic development. He points out that Africa has ample fossil fuels to produce the fertilizer it needs, underlining the importance of African self-sufficiency in this crucial development aspect.

According to Jusper, another way Africa can attain economic development is by adding value to the food it produces and employing its people.

Jusper sheds light on the detrimental influence of international organizations like the IMF and World Bank in African countries. He argues that their policies, instead of fostering development, have led to increased hunger and economic hardship. This stark reality underscores the urgent need for change and a shift in focus towards empowering Africans to drive their own development.

Parting words

“We don’t need a lot of aid. What we need is investors in Africa. Let’s drill our oil, tap into our natural gas, and mine our coal. Let’s use that to develop ourselves. So that’s what I’m saying: fossil fuels for Africa.”

Jusper Machogu

Connect with Jusper Machogu* Twitter * Substack

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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BIO: August Biniaz is the Co-founder and Chief Investment Officer of CPI Capital. CPI Capital is a real estate private equity firm with the mandate to acquire multifamily assets while partnering with passive investors as limited partners.

STORY: Upon looking back and reflecting on the worst investment decision August has ever made, he says it’s his time, shiny object syndrome, getting excited about new investment ideas, and then putting a lot of time into learning about those ideas and losing that time.

LEARNING: Don’t be a jack of all trades and a master of none. Focus on your primary business. Stay in your lane.

“Being focused is probably the greatest asset anyone could have when it comes to success in business or otherwise.”

August Biniaz

Guest profileAugust Biniaz is the Co-founder and Chief Investment Officer of CPI Capital. CPI Capital is a real estate private equity firm with the mandate to acquire multifamily assets while partnering with passive investors as limited partners. August was instrumental in the closing of over $208 million of multifamily assets since inception.

August educates real estate investors through webinars, YouTube shows, weekly newsletters, and one-on-one coaching. He is the host of Real Estate Investing Demystified PodCast.

Worst investment everUpon looking back and reflecting on the worst investment decision August has ever made, he says it’s his time, shiny object syndrome, getting excited about new investment ideas, and then putting a lot of time into learning about those ideas and losing that time.

In one incident, when crypto came around, August got involved in the crypto world, trying to connect with investors, creating businesses within the crypto world, and putting his brainpower and time into learning about this new asset class. However, August went down a rabbit hole that took him away from his main focus.

In another incident, an asset class came across his desk. This was the build-to-rent single-family rentals or BTRSFR. After the great financial crisis in 2008, single-family homes in the US were selling for pennies on the dollar. Wall Street got involved, knowing that the market would eventually turn around, and started buying portfolios of single-family homes. However, as they managed these properties, they realized they were handled similarly to multifamily ones. So, they created this new asset class: build to rent single-family rentals.

August brought this idea to investors in his database and invested in a development project. It was a former purchase contract in which August partnered with a developer. This deal created some difficulties for his investors, partners, and himself. He never closed on that deal. This deal diverted August’s focus from his main business, and he lost opportunities there.

Lessons learned* Being a specialist is very important if you’re dealing with investors and have partners. Don’t be a jack of all trades and a master of none. * Focus on your primary business. * Stay in your lane. * Have tunnel vision in the business that you’re part of * Understand what’s happening in macro, economic, and political situations.

Andrew’s takeawaysWhen things aren’t working well, it’s apparent that you may need to find something else or double down on your efforts to fix them.

Actionable adviceIf you’re in the process of building a business or you already own a great business, don’t put your attention and focus into something that’s totally outside of your sandbox. Instead, try to focus on that business you’re already building.

August’s recommendationsAugust recommends listening to the My Worst Investment Podcast, learning how entrepreneurship, startups, investing, and other asset classes work, watching YouTube shows, and reading books. He is happy to provide 30 minutes of his time if you quote the My Worst Investment Podcast.

No.1 goal for the next 12 monthsAugust’s number one goal for the next 12 months is to hit his target of two deals in 2024. On the personal side, he’s moving to the US and setting up a base in Florida.

Parting words

“If you’re looking for risk-averse advice, talk to your parents. They’re always risk averse. And anytime you’re looking for risky advice, talk to your drunk friend.”

August Biniaz

Connect with August Biniaz* LinkedIn * Facebook * Twitter * Instagram * Podcast * YouTube * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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BIO: William Browder is the CEO of Hermitage Capital Management, Head of the Global Magnitsky Justice Campaign, and author of Red Notice and Freezing Order.

STORY: Bill moved to Moscow at the age of 31 and was the only Westerner there with any Wall Street skills. That led him to become the largest foreign investor in the country. His decision to go to Russia was the worst investment of his life. Although Bill made a fortune for his clients and a smaller portion for himself, he wishes he never moved to Russia because a lot of people have died, and a lot of lives have been ruined.

LEARNING: Don’t go to Russia.

“My friend Vladimir is the second most important political prisoner in Russia, and I’m desperately trying to get them out. Hopefully, I’ll succeed.”

William Browder

Guest profileWilliam Browder is the CEO of Hermitage Capital Management, Head of the Global Magnitsky Justice Campaign, and author of Red Notice and Freezing Order.

Bill was once Russia’s largest foreign portfolio investor until being declared “a threat to national security” in 2005 for exposing corruption in Russian state-owned companies.

In 2008, Mr. Browder’s lawyer, Sergei Magnitsky, uncovered a massive fraud committed by Russian government officials stealing US$230 million of state taxes and was subsequently arrested, imprisoned without trial, and systematically tortured.

Sergei Magnitsky died in prison on November 16, 2009. Ever since, Bill Browder has led the Global Magnitsky Campaign for governments around the world to impose targeted visa bans and asset freezes on human rights abusers and highly corrupt officials, introducing the passage of the Sergei Magnitsky Accountability Act in 2012, & the Global Magnitsky Human Rights Accountability Act 2016. Which has since been adopted by 11 countries, including the USA, UK, Canada, and New Zealand.

Worst investment everDuring his teenage rebellion, Bill faced a unique challenge, how to rebel from a family of communists. Undeterred, he hatched a daring plan to don a suit and tie and embrace capitalism. His graduation from Stanford Business School in 1989 coincided with the fall of the Berlin Wall, a moment that sparked a profound realization. With his grandfather’s communist legacy and the Berlin Wall’s collapse, Bill set his sights on an audacious goal to become the leading capitalist in Eastern Europe.

Bill aimed to become the largest investor in that part of the world. He eventually achieved that goal at the very young age of 25. Bill discovered the Russian privatization program, which basically gave everything away for free.

Bill moved to Moscow at the age of 31 in 1986, and he was the only Westerner there with any Wall Street skills. That led him to become the largest foreign investor in the country.

While initially lucrative, Bill’s decision to move to Russia proved to be a double-edged sword. He made a fortune for his clients and a smaller portion for himself, but the cost was high. Lives were lost, and many were left in ruins. Bill reflects on this, considering it the worst investment of his life.

Lessons learned* There are two choices for people who want to rebuild Russia: You can either go back and become part of the criminal enterprise or don’t go back. If you go back and try to fix it, you’ll become an enemy of the regime and go to jail. So, you can either become imprisoned or become a criminal. Better avoid the whole thing.

Andrew’s takeaways* Most people go along with whatever’s happening without even questioning it, and the ones who question it leave it and keep going.

No.1 goal for the next 12 monthsBill’s number one goal for the next 12 months is to get his friend Vladimir Kara Mirza out of prison before he dies.

Parting words

“Don’t go to Russia.”

William Browder

Connect with William Browder* LinkedIn * Twitter * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Investment Strategy Made Simple (ISMS), Andrew gets into part two of his discussion with Larry Swedroe: Ignorance is Bliss. Today, they discuss three chapters of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this series, they discuss mistake number 32: Are You Subject to the Money Illusion? Mistake 33: Do You Believe Demographics Are Destiny? And mistake 34: Do You Follow a Prudent Process When Choosing a Financial Advisory Firm?

LEARNING: Understand how the money illusion works to avoid making financial mistakes. Focus on managing risk and not trying to manage returns. Past performance is meaningless for active managers.

“What amazes me is that I can’t think of anybody who has ever asked the advisor to show them how they invest personally. That’s an absolute necessity because if they’re not putting their money where their mouth is and eating their own cooking, why should you?”

Larry Swedroe

In this episode of Investment Strategy Made Simple (ISMS), Andrew gets into part two of his discussion with Larry Swedroe: Ignorance is Bliss. Larry is the head of financial and economic research at Buckingham Wealth Partners. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss three chapters of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this series, they discuss mistake number 32: Are You Subject to the Money Illusion? Mistake 33: Do You Believe Demographics Are Destiny? And mistake 34: Do You Follow a Prudent Process When Choosing a Financial Advisory Firm?

Mistake number 32: Are You Subject to the Money Illusion?According to Larry, one of the illusions with great potential for creating investment mistakes is the money illusion. Money illusion occurs when people confuse inflation returns, nominal or real returns, and how the economy is impacted differently. It has great potential for creating mistakes because it relates to one of the most popular indicators used by investors to determine if the market is undervalued or overvalued, known as the Fed Model.

The problem with the Fed Model, leading to a false conclusion, is that it fails to consider that inflation has a different impact on corporate earnings than it does on the return on fixed-income instruments. Over the long term, the nominal growth rate of corporate earnings has been in line with the economy’s nominal growth rate, and the real growth rate of corporate earnings has been in line with the economy’s real growth. Thus, the real growth rate of earnings is not impacted by inflation in the long term. On the other hand, the yield to maturity on a 10-year bond is a nominal return, and, therefore, the real return on the bond will be negatively impacted by inflation. The error of comparing a number that is not impacted by inflation to one that is leads to the “money illusion.”

Larry says the empirical evidence and logic are pretty simple: Corporate earnings grow in line with the GDP. If they grew much faster, they would dominate the whole economy, and there’d be nothing left for wages.

While gaining knowledge of how a magical illusion works has the negative effect of ruining the illusion, understanding the “magic” of financial illusions is beneficial to investors as it should help them avoid mistakes. In the case of the money illusion, understanding how the money illusion is created will prevent investors from believing that an environment of low (high) interest rates allows for either high (low) valuations or for high (low) future stock returns. Instead, if the current level of prices is high (a high P/E ratio), that should lead one to conclude that future returns to equities are likely to be lower than has historically been the case and vice versa. It is also important to note that this does not mean that investors should either avoid equities because they are “overvalued” or increase their allocations because they are “undervalued.” It simply means that if the P/E is higher than the historical average, investors should not expect future returns to be as great as their historical average.

Mistake number 33: Do You Believe Demographics Are Destiny?Unlike economic forecasting, demographic forecasting can be considered a science. It’s for this reason that Larry cautions investors to avoid the mistake of confusing information with value-added information. He says before leaping to invest in individual stocks or mutual funds based on any guru’s insightful analysis, investors need to consider the following:

• Is this guru the only person who knows the demand for health care—for example—will rise as the population ages?
• Aren’t all investors aware of this? Doesn’t the market already incorporate this knowledge into current prices?
• If the market is aware of this information, it has already been incorporated into prices. Therefore, the knowledge cannot be exploited. In other words, if it’s just information—even if you think it’s going to have a positive or negative impact—ask yourself again, am I the only one who knows this?

Larry adds that you should never confuse information with knowledge. Possession of an insight is not sufficient. You can only benefit if other traders do not have the insight yet. And if you have such information, it is highly likely to be inside information, which is illegal to trade.

The vast majority of individuals and professional investors make investment decisions based on their forecasts, ignoring all the evidence that there are no good forecasters. Larry’s advice is to stop trying to forecast and, instead, think about what risks you’re most concerned about. So if you’re most concerned about, let’s say, inflation because you live on a fixed income, then you need to build a portfolio that’s more resilient to inflation risks. So don’t own long-term bonds in your portfolio; keep short-term bonds, have a bit of commodities, and maybe even a bit of gold. This way, you don’t confuse before-the-fact strategy with after-the-fact outcomes because you’ve designed a portfolio to protect you against the risks you are concerned about, not what somebody else is. People must focus on managing risk and not trying to manage returns.

Mistake number 34: Do You Follow a Prudent Process When Choosing a Financial Advisory Firm?Larry observes that one big problem for investors when choosing advisors is that they typically look at somebody’s track record in investing and project that into the future, ignoring all of the evidence that past performance is (for active managers) meaningless.

Larry recommends you require potential financial advisory firms to make the following 11 commitments to you. Doing so will allow you to avoid conflicts of interest and achieve your financial goals.

1. Our guiding principle is that our advice will always be in your best interest.
2. We provide you with care following a fiduciary standard — the highest legal duty that one party can have to another.
3. We are a fee-only investment advisor — avoiding the conflicts that commissioned-based compensation can create.
4. We fully disclose potential conflicts.
5. Our advice is based on the latest academic research, not on our opinions.
6. We are client-centric—we don’t sell any products; we only advise.
7. We provide a high level of personal attention — each client works with a team of professionals and will develop strong personal relationships with team members.
8. We invest our personal assets, including our profit-sharing plan, based on the same investment principles and in the same or comparable securities that we recommend to our clients.
9. We will develop an investment plan that is integrated into estate, tax, and risk management (insurance) plans. The overall plan will be tailored to your unique situation.
10. Our advice is always goal-oriented—evaluating each decision not in isolation but in terms of its impact on the likelihood of success of the overall plan.
11. Our comprehensive wealth management services are provided by individuals who have the CFP, PFS, or other comparable designations.

If you can’t get all 11 of those points, Larry insists you simply walk out the door.

Did you miss out on previous mistakes? Check them out:* ISMS 8: Larry Swedroe – Are You Overconfident in Your Skills? * ISMS 17: Larry Swedroe – Do You Project Recent Trends Indefinitely Into the Future? * ISMS 20: Larry Swedroe – Do You Extrapolate From Small Samples and Trust Your Intuition? * ISMS 23: Larry Swedroe – Do You Allow Yourself to Be Influenced by Your Ego and Herd Mentality? * ISMS 24: Larry Swedroe – Confusing Skill and Luck Can Stop You From Investing Wisely * ISMS 25: Larry Swedroe – Admit Your Mistakes and Don’t Listen to Fake Experts * ISMS 26: Larry Swedroe – Are You Subject to the Endowment Effect or the Hot Streak Fallacy? * ISMS 27: Larry Swedroe – Familiar Doesn’t Make It Safe and You’re Not Playing With the House’s Money * ISMS 29: Larry Swedroe – The Shiny Apple is Poisonous and Information is Not Knowledge * ISMS 30: Larry Swedroe – Do You Believe Your Fortune Is in the Stars or Rely on Misleading Information? * ISMS 34: Larry Swedroe – Consider All Hidden Costs Before You Invest * ISMS 35: Larry Swedroe – Great Companies Are Not Always High-Return Investments * ISMS 36: Larry Swedroe – Two Heads Are Not Better Than One When Investing * ISMS 37: Larry Swedroe – Pay Attention to a Fund’s Proper Benchmarks and Taxes * ISMS 38: Larry Swedroe – The Self-healing Mechanism of Risk Assets * ISMS 39: Larry Swedroe – Don’t Choose a Fund by Its Descriptive Name * ISMS 40: Larry Swedroe – Market vs. Hedge Fund Managers’ Efficiency

About Larry SwedroeLarry Swedroe is head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Twitter * YouTube * My Worst Investment Ever Podcast

Further reading mentioned Larry Swedroe and RC Balaban, Investment Mistakes Even Smart Investors Make and How to Avoid Them * Philip E. Tetlock, Expert Political Judgment: How Good Is It? How Can We Know? * Gary Belsky and Thomas Gilovich, Why Smart People Make Big Money Mistakes and How to Correct Them: Lessons from the Life-Changing Science of Behavioral Economics * Larry Swedroe, Think, Act, and Invest Like Warren Buffett: The Winning Strategy to Help You Achieve Your Financial and Life Goals * Larry Swedroe and Kevin Grogan, Reducing the Risk of Black Swans: Using the Science of Investing to Capture Returns with Less Volatility*

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BIO: Chris Ball started his career in 2004 as a tax adviser with KPMG LLP. He then transitioned and founded Hoxton Capital Management in 2018. The group’s sole emphasis is helping HNW and UHNW clients with borderless global financial advice. Chris’ specialty is assisting individuals with their retirement planning needs.

STORY: When Chris started his career young and fresh, he got into spread betting. That didn’t go so well, and he lost 10,000 pounds, which was a lot of money in 2008. In terms of business, he wasted over $750,000 on bad hiring decisions.

LEARNING: Don’t enter markets that you don’t understand. If someone is not 100% right, don’t hire them.

“Hire and fire fast. If they’re not right, and you spot it, don’t keep giving people chance after chance or trying to fit a round peg into a square hole, which doesn’t work.”

Chris Ball

Guest profileChris Ball started his career in 2004 as a tax adviser with KPMG LLP. After seven years with KPMG, Chris moved to the Middle East to join the deVere Group, where he continued his work as an IFA. He started in their Abu Dhabi offices and eventually headed up the Qatar operations for the group, which dealt with HNW and UHNW individuals.

Chris then transitioned and founded Hoxton Capital Management in 2018. The group’s sole emphasis is helping HNW and UHNW clients with borderless global financial advice. Chris’ specialty is assisting individuals with their retirement planning needs.

Chris has three children with his wife.

Worst investment everWhen Chris started his career young and fresh, he got into spread betting. That didn’t go so well, and he lost 10,000 pounds, which was a lot of money in 2008. In terms of business, he wasted over $750,000 on bad hiring decisions.

Lessons learned* Don’t enter markets that you don’t understand. * If someone is not 100% right, don’t hire them. * Playing at things never produces good results. You have to be 100% dedicated and focused on your work.

Actionable adviceHire and fire quickly. If someone is not suitable and you spot it, fire immediately. Don’t keep giving people a chance after chance.

Chris’s recommendationsChris recommends using his recently launched Hoxton Wealth App, available on iTunes, Apple App Store, Google Store, and the company’s website. It’s completely free. The app enables people with accounts in different countries to live link those accounts and view them in a currency of their choice. It also has cash flow modeling, which enables people to see if they have enough money saved for various goals.

No.1 goal for the next 12 monthsChris’s number one goal for the next 12 months is to launch a wealth app and attract 100,000 users.

Parting words

“Thank you very much for having me on. I really enjoyed it, and I wish you all the best.”

Chris Ball

Connect with Chris Ball* LinkedIn * Facebook * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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BIO: Vivek Raina is a seasoned veteran with over two decades of experience in the broadband industry. As the CEO and Co-Founder of Excitel, he leads the mission to connect BHARAT, propelling the company to the top three ISPs in India—a remarkable feat in just eight years.

STORY: Vivek spent 10 years finding an investor to fund his business idea. He wishes he had spent these years advancing his corporate career.

LEARNING: Working for somebody is fragile. Every failure teaches you something and makes you a better version of yourself. Do something you’re passionate about.

“In entrepreneurship, every failure teaches you something. It makes you stronger and better in doing what you’re doing.”

Vivek Raina

Guest profileVivek Raina is a seasoned veteran with over two decades of experience in the broadband industry. As the CEO and Co-Founder of Excitel, he leads the mission to connect BHARAT, propelling the company to the top three ISPs in India—a remarkable feat in just eight years. With a million subscribers spanning 55+ cities, Vivek’s leadership has revolutionized lives through pioneering unlimited internet broadband.

Vivek hails from Kashmir and is now based in Delhi. His journey includes impactful roles at Hathway, Reliance, and Pacenet, highlighting his exceptional leadership skills.

Worst investment everWithin two years of employment, Vivek had decided he would not stay employed—he would do something independently. Vivek started showing his ideas to people, hoping that someone would be interested in funding him. Some of the ideas were really bad, while others were good. Vivek didn’t manage to get an investor. Most people would offer him a salary or some incentives to work with him. It took Vivek 10 years to convince somebody to invest money in his idea. It took another three years to convince them to start a company, and in 2014, he got his first investment.

Vivek considers the 10 years he spent making this foundation his worst investment ever because if he had concentrated on a corporate job instead, he would be a millionaire by now. It’s also his best investment because if he had not gone through the grind and learned what he learned, he wouldn’t have been the successful entrepreneur he is today.

Lessons learned* Working for somebody is fragile. * Every failure teaches you something and makes you a better version of yourself. * Do something you’re passionate about—nobody can beat you at what you’re good at.

Andrew’s takeaways* Don’t be too harsh on yourself when you fail. Remember, you did your best with what you knew at the time.

Actionable adviceTo succeed, you need to be where the action is. Secondly, decide what to do because this is a once-in-a-lifetime shot. If you get it wrong, you lose many years. So choose carefully, and pick the stuff you’re naturally good at.

Vivek’s recommendationsIf you’re interested in startups and want to be successful in business, Vivek recommends reading Nicholas Taleb’s Taleb’s books. They will change your perspective.

If you need to be aware of your own biases and how your mind plays with you, read Daniel Kahneman’s Thinking, Fast and Slow, and The Almanack of Naval Ravikant: A Guide to Wealth and Happiness. Vivek believes that once you have read these three people, you will be a changed and much better person, not just in business but as a human being.

No.1 goal for the next 12 monthsVivek’s number one goal for the next 12 months is to double the user base.

Parting words

“Focus on your goal. Look at the leverage inherent in the ecosystem and make your mark in the world.”

Vivek Raina

Connect with Vivek Raina* LinkedIn * Facebook * Instagram * YouTube * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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BIO: William D. Cohan, a former senior Wall Street M&A investment banker for 17 years at Lazard Frères & Co., Merrill Lynch, and JPMorgan Chase, is the New York Times bestselling author of seven nonfiction narratives, including his most recent book, Power Failure: The Rise and Fall of An American Icon.

STORY: William discusses lessons from his most recent book, which is a story of General Electric (GE), a former global company with facilities worldwide. In his book, William focuses on former GE CEO Jack Welch, who took over the company in 1981 and increased its market value from $12 billion to $650 billion. This company became one of the world’s most valuable and respected companies, and then it all fell apart.

LEARNING: Leadership matters. You are not always right. Achieve the numbers in an ethical manner.

“I try to write books that I like to read, with great characters and great stories. And, yes, it’s a long book, but I think it’s a great story and worth your time.”

William Cohan

Guest profileWilliam D. Cohan, a former senior Wall Street M&A investment banker for 17 years at Lazard Frères & Co., Merrill Lynch, and JPMorgan Chase, is the New York Times bestselling author of seven nonfiction narratives, including his most recent book, Power Failure: The Rise and Fall of An American Icon.

William is a former guest on the show on episode 739: Get the Numbers Right Before You Invest. Today, he’s back to discuss lessons from his most recent book, which is a story of General Electric (GE), a former global company with facilities worldwide. In his book, William focuses on former GE CEO Jack Welch, who took over the company in 1981 and increased its market value from $12 billion to $650 billion. This company became one of the most valuable and respected companies in the world, and then it kind of all fell apart.

Leadership mattersThe ability of a company to adapt and flexibly evolve in response to market changes is crucial for sustained success. This is vividly illustrated through the leadership tenures of Jack Welch and Jeff Immelt at General Electric (GE), where Welch’s strategic boldness and Immelt’s subsequent decisions markedly impacted the company’s fortunes. The two leaders demonstrate the importance of getting the right man on the right job.

Welch was among five candidates vying to become CEO in 1981. He was picked as the CEO because he was potentially the most disruptive—he was going to be this change agent, there was no doubt about it. Welch had pledged to disrupt things to change how GE was run, and he was frankly a fantastic leader. People loved working for him, and he got more out of people than they thought possible. Welch was beloved, feared, respected, and delivered.

When choosing a successor, Welch gravitated towards Immelt because he went to Dartmouth and Harvard Business School, got his Ph.D. from the University of Illinois, and was generally intelligent. However, Immelt didn’t understand GE Capital. He didn’t understand finance well or know the dangers of borrowing short and lending long.

Borrowing in the commercial paper market is like a 30-day liability, and lending out 7-10 years means that if something happens and dries up your source of capital, you’re toast. This saw him make wrong decisions, which significantly impacted the company.

In comparison, when Jack Welch made big decisions, he made the right decisions. When Jeff Immelt had big decisions to make, he made the wrong decisions, by and large.

You are not always rightThe value of dissent and dynamic team interactions cannot be overstated; fostering an environment where open debate and criticism are encouraged catalyzes innovation and helps circumvent potential strategic missteps. These elements underscore the complex interplay between leadership style, strategic adaptability, and the importance of a culture that champions constructive debate within an organization.

Welch encouraged dissent. Many people in organizations are afraid to speak up, dissent, and share what they think because there will be consequences for their careers. Welch encouraged people to express their opinions, and though he was whip-smart, he would allow his mind to be changed. And there were plenty of examples where his mind was changed.

Sometimes, the separation of the Chairman of the Board and the CEO is justified; other times notThe debate over whether to separate the roles of CEO and Chairman is critical in corporate governance, aiming to boost board independence by clear role division: the CEO manages daily operations, while the chairman leads board strategy and oversight. The CEO’s primary focus is growth, and the chairman’s is risk. This separation, supported by major shareholders and advisory firms like BlackRock, Vanguard, and Glass Lewis, aims to enhance decision-making and governance, particularly when a board’s independence is questioned.

However, some see benefits in combining these roles for efficiency and unified leadership, a stance shaped by personal experience and shareholder views. The increasing focus on ESG criteria has intensified calls for role separation, though it’s debated whether this could have impacted significant leadership decisions in major companies. It is hard to say if a stronger board and a separated Chairman would have prevented Welch from making what he called the biggest mistake of his career, hiring Jeff Immelt.

At GE, the board was aware of Welch’s succession process and the candidates and had a role in vetting them. Welch was not only the CEO but also the chairman of the board, and whatever he wanted, he got.

As the CEO, Welch wanted Immelt as his successor, and even though there was some dissension on the board, it didn’t amount to much—it wasn’t enough to win the day. Then, when Immelt became the CEO, he kicked out board members who had actively dissented from his appointment, such as Ken Langone and Sandy Warner, the head of JP Morgan at the time.

Achieve the numbers in an ethical mannerThe General Electric narrative illustrates the vital link between ethical standards and sound financial management in corporate governance. GE’s decline from a beacon of innovation to facing financial turmoil and ethical scrutiny is a cautionary tale. It highlights the dangers of prioritizing profits without robust ethical and financial oversight, mainly seen in the complex operations of GE Capital and its repercussions on the company’s stability and stakeholder trust.

This case stresses the importance of integrating ethical considerations into financial strategies to ensure long-term corporate success and integrity. GE’s experience is a critical reminder for businesses to uphold financial prudence and a strong ethical culture, ensuring decisions contribute to sustainable growth and maintain corporate integrity rather than compromising it for short-term benefits.

You are not invincibleThe downfall of a corporation can often be traced to a mix of hubris and a disconnect between its public persona and internal realities. This phenomenon is particularly evident in the case of General Electric, where a sense of invincibility stemming from past achievements led to complacency and overconfidence.

This corporate hubris, or excessive pride, can blind a company to emerging challenges and necessary evolutions, setting the stage for decline. Furthermore, GE’s experience underscores the significance of aligning its outward image with its internal operations and culture. The disparity between GE’s celebrated public image as a beacon of innovation and its many internal challenges illustrates the dangerous gap that can develop when a company loses sight of its foundational values and operational integrity in pursuit of maintaining a facade of success.

Connect with William Cohan* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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BIO: Tony Fish is a neuro-minority and a leading expert on decision-making, governance, and entrepreneurship in uncertain environments. His 30-year sense-making and foresight track record means he has been ahead on several technical revolutions.

STORY: In this episode, Tony talks about his newest book, Decision Making in Uncertain Times. How can we become more aware of the consequences of our actions tomorrow?

LEARNING: Ask better questions.

“It’s only through conversations with people like you, Andrew, that I can refine my questions. I love all the people you put on the show because they helped me articulate better what I think I’m optimizing for.”

Tony Fish

Guest profileTony Fish is a neuro-minority and a leading expert on decision-making, governance, and entrepreneurship in uncertain environments. His 30-year sense-making and foresight track record means he has been ahead on several technical revolutions. His enthusiasm and drive are contagious & inspiring, especially for wicked problems. He has written and published six books, remains a visiting Fellow at Henley Business School for Entrepreneurship and Innovation, Entrepreneurs-in-residence (EIR) at Bradford School of Management, teaches at London Business School and the London School of Economics in AI and Ethics, and is a European Commission (EC) expert for Big Data.

Tony was a guest on Ep261: CEOs Can Defraud a Business in Very Hard to Detect Ways. In this episode, Tony talks about his newest book, Decision Making in Uncertain Times - How can we become more aware of the consequences of our actions on tomorrow?

The unsaid questionsTony struggled with how to ask better questions. He says there are two forms of questions. There are questions that we all ask, such as how are you performing? What are you doing? How are you feeling?

Then there’s a pile of what Tony termed the unsaid questions. He says that we don’t ask these questions because, politically, we can’t ask them. We emotionally feel we’re not able to, especially if we don’t know the person well enough or when somebody tells us not to ask that type of question. The trouble with a board is that if members don’t ask the unsaid, they won’t be able to discharge their fiduciary duties. Therefore, we need better frameworks to find questions we didn’t know we needed to ask.

So, how do we ask those questions? Tony has a whole book on how he does it. When the book gets shared, other people will read it, and they’ll come up with better questions than he has.

Principle versus riskAccording to Tony, when a board starts, it has all these principles outlined and tries to uphold them. But you realize later on as a board that you can’t manage principles. What you can manage is risk frameworks. But you can’t manage risk rating frameworks without rules. So, you create rules that allow you to manage risk. After creating the rules, you become managed against the free-risk framework you believe in because it aligns with your principles.

However, over time, the rules stop working, and those rules have to have another rule because there’s an exception to a rule. Tony says that when a new rule is created, or a new procedure or methodology comes along, a board should go back and question if that rule is aligned with its purpose, not whether it is helping the board manage the risk framework better.

Over time, you’ll have your purpose clearly and start seeing a massive drift between what you believe you set up and what the risk frameworks and rules allow you to manage. Tony’s challenge to boards is that every time a new rule is created, it should go to the board, and the board should make a judgment call on whether that rule is aligned with its purpose.

Role of a boardAccording to Tony, a board needs clarity on the tasks, the processes, the strategy, the purpose, and the North Star. It’s easy for boards to focus on tasks, processes, and strategy, but they find it difficult to focus on purpose and North Star. Most times, people only question whether they’re doing the right thing. He adds that a board has to be guided by data, rules, and regulations. But then it has to be directed by the values it wants and the organization’s values, which then comes back to the principles. The issue most boards face is that others’ values, principles, and behaviors are far more instrumental in a board’s values than they ever realized.

Then you’ve got a fundamental issue: Too many people end up on boards without board training. The untrained board members end up replicating management meetings as board meetings, believing that’s what they should be doing.

How to set up a boardTony believes that everybody follows an S curve. When you’re in the different phases of going up the S curve, you need other types of governance. However, many people don’t transition as they go up the S curve.

When in a particular phase, try to find the board that can do the next part, not the current one. And therein lies the difficulty for so many board members because they want to do what they’re good at and, therefore, stay in their comfort zones. This curtails the ability of the company to scale. What the board should be doing is asking: what do you do? Where are the transitions? How do you go about thinking? What are the processes and procedures? What skills do you need at the different layers as you go up?

About the bookTony’s book contains ten short frameworks. The idea is not to explain everything but to help the reader peel back the layers of the falsehood that they think they know what they’re doing, yet they haven’t got a clue. Tony wants you to make better choices and decisions by asking better questions.

The book is most accessible on Amazon, where you can purchase it in hardcover, softcover, or Kindle. You can also get a free PDF copy at www.peakparadox.com/book. If you want to reach out to Tony, he’s on LinkedIn.

Connect with Tony Fish* LinkedIn * Twitter * Website * Blog * Book

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Investment Strategy Made Simple (ISMS), Andrew gets into part two of his discussion with Larry Swedroe: Ignorance is Bliss. Today, they discuss two chapters of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this series, they discuss mistake 30: Do You Fail to Understand the Tyranny of the Efficiency of the Market? And mistake 31: Do You Believe Hedge Fund Managers Deliver Superior Performance?

LEARNING: Discovering anomalies or mistakes reinforces and makes the market more efficient. Hedge fund managers demonstrate no greater ability to deliver above-market returns than do active mutual fund managers.

“Unfortunately, the evidence is hedge fund managers demonstrate no greater ability to deliver above-market returns than do active mutual fund managers.”

Larry Swedroe

In this episode of Investment Strategy Made Simple (ISMS), Andrew gets into part two of his discussion with Larry Swedroe: Ignorance is Bliss. Larry is the head of financial and economic research at Buckingham Wealth Partners. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss two chapters of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this series, they discuss mistake number 30: Do You Fail to Understand the Tyranny of the Efficiency of the Market? And mistake 31: Do You Believe Hedge Fund Managers Deliver Superior Performance?

Did you miss out on previous mistakes? Check them out:

• ISMS 8: Larry Swedroe – Are You Overconfident in Your Skills?
• ISMS 17: Larry Swedroe – Do You Project Recent Trends Indefinitely Into the Future?
• ISMS 20: Larry Swedroe – Do You Extrapolate From Small Samples and Trust Your Intuition?
• ISMS 23: Larry Swedroe – Do You Allow Yourself to Be Influenced by Your Ego and Herd Mentality?
• ISMS 24: Larry Swedroe – Confusing Skill and Luck Can Stop You From Investing Wisely
• ISMS 25: Larry Swedroe – Admit Your Mistakes and Don’t Listen to Fake Experts
• ISMS 26: Larry Swedroe – Are You Subject to the Endowment Effect or the Hot Streak Fallacy?
• ISMS 27: Larry Swedroe – Familiar Doesn’t Make It Safe and You’re Not Playing With the House’s Money
• ISMS 29: Larry Swedroe – The Shiny Apple is Poisonous and Information is Not Knowledge
• ISMS 30: Larry Swedroe – Do You Believe Your Fortune Is in the Stars or Rely on Misleading Information?
• ISMS 34: Larry Swedroe – Consider All Hidden Costs Before You Invest
• ISMS 35: Larry Swedroe – Great Companies Are Not Always High-Return Investments
• ISMS 36: Larry Swedroe – Two Heads Are Not Better Than One When Investing
• ISMS 37: Larry Swedroe – Pay Attention to a Fund’s Proper Benchmarks and Taxes
• ISMS 38: Larry Swedroe – The Self-healing Mechanism of Risk Assets
• ISMS 39: Larry Swedroe – Don’t Choose a Fund by Its Descriptive Name

Mistake number 30: Do You Fail to Understand the Tyranny of the Efficiency of the Market?According to Larry, the Efficient Market Hypothesis (EMH) is the most powerful hypothesis or theory because the very act of discovering anomalies or mistakes reinforces and makes the market more efficient. When somebody discovers an anomaly, it gets published, people read about it, exploit it, and the anomaly typically will disappear or shrink dramatically.

Pricing anomalies present a problem for those who believe in EMH. However, the real question for investors is not whether the market persistently makes pricing errors. Instead, the real question is: are the anomalies exploitable after considering real-world costs?

Mistake number 31: Do You Believe Hedge Fund Managers Deliver Superior Performance?Hedge funds, a small and specialized niche within the investment fund arena, attract lots of attention. Hedge fund managers seek to outperform market indices such as the S&P 500 Index by exploiting what they perceive to be market mispricings. Studying their performance would seem to be one way of testing the EMH and the ability of active managers to outperform their respective benchmarks.

Over the last 20 years, hedge fund managers have underperformed one-month Treasury bills by something like 1.4% for T-bills to 1.2% for hedge funds. A study by AQR Capital Management covered the five-year period ending January 31, 2001. The study found the average hedge fund had returned 14.7% per year, lagging the S&P 500 Index by almost 4 ppts per year.

The 2006 study, “The A, B, Cs of Hedge Funds: Alphas, Betas, and Costs,” covered the period from January 1995 through March 2006 and found the average hedge fund had returned 8.98% per year, lagging the S&P 500 Index by 2.6 ppts per year.

Hedge fund investing appeals to investors because of the exclusive nature of the club. It also offers the potential of great rewards. Unfortunately, the evidence is hedge fund managers demonstrate no greater ability to deliver above-market returns than do active mutual fund managers. At the same time, investors in hedge funds were earning below-market returns. They were (in many cases) assuming far more risk — although they were probably unaware they were doing so.

In addition to these risks, hedge funds also tend to be highly tax inefficient and show no persistent performance beyond the randomly expected, meaning there is no way to identify the few winners ahead of time.

About Larry SwedroeLarry Swedroe is head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Twitter * YouTube * My Worst Investment Ever Podcast

Further reading mentioned Larry Swedroe and RC Balaban, Investment Mistakes Even Smart Investors Make and How to Avoid Them * Philip E. Tetlock, Expert Political Judgment: How Good Is It? How Can We Know? * Gary Belsky and Thomas Gilovich, Why Smart People Make Big Money Mistakes and How to Correct Them: Lessons from the Life-Changing Science of Behavioral Economics * Larry Swedroe, Think, Act, and Invest Like Warren Buffett: The Winning Strategy to Help You Achieve Your Financial and Life Goals * Larry Swedroe and Kevin Grogan, Reducing the Risk of Black Swans: Using the Science of Investing to Capture Returns with Less Volatility*

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BIO: Chris Kendall is the CEO of the Australian outsourced accounting group Aretex. Aretex helps businesses grow and scale with best-practice accounting, bookkeeping, and real-time access to accurate financial information.

STORY: Chris invested in the idea of a reality TV show piloted around finding baseball players. Chris believed in his friend’s vision and was so caught up in the emotional attachment that he didn’t do any due diligence on the idea.

LEARNING: If you’re going to fail, fail quickly, be honest about the failure, figure out what happened, and then move on to the next step. Don’t underestimate the funding needed to go big time.

“There’s a balance between raising enough money to reduce dilution and raising enough money to ensure you can get to the next hurdle.”

Chris Kendall

Guest profileChris Kendall is the CEO of the Australian outsourced accounting group Aretex. Aretex helps businesses grow and scale with best-practice accounting, bookkeeping, and real-time access to accurate financial information.

He is also the host of The Anti-Failure Podcasts, which examine the lessons from failure in business and life that ultimately allow us to succeed.

Worst investment everChris’s worst investment is the one he didn’t make, which was not buying property in the ’90s before he left Australia. His advice to anybody out there is to find a way to get into the property market as early as possible, go through the struggle of pulling together all of the resources you’ve got access to, and put them in a property.

Chris shares one investment he made through passion and emotional attachment. The investment was a reality TV show piloted around finding baseball players. The TV show was created by a friend who envisioned creating a reality show intended to describe how professional athletes look through the ringers to determine where they end up playing a professional sport. The friend had some of the big names in baseball. He needed money to make the pilot, and his friends (including Chris) and family put some money in and gave it a shot. But he couldn’t get the traction to turn it into the TV show that everyone thought it was capable of.

Chris believed in his friend’s vision and was so caught up in the emotional attachment that he didn’t do any due diligence on the idea.

Lessons learned* When looking at property, ask yourself: Does this appeal to you? Does it meet your immediate needs? Is there an opportunity to leverage that in a growing market? * There’s a balance between raising enough money to reduce dilution and raising enough money to ensure you can reach the next hurdle. * If you’re going to fail, fail quickly, be honest about the failure, figure out what happened, and then move on to the next step.

Andrew’s takeaways* Don’t underestimate the funding needed to go big time.

No.1 goal for the next 12 monthsChris’s number one goal for the next 12 months is to continue working with small business owners and helping clients get the best information they need to run their businesses.

Parting words

“Have the courage to turn up and give your best.”

Chris Kendall

Connect with Chris Kendall

• LinkedIn
• Facebook
• Instagram
• Podcast
• Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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BIO: Riggs Eckelberry is a nationally renowned entrepreneur who deploys his personal Break To Build™ process to help rebuild the water industry, which has reached a critical breaking point in recent years despite being essential to the planet’s survival.

STORY: Riggs met this wonderful lady who asked him to sit down with her money manager. He showed up at this money manager’s office, who told him he had a great business going and advised him to go public. Riggs said that would be impossible because he wasn’t profitable yet. Turning down this opportunity turned out to be Riggs’s worst investment.

LEARNING: You have to get that monthly recurring revenue. Don’t enter any industry unprepared.

“Your greatest expense is the money you don’t make, the opportunity cost.”

Riggs Eckelberry

Guest profileRiggs Eckelberry is a nationally renowned entrepreneur who deploys his personal Break To Build™ process to help rebuild the water industry, which has reached a critical breaking point in recent years despite being essential to the planet’s survival. As the founding CEO of OriginClear, Riggs has developed innovative solutions to help businesses face rising water bills by tapping into new investment markets. He is even pioneering the development of “water stablecoins,” a cryptocurrency backed by water assets. With a diverse background in nonprofit management, oceangoing navigation, and technology disruption, Riggs is uniquely qualified to bring change to an outdated and overrun industry.

Worst investment everIn the early 1980s, Riggs realized that technology was going to be the linchpin for all change, and he wanted to be a part of it, so he moved to New York City. This was the period when companies were moving from the old safeguard ledger to microcomputer-type accounting systems. A lot of people needed help making that migration. Riggs created a series of companies that tried to help these people.

Riggs happened to meet this wonderful lady who asked him to have a sit down with her money manager. He showed up at this money manager’s office, who told him he had a great business going and advised him to go public. Riggs insisted that would be impossible because he was yet to be profitable. Turning down this opportunity turned out to be Riggs’s worst investment. Unfortunately, Riggs didn’t know that in this industry, they’re not very profitable at the outset, but the real money is in the monthly revenue.

Interestingly, Riggs gave the business to his best salesman. Years later, he told Riggs that he still had some of the accounts they opened together, and he’d become a millionaire from that recurring monthly revenue.

Lessons learned* You’ve got to look for that monthly recurring revenue. * Wall Street bets on the future. * Don’t enter any industry unprepared; get to know the space first. * If you have a great team, you’ll have a life. * Put an engineer’s mind to the scaling problem.

Andrew’s takeaways* You’ve got to be able to paint a vision of the scalability of your venture.

Actionable adviceYou need to like what you’re going into because you will be stuck with it for years, especially if you succeed. Also, have a strong familiarity with the trade’s ins and outs.

Riggs’s recommendationsRiggs recommends reading The Innovator’s Dilemma. The seed of the destruction of every enterprise is in that enterprise, and the existing business model is actively suppressing it. The book will help you liberate this seed and even create a new business.

No.1 goal for the next 12 monthsRiggs’s number one goal for the next 12 months is to pivot the mother company OriginClear, to an incubator role and move to the NASDAQ.

Parting words

“Today is the best of times as the world globalizes and becomes completely chaotic. That’s an opportunity. Grab it.”

Riggs Eckelberry

Connect with Riggs Eckelberry* LinkedIn * Twitter * Facebook * YouTube * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Investment Strategy Made Simple (ISMS), Andrew gets into part two of his discussion with Larry Swedroe: Ignorance is Bliss. Today, they discuss two chapters of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this series, they discuss mistake number 28: Do You Fail to Compare Your Funds to Proper Benchmarks? And mistake 29: Do You Believe Active Management Is a Winner’s Game in Inefficient Markets?

LEARNING: Don’t choose a fund by its name. Active management is highly unlikely to outperform even in inefficient emerging markets.

“Don’t choose a fund, even an index fund, by its name. Instead, you should carefully check its weighted average book-to-market and market capitalization levels.”

Larry Swedroe

In this episode of Investment Strategy Made Simple (ISMS), Andrew gets into part two of his discussion with Larry Swedroe: Ignorance is Bliss. Larry is the head of financial and economic research at Buckingham Wealth Partners. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss two chapters of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this series, they discuss mistake number 28: Do You Fail to Compare Your Funds to Proper Benchmarks? And mistake 29:

Did you miss out on previous mistakes? Check them out:

• ISMS 8: Larry Swedroe – Are You Overconfident in Your Skills?
• ISMS 17: Larry Swedroe – Do You Project Recent Trends Indefinitely Into the Future?
• ISMS 20: Larry Swedroe – Do You Extrapolate From Small Samples and Trust Your Intuition?
• ISMS 23: Larry Swedroe – Do You Allow Yourself to Be Influenced by Your Ego and Herd Mentality?
• ISMS 24: Larry Swedroe – Confusing Skill and Luck Can Stop You From Investing Wisely
• ISMS 25: Larry Swedroe – Admit Your Mistakes and Don’t Listen to Fake Experts
• ISMS 26: Larry Swedroe – Are You Subject to the Endowment Effect or the Hot Streak Fallacy?
• ISMS 27: Larry Swedroe – Familiar Doesn’t Make It Safe and You’re Not Playing With the House’s Money
• ISMS 29: Larry Swedroe – The Shiny Apple is Poisonous and Information is Not Knowledge
• ISMS 30: Larry Swedroe – Do You Believe Your Fortune Is in the Stars or Rely on Misleading Information?
• ISMS 34: Larry Swedroe – Consider All Hidden Costs Before You Invest
• ISMS 35: Larry Swedroe – Great Companies Are Not Always High-Return Investments
• ISMS 36: Larry Swedroe – Two Heads Are Not Better Than One When Investing
• ISMS 37: Larry Swedroe – Pay Attention to a Fund’s Proper Benchmarks and Taxes
• ISMS 38: Larry Swedroe – The Self-healing Mechanism of Risk Assets

Mistake number 28: Do You Rely on a Fund’s Descriptive Name When Making Purchase Decisions?According to Larry, most investors tend to rely on the name of a fund and its descriptive value. So they’ll look at a small-cap fund and assume it invests exclusively in small or mid-cap stocks. However, the SEC allows sufficient leeway that can cause dramatic differences in that a large-cap fund can own a large-cap value fund and even some small-cap growth stocks. In such a case, you’ll not get the asset allocation you think you should and desire. And that’s especially true, of course, of active managers who have freedom to roam.

Several academic studies have concluded that asset allocation determines the vast majority of the returns and risks of a portfolio and its long-term performance. Larry says that once investors decide on their investment policy (asset allocation), they must choose which funds to use as the building blocks of their portfolio. One choice involves implementing the strategy with active or passive managers. If investors choose passive managers, they can be highly confident that the specific investment style will be adhered to, as the fund will replicate the asset class or index it represents. There is no such assurance with active managers. With active managers, you cannot even rely on the fund’s name when making a choice.

Larry advises that you should not choose a fund, even an index fund, by its name. Instead, you should carefully check its weighted average book-to-market and market capitalization levels. That’s the simplest way to tell the true nature of a fund.

Mistake number 29: Do You Believe Active Management Is a Winner’s Game in Inefficient Markets?The efficiency of the market for U.S. large-cap stocks is so great that attempting to add value through active management is unlikely to produce positive results. However, investors cling to the idea that active management will likely add value in less efficient markets. Unfortunately, research shows that active managers in emerging markets tend to lose over whatever period, and the longer the horizon, the worse the performance.

The asset class for which the active management argument is made most strongly is the emerging markets — an “inefficient” asset class if there ever was one. Many myths are perpetuated by the Wall Street establishment and the financial media, and that active management is the winning strategy in less efficient markets is just one of them. As the historical evidence demonstrates, active management is highly unlikely to outperform in even the allegedly inefficient emerging markets. In fact, the evidence suggests that active managers perform just as poorly in the “inefficient” markets as they do in the more efficient markets of the developed nations. Larry concludes that active managers don’t lose because they’re dumb; they lose because they’re expensive.

About Larry SwedroeLarry Swedroe is head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Twitter * YouTube * My Worst Investment Ever Podcast

Further reading mentioned Larry Swedroe and RC Balaban, Investment Mistakes Even Smart Investors Make and How to Avoid Them * Philip E. Tetlock, Expert Political Judgment: How Good Is It? How Can We Know? * Gary Belsky and Thomas Gilovich, Why Smart People Make Big Money Mistakes and How to Correct Them: Lessons from the Life-Changing Science of Behavioral Economics * Larry Swedroe, Think, Act, and Invest Like Warren Buffett: The Winning Strategy to Help You Achieve Your Financial and Life Goals * Larry Swedroe and Kevin Grogan, Reducing the Risk of Black Swans: Using the Science of Investing to Capture Returns with Less Volatility*

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BIO: Lark Davis is the Founder of the weekly crypto newsletter Wealth Mastery, which combines insider insights and in-depth market analysis to offer cryptocurrency investors the best opportunities to grow their wealth, stay ahead of the curve, and avoid costly mistakes.

STORY: Lark invested in the Terra Luna cryptocurrency, which had a famous implosion. The volatility of the crypto market saw him lose all his profits and part of his capital.

LEARNING: Never put your profits into something that could go down. Fully understand all aspects of risk exposure.

“The learning curve is massive in crypto, and even after years in the industry, I still get surprised by how I can get screwed.”

Lark Davis

Guest profileLark Davis is the Founder of the weekly crypto newsletter Wealth Mastery, which combines insider insights and in-depth market analysis to offer cryptocurrency investors the best opportunities to grow their wealth, stay ahead of the curve, and avoid costly mistakes.

The newsletter has 100K+ subscribers and covers DeFi, NFTs, Altcoins, Technical Analysis, and more. Lark has been a crypto investor for more than seven years and has made millions of dollars—while also suffering significant losses—in the markets.

He has been featured in leading digital currencies media platforms, including Coinpedia and CoinDesk, providing insights that help audiences consistently make money from cryptocurrency investments.

You can find him on Twitter and YouTube.

Worst investment everLark invested in the Terra Luna cryptocurrency, which had a famous implosion. The currency went up, and the investment was worth hundreds of thousands of dollars. The company also had a stable coin worth $1 linked to the Luna cryptocurrency. The more stablecoins were minted, the more the Luna token was taken off, and the market price increased. The reverse eventually, of course, applied as well. But this was the big hype coin everybody was talking about. Big venture capital firms were in it, and the Founder was the poster child on social media.

It all came tumbling down eventually. Interestingly, shortly before Lark invested, his research assistant, who does the deep dives for the Wealth Mastery reports, did a report on the Luna crypto and concluded that it smelled fishy and didn’t like the idea of investing in it. Lark, however, went ahead and invested.

By the time the coin started going on a downward spiral, Lark’s Luna position was around $100,000. That went to zero in about three days. Luckily, he didn’t ride them to zero. He sold them for around $6, but his profit fell to zero. He also had about $700,000 of stablecoins, in which he took a 20% loss.

Lessons learned* Never put your profits into something that could go down. * Take your profits, put it in your bank, and run away. * Fully understand all aspects of risk exposure. * Crypto’s learning curve is massive.

Andrew’s takeaways* Separate your wealth or profit from speculation money and put it in a safe place that won’t go down. * When it comes to human behavior, always expect a herd mentality.

Actionable adviceGo slow on-chain and test the waters first before you put 100% of your money into it. You’re not missing out on anything; there’s always going to be something new happening tomorrow.

Lark’s recommendationsLark recommends reading his newsletter, Wealth Mastery, for updates on the latest market trends. He also recommends checking out various local exchanges to learn how trading indicators and coin mechanics work and all sorts of things regarding cryptocurrencies.

No.1 goal for the next 12 monthsLark’s number one goal for the next 12 months is to 10x his crypto portfolio in this bull market.

Parting words

“With crypto, remember to take your profits, or the market will take them for you.”

Lark Davis

Connect with Lark Davis* LinkedIn * Twitter * YouTube * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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BIO: Sam founded FasterFreedom to teach people like him to quit their jobs, become successful real estate investors, and achieve that same freedom and financial independence.

STORY: Sam and his partner invested in a self-storage. They fixed the property a bit and built a couple more facilities. They didn’t know this space, and the investment has cost them about $500,000 of potential loss and probably more than they could have gained in revenue.

LEARNING: Be intentional about what you invest in. Stick to what you know. Think through every expansion.

“Be intentional about what you invest in. You can’t be good at everything.”

Sam Primm

Guest profileSam Primm was born and raised in St. Louis, MO., to a father who was an engineer and a mom who was a teacher. He followed the path you’re told to do and ended up working a corporate job in the area and making a decent enough living. But there were a couple of problems.

Sam was working a stressful 50-hour-a-week job for someone he didn’t like, and most of all, Sam wished he had more time and freedom for himself and his family. They deserved better. His wife deserved him to be around more, and he wanted more time to be around his daughters as they grew up.

Eventually, Sam got into Real Estate, and after trying and failing—several times—he got some wins and started to learn what worked with consistency. This led him to own $45 million in assets, have 150+ single-family rentals, flip over 1,000 properties, and run his own property management company. Sam did it all in under nine years without using his money. But the best part is that it’s given Sam the time and freedom he has always wanted for himself and his family.

Sam founded FasterFreedom to teach people like him to quit their jobs, become successful real estate investors, and achieve that same freedom and financial independence. Sam prides himself in practicing what he preaches, meaning all his lessons and tips are constantly updated and based on the real investing he’s doing right now- so you only learn what works and not through theory or outdated practices!

Worst investment everWhen the idea to add a self-storage facility to their assets was first brought to them, Sam and his partner said no. Then COVID hit, and they said yes. They didn’t know much about storage facilities, but the numbers looked ok, so they took it. They fixed the property and built more facilities because they had open land.

They didn’t know this space, so they didn’t raise enough funds or manage properly because their mind was focused elsewhere. The property is now not generating income nor growing in value like it should. This investment has cost the partners about $500,000 of potential loss and even more in missed revenue.

Lessons learned* Be intentional about what you invest in. * Don’t try to be good at everything; you can’t. * Stick to what you know. * Have proof of concept in what you want to invest in.

Andrew’s takeaways* Take good care of your cash flow. * Focus on minimal investment and maximum cash flow. * Think through every expansion. * Don’t think your evidence of the existing success relates to your new idea, even if it seems like it’s the same thing. That’s not proof.

Actionable adviceDon’t just buy something because it’s cheap. Focus on what you’re good at and what’s proven.

Sam’s recommendationsSam recommends taking advantage of the many available resources, such as his podcast, Professor Freedom. These resources will give you base-level knowledge to create a base-level confidence that allows you to take action.

No.1 goal for the next 12 monthsSam’s number one goal for the next 12 months is to scale his education business to its greatest potential.

Parting words

“You’re not going to be successful without failing. Failure is literally a stepping stone on the path to success. So, figure out how to fail. Just don’t make the same mistake again. Learn from it. So if you avoid failure, you avoid success.”

Sam Primm

Connect with Sam Primm* LinkedIn * Twitter * Facebook * Instagram * YouTube * Website * Podcast * Book

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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BIO: Dr. Marc Faber, renowned for his unconventional expertise in investment strategies, is a fund manager and author. He serves as the editor of the “Gloom Boom & Doom Report” and the “Monthly Market Commentary,” earning international recognition as the pessimistic stock market expert “Dr. Doom.”

STORY: In the late 1990s, Marc became convinced that the Dotcom bubble would burst. However, at the turn of 2000, Greenspan injected liquidity into the system because everyone was talking about the millennium. This caused the NASDAQ to go another 30% between January 1 and March 21. Marc was heavily short throughout this vertical rise.

LEARNING: Diversify in stocks, bonds, cash, precious metals, and real estate. Don’t be overly bearish.

“When you lend money to friends, you risk losing everything. You may lose your money and your friends.”

Marc Faber

Guest profileDr. Marc Faber, renowned for his unconventional expertise in investment strategies, is a fund manager and author. He serves as the editor of the “Gloom Boom & Doom Report” and the “Monthly Market Commentary,” earning international recognition as the pessimistic stock market expert “Dr. Doom.”

Born in Switzerland in 1946, Faber pursued economics at the University of Zurich and achieved a magna cum laude doctorate in economics at just 24 years old.

His career took him to White Weld & Company Limited in New York, Zurich, and Hong Kong between 1970 and 1978. From 1978 to 1990, Faber was instrumental in establishing the Asia business for Drexel Burnham Lambert (HK) Ltd.

In 1990, he ventured into his own business. Faber’s monthly publications offer investors insights into potential market trends. While he maintains an office in Hong Kong, he has lived in Chiang Mai, Thailand, since 2001.

Worst investment everIn the late 1990s, Marc became convinced that the Dotcom bubble would burst. So he went overly bearish. However, in 1999, the NASDAQ doubled within just a few months. Then, at the turn of 2000, Greenspan injected liquidity into the system because everyone was talking about the millennium. This caused the NASDAQ to go up another 30% between January 1 and March 21. Marc was heavily short throughout this vertical rise.

Marc had assumed that more companies would go out of business than survivors. He overlooked that you could be short ten stocks and nine go down 100 percent. The nine will go bankrupt, but the one that survives can go up 100 times. So, being on the short side made it difficult for Marc to make money.

Lessons learned* Diversify in stocks, bonds, cash, precious metals, and real estate.

Andrew’s takeaways* Don’t be overly bearish.

Actionable advicePractice true diversification by owning investment assets in different regions, say in America or Europe, but also some properties may be in China, Hong Kong, Singapore, Thailand, Indonesia, or Latin America, and some assets held with a custodian in these countries.

Marc’s recommendationsMarc recommends reading The Economics of Inflation and Capitalism and Freedom.

No.1 goal for the next 12 monthsMarc’s number one goal for the next 12 months is to understand the details of the decline of the Roman Empire.

Parting words

“Understand what inflation is and that it can shift from one sector to another sector.”

Marc Faber

Connect with Marc Faber* LinkedIn * Twitter * Website * Book

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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BIO: Coach JV believes that what you believe in your heart and what you think in your mind will eventually become your words and reality.

STORY: Coach JV was introduced to cryptocurrency and decided to invest without an exit plan. In just a year, his investment had fallen by 85%.

LEARNING: Diversify inside and outside the asset class. Pull out your money and play on the house money. When you make massive gains, take some profit.

“Always take 24 hours to make a decision. When somebody comes to you very excited about something, stop for a moment, listen, use discernment, and also seek wise counsel.”

Coach JV

Guest profileWhat you believe in your heart and what you think in your mind will eventually become your words and your reality. If you can see it in your mind, eventually you can hold it right here in your hand; what you repeatedly do gets ingrained in your subconscious mind, and what gets ingrained in your subconscious mind becomes your unconscious activity.

Worst investment everCoach JV left corporate America super excited about entrepreneurship. However, he didn’t understand the ins and outs of entrepreneurship and scaling. So, at the very beginning, Coach JV lost all his money.

Then, this great promise of cryptocurrency came into Coach JV’s life. But he had this deep-rooted indoctrination around those types of things. Nonetheless, when Coach JV was introduced to a coin called XRP, he got curious and started researching it. He saw the excitement of all the money being made in cryptocurrency. He also decided to invest heavily.

Coach JV made a lot of money from his investment and couldn’t even keep up with all the different coins being pumped at him. Coach JV even became influential in the space.

Unfortunately, he got into this speculative asset with no game plan. Then, suddenly, and it seemed like overnight, he woke up and was down 85%. Coach JV went from a millionaire to a thousandaire between 2021 and 2022.

Lessons learned* Diversify inside and outside the asset class. * Pull out your money and play on the house money.

Andrew’s takeaways* When you make massive gains, take some profit.

Actionable adviceAlways take 24 hours to make a decision. When somebody comes to you very excited about something, stop for a moment, listen, use discernment, and also seek wise counsel.

No.1 goal for the next 12 monthsCoach JV’s number one goal for the next 12 months is to stay non-emotional about what’s happening in America, remain focused on his fundamentals, and be as keen as possible not to get caught up in the greed gene.

Parting words

“Remember what you believe in your heart and think in your mind will eventually become your words and your reality. If you can see it in your mind, eventually, you can hold it in your hands. What you repeatedly do gets ingrained in your subconscious mind. What gets ingrained in your subconscious mind becomes your unconscious activities.”

Coach JV

Connect with Coach JV* Twitter * Facebook * Instagram * YouTube * Website

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Threads * Twitter * YouTube * My Worst Investment Ever Podcast

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In this episode of Investment Strategy Made Simple (ISMS), Andrew gets into part two of his discussion with Larry Swedroe: Ignorance is Bliss. Today, they discuss Larry’s recent piece, The Self-healing Mechanism of Risk Assets.

LEARNING: Don’t engage in resulting because there will be periods when an investment will underperform and others when it outperforms. Resist recency bias. Avoid performance chasing.

“You don’t want to engage in resulting because there will be periods when an investment will underperform and others when it outperforms.”

Larry Swedroe

In this episode of Investment Strategy Made Simple (ISMS), Andrew gets into part two of his discussion with Larry Swedroe: Ignorance is Bliss. Larry is the head of financial and economic research at Buckingham Wealth Partners. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss two chapters of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. Today, they discuss Larry’s recent piece, The Self-healing Mechanism of Risk Assets.

Did you miss out on previous mistakes? Check them out:

• ISMS 8: Larry Swedroe – Are You Overconfident in Your Skills?
• ISMS 17: Larry Swedroe – Do You Project Recent Trends Indefinitely Into the Future?
• ISMS 20: Larry Swedroe – Do You Extrapolate From Small Samples and Trust Your Intuition?
• ISMS 23: Larry Swedroe – Do You Allow Yourself to Be Influenced by Your Ego and Herd Mentality?
• ISMS 24: Larry Swedroe – Confusing Skill and Luck Can Stop You From Investing Wisely
• ISMS 25: Larry Swedroe – Admit Your Mistakes and Don’t Listen to Fake Experts
• ISMS 26: Larry Swedroe – Are You Subject to the Endowment Effect or the Hot Streak Fallacy?
• ISMS 27: Larry Swedroe – Familiar Doesn’t Make It Safe and You’re Not Playing With the House’s Money
• ISMS 29: Larry Swedroe – The Shiny Apple is Poisonous and Information is Not Knowledge
• ISMS 30: Larry Swedroe – Do You Believe Your Fortune Is in the Stars or Rely on Misleading Information?
• ISMS 34: Larry Swedroe – Consider All Hidden Costs Before You Invest
• ISMS 35: Larry Swedroe – Great Companies Are Not Always High-Return Investments
• ISMS 36: Larry Swedroe – Two Heads Are Not Better Than One When Investing
• ISMS 37: Larry Swedroe – Pay Attention to a Fund’s Proper Benchmarks and Taxes

Common biases in investingOne of the biggest problems Larry has found working with advisors and investors is certain biases that lead to mistakes. One is recency bias, which is the tendency to extrapolate the recent performance of assets into the future as if it’s inevitable.

Resisting recency bias is critical to earning the premiums available from all risk assets, including reinsurance. Wise investing, as Warren Buffett noted, is simple but not easy. That’s because investors must overcome all the behavioral biases, with recency among the most powerful. It’s tempting to sell out of an investment that has suffered losses because it’s easy to think losses will keep happening.

Another bias is performance chasing. This is buying after periods of strong performance when valuations are higher and expected returns are lower and selling after periods of poor performance when valuations are lower and expected returns are higher. What disciplined investors do is the opposite—rebalance to maintain their well-thought-out allocation to risky assets

Larry identifies engaging in resulting as another big issue. This is making the mistake of judging the quality of a decision by the outcome—which is unknown—versus judging it by the quality of the decision-making process.

The self-healing mechanism of risk assetsProblems usually arise when stocks or any asset class perform very poorly, and investors flee the costs of these mistakes that they make. However, Larry points out that they fail to understand that a self-healing mechanism is generally in place.

An excellent example of the self-healing mechanism at work is that value stocks underperformed by wide margins during the late 1990s technology/dot-com boom. For example, from 1995 to 1999, the S&P 500 Growth Index returned 33.6% per annum, outperforming the Russell 2000 Value Index by 20.5 percentage points per annum. That outperformance led to valuation spreads widening to historic levels. Over the following eight-year period, 2000-07, the Russell 2000 Value Index returned 12.6% per annum, outperforming the S&P 500 Growth Index’s return of -1.7% by 14.3 percentage points per annum. Over the full period, the Russell 2000 Value Index outperformed the S&P 500 Growth Index by 2.2% percentage points per annum (12.8% versus 10.6%).

The self-healing mechanism works not only with stocks and value versus growth but also with bonds, credit, insurance, and virtually any risk asset. Thanks to the self-healing mechanism, Larry cautions investors against engaging in resulting because there will be periods when an investment will underperform and others when it outperforms. Instead, he advises that they understand why certain investment vehicles are in their portfolios in the first place.

About Larry SwedroeLarry Swedroe is head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.

Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.

Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.

Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management.

Connect with Larry Swedroe* LinkedIn * Twitter * Website * Books

Andrew’s books How to Start Building Your Wealth Investing in the Stock Market * My Worst Investment Ever * 9 Valuation Mistakes and How to Avoid Them * Transform Your Business with Dr.Deming’s 14 Points*

Andrew’s online programs Valuation Master Class * The Become a Better Investor Community * How to Start Building Your Wealth Investing in the Stock Market * Finance Made Ridiculously Simple * FVMR Investing: Quantamental Investing Across the World * Become a Great Presenter and Increase Your Influence * Transform Your Business with Dr. Deming’s 14 Points * Achieve Your Goals*

Connect with Andrew Stotz:* astotz.com * LinkedIn * Facebook * Instagram * Twitter * YouTube * My Worst Investment Ever Podcast

Further reading mentioned Larry Swedroe and RC Balaban, Investment Mistakes Even Smart Investors Make and How to Avoid Them * Philip E. Tetlock, Expert Political Judgment: How Good Is It? How Can We Know? * Gary Belsky and Thomas Gilovich, Why Smart People Make Big Money Mistakes and How to Correct Them: Lessons from the Life-Changing Science of Behavioral Economics * Larry Swedroe, Think, Act, and Invest Like Warren Buffett: The Winning Strategy to Help You Achieve Your Financial and Life Goals * Andrew L Berkin, Your Complete Guide to Factor-Based Investing: The Way Smart Money Invests Today * Larry Swedroe and Kevin Grogan, Reducing the Risk of Black Swans: Using the Science of Investing to Capture Returns with Less Volatility*

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BIO: Solomon Thimothy is an entrepreneur with over 17 years of experience in marketing and sales. As the co-founder and CEO of OneIMS, a leading inbound marketing and sales agency, and Clickx, he has helped businesses double their revenue using the 10X Framework.

STORY: When Solomon started his service business, he built software unique to his business. The problem was it cost thousands of dollars, and he was a broke out-of-collage kid. His model was terrible; nobody would invest in his business.

LEARNING: Every entrepreneur fails, so give yourself permission to fail.

“Make sure that whatever you invest in is what you want to spend your next decade trying to figure out.”

Solomon Thimothy

Guest profileSolomon Thimothy is a highly accomplished entrepreneur with over 17 years of experience in marketing and sales. As the co-founder and CEO of OneIMS, a leading inbound marketing and sales agency, and Clickx, he has helped businesses double their revenue using the 10X Framework. Solomon is also an expert in lead generation and customer acquisition, and a USA Today and Wall Street Journal best-selling author.

In addition to his work, Solomon is also an angel investor and startup advisor. He has helped numerous startups grow and scale, leveraging his marketing, sales, and business strategy expertise.

Worst investment everSolomon started a service company building websites right off college. He hired other college kids with zero experience, and the process was terrible. Due to their inexperience, Solomon and his staff spent much more time on the work, which led to less money at the end of the day. Solomon decided to create some systems to try and reduce this time wastage.

Being a techie, he thought of building software to help onboard customers and enable them to see their reports from the lead gen ads. The software would allow Solomon to automate the process.

This meant Solomon would build his own software. All this cost tens of millions of dollars, and he was just a kid out of college with barely enough money to pay the bills and now had to hire developers and pay thousands of dollars—money he didn’t have. On paper, this model was terrible; nobody would invest in his business.

Lessons learned* Every entrepreneur fails, so permit yourself to fail.

Andrew’s takeaways* Never develop your own app or software; use what already exists and has been tried and tested.

Actionable adviceMake sure that whatever you invest in is what you want to spend your next decade trying to figure out.

Solomon’s recommendationsSolomon recommends reading 10x Is Easier than 2x: How World-Class Entrepreneurs Achieve More by Doing Less to understand and apply the 10x framework.

No.1 goal for the next 12 monthsSolomon’s number one goal for the next 12 months is to impact the business and income of 10,000 entrepreneurs.

Parting words

“Keep taking risks. I know you want to reduce them, but there are those that will win big.”

Solomon Thimothy

Connect with Solomon Thimothy* Linkedin * Twitter * Facebook * Instagram * YouTube * Website * Podcast