Paul Winkler: All right, back here on “The Investor Coaching Show,” Paul Winkler talking money and investing.
Be Careful About Academic Research
So I talk about academic research and investing, that kind of stuff. You’ve got to watch it because some of the academic stuff isn’t so great.
And we had a guy in the back of the room, oh my goodness. There was a guy in the back of the room, and I got to sit next to him. He’s with a group that’s very, very evidence-based, some of it’s more driven by transaction still. So you get that problem.
If you go to the colleges that do financial planning education, you go, that ought to be a good place to go, right? Use the universities, and they do financial planning, but they get their people from the world of finance.
So who pays the tuition of the financial advisors that goes to these colleges? Anyone just guess who pays the tuition?
Brian Egan: Probably the people that are the clients.
PW: The clients of the university would be mainly the big investment firms. And when I started this radio show 25 years ago almost, I said, “Oh man, if I become too public about what I know about investing and all of this evidence-based stuff, and I say, ‘I’m little Paul Winkler out of Goodlettsville, Tennessee, this little podunk town.’ No disrespect to Goodlettsville, but it’s this little town, and they’re just going to eat my lunch.”
And a friend of mine goes, “Paul, the investment industry will never change. Don’t worry about it.” And he has been more right than anything when it came to that.
So what happens is that you’ve got the universities, and I love them. I love the education on taxes. I love the education on estate planning. I love the education to some extent.
Some of the risk management stuff is okay, but when you get into the investing side of things, you’ll get some of the research that goes back, but you won’t get a very dogmatic position on it because they’ll say, “Hey, you know what? This is out there. This doesn’t work. There’s some evidence that this doesn’t work so well.”
They don’t want to be dogmatic because they will alienate the companies sending them so much of their business as far as who their students are.
So hence, I’m very against the grain.
Market Forecasts
I’ve talked about here that I don’t know of any other firms out around here that I hear about. I mean, I’m sure there may be some in the Nashville area in general, but the names that I hear a lot, I don’t know any of them that aren’t in the business of selling deferred annuities. In other words, using an annuity as an accumulation vehicle. I don’t know any of them. Period, end of sentence.
I don’t know any of them. I haven’t seen one firm that isn’t engaged or claims to be engaged in fundamental analysis in how they actually implement the investing process, which is basically stock picking, trying to figure out which stocks, where markets are going to go, and what’s going to happen next.
And that’s really key. The reason I started out with all of this is you talk about a time when people may be really, really tempted to try to figure out where markets are going next or what areas of markets are going to be doing well or doing poorly on the other hand, this is a time.
I talked about this a few weeks ago. You had the Vanguard study where they basically said, “Here’s our forecast.” Now, number one, if a mutual fund company — I don’t care if it’s them, I don’t care if it’s Fidelity, I don’t care if it’s Fidelity or American Funds or whoever, really, that’s not it for me — but if any fund company is telling you a forecast of what they think is going to happen in the future, if they will step out there and do that, recognize that they are in the game of market timing because that’s basically what that is.
If you hear somebody giving you an opinion on a stock, which company is going to do really well with this AI coming on, they are in the business of stock picking. If they’re reporting to you what the market is doing, you hear, and this is not the media, this is not the radio station or anything like that I’m talking about because they’re not in the business of giving investment advice.
But if a financial firm is reporting on what the Dow or the NASDAQ did, that’s irrelevant. What the market did, all that does is get you in the mood to either buy or sell.
If you hear the market’s up, what are you tempted to do? “Oh man, market’s up. Well, I need to buy.”
Market’s down. It’s dropped significantly. Well, that tells you, “Oh boy, I may need to sell.”
So if an investment firm is out there saying, “Hey, the market did this today, the market did that,” and they’re reporting on it, or if a TV show, because you see that on TV all the time, the financial channels, recognize that this is something that is incredibly dangerous because it plays around with your emotions.
The Media Firestorm
Now, I said that this is a particularly interesting time to do this because of what has been going on in the media the past couple of days, an absolute firestorm.
Of course, it all started a couple of weeks ago. As I recall, from what I remember it being, one of the big things was the new startup, not necessarily startup, but the AI company that was working with China. “Hey, we can do this AI thing a whole lot cheaper than the Americans are doing it.”
And now you have these AI apps on your phone, and you can actually get on your phone and access this Chinese company giving AI. And the thing that’s so interesting, I did this little segment a few weeks ago, I think it was Kramer who was looking it up, right?
Brian, wasn’t it Kramer that had done that little search? And it was that guy that was standing in front of the tank. Who is this? What was this?
BE: Yeah, Tiananmen Square man.
PW: Yeah, but it didn’t say that.
BE: June 1989.
PW: It didn’t say that, right?
BE: Those of us who were around remember.
PW: Oh, yeah, heck yeah.
BE: Kids can’t find it on the internet now.
PW: And you couldn’t find it in this AI thing. That was funny.
BE: Or if it were there, it would go away.
PW: Well, it was there and they scrubbed it right away.
BE: Yeah. Little creepy.
PW: Yeah, a little creepy. Just a little. You go, “Whoa, wait a minute.”
But remember when that happened, all of a sudden there was a chink in the armor of the AI companies, and you had these markets here in the U.S. starting to go down. Then you have the trade deals and you got the tariffs, and you got more downward pressure on these stocks.
How many people have actually heard about some of the international markets and how well they have done year-to-date?
Most people, all they’re hearing is like, oh, the S&P privates are flat for the year so far. And that’s all they’re hearing is how badly the technology companies are doing and how damaged they are. But who would have thought for a second that these international companies, when it’s “make America great again,” would be the ones, and I don’t know what’s going to happen going forward, but it’s that.
Confirmation Bias
Then you have news with Trump and Zelensky and a meeting gone bad. What was so interesting about that to me is I remember teaching a workshop years ago. This was the nineties when I taught this workshop. And I remember talking about Clinton, Monica Lewinsky, that whole thing.
And I said, “There is a teachable moment here, folks, when you look at all the evidence that has come in as to what happened in the Oval Office and this whole thing, this big investigation, the reams of paper and all of this stuff.” And I said, “Evidence was overwhelming on what happened.”
But you had one side of the group, some people that were pro-Clinton, all for him, loved him. “He’s great. Wonderful.”
Then you had the other side who was like, “No, can’t stand him.” And all of a sudden this evidence comes out, mounds of evidence on what happened. Nobody changed sides.
The people that were for him remained for him. The people that were against him remained against him. And that is confirmation bias.
That’s what we tend to do. We tend to look for things that confirm what we want to believe.
And that is the issue is that so strongly, the investment industry wants to believe that they can figure out what’s going to happen next, where things are going to go, which companies are better than others, that they will move heaven and earth to find evidence that the way they manage money actually works. And that is where the bias comes in.
And it’s very, very difficult because people say, there are so many different opinions for what you should do with your money. And I say, “Well, yeah, there are a lot of different opinions because most of the information you get about investing comes from people that are engaged in this method of managing money, which is using fundamental analysis, using technical analysis, tactical asset allocation.”
It’s this idea that there is some value to be added through this effort.
“Line Dancing” Investing
Somebody was talking at this meeting I was at, and he made a comment about how I usually use and talk about diversification. And we were going through these portfolios, we were looking at these portfolios, and it was like, this portfolio is put together by American Funds Capital Group. They manage a ton, a ton of money.
You had eight funds and all eight of them owned Microsoft, all eight of them own Apple, all eight of them own Nvidia. They all own the same exact stocks.
And this one guy, he stands up and he goes, “You know how I explain this to people?” And he goes, “Paul, you ought to appreciate this. You’re from Nashville.” He says, “You ever go out and you see these people line dancing?”
He goes, “What is that? What’s the first word that comes to mind when you think of a whole bunch of people line dancing in Nashville?” And of course, the word that comes up is synchronicity. Synchronous.
BE: I would’ve said tourists, but okay.
PW: Okay, tourists. Now that’s funny. No, I mean … Yeah. Well, that.
BE: Herd mentality, sure.
PW: And synchronicity.
BE: Yeah.
PW: They’re all moving together. And he says, “That is what that portfolio looks like.” Everything. You own Microsoft eight times in eight different mutual funds. When Microsoft comes down, they all are negatively impacted.
Now what they’ll say, what you’ll hear is you’ll hear, “Well, markets go up and they go down,” but the problem is you own funds in all these investments that are moving in the same direction at the same time. And he says, “You know what it ought to be looking like? It ought to be looking like a bunch of people line dancing, just stone drunk.”
“They’re all moving different directions.” He says, “One’s doing this, and one’s doing that. That’s what your portfolio ought to look like.”
BE: Like Bandstand in the old days.
PW: Yeah.
BE: The spotlight would go over here. Spotlight go over there.
PW: Oh, yeah, yeah. What was the other dancing show there?
BE: Solid Gold.
PW: Yeah. Yeah, Solid Gold dancers, right? There was that. And then there was Soul Train.
BE: Yes.
PW: Yeah, Soul Train. But they’re all moving.
BE: Don Cornelius.
PW: But they’re all good dancers. I mean, they’re all moving differently.
BE: But the camera pans on different folks who are doing their own thing and are crushing it.
PW: I know. I know. I know. Yeah.
You don’t want to put a camera on somebody that’s not crushing it. So that is what it ought to look like.
And I use the example when I teach workshops that you ought to have bathing suit sales and winter coat sales. You have dissimilar prices, and that has a little bit more of an economic spin to it. But line dancing is kind of fun. I mean, that’s kind of a fun little analogy right there. Yeah, so that is what happens.
What we do as investors is we don’t even recognize that’s what’s going on. And I said, “It may not even be the case that’s happening.”
You go to a fund company using an indexing strategy, and they’re just vastly overweighting those huge companies. And the problem with investors is they feel completely okay.
Blow Up Your Island
The guy running this big workshop, he’s teaching the class. He goes, “I’m going to steal something from Paul.” Because I used to do this thing about an island, he goes, “I’m going to blow up your island.”
And I was like, Oh, man. I had totally forgotten that I used to use that analogy all the time or that metaphor. And it was the idea of what we’ve got to do, because he’s teaching financial advisors, and he was saying, “What we have got to do, folks, is blow up people’s islands, and especially right now.”
And I was like, Oh man, he’s so right. Well, the metaphor came from many, many, many, many years ago, I taught a workshop, it was a huge, huge thing. We probably had 500 to 1,000 people at this thing, financial advisors, and they asked me to come up and teach. So I got up there and I said, “Your job, you have got to, as an investment advisor to serve the public, to serve your people, you have got to blow up people’s islands.”
So what I’ll do is I’m going to take a break right now and I’m going to come back and I’m going to talk about what blowing up the island is and how you as an investor, maybe you can blow up your own island, and what you can look for. Because I think there are some people out there that simply are not going to pick up a phone and call somebody or call us or go and say, “Hey, Paul, what’s going on in my portfolio,” without kicking the tires, and figure out, “Hey, is there something wrong in my investments?”
So I’m going to do that. I’m going to come back. I’m going to talk a little bit about how do you blow up your own island and why do you blow up an island? Why is it so important to get better results when it comes to investing? The things that you need to do to fix an investment portfolio, sometimes there’s a little bit of pain in the front end, but it’s pain in a good way.
Sometimes people say, “I’ve become disillusioned.” Have you ever heard anybody say that? “I’m disillusioned with life.”
I’m like, well, good. It means the illusion’s gone. Maybe you had an illusion that needed to go.
Maybe there was something, a way you were facing things, and maybe the time that you’re going to get your breakthrough in life is when you get rid of the illusion.
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.
