Transcription:
Paul Winkler: We’re back here on the Investor Coaching Show. Paul Winkler, along with Ira Work and Mr. Evan Barnard. Okay guys, two things in one right here. One analyst is saying they don’t think the current stock market is anything like the tech run up in the late nineties and then they don’t think anything like that sell off in the 2000s is going to be forthcoming with what’s going on right now.
The current market
Okay. I’m thinking that, Hey, look, you know, back in the late nineties, we had a bunch of companies with no profits really to speak of. But they’re saying the companies today are so different and I would argue, you know, chat for that thinking because you know, these companies, many of them are benefiting greatly from the current situation with COVID and all the online buying.
And, you know, I see articles like this and it leads me to a second article that I thought was good. It was in MarketWatch. Now, normally I will pick on articles in just about every publication that we run across because I see things in there. I just shake my head and go, this is crazy stuff. But this article is, was well written and actually had some good stuff. And “I want to retire rich, start by unlearning some conventional wisdom.” Okay guys. So yeah, come on. Let’s preach it. Right? The words getting out.
Yeah, exactly. Here’s some things that at previous points in my 35-year investing career, I’ve thought I’ve known which fund managers will outperform number one. And always typically when we hire an investment manager, what are we looking for? We’re looking for somebody that, well, they know more than me, right? They’ve got a good beat on this market. What’s going on? Where things are going.
A historian actually predicted every election back to 1984. I want to know what you don’t want. We want to know what he says, it’s going to happen. This election doesn’t matter because just because you were good that you got it since then, I mean, you look at this and it’s just, the media looks around for somebody that, Oh, that person got the last market. Oh, they got the last election. Right. What’s the problem with that with this election? Let me just, let’s just lay that one out on the line. What’s the problem with predicting this election? Maybe it can’t be done.
Are predictions trustworthy?
Is there anything just, maybe just a little different about this election, right? Maybe just a little compared to some of the previous elections. I mean, like we haven’t even seen the first debate yet. Right? I mean, you know, you know, the reality of things, this is, we didn’t see a convention either. No, really? No. Is there anything about what we’re going through right now that, Oh, COVID. Yeah, that happened in the 1988 election.
Evan Barnard: There was probably a lot. There’s probably a lot of states where they didn’t even vote in the primary.
Paul Winkler: Did they, at least for the democratic candidate, did they just quit voting or did they think, let’s just face it? Yeah. And going and looking at who predicted the last several elections and asking them to tell you what’s going to happen next. And that’s an election where you have polling and things like that out there. Now with the stock market, you just, you’re just dealing with a ton of unknowns. Sure. You know, when it really comes down to it, there are so many things, so many variables that drive stock prices that looking for a fund manager that outperformed in the past is just silly because it just, you can’t do it, but that’s what the media tends to do.
And that’s what they tend to. And that’s exactly what they’re pointing on this article, Bravo MarketWatch. Next one is where the economy is headed. Where are the up and down and up and down and up and down term. Yeah. Long term up. But I’m trying to figure out anything. I don’t know what’s going to happen next week. I, you know, they sit there with bated breath on CNBC. Every time an unemployment number comes out or anytime a consumer price index number comes out or any time a Fed action comes out or an interest rate announcement, or doesn’t matter what they’re saying or trying to figure it out, even think of a local aspect to that.
Evan Barnard: Okay. You know, we’re looking at what’s the unemployment projection and maybe the reopening track for downtown Nashville. We have this game plan. And then all of a sudden, these tweets come out, news articles and Cooper this or Cooper that, yeah. And it could be very different and no one knew those emails were coming out. And now they’re saying that now they’re saying that it was made up, right. That’s the most recent news. And you’re just like, okay, I don’t know what the news is going to be. I’m sorry, but it’s too unpredictable.
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Unpredictability
Paul Winkler: What’s next for interest rates and share prices is the next one, you know, interest rates and lumping those together shouldn’t actually be the case. But you know, you look at interest rates and go what’s next for now, the Fed has come out and said, “We don’t see increasing interest rates for three years.” Right. But the reality of it is will that be the case it’s dependent upon news. They could say that right now and the market could react to it. And it did react to it just now, didn’t it. You know where they’re saying the market reacted to it because why not?
Because of interest rates, because it’s a commentary on how quick the economic upturn is going to occur or not occur. The reality of it is when the Fed is surprised with news, as everybody, we’re all surprised with news, the Fed is going to be getting news. Maybe they get it, you know, a day or two ahead of us. And then they come out and make announcements. But the reality of it is news is news to the fed too. And right. And then when they get numbers back, they’re going to respond to this information and they’re going to go.
Maybe we need to increase interest rates a little faster. Right. Whether the overall stock market is overvalued or not, good luck with that. Because if you know, it’s overvalued, then you are going to sell. And if you’re that person that appreciates that, you’ve been able to figure out every market move.
And everybody knows you have that ability when you sell everybody else’s following your lead. And what do we know about that? We talked about this a few weeks ago when they actually studied these online traders, they looked at online traders that had the best history. And when they followed their trades, what happened 80%, 90% losses not gains. They looked at the people that had the best records.
And even when they adjusted for risk taken, even when they used statistics to actually determine on a risk adjusted basis who had the best returns, they actually underperformed markets. So, you can’t even look at it so that it’s ridiculous to even try which stock market sectors and national stock markets will fare best guys. We do this every year; we do this every year.
Markets across the world
I adjust the data in the workshop that we teach to the public. And it has a slide that we have where we have the US stock market returns. And then we have other countries. And how often we’re blown away. Even though we hear nothing about how great the stock market is. Right. We see that, Oh, Sweden had a way higher return than us this year. Oh, Oh my goodness. Japan’s return was way the heck higher than us this year. Oh my goodness. Denmark. Well, if we’re looking at the last 20 years, the United States was the number one stock market.
Once. Yeah. There you go. So we don’t know, you just have to be globally diversified to take advantage of all those other countries. Yeah. You know, in 2014, 2014, the US then it was 2014. US was the number one stock market only of developed nations. When you start adding emerging markets into that, we were number seven. There were six ahead of us, Egypt being the first. And we had a 12% rate of return. Egypt had over a 26% rate of return.
Now I’m wondering why you memorize this. I’m impressed by Malaysia, Indonesia, and the Philippines. I mean, it’s crazy. And I was getting committed every Friday. Hey, how come you, aren’t putting more Egypt in my portfolio? Where are you getting those calls? I didn’t get those calls. Well, actually I explained to people that we don’t, we don’t invest in Asia because it’s not a free market economy. Well, you know, it’s funny you say that because we talked about it. I remember when I was doing TV shows all the time here and I was always talking about the big grease meltdown.
Right. You know, and when that was happening and the very next year, that was the top market, 53% or something like 53%. Yes.
Evan Barnard: So when he, you know, this, the author is talking about, well, this is a different market. And so it’s not the same. Yeah. How many analysts in the middle of that last market climb, who were saying good points. Well, this is different. It’s going to go on forever because things don’t matter this or that, you know, whatever months, every 18 months technology was doubling our productivity. Yes. You know? And so all the same analysts were projecting 40,000 on the Dow by 2000.
Paul Winkler: It was completely irrational to think some of these companies were going to be big hits.
Evan Barnard: I mean, it’s almost like reading the comics on Sunday when I read these things. It’s like, okay, whatever.
Wall Street plays the game
Paul Winkler: Yeah. And that’s just it. So you look at it and he talks about these things. He says, you know, why do we think we know these things? And it was partly because Wall Street and the financial media talk endlessly about the issues that financial media needs to fill airtime. These are the key websites and printed pages. Meanwhile, Wall Street wants to convince you that you know something about the future. So you can actively manage your portfolio and thereby fatten the streets coffers. And that’s the bottom line.
You know, the more you engage in this activity, the better off they are. So to convince you that you have this ability or that they have disability is actually in their best interest. And they play to your behavioral mistakes that you might make and extrapolation and overconfidence and recency biases. And the problem is, is this, when we think we know something, we’re inclined to act on it, and we’re inclined to do this, especially with financial markets, because we feel like we have control. And it almost always triggers investment costs and perhaps big tax bills.
And we forget about that often when we’re making these changes, it was like 25% of the money in the market is like in taxable portfolios, which is a significant amount of money. Right. You know, so we’re looking at a lot of taxes and maybe even uncle Sam would like it if we engaged in some of this activity, because from a tax possible. Yeah. I mean, you think about it. So we need regulators. We need to stop this. No, It’s actually benefiting us.
Right? Yeah. And I say that because often we have protective entities, the FDA to make sure that we don’t take food that is poisoning us. So we think that we have the same types of protection or should have the same protection in the financial world to stop us from doing things that might be harmful. But in reality, if the government benefits from the harmful activity, maybe that’s not such a high priority. Yeah. Look at tobacco tax.
Sure. Yeah. Yeah, exactly. That’s a really good point. We’ll put a tax on tobacco. We want you to use less of it now we’ll actually, we lose tax revenue. If you use less of it, maybe, maybe not so fast, you know? So the reality of it is, is best not to forecast. And don’t try to predict the future when people are wanting to try to predict the future when it comes to this election, it is not a good idea because reality is typically the investment companies win out in a much bigger way than you went out when it comes down to it.
Paul Winkler: Best to just say, no.
You are listening to the Investor Coaching Show. I’m Paul Winkler, along with Evan Barnard and Ira Work. We’ll see you next time.
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