This week on The Money Puzzle we are talking about some of the biggest mistakes Investors make when going at it alone.

Speaker 1 [00:00:06] All


Speaker 2 [00:00:06] right, welcome to the money puzzle, formerly known as peace of mind ready, I


Speaker 3 [00:00:11] took you a minute.


Speaker 2 [00:00:12] You almost forgot peace of mind. He’s going to say forgetting. I’ve done that for the past six. Quickly, we forget. That’s right. All right. So anyway, welcome to the money puzzle. Today is going to be pretty interesting. So we’re talking about just two common mistakes or really come mistakes that we see investors make when it comes to their investment selections. And we should


Speaker 4 [00:00:32] we should probably emphasize, do it yourself. Yeah, yeah, yeah.


Speaker 2 [00:00:35] Do it yourself. Sorry, that was that was actually the name of the show and I didn’t write down anyway. So this is kind of a DIY discussion, but how we’re going to approach it is we’re going to talk about sort of the mistakes we see people make and then sort of what they should be doing. Yeah, right. OK, we see that, you know, this is a common mistake, but here’s how people should approach it. That’s how we’re going to tackle all this, right? All right. So before we get started, phone number for us. Five zero two two zero zero five two one zero And now you have a new voice. She’s actually over there behind behind the camera today. But anyway, when you call in, you’ll get her voice. Not one of ours, so we’re pretty excited. Definite improvement, which is we are pretty excited about having her onboard. So with that being said, let’s jump right in. So the first of we want to talk about is is is pretty good timing, right? Because we’re this is what beginning of February 2020 to. Mm-Hmm. Yeah, we got a lot of volatility in market, as you guys know. And so we have a tendency to find investors are doing what when the market’s all over the place


Speaker 4 [00:01:38] freaking out a little bit? Yeah, right? Maybe getting a little overly emotional and overly having too much emotion as it pertains to your investments can lead to poor decision making. And so what we’re seeing a lot of investors doing now is maybe selling off at a point when the market might be finding its bottom to some degree anyway.


Speaker 3 [00:02:00] So I you know what? That’s absolutely right. I’ve talked to people who are doing that. I’ve talked to people about why they should or shouldn’t do certain things. The way that I like to explain this to people is when you go shop for something, do you buy it when you know it’s on full price? Or do you buy it when it’s on sale? Or, you know, if you get lucky, maybe a clearance and then reverse the roles a little bit. So you’re the retailer, would you rather sell it on sale or would you rather sell it when it’s at full price? So if you apply that to now, you know, the markets are down a little bit. Now’s not the right time to sell because everything is on clearance, if you will. So it’s a good time to buy if you’re the if you’re the consumer. But if you’re the retailer, it’s a great time to buy or excuse me, it’s not a great time to sell.


Speaker 4 [00:02:48] What’s the number one rule of investing to buy low sell high? That’s right. It’s not buy low and then sell well. So that defeats the price point that defeats the entire purpose. Yeah. And we were talking about this earlier as we were prepping for this conversation. But going back to 2008, when we had that market crash, I know personally I have two clients. They weren’t clients back then, obviously, but since then have become clients, and they’ve both told me that they got scared and they went to cash for the most part in their portfolios and the end of 08, beginning of 09. One of them didn’t get back, really fully invested until 2013. The other, I think it was around 20, 14 or 15. So they missed, they missed. They missed an absolute ton of growth. And I just shudder thinking about how much more they could have had in their portfolios saved and invested over that time period that they missed.


Speaker 2 [00:03:38] Yup. Yeah. We actually had a show on this not too long ago. But you know what? My take on this and you guys are exactly right and I follow you guys. But I think one of the things that causes clients to become emotional is just the the absorption of different medias that are out there, right? We did a show on this not too long ago. I mean, you can look follow any gold at CNBC or Fox Business News or any any form a Yahoo Finance, whatever you want to follow. And pretty much it’s all negative, right? I mean, and they they cause I think, uh, investors that what that are looking for information, they they have a tendency to be more negative. And so it’ll cause investors to react more emotionally as opposed to fundamentally saying, OK, you know, really what the market’s doing if this is a correction or whatever it is. But I think just your intake of data or information can cause you to be more emotional than what, well, it should.


Speaker 3 [00:04:34] We did do a show on that and we talked about it’s old fashioned news media. If it bleeds, it leads. It’s the negative stuff that they’re always going to report on the news first, because that causes people to pay attention. So if you’re getting all of your information from one source or sources that are all doing the same thing, you’re going to be getting negative after negative, after negative, after negative. Well, of course, your emotions are going to take over.


Speaker 2 [00:04:59] Yeah, yeah, for sure. Hey, real quick producer or miseries producer producers. About that, can you throw up pictures of our office real quick? You guys should be seeing pictures of our office should be, I don’t know, there’s two or three. She’s probably going to kind of go through. So I want to show this because, number one, we change the name of our podcast, right? It’s called the money puzzle. And number two, we got something that’s coming up, we believe April 2nd now, right?


Speaker 3 [00:05:25] That’s our understanding.


Speaker 4 [00:05:26] I think we’ve got the official start.


Speaker 2 [00:05:27] We got the official start date. We’re not going to announce what it is yet. So you have to keep following us until then. But we get closer to it. We’ll announce what that is and all that good stuff so we can kind of flash do a couple of different pictures. We actually redid our office to reflect the concept of the money puzzle.


Speaker 4 [00:05:45] Well, it’s probably fair to say we didn’t redo it, we just did it, and we did it in the first place.


Speaker 3 [00:05:50] That’s true. That’s true. Well, we did have in in all fairness, you’ve got a bunch of guys and whatever we wanted to decorate the office with was not going to be good because none of us are gifted at decorating things. It’s just not what we did. We’ve actually argued about a lot of bad ideas, but there wasn’t a good one in the group, so that’s true. We finally got the right people to come in and design some things for us. Yeah, and it looks fantastic.


Speaker 2 [00:06:14] Yeah, it really does kind of cool. All right. So moving on. OK, so the next one we’re going to talk about is selection of individual stocks and mutual funds. So just what are some of the mistakes that you guys see when you know a prospective client comes in and they have a slew of stuff in their portfolio? What, what, what type of mistakes are you guys seeing that they make?


Speaker 4 [00:06:35] Well, I’ll say, I’ll say as it pertains to stocks specifically, I see well, I see a ton of mistakes generally, but one or two or the most common one, too much of your portfolio is in one specific stock, or maybe one or two specific stocks. So you’re over weighted with one single company and that’s called business risk, right? You have too much of your risk associated with one specific business. If something happens to that business, to your portfolio is going to be in a lot of pain. And we’re seeing that right now with so much volatility. A lot of the stocks that have had just fantastic year over the last couple of years, 2019, 2020, we’ve seen especially, you know, like in it and the growth sector. Some of the more popular stocks out there have just taken an absolute beating over the last few months, which is which is fine. I think over enough time, that’s not necessarily a horrible thing. But if you’re over weighted in that specific sector or in one or two specific stocks, your portfolio is going to be down quite a bit, potentially.


Speaker 3 [00:07:35] I would add to that on the business side, when you’re talking about an individual business and why that’s high risk, there’s some things where perfectly good companies can suddenly swing one way or the other. And we’ve talked about this on podcast in the past when Wynn Resorts got just clobbered because of a MeToo accusation during that thing a few years ago. I was thinking just last week, Facebook,


Speaker 4 [00:07:59] I was going to say, that’s fantastic. But what was the total?


Speaker 3 [00:08:01] Was it down 27 percent? I believe it was in one


Speaker 4 [00:08:04] day and one day, and that was really not due to anything that Facebook did. It was really due to Apple changing their privacy settings, correct? And so Facebook makes so much of their money on ad revenue, mostly from small businesses, quite frankly. But because Apple changed their privacy settings, you weren’t able to really do retargeting, which I know we’re probably getting or maybe a little bit too in the weeds. But basically, it was cutting off Facebook’s ability to generate ad revenue. So sometimes


Speaker 3 [00:08:28] that where their revenue stream, so


Speaker 4 [00:08:29] something that was completely out of Facebook’s control that they did nothing, there was nothing wrong with their business model, per se. But now they’re stuck in this place where somebody else made a decision that completely affected their business. And Facebook is not exactly a mom and pops up. That’s one of the I mean, that’s one of the Fang stocks, right, that we talk about. That’s one of the market movers. And if it can happen to Facebook, you can happen to anybody.


Speaker 2 [00:08:49] Yeah, absolutely. Well, there’s been plenty, you know, Enron was another one, right? Everybody one on a Thursday or buy had plenty of money in their Enron stock, and then the very next day, they had nothing. So the other thing that I’ll just point out, I mean, stocks are one thing, and that’s a great example. I think mutual funds is another. And again, we’re not promoting a particular mutual fund. This is just that investors will have a tendency to look at historical performance returns and select mutual funds based on that alone without looking at all the other content. And we see this a lot. So somebody’ll come in and they’ll have their own statement and you’ll look and they’ll have like multiple, you know, blended funds like a fund of funds and they’ll have four or five of them. You’re like, What are you doing? Well, you know, if they didn’t understand it one, because they’re really not educated much on it from the foreign providers, but number two, you’ll look and they’ll have an overweight or the majority of their funds are in small cap mutual funds. Why? Because they look at the performance and they go, look at the three in the five and the 10 year, that looks great. What they don’t see is the huge volatility that can be year over year. So what they see is they just go, well, this is the highest performing fund. I put all my money in there, but it’s fine to have some allocation there, as we know. But. You don’t have everything in that in those. You know, it’s all small cap stuff. So anyway. So what are you guys when you’re when you’re talking about a client that comes in that is either selected in mutual fund or or stocks? I mean, how do you how do you educate clients on what should they be looking for when they’re looking to pick a mutual fund or a stock?


Speaker 3 [00:10:24] Well, the big one that I do is correlation and correlation is the concept that when when a stock or a mutual fund or whatever the case is, goes up. What are the other things do according to it. So, for example, a correlation of one point, Oh, that ratio means if this goes up this amount. The other thing goes up roughly the same amount. That’s a that’s a positive correlation. You need to have things that don’t correlate with each other the same way. That’s diversification. When the market goes up, you know, 10 percent if your portfolio goes up exactly the same. That means when the market goes down, there’s a good chance it’s going to go down exactly the same. And if you’ve got a highly correlated set of mutual funds, and that’s where I see it the most. Guess what’s going to happen? You’re going to take all the lumps along with all the upsides?


Speaker 4 [00:11:19] Yeah, especially well when you look at it from the other side, too. I mean, there’s also a problem we talked about not being diversified enough. There’s also a problem that occurs that most people don’t think about is over diversification. And when you get too over diversification, you’re actually just holding a lot of the same stuff. You’re just holding it in different things and that’s called overlap. So when you have mutual funds, let’s say you have two S&P, five hundred mutual funds, you’re going to have two mutual funds. And this is very, very basic. But you’re going to have to S&P five hundred mutual funds that are going to basically track that index. Both of those mutual funds, for the most part, are probably going to have the same or very, very similar underlying holdings. There’s not going to be much diversification between those two mutual funds, even though you know there are two separate mutual funds, they’re going to go to your point in correlation with one another. They’re going to perform very, very similar. There’s not, you know, there’s not really any diversification there, even though you think just because you have multiple holdings, you’re diversified. That’s not necessarily the case. And so the same thing you can go going back to what I was talking about earlier was with individual stocks because it’s sometimes easier to think about individual stocks. If you’ve got, you know, Apple, Facebook, Amazon, they’re just those are all tech companies, right? Mm-Hmm. You’re not really diversified. You have a couple of different holdings, but they’re all the same type of company. So if you’re trying to build a diversified portfolio, you want some tech, you want some finance, you want some, you know, consumer staples, you want, you know, industrials, things like that. You’re not really building any diversification when you’re picking stocks that are basically going to look and sound alike. Right?


Speaker 2 [00:12:53] So, yeah, the other thing I’d say when so so two points when it comes to individual stocks, you guys have heard me say this over and over. If anybody has an interest in picking individual stocks, I got great advice when I first got in the business from a guy that was, you know, he was very senior in the business and I switched to him and I go, Hey, I have an interest in picking stocks, and he’s like, All right, I’m going give you some advice. Only buy stocks and companies. You either use their product where their product, get the product or have an interest in the product. And if you can do that, then that’s how you pick a stock. Don’t try to go out and look at the data and the statistics and filter through all that information and try to pick a stock. It’s just now it’s Doug. You won’t win doing that. But if you feel like, for example, I was a late Chris noses, I was the only addition to the Apple product, but I did. I did have I got a phone and this is the second generation phone that came out and I was like, You know, it’s a Tuesday morning. There’s nobody over at the mall, at that Apple Store. I’m just going to go over there and get something. I get the phone fix or whatever. I went in there and the guy was like, You can come back on Wednesday, and I was like, What are you talking about? And he was like, We’re that busy. So I literally went back and I bought Apple stock. This has been years ago and I did it because if there’s that much demand for something that I have to go in a an appointment to get something to meet with somebody


Speaker 3 [00:14:11] in a retail store,


Speaker 2 [00:14:12] there’s probably something there.


Speaker 4 [00:14:13] So going going back, actually, we were talking about Facebook or I heard actually just last week on that day when when Facebook tanked twenty five, twenty seven percent in one day, there was an analyst that he had actually gotten book Bearish. Actually, he was kind of bearish on Facebook stock, specifically because he started noticing his daughter and all of her friends were not on Facebook. They were all on Snapchat, not even Instagram. They’re kind of moving away from Instagram. They were all on Snapchat. And so he had actually become more bullish on on Snapchat back then. So there’s just an interesting anecdote that plays well into what you’re what you’re talking about.


Speaker 2 [00:14:47] OK, just as a as you say,


Speaker 4 [00:14:48] is there somebody behind me?


Speaker 2 [00:14:49] There’s a lady out in the hallway that’s trying to get out of the door, and she has her hands full, but she there’s like a handicapped button hitting open. She literally just took her foot and went, Why did you see that she put her foot in the? I could not notice that. Anyway, so. Real quick, if you are listening, the podcast, our phone number five zero two two zero zero five two one zero. You’ll get Whitney on the phone, you can talk to her. And by the way, if you’re if you’re kind of a DIY wire and you’re like, Hey, I don’t know if my portfolio the other time with this correlation stuff and you know, I’ve really not had I’ve kind of always picked my mutual fund myself. If you want to come in and meet with us, by all means, just pick a phone call Whitney, and she’ll schedule to meet with one of us and we can sit down and walk you through anything you want to walk through, especially about your portfolio. And if you’re I don’t know if you’re on the teetering on the edge of selling out of the market, call us and we’ll we’ll walk you back through that. So anyway, that’s it’s our phone number again. Five two two zero zero five two one zero. OK, real quick. The last point I was going to make. So this sort of a lead in prey wasn’t that good, but the transition. But it was almost like, like it was good. But the second transition? Yeah. Yeah, the the second thing I’ll say about picking stocks and picking mutual funds is don’t just seek the advice of a professional, don’t seek the advice of your neighbor next door because I can tell you if they’re telling you, Oh, I bought this stock and it’s gone up 500 percent, I can tell you that’s a that’s probably not true. And then two, they’re probably not telling you about the other 15 stocks they bought that they lost money on. So always seek the advice of a professional. So when you’re picking, stocks are picking mutual funds called seek device divisive, a professional like us and say, Hey, I’m thinking about doing this or, you know, hey, how should I invest my assets? So that being said, seeking advice are professional. What? What have you guys run into anything that’s more of a, you know, where you’ve seen a client make a mistake because they got advice from a nonprofessional?


Speaker 3 [00:16:50] Yeah, I had one that I dealt with not too long ago, and it went right. Along with the diversification, he’d been making his own investment choices. He’d been doing it along with a few buddies, none of whom were in the profession. They were in something totally unrelated. What I found amazing was they owned several hundred different companies, but they were all heavily correlated. They were all in two or three different industries, but they were convinced that they were really well diversified. These were all the exact kind of holdings that we’re going to. We’re going to tank together or they were going to go up together. And when you’ve been in in a in a bull market for as many years as what we’re in, you get this false sense of security. Oh, I know this is going to do well. This sector is great. I wouldn’t want to buy any of that because that doesn’t do well anymore. And then it all it takes is a market correction for you to get a really painful lesson on how that’s not actually diversified. And then to add insult to injury, if you will. I looked at the different accounts that he had IRAs. Non-qualified accounts across all of it was the same holdings. The same exact thing in every single account. So it’s it’s this belief that you’ve got really good diversification. What you have is a really, really pretty statement until you look at the bottom line,


Speaker 4 [00:18:14] you kind of along those same lines, chasing returns or chasing the next big thing. I’ll I’ll use one specific example at a client that this is a few years back, you know, kind of got on the cannabis train and started investing in those types of stocks. And for the most part, a lot of those stocks were what we might call, quote unquote penny stocks, or they’re listed off a major exchange. And so very, very, very high risk. But use chasing these returns, you know, thinking that these were going to be the next big thing and maybe someday it will be. It’s not yet right. At least those those stocks aren’t yet. And so he he’s lost a lot of money, whereas the rest of his portfolio was fairly traditional, he had a pretty good chunk of it invested in something that he thought was just going to, you know, earn him these huge rewards. And he was he was chasing return some years that might pay off for you, but most of the time it usually won’t.


Speaker 2 [00:19:10] Yeah, the one thing I’ll add to that is I had a more generous. This is not a specific situation, but I’ll say generally what what I hear a lot is somebody will call up or they’ll come in or a prospective client. They’ll say, Well, my neighbors, you know, my neighbors doing this or my neighbors took to Social Security at 72 or I was told to take Social Security. I’m sorry, 62, that’s 62.


Speaker 3 [00:19:31] Or it would be impressive.


Speaker 2 [00:19:32] Yeah, yeah. Or I’ve been putting money in IRA because my neighbor told me to or this is what somebody at work is doing or I’m invested in this because, you know, I got invested in cannabis because somebody in the office said that, you know, they smoke weed and it’s going to go through the roof or whatever the case is, right. But what they’re doing is they’re essentially listening to someone else that may be proper advice for that particular person because their particular financial situation has nothing to do with someone else. And I will tell you, we done. I mean, I’ve done, probably. Nor I say north of 200, I can be approaching 300 plans at this point, I don’t know how many, but I will tell you there isn’t there, no one of them that walked in the door, that’s been identical. They’re all so different. And that’s really where we came up with this concept of the money puzzle because everybody’s puzzle is a little bit different and there are different phases in your life where your puzzle is going to be different. So in the beginning phase of life, so we’re in the accumulation phase, right? You’re sort of accumulating wealth. We get a lot of people to walk into that got bad advice. And all of a sudden now they’re transitioning into the income phase of life and they can’t because they didn’t set things up properly or in one case a couple of years ago. Chris had a client who came in that had started Social Security, and they actually went back and unwound that Social Security because it was the right thing to do. So again, you know, entering into the from the accumulation phase of life to the income phase allied to the distribution phase of life. Again, your puzzle is going to be you’re going to have different components of your puzzle from one piece or one, you know, transition to another from the accumulation to the income, which is what I’m talking about. And so all in and your puzzle is going to change. So there’s no two puzzles the same. So what you’re hearing from your neighbor or your buddy at work hasn’t is probably


Speaker 3 [00:21:18] good advice, certainly not right because of the uniqueness of your situation.


Speaker 2 [00:21:23] Yes, it’s going to be different, right? So you need to seek the advice of a professional and say, OK, here’s my puzzle, right? Help us, help me put my puzzle together, and I will tell you that’s where we find the majority of folks at walk in our door as they sort of maybe know what their pieces are. Or maybe they have. They don’t even know that there are certain pieces that they have to have do their puzzle. And so they’re coming in and asking to sort of help them put their puzzle together. And that’s really what we came up with the name, the money puzzle. So but any other final kind of final thoughts on DIY?


Speaker 3 [00:21:53] Not on the investment side. There’s a lot on the planning side, but I think we’re going to do a sequel to this on that part, right?


Speaker 2 [00:21:59] We are we’re going to actually do sort of planning mistakes, if you will, next week. So we’re doing it right after the show. So we’re all dressed the same, you know, we all have the same thing every day, but we’re going to do that next week. So make sure you tune in there. But any final thoughts?


Speaker 4 [00:22:14] No, nothing else said specifically. I mean, as you were just talking, I was actually thinking of a few other planning DIY planning. Oh yes. We’ll get to those here shortly. And you mentioned Social Security will wind up having an entire show on that topic as well because that you can have a whole show on Social Security. Yeah, mostly myths and mistakes. So, yeah, yeah.


Speaker 2 [00:22:32] So anyway, thanks for watching. But just remember if you and again, we’ll go back to this kind of money puzzle theme as as we kind of move forward and we’ll try to relate everything back to this money puzzle. But if you’re one of those that you know, you just got multiple pieces to your puzzle and you’re not really sure how to put it all together, what it looks like, it doesn’t matter if you’re in the accumulation phase or the income phase of life. Maybe your puzzle has changed from maybe you’re in the income phase, you’re transitioning over to the income phase and you don’t know what all these pieces look like or how they all fit together, you know, specifically how Social Security actually fits into your puzzle. Just bring, in other words, bring your puzzle does and let us kind of help you fix your puzzle, no matter what phase of life you’re in. So anyway, that’s what we’re going to be talking about. That’s what we’re going to make reference to sort of moving forward is, you know, the puzzle pieces and how they all work together. The investment piece of your puzzle is just one. The other piece we’re going to talk about is the planning piece, which again, is just another component of your puzzle. So anyway, thanks for watching this week. Catch us next week and we’re talking about planning mistakes. We’ll see you guys next week and all like Eric’s and laugh like he always does.


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