Paul Winkler: Welcome to “The Investor Coaching Show.” I’m Paul Winkler. There is always something interesting to talk about in the world of finance. One of the things I have spoken about over the past couple of years, quite a bit actually because I’m intrigued with it, is the idea of flying vehicles.
I mean, think of “The Jetsons.” A friend of mine and I were talking a little bit about this and he said, “It’s just going to change everything.” And I said, “I agree.” We’re not going to need these big parking lots. It’s just going to drop you down then you’re going to be able to go where you need to go.
Are Flying Taxis the Future?
There’s something about human nature, we like being in control. We like driving. We still like being able to get in our own car and go wherever we want, so I don’t know how fast it’ll happen, but that has been something I’ve talked about.
Well, you may have heard in the news this week about United Airlines putting down a deposit on flying taxis. So United Airlines Holdings is a pretty big company. They gave a ten-million-dollar deposit for 100 electric flying taxis.
Now, if you haven’t seen this, you can go out on the internet and just look at this thing. It’s just so cool. It has six engines, and it’s electric, and it looks kind of like a mini-airplane, like a Cessna or something like that in a way. It’s got wheels and fins in the back, but it uses a vertical takeoff instead.
And the idea behind it is to be able to take people from hotels, and it’s a four-passenger aircraft, to airports. The idea is to take people from the airport and fly them over the traffic. Of course if you’re looking at California traffic, that’s a good thing. You have never been in traffic until you’ve been in California traffic.
But they’re just basically talking about whisking passengers over congested highways to and from the hub airports, and maybe go to the hotel and bring them back, that way people don’t even have to deal with all the traffic.
I saw this and thought, “This is going to be brilliant. I think it’s going to be really, really interesting.”
Don’t look at new technologies and immediately invest. Think about how the specific technology could change things, then look to where the best place for investment might be.
And I had actually heard somewhere that in 2024 they think that the Federal Aviation Administration will have paved the way for this to happen. So it may be one of those things.
Don’t look at it as, “Hey, let’s invest in this thing,” or anything like that. I don’t look at that, but I do look at the whole idea behind technology changes like this.
Where to Invest When New Technologies Arise
And let me explain where I come from on this. The whole idea to me is that it will free up resources elsewhere. Everybody will benefit. Every company will benefit.
We often think that the company that comes up with the new technology, that’s who is going to be the company to invest in, because it’s going to take off, it’s going to be the greatest investment ever. Maybe, maybe not.
As we’ve often talked about here, the inventor of the cell phone, Motorola, wasn’t the place to invest. The inventor of the digital camera, Kodak, wasn’t the place to invest. It is typically the end-user of the technology that benefits so much, and I think that’s going to be what’s going to happen here.
It’s going to get rid of so many inefficiencies in travel. Look at how much money goes into the infrastructure for motor vehicles and ask, how will that change?
It’s not always the best investment to immediately pursue a company that invents new and groundbreaking technology.
If you think about how much the world changed with the invention of the car. Look at all of the things that came about as a result of the car. Well, how will the changes take place when we’ve got these flying cars?
Some people are like, “I’m not going to be the first.” Well, you may not want to be the first that jumps in line on this thing, but some of these things you do.
There have been a lot of people who have been way, way in front of this thing. BlackFly, that particular vehicle, the flying vehicle, has well over 10,000 hours. I remember that when my father got 10,000 hours in the air it was a huge feat, because he was in the military.
It’s kind of this proven technology at this point, really is what we’re seeing, so it’s just interesting where that’s going to go.
Competition Can Cause Mistakes
Warren Buffet knows markets pretty well. He is with Berkshire-Hathaway. They actually had an increase, and they follow the buyer as buyers of equities right now. That’s what they’re doing.
They’re looking at it and going, “Well, how much did the purchases go up in the second quarter of 2022?” And that’s exactly what happened.
So often when markets go down, people think, “Oh my goodness. It’s over. It’s terrible. Things are going to get worse.” They get a little antsy, and they start to sell out. Then all of a sudden markets recover, and they miss out on those recoveries. This happens over and over again.
If we look back at history as investors, we do a pretty bad job. And I say “we” because I don’t engage in this activity. Investors in general actually do a really bad job of capturing market returns because they get depressed at the wrong times and they get euphoric at the wrong times.
People get excited about where things are going, because the news is always good when the market’s going up.
It’s, “Oh, everything’s great. You’re going to get rich. Everybody around you is getting rich, so you really need to step up your game,” right? And they put you in competition with other people and make it even worse.
No one wants to be beaten by other people. That’s no fun at all. We have a tendency of getting out of the market at all the wrong times after market downturns. We think, “Well, this isn’t working,” and it may be that something goes on for a long period of time.
It takes great discipline to be a successful investor.
Think of large U.S. stocks. I mean, you had a dead decade. Dead, nothing, no returns whatsoever, from 2000 to 2012. So it was longer than a decade, actually.
After a while people begin to think, “I’m banging my head against this wall. This is stupid. Why am I doing this?”
And then lo and behold, all of a sudden that particular segment of the market just absolutely skyrocketed better than any other area of the market, so really it takes some intestinal fortitude to have the discipline to do what it takes to be a successful investor. You can go through long periods of time with no returns.
The Idea Behind ETFs
I remember in the 1990s, you had nothing. Nothing was going on in the international markets, and over the next decade, that was where it was at. That was the area that did really, really well.
Warren Buffet is one of those people that says, “Yeah, you know what? I don’t get scared.”
As he likes to say, “I get scared when people are greedy, and greedy when people are scared.” That’s kind of his motto when it comes to it, and I just think it’s interesting that’s what he’s doing now.
It doesn’t matter what age he is. He still seems to be driven to go forward and be a successful investor, so all the power to him.
But it’s interesting because there was another article that I had actually seen, and it was on ETFs. The funny thing about ETFs is, what are they? Well, they’re exchange-traded funds. What’s the idea behind them?
The idea behind ETFs is that, well, you can’t beat the market, right? The idea behind indexing in general is that.
Now, as I’ve said many times if you aren’t familiar with what I talk about regarding indexing, indexing is when you track a segment or a section of the market like large U.S. stocks.
You might track large U.S. stocks by the S&P 500, which is based on the size of the company. So the very, very biggest company is going to be represented as the number one holding in an S&P 500 index.
The next biggest company would be the second biggest holding in the index, and down until you get to the 500th company would be the smallest holding, or the least amount of money if you buy an index fund would go to the very smallest company.
Now, indexing works fairly well in that particular area of the market, large U.S. stocks. If we’re looking at value stocks, it doesn’t work as well, because a value company would have a higher expected return, or a value index would have a higher expected return than a growth index like the S&P 500.
A company going through trouble will typically have to pay you more to use your money.
The reason being is because these companies, they’re a little bit more distressed or they’re going through more troubles, and a company that’s going through more trouble has to pay more to use your money, historically.
The Economy and Smart Investing
That’s why it’s kind of silly when we go, “Oh my goodness. This is really bad. The economy’s really bad, and this company’s struggling to get out.”
All the while, I’m thinking, “Well, you’re getting out after the news came out that they were struggling, so the stock already went down.
Now the future expected return is actually higher because of all these things, and so a company has to pay more to use your money when the chips are down, and you’re getting out just as the expected return is going up, which doesn’t make a whole lot of sense.
Pursue investment choices that make sense, not ones based on heat of the moment fear and speculation.
But back to the indexing thing, what happens with indexes is, since you’re weighting your portfolio to the bigger companies and the companies whose prices are higher already, you’re actually weighting the portfolio to companies with a lower expected return.
So what happens is indexing doesn’t work as well in small cap portfolios, for example, because you’re owning the bigger small companies. Where do I expect more return? The smaller small companies, right?
Where do I expect more return? For the more value-oriented companies where the prices are lower. So technically that’s what happens and that’s why you often hear me say that.
So with ETFs, back my original point, was with ETFs, what we’re thinking about here is, “I can’t beat the market. Let’s just index.” Index funds were the first, and then ETFs were just designed to be like index funds.
So if you’re confused about that, you can have an S&P 500 index mutual fund, and that would be a mutual fund that tracks large U.S. stocks, and you can have an S&P 500 ETF, which is an exchange-traded fund.
I’m not going to bother explaining all of the differences, because it’s not really that important at this point, but literally I can buy it and sell it in a day. I can buy it at one o’clock in the afternoon and I can sell it at two o’clock in the afternoon if I feel like it.
Don’t Sabotage Your Portfolio
John Bogel didn’t like the idea of ETFs. He was the founder of Vanguard, yet Vanguard’s the biggest seller of them. The reason he didn’t like him is because he knew people would gamble with them.
ETFs were built around the idea of gambling with your portfolio and stock-picking and market timing, which doesn’t make good financial sense, and he figured people will do that. Indeed, that’s exactly what we’re seeing.
Hence, one of the headlines that I read this week was that ETF outflows increased significantly recently, and I sent it to all my offices and I thought, “Can you imagine that? Say it isn’t so. People are gambling with an investment portfolio that was designed based on the idea that gambling and stock-picking and market timing don’t work. Go figure.”
And that’s exactly what people do, and it’s like we are so hardwired to just mess ourselves over as investors, and I just shake my head and go, “You know what? It’s what gives job security.”
I mean, yeah, there’s a lot of other stuff we do, like dealing with Social Security and tax laws and how to take income from portfolios and how to structure your portfolio for retirement, but a big part of our job is just making sure that people don’t shoot themselves in the foot, and that job seems to be really, really secure because of it.
A big part of our job is making sure people don’t shoot themselves in the foot with their investment choices.
This is why this show has existed for so long is one of the things that I use the show to do is help people understand and have someplace that they can go to when things seem a little bit weird, and just get a reassurance that not bailing out, and sticking with a program and not going and sabotaging your portfolio is still a good idea.
And hence, that’s why you’ll constantly hear me sound like Pollyanna. People jokingly say I’m Pollyanna, and they’ll say that, because I can be optimistic when things seem terrible.
Well, that’s the reason I’m optimistic, because you don’t need to hear optimism when the market is up. I mean, that’s the last thing you care about. It doesn’t matter.
A Need for Optimism
When there are negative, terrible periods of time, that’s when I’m out there all the time. That’s when I’m going on TV shows. That’s when I’m going out and doing radio segments about the things that are bright that nobody’s talking about, the areas where maybe something good is happening.
People don’t need optimism when things are going good. It’s when things don’t look so good that financial optimism becomes the voice of reason.
You don’t hear anything good, especially in an election year. For cripes sakes, can we get any more negative than we get in election years? I mean, you’ll get positivity out of the incumbent party of course, because they want you to believe that everything’s good, but they seem like they’re out of touch too when they’re doing it, right?
But you’ll get the opposing party screaming really loud that everything’s bad and it’s going to continue to get even worse. It’s like there’s a light at the end of the tunnel and it’s a train, and you may as well just pack it in because life’s not worth living anymore.
You don’t need any optimism out of me because you’re hearing it from every place else. You need optimism out of me when things look awful, and hence that’s the reason that I do that.
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