Paul talks about the news of America’s capture of the Venezuelan president, Nicolás Maduro, and how this will lead to uneducated investors making one of the most painful money mistakes. Listen along as Paul talks about why responding to the news with either fear or greed comes from the basic misconception that investing is really just gambling or that knowing what is going to happen in the future gives you an edge in investing. Paul dispels these investing myths and encourages you to stay the course. Later in the episode, Paul shares a market prediction from Fidelity about 2025 that could have hurt your portfolio had you listened to one of the largest investment managers in the world.
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Paul Winkler: Well, all right, welcome. This is “The Investor Coaching Show.” I’m Paul Winkler. I talk money and investing. I’m here today with Jim Wood; he’s hanging out with me here in the studio today.
Jim Wood: I get to be on the first show of the year.
PW: You get to be on, yeah, the first show. Pretty exciting. I think Evan is jealous, though.
JW: Yeah. Well.
PW: He’s like, “You guys have a lot to talk about with Venezuela, don’t you?” Yeah. And you’re like, “What happened there?” You were joking, but what happened there?
JW: Something happened in Venezuela?
PW: Yeah. The first thing I did this morning when I woke up, I don’t even know why, because it’s not my normal go-to app, but I went to The Economist, and that was my first thing this morning, getting up. The Economist was talking about, of course, what happened there. And I thought, Whoa.
And my wife said, “You might want to turn on the TV and see what’s going on. This is interesting.” And of course, there were all kinds of conjecture on what was happening.
“Was anybody hurt? How did that happen? How did they do it? Who was involved?”
And all of that. And it’s just fascinating stuff.
But I thought it was interesting just to look at, because my wife’s like, “Well, what does that have to do with anything with investing?” And I said, “Well, any unrest can affect investing markets, both in a positive and a negative way.” And you might ask the question, “How’s it going to affect things?”
But a friend of mine actually, he believed that was the whole reason that anything was going on down there. It was like, “This is a conspiracy. This is what it’s all about. It’s all about the energy thing.”
And I’m not going to argue whether that was it or not. It’s above my pay grade. But I did find it interesting that people will find anything to gamble over. Will they not?
JW: Of course.
PW: It’s like traders made time. And so I went and looked at the Wall Street Journal, and saw what they had to say. And one of the first articles that pops up is, “Traders Made Timely Bets on Maduro Ouster.”
“Traders on at least one prediction market late Friday night appeared to anticipate a rising chance that Venezuela’s Nicolás Maduro would be ousted this month.” The likelihood that he would be ousted “climbed shortly before 10 p.m. Eastern Time Friday after hovering around 5% to 6% for most of the week on the Polymarket betting site, its website shows.”
PW: It’s like that article I was talking about last week. It was nihilism and how younger investors, Jim, they’re just thinking, There’s not a chance for me in the world. I can’t make it in this economy.
It’s a very, very difficult economy, and the job market is really challenging, and here’s what we’re going to do. Instead of finding ways to work or like when I first started, self-employment was about it. If you wanted to get a job that you didn’t get fired at or at least got hired, you would choose self-employment when I first started, because the economy was difficult.
It was very similar to what we’re going through right now. I just recall a lot of similarities, but the thing that they’re moving to is, “Well, let’s just gamble with our money. Let’s see if we can make money that way.”
And my wife was saying to me, she said, “Oh, check this out.” And it was something about, it was the auto companies talking about a shortage of mechanics that’s happening.
And these jobs, $120,000, I mean, they’re really good jobs, but they have a shortage because we haven’t been educating people in the trades, and that’s something that’s missing. This whole thing about oil just kind of blows my mind, thinking about what this will lead to, what could happen.
JW: Well, the uncertainty is already out, it’s always out there, and that’s the thing is some will try to take advantage of it, but it’s that lottery ticket mentality, kind of what you were talking about of people saying, “Well, either I don’t think I can do it or I don’t want to put the work in to do it.” And so they just think The only way I’m going to do it is to get lucky and get rich quick.
So they buy a lottery ticket or they go on an app and start gambling, or they make sports betting or something like that. And they think that’s their way to success. It’s the only way I’m going to do it is to just get lucky and hit it big, as opposed to incrementally working harder and improving my position year after year.
PW: And putting money away little by little. It’s like you’re putting away little by little, just that patience. We’re not in that type of mentality. You pull up to a drive-through, and you want to get your food.
And matter of fact, we stopped someplace and had to get something. And I was like, Well, what is taking them so long? I’m laughing at myself, going, What on earth, Paul, how did you get sucked into this? What is taking so long at a fast-food restaurant?
Not at a sit-down place. It’s funny how we have that mentality.
PW: But the thing that I was looking at this morning was how is this going to affect oil and futures? That’s what I wanted to look at. So I pulled up futures markets to see what they were saying.
And Yahoo did have an article on it, and it said, “Trump says, “U.S. Is Taking Control of Venezuela’s Oil Reserves. Here’s What It Means.” And I think, Oh, they’re going to have the answer, right?
No, they didn’t have the answer. They really didn’t know.
But there were a couple of pieces of information in here that I thought were interesting because you might be tempted, and the reason I’m even bringing this up is you might be tempted to say, “Oh, how can I profit from what’s going on right now?” And like you said, Jim, once that information is out there, it gets baked into prices.
But this is so uncertain that even when they talked about this in this particular article, they said, “Taking control of Venezuela’s massive oil reserves,” and they were talking about recruiting American companies to invest billions of dollars to refurbish the gutted oil industry. I had no idea how gutted it actually was.
But they made the point in here: They said that Venezuela has like a fifth of the world’s global reserves. I mean, that’s a huge, huge amount.
They said, “Oil futures don’t trade on the weekend,” of course. And I was just looking to see if there was anything, any kind of information, anybody putting anything out there, but they just said, “Just not out there.”
So even with this information, people are still going, “We don’t really know how it’s going to be impacted.”
PW: So in other words, and this is key, this is key to understanding markets: Why are they so unpredictable? They aren’t about what a few people think.
Remember I talked about last year, Jim, one of my favorite articles for the whole year was this article that came out, I think it was in the Wall Street Journal, and they said, “We gave the news to traders. We gave the news three days early.”
So in other words, they must have sequestered people, and they cut them off from everything. And what they did is they said, “Here are the news headlines. What do you think you should do with your money? How should you invest?”
And they literally gave them the information three days ahead, and most people lost money. Even when they had the news ahead of time, they still lost money.
And that shows you how hard it is to try to figure out where things are going to go because what basically happens is this news comes out, but we really don’t know how it’s going to impact things. And you may be pretty smart, you may be fairly well-informed, but the reality is prices are set by everybody around the world. So when markets actually open, that’s when prices move to where they probably should be.
So it’s kind of like the idea of where you have the thing I talk about with the oxen, the weight of the oxen. What’s the dressed weight of it? And they have all these people guessing at what it’s going to be, but nobody gets it right.
But collectively, when you take all the guesses and put them together and say, “What do people as an average guess this thing is going to be?” They’re usually within a fraction of a pound of what it actually ends up being.
JW: Well, I just think first, Well, what color is the dress that the oxen is wearing, but that’s irrelevant.
PW: What are you talking about?
JW: You talked about a dressed oxen.
PW: Oh, gosh. I was like, “What on earth?”
JW: All right.
PW: Okay, that was random.
JW: On a more serious note, think of the different impacts that this can have because you think, Okay, there’s new assets, there were assets that were seized that were American and other companies, international assets that were seized by the Chavez regime, which eventually was the Maduro regime. And so those new assets might result in higher prices for certain stocks, but there’s also then now, if there’s more oil available, that can result in lower prices. So there are things like that where you just don’t know exactly what those results are going to be.
PW: Yeah. And that’s why I was looking to see what some of the guesses might be, but nobody really has any kind of idea. They don’t have a beat on it.
But here’s the issue with it is that even if they said, “Even if international access were fully restored tomorrow, it could take years and incredible expense.” I mean, they talked about somewhere in the neighborhood of $58 billion to actually bring this stuff up to date because it was just ransacked, like you said, by the Chavez and Maduro regimes. They just ransacked the industry.
And the reason that this could be a positive long run is anything you can do to bring down the cost of doing business — and transportation is certainly one of the bigger costs of doing business, that and of course labor, we’re dealing with new things in labor right now with computerization and AI and all that kind of stuff and Elon Musk’s robots, but those things tend to be things that will bring down the cost of doing business — ends up making companies more profitable in the future.
That’s a big reason you look at what happened this year so far, or last year, excuse me, in the market. I’m so used to saying, “This year so far,” but we’re in the new year. And it’s been fascinating to me because one of the things that I often talk about is diversifying.
A lot of people look at it and go, “Hey, you know what? Markets, U.S. markets up. They’ve done pretty well for the year. It’s been a pretty decent year.”
There was an article that was actually talking about what the returns were in the market for the year and saying, “Hey, this is what they did.” My point when I was reading one of these articles was that that’s only one market, and you have 15, 16% return in most markets, somewhere in that neighborhood.
But it was amazing to me that international to small companies, which you almost never see in investment portfolios, value especially, you almost never see in investment portfolios, we’re up 52%. Just a huge return, over a 50% return, and then large value companies not too far behind, just below 50% return for the year.
You just go, “Wow.” At home, don’t go out there and go, “Oh man, I need to own this stuff in my portfolio,” because the reality of it is, you want to own it before that happened.
You don’t know when these events are going to happen.
PW: These types of things, it’ll be random, brand new information. Everybody would think, Wow, with AI and with robotics and all of those types of things, U.S. companies would be the big benefactors, but the reality of it is a lot of this stuff was thought to be coming a few years earlier.
Certainly, a couple of years ago, we kind of knew that Elon Musk was working on robots, for example. We knew that there were pretty good developments coming on with computing power, and that information was known beforehand, and it was known that it would likely affect markets in a positive way in the future.
Because it affected them before it was implemented, because the market looks ahead. Go ahead.
JW: It looks way ahead. And you just think of all the different things that people just say, “Okay, AI is doing great, let’s throw money at AI companies,” but then you also think, okay, but this AI stuff takes a lot of energy. So is that going to be a limiting factor?
PW: Oh, sure.
JW: Or should I invest in the energy companies, and who’s going to benefit there, but does that make sense? Because is AI going to really need all that energy after all? And so do I get the infrastructure? Is there overinvesting?
All those types of things, and none of it is consistently predictable. And that’s what we preach time and time again is you don’t have to. That’s the great thing about it.
PW: Yeah. And also, Jim, what happened last year, which was interesting, it was news-making and kind of died. You don’t hear a whole lot about it, but you remember that whole thing when the Chinese came out with an AI that didn’t require as much energy usage.
And then when that happened was they went, “Oh, maybe we don’t need as much infrastructure, and that could have been a benefit to the market.” So there’s so many different moving parts to this.
It makes it so hard to figure out what’s going to happen next. And the reality of it is, if you look at the investing industry, it is overwhelmingly driven by trying to figure out what’s going to happen in the future.
PW: You watch the news channels, listen to financial people, read the prospectuses on the mutual funds you own. I know you don’t like it. Nobody likes doing that. It’s boring.
Read the ADV. What’s an ADV? Well, there’s a problem right there.
Most people have investment advisors, and they have ADVs, and that’s a disclosure document that tells you how they’re going to manage money. And most people couldn’t tell you what is in the ADV for the investment advisor that they’re using.
Now, for us, my focus is no stock picking. Matter of fact, we have in our investment policy statement, it literally says, “Client acknowledges the futility of stock picking and market timing.” So that’s my approach. That’s my focus.
Now, if somebody says, “No, I think I can pick markets, and when they’re going to go, when they’re going to do things, I can pick stocks.” You absolutely do not want to work with somebody that believes what we do because it would drive you crazy. “Don’t just sit there, do something, go.”
JW: We actually tell you, “There’s nothing wrong with that in terms of it’s not morally wrong, but just if that’s what you want to do, the evidence is stacked enormously against you.”
PW: Yeah. Your odds of being successful with it are just slim to none, but, yeah.
JW:
PW: Yeah. I think I don’t have a problem with somebody going to Vegas. I mean, if you want to go, I think it’s like futile if you think you’re going to.
Some people like to do that. They like to go there, and that’s entertainment for them, but to think that it’s a good way to actually make money, the odds are way out of your favor, and the same thing with investing. People approach investing as gambling, and the reality of it is, you don’t have to do that to be a successful investor.
PW: Okay. So we got a lot of stuff to talk about today. I want to talk a little bit about, there were some predictions that were made in 2025 that I think it would be fun to get into. And I have some audio for that — some of the predictions on things that you ought to invest in and things that you ought to be doing.
How did they work out? I don’t have an exhaustive list of those things because there are so many people that make predictions, but I literally just grabbed the first thing that I saw so I wouldn’t be biased. I wouldn’t be looking for and data mining for the ones that missed.
I just took the first thing that I found when I did a search for 2025 predictions and then I ran with it. So we’ll get to see how they did.
Okay. So one of my favorite things to do, always after the end of the year, because you have all kinds of predictions on what’s going to happen in markets and what’s going to happen for the new year.
Typically, at the end of the year, I’ll say, “Hey, here are my predictions for the next year.” And I did this last week.
But what I did is just pulled up randomly on YouTube, I put in as a search item predictions, stock market, 2025, and I just wanted to see what would show up. Well, the very first thing that showed up was this particular one. So we’ll check out what they had to say:
Clip: Again, U.S. stocks, and this is ridiculous for me to even say that Vanguard is putting this out, U.S. stocks will return only 3.8 to 5.8% a year over the next decade. And this is from Vanguard, one of the biggest wealth management firms in the world.
PW: Okay. So you see a prediction like that. I remember that prediction. Matter of fact, I’ve talked about it here on this show.
JW: And this was January of last year, correct? Or sometime early?
PW: I think it was November.
JW: Last year?
PW: The year prior for 2025. Yeah. It was their prediction that it was going to be pretty abysmal, that it was going to be pretty awful.
And of course, an investor hearing that type of prediction might have gotten pretty nervous, right? “I’m going to get a rate of return of 3%. Might as well just leave my money in CDs.”
Why take the risk? And of course, that was just dead, dead wrong.
PW: John Bogle, the founder of the fund company, would be rolling in his grave, hearing the idea that about the fund company that he founded, and he was very much an advocate.
Matter of fact, I can probably even find some audio of him, some of the things that he had to say regarding all of this. Let me see if I can find something. No, there you go. John Bogle.
Let’s see. Yeah, there you go. How about this? Here’s a clip.
Here’s John Bogle himself, the founder. What would he say about that?
John Bogle: Investing is the simplest thing in the world. We’ve got this cult of witchcraft really out there. When investing, it’s remarkably easy to capture the market’s returns and remarkably difficult to do any better. And it’s the easiest thing of all to fall way behind.
So just think about what investors ought to do. First, don’t pick stocks, don’t pick styles, don’t pick managers, eliminate stock risk and style risk and manager risk, and own everything in the stock market.
PW: Now, there’s some of that I would go, “Eh, that doesn’t make a whole lot of sense. I wouldn’t own everything in the stock market,” because what you’re trying to do is reduce risk of the investment portfolio. And there are some areas in the market that aren’t good diversifiers because they move with other things.
But his point is, don’t try to figure out what’s going to happen next. And yet what is the fund company that he founded doing now? Trying to figure out what’s going to happen next. Jim, you look like you’re thinking.
JW: Well, yeah, just in terms of Bogle too, I mean, he was talking about owning everything, but then he’s also well noted for saying that you should not necessarily own international stocks, which I’m pretty sure they’re part of everything.
PW: Oh, that’s true. He did say that. Yeah, that is a really good point.
He made that point that’s like, “I don’t even know why you’d own it.” And I’m like going, “Well, that area of the market, small company, value, up 40, 50%, over 50%.”
JW: Then Vanguard tends to talk out of both sides of the mouth in terms of they promote their index funds, but then they also promote active management. And so you get back to market predictions and stuff saying, “You can’t do it, but, oh, well, these guys can.”
PW: Right. Right, right, right. Yeah. And that is not just them.
It’s a lot of fund companies. I mean, you look at that and you look at Fidelity, you look at mutual fund companies, and they have this tendency to magically try to tell us what’s going to happen next.
And it’s like, “Bling, what’s going to happen? Where are things going to go?” And they go, “Well, we don’t know.”
They may say that. Don’t time the market. You can’t time the market.
I have a whole video on this where I look at all of these major mutual fund companies who are saying, “You can’t figure it out. You don’t know what’s going to happen. You don’t know, you can’t time the market. Don’t even try.”
Yet what ends up happening is they have funds that do exactly that, and they have funds that don’t do it, so you can choose. And if the area that, let’s say, their fund manager predicts is going to do well then has a really good performance, they’re going to market the heck out of that fund that had better performance and draw people to it.
Sometimes people, like after market upturns, get really excited. They think, Oh man, my ship is finally coming in. Maybe I can retire early, and they can be attracted to that because maybe they had so many bad years. And then they get attracted to that method of managing money, thinking that they’re going to hit it big, only to have that manager screw up the next year.
JW: Who’s making these predictions? The fund managers. They get their information, of course, from economists.
And I think it was, this is Fama’s line, maybe. If not, you can correct me.
And there was an economist I used to read, actually, and he said, “We make predictions because we are asked to. It’s not because we can, it’s because people want us to.”
PW: That’s true. No, that’s a really good point. There’s a demand for that prediction about the future because people fear the future.
“I fear what’s going to happen. I don’t know what’s going to happen. Can somebody tell me what’s going to happen so I can feel better about this thing that I’m doing investing because I don’t like taking any kind of uncertainty, especially with my finances.”
And they’re not recognizing that when you look at markets, stock markets, they’re uncertain, but they go up and down, and the returns when markets go down are fairly rapid historically. They don’t take that long. Markets don’t stay down that long historically.
Now you could if you’re not diversified. Let me take that back for a quick second, because I don’t think most investors are terribly well mixed between all different areas of the market, but you can go 20 years with large U.S. stocks, with no return whatsoever after inflation.
We just went through a period not too long ago, about a 12-year period, with absolutely zero return. Forget about inflation. Even before inflation, you had no return.
So you can go long periods of time, don’t get me wrong, but when you diversify really well, and you’re owning all of these different areas, because they don’t tend to move in tandem with each other, you can actually reduce that risk pretty significantly. But people just, they just don’t like the idea of not knowing what’s going to happen next.
And the reality of it is that’s your whole life. Our whole life is that. We don’t really know.
JW: Yeah, that uncertainty. People want certainty.
I mean, 2000 to 2010, like you were saying, large U.S. stocks had a negative return, and that’s kind of along the lines of what Vanguard was predicting for the next decade. Well, they have nine years to go to make that prediction true, but they’re starting out in the hole on that prediction because large U.S. stocks had a good year last year.
PW: Yeah, that’s true. A very good point. So yeah, they kind of messed up.
Advisory services offered through Paul Winkler, Inc an SEC registered investment advisor. The opinions voiced and information provided in this material are for general informational purposes only and not intended to provide specific advice or recommendations for any individual. To determine what investments are appropriate for you, please consult with a financial advisor. PWI does not provide tax or legal advice. Please consult your tax or legal advisor regarding your particular situation.
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