Paul Winkler: Welcome. This is “The Investor Coaching Show.” I am Paul Winkler, talking about money and investing. Let me broach a subject that can be a landmine. There are markets that are doing better than others.
Markets
When I talk about markets, most people think about just big U.S. companies, because that’s all they focus on, and that’s all the media ever focuses on. However, there are small ones, medium-sized ones, growth companies, value companies, and international companies.
So when we talk about the market, when I talk about the market, I’m talking about the whole marketplace. We often get ourselves all wrapped up around this idea of what the market is doing. You might have the housing market doing well and U.S. large companies’ stock not doing as well, but small companies may be just doing great.
Value companies in the 2000s we’re rocking and rolling. Everything was going great. Then the market went down and everyone was saying how terrible it was. What happened is we had all kinds of talk about what was causing the market to go down, and I said, “Oh. Well, there’s some markets that are going up.”
There’s a conspiracy that this is what’s causing all of this stuff, and it’s what I want to talk about, because these types of conversations really get started when you generally have negative information about markets.
Remember, not all markets are doing terribly.
There are some markets that actually have done quite well over the past six months, even longer than that. Some of the areas of different investment asset classes that have done well, year-to-date, are completely different from what was doing well last year, for example.
I mean, completely different. I’m not going to get into specifics right now, because I want to get into this topic about conspiracies and the things that are happening behind the scenes—the people that are trying to sink the government, that are trying to sink the economy, or that are trying to sink the banking system, because this is the type of stuff that I’m hearing now.
We’re hearing people say, “This is what they’re doing behind the scenes,” and what we often do is we get into these types of conversations, when maybe the investment markets that we’re hearing about or are following aren’t doing so well, and we think, “Well, there’s got to be an excuse for it. There’s got to be a reason,” and we want to make it a simple explanation.
Investing Conspiracies
There was this one article I was reading, and it was talking about conspiracy theories. Why is it that people get into some of these things? That’s what happens with conspiracy theories. It’s an unproven thing, and there are actual conspiracies.
That’s the tricky part about it, but they can be proven with documented proof that they’re really happening, but the problem with conspiracies is you have to get a bunch of people with differing points of view, differing incentives, and differing desires for outcomes, you have to get them all together to agree on something.
Do you ever notice how hard it is to get people to agree on something? They typically end up shooting each other or stabbing each other in the back, and doing things against the other person, because it becomes a power struggle.
I look back at various periods in history where despots have tried to take over, and they’re always watching their back, because you never know who’s going to come and get you if you get too much power.
If you want to conspire and try and make something happen, people come after you from all different directions, because they want the power that you’ve gotten. It’s a dangerous position to be in.
Number two, you have so many differing desires as to what the outcome is going to be, that people often end up offsetting each other. What happens with conspiracy theories, why they’re so popular, is they provide our brains with easy answers, and these things jive with our preconceived notions or biases.
So we have a belief, and we look around for something that confirms that belief.
We call it confirmation bias. We look for information in people that agree with whatever it is that we’re saying, and then we’re off to the races, and they tend to appeal to what’s called System 1 Thinking, which is your emotions, your intuition, your gut feelings about things, and your innate desires that you have.
Investing Anxiety
This is the issue with anxiety. It’s fear of the future with, “It’s never going to get better. It’s always going to be awful.” What we do when we have anxiety or fear about the future, we’re trying to fill in a blank space with something.
That blank space is a story, and that story is made up. Now, somebody else may make up the story, and you just grab onto it. No matter who makes up the story, whether it be you or somebody else, we grab onto it because it gives us some certainty.
As long as I know what’s coming, I can plan for it. I can go get boxes of food. I can go get tons of bottled water. I can go and set up a bunker in my basement. I can plan for whatever I think is going to be coming my way,” because we desire certainty, we desire security, and of course we also desire belonging.
In other words, when I believe something, and somebody else comes out with something that I believe, and then we all kind of get together, I feel accepted.
Anxiety is fear of the future and depression is anxiety with hopelessness.
Because it is the base desire of all humanity to feel that you belong to something, and it can be dangerous, because there are people who feel like an outcast, and all of a sudden they get with the wrong crowd, right?
What happens is these things tend to jump out during times of crisis or when we feel uncertain, and the media has been making people feel tremendously uncertain. I can’t even watch it half the time.
Bad News Attracts
It just makes me crazy. It’s like they look for every negative, and then they make it even more grandiose, as if the news sometimes isn’t bad enough. What happens is you get somebody else, and there’s safety in numbers.
We can all band together, and we can fight the good fight together, and somehow we feel a little bit better. Then, this stuff that’s out there is clickbait out on the internet, right? And what we do is we say, “Oh, wow. That looks really interesting.”
Bad news, of course, attracts attention way faster than good news.
Let me just tell you this story real quick if you’ve never heard it before. My mother was a radio station program director. She was intensely positive. That’s where I got my optimism from, and the thing that she tried to do is a radio show on nothing but positive information, and it flopped miserably. I mean, miserably.
Nobody wanted to buy advertising, and of course if you’re going to do a radio show, you have to be able to sell advertising, and nobody wanted anything to do with it. Well, the reason they didn’t want anything is because they knew that engagement is negative when the news is good. When you have good news, it’s like, “Oh. Everything’s going to be okay. We can turn off the TV and go outside and play.”
Now, if you got bad news, we can go and watch, and just glue ourselves to the screen, because I know that I’ll see something that will help me survive in the future. I know I can see something on there that is going to help me prepare to make sure that I’m okay, and that’s our desire, is to be okay.
We want to survive whatever calamity is coming our direction. You look at who also benefits from all of these things, and there are just all different types of groups that benefit. I mean, politicians of course, because if they can keep people in anxiety and an uproar, then you’ll vote the other direction in the next election.
The problem they run into is sometimes the stuff that they come out with is so outlandish that they lose all credibility. That’s why I wish they wouldn’t do it.
How Investors Can Overcome Conspiracies
Now, where does this all apply to investing? It does in a lot of ways, because people make investment decisions based on what they think is going to happen in the future. Mutual fund companies sell on past performance. Why?
Why do they do it even though it doesn’t work? Because it works for them. It works for them to sell things to you. Now, how do we overcome some of these things? Well, number one is thinking a little bit more deeply and looking for evidence on whatever it is that we believe.
I was sitting down before this segment thinking about some of the conspiracies I’ve heard over the past 20 years. And quite frankly, I’m going to be honest with you, it’s exhausting.
I don’t want you to feel sorry for me, but it is, because I’m constantly trying to take some of these theories and just pour cold water all over them so I can protect the investor from themselves, but Y2K was one of them.
The computer’s going to do this. What’s going to happen? It’s all going to shut down. It’s all going to fall apart, and the whole world’s going to go to heck and the hand basket. I had a client of mine say, “Paul, I’ve got three cases of spam. What do I do with it?” I said, “Give it away to charity. Take the tax deduction, and don’t ever do that again.”
The market has a two-thirds shot of being up and a one-third shot of being down because that’s the way it always works.
Just stocks go down around the world, and then three quarters of the time they go up. They had a shot of it being right, but everybody forgets about that conspiracy theory.
How about the revaluing of the Iraqi Dinar? “Hey Paul, should I be investing in this?” Then, we have some of the things that had business ties to it, right? Hydrogen car technology has been bought by the oil companies, and they’re just squashing it so that we don’t find out about it and we don’t stop buying oil.
Profiting from the Information
Now what we see are some of the biggest investors in technology, alternative technology, are oil companies, and they’re selling plenty of oil to make roads, plastics, and all of those types of things, so why do they have to crush it so that we don’t use it to drive cars when they literally could be the companies that come up with the new technologies?
Another one that I had to squash, “They’re going to take your 401(k) from you, Paul. They’re going to take it from us. We need to go and yank all our money out of our IRA.”
Yeah, the government would love it if you did that. Just yank all your money out, pay taxes at 37%, or even higher in some states. Yank it all out, because they’re going to take it from you anyway, which was based on this crazy little thing back in the mid-2000s.
They’re trying to sell you something, because they really don’t, down deep, necessarily care that much.
If they really knew what was going to happen, the best thing they could do is keep the information to themselves and profit from the information themselves.
Telling you only dilutes what they can make on whatever it is that they could do to prepare for this conspiracy or whatever it’s going to cause. Am I impassioned about this? Yes, I sort of am, because I see people getting hurt all the time.
I see people getting hurt, because they take action based on this, and they only know after they’ve taken the action. It’s destroyed their investments and destroyed their retirement. That’s when they find out that maybe it wasn’t such a good idea, but by then it’s too late, because typically what they go to crashes, falls to the ground, and they have no way to recover, and they don’t have time, especially when you’re older.
Now, who typically falls for conspiracy theories and things like what I’ve just talked about? Well, I’m not going to look at the person that falls for this and say they’re somehow flawed, and there’s something really bad going on here. Actually, it’s because of a very positive trait that they typically have.
Future Predictions
They’re all predictions somehow of the future. Who falls for these things? Because there are a lot of them out there, and some of them are downright convincing sounding. They seem to make sense. I go through the pains of answering because I didn’t want to see people hurt.
There’s another part of me, I’m going to admit, that hates to see those people win. I hate to see them win when telling people things that are just plain lies, and they are harmful. Who tends to be pulled in by these things? I believe a lot of the time it’s just people that are plain decent, kind, and nice.
As a matter of fact, this psych literature backs me up on this, and I’ve looked at it before, because I think it’s fascinating. The reason is this, and I’ve seen this happen with people in my life in general. I find that people that get taken in by artists, quite often, are kind, decent people.
You are up against people that will do anything and say anything to get you to take action.
The reason is often because they can’t even fathom that somebody would willingly mislead them and tell them something that is a lie, because they would never do it. They would never even think of hurting somebody in that manner. I mean, you look at sociopaths. I’ve seen some numbers on sociopaths and how many people in the investment world are sociopaths? It’s scary.
Antisocial personality disorder is one of the hardest ones to treat. This is next to impossible to treat because these people will not make covenants. They won’t do anything. They will break them every time, and they can’t be trusted.
So imagine you’re getting information, a lot of information out on the internet from people that can’t be trusted, that they will say anything that they feel like they’ve got to say to get you to do whatever they want you to do. That’s what you’re up against.
Blind Trust
Then they get in front of a computer and come up with some scheme because they know most people won’t check the data. They know most people won’t look into it and determine whether this is actually true or not.
We all have lives that are crazy busy. We don’t have time, so it makes sense and it fits in with what I kind of already believe. Remember earlier? Confirmation bias.
It fits what I believe already, so it confirms. When something confirms what I already believe, it makes me feel better about myself. Everybody wants to feel better about themselves, so I’m going to go with this.
This makes sense. This fits with my worldview, and that is why people get pulled in by these things. It’s horrible. It’s horrible that there are people out there that will do that, but there are. This is why it is so critical for you to become an informed investor.
Don’t blindly trust anybody.
Okay, so what’s the other side of why I don’t buy into any of these things? It comes right down to why I invest the way I do.
Matter of fact, I didn’t get to all of the conspiracy theories. I couldn’t possibly. I mean, in 20 years, I’ve gotten a lot. But when we look at these things, they sound really good. They sound fascinating. “Wow. Yeah, I could see where this could happen.
Yeah, this makes a lot of sense, and it fits with how I see the world,” and we get pulled into them. Then, we make changes in our investment portfolio based on that, and then we are down a road that we can’t turn around on.
Short Selling
I know that in 2008, “Yeah. This is what I did,” or “It’s how I invested in the late 90s. They told me this is what was going to happen, and I got all the technology stuff, and technology stocks went down 80%.” Well, how do you recover from that?
You literally have to have a fivefold increase in your portfolio value to recover.
That’s not something you do easily.
When I talk about these conspiracy beliefs and how these people are putting things together to work against us, and they’re going to destroy the government, they’re going to destroy companies, are there people out there trying to destroy companies?
Sure. Yeah, if you look at short sellers. They will literally short sell, which is where they sell a stock, they borrow the stock. They sell it in hopes that the stock price will drop down, and they can re-buy the stock at a lower price. Well, there is great evidence that what they do, after they do that, is they look for problems in a company, because it benefits them for the stock to go down in value.
So they look around for things, and I’m sure they would love to put rumors out there all over the place, how this company’s terrible, and it’s worth a whole lot less, so that people will go, “Ah,” sell, and then price will drop, and then they’ll rebuy it.
For years, I saw this, where you had faxes saying, “You’ve got to buy this stock right now. Blah, blah, blah,” and it was a thinly traded stock, that if you bought the shares in that company, you would literally, even with just buying a few shares, drive up the price because so few people bought and sold that particular stock.
So what they do is they buy it ahead of time. They tell you, “This is going to be the greatest thing since sliced bread.” They would buy it, and then they would send it out and say, “You’ve got to buy this company. It’s great.”
Then hoping that they would drive up the volume of that particular stock. Then, all of a sudden what they would do is they’d sell it, because that’s what they wanted. They owned it before you did, and sold it at a profit, and then they walked away nice and happy.
Where Is Wealth?
There were people that were standing in the streets, burning their catalogs, and there were other companies trying to come up with business models that were better than Sears so that they could out-compete them. And I’m sure they did a lot of things and said a lot of things about Sears, that maybe some things were true and some weren’t true.
But there are always people conspiring, but you have wealth so broadly. Now, you do have a few people that are very, very wealthy that get the news all the time, but there is so much wealth in so many different people around the world.
You know, look at all these disparate pensions all around the country, and they have huge amounts of money, and they better make sure that money does okay, because if it doesn’t do okay, they’re going to have lawsuit after lawsuit.
Because when you fund a pension, you’ve got to make sure there’s enough money to pay out the people that have retired or are retiring from your company, or your company is going by the wayside.
Then, you have the mutual fund companies. If your investments in your mutual fund company go down in value, everybody’s going to leave your mutual fund company, and you’re going to be broke. You have people like Warren Buffett with huge amounts of wealth in Berkshire Hathaway. Then you have people, really, really rich people like Elon Musk, for example.
Wow, they’re, they’re so rich. Oh my goodness. They’re hugely wealthy. Well, where’s their wealth? It’s in stock. If all of a sudden this whole stock market comes crumbling down because of all these conspiracy theories, you have sunk the world’s biggest pensions, the country’s biggest pensions.
All the wealth of the extremely wealthy is sitting in stocks.
You’ve sunk the biggest mutual fund companies. You’ve sunk the wealthiest people, because their wealth is not sitting in cash and banks someplace.
Look what just happened to banks. Their wealth is in stock in the companies, so therefore, this whole idea that they’re all these people getting together to sink the stock market and ruin everything is kind of farfetched. Now, what if they ruin all these companies? What if they somehow ruin all of these companies? What if that happens?
So What Would Happen?
Well, if they ruin all these companies and all these profits go away, the companies have to lay off all the employees, and then you have huge unemployment. You have people in the streets, burning down buildings and tearing everything apart, and guess what? You don’t get reelected as a politician if that happens.
Then, of course, as I like to say, taxes go away because earnings have gone away, and people are no longer working. There are no more taxes. There are no more taxes. There’s no more government. There’s no more FDIC. There’s no more anything. If we look at it through that logical lens, we could say, “Wow. Maybe it doesn’t make sense to think that there’s all this conspiracy stuff going on,” because you would ruin everything.
You would be the benefactor of a whole lot of nothing, of absolute chaos. Nobody wants to be in charge of a lot of chaos. How many angry people do we have in the streets?
Then, you dig down deeper, and you find out it’s just younger people. You go to some of these cities, and they’re rioting in the streets. It’s like, imagine if that unrest were everywhere, because you’ve destroyed the entire economy. It doesn’t even line up with logic. “But somebody said it to me, and they seemed to be really nice. I don’t know. They seem to care about me.”
No, they really probably don’t. I mean, I hate to say that, but they probably really don’t, so watch out where you get information. Watch out.
Don’t blindly believe anything people out there on the internet say.
Even TV channels and people on the news channels, you can’t trust it. Look at the garbage that gets spewed, and just the hype everywhere to get your eyes glued to their screen, so you see their advertising, so they can make money off of you.
I hope maybe this has helped somebody, because I hate to see people hurt, and that’s exactly what I see happening when people believe these things, and they change the way they do their investments. We say, “I don’t believe in market timing.”
Stay Away from Market Timing
Market timing is any change in your portfolio based on a prediction or a forecast about the future. It has an abysmal track record. Studies done on pension plans, they found that every single one of the pension plans, the Brinson Hood Beebower study, every single one of the plans that they studied, engaged in it in one form or another.
Tactical asset allocation, moving money around, not one of them increased returns. Not one of them increased returns as the result of their activity. It makes great money for whoever’s buying and selling and getting you to do those things. It doesn’t do much good at all for investors. We see that from research.
When we engage in this type of activity, we end up not hurting just ourselves, but our family and generations to come.
Because your kids watch you. Your grandkids watch you. They see how you operate and they think, “Well, that’s how you operate in this world.” What ends up happening is a lot of times they repeat the same mistakes.
As an investor, when you hear these types of things, if you’re really well diversified, you’ve got a portfolio that’s really well mixed all around the world then really you’ve done everything you can for safety’s sake.
Safety is just an illusion, as Helen Keller said. It doesn’t exist in nature, but we can do as much as we possibly can. This is a concept that’s almost 3000 years old. Solomon wrote about it.
Put your money into seven places. You don’t know what calamity will befall the earth. Plant it in the morning. Plant it in the afternoon. You don’t know whether one will do better than the other, or both will do.
When we’re constantly watching for signs of things, we won’t sow, we won’t reap, we won’t do the things we ought to do as investors, because we’re so scared about self-preservation. So follow that advice. It’s good. It’s old, it’s worked for a really, really long time.
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