My Worst Investment Ever Podcast

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing [https://amzn.to/4ebG33x]. In this series, they discuss Chapter 17: There is Only One Way to See Things Rightly. LEARNING: Consider the overall impact of investments rather than focusing on individual metrics.   > "There is only one right way to build a portfolio—by recognizing that the risk and return of any asset class by itself should be irrelevant." > Larry Swedroe   In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing [https://amzn.to/4ebG33x]. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners [https://buckinghamwealthpartners.com/] to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks [https://myworstinvestmentever.com/ep645-larry-swedroe-beware-of-idiosyncratic-risks/]. Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 17: There is Only One Way to See Things Rightly. CHAPTER 17: THERE IS ONLY ONE WAY TO SEE THINGS RIGHTLY In this chapter, Larry enlightens us on the benefits of considering the overall impact of investments rather than focusing on individual metrics. This holistic approach empowers investors and advisors to make more informed decisions. DON’T VIEW AN ASSET CLASS’S RETURNS AND RISK IN ISOLATION A common mistake that investors and even professional advisors often make is viewing an asset class’s returns and risk in isolation. Larry emphasizes this point by giving the example of Vanguard’s popular index funds, the largest index funds in their respective categories, to make us all more cautious and aware of the potential pitfalls of this approach. From 1998 through 2022, the Vanguard 500 Index Fund (VFINX) returned 7.53% per annum, outperforming Vanguard’s Emerging Markets Index Fund (VEIEX), which returned 6.14% per annum. VFINX also experienced lower volatility of 15.7% versus 22.6% for VEIEX. The result was that VFINX produced a much higher Sharpe ratio (risk-adjusted return measure) of 0.43 versus 0.30 for VEIEX. WHY MORE VOLATILE EMERGING MARKETS HAVE A HIGHER RETURN According to Larry, despite including an allocation to the lower returning and more volatile VEIEX, a portfolio of 90% VFINX/10% VEIEX, rebalanced annually, would have outperformed, returning 7.59%. And it did so while also producing the same Sharpe ratio of 0.43. Perhaps surprisingly, a 20% allocation to VEIEX would have done even better, returning 7.61% with a 0.43 Sharpe ratio. Even a 30% allocation to VEIEX would have returned 7.59%, higher than the 7.53% return of VFINX (though the Sharpe ratio would have fallen slightly to 0.42 from 0.43). The portfolios that included an allocation to the lower-returning and more volatile emerging markets benefited from the imperfect correlation of returns (0.77) between the S&P 500 Index and the MSCI Emerging Markets Index. THE RIGHT WAY TO BUILD A PORTFOLIO Larry says there is only one right way to build a portfolio—by recognizing that the risk and return of any asset class by itself should be irrelevant. The only thing that should matter is considering how adding an asset class impacts the risk and return of the entire portfolio. Further, Larry stresses the importance of global diversification, a strategy that can reassure and instill confidence in investors and advisors. He points out that if markets are efficient, all risky assets should have very similar risk-adjusted returns. This argument for broad global diversification, avoiding the home country bias, is a logical starting point for you to consider in your investment strategies. DID YOU MISS OUT ON THE PREVIOUS CHAPTERS? CHECK THEM OUT: PART I: HOW MARKETS WORK: HOW SECURITY PRICES ARE DETERMINED AND WHY IT’S SO DIFFICULT TO OUTPERFORM * Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds [https://myworstinvestmentever.com/enrich-your-future-01-the-determinants-of-the-risk-and-return-of-stocks-and-bonds/] * Enrich Your Future 02: How Markets Set Prices [https://myworstinvestmentever.com/enrich-your-future-02-how-markets-set-prices/] * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers [https://myworstinvestmentever.com/enrich-your-future-03-persistence-of-performance-athletes-versus-investment-managers/] * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? [https://myworstinvestmentever.com/enrich-your-future-04-why-is-persistent-outperformance-so-hard-to-find/] * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments [https://myworstinvestmentever.com/enrich-your-future-05-great-companies-do-not-make-high-return-investments/] * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose [https://myworstinvestmentever.com/enrich-your-future-06-market-efficiency-and-the-case-of-pete-rose/] * Enrich Your Future 07: The Value of Security Analysis [https://myworstinvestmentever.com/enrich-your-future-07-the-value-of-security-analysis/] * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return [https://myworstinvestmentever.com/enrich-your-future-08-high-economic-growth-doesnt-always-mean-high-stock-market-return/] * Enrich Your Future 09: The Fed Model and the Money Illusion [https://myworstinvestmentever.com/enrich-your-future-09-the-fed-model-and-the-money-illusion/] PART II: STRATEGIC PORTFOLIO DECISIONS * Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t [https://myworstinvestmentever.com/enrich-your-future-10-you-wont-beat-the-market-even-the-best-funds-dont/] * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill [https://myworstinvestmentever.com/enrich-your-future-11-long-term-outperformance-is-not-always-evidence-of-skill/] * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play [https://myworstinvestmentever.com/enrich-your-future-12-when-confronted-with-a-losers-game-do-not-play/] * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance [https://myworstinvestmentever.com/enrich-your-future-13-past-performance-is-not-a-predictor-of-future-performance/] * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon [https://myworstinvestmentever.com/enrich-your-future-14-stocks-are-risky-no-matter-how-long-the-horizon/] * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe [https://myworstinvestmentever.com/enrich-your-future-15-individual-stocks-are-riskier-than-you-believe/] * Enrich Your Future 16: The Estimated Return Is Not Inevitable [https://myworstinvestmentever.com/enrich-your-future-16-the-estimated-return-is-not-inevitable/] ABOUT LARRY SWEDROE Larry Swedroe [https://www.linkedin.com/in/larry-swedroe-18778267/] was head of financial and economic research at Buckingham Wealth Partners [https://buckinghamwealthpartners.com/]. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match. Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need [https://amzn.to/3HC9QnZ].” He has authored or co-authored 18 books. Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets. Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect [https://alphaarchitect.com/blog/], Advisor Perspectives [https://www.advisorperspectives.com/search?q=Larry+Swedroe], and Wealth Management [https://www.wealthmanagement.com/search/node/Larry%20Swedroe].   [spp-transcript]   CONNECT WITH LARRY SWEDROE * LinkedIn [https://www.linkedin.com/in/larry-swedroe-18778267/] * Twitter [https://twitter.com/larryswedroe] * Website [https://buckinghamwealthpartners.com/] * Books [https://amzn.to/3JfpUgx] ANDREW’S BOOKS * How to Start Building Your Wealth Investing in the Stock Market [https://amzn.to/3qrfHjX] * My Worst Investment Ever [https://amzn.to/2PDApAo] * 9 Valuation Mistakes and How to Avoid Them [https://amzn.to/3v6ip1Y] * Transform Your Business with Dr.Deming’s 14 Points [https://amzn.to/3emBO8M] ANDREW’S ONLINE PROGRAMS * Valuation Master Class [https://valuationmasterclass.com/] * The Become a Better Investor Community [https://astotz.kartra.com/page/become-a-better-investor-community] * How to Start Building Your Wealth Investing in the Stock Market [https://academy.astotz.com/courses/how-to-start-building-your-wealth-investing-in-the-stock-market] * Finance Made Ridiculously Simple [https://academy.astotz.com/courses/finance-made-ridiculously-simple] * FVMR Investing: Quantamental Investing Across the World [https://academy.astotz.com/courses/fvmr-investing-quantamental-investing-across-the-world] * Become a Great Presenter and Increase Your Influence [https://academy.astotz.com/courses/gp] * Transform Your Business with Dr. Deming’s 14 Points [https://academy.astotz.com/courses/transformyourbusiness] * Achieve Your Goals [https://academy.astotz.com/courses/achieve-your-goals] CONNECT WITH ANDREW STOTZ: * astotz.com [https://www.astotz.com/] * LinkedIn [https://www.linkedin.com/in/andrewstotz/] * Facebook [https://www.facebook.com/andrewstotzpage] * Instagram [https://www.instagram.com/andstotz/] * Threads [https://www.threads.net/@andstotz] * Twitter [https://twitter.com/Andrew_Stotz] * YouTube [https://www.youtube.com/c/andrewstotzpage] * My Worst Investment Ever Podcast [https://itunes.apple.com/us/podcast/my-worst-investment-ever-podcast/id1416554991?mt=2]

LISTEN ON Apple | Listen Notes | Spotify | YouTube [https://youtu.be/kkKucq8fuKQ] | Other [https://myworstinvestmentever.com/other-platforms/] QUICK TAKE In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing [https://amzn.to/4ebG33x]. In this series, they discuss Chapter 16: All Crystal Balls are Cloudy. LEARNING: Estimated return is not always inevitable.   > “If returns are negative early on, don’t withdraw large amounts because when the market eventually recovers, you won’t have that money to earn your returns.” > Larry Swedroe   In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing [https://amzn.to/4ebG33x]. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners [https://buckinghamwealthpartners.com/] to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks [https://myworstinvestmentever.com/ep645-larry-swedroe-beware-of-idiosyncratic-risks/]. Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 16: All Crystal Balls are Cloudy. CHAPTER 16: ALL CRYSTAL BALLS ARE CLOUDY In this chapter, Larry illustrates why past returns are not crystal balls that predict future returns. According to Larry, the problem with all forecasts that deal with estimations of probabilities is that people tend to think of them in a deterministic way. He says that as an investor, you should think about returns with the idea that distribution and estimate are only the middle points. Your plan has to be prepared for either the good tail to show up, which is easy to deal with and usually will allow you to take chips off the table and reduce your risk because you’ll be well ahead of your goal. But if the bad tail shows up, you may have to either work longer, plan on saving more, or rebalance, which means buying stocks at a tough time. THE THREAT OF SEQUENCE RISK To demonstrate the danger of sequence risk, Larry asks us to imagine it’s 1973, and stocks have returned 8% in real terms and 10% in nominal returns. We’ve had similar results over the next 50 years. Say an investor in that time frame decides to withdraw 7% yearly from their portfolio in real terms because they know with their clear crystal ball that they will get 8% for the next 50 years. This means if they take out, say, $100,000 in the first year, and inflation is 3%, to keep their actual spending the same, they have to take out $103,000. According to Larry, this investor will be bankrupt within 10 years due to the sequence of returns, which is the order in which the returns occur, not the returns themselves. As you can see in the table below, despite providing an 8.7% per annum real return over the 27 years, because the S&P 500 Index declined by more than 37% from January 1973 through December 1974, withdrawing an inflation-adjusted 7% per annum in the portfolio caused it to be depleted by the end of 1982—in just 10 years! (Note that from January 1973 through October 1974, when the bear market ended, the S&P 500 lost 48%.) SACRIFICING EXPECTED RETURNS Larry says this example shows the danger of sequence risk and illustrates that the order of returns matters significantly in the decumulation phase because systematic withdrawals work like a dollar-cost averaging program in reverse—market declines are accentuated. This can cause principal loss, which the portfolio may never recover from. In this case, the combination of the bear market and relatively high inflation caused the portfolio to shrink by almost 56% in the first two years. For the portfolio to be restored to its original $1 million level, the S&P 500 Index would have had to return 127% in 1975. And because of the inflation experienced, the amount to be withdrawn would have needed to increase from $70,000 to over $90,000. In such cases, the odds of outliving one’s assets significantly increase if you don’t adjust the plan (such as increasing savings, delaying retirement, or reducing the spending goal). THE ORDER OF RETURNS MATTERS According to Larry, our investor made the mistake of treating the single-point estimate as if it were an inevitable outcome and not a single potential outcome within a broad spectrum of potential outcomes. Another mistake our investor made was failing to consider that his investment experience might be different from the return over the entire period because of the impact of his withdrawals. In other words, the order of returns matters, not just the returns over the entire period. ESTIMATED RETURN IS NOT INEVITABLE Larry insists that since we live in a world with cloudy crystal balls, and all we can do is estimate returns, it is best to avoid treating a portfolio’s estimated return as inevitable. Consider the possible dispersion of likely returns and calculate the odds of successfully achieving the financial goal. The goal is generally, though not always, defined as achieving and maintaining an acceptable lifestyle—not running out of money while still alive. In other words, the goal is not to retire with as much wealth as possible but to ensure you do not retire poor and risk running out of assets while still alive. USING A MONTE CARLO SIMULATOR TO FORECAST THE POTENTIAL DISPERSION OF RETURNS Larry says that forecasting the potential dispersion of returns is best accomplished through a Monte Carlo simulator—a computer simulation that uses random processes to model the impact of risk and uncertainty in financial and investment forecasting. This tool allows one to see the probabilities of different possible outcomes of an investment strategy. The computer program will produce numerous random iterations (usually at least 1,000 and often many thousands), letting one see the odds of meeting a goal. Since thousands of iterations are run, one must think about probabilities instead of just one outcome. PROJECTING THE LIKELIHOOD OF SUCCESS Divide the Monte Carlo simulation based on your investment life into an accumulation phase when you’re working and making contributions and a distribution phase that begins when you retire and lasts as long as you live. The inputs into the Monte Carlo simulation are: * The investment assumptions (expected returns, standard deviations, and correlations) * Future deposits into the investment account * The desired annual withdrawal amount * The years the account must last The output is summarized by assigning probabilities to the various investment outcomes. The ultimate goal is to ensure you are comfortable with the projected likelihood of success—the odds you can withdraw sufficient funds from the portfolio each year and still achieve your financial goal. NOBODY CAN PREDICT THE FUTURE WHEN PEOPLE ARE INVOLVED In conclusion, Larry reminds investors that crystal balls will always be cloudy when forecasting the future, be it the weather or stock market returns. He quotes Alan Greenspan’s advice: “Learn everything you can, collect all the data, crunch all the numbers before making a prediction or a financial forecast. Even then, accept and understand that nobody can predict the future when people are involved.” However, Larry adds that the inability to forecast the future accurately does not render forecasting useless. It just means we must accept this shortcoming and take it into account. Another essential investment advice is to never make the mistake of treating even the highly likely as if it were inevitable. FURTHER READING 1. Didier Sornette, Why Stock Markets Crash [https://amzn.to/3YlUUT4] (Princeton University Press 2002), p. 322. DID YOU MISS OUT ON THE PREVIOUS CHAPTERS? CHECK THEM OUT: PART I: HOW MARKETS WORK: HOW SECURITY PRICES ARE DETERMINED AND WHY IT’S SO DIFFICULT TO OUTPERFORM * Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds [https://myworstinvestmentever.com/enrich-your-future-01-the-determinants-of-the-risk-and-return-of-stocks-and-bonds/] * Enrich Your Future 02: How Markets Set Prices [https://myworstinvestmentever.com/enrich-your-future-02-how-markets-set-prices/] * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers [https://myworstinvestmentever.com/enrich-your-future-03-persistence-of-performance-athletes-versus-investment-managers/] * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? [https://myworstinvestmentever.com/enrich-your-future-04-why-is-persistent-outperformance-so-hard-to-find/] * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments [https://myworstinvestmentever.com/enrich-your-future-05-great-companies-do-not-make-high-return-investments/] * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose [https://myworstinvestmentever.com/enrich-your-future-06-market-efficiency-and-the-case-of-pete-rose/] * Enrich Your Future 07: The Value of Security Analysis [https://myworstinvestmentever.com/enrich-your-future-07-the-value-of-security-analysis/] * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return [https://myworstinvestmentever.com/enrich-your-future-08-high-economic-growth-doesnt-always-mean-high-stock-market-return/] * Enrich Your Future 09: The Fed Model and the Money Illusion [https://myworstinvestmentever.com/enrich-your-future-09-the-fed-model-and-the-money-illusion/] PART II: STRATEGIC PORTFOLIO DECISIONS * Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t [https://myworstinvestmentever.com/enrich-your-future-10-you-wont-beat-the-market-even-the-best-funds-dont/] * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill [https://myworstinvestmentever.com/enrich-your-future-11-long-term-outperformance-is-not-always-evidence-of-skill/] * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play [https://myworstinvestmentever.com/enrich-your-future-12-when-confronted-with-a-losers-game-do-not-play/] * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance [https://myworstinvestmentever.com/enrich-your-future-13-past-performance-is-not-a-predictor-of-future-performance/] * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon [https://myworstinvestmentever.com/enrich-your-future-14-stocks-are-risky-no-matter-how-long-the-horizon/] * Enrich Your Future 15: Individual Stocks Are Riskier Than You Believe [https://myworstinvestmentever.com/enrich-your-future-15-individual-stocks-are-riskier-than-you-believe/] ABOUT LARRY SWEDROE Larry Swedroe [https://www.linkedin.com/in/larry-swedroe-18778267/] was head of financial and economic research at Buckingham Wealth Partners [https://buckinghamwealthpartners.com/]. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match. Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need [https://amzn.to/3HC9QnZ].” He has authored or co-authored 18 books. Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets. Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect [https://alphaarchitect.com/blog/], Advisor Perspectives [https://www.advisorperspectives.com/search?q=Larry+Swedroe], and Wealth Management [https://www.wealthmanagement.com/search/node/Larry%20Swedroe].   [spp-transcript]   CONNECT WITH LARRY SWEDROE * LinkedIn [https://www.linkedin.com/in/larry-swedroe-18778267/] * Twitter [https://twitter.com/larryswedroe] * Website [https://buckinghamwealthpartners.com/] * Books [https://amzn.to/3JfpUgx] ANDREW’S BOOKS * How to Start Building Your Wealth Investing in the Stock Market [https://amzn.to/3qrfHjX] * My Worst Investment Ever [https://amzn.to/2PDApAo] * 9 Valuation Mistakes and How to Avoid Them [https://amzn.to/3v6ip1Y] * Transform Your Business with Dr.Deming’s 14 Points [https://amzn.to/3emBO8M] ANDREW’S ONLINE PROGRAMS * Valuation Master Class [https://valuationmasterclass.com/] * The Become a Better Investor Community [https://astotz.kartra.com/page/become-a-better-investor-community] * How to Start Building Your Wealth Investing in the Stock Market [https://academy.astotz.com/courses/how-to-start-building-your-wealth-investing-in-the-stock-market] * Finance Made Ridiculously Simple [https://academy.astotz.com/courses/finance-made-ridiculously-simple] * FVMR Investing: Quantamental Investing Across the World [https://academy.astotz.com/courses/fvmr-investing-quantamental-investing-across-the-world] * Become a Great Presenter and Increase Your Influence [https://academy.astotz.com/courses/gp] * Transform Your Business with Dr. Deming’s 14 Points [https://academy.astotz.com/courses/transformyourbusiness] * Achieve Your Goals [https://academy.astotz.com/courses/achieve-your-goals] CONNECT WITH ANDREW STOTZ: * astotz.com [https://www.astotz.com/] * LinkedIn [https://www.linkedin.com/in/andrewstotz/] * Facebook [https://www.facebook.com/andrewstotzpage] * Instagram [https://www.instagram.com/andstotz/] * Threads [https://www.threads.net/@andstotz] * Twitter [https://twitter.com/Andrew_Stotz] * YouTube [https://www.youtube.com/c/andrewstotzpage] * My Worst Investment Ever Podcast [https://itunes.apple.com/us/podcast/my-worst-investment-ever-podcast/id1416554991?mt=2]

BIO: Damon Pistulka, co-founder of Exit Your Way, is known for his hands-on, practical approach to helping business owners maximize value and achieve successful exits. STORY: Damon explains his journey into understanding technology and its role in business growth. LEARNING: Stay informed and adapt to changing industry trends. Adapt to changing customer expectations and preferences.   > “The simple things we can do with technology today make the customer experience so much better.” > Damon Pistulka   GUEST PROFILE Damon Pistulka [https://www.linkedin.com/in/damonpistulka/], co-founder of Exit Your Way, is known for his hands-on, practical approach to helping business owners maximize value and achieve successful exits. With over 20 years of experience, Damon is dedicated to transforming businesses, enhancing profitability, and helping founders create lasting legacies . TECHNOLOGY IS YOUR BUSINESS ALLY In today’s episode, Damon, who previously appeared on the podcast on episode Ep649: Be Careful of Concentration Risk [https://myworstinvestmentever.com/ep649-damon-pistulka-be-careful-of-concentration-risk/], discusses the value of technology in running a business. He emphasizes the importance of robotic process automation, CRMs, and AI in modern business operations to accelerate value. In his opinion, technology allows businesses to do simple things that improve customer experience. Damon highlights a couple of threats businesses face today that could be dealt with by adopting technology. 1. Rapid innovation is outpacing businesses. Those lagging behind will be overtaken by competitors who have adopted new technologies. 2. Aging workforce with limited new talent. There’s an aging workforce and limited new talent. As more people retire, businesses increasingly find it hard to replace the retirees with educated and qualified people. 3. Customers now expect top-tier service levels. Buyers are now demanding businesses provide instant feedback and real-time updates. Businesses that don’t meet customer expectations will not stay competitive. USING TECHNOLOGY TO DEAL WITH THE THREATS Damon explains his approach to helping clients develop business growth strategies. He emphasizes the importance of starting with small, manageable changes and gradually scaling up. Damon cautions entrepreneurs from trying to do it all. Instead, he advises starting with simple, practical changes, often referred to as ‘low-hanging fruits’—these are the tasks or opportunities that are the easiest to achieve and provide the quickest benefits. Gradually, as these are implemented, more complex systems can be adopted. SEEK OUT EXPERTS WHO CAN HELP YOU ADVANCE Further, Damon advises seeking out experts who can help you advance in the particular area you’re focusing on. Then, work your way up as you get your company, your people, and your supplier base comfortable with these changes. GET EDUCATED BEFORE ADOPTING NEW TECHNOLOGY Damon also underscores the importance of getting educated before adopting new technology. He advises becoming familiar and comfortable enough with it to try it, enabling you to identify potential areas where the technology could help your business. This approach instills a sense of preparedness and confidence. Then, he suggests hiring an expert to help you implement your new technologies and strategies. MOVE FAST Another way to deal with the business threats is to move fast. Damon says that speed sells, and businesses must adopt a speed and innovation culture. This culture is about encouraging and rewarding quick decision-making, rapid implementation of ideas, and a constant drive for improvement. Technology will help you do things in half the time and stay efficient and competitive in your operations, which is a key aspect of this culture. JUST GET STARTED Finally, according to Damon, just get started. Business owners wake up knowing what they have to do every day. By cutting the distractions and focusing on your core strengths and capabilities, you can stay reassured and focused. As Damon says, there’s a lot of time in your day if you throw out the junk.   [spp-transcript]   CONNECT WITH DAMON PISTULKA * Linkedin [https://www.linkedin.com/in/damonpistulka/] * Twitter [https://twitter.com/dpistulka] * Facebook [https://www.facebook.com/Exityourway] * YouTube  [https://www.youtube.com/c/ExitYourWay] * Website [https://exityourway.us/] ANDREW’S BOOKS * How to Start Building Your Wealth Investing in the Stock Market [https://amzn.to/3qrfHjX] * My Worst Investment Ever [https://amzn.to/2PDApAo] * 9 Valuation Mistakes and How to Avoid Them [https://amzn.to/3v6ip1Y] * Transform Your Business with Dr.Deming’s 14 Points [https://amzn.to/3emBO8M] ANDREW’S ONLINE PROGRAMS * Valuation Master Class [https://valuationmasterclass.com/] * The Become a Better Investor Community [https://astotz.kartra.com/page/become-a-better-investor-community] * How to Start Building Your Wealth Investing in the Stock Market [https://academy.astotz.com/courses/how-to-start-building-your-wealth-investing-in-the-stock-market] * Finance Made Ridiculously Simple [https://academy.astotz.com/courses/finance-made-ridiculously-simple] * FVMR Investing: Quantamental Investing Across the World [https://academy.astotz.com/courses/fvmr-investing-quantamental-investing-across-the-world] * Become a Great Presenter and Increase Your Influence [https://academy.astotz.com/courses/gp] * Transform Your Business with Dr. Deming’s 14 Points [https://academy.astotz.com/courses/transformyourbusiness] * Achieve Your Goals [https://academy.astotz.com/courses/achieve-your-goals] CONNECT WITH ANDREW STOTZ: * astotz.com [https://www.astotz.com/] * LinkedIn [https://www.linkedin.com/in/andrewstotz/] * Facebook [https://www.facebook.com/andrewstotzpage] * Instagram [https://www.instagram.com/andstotz/] * Threads [https://www.threads.net/@andstotz] * Twitter [https://twitter.com/Andrew_Stotz] * YouTube [https://www.youtube.com/c/andrewstotzpage] * My Worst Investment Ever Podcast [https://itunes.apple.com/us/podcast/my-worst-investment-ever-podcast/id1416554991?mt=2]

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing [https://amzn.to/4ebG33x]. In this series, they discuss Chapter 15: Individual Stocks Are Riskier Than Investors Believe. LEARNING: Don’t invest in individual stocks. Instead, diversify your portfolio to reduce your risk.   > “Diversification has been said to be the only free lunch in investing. Unfortunately, most investors fail to use the full buffet available.” > Larry Swedroe   In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing [https://amzn.to/4ebG33x]. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners [https://buckinghamwealthpartners.com/] to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks [https://myworstinvestmentever.com/ep645-larry-swedroe-beware-of-idiosyncratic-risks/]. Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 15: Individual Stocks Are Riskier Than Investors Believe. CHAPTER 15: INDIVIDUAL STOCKS ARE RISKIER THAN INVESTORS BELIEVE In this chapter, Larry reveals the stark reality of investing in individual stocks, highlighting the significant risks involved. His aim is to help investors understand the potential pitfalls of this high-stakes game and why they should avoid it. Given the apparent benefits of diversification, it’s baffling why investors don’t hold highly diversified portfolios. According to Larry, one reason is that most investors likely don’t understand how risky individual stocks are compared to owning a broad selection of hundreds or thousands of stocks. EVIDENCE THAT INDIVIDUAL STOCKS ARE VERY RISKY Larry notes that the stock market has returned roughly 10% per year over the last 100 years, and the standard deviation on an annual basis of a portfolio of a broad market of stocks has been about 20%. He observes that most people don’t understand that the average individual stock has a standard deviation of more than twice that. In another study from 1983 to 2006 that covered the top 3,000 stocks, the stock market returned almost 13% per annum, but the median return was just 5.1%, nearly 8% below the market’s return. The mean annualized return was -1.1%. This means that if you randomly pick one stock, the odds would say you’re more likely to get -1.1%. However, if you own hundreds or thousands of stocks, the odds are in your favor, and you’ll get very close to that mean return. Larry shares another stark example of the riskiness of individual stocks. Despite the 1990s being one of the greatest bull markets of all time, with the Russell 3000 providing an annualized return of 17.7% and a cumulative return of almost 410%, 22% of the 2,397 U.S. stocks in existence throughout the decade had negative absolute returns. This means they underperformed by at least 410%. Over the decade, inflation was a cumulative 33.5%, meaning they lost at least 33.5% in real terms. In another study by Hendrik Bessembinder [https://www.newealth.com.au/wp-content/uploads/2019/08/2019-08-13-ASU-Do-Stocks-outperform-Treasury-Bills.pdf] of all common stocks listed on the NYSE, Amex, and NASDAQ exchanges from 1926 through 2015 and included. He found: * Only 47.7% of returns were more significant than the one-month Treasury rate. * Even at the decade horizon, a minority of stocks outperformed Treasury bills. * From the beginning of the sample or first appearance in the data through the end of the sample or delisting, and including delisting returns when appropriate, just 42.1% of common stocks had a holding period return greater than one-month Treasury bills. * While more than 71% of individual stocks had a positive arithmetic average return over their entire life, only a minority (49.2%) of common stocks had a positive lifetime holding period return, and the median lifetime return was -3.7%. This is because of volatility and the difference in arithmetic (annual average) returns versus geometric (compound or annualized) returns. For example, if a stock loses 50% in the first year and then gains 60% in the second, it has a positive arithmetic return but has lost money (20%) and has a negative geometric return. Bessembinder concluded that his results help to understand why active strategies, which tend to be poorly diversified, most often lead to underperformance. At the same time, he wrote that the results potentially justify a focus on less-diversified portfolios by investors who particularly value the possibility of “lottery-like” outcomes despite the knowledge that the poorly diversified portfolio will most likely underperform. A DIVERSIFIED PORTFOLIO IS THE WAY TO GO The results from the studies Larry has highlighted underscore the critical role of portfolio diversification. Diversification, often referred to as the only free lunch in investing, provides a sense of security and peace of mind. Unfortunately, many investors fail to fully utilize this powerful tool. They mistakenly believe that by limiting the number of stocks they hold, they can better manage their risks. In reality, a well-diversified portfolio is the key to long-term financial success. Most professionals with PhDs in finance spend 100% of their time engaged in stock picking and have access to the world’s best databases and teams of professionals helping them. These individuals are unlikely to outperform. So why would an average investor think they have enough advantage over them? Larry’s stern advice to investors is not to play the game. His professional guidance is a beacon of reassurance in the complex world of investing, steering investors away from risky individual stocks and towards the safety of a diversified portfolio. Investors make mistakes when they take idiosyncratic (unique), diversifiable, uncompensated risks. They do so because they are overconfident in their skills, overestimate the worth of their information, confuse the familiar with the safe, have the illusion of being in control, don’t understand how many individual stocks are needed to reduce diversifiable risks effectively, and don’t understand the difference between compensated and uncompensated risks (some risks are uncompensated because they are diversifiable). Another likely explanation is that investors prefer skewness. They are willing to accept the high likelihood of underperformance in return for the small likelihood of owning the next Google. In other words, they like to buy lottery tickets. Larry says that if you have made any of these mistakes, you should do what all smart people do: Once they have learned that a behavior is a mistake, they correct it. So, steer away from risky individual stocks and go for the safety of a diversified portfolio. FURTHER READING 1. Longboard Asset Management, “The Capitalism Distribution Observations of Individual Common Stock Returns, 1983 – 2006.” 2. Hendrik Bessembinder, “Do Stocks Outperform Treasury Bills?” [https://www.newealth.com.au/wp-content/uploads/2019/08/2019-08-13-ASU-Do-Stocks-outperform-Treasury-Bills.pdf] Journal of Financial Economics (September 2018). DID YOU MISS OUT ON THE PREVIOUS CHAPTERS? CHECK THEM OUT: PART I: HOW MARKETS WORK: HOW SECURITY PRICES ARE DETERMINED AND WHY IT’S SO DIFFICULT TO OUTPERFORM * Enrich Your Future 01: The Determinants of the Risk and Return of Stocks and Bonds [https://myworstinvestmentever.com/enrich-your-future-01-the-determinants-of-the-risk-and-return-of-stocks-and-bonds/] * Enrich Your Future 02: How Markets Set Prices [https://myworstinvestmentever.com/enrich-your-future-02-how-markets-set-prices/] * Enrich Your Future 03: Persistence of Performance: Athletes Versus Investment Managers [https://myworstinvestmentever.com/enrich-your-future-03-persistence-of-performance-athletes-versus-investment-managers/] * Enrich Your Future 04: Why Is Persistent Outperformance So Hard to Find? [https://myworstinvestmentever.com/enrich-your-future-04-why-is-persistent-outperformance-so-hard-to-find/] * Enrich Your Future 05: Great Companies Do Not Make High-Return Investments [https://myworstinvestmentever.com/enrich-your-future-05-great-companies-do-not-make-high-return-investments/] * Enrich Your Future 06: Market Efficiency and the Case of Pete Rose [https://myworstinvestmentever.com/enrich-your-future-06-market-efficiency-and-the-case-of-pete-rose/] * Enrich Your Future 07: The Value of Security Analysis [https://myworstinvestmentever.com/enrich-your-future-07-the-value-of-security-analysis/] * Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return [https://myworstinvestmentever.com/enrich-your-future-08-high-economic-growth-doesnt-always-mean-high-stock-market-return/] * Enrich Your Future 09: The Fed Model and the Money Illusion [https://myworstinvestmentever.com/enrich-your-future-09-the-fed-model-and-the-money-illusion/] PART II: STRATEGIC PORTFOLIO DECISIONS * Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t [https://myworstinvestmentever.com/enrich-your-future-10-you-wont-beat-the-market-even-the-best-funds-dont/] * Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill [https://myworstinvestmentever.com/enrich-your-future-11-long-term-outperformance-is-not-always-evidence-of-skill/] * Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play [https://myworstinvestmentever.com/enrich-your-future-12-when-confronted-with-a-losers-game-do-not-play/] * Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance [https://myworstinvestmentever.com/enrich-your-future-13-past-performance-is-not-a-predictor-of-future-performance/] * Enrich Your Future 14: Stocks Are Risky No Matter How Long the Horizon [https://myworstinvestmentever.com/enrich-your-future-14-stocks-are-risky-no-matter-how-long-the-horizon/] ABOUT LARRY SWEDROE Larry Swedroe [https://www.linkedin.com/in/larry-swedroe-18778267/] was head of financial and economic research at Buckingham Wealth Partners [https://buckinghamwealthpartners.com/]. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match. Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need [https://amzn.to/3HC9QnZ].” He has authored or co-authored 18 books. Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets. Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect [https://alphaarchitect.com/blog/], Advisor Perspectives [https://www.advisorperspectives.com/search?q=Larry+Swedroe], and Wealth Management [https://www.wealthmanagement.com/search/node/Larry%20Swedroe].   [spp-transcript]   CONNECT WITH LARRY SWEDROE * LinkedIn [https://www.linkedin.com/in/larry-swedroe-18778267/] * Twitter [https://twitter.com/larryswedroe] * Website [https://buckinghamwealthpartners.com/] * Books [https://amzn.to/3JfpUgx] ANDREW’S BOOKS * How to Start Building Your Wealth Investing in the Stock Market [https://amzn.to/3qrfHjX] * My Worst Investment Ever [https://amzn.to/2PDApAo] * 9 Valuation Mistakes and How to Avoid Them [https://amzn.to/3v6ip1Y] * Transform Your Business with Dr.Deming’s 14 Points [https://amzn.to/3emBO8M] ANDREW’S ONLINE PROGRAMS * Valuation Master Class [https://valuationmasterclass.com/] * The Become a Better Investor Community [https://astotz.kartra.com/page/become-a-better-investor-community] * How to Start Building Your Wealth Investing in the Stock Market [https://academy.astotz.com/courses/how-to-start-building-your-wealth-investing-in-the-stock-market] * Finance Made Ridiculously Simple [https://academy.astotz.com/courses/finance-made-ridiculously-simple] * FVMR Investing: Quantamental Investing Across the World [https://academy.astotz.com/courses/fvmr-investing-quantamental-investing-across-the-world] * Become a Great Presenter and Increase Your Influence [https://academy.astotz.com/courses/gp] * Transform Your Business with Dr. Deming’s 14 Points [https://academy.astotz.com/courses/transformyourbusiness] * Achieve Your Goals [https://academy.astotz.com/courses/achieve-your-goals] CONNECT WITH ANDREW STOTZ: * astotz.com [https://www.astotz.com/] * LinkedIn [https://www.linkedin.com/in/andrewstotz/] * Facebook [https://www.facebook.com/andrewstotzpage] * Instagram [https://www.instagram.com/andstotz/] * Threads [https://www.threads.net/@andstotz] * Twitter [https://twitter.com/Andrew_Stotz] * YouTube [https://www.youtube.com/c/andrewstotzpage] * My Worst Investment Ever Podcast [https://itunes.apple.com/us/podcast/my-worst-investment-ever-podcast/id1416554991?mt=2]

BIO: Ava Benesocky is an author, public speaker, educator, CEO, and Co-Founder of CPI Capital, a uniquely innovative real estate private equity firm that helps investors invest in multifamily assets. STORY: Ava became passionate about real estate when she was young. At 15, she convinced her parents to invest $13,000 in a course by Scott McGillivray on renovating and selling homes. Ava never did anything with the course, which made it the worst investment ever. LEARNING: If you invest in anything, ensure you’re ready to be committed, take action, and focus completely on it. Beware of shiny object syndrome.   > “If you’re ever going to invest in something, you have to take action, or else it’s a total waste of time and money. And what’s the point?” > Ava Benesocky   GUEST PROFILE Ava Benesocky [https://www.linkedin.com/in/avabenesocky-cpi-capital/] is an author, public speaker, educator, CEO, and Co-Founder of CPI Capital [https://cpicapital.cpicapital.ca/mediakit-avabenesocky], a uniquely innovative real estate private equity firm that helps investors invest in multifamily assets. She is the Host of Real Estate Investing Demystified [https://podcasts.apple.com/ca/podcast/real-estate-investing-demystified/id1650186768] with August Biniaz, who was Ep 784 [https://myworstinvestmentever.com/ep784-august-biniaz-be-a-specialist-not-a-jack-of-all-trades/]. Ava has been featured in publications such as Forbes, Yahoo Finance, and numerous PodCasts and YouTube shows. Ava helps busy professionals earn passive income through Multifamily Real Estate investments. WORST INVESTMENT EVER Ava became passionate about real estate when she was young. At 15, she convinced her parents to invest $13,000 in a course by Scott McGillivray on renovating and selling homes. Ava never did anything with the course, which made it the worst investment ever. She tried to get it started, but there were so many moving components, and the process was so convoluted that she got scared. It all fell through the cracks. Ava never ended up taking action on it. LESSONS LEARNED * If you invest in anything, ensure you’re ready to be committed, take action, and focus completely on it. * Beware of shiny object syndrome. ANDREW’S TAKEAWAYS * Embrace boring, dull, consistent, and regular assets. * Before buying a course, ask yourself if you have the time to commit to it or if it is better to get someone to help you achieve what you could if you took the course. ACTIONABLE ADVICE Refrain from being impulsive when buying courses. Take your time and ask yourself if you have time for it. Can you block it off on your calendar? If not, do not get it. AVA’S RECOMMENDATIONS Ava recommends listening to her podcast Real Estate Investing Demystified [https://podcasts.apple.com/ca/podcast/real-estate-investing-demystified/id1650186768], where she shares her personal experiences, interviews industry experts, and provides advice on real estate investing and other investment opportunities. NO.1 GOAL FOR THE NEXT 12 MONTHS Ava’s number one goal for the next 12 months is to continue building a couple of departments in the company and closing on a couple more assets. On a personal level, she will continue taking care of her mind, body, and family. PARTING WORDS   > “Thank you so much for letting me be on your podcast, and good luck to everybody out there in whatever venture they decide to take.” > Ava Benesocky   [spp-transcript]   CONNECT WITH AVA BENESOCKY * Linkedin [https://www.linkedin.com/in/avabenesocky-cpi-capital/] * Facebook [https://www.facebook.com/CPICapital] * Podcast [https://podcasts.apple.com/ca/podcast/real-estate-investing-demystified/id1650186768]   * YouTube  [https://www.youtube.com/@realestateinvestingdemysti8286] * Website [https://cpicapital.cpicapital.ca/mediakit-avabenesocky] ANDREW’S BOOKS * How to Start Building Your Wealth Investing in the Stock Market [https://amzn.to/3qrfHjX] * My Worst Investment Ever [https://amzn.to/2PDApAo] * 9 Valuation Mistakes and How to Avoid Them [https://amzn.to/3v6ip1Y] * Transform Your Business with Dr.Deming’s 14 Points [https://amzn.to/3emBO8M] ANDREW’S ONLINE PROGRAMS * Valuation Master Class [https://valuationmasterclass.com/] * The Become a Better Investor Community [https://astotz.kartra.com/page/become-a-better-investor-community] * How to Start Building Your Wealth Investing in the Stock Market [https://academy.astotz.com/courses/how-to-start-building-your-wealth-investing-in-the-stock-market] * Finance Made Ridiculously Simple [https://academy.astotz.com/courses/finance-made-ridiculously-simple] * FVMR Investing: Quantamental Investing Across the World [https://academy.astotz.com/courses/fvmr-investing-quantamental-investing-across-the-world] * Become a Great Presenter and Increase Your Influence [https://academy.astotz.com/courses/gp] * Transform Your Business with Dr. Deming’s 14 Points [https://academy.astotz.com/courses/transformyourbusiness] * Achieve Your Goals [https://academy.astotz.com/courses/achieve-your-goals] CONNECT WITH ANDREW STOTZ: * astotz.com [https://www.astotz.com/] * LinkedIn [https://www.linkedin.com/in/andrewstotz/] * Facebook [https://www.facebook.com/andrewstotzpage] * Instagram [https://www.instagram.com/andstotz/] * Threads [https://www.threads.net/@andstotz] * Twitter [https://twitter.com/Andrew_Stotz] * YouTube [https://www.youtube.com/c/andrewstotzpage] * My Worst Investment Ever Podcast [https://itunes.apple.com/us/podcast/my-worst-investment-ever-podcast/id1416554991?mt=2]