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Speaker 1: Welcome to How to Money. I'm Joel and I am Max,

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Speaker 1: and today we're asking the question why does the stock

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Speaker 1: market go up? With Brian Ferraldi.

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Speaker 2: Yeah, you know, and I think the very next question

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Speaker 2: folks might have, especially for beginner investors, is let's stock

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Speaker 2: market continue to go up? And I'll wager that our

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Speaker 2: guest today would say that the world's got much bigger

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Speaker 2: problems if that is not the case. But we are

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Speaker 2: pumped to be joined by Brian Ferraldi, whose journey into

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Speaker 2: the financial realm has led to writing over three thousand

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Speaker 2: articles on stocks and investing for The Motley Fool. He's

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Speaker 2: a YouTube star with millions of views where he explains

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Speaker 2: the ins and outs of individual companies in the market overall,

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Speaker 2: and brian recent book Why does the Stock Market Go Up?

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Speaker 2: That is what we're getting into today. This is going

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Speaker 2: to be an investing deep dive as we seek to

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Speaker 2: demystify some investing concepts that folks listening you may have

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Speaker 2: always had questions about. Brian. Thank you so much for

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Speaker 2: joining How to Money.

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Speaker 1: That Joel, awesome to be here. Thank you for having

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Speaker 1: me of course, man, Yeah, glad to have this conversation.

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Speaker 1: It's gonna be interesting. It's gonna get a little more needy,

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Speaker 1: gritty than we get sometimes on the investing front, so

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Speaker 1: this will be fun. First question, though, we ask everybody

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Speaker 1: who comes on Brian is what's your craft beer equivalent?

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Speaker 1: What do you like to splurge on in the here

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Speaker 1: now while you're also know socking money away into those investments,

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Speaker 1: you're being smart, trying to build wealth for the future.

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Speaker 3: Well, I will say that my mouth really likes craft beer,

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Speaker 3: but the rest of my body does not like the

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Speaker 3: alcohol content of craft beer. So hey, they make non

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Speaker 3: alcoholic versions now, so that seems like cheating though. Yeah,

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Speaker 3: my splurge is I want as many ads out of

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Speaker 3: my life as I possibly can. My whole family absolutely

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Speaker 3: loves watching YouTube, and for years I resisted the urge

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Speaker 3: to pay to have the ads removed, and then it

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Speaker 3: was gifted to me to have the ads removed. And

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Speaker 3: once I did that, I was like, what was I thinking?

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Speaker 3: Why didn't I just do this years ago? So I

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Speaker 3: am one of those people that pays for YouTube every

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Speaker 3: month because I don't want to see the ads.

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Speaker 2: I can one hundred percent get behind that, because so

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Speaker 2: Joel is the opposite Brian, because Joel, actually you reduced

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Speaker 2: one of your scriptriptions because you allowed yourself to be

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Speaker 2: confronted with the ads. Whereas my family, Brian, we're more

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Speaker 2: like you, where I'm just like, look, I'm willing to

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Speaker 2: pay a few more dollars so that i don't have

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Speaker 2: to sit through commercials while I'm watching a prime video

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Speaker 2: on Amazon or TV.

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Speaker 1: So I think of it in a different way. I'm

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Speaker 1: willing to pay less money to get the ads, but

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Speaker 1: it's only because like, oh, I probably wouldn't sign up

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Speaker 1: for that streaming service otherwise, like Hulu on Black Friday

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Speaker 1: ninety nine cents a month or the year, I'm like cool,

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Speaker 1: I'll sit through ads and occasionally watch something on Hulu,

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Speaker 1: but I'm not going to pay the whatever twelve fourteen

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Speaker 1: dollars a month that normally is to get Hulu because

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Speaker 1: I just don't care enough. We all have different priority

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Speaker 1: we do, yes, no, And I appreciate that your splortges

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Speaker 1: is ad free stuff.

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Speaker 2: So is it the sitting through the ads that you

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Speaker 2: are against, Brian, or is it the just like the

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Speaker 2: marketing and the relentless advertising and consumption that's kind of

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Speaker 2: getting to like shoved down our throats.

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Speaker 3: I just ignore all the ads when I see them.

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Speaker 3: I don't think I've ever made taken an action based

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Speaker 3: on an ad that I've seen. It's more just the annoyance.

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Speaker 3: I mean, in my family, if we if we could

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Speaker 3: only keep one streaming service, we would keep YouTube, like

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Speaker 3: across across the board, So we used YouTube enough that

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Speaker 3: paying to have the ads removed as well work.

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Speaker 1: You also have more mental will power than map does,

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Speaker 1: so let's always fall in prey to those.

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Speaker 2: Instagram for you is less the culture cultural aspect of

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Speaker 2: it and societal aspect of it, and more about the time.

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Speaker 2: Kind of makes sense given what we're discussing today investing, Brian,

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Speaker 2: can you talk about how you got into investing, Like

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Speaker 2: were you a voracious reader where you, like Warren Buffett,

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Speaker 2: you started reading up on businesses.

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Speaker 1: Specifically investing education, like saying, oh no, now I'm only

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Speaker 1: my into it, but I want to like tell others

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Speaker 1: about this.

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Speaker 3: Yeah.

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Speaker 2: Yeah, but I also want to know how if you

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Speaker 2: started trading by like investing, like playing the stock market

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Speaker 2: game like an elementary school.

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Speaker 3: Yeah, so I had very little exposure to the stock

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Speaker 3: market growing up as a kid. I can tell you

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Speaker 3: that my dad occasionally bought garbage penny stocks and he

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Speaker 3: would tell us about it. I remember he bought this

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Speaker 3: one stock and it was like supposed to be like

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Speaker 3: working on a cure for cancer, hahaha, And that one

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Speaker 3: didn't work out, and he said, if this stock gets

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Speaker 3: over twenty five dollars a share, I think it was

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Speaker 3: twenty dollars a share at the time, He's like, I'll

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Speaker 3: buy you guys dirt bikes. So we would come home

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Speaker 3: every day and like check the stock price and be like,

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Speaker 3: please go up, please go up, please go up. And

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Speaker 3: it never got over twenty five dollars a share, so

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Speaker 3: we never got our dirt bikes. But aside from a

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Speaker 3: few occasional run ins like that, or hearing scanning through

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Speaker 3: the news and the boring business section coming up, or

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Speaker 3: reading through the newspaper and throwing the business section away

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Speaker 3: to get to the comics, my exposure to the stock

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Speaker 3: market was very minimal when I was a kid growing up.

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Speaker 3: In fact, when I graduated from college, that's when I

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Speaker 3: really started to even know that, like the stock market

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Speaker 3: was a thing that you could invest in. I always

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Speaker 3: heard that like rich people put money into the stock

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Speaker 3: market for some reason. But it was never explained to me,

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Speaker 3: even in college, in high school, what the stock market was,

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Speaker 3: why rich people put money into it. I'd never seen

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Speaker 3: a chart that showed like the long term returns of

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Speaker 3: the stock market, so I didn't learn about any of

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Speaker 3: that stuff until after I graduated from college.

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Speaker 1: Okay, well, and you're familiar, I'm sure with the stock

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Speaker 1: market game though, a lot of kids did play it

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Speaker 1: in high school, and it was like you pair off

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Speaker 1: or you individual sort of thing. You pick a couple

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Speaker 1: of stocks and you'd see, well, who won at the

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Speaker 1: end of six weeks or something like that, which is

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Speaker 1: just a terrible, really the worst way to teach kids

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Speaker 1: about pick a couple of individual ones. Let's have a

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Speaker 1: really short time frame and see who wins, right, And

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Speaker 1: that's clearly not the best way to think about investing

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Speaker 1: in stocks. How did you then start to get that education,

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Speaker 1: because obviously you didn't seve it until you know, later

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Speaker 1: on in your twenties. I guess where did it come from?

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Speaker 1: And then where did the passion develop to teach others?

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Speaker 3: So I think I was a born saver. I always

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Speaker 3: had the gene in me that wanted to save money

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Speaker 3: and build up a cash pile. I've always just had

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Speaker 3: that innate as my personality. Once I graduated from college.

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Speaker 3: For me, this was two thousand and four, my dad,

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Speaker 3: as a graduation president, handed me a copy of a

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Speaker 3: book that was very popular at the time and it's

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Speaker 3: still popular this day called Rich Dirt Bike. Dirtbike. Yeah,

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Speaker 3: that would have been way better. Finally, right, finally is true.

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Speaker 3: We still ras him about that Rich Dad, Poor Dad

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Speaker 3: by Robert Kiyosaki it was. And I got that book

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Speaker 3: and I devoured it in like forty eight hours, Like

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Speaker 3: I just picked it up. And it was the first

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Speaker 3: time in my life that I was introduced to concepts

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Speaker 3: like everyone's in business for themselves, the rich think differently

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Speaker 3: about money than the poor. In the middle class, you

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Speaker 3: can become rich in one generation, the rich by assets,

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Speaker 3: the rich compound their wealth, et cetera. And those were

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Speaker 3: all brand new concepts to me at the time, and

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Speaker 3: I just became instantly enamored with all things related to

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Speaker 3: a money, personal finance, and investing. Now today I kind

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Speaker 3: of look back at that book and there are many

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Speaker 3: parts of the book I disagree with today. I don't

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Speaker 3: like his pension for using tons of leverage and investing

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Speaker 3: in gold, and he was like a big fan of

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Speaker 3: Penny stocks. That stuff is nonsense, but the mindset was

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Speaker 3: the important thing that I got out out of that book.

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Speaker 3: And then that kick started a love affair. So I

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Speaker 3: read a ton of his other books, and that led

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Speaker 3: me to research learn about books that were about investing

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Speaker 3: in the stock market. So I read books by the

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Speaker 3: Motley Fool aka the Gardner Brothers, by Peter Lynch. I

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Speaker 3: started to learn about Warren Buffett and Charlie Munger, and

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Speaker 3: I just became a voracious reader of everything that I

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Speaker 3: could find related to money and investing. And my first

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Speaker 3: four way foray, or my first desire to invest my

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Speaker 3: money was was I thought I was gonna do it.

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Speaker 3: So with real estate, this was, you know, two thousand

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Speaker 3: and four, two thousand and five at the time, which

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Speaker 3: was like the peak or the very peak of the

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Speaker 3: real estate bubble of the two thousands, And thankfully I

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Speaker 3: knew enough to do analysis on houses to be like

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Speaker 3: these numbers don't make sense, Like there's no way I

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Speaker 3: can charge enough rent to cover the mortgage, let alone

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Speaker 3: make a profit for myself. In addition, you need a

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Speaker 3: lot of capital to get started in real estate just

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Speaker 3: to put a down payment on a house. So that

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Speaker 3: kind of turned me off about the real estate industry,

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Speaker 3: even though there's lots of great reasons to invest in

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Speaker 3: real estate if that matches your personality. I kind of

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Speaker 3: learned from me that does not match my personality. And

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Speaker 3: then from there I discovered the stock market and that

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Speaker 3: was just a much better fit for my personality when

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Speaker 3: it comes to investing.

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Speaker 2: I love that so and I totally agree with what

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Speaker 2: you're saying about Kyosaki and just sort of the change

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Speaker 2: in mindset, because I feel like that's my biggest takeaway,

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Speaker 2: the fact that man, I am all of a sudden

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Speaker 2: looking at the world differently. Now, how is it that

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Speaker 2: you can live like the rich.

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Speaker 1: Do and be careful following him now because a crash

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Speaker 1: you know, yeah, yeah, if you're gonna just call short

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Speaker 1: on everything.

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Speaker 3: Eventually he'll be right right broken clun of these days

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Speaker 3: he will.

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Speaker 2: But I mean, is this is this shift in mindset

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Speaker 2: basically why you consider the stock market like the greatest

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Speaker 2: wealth creation machine of all time. It's it's sort of

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Speaker 2: like looking at it through the lens of ownership as

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Speaker 2: opposed to maybe just consumption.

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Speaker 3: Yeah, absolutely. And when I first started to learn about

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Speaker 3: the stock market, you know, there's a great book called

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Speaker 3: Stocks for the Long Run by Jeremy Siegel, and I've

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Speaker 3: ever read it, but right on there, one of like

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Speaker 3: the classic pictures that that is in that book is

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Speaker 3: is two hundred year returns of the US stock market,

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Speaker 3: the US bond market, gold, the dollar, and a couple

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Speaker 3: other things. And when you look at that, it is

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Speaker 3: just clear as day that the stock that the stock

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Speaker 3: market is the asset class to hold for the long term.

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Speaker 3: I forget the exact numbers, but it was like, over

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Speaker 3: like two hundred and something years, one single dollar investment

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Speaker 3: this in the US stock market became worth two point

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Speaker 3: five million dollars. Like, the returns are just just insane.

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Speaker 3: And if you look at it compared to bonds or

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Speaker 3: bills or cash or gold, they just it just blows

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Speaker 3: every other asset class away. Now I didn't know. A

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Speaker 3: key thing that I learned is I learned that, Okay,

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Speaker 3: the stock market for some reason goes up and for

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Speaker 3: some reason makes people wealthy. Like I understood that historically

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Speaker 3: it had done had done so. Uh, but uh, it

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Speaker 3: was really on my own outside of books that I

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Speaker 3: kind of pieced together why the stock market went up

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Speaker 3: and what what was the forcing function that caused the

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Speaker 3: market to create wealth for the people that own.

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Speaker 1: Yeah, because I think from the outside looking in, if

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Speaker 1: you grew up kind of like you did, kind of

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Speaker 1: like I did, no exposure to the stock market. My

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Speaker 1: dad wasn't even investing in penny stocks, like there was

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Speaker 1: there was zero investing going on until later on in

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Speaker 1: his life, like putting money into the four oh one K. Finally,

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Speaker 1: but I think most people think, oh, stock market is

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Speaker 1: kind of like going to Vegas. It's kind of like gambling.

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Speaker 1: But no, they are talk about the mechanisms that make

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Speaker 1: the market go up, and I kind of want to

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Speaker 1: get it into a little nitty gritty here, too, Bright,

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Speaker 1: because this is what you do in the book. You're

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Speaker 1: almost giving like a primer sort of education. What's even

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Speaker 1: a stock? You talk about what is the stock? And

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Speaker 1: why does the stock go up? And why do you

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Speaker 1: want to own stock?

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Speaker 3: Yep, these are really important questions to ask because so

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Speaker 3: many people have heard the term stock market and they

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Speaker 3: throw it around like it's just common knowledge that people

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Speaker 3: understand what those two words mean. And I don't think

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Speaker 3: that many people understood what those warns mean because I

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Speaker 3: didn't know what the stock market was, even though I'd

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Speaker 3: heard the term hundreds of time in my life. So

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Speaker 3: let's let's let's take them into their components. So let's

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Speaker 3: start with stock. What is a stock. A stock is

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Speaker 3: simply fractional ownership of a corporation. That's it. Okay. So

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Speaker 3: in the United States, if you buy a house, the

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Speaker 3: way that we have record keeping about who owns what

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Speaker 3: real estate is with a deed, you buy real estate

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Speaker 3: and you're given a piece of paper that says this

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Speaker 3: parcel of land and this structure belongs to this person. Well,

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Speaker 3: with a corporation, that deed is a stock, but instead

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Speaker 3: of there being one piece of paper and one owner

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Speaker 3: of a piece of land, with a corporation, there can

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Speaker 3: be thousands or millions or billions of pieces of paper

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Speaker 3: that represent partial ownership of that corporation. And if you

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Speaker 3: own one of the stocks in a company, you have

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Speaker 3: a permanent eagle claim on the assets and future profits

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Speaker 3: of that corporation. So that's all that a stock is.

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Speaker 3: It's a piece of paper or nowadays a digital record

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Speaker 3: keeping that says who owns how much of corporations.

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Speaker 2: It's pretty cool and to think that it may not

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Speaker 2: be very much, but yeah, but it certainly it's it's legit.

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Speaker 1: It certainly makes it feel more yeah, more real, more

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Speaker 1: tangible instead of just kind of like, oh, I've got

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Speaker 1: investments somewhere in the ether or stock market. It's like,

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Speaker 1: oh no, there's something tangible. There are actual companies.

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Speaker 2: Yeah. So the part too that question, Brian, what is

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Speaker 2: it that actually drives prices up? I know this is

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Speaker 2: the name of your book. It's basically like your life,

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Speaker 2: Life's work. But you've got three minutes to explain why

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Speaker 2: the stock marker goes up.

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Speaker 3: Yeah, yeah, sure, I wrote a whole book on the subject,

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Speaker 3: But give me the ten second version for sure. Well okay, well,

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Speaker 3: what's back up? We talk about stock What is stock

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Speaker 3: is market? Let's do the second word of that. Okay, So,

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Speaker 3: if you've ever been to a farmer's market, that is

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Speaker 3: just where food buyers go to exchange with food sellers, right,

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Speaker 3: that's what a farmer's market is. A stock market is

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Speaker 3: just a place where stock issuers aka corporations go and

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Speaker 3: meet with stock buyers aka investors, and they exchange with

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Speaker 3: each other instead of money. For food At a stock market,

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Speaker 3: it's money for shares in a corporation. So that's what

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Speaker 3: a stock market is. Now to understand why the stock

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Speaker 3: market goes up over periods of time or even fluctuates

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Speaker 3: day today, you have to understand why are stocks worth

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Speaker 3: anything at all? Why would I go out and pay

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Speaker 3: a few hundred dollars to buy one share of Microsoft?

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Speaker 3: What am I even buying? I know, I'm giving up

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Speaker 3: four hundred dollars. What am I getting in exchange? I

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Speaker 3: buy a stock? As I said before, I am buying

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Speaker 3: a fractional ownership of that corporation. So in Microsoft's a case,

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Speaker 3: Microsoft has a few billion shares outstanding. I don't know

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Speaker 3: the exact number off the top of my head, but

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Speaker 3: but it's in the billions. Microsoft the corporation is worth

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Speaker 3: something like two trillion dollars, or it might be three

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Speaker 3: trillion dollars at this point. So the value of Microsoft

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Speaker 3: the whole company, the whole company is currently worth about

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Speaker 3: let's just say three trillion dollars, and the number of

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Speaker 3: shares that are outstanding, the number of shares that exist

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Speaker 3: to have that legal claim of ownership of that three

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Speaker 3: trillion dollars let's just say, for easy mat that that

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Speaker 3: was ten billion. So if I buy one of those shares,

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Speaker 3: I am buying one ten billionth of all of Microsoft's

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Speaker 3: assets and a legal claim on one ten billionth of

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Speaker 3: all of Microsoft's future profits.

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Speaker 1: All right, now, you're making it sound a little puny, Brian.

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Speaker 3: Well, if you're divided by three trillion, you know it

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Speaker 3: actually becomes a decent sized number. So if I'm buying

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Speaker 3: a share of Microsoft, what I am doing is I

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Speaker 3: have a legal claim on a portion of Microsoft profits,

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Speaker 3: both now and in perpetuity. If Microsoft produces more profit

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Speaker 3: five years from now, and ten years from now and

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Speaker 3: twenty years from now, just like it has over the

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Speaker 3: last fifty years since it was founded, by turn, the

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Speaker 3: value of my claim on those profits will increase because

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Speaker 3: the claim on those profits. The number of claims are

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Speaker 3: staying steady or even declining over time, but the total

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Speaker 3: profits that are being generated are increasing. So that's why

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Speaker 3: a share of Microsoft is worth anything at all, because

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Speaker 3: you're buying a legal claim on that company's future profitability.

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Speaker 3: So to answer your question, why does the stock market

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Speaker 3: as a whole go up, It's that collectively, all of

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Speaker 3: the companies that are in the stock market, and there

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Speaker 3: are thousands of them are working together to gradually increase

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Speaker 3: their profits over time, and as those profits increase, so

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Speaker 3: does the value of the legal claim on those profits.

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Speaker 1: Yeah, so it's you said working together, but they're actually

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Speaker 1: kind of working individually. But then as all of them

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Speaker 1: are publicly traded, that's the sense in which the index

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Speaker 1: is working, functioning like buying when you buy an index fund,

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Speaker 1: Why it goes up over time because all those individual

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Speaker 1: companies are doing the same thing, trying to create better

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Speaker 1: products and services, research customer, increase their profitability levels. Right,

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Speaker 1: and then we all benefit because we own little slices

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Speaker 1: and dices of that corporation. Okay overall because we live

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Speaker 1: in a free enterprise system where companies are allowed to

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Speaker 1: do this and really incentivized to do this to their

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Speaker 1: own profit. What is it that makes the stock market

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Speaker 1: go down? And what's up with the daily changes that

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Speaker 1: can happen in the stock market, Because something like an

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Speaker 1: Nvidia stock price or something can be up twenty percent

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Speaker 1: one day, down ten percent the next time. People are like,

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Speaker 1: that's what makes it feel like gambling to a lot

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Speaker 1: of people. I think they're like, I get maybe the

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Speaker 1: overall stock market going to go up thing, but what

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Speaker 1: is going on in the interim?

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Speaker 3: Absolutely, and this is what app This is what confused

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Speaker 3: me about investing when I first started. But when when

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Speaker 3: you look at stocks for the first time, or you

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Speaker 3: open up the stocks app on your phone that comes

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Speaker 3: pre built in to me, it just looks like a

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Speaker 3: random number generator. Right. You're like, this stock is up

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Speaker 3: one percent, that stocks down one percent, This stock's up

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Speaker 3: three points, that one's down five. The next day it

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Speaker 3: reverses like if you don't have if you don't have

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Speaker 3: the ability to look at a longer term trend, if

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Speaker 3: you only look at day to day, day to day prices,

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Speaker 3: you would think that stock prices are completely based on

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Speaker 3: gambling and random movements. And in the short term, the

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Speaker 3: stock market is a random number gambling gambling machine. There's

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Speaker 3: no telling what is going to happen to the price

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Speaker 3: of any stock or any asset or any security over

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Speaker 3: a short period of time. One way to think about

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Speaker 3: the stock market is it's just a live, ongoing auction

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Speaker 3: where buyers and sellers are meeting and they're exchanging with

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Speaker 3: each other, and the eagerness of the buyers is compared

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Speaker 3: to the eagerness of the sellers at any given time,

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Speaker 3: and whichever party is more eager to make that transaction

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Speaker 3: happen controls the short term movement, the price movement of

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Speaker 3: that asset. So in videos, in case if they report

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Speaker 3: earnings they come out, Let's just say a street believes, okay,

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Speaker 3: in Vidia is going to do a billion dollars in

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Speaker 3: profit this this quarter, and then in Vidia comes out

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Speaker 3: and says, hey, we did one point four billion dollars

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Speaker 3: in profit this quarter. Well, that is significantly more profit

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Speaker 3: than they were expected to. So in that case, the

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Speaker 3: eagerness of the buyers to buy in Video stock would

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Speaker 3: increase dramatically. At the same time, the willingness of the

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Speaker 3: sellers to sell their in Vidia stock would decline because

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Speaker 3: in VideA is now doing better than it was expected to.

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Speaker 3: And the result of those two things would be, well,

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Speaker 3: demand goes up, supply goes down. What happens to the

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Speaker 3: price goes up. So that's what controls short term price

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Speaker 3: movements of stocks. It's simply the collective emotions of the

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Speaker 3: buyers and the sellers in in a market at any

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Speaker 3: given time, which is exactly why when people tell you

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Speaker 3: they can predict stock prices, or they use technical analysis

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Speaker 3: to show you what the price target of a stock

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Speaker 3: is being. What they're what they're actually saying is here

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Speaker 3: is going to be the collective mood of all of

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Speaker 3: the market participants on this particular point in time, which

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Speaker 3: is a ridiculous thing to try and predict because I

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Speaker 3: don't know what kind of mood I'm going to be

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Speaker 3: in in an hour. How could I possibly predict the

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Speaker 3: collective mood of all market participants around the world at

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Speaker 3: any given period of time.

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Speaker 1: Well, I can protict your mood, Brian, based on what

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Speaker 1: you ate for breakfast. So if you tell me that,

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Speaker 1: then I'll be able to inform you what's going to

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Speaker 1: be like in an hour.

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Speaker 3: Just like here you go, okay, English muffin egg and

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Speaker 3: uh hum, you're.

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Speaker 2: In a fantastic Yeah, we can just tell very happy.

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Speaker 2: I mean, it makes me think of like electron microscopes,

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Speaker 2: and you see some of these images of something bizarre

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Speaker 2: or something random zoomed in and it's insane, like the

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Speaker 2: it looks like an extraterrestrial landscape, but then as you

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Speaker 2: zoom out, you're like, oh, that's just like the tip

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Speaker 2: of a ballpoint pin and we'll kind of get to

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Speaker 2: timelines and timeframes a little bit later. Actually, we've got more.

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Speaker 2: I mean, we're discussing right now kind of some of

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Speaker 2: these larger scale macro aspects of the market and how

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Speaker 2: it works. But we're gonna get very specific. We're gonna

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Speaker 2: talk about things like dividend stocks and even individual stock investing.

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Speaker 2: We'll get to all of that and more right after this.

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Speaker 1: We're back from the break. We're still talking with Brian Feraldi.

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Speaker 1: We're talking about why the stock market goes up, and

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Speaker 1: we're getting into the nitty gritty here about how the

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Speaker 1: stock market works, what a stock is. We've talked about that,

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Speaker 1: But Brian, you were just touching on emotion. In a

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Speaker 1: recent newsletter, you talked about how introverts are naturally better investors,

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Speaker 1: which felt like a personal attack. I'm not gonna lie

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Speaker 1: to me as a as an extrovert, but fill me in.

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Speaker 1: What's up with that? Why are introverts better investors in

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Speaker 1: your opinion generally speaking?

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Speaker 3: And by the way, I'm I'm an extrovert on the

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Speaker 3: on the introvert extrovert scale. But that referenced a study

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Speaker 3: that came out that I talked about when you are investing,

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Speaker 3: you're a emotions will play an enormous role on how

435
00:23:03,640 --> 00:23:07,440
Speaker 3: well or how poorly you do as an investor. All

436
00:23:07,480 --> 00:23:12,879
Speaker 3: of us are naturally born to be horrible investors. That

437
00:23:13,000 --> 00:23:15,720
Speaker 3: is an innate thing that all of us are born with.

438
00:23:15,960 --> 00:23:19,680
Speaker 3: We are naturally drawn to follow the crowd, to get

439
00:23:19,720 --> 00:23:23,480
Speaker 3: our social cues and our emotional cues from other people

440
00:23:23,800 --> 00:23:27,320
Speaker 3: around us. That's a very critical thing to us surviving

441
00:23:27,600 --> 00:23:31,280
Speaker 3: in the wild ten thousand years years ago. However, so

442
00:23:31,400 --> 00:23:33,760
Speaker 3: many of the natural things that we want to do

443
00:23:33,840 --> 00:23:37,479
Speaker 3: as humans, our natural emotions will lead us to do

444
00:23:37,640 --> 00:23:41,840
Speaker 3: precisely the wrong thing when it comes to investing. This

445
00:23:41,960 --> 00:23:46,199
Speaker 3: is why so many people get interested in investing or

446
00:23:46,240 --> 00:23:50,120
Speaker 3: want to start investing after the market has gone up tremendously,

447
00:23:50,240 --> 00:23:54,080
Speaker 3: after they've seen stock prices go up, after they've heard

448
00:23:54,119 --> 00:23:57,399
Speaker 3: their neighbor brag about how much money they made in

449
00:23:57,440 --> 00:23:59,800
Speaker 3: the market, or they made buying fill in the blank.

450
00:24:00,080 --> 00:24:04,439
Speaker 3: The crypto currency right a huge fomo. It's it's a

451
00:24:04,560 --> 00:24:07,040
Speaker 3: very real thing. And if you especially if you don't

452
00:24:07,080 --> 00:24:10,680
Speaker 3: know what you're doing, you naturally want to invest when

453
00:24:10,680 --> 00:24:13,280
Speaker 3: the market is the riskiest and the market is the

454
00:24:13,400 --> 00:24:18,359
Speaker 3: riskiest after it has gone up tremendously, and conversely, after

455
00:24:18,400 --> 00:24:22,399
Speaker 3: the stock market has declined and tough economic times are

456
00:24:22,440 --> 00:24:25,840
Speaker 3: here and people have been your friends and family have

457
00:24:25,880 --> 00:24:28,520
Speaker 3: been have been laid off, and there's doom and gloom

458
00:24:28,560 --> 00:24:31,119
Speaker 3: forecasts about the state of the economy, and the stock

459
00:24:31,200 --> 00:24:34,200
Speaker 3: market has declined huge and your net worth has gone down.

460
00:24:34,520 --> 00:24:39,120
Speaker 3: That is precisely the time when it is best to invest.

461
00:24:39,320 --> 00:24:44,160
Speaker 3: But it takes an incredible emotional fortitude to buy when

462
00:24:44,400 --> 00:24:49,159
Speaker 3: everybody else around you is in a malaise and and

463
00:24:49,200 --> 00:24:52,320
Speaker 3: there's doom and gloom calls about the next recession of

464
00:24:52,400 --> 00:24:55,679
Speaker 3: being there. So that introverts are less swayed by the crowd.

465
00:24:56,080 --> 00:25:00,560
Speaker 3: That that is a component of it it. Introverts generally speaking,

466
00:25:01,280 --> 00:25:05,439
Speaker 3: are are more introspective, They focus more on on data,

467
00:25:06,000 --> 00:25:09,520
Speaker 3: they they they take. They are generally less swayed by

468
00:25:09,520 --> 00:25:12,320
Speaker 3: their own internal emotions, and they generally don't get energy

469
00:25:12,560 --> 00:25:16,600
Speaker 3: from other people that are participating in the market, So

470
00:25:16,760 --> 00:25:20,200
Speaker 3: they are to your point, they are less swayed, generally speaking,

471
00:25:20,640 --> 00:25:24,280
Speaker 3: by the emotions that they see other people experiences. Wearing

472
00:25:24,400 --> 00:25:29,280
Speaker 3: extroverts are hyper sensitive to the emotions of other people

473
00:25:29,359 --> 00:25:32,920
Speaker 3: and and they generally get more excited about investing when

474
00:25:32,920 --> 00:25:35,920
Speaker 3: markets at their peak and less excited about investing when

475
00:25:35,960 --> 00:25:38,080
Speaker 3: when markets are at their bottom. But of course, which

476
00:25:38,200 --> 00:25:41,080
Speaker 3: that's a generalization and there are plenty of exceptions, but.

477
00:25:41,040 --> 00:25:42,600
Speaker 2: It also going to make sense. I think in that

478
00:25:42,640 --> 00:25:45,400
Speaker 2: same newsletter you mentioned that like the majority of Americans

479
00:25:45,440 --> 00:25:47,720
Speaker 2: are extroverts, and so the fact that we do see

480
00:25:47,760 --> 00:25:50,480
Speaker 2: those tendencies in the market, it kind of explains it.

481
00:25:50,560 --> 00:25:53,000
Speaker 2: But it also makes it almost sound like that that

482
00:25:53,040 --> 00:25:54,600
Speaker 2: a psychopath would be the best investor.

483
00:25:55,720 --> 00:25:58,640
Speaker 3: Psychopaths would be fantastic investors. In fact, if you look

484
00:25:58,720 --> 00:26:01,240
Speaker 3: at many of these men of the best investors of

485
00:26:01,280 --> 00:26:06,440
Speaker 3: all time, many of them have almost personality disorders that

486
00:26:06,440 --> 00:26:10,080
Speaker 3: that that caused them to just just focus just focus

487
00:26:10,200 --> 00:26:14,280
Speaker 3: on on on the data and ignore everything else. In fact,

488
00:26:14,320 --> 00:26:17,800
Speaker 3: I know it. I know an investor, a a successful

489
00:26:18,119 --> 00:26:21,960
Speaker 3: investor who exclusively looks for companies that are founded by

490
00:26:21,960 --> 00:26:23,040
Speaker 3: people with aspergers.

491
00:26:23,359 --> 00:26:26,760
Speaker 2: Wow. That's an interesting tact right there, for sure, But

492
00:26:26,800 --> 00:26:29,400
Speaker 2: I bet it pays that to a certain step because

493
00:26:29,400 --> 00:26:31,479
Speaker 2: you are able to eliminate a lot of the noise

494
00:26:31,840 --> 00:26:35,440
Speaker 2: but simultaneously maybe invest a little more in your PR department.

495
00:26:36,000 --> 00:26:39,239
Speaker 3: But absolutely, what you mean Elon musk Is definitely does

496
00:26:39,320 --> 00:26:42,639
Speaker 3: not have a normal personality, but man as he created

497
00:26:42,680 --> 00:26:43,480
Speaker 3: shareholder value.

498
00:26:43,560 --> 00:26:45,600
Speaker 1: It's just like what he said in Sunday Live Boy.

499
00:26:45,600 --> 00:26:49,919
Speaker 2: Like were you expecting? Like what you're pointing at here

500
00:26:49,960 --> 00:26:51,760
Speaker 2: is the fact that, like our humanity, it just throws

501
00:26:51,800 --> 00:26:55,080
Speaker 2: this massive wrench into things that reduces our chance of success.

502
00:26:55,560 --> 00:26:57,240
Speaker 2: So with that in mind, can you talk about ways

503
00:26:57,240 --> 00:27:00,320
Speaker 2: to mitigate that liability? How do we keep ourselves from

504
00:27:00,320 --> 00:27:02,200
Speaker 2: making poor investment decisions?

505
00:27:02,440 --> 00:27:06,600
Speaker 3: The first thing you needed to do is study yourself,

506
00:27:07,680 --> 00:27:13,600
Speaker 3: know your own personal investing behavior. And the best way,

507
00:27:13,640 --> 00:27:16,399
Speaker 3: the only way that you can figure that out is

508
00:27:16,440 --> 00:27:19,880
Speaker 3: by knowing your personality, and other people are oftentimes better

509
00:27:19,960 --> 00:27:23,800
Speaker 3: judges of your personality than you are. But really audit

510
00:27:24,359 --> 00:27:29,479
Speaker 3: your behavior in past market periods. How did you feel

511
00:27:30,119 --> 00:27:35,160
Speaker 3: in twenty twenty when everything was going up and the riskier,

512
00:27:35,240 --> 00:27:39,040
Speaker 3: the riskier the asset class, the more money you made.

513
00:27:39,560 --> 00:27:42,280
Speaker 3: And conversely, how did you feel in twenty twenty two

514
00:27:42,720 --> 00:27:47,919
Speaker 3: when the exact opposite of that happened when everything went down,

515
00:27:48,320 --> 00:27:51,760
Speaker 3: and the riskier the thing, the more money you lost.

516
00:27:52,359 --> 00:27:55,800
Speaker 3: If you were a rabbid buyer in twenty twenty and

517
00:27:56,040 --> 00:27:59,520
Speaker 3: a rabbit seller in twenty twenty two. You are not

518
00:27:59,680 --> 00:28:02,879
Speaker 3: cut out. Your personality is not cut out to be

519
00:28:02,960 --> 00:28:06,359
Speaker 3: an investor, and you need to take actions that will

520
00:28:06,400 --> 00:28:09,520
Speaker 3: prevent yourself prevent your actions that you want to take

521
00:28:09,760 --> 00:28:13,920
Speaker 3: from harming your long term financial picture. And the easiest thing,

522
00:28:14,119 --> 00:28:17,480
Speaker 3: the easiest way to do that there is just dollar

523
00:28:17,560 --> 00:28:22,000
Speaker 3: cost average into index funds and just take your emotions

524
00:28:22,240 --> 00:28:26,280
Speaker 3: completely out of the equation by setting up automated systems

525
00:28:26,520 --> 00:28:28,760
Speaker 3: that do all of the buying and all of the

526
00:28:28,840 --> 00:28:32,239
Speaker 3: investing for you without you having to think about it.

527
00:28:32,520 --> 00:28:32,720
Speaker 1: Now.

528
00:28:32,760 --> 00:28:34,520
Speaker 3: Conversely, if you were the type of the person that

529
00:28:34,640 --> 00:28:39,040
Speaker 3: was fearful and scared and started selling stocks in twenty twenty,

530
00:28:39,440 --> 00:28:43,280
Speaker 3: but you were excited and gleeful and buying stocks at

531
00:28:43,320 --> 00:28:45,440
Speaker 3: the end of twenty twenty two, then you have the

532
00:28:45,480 --> 00:28:49,280
Speaker 3: personal makeup to be a fantastic investor, and you should

533
00:28:49,360 --> 00:28:52,120
Speaker 3: and you should be. You could be more active and

534
00:28:52,160 --> 00:28:55,040
Speaker 3: more tactical with how you deployed a capital. So it's

535
00:28:55,080 --> 00:28:58,760
Speaker 3: really about auditing yourself and then setting up systems to

536
00:28:58,840 --> 00:29:00,640
Speaker 3: make sure you don't harm yourself.

537
00:29:00,960 --> 00:29:04,200
Speaker 1: All right. You mentioned index funds there, and for a

538
00:29:04,240 --> 00:29:07,360
Speaker 1: lot of personal finance advice typically goes in that direction.

539
00:29:07,440 --> 00:29:10,800
Speaker 1: It's like listen, index fund and chill. It's pretty simple

540
00:29:10,880 --> 00:29:13,080
Speaker 1: dollar cost averaging with your paycheck. For most people, it's

541
00:29:13,120 --> 00:29:15,200
Speaker 1: super doable, and it's also not something they have to

542
00:29:15,280 --> 00:29:18,040
Speaker 1: put a lot of thought into. How do you know?

543
00:29:18,160 --> 00:29:20,560
Speaker 1: But I know, and I know you invest in index funds, Brian,

544
00:29:20,640 --> 00:29:23,200
Speaker 1: but you also invest in individual stocks. How does someone

545
00:29:23,240 --> 00:29:26,320
Speaker 1: know whether or not investing in individual stocks makes sense

546
00:29:26,320 --> 00:29:29,600
Speaker 1: for them? And I guess I would say the homework

547
00:29:29,880 --> 00:29:32,440
Speaker 1: to be an index fund investor is pretty pretty limited.

548
00:29:32,480 --> 00:29:36,120
Speaker 1: You can figure that out in thirty seconds. But really, like,

549
00:29:36,120 --> 00:29:37,480
Speaker 1: even if you want to be a stude, like, hey,

550
00:29:37,520 --> 00:29:39,600
Speaker 1: let's just say read a book or two and do

551
00:29:40,120 --> 00:29:42,720
Speaker 1: you know ten hours worth of podcast listening in boom,

552
00:29:42,720 --> 00:29:45,600
Speaker 1: you have an understanding of why you're taking this approach.

553
00:29:45,880 --> 00:29:49,600
Speaker 1: When you move into the individual stock investing arena, though,

554
00:29:50,080 --> 00:29:51,440
Speaker 1: there's probably a lot more homework than you need to

555
00:29:51,520 --> 00:29:53,000
Speaker 1: be done, and it's a lot more ongoing homework too.

556
00:29:53,000 --> 00:29:54,000
Speaker 1: So how do you know if you're cut out to

557
00:29:54,000 --> 00:29:55,240
Speaker 1: be an individual stock investor?

558
00:29:55,320 --> 00:30:00,000
Speaker 3: Yep, real simple test. Does doing the homework interest you?

559
00:30:01,840 --> 00:30:06,080
Speaker 3: Period the answer? If the answer is no, which is

560
00:30:06,120 --> 00:30:09,560
Speaker 3: a completely acceptable answer, that would put you in the

561
00:30:09,680 --> 00:30:14,160
Speaker 3: ninety nine percent of people who is not interested in

562
00:30:14,440 --> 00:30:18,840
Speaker 3: learning about investing and has no interest in cracking opening

563
00:30:19,120 --> 00:30:23,920
Speaker 3: SEC filings, or listening to investor conference calls or learning accounting.

564
00:30:24,280 --> 00:30:29,080
Speaker 3: If those activities put you to sleep, do not buy

565
00:30:29,120 --> 00:30:33,280
Speaker 3: individual stocks period. But if you are one of those

566
00:30:33,560 --> 00:30:40,000
Speaker 3: weirdos like me that literally enjoys reading ten K's wixing

567
00:30:40,000 --> 00:30:45,960
Speaker 3: to invest your conference calls, digging into financial statements, analyzing businesses,

568
00:30:46,280 --> 00:30:49,360
Speaker 3: if those activities interest you, and you will do them

569
00:30:49,400 --> 00:30:53,040
Speaker 3: on your own naturally be for the sheer joy of

570
00:30:53,400 --> 00:30:57,520
Speaker 3: the process, the sheer joy of it, then you should

571
00:30:57,720 --> 00:31:01,000
Speaker 3: consider putting a portion of your portfolio to individual stocks.

572
00:31:01,080 --> 00:31:03,880
Speaker 2: That being said, you do some in the individual's talk investing.

573
00:31:03,920 --> 00:31:06,280
Speaker 2: About how much time, Brian, I'm curious to know about

574
00:31:06,280 --> 00:31:09,080
Speaker 2: how much time you spend. Granted, some of this you

575
00:31:09,120 --> 00:31:12,600
Speaker 2: don't consider work joy field now because this is also

576
00:31:12,760 --> 00:31:15,160
Speaker 2: you kind of like blends into your recreational entertainment time

577
00:31:15,200 --> 00:31:18,280
Speaker 2: as well, But about how much my career and your career, Yeah,

578
00:31:18,480 --> 00:31:20,640
Speaker 2: but how much time do you think you spend researching

579
00:31:20,680 --> 00:31:22,120
Speaker 2: stocks that you want to invest in?

580
00:31:22,240 --> 00:31:25,440
Speaker 3: So at this point, it's it's probably ten to twenty

581
00:31:25,480 --> 00:31:29,120
Speaker 3: hours a month. It's that might sound like a lot,

582
00:31:29,160 --> 00:31:32,200
Speaker 3: that's not a lot. There was a time period previously

583
00:31:32,240 --> 00:31:35,920
Speaker 3: when I was brand new to investing, and I would

584
00:31:35,960 --> 00:31:40,640
Speaker 3: devote far more time to that because I was learning accounting,

585
00:31:40,960 --> 00:31:44,440
Speaker 3: learning how to read sec filence, learning how to develop

586
00:31:44,480 --> 00:31:48,800
Speaker 3: a checklist, studying investors. So I have done that work

587
00:31:48,840 --> 00:31:53,320
Speaker 3: of becoming an investor very deeply over the last twenty years,

588
00:31:53,360 --> 00:31:57,560
Speaker 3: and I have spent time building and crafting the portfolio

589
00:31:58,120 --> 00:32:01,600
Speaker 3: that I have today over the last twenty years. Now

590
00:32:01,680 --> 00:32:05,720
Speaker 3: I am largely in maintenance mode with my portfolio. What

591
00:32:05,800 --> 00:32:09,200
Speaker 3: I'm attempting to do when it comes to my portfolio

592
00:32:09,480 --> 00:32:14,160
Speaker 3: is essentially build my own index fund, build my own

593
00:32:14,440 --> 00:32:18,800
Speaker 3: fund of hand picked individual securities that I want to own,

594
00:32:19,240 --> 00:32:25,640
Speaker 3: and then I voraciously hold those companies for better or

595
00:32:25,760 --> 00:32:29,320
Speaker 3: for worse, and I largely let the let the companies

596
00:32:29,400 --> 00:32:32,680
Speaker 3: now do the work of growing my wealth.

597
00:32:33,440 --> 00:32:37,000
Speaker 1: So yeah, you're you're picking these these companies we based

598
00:32:37,040 --> 00:32:40,080
Speaker 1: on long term metrics, right, So you're not just kind

599
00:32:40,080 --> 00:32:42,600
Speaker 1: of saying, oh, I think that new product is going

600
00:32:42,640 --> 00:32:45,080
Speaker 1: to lot, those new Apple Vision pro goggles are going

601
00:32:45,160 --> 00:32:46,960
Speaker 1: to launch. This is going to be the thing that

602
00:32:47,000 --> 00:32:50,640
Speaker 1: makes or break this company. So I'm jumping in, You're

603
00:32:50,720 --> 00:32:54,080
Speaker 1: you're thinking more about the ten twenty plus year horizon

604
00:32:54,120 --> 00:32:56,240
Speaker 1: for a lot of these companies, or what other metrics

605
00:32:56,280 --> 00:32:59,760
Speaker 1: are you considering? What what makes it to the point where, Brian,

606
00:32:59,760 --> 00:33:02,720
Speaker 1: for all these dollars go to buy you know, some

607
00:33:02,840 --> 00:33:06,120
Speaker 1: stock in an individual company. And you mentioned before, I

608
00:33:06,120 --> 00:33:08,280
Speaker 1: think in one of your newsletters too, how you didn't

609
00:33:08,360 --> 00:33:10,479
Speaker 1: used to take valuation into account as much, but now

610
00:33:10,520 --> 00:33:13,000
Speaker 1: you do. Now you view that as a more important perameter,

611
00:33:13,040 --> 00:33:15,720
Speaker 1: which makes sense because even if like let's say, a

612
00:33:15,760 --> 00:33:18,360
Speaker 1: company is great well at some point too and you

613
00:33:18,360 --> 00:33:20,360
Speaker 1: believe they have long term value, they still might be

614
00:33:20,840 --> 00:33:22,080
Speaker 1: the stock might be too expensive.

615
00:33:22,320 --> 00:33:25,960
Speaker 3: Yeah, my valuation is We could do many podcasts, yeah,

616
00:33:26,040 --> 00:33:29,560
Speaker 3: just about just about valuation. But you are correct that

617
00:33:30,000 --> 00:33:34,400
Speaker 3: generally speaking, over the last call it fourteen years, basically

618
00:33:34,440 --> 00:33:37,400
Speaker 3: after in the wake of two thousand and eight, during

619
00:33:37,440 --> 00:33:41,880
Speaker 3: the period where interest rates were zero, the lesson that

620
00:33:41,960 --> 00:33:48,360
Speaker 3: I learned was de emphasize valuation, significantly, de emphasize valuation

621
00:33:48,760 --> 00:33:51,840
Speaker 3: as part of your research process. And that was a

622
00:33:51,960 --> 00:33:54,600
Speaker 3: lesson that I had to really learn because that goes

623
00:33:54,680 --> 00:33:58,720
Speaker 3: counter to my nature as just a human, a human,

624
00:33:58,840 --> 00:34:02,160
Speaker 3: a human being. Now that interest rates are back to normal.

625
00:34:02,920 --> 00:34:08,360
Speaker 3: My current view on valuation is that you should emphasize valuation.

626
00:34:08,680 --> 00:34:10,920
Speaker 3: So it's not that I didn't pay attention to valuation.

627
00:34:11,280 --> 00:34:14,400
Speaker 3: I just gave it significantly less weight in my process.

628
00:34:14,520 --> 00:34:17,680
Speaker 3: But now that that's reversed, now that interest rates are

629
00:34:17,719 --> 00:34:20,400
Speaker 3: back to being four or five percent, and so I

630
00:34:20,400 --> 00:34:22,719
Speaker 3: think valuation is more important today than it was even

631
00:34:22,719 --> 00:34:26,640
Speaker 3: three years ago. But you asked about my research process,

632
00:34:26,920 --> 00:34:30,520
Speaker 3: I'll just tick down my investing checklist. I hope this

633
00:34:30,560 --> 00:34:33,760
Speaker 3: doesn't bore people too much, but there are several different

634
00:34:33,760 --> 00:34:37,440
Speaker 3: categories that I look for when I'm researching and investments.

635
00:34:37,520 --> 00:34:40,160
Speaker 3: So I always start with a look at the company's

636
00:34:40,160 --> 00:34:43,520
Speaker 3: financial statements, multiple years of financial statements, and I want

637
00:34:43,560 --> 00:34:46,799
Speaker 3: to know things like, what's the trend with revenue, what's

638
00:34:46,840 --> 00:34:50,480
Speaker 3: the trend with margins, gross margin, operating margin, net margin,

639
00:34:50,800 --> 00:34:54,120
Speaker 3: what's the returns on capital, what's the free cash flow

640
00:34:54,239 --> 00:34:56,759
Speaker 3: versus earnings per share? And are those two things divergent?

641
00:34:56,880 --> 00:35:00,720
Speaker 3: If so, why, what's the competitive advantage, what's the source

642
00:35:00,840 --> 00:35:05,239
Speaker 3: of competitive advantage, what's the direction of the competitive advantage.

643
00:35:05,440 --> 00:35:09,200
Speaker 3: What's the long term growth trajectory of the business. Is

644
00:35:09,200 --> 00:35:12,400
Speaker 3: it growing organically or is it growing through acquisitions. Is

645
00:35:12,440 --> 00:35:15,480
Speaker 3: there operating leverage in the business or is that behind

646
00:35:15,880 --> 00:35:19,799
Speaker 3: the company. What's the relationship between the company and its customers.

647
00:35:20,080 --> 00:35:23,760
Speaker 3: Are our purchases one off basis or are they repeat

648
00:35:23,800 --> 00:35:28,160
Speaker 3: purchase business? Is the demand for the company's products cyclical

649
00:35:28,280 --> 00:35:30,000
Speaker 3: and it follows the up and downs of the economy?

650
00:35:30,200 --> 00:35:32,359
Speaker 3: Or is it recession proof and you're buying it no

651
00:35:32,400 --> 00:35:35,920
Speaker 3: matter what's going on. Who's running the company? How much

652
00:35:35,960 --> 00:35:39,040
Speaker 3: stock do they own? What do employees think of the company?

653
00:35:39,080 --> 00:35:42,560
Speaker 3: Is it mission driven? How many customers do the company

654
00:35:42,560 --> 00:35:45,480
Speaker 3: get revenue from. Do this company pay a dividend? Does

655
00:35:45,480 --> 00:35:48,520
Speaker 3: a company buy back stock? Does the company consistently outperform

656
00:35:48,800 --> 00:35:52,920
Speaker 3: Wall Street's expectations? So those are the main categories that

657
00:35:53,160 --> 00:35:55,360
Speaker 3: I look at, and I basically have a checklist that

658
00:35:55,400 --> 00:35:58,319
Speaker 3: whenever I'm researching and investment, I go right down my

659
00:35:58,400 --> 00:36:00,880
Speaker 3: lists and just give it a give it score, And

660
00:36:00,960 --> 00:36:04,000
Speaker 3: at the end of that scoring period, which typically takes

661
00:36:04,040 --> 00:36:08,360
Speaker 3: me on a new idea ninety minutes or so, I

662
00:36:08,440 --> 00:36:11,720
Speaker 3: get a feel for is this company a good match

663
00:36:12,160 --> 00:36:16,360
Speaker 3: for my investing personality? And if it is, I'll consider

664
00:36:16,360 --> 00:36:19,000
Speaker 3: adding it to my portfolio, and if not, onto the

665
00:36:19,000 --> 00:36:19,520
Speaker 3: next idea.

666
00:36:20,080 --> 00:36:21,680
Speaker 2: So I think there's a lot of nerds that might

667
00:36:21,719 --> 00:36:24,160
Speaker 2: be listening to you and they're thinking yes, yes, like

668
00:36:24,239 --> 00:36:26,719
Speaker 2: every time as you're going down your checklist, And I

669
00:36:26,840 --> 00:36:28,240
Speaker 2: want to kind of loud back to what you said

670
00:36:28,320 --> 00:36:30,799
Speaker 2: as to a question someone should ask themselves if they're

671
00:36:30,800 --> 00:36:32,880
Speaker 2: considering getting into single stock investing, and that's whether or

672
00:36:32,920 --> 00:36:35,840
Speaker 2: not they enjoy the research, do they enjoy the homework

673
00:36:35,960 --> 00:36:39,160
Speaker 2: part of it? And what would you say to somebody

674
00:36:39,239 --> 00:36:42,120
Speaker 2: who might be nerded out as they hear you say

675
00:36:42,160 --> 00:36:44,160
Speaker 2: all of these things. But just because you have an

676
00:36:44,160 --> 00:36:48,080
Speaker 2: interest in listenings doesn't necessarily mean that this is a

677
00:36:48,080 --> 00:36:50,719
Speaker 2: good fit or that you will be successful at it.

678
00:36:50,760 --> 00:36:53,040
Speaker 2: Because like if you look at like the SMP over

679
00:36:53,080 --> 00:36:54,799
Speaker 2: the past twenty years, you're looking at close to ten

680
00:36:54,800 --> 00:36:58,560
Speaker 2: percent annualize returns, but the average investor you're looking at

681
00:36:58,560 --> 00:37:00,719
Speaker 2: something like a little over three percent. When you get

682
00:37:00,719 --> 00:37:02,680
Speaker 2: somebody who's getting in there, they're metal, they're you know,

683
00:37:02,680 --> 00:37:05,120
Speaker 2: they're doing a little bit of research, they're interested in it,

684
00:37:05,160 --> 00:37:08,920
Speaker 2: but that doesn't necessarily lead to outsize returns. At what

685
00:37:09,080 --> 00:37:12,719
Speaker 2: point does someone give it a go when they could

686
00:37:12,719 --> 00:37:16,000
Speaker 2: just totally kick back and find an index fund with

687
00:37:16,000 --> 00:37:19,280
Speaker 2: with a zero percent expense ratio and pretty much guarantee

688
00:37:19,280 --> 00:37:22,160
Speaker 2: that they're going to outperform what the average investor would

689
00:37:22,200 --> 00:37:23,200
Speaker 2: be receiving totally.

690
00:37:23,480 --> 00:37:25,320
Speaker 3: If you're going to go through this process of buying

691
00:37:25,360 --> 00:37:29,920
Speaker 3: individual stocks and managing your your own portfolio, is absolutely imperative.

692
00:37:30,280 --> 00:37:34,719
Speaker 3: Imperative that you measure your returns compared to the alternative,

693
00:37:34,960 --> 00:37:37,799
Speaker 3: and the alternative is just index and chill. Right, So

694
00:37:37,960 --> 00:37:41,680
Speaker 3: if you you must measure your performance of your criteria

695
00:37:41,800 --> 00:37:44,680
Speaker 3: to an index so that you can tell if all

696
00:37:44,719 --> 00:37:48,040
Speaker 3: this effort you're going through is worth it or are

697
00:37:48,040 --> 00:37:53,160
Speaker 3: you costing yourself wealth because you are outthinking yourself and

698
00:37:53,239 --> 00:37:56,720
Speaker 3: you're and you're you're you're not tracking your results properly.

699
00:37:56,760 --> 00:37:59,040
Speaker 3: So it's very important to do so. But I would

700
00:37:59,040 --> 00:38:02,680
Speaker 3: say if somebody is in interested in individual stock selection,

701
00:38:03,120 --> 00:38:06,200
Speaker 3: people tend to have a all or nothing mentality when

702
00:38:06,200 --> 00:38:11,319
Speaker 3: it comes to indexing or individual stocks. There's no such

703
00:38:11,560 --> 00:38:15,000
Speaker 3: such parameters. There's nothing wrong with putting ninety percent of

704
00:38:15,080 --> 00:38:18,920
Speaker 3: your capital into index funds and using that ten percent

705
00:38:18,960 --> 00:38:21,160
Speaker 3: of it or twenty percent of it whatever you want

706
00:38:21,640 --> 00:38:24,920
Speaker 3: to buy individual stocks. And also if you don't want

707
00:38:24,960 --> 00:38:27,560
Speaker 3: to do a lot of homework. But you still want

708
00:38:27,560 --> 00:38:31,200
Speaker 3: to own. If there's like three companies that really interest you, great,

709
00:38:31,560 --> 00:38:34,640
Speaker 3: put eighty percent of your capital into index funds. Put

710
00:38:34,640 --> 00:38:37,840
Speaker 3: their remanding twenty percent into those three companies, and that

711
00:38:37,880 --> 00:38:41,279
Speaker 3: will dramatically decut down on the amount of research and

712
00:38:41,320 --> 00:38:45,600
Speaker 3: homework that you have to do. So I personally have

713
00:38:45,719 --> 00:38:49,600
Speaker 3: all of my retirement funds in index funds. They're just

714
00:38:49,680 --> 00:38:53,160
Speaker 3: there purely for simplicity, and they're just growing. And then

715
00:38:53,200 --> 00:38:57,920
Speaker 3: all of my taxable income, all my taxable assets are

716
00:38:57,920 --> 00:39:03,040
Speaker 3: in individual individual stocks, and that's a split that matches

717
00:39:03,280 --> 00:39:06,719
Speaker 3: my personality. But in the case that I bomb on

718
00:39:06,840 --> 00:39:09,920
Speaker 3: my individual stock selections, I still have those boring index

719
00:39:09,960 --> 00:39:11,239
Speaker 3: funds in the background doing their thing.

720
00:39:11,320 --> 00:39:13,000
Speaker 1: All right, you don't have to give me specific numbers,

721
00:39:13,120 --> 00:39:15,240
Speaker 1: But how have you done then as an individual investor?

722
00:39:15,360 --> 00:39:19,200
Speaker 1: And like is the proof in the pudding? Like, are you,

723
00:39:19,320 --> 00:39:24,120
Speaker 1: like you know, Brian bict flex Ferraldi over there with

724
00:39:24,239 --> 00:39:28,759
Speaker 1: your individual stock returns? And at some point if you

725
00:39:28,800 --> 00:39:32,080
Speaker 1: continue to underperform, because we talk about these, there's always

726
00:39:32,120 --> 00:39:34,759
Speaker 1: a new study coming out saying that stock pickers are

727
00:39:34,840 --> 00:39:39,799
Speaker 1: underperforming the market on average, especially the longer the time duration. So, yeah,

728
00:39:39,840 --> 00:39:41,640
Speaker 1: how have your returns been. Again, not trying to put

729
00:39:41,680 --> 00:39:43,080
Speaker 1: you on the spot, but how have your returns been

730
00:39:43,200 --> 00:39:45,160
Speaker 1: versus kind of the stock market average?

731
00:39:45,280 --> 00:39:46,640
Speaker 3: If you give me two seconds, I will all get

732
00:39:46,640 --> 00:39:47,880
Speaker 3: to my broke which account, and I'll get you a

733
00:39:47,880 --> 00:39:52,920
Speaker 3: precise answer. But I am out performing. So my benchmark

734
00:39:53,320 --> 00:39:56,879
Speaker 3: is the S and P five hundred. That's a very

735
00:39:56,880 --> 00:40:00,920
Speaker 3: common benchmark to go after. And essentially, if I was

736
00:40:01,040 --> 00:40:04,239
Speaker 3: not investing in individual stocks, what would I be doing

737
00:40:04,520 --> 00:40:07,320
Speaker 3: with my capital? Aka? The S and P five hundred

738
00:40:07,520 --> 00:40:11,040
Speaker 3: is the bogie that I am personally trying trying to

739
00:40:11,080 --> 00:40:14,520
Speaker 3: beat over the last ten years. Excuse me, over the

740
00:40:14,560 --> 00:40:18,279
Speaker 3: last we had twelve years now I say I say

741
00:40:18,280 --> 00:40:21,680
Speaker 3: twelve years because that's when I changed brokers to the

742
00:40:21,680 --> 00:40:26,600
Speaker 3: broker that I have now, and tracking data beyond beyond

743
00:40:26,600 --> 00:40:29,160
Speaker 3: that twelve years is a little bit tricky, but I

744
00:40:29,160 --> 00:40:31,600
Speaker 3: have outperformed the S and P five hundred by about

745
00:40:31,600 --> 00:40:32,960
Speaker 3: two hundred and thirty percent.

746
00:40:33,080 --> 00:40:36,040
Speaker 2: Oh, Joel's gonna ask how he can buy into that.

747
00:40:36,160 --> 00:40:37,680
Speaker 2: Would you like to manage my money fund?

748
00:40:38,360 --> 00:40:41,160
Speaker 3: That is a very good question, and I think this

749
00:40:41,239 --> 00:40:46,000
Speaker 3: is worth highlighting. I refuse to manage anybody else's money,

750
00:40:47,040 --> 00:40:52,760
Speaker 3: and I think it is incredibly challenging to manage somebody

751
00:40:52,760 --> 00:40:55,000
Speaker 3: else's money. And this is why if you look at

752
00:40:55,040 --> 00:40:57,759
Speaker 3: a lot of studies come out that say mutual fund

753
00:40:57,760 --> 00:41:02,520
Speaker 3: managers underperform index funds like across the board, right, that

754
00:41:02,520 --> 00:41:06,160
Speaker 3: that is in part in part because of the fees,

755
00:41:06,840 --> 00:41:09,280
Speaker 3: plain and simple, right, the fees are a massive drag

756
00:41:09,480 --> 00:41:15,120
Speaker 3: on index funds. But managing other people's money is way

757
00:41:15,160 --> 00:41:18,239
Speaker 3: harder than managing your own money.

758
00:41:18,000 --> 00:41:20,200
Speaker 1: Because you're dealing with the emotions of dozens and dozens

759
00:41:20,200 --> 00:41:21,760
Speaker 1: of people as opposed to one person.

760
00:41:22,040 --> 00:41:24,800
Speaker 3: You have an extra factor that you have to think about,

761
00:41:24,840 --> 00:41:29,479
Speaker 3: and that's that you're not making investment decisions in order

762
00:41:29,560 --> 00:41:32,600
Speaker 3: to maximize the long term wealth of the mutual fund.

763
00:41:32,880 --> 00:41:38,040
Speaker 3: You are making investment decisions to maximize your argument that

764
00:41:38,120 --> 00:41:41,160
Speaker 3: you could make to investors in that fund to give

765
00:41:41,239 --> 00:41:46,160
Speaker 3: you more money. Because that's how mutual funds managers make money.

766
00:41:46,280 --> 00:41:49,879
Speaker 3: They don't make money by outperforming the index. They make

767
00:41:50,000 --> 00:41:55,560
Speaker 3: money by gathering assets. So a fund with a billion

768
00:41:55,600 --> 00:42:00,080
Speaker 3: dollars in assets, all things held equally, will make more

769
00:41:59,840 --> 00:42:02,200
Speaker 3: money than ten times more money than a fund with

770
00:42:02,200 --> 00:42:07,120
Speaker 3: one hundred and million in assets, regardless of performance. So

771
00:42:07,160 --> 00:42:12,280
Speaker 3: what what masset managers. Their job, their actual job isn't

772
00:42:12,280 --> 00:42:16,200
Speaker 3: to outperform the market. Their job is to do activities

773
00:42:16,440 --> 00:42:20,120
Speaker 3: that gather as many assets as possible. So they will

774
00:42:20,160 --> 00:42:24,680
Speaker 3: take actions that maximize their ability to UH to retain

775
00:42:24,840 --> 00:42:29,120
Speaker 3: and attract assets, regardless of how how that impacts the

776
00:42:29,200 --> 00:42:32,719
Speaker 3: shareholders of their fund. So this is just the the

777
00:42:32,800 --> 00:42:37,160
Speaker 3: principal agent problem in in full in full display. And

778
00:42:38,000 --> 00:42:40,920
Speaker 3: I'm I think I'm a pretty decent investor. There's no

779
00:42:41,160 --> 00:42:43,759
Speaker 3: way I would get these returns that I have if

780
00:42:43,800 --> 00:42:45,759
Speaker 3: I was managing other people's money. No way.

781
00:42:45,920 --> 00:42:49,720
Speaker 1: Yeah, Okay, that's interesting. I appreciate you putting that out. Okay,

782
00:42:50,080 --> 00:42:52,320
Speaker 1: I'm not saying that the front end work is easy,

783
00:42:52,320 --> 00:42:56,319
Speaker 1: but it's I would imagine it's easier to identify companies

784
00:42:56,520 --> 00:42:59,080
Speaker 1: that meet a lot of those metrics that you mentioned.

785
00:42:59,400 --> 00:43:01,960
Speaker 1: Hey of Okay, yeah, Amazon fifteen years ago, this is

786
00:43:02,000 --> 00:43:03,520
Speaker 1: going to meet a lot of my metrics. And I'm

787
00:43:03,520 --> 00:43:05,799
Speaker 1: pretty sure I want to invest in this company. How

788
00:43:05,800 --> 00:43:08,680
Speaker 1: do you know and how are you keeping track of

789
00:43:08,840 --> 00:43:11,320
Speaker 1: whether or not the company is still on the same track?

790
00:43:11,719 --> 00:43:14,640
Speaker 1: For instance, and it's not just necessarily reflected in the

791
00:43:14,640 --> 00:43:17,120
Speaker 1: stock price, but Tesla's not doing so hot, right, now

792
00:43:17,640 --> 00:43:20,440
Speaker 1: they were, and they were outperforming any other car company

793
00:43:20,440 --> 00:43:22,640
Speaker 1: because people value them more like a tech company. How

794
00:43:22,640 --> 00:43:25,560
Speaker 1: do you know at what point, wait, it's lost its mojo,

795
00:43:25,920 --> 00:43:29,160
Speaker 1: Time for me to sell, Because that actually seems like

796
00:43:29,200 --> 00:43:30,960
Speaker 1: the harder part of the equation. When you start investing

797
00:43:31,000 --> 00:43:31,960
Speaker 1: in single stocks.

798
00:43:31,640 --> 00:43:36,520
Speaker 3: You are absolutely correct. Knowing when to sell is ten

799
00:43:36,680 --> 00:43:41,279
Speaker 3: times harder than knowing when to buy. And this is

800
00:43:41,360 --> 00:43:45,360
Speaker 3: one reason why index investing works so well is because

801
00:43:45,400 --> 00:43:48,080
Speaker 3: the reason that there are time to sell an index

802
00:43:48,640 --> 00:43:52,239
Speaker 3: is never right. The stocks come in the index and

803
00:43:52,239 --> 00:43:56,719
Speaker 3: stocks leave the index. The individual holdings thing is go up, up,

804
00:43:56,800 --> 00:44:00,080
Speaker 3: up and down, but the index is constantly replenishing it

805
00:44:00,080 --> 00:44:03,480
Speaker 3: self with the biggest, most innovative, strongest, most profitable companies

806
00:44:03,880 --> 00:44:07,000
Speaker 3: of the day. So in large large part that decision

807
00:44:07,040 --> 00:44:12,400
Speaker 3: to to sell is largely taken out of of the

808
00:44:12,560 --> 00:44:16,719
Speaker 3: of the equation. However, I do have criteria that I

809
00:44:16,760 --> 00:44:22,240
Speaker 3: that I personally have for when I when I will sell,

810
00:44:22,760 --> 00:44:25,359
Speaker 3: and I'm happy to tick through a few of them.

811
00:44:25,600 --> 00:44:30,200
Speaker 3: But the number one reason I sell is I was wrong.

812
00:44:31,560 --> 00:44:35,040
Speaker 3: I thought a I had a thesis for a company.

813
00:44:35,560 --> 00:44:37,520
Speaker 3: This company is gonna do great, This compan is going

814
00:44:37,600 --> 00:44:41,160
Speaker 3: to capture this market data come in that clearly showed

815
00:44:41,160 --> 00:44:44,880
Speaker 3: that the company did not capture the market. The stock

816
00:44:44,920 --> 00:44:48,560
Speaker 3: has typically been pulverized at that point, and my my

817
00:44:48,680 --> 00:44:52,439
Speaker 3: thesis for owning that stock was just flat out wrong.

818
00:44:53,560 --> 00:44:59,200
Speaker 3: That's that's reason number one. Reason number two accounting irregularities.

819
00:45:00,239 --> 00:45:02,840
Speaker 3: If a company comes out and says, oh, we have

820
00:45:02,920 --> 00:45:05,439
Speaker 3: to restate our financial statements that you've been making these

821
00:45:05,719 --> 00:45:12,719
Speaker 3: decisions on, I can't trust anything about the company cultural deterioration,

822
00:45:13,239 --> 00:45:17,719
Speaker 3: So employees start to leave that company, or a founder

823
00:45:18,480 --> 00:45:22,040
Speaker 3: leaves that that company, or a new management team comes

824
00:45:22,040 --> 00:45:24,400
Speaker 3: in and you see glass door ratings on that company

825
00:45:24,560 --> 00:45:27,920
Speaker 3: really start to go downhill. That I think is a

826
00:45:27,960 --> 00:45:33,160
Speaker 3: reason to sell. And then finally, my favorite reason to

827
00:45:33,200 --> 00:45:36,480
Speaker 3: sell is I want to spend the money in my

828
00:45:36,520 --> 00:45:40,400
Speaker 3: real life, aka the reason we invest in the first place.

829
00:45:40,920 --> 00:45:44,200
Speaker 3: So I've sold stocks to pay for home renovations, and

830
00:45:44,239 --> 00:45:47,160
Speaker 3: I've sold stocks to to buy to buy a car.

831
00:45:47,840 --> 00:45:51,560
Speaker 3: I've sold stocks to pay off my mortgage. So things

832
00:45:51,680 --> 00:45:54,640
Speaker 3: like that are are perfectly valid reasons to sell. Even

833
00:45:54,719 --> 00:45:57,960
Speaker 3: if those stocks then go up after you sold them,

834
00:45:58,360 --> 00:46:01,360
Speaker 3: that's perfectly fine, because the reason we invest is to

835
00:46:01,400 --> 00:46:02,120
Speaker 3: live a better life.

836
00:46:02,160 --> 00:46:04,319
Speaker 1: That's right, no, yeah, boiling it down in so many

837
00:46:04,320 --> 00:46:06,759
Speaker 1: ways to kind of the most important things. And you're right,

838
00:46:06,760 --> 00:46:08,799
Speaker 1: we're human, and so the goal is not to see

839
00:46:08,800 --> 00:46:11,960
Speaker 1: the numbers go up on a screen in perpetuity. The

840
00:46:12,000 --> 00:46:13,719
Speaker 1: goal is to also enjoy some of those dollars in

841
00:46:13,719 --> 00:46:15,720
Speaker 1: the year. And now we got a few more questions

842
00:46:15,719 --> 00:46:17,799
Speaker 1: to get to with you, Brian, and cluding just like, okay,

843
00:46:17,800 --> 00:46:19,800
Speaker 1: how do we actually get the ball rolling and get started.

844
00:46:19,840 --> 00:46:21,640
Speaker 1: We'll get to just a few more questions with Brian

845
00:46:21,800 --> 00:46:22,479
Speaker 1: right after this.

846
00:46:30,480 --> 00:46:32,959
Speaker 2: That we're back from the break with Brian Ferralty about

847
00:46:32,960 --> 00:46:35,479
Speaker 2: why the stock market goes up. And Brian, just before

848
00:46:35,520 --> 00:46:39,000
Speaker 2: the break, you're talking about selling stocks in order to

849
00:46:39,080 --> 00:46:41,279
Speaker 2: use that money in real life. Like again, that's the

850
00:46:41,400 --> 00:46:45,960
Speaker 2: entire point, is that why folks oftentimes will gravitate towards

851
00:46:46,040 --> 00:46:48,600
Speaker 2: dividend stocks because they don't have to sell it. You're

852
00:46:48,640 --> 00:46:51,520
Speaker 2: talking about how it's like ten times harder to decide

853
00:46:51,560 --> 00:46:53,359
Speaker 2: when to go ahead and make that call to sell,

854
00:46:53,400 --> 00:46:55,840
Speaker 2: but with dividend stocks, oh, you never.

855
00:46:55,719 --> 00:46:56,680
Speaker 1: Have to sell.

856
00:46:56,880 --> 00:47:00,279
Speaker 2: And so even though the performance of those company or

857
00:47:00,280 --> 00:47:02,120
Speaker 2: those stocks and may not be quite as high, is

858
00:47:02,160 --> 00:47:04,560
Speaker 2: that the emotional hang up is that what it is

859
00:47:04,960 --> 00:47:07,399
Speaker 2: the fact that they can draw an income from that

860
00:47:07,560 --> 00:47:09,640
Speaker 2: company from those stocks without having to actually sell it.

861
00:47:09,680 --> 00:47:13,720
Speaker 3: Yeah. Absolutely, OK, what's back up? What is a dividend?

862
00:47:14,120 --> 00:47:17,920
Speaker 3: A dividend is when a company generates profit and it

863
00:47:18,040 --> 00:47:21,279
Speaker 3: chooses to take a portion of that profit and give

864
00:47:21,320 --> 00:47:25,080
Speaker 3: it directly to its shareholders as a cash payment. And

865
00:47:25,120 --> 00:47:27,319
Speaker 3: there's a ratio that you can look at between the

866
00:47:27,640 --> 00:47:31,760
Speaker 3: dividend per share that a company pays and its share price,

867
00:47:32,120 --> 00:47:35,120
Speaker 3: and that ratio will tell you the yield that a

868
00:47:35,160 --> 00:47:38,600
Speaker 3: company pays thrown in that stock, kind of like you

869
00:47:38,640 --> 00:47:41,640
Speaker 3: would have a yield if you put money into a

870
00:47:41,719 --> 00:47:45,799
Speaker 3: savings account at a bank. So there are investors out

871
00:47:45,800 --> 00:47:51,200
Speaker 3: there that exclusively look at companies that pay dividends, and

872
00:47:51,800 --> 00:47:57,040
Speaker 3: paying a dividend is a luxury that only strong, mature,

873
00:47:57,320 --> 00:48:02,880
Speaker 3: financially stable companies can really afford to do to their investors.

874
00:48:02,920 --> 00:48:06,120
Speaker 3: So just by starting out and saying I exclusively focus

875
00:48:06,400 --> 00:48:10,520
Speaker 3: on dividend companies, you are eliminating a whole bunch of

876
00:48:10,560 --> 00:48:16,440
Speaker 3: the investable universe. And by definition, these tend to be stronger,

877
00:48:17,400 --> 00:48:23,520
Speaker 3: more financially stable, more financially disciplined. Capital capital return machines,

878
00:48:23,800 --> 00:48:27,800
Speaker 3: and dividends are incredibly enticing because, as you said, you

879
00:48:27,840 --> 00:48:31,520
Speaker 3: don't have to sell. You realize an income stream from

880
00:48:31,600 --> 00:48:33,960
Speaker 3: your investment, and if the company does well, you can

881
00:48:34,000 --> 00:48:37,880
Speaker 3: also earn capital appreciation from that stock. And oh, by

882
00:48:37,920 --> 00:48:41,719
Speaker 3: the way, that dividend can actually be increased over time,

883
00:48:41,719 --> 00:48:45,200
Speaker 3: which can really help to compound your wealth. And if

884
00:48:45,239 --> 00:48:48,400
Speaker 3: you really want extra points, you take those dividend payments

885
00:48:48,400 --> 00:48:52,000
Speaker 3: that you receive and you reinvest them into assets, and

886
00:48:52,040 --> 00:48:56,759
Speaker 3: that can really turbocharge your turbocharge your return. So there's

887
00:48:56,840 --> 00:48:58,759
Speaker 3: nothing wrong with being a dividend investor. Can be a

888
00:48:58,840 --> 00:48:59,680
Speaker 3: very attractive way to.

889
00:49:00,480 --> 00:49:02,600
Speaker 1: The downside though, of a company that pays a big

890
00:49:02,640 --> 00:49:04,840
Speaker 1: dividend is that maybe they're not reinvesting in the company.

891
00:49:04,960 --> 00:49:07,760
Speaker 1: So talk to me maybe about that trade off between ooh,

892
00:49:07,880 --> 00:49:11,040
Speaker 1: juicy dividend versus wait a second, they're not doing enough

893
00:49:11,040 --> 00:49:13,759
Speaker 1: to invest in the company into to kind of be

894
00:49:13,880 --> 00:49:17,719
Speaker 1: more creative on the entrepreneurial front, I guess, and where

895
00:49:17,719 --> 00:49:19,080
Speaker 1: this company could go in the future.

896
00:49:19,560 --> 00:49:23,520
Speaker 3: You're absolutely right. If a company is paying out a dividend,

897
00:49:24,520 --> 00:49:28,279
Speaker 3: by definition, that company no longer has access to that

898
00:49:28,400 --> 00:49:32,000
Speaker 3: cache that it's paying out to the shareholders, and that

899
00:49:32,080 --> 00:49:36,080
Speaker 3: management teams no longer can use that cash to increase

900
00:49:36,080 --> 00:49:38,960
Speaker 3: the value of the enterprise. By and large, when a

901
00:49:39,000 --> 00:49:41,800
Speaker 3: company generates a profit, there's a handful of things that

902
00:49:42,160 --> 00:49:45,720
Speaker 3: the management team can do with that profit. They can,

903
00:49:46,360 --> 00:49:48,200
Speaker 3: First of all, they can do nothing, and they can

904
00:49:48,239 --> 00:49:51,719
Speaker 3: just build up their cash balance at their bank. They

905
00:49:51,719 --> 00:49:55,799
Speaker 3: can reinvest in their business, so they can hire engineers

906
00:49:55,840 --> 00:49:58,240
Speaker 3: to build a new product. They can hire more sales people.

907
00:49:58,280 --> 00:50:00,680
Speaker 3: They can open up stores, or they can open up

908
00:50:00,680 --> 00:50:04,000
Speaker 3: new geographies to sell their products into, so that would

909
00:50:04,000 --> 00:50:07,720
Speaker 3: be reinvestment. Generally speaking. They can buy back their stock,

910
00:50:08,120 --> 00:50:12,320
Speaker 3: so by buying back their stock from investors, they reduce

911
00:50:12,760 --> 00:50:15,759
Speaker 3: the number of legal claims that there are on their

912
00:50:15,800 --> 00:50:20,440
Speaker 3: earnings and perpetuity, and that increases each existing shareholders claim

913
00:50:20,680 --> 00:50:24,359
Speaker 3: by simply shrinking the number of claims that are out there.

914
00:50:25,200 --> 00:50:27,839
Speaker 3: You can also pay down debt if it has any

915
00:50:27,920 --> 00:50:30,879
Speaker 3: debt at all, which can delever the company's balance sheet.

916
00:50:30,880 --> 00:50:33,200
Speaker 3: And the final thing is that if none of those

917
00:50:33,200 --> 00:50:37,480
Speaker 3: four are attractive, is just give the cash to shareholders.

918
00:50:37,840 --> 00:50:40,200
Speaker 3: Depending on what type of an investor you are, and

919
00:50:40,280 --> 00:50:44,880
Speaker 3: importantly the stage of development that the company is, management

920
00:50:44,880 --> 00:50:48,880
Speaker 3: teams tend to pull those levers in different orders. To

921
00:50:48,920 --> 00:50:51,560
Speaker 3: your point, if a company is paying a dividend, by

922
00:50:51,640 --> 00:50:55,080
Speaker 3: and large, it's that's kind of like management admitting we

923
00:50:55,160 --> 00:50:57,840
Speaker 3: have no good ideas of what to do with his money.

924
00:50:58,160 --> 00:51:02,040
Speaker 3: You take it, You take it, shareholder, And that doesn't

925
00:51:02,040 --> 00:51:06,360
Speaker 3: mean that the company isn't innovating and isn't growing. I

926
00:51:06,400 --> 00:51:08,839
Speaker 3: mean Apple, Apple's paid a dividend now for like eight

927
00:51:08,920 --> 00:51:11,880
Speaker 3: or nine years. Apple is spending more money than ever

928
00:51:12,640 --> 00:51:16,000
Speaker 3: on research and development each years. But the company is

929
00:51:16,080 --> 00:51:20,600
Speaker 3: so insanely profitable that it can fund all of that research,

930
00:51:20,719 --> 00:51:24,320
Speaker 3: fund new developments, buy backstock, and it still has cash

931
00:51:24,400 --> 00:51:28,320
Speaker 3: left over to pay a dividend. So it's not pure

932
00:51:28,480 --> 00:51:31,120
Speaker 3: mutually exclusive. But to your point, when you are making

933
00:51:31,200 --> 00:51:34,520
Speaker 3: a capital allocation a dividend decision, you are by necessity

934
00:51:34,800 --> 00:51:36,440
Speaker 3: pulling money away from other ventures.

935
00:51:36,520 --> 00:51:38,440
Speaker 2: Yeah, they can pay those dividends and they still have

936
00:51:38,480 --> 00:51:41,799
Speaker 2: money left over to have billions yeah in the bank

937
00:51:42,200 --> 00:51:42,640
Speaker 2: as well.

938
00:51:42,760 --> 00:51:44,239
Speaker 1: They're like one of the few companies that can take

939
00:51:44,239 --> 00:51:45,440
Speaker 1: the d all the above approach.

940
00:51:45,560 --> 00:51:48,640
Speaker 2: Yes, yeah, okay, Brian, Let's round this out with a

941
00:51:48,640 --> 00:51:50,320
Speaker 2: little bit of how to It's in the title of

942
00:51:50,360 --> 00:51:53,480
Speaker 2: our show. Let's say someone is out there, they're listening

943
00:51:53,800 --> 00:51:56,120
Speaker 2: they are convinced that they do need to in fact

944
00:51:56,239 --> 00:51:58,520
Speaker 2: start investing their money. How would you encourage someone to

945
00:51:58,600 --> 00:52:00,360
Speaker 2: go ahead and get started if that's not something that

946
00:52:00,440 --> 00:52:01,160
Speaker 2: they've done yet.

947
00:52:01,320 --> 00:52:04,080
Speaker 3: Yep, So first things first, we are I'm assuming that

948
00:52:04,200 --> 00:52:07,560
Speaker 3: they have taken care of their personal finances first, So

949
00:52:07,640 --> 00:52:10,359
Speaker 3: I'm assuming that they they've paid down all their high

950
00:52:10,400 --> 00:52:12,480
Speaker 3: interest debt, that they have a six month emergency fund,

951
00:52:12,480 --> 00:52:14,719
Speaker 3: that they have multiple sources of income, that they have

952
00:52:14,960 --> 00:52:19,000
Speaker 3: their general personal finances are in order. From there, I'm

953
00:52:19,000 --> 00:52:20,520
Speaker 3: going to say, well, do you have access to a

954
00:52:20,840 --> 00:52:24,640
Speaker 3: retirement plan with an employer match? That is definitely the

955
00:52:24,680 --> 00:52:27,760
Speaker 3: first thing to do. There's nothing like getting free money

956
00:52:27,880 --> 00:52:31,360
Speaker 3: from your employer to put to put to work in

957
00:52:31,640 --> 00:52:35,680
Speaker 3: the markets, So that's place one to go, especially if

958
00:52:35,800 --> 00:52:39,319
Speaker 3: you're getting a company match. If beyond that you still

959
00:52:39,360 --> 00:52:41,920
Speaker 3: have extra capital, I would say open up a wroth

960
00:52:42,040 --> 00:52:44,560
Speaker 3: ira or an ira or depending on where are the

961
00:52:44,560 --> 00:52:47,200
Speaker 3: world in your country, there might be some other tax

962
00:52:47,400 --> 00:52:51,640
Speaker 3: blessed accounts that make it more attractive to invest, so

963
00:52:51,680 --> 00:52:54,920
Speaker 3: I would I would look there, and depending on your personality,

964
00:52:55,000 --> 00:52:57,000
Speaker 3: you can buy index funds in those, or you can

965
00:52:57,040 --> 00:52:59,560
Speaker 3: even buy individual stocks in those. But if you've gone

966
00:52:59,560 --> 00:53:02,440
Speaker 3: through all that, you still have extra money and you

967
00:53:02,480 --> 00:53:05,000
Speaker 3: want to put that money in individual stocks in the markets.

968
00:53:05,040 --> 00:53:08,800
Speaker 3: Step one is to open up a brokerage account. There's

969
00:53:09,239 --> 00:53:11,800
Speaker 3: lots of great brokers out there. They're buy and large

970
00:53:12,040 --> 00:53:16,560
Speaker 3: the same at this point. So there's Fidelity, there's Schwab,

971
00:53:16,719 --> 00:53:20,000
Speaker 3: there's Robinhood. If you just want to be a mobile user,

972
00:53:20,040 --> 00:53:22,480
Speaker 3: there's Public. So there's lots of places that you can

973
00:53:22,560 --> 00:53:26,760
Speaker 3: open up a brokerage. Then if you're interested in individual stocks,

974
00:53:26,800 --> 00:53:31,480
Speaker 3: the step one is always educate yourself. Always listen to

975
00:53:31,600 --> 00:53:34,800
Speaker 3: podcasts if that's the medium that you like, Read books

976
00:53:34,800 --> 00:53:37,280
Speaker 3: if that's the medium that you like, watch YouTube videos

977
00:53:37,280 --> 00:53:39,839
Speaker 3: if that's the medium that you like. But do the

978
00:53:39,960 --> 00:53:43,600
Speaker 3: education necessary so that you can learn what attributes to

979
00:53:43,600 --> 00:53:46,000
Speaker 3: look for in a good investment and what attributes to

980
00:53:46,040 --> 00:53:49,920
Speaker 3: avoid in a good in an investment. And one exercise

981
00:53:49,920 --> 00:53:53,040
Speaker 3: that I am a huge fan of is building an

982
00:53:53,080 --> 00:53:58,920
Speaker 3: investing checklist for yourself. So make two lists. Things I like,

983
00:53:59,280 --> 00:54:02,319
Speaker 3: things I don't like. Make a big list of if

984
00:54:02,360 --> 00:54:04,320
Speaker 3: a company has this, I like it, if a company

985
00:54:04,360 --> 00:54:07,600
Speaker 3: has this I don't like it for yourself, then rank

986
00:54:07,719 --> 00:54:10,680
Speaker 3: order them by which ones are most important to you

987
00:54:10,719 --> 00:54:12,799
Speaker 3: and which ones are least important to you, and then

988
00:54:12,880 --> 00:54:16,520
Speaker 3: apply some kind of scoring system to it. If that

989
00:54:16,640 --> 00:54:20,680
Speaker 3: sounds overwhelming or confusing, Brianfraddo dot com slash checklist, you

990
00:54:20,680 --> 00:54:22,440
Speaker 3: can get free access to the one that I have

991
00:54:22,520 --> 00:54:26,080
Speaker 3: and just use that as a starting starting point. But

992
00:54:26,120 --> 00:54:29,040
Speaker 3: then just start to do the research and go off

993
00:54:29,080 --> 00:54:32,200
Speaker 3: some kind of a process for yourself for finding out

994
00:54:32,280 --> 00:54:35,920
Speaker 3: if certain stocks are a match for your personality. But

995
00:54:36,160 --> 00:54:38,359
Speaker 3: the worst thing to do is to just go on

996
00:54:38,800 --> 00:54:44,080
Speaker 3: TikTok and see somebody is buying some stock and zero

997
00:54:44,200 --> 00:54:46,400
Speaker 3: research behind it and saying, oh, that sounds good, I

998
00:54:46,400 --> 00:54:48,120
Speaker 3: know what that is, and putting their money into it.

999
00:54:48,200 --> 00:54:50,040
Speaker 3: Because that's a recipe for a disaster.

1000
00:54:50,520 --> 00:54:53,000
Speaker 1: Yep, that's trist p for losing the money that you

1001
00:54:53,040 --> 00:54:55,000
Speaker 1: want to grow into a nest tag for your future. So,

1002
00:54:55,280 --> 00:54:57,320
Speaker 1: Brian Man, thank you so much for coming on the

1003
00:54:57,360 --> 00:54:59,560
Speaker 1: show and your book I think is a great place.

1004
00:54:59,600 --> 00:55:01,960
Speaker 1: You mentioned places people can turn to get educated. Why

1005
00:55:01,960 --> 00:55:03,880
Speaker 1: does the stock market go up? Is a great resource?

1006
00:55:04,040 --> 00:55:06,160
Speaker 1: Your newsletters a great resource. Work Where else can our

1007
00:55:06,200 --> 00:55:07,360
Speaker 1: listeners find out more about you?

1008
00:55:08,000 --> 00:55:10,719
Speaker 3: I'm on all the social platforms. I'm on YouTube. If

1009
00:55:10,760 --> 00:55:12,839
Speaker 3: that's your thing, I'm on Twitter if that's your thing.

1010
00:55:12,880 --> 00:55:15,279
Speaker 3: I'm on LinkedIn if that's your thing, so you can

1011
00:55:15,280 --> 00:55:15,759
Speaker 3: find me there.

1012
00:55:15,840 --> 00:55:17,520
Speaker 2: Nice well link to all of that. Brian, thank you

1013
00:55:17,560 --> 00:55:18,920
Speaker 2: so much for joining us today.

1014
00:55:18,760 --> 00:55:20,520
Speaker 3: Matt Joel, awesome to be here. Thank you for having me.

1015
00:55:20,760 --> 00:55:23,120
Speaker 1: All right, Matt, you got to love someone who like Brian,

1016
00:55:23,400 --> 00:55:25,680
Speaker 1: who knows his stuff, who knows his stuff, but who

1017
00:55:25,719 --> 00:55:27,640
Speaker 1: has like a really well thought out system, who's done

1018
00:55:27,680 --> 00:55:29,920
Speaker 1: really well on it, but also says, guess what, this

1019
00:55:30,000 --> 00:55:32,080
Speaker 1: isn't necessarily for everyone. You have to think through all

1020
00:55:32,080 --> 00:55:32,759
Speaker 1: these things for us.

1021
00:55:32,800 --> 00:55:33,680
Speaker 2: So he's true.

1022
00:55:33,719 --> 00:55:35,600
Speaker 1: I feel like he could be the pied piper of

1023
00:55:35,680 --> 00:55:38,040
Speaker 1: like follow me, do as I say, trying to lead

1024
00:55:38,080 --> 00:55:41,160
Speaker 1: this like individual stock investing cult. But he's avoiding that

1025
00:55:41,200 --> 00:55:44,400
Speaker 1: because he realized it's not necessarily this all in strategy.

1026
00:55:44,400 --> 00:55:46,279
Speaker 1: And he's not even all in on that too. He's

1027
00:55:46,320 --> 00:55:49,360
Speaker 1: hedging his bets too. So I really appreciate his philosophy.

1028
00:55:49,520 --> 00:55:50,920
Speaker 1: Glad we could have him on the show. What was

1029
00:55:50,920 --> 00:55:52,160
Speaker 1: your big takeaway from that combo?

1030
00:55:52,320 --> 00:55:56,040
Speaker 2: Yeah, well, it was when he was basically gauging how

1031
00:55:56,239 --> 00:55:57,800
Speaker 2: we should know whether or not this is something we

1032
00:55:57,800 --> 00:56:00,920
Speaker 2: should consider and if someone is listen. Thing and they decide, oh,

1033
00:56:01,000 --> 00:56:04,240
Speaker 2: I have the disposition to invest, for instance, in single stocks.

1034
00:56:04,600 --> 00:56:06,719
Speaker 2: What he said, and this is incredibly nuanced, but he

1035
00:56:06,760 --> 00:56:11,040
Speaker 2: said you can take a more active approach with your investments.

1036
00:56:11,040 --> 00:56:13,640
Speaker 2: He didn't say go all in, go one hundred percent.

1037
00:56:14,239 --> 00:56:16,799
Speaker 2: Everything that you invest, including your retirement, should be an

1038
00:56:16,800 --> 00:56:19,880
Speaker 2: individual stocks. But you can take a more active approach.

1039
00:56:20,080 --> 00:56:21,759
Speaker 2: And that points to sort of that balance like you're

1040
00:56:21,760 --> 00:56:24,280
Speaker 2: talking about. And even Brian, who's done well, he still

1041
00:56:24,320 --> 00:56:26,600
Speaker 2: limits what he's actively investing.

1042
00:56:26,239 --> 00:56:27,560
Speaker 1: To just his brokerage account.

1043
00:56:27,719 --> 00:56:29,239
Speaker 2: He's not gonna mess with that when it comes to

1044
00:56:29,360 --> 00:56:31,799
Speaker 2: his retirement, and so we talk about that all the time.

1045
00:56:32,160 --> 00:56:33,880
Speaker 2: We do say for the vast majority of folks, and

1046
00:56:33,880 --> 00:56:36,560
Speaker 2: even him, even Brian said, for ninety nine percent of people,

1047
00:56:36,560 --> 00:56:38,080
Speaker 2: you're not even gonna have the interest in doing this,

1048
00:56:38,160 --> 00:56:39,560
Speaker 2: let alone whether or not you're gonna be good at it.

1049
00:56:39,800 --> 00:56:41,720
Speaker 2: But if you do have an interest, you can start

1050
00:56:41,800 --> 00:56:44,040
Speaker 2: dabbling a little bit and you can become a more

1051
00:56:44,160 --> 00:56:47,520
Speaker 2: active investor without not receiving Matt and Joel's blessing.

1052
00:56:47,520 --> 00:56:50,040
Speaker 1: How about that? Yeah, I mean, and that's that's why

1053
00:56:50,040 --> 00:56:52,600
Speaker 1: we want to have people on this show constantly who

1054
00:56:52,600 --> 00:56:55,359
Speaker 1: do things differently than we do, but have a rhyme

1055
00:56:55,400 --> 00:56:58,120
Speaker 1: and a reason and a methodology and some intelligence behind

1056
00:56:58,239 --> 00:57:00,640
Speaker 1: kind of their their approach. So I think my big

1057
00:57:00,680 --> 00:57:03,200
Speaker 1: takeaway though, was at the point where he basically said, no,

1058
00:57:03,239 --> 00:57:06,640
Speaker 1: short term investing is gambling, and so he even though

1059
00:57:06,680 --> 00:57:08,960
Speaker 1: he's investing in some of these individual stocks, he's thinking

1060
00:57:08,960 --> 00:57:12,160
Speaker 1: about these companies. Investing in these companies as being a

1061
00:57:12,200 --> 00:57:14,080
Speaker 1: really long term play. Oh, I think this company has

1062
00:57:14,120 --> 00:57:16,600
Speaker 1: room to run for the next ten plus years. And

1063
00:57:16,800 --> 00:57:18,360
Speaker 1: I think it's really important if you're going to get

1064
00:57:18,360 --> 00:57:20,920
Speaker 1: into investing, whether it's index funds or you're going to

1065
00:57:20,960 --> 00:57:23,240
Speaker 1: invest in individual stocks, you've got to have the long

1066
00:57:23,360 --> 00:57:26,800
Speaker 1: term philosophy at play because in the short term, the

1067
00:57:26,840 --> 00:57:29,720
Speaker 1: stock market can look a little Las Vegas like, right.

1068
00:57:29,920 --> 00:57:32,480
Speaker 1: It can drop six percent in a week or twenty

1069
00:57:32,520 --> 00:57:34,240
Speaker 1: two percent in a year and then be back up.

1070
00:57:34,440 --> 00:57:37,520
Speaker 1: You know, there's all of these daily and weekly and

1071
00:57:37,560 --> 00:57:40,480
Speaker 1: monthly machinations that you don't have to worry about and

1072
00:57:40,560 --> 00:57:42,880
Speaker 1: freak out about if you're investing for the long term.

1073
00:57:43,040 --> 00:57:46,240
Speaker 1: So that we had that question recently about day trading, Matt.

1074
00:57:46,320 --> 00:57:48,920
Speaker 1: That's how we're so against that, because it's not really investing.

1075
00:57:49,520 --> 00:57:53,800
Speaker 1: You're making gambling choices with money that's supposed to be

1076
00:57:54,040 --> 00:57:56,480
Speaker 1: in investment money. So the stock market over the long

1077
00:57:56,520 --> 00:57:59,320
Speaker 1: haul goes up in the short term, it's anybody's guests, that's.

1078
00:57:59,280 --> 00:58:01,640
Speaker 2: Right, man. All Right, this episode you and I enjoyed

1079
00:58:01,680 --> 00:58:05,000
Speaker 2: Space Dream. This is a double dry hopped oat cream.

1080
00:58:05,120 --> 00:58:06,400
Speaker 2: I PA, what were your thoughts?

1081
00:58:06,840 --> 00:58:09,320
Speaker 1: This one was juicy and it was fruity, but within reason,

1082
00:58:09,360 --> 00:58:11,520
Speaker 1: like it said, I was going to say dry. I

1083
00:58:11,560 --> 00:58:14,800
Speaker 1: thought I had some of those tropical fruit opposites in

1084
00:58:14,880 --> 00:58:16,760
Speaker 1: so many ways. No, yeah, I mean I would say

1085
00:58:16,800 --> 00:58:19,680
Speaker 1: it had like an herbal happiness as opposed to kind

1086
00:58:19,680 --> 00:58:20,680
Speaker 1: of like those those those.

1087
00:58:20,520 --> 00:58:22,280
Speaker 2: Tropical I guess maybe because of the oats. I'm thinking,

1088
00:58:22,600 --> 00:58:24,880
Speaker 2: like it's got like a very bready kind of oatmeally,

1089
00:58:25,480 --> 00:58:27,280
Speaker 2: I'm thinking bread. We're making a whole lot of sour

1090
00:58:27,320 --> 00:58:29,280
Speaker 2: dough ca it's making like different different breads at home,

1091
00:58:29,280 --> 00:58:30,800
Speaker 2: and this is what this it reminded me of that

1092
00:58:30,880 --> 00:58:33,760
Speaker 2: it kind of had like almost like a malty tastes

1093
00:58:33,760 --> 00:58:35,200
Speaker 2: like this beer. Bring me some dude, Is there anything

1094
00:58:35,240 --> 00:58:38,080
Speaker 2: better than a fresh sour dough loaf sliced toast or

1095
00:58:38,160 --> 00:58:40,360
Speaker 2: not even toasted, like when it's warm like that butter on,

1096
00:58:40,400 --> 00:58:41,040
Speaker 2: breads and butter on.

1097
00:58:42,280 --> 00:58:42,640
Speaker 3: But I did.

1098
00:58:42,800 --> 00:58:45,080
Speaker 2: I did enjoy this when to me it had more

1099
00:58:45,120 --> 00:58:48,840
Speaker 2: of like an herbaliness going on as opposed to like a.

1100
00:58:48,400 --> 00:58:50,240
Speaker 1: Juicy fruit sort of hoptiness.

1101
00:58:50,360 --> 00:58:53,200
Speaker 2: But I love everything other have does, so good. Glad,

1102
00:58:53,240 --> 00:58:54,840
Speaker 2: I glad you and I got to enjoy this one.

1103
00:58:54,880 --> 00:58:58,480
Speaker 1: If they were an individual stock, I'd go all it.

1104
00:58:57,760 --> 00:59:00,000
Speaker 2: Long on other half. Yeah, but yeah, we'll make sure

1105
00:59:00,160 --> 00:59:02,280
Speaker 2: to link to all that Brian mentioned in the show

1106
00:59:02,320 --> 00:59:05,080
Speaker 2: notes up on the website at howdomoney dot com and Buddy,

1107
00:59:05,160 --> 00:59:07,080
Speaker 2: that's gonna be it for this one. So until next time,

1108
00:59:07,200 --> 00:59:09,360
Speaker 2: best Friends Out, Best Friends Out,