Paul Winkler: Welcome to “The Investor Coaching Show.” I’m Paul Winkler. We talk money, investing, and financial planning, and whatever happens to be in the news or on my mind in a particular week, and what has been talked about. And of course, there’s always plenty going on that I will cover.
How the Show Began
So, getting into it, one of the things I talk about here on this show, is the premise, the whole idea. Where this whole show started was years and years and years ago, working for big investment firms — all of us were.
I was, of course, the person that started it, because I was in the Chamber of Commerce — I was the President of the Chamber of Commerce — and I was doing this big thing for all of our people that were in the Chamber, a marketing thing. I thought, This would be great. Let’s just do some big marketing thing for people, because these are all business owners. They need to learn a little bit about how to market their businesses.
I knew a lot of people in the area. So, I knew people in radio, I had people from SCORE — the Service Corps of Retired Executives, older people that have retired and have had successful careers and just want to help out. I guess they’re still around.
But anyway, they’ll do this consulting for free for business owners. This is a great little service that they have. These people that were retired, they still want to give back.
So I got some people from there. I got some people that were web designers back when web designing was a new thing, really. And then I had people in TV.
So we had this big round table and they were all in my little teeny office. I had this little teeny office where I first started, 566 square feet. It sounds funny. It’s now 12 locations, oh my goodness.
Anyways, I’m just blabbing about investing and one of the guys in there goes, “Whoa. That’s really interesting.” Because my take on investment markets and investing just comes from having been in the industry for so long and seeing all the garbage that the big investment firms, investment providers, annuity salespeople, capital investors, and all these people are engaged in, processes that I look at as just completely counterproductive and so often at odds with what the academic research says.
So I’m just spouting about that. And this guy goes, “You ought to be doing a radio show.”
I said, “Oh yeah, I like that idea. How do you do that?” And he said, “Well, you go talk to a program director,” and I made that call and the guy goes, “We don’t take stuff like that.”
So I went in, I called, I said, “Well, who might?” And he said, “Well, there’s another station.”
So he led me out to this other station. I call up the station, the guy’s, like “I got a half-hour slot for you.”
I started the show on Saturday mornings from 8:30 to 9:00, and all of a sudden I got a call from the original station. A new program director was in town, listened to the show, and said, “Hey, we’d love to have you on here,” blah, blah, blah.
I said, “Great, great.” And I went in there, talked to him about it, and the rest is history.
Well, the whole idea and the thing that I teach about is that so often, so much of the garbage that you hear about investing is just blowing wind.
I had a guy tell me this week, we were talking about Chicago, and I said, “Yeah, windy city. I’ve been there, it is windy.”
He says, “Well, that’s not how it got its name.” And I said, “Really?”
He says, “No, a politician’s windy.” I said, “I hadn’t heard that one but okay.”
The Ulysses Contract
But in the investing industry, you got a lot of windy people too. It’s just so much of what is taught.
“Hey, look at what’s going on with this stock, this mutual fund here. This fund manager is really, really good and you got to watch out for what tax rates are going to do because this is what’s going to happen in the future, and then this is what’s going to happen. Trump’s going to do this. And you got to make sure that you’re really looking at this, particularly the market.
“Oh my goodness, stock markets are record highs and you got to watch it because it’s going to crash. The market’s really, really low and small caps are looking, they’re going to be coming back and value stocks are undervalued right now,” and blah, blah.
And “value not growth.” I heard a commercial the other day and I was like, “No, no, no, no, no, no. That goes against the idea of diversification to sit there and say that kind of stuff.”
But so much of what we need to know about investing, we already know.
It is not that we don’t know that we should diversify. It’s just that so often we hear these voices and these siren calls. Literally in my office, I have this painting of Ulysses, we call it the Ulysses contract, which is where they tie the person to the post so that when the sirens come calling, remember the old story, the sirens, the beautiful women are flying around. And he would be tempted.
So he wanted to hear their voices, but he didn’t want to be tempted. So he tied them to the post of the ship. And all the people rowing the ship in the famous painting have plugs in their ears so they can’t hear it and they wouldn’t be tempted.
Well, the siren calls that we have around us are all these voices telling us what’s going to happen, where things are going to go, what tax policy is going to be going forward, who’s going to be doing what, and “You need to be converting everything over to Roth IRAs.” As a matter of fact, I got a story about that a little bit later.
You hear that kind of stuff and it’s like, “One size fits all advice doesn’t fit anybody,” or “You need to use this guaranteed income in retirement. You need guarantees.”
And I go, “Wait a minute. There are a lot of problems with your way of getting guaranteed income.” In fact, I’m writing a whole book on that. It’s a little booklet — it’s not going to be a really long book — on the myths of getting income in retirement.
You Can’t Predict the Future
But anyway, so I have this thing that I had as an idea and I wanted to get out there and teach it. And the idea is this: Stop it. You don’t know the future. You can’t predict where things are going to go.
Matter of fact, the reality of it is that people try, we throw darts at the stock tables and they beat the professionals. And I’m doing workshop after workshop where I’m having people come in and go, “Hey, you don’t get your sandwich until you throw a dart at the stock table.”
For years I did this: I had people throwing darts at the stock tables and they would beat the professionals pretty much every time.
I can’t think of a single time when I had this workshop teaching this stuff when I had people throw darts at the stock tables where they didn’t beat the professional managers.
I mean, it was really pitiful and it was an eye-opener for it. You get people to do it themselves and it becomes reality.
Kind of reminds me of the guy that there was a story of, a guy that was trying to sell shatterproof glass. And he goes into the store and he’s selling this shatterproof glass, and he comes back and they have this big convention and the story goes that at the convention, he was the number one salesperson for shatterproof glass.
And they’re all wondering, “How did you do this? How did you outsell everybody?”
And he goes, “Well, basically what I did is I went into the place where there was a customer, a potential customer, with a hammer. And I would take the piece of glass and I would raise the hammer up and then I smashed the glass and they would cover their eyes, they put their hands over their eyes thinking that it was going to go everywhere.
“And when it didn’t go everywhere, they were like, ‘Whoa, wait a minute. We want some of this stuff.’ And then they said, ‘Well, that’s brilliant.’”
So what they do is they issue hammers to everybody in the company that’s out there selling and they go out there and they’re selling shatterproof glass like crazy, right? He comes back and the next year this guy is the number one salesperson again and they’re like, “Whoa, wait a minute. You’re the number one person again. How did you do it?”
He said, “I handed the customer the hammer. When they did it themselves and it didn’t go everywhere, then they were convinced that we had something here.”
So it’s kind of like that. You go and have people throw darts and when they beat the professionals, then it becomes a reality and then they go, “Wow, there is something to this.”
Knowing the Future Doesn’t Help
So the idea is that you don’t know the future, right? Well, there’s an article that came out, CNBC, “Why Knowing the Future Doesn’t Help Short-Term Traders” is the title of the article. So even when you know the future, it’s a hoot. They said for investors, uncertainty in the market is table stakes.
No matter how convicted you are that the market will move one direction or another, there’s no way to actually know what tomorrow will bring.
But what if you had a proverbial crystal ball? And we do, and in my office, I actually have one, it’s kind of funny. We have this crystal ball and in my office, you walk in and look at my crystal ball, and I’ll say, “Hey, ask it what the market’s going to do.”
And then they’ll go, “Haha.” They’ll laugh.
And I go, “No, no, really look into the crystal ball.” And on the bottom of the crystal ball, I have this little piece of paper and it says, “Heck, I don’t know.”
And then people, they get a kick out of it. They laugh at that when they do it. But anyway, what if you had one?
A recently published study from investing firm Elm Weld had put this idea to a test with 118 adults, 90% of whom were in graduate finance or MBA programs, since these weren’t stupid people. They were people in graduate finance programs.
In November 2023, participants were given $50 in a chance to trade the S&P 500 and 30-year treasuries based on the information on the front page of the Wall Street Journal 36 hours in advance. I mean, who could lose, right?
I mean 36 hours in advance, you know what the news is going to be. With dollar figures in asset prices redacted. The game, which you can play for yourself online, featured old headlines from 15 trading days, one per year from 2008 to 2022.
In each case, participants could trade as if they knew the future. A day before the news broke. I mean utopia for an investment trader, right?
Despite the participants’ credentials, the results were dim. About half the participants lost money, half of them lost money, one in six went broke. Just like wow, the average gain was just 3.2%. Very, very bad indeed.
Avoid Market Timing
In the article, it says, “‘When reading market takes, whether it’s in advance or not, ‘you’re getting someone else’s opinion,’ Stovall says. ‘And a lot of times, the opinions could be wrong.’ What’s more, even with advance knowledge, the traders in the experiment were unsure how to size their bets — their likeliness to be right about a particular move showed no correlation to how much they invested.’”
So they were flying blind, even with the news. “For the average investor, it’s generally smart to avoid trying to time the market over the short term. Instead, rely on long, upward historical trend of the broad stock market to help you build wealth over time.”
So I like this line for a really, really odd reason. Now, number one, they said for the average investor, for any investor, I mean literally what we know about research, it doesn’t matter. People do not have this ability. And the reality of it is one study showed that you’d need, like, 60 years of data to figure out whether somebody outpacing the market or getting higher returns in the market was due to skill or whether it was due to luck.
So perish the thought. I mean, just forget that particular line. But it says, “It’s generally smart to avoid to trying to time the market.”
I would say it’s always smart to avoid timing the market because studies of pension plans, they had like 91 of them, and when they engaged in this activity 100 percent of the time, they actually hurt their returns and increased the risk. So it just doesn’t make any sense.
But here’s the line I like in here, “Instead, rely on the long, upward historical trend of the broad stock market to help you build wealth over time.”
Sometimes people, they’ll hear me say, “Looking at the past performance of an investment, you don’t invest that way.” You hear people invest based on one, three, five, 10-year track records, right? And you look at funds and look at the track records and you pick the funds that had the good track records.
And I’ll often point to a stock market chart and say, “Hey, where did this thing have a good track record?” And somebody will look at it and go, “Right here to here.”
“Yeah, great. What followed that?” And then you see the market go crash down and you go, “Well yeah, track record really helped you there, didn’t it?”
And I’m like, “No, that’s crazy. Why do people teach that?”
Well, because it sells. I can get you to buy something with a good track record because you believe that it will continue into the future.
So it’s easy to get you to buy something. Let’s say if you’ve had a market downturn or if you’ve had, let’s say a little bit of softness in the market and people say, “Oh, here, the market’s really solid, the market could crash. You better go get your money and put in fixed-income investments.”
And you go do that. And then the market goes up and you go, “Oh gee, that didn’t work.” But the person that was selling that fixed income investment, yeah, they made off, they’re fine.
You got hosed, but they’re fine. So using past performance is just a waste of time because markets move in cycles.
Now you go, okay, so why do they use it? Because it sells. But you look at that and go, “What on earth do you look at?” And that’s where they’re hitting it on right here.
Invest-tainment
So when we look at long historical returns of asset classes, what we know is that small companies historically outperform large companies over the long run. So we know, “Hey, we probably need to have small companies in our investment portfolio,” and value companies outperform growth. So we need to have some.
Now, do we time it and try to say that it’s going to do well in the next five, 10 years, or even 20 years? No, you don’t know.
I mean, in 17% of 20-year periods, large companies outperform small companies. So the data is not going to be consistent all the time, where you know that something that long run tends to work, small companies outperforming large is going to happen, or that value outperforms growth.
Now 96% of the 20-year periods, as you may have heard me say before, value does do better than growth, but you have these short periods of time. It could be growth is outperforming value for four, five, six, even 10 years.
So you got to be really cognizant of the fact that you don’t know what’s going to happen. And I just love that this article just tore that apart.
Now at the end of the article, it says something that I was just like, “Oh no, forget that.” That’s why, if you want to get your blood pumping, try to figure out what’ll happen next in the market.
It may make sense to designate a small portion of your investments to have your fun wheeling and dealing. How about going and having fun wheeling and dealing and hanging out with your family, going out to dinner or going skiing or maybe bungee jumping or whatever you want to do, but not throwing your money and gambling it based on some prediction about the stock market.
Why would you make Wall Street richer than it already is? They love it when you do that kind of junk. They love it when you engage in that activity.
I don’t think it’s such a good idea. It says “You’re doing it for entertainment,” is how the article ends.
It reminds me of Burton Malkiel … Or, no, it was Vogel, I think it was, that called it “invest-tainment.” I think there are better ways to entertain yourself than gambling in the stock market.
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.