Episodit
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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 21: You Canât Handle the Truth.
LEARNING: Overconfidence leads to poor investment decisions. Measure your returns against benchmarks.
âIf you think you can forecast the future better than others, youâre going to ignore risks that you shouldnât ignore because youâll treat the unlikely as possible.âLarry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. 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 to help investors. You can learn more about Larryâs Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 21: You Canât Handle the Truth.
Chapter 21: You Canât Handle the TruthIn this chapter, Larry discusses how investors delude themselves about their skills and performance, leading to persistent and costly investment mistakes.
The deluded investorAccording to Larry, evidence from the field of behavioral finance suggests that investors persist in deluding themselves about their skills and performance. This persistent self-deception leads to costly investment mistakes, emphasizing the need for continuous vigilance in investment decisions.
Larry quotes a New York Times article in which professors Richard Thaler and Robert Shiller noted that individual investors and money managers persist in believing that they are endowed with more and better information than others and can profit by picking stocks. This insight helps explain why individual investors think they can:
Pick stocks that will outperform the market.Time the market, so theyâre in it when itâs rising and out of it when itâs falling.Identify the few active managers who will beat their respective benchmarks.
The overconfident investorLarry adds that even when individuals acknowledge the difficulty of beating the market, they are buoyed by the hope of success. He quotes noted economist Peter Bernstein: âActive management is extraordinarily difficult because there are so many knowledgeable investors and information does move so fast. The market is hard to beat. There are a lot of smart people trying to do the same thing. Nobodyâs saying that itâs easy. But possible? Yes.â
This slim possibility keeps hope alive. Overconfidence, fueled by this hope, leads investors to believe they will be among the few who succeed.
Why investors spend so much time and money on actively managed mutual fundsLarry also examined another study, Positive Illusions and Forecasting Errors in Mutual Fund Investment Decisions,...
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BIO: Michael Episcope is the co-CEO of Origin Investments. He co-chairs its investment committee and oversees investor relations and capital raising.
STORY: Michael invested in a multi-family property in Austin with a friend who had vouched for somebody else. Unbeknownst to Michael, the guy in Austin had taken a loan against his property to save other properties in his portfolio.
LEARNING: Do not justify the red flags because an investment opportunity looks great. Investing is about how you behave and not what you know.
âWhen looking at an investment opportunity, do not justify the red flags because the investor investment opportunity looks so great.âMichael Episcope
Guest profileMichael Episcope is the co-CEO of Origin Investments. He co-chairs its investment committee and oversees investor relations and capital raising. Prior to Origin, Michael had a prolific derivatives trading career and was twice named one of the top 100 traders in the world. Michael earned his undergraduate and masterâs degrees from DePaul University. He has more than 30 years of investment and risk management experience.
Worst investment everIn 2004, Michael, a commodities trader, ventured into an investment with a friendâs recommendation. His friendâs assurance and Michaelâs financial stability made him believe he was impervious to mistakes.
The investment was a multi-family property in Austin, Texas. Michael trusted his friend and thought he did the due diligence, but he did not. The deal was okay, as they had the right city and the right piece of land. But then the communication from the individual in Austin was not going very well, and things just werenât adding up. But Michaelâs friend kept insisting everything was good.
Still, something didnât sit well with Michael, so he went online and Googled his property. He saw his property was sitting on a bridge lender site. The guy in Austin had taken a loan against Michaelâs property to save other properties in his portfolio.
The whole thing just went sideways. Michael took a lot of time and effort to wrangle away from that investment, wasting a year of his life. He got pennies on the dollar back from that investment.
Lessons learnedInvesting is about people.When looking at an investment opportunity, do not justify the red flags because the investment opportunity seems so great.Investing is about how you behave and not what you know.
Andrewâs takeawaysEven though you may sometimes have the wrong outcome, it doesnât mean you didnât do the right thing.
Actionable adviceDo as much due diligence as possible. When investing with someone, ask yourself:Do they have something to lose if the investment fails?Do they have their skin in the game?Do they have a balance sheet?Do they have something here at risk more than you do?
Michaelâs recommendationsMichael recommends that anyone wanting to learn about personal finance read Morgan Houselâs books. He also recommends downloading his free Comprehensive Guide to Real Estate Investing.
No.1 goal for the next 12 monthsMichaelâs number one goal...
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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 20: A Higher Intelligence.
LEARNING: Choose passive investing over active investing.
âPassive investing involves systematic, transparent, and replicable strategies without individual stock selection or market timing. Itâs the more ethical way to go.âLarry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. 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 to help investors. You can learn more about Larryâs Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 20: A Higher Intelligence.
Chapter 20: A Higher IntelligenceIn this chapter, Larry discusses prudent investing.
The Uniform Prudent Investor ActThe Uniform Prudent Investor Act, a cornerstone of prudent investment management, offers two key benefits.
Firstly, it underscores the importance of broad diversification in risk management, empowering trustees and investors to make informed decisions.
Secondly, it promotes cost control as a vital aspect of prudent investing, providing a clear roadmap for those who may lack the necessary knowledge, skill, time, or interest to manage a portfolio effectively.
Ethical malfeasance and misfeasance in investingIn this chapter, Larry sheds light on Michael G. Sherâs insights. Sher extensively discusses ethical malfeasance and misfeasance. He says ethical malfeasance occurs when an investment manager does something deliberately or conceals it (e.g., the manager knows that heâs too drunk to drive but drives anyway).
For example, consider the manager who invests intentionally at a higher level of risk than the client chose without informing them and then generates a subsequently higher return. The manager attributes the alpha or the excess return to his superior skill instead of the reality that he was taking more risk, so it was just more exposure to beta, not alpha.
On the other hand, ethical misfeasance occurs when an investment manager does something by accident (e.g., the manager really believes that heâs sober enough to drive). Thus, the manager doesnât know what heâs doing and shouldnât be managing money.
Avoid active investingLarry highly discourages active investing because the evidence shows that active managers who tend to outperform on average outperform by a little bit, and the ones that underperform tend to underperform by a lot.
Either they donât have the skill, and they have higher expenses, and the ones who have enough skills to beat the market, most of that skill is offset by their higher costs. So itâs still really tough to generate alpha.
Passive investing is the ethical way to goAccording to Sher, managing money in an efficient market without investing passively is investment malfeasance.
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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 19: Is Gold a Safe Haven Asset?
LEARNING: Do not allocate more than 5% of gold to your portfolio.
âI donât have a problem with people allocating a very small amount of gold to their portfolio, but they should only do it if theyâre prepared to earn lousy returns most of the time.âLarry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. 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 to help investors. You can learn more about Larryâs Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 19: Is Gold a Safe Haven Asset?
Chapter 19: Is Gold a Safe Haven Asset?In this chapter, Larry explains why you should not buy gold because you think itâs a good inflation hedge. While he is fine with people allocating a minimal amount of gold to their portfolio, Larry cautions that they should only do it if theyâre prepared to earn lousy returns most of the time.
Gold as an investment assetGold has long been used as a store of value, a unit of exchange, and as jewelry. More recently, many investors have come to believe that gold should be considered an investment asset, playing a potential role in the asset allocation decision by providing a hedge against currency risk, a hedge against inflation, and a haven of safety during severe economic recessions. Larry reviews various research findings to determine if the evidence supports those beliefs.
The evidenceIn their June 2012 study, âThe Golden Dilemma,â Claude Erb and Campbell Harvey found that in terms of being a currency hedge, changes in the real price of gold were largely independent of the change in currency valuesâgold is not a good hedge against currency risk.
This means that the value of gold does not necessarily increase or decrease in response to changes in currency values, making it a less effective hedge than commonly believed.
Erb and Harvey also found gold isnât quite the safe haven many investors think it is, as 17% of monthly stock returns fell into the category where gold dropped while stocks posted negative returns. If gold acted as a true safe haven, we would expect very few, if any, such observations. Still, 83% of the time, on the right side isnât a bad record.
Gold is not an inflation hedge, no matter the trading horizonThe following example provides the answer regarding goldâs value as an inflation hedge. On January 21, 1980, the price of gold reached a then-record high of US$850. On March 19, 2002, gold traded at US$293, well below its price two decades earlier. The inflation rate for the period from 1980 through 2001 was 3.9%.
Thus, goldâs loss in real purchasing power, which refers to the amount of goods or services that can be purchased with a unit of gold, was
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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 18: Black Swans and Fat Tails.
LEARNING: Never treat the unlikely as impossible. Diversify your portfolio to withstand black swans.
âIf you build a portfolio that can withstand the black swans and is highly diversified, then psychological or economic events wonât force you to sell.âLarry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. 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 to help investors. You can learn more about Larryâs Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 18: Black Swans and Fat Tails.
Chapter 18: Black Swans and Fat TailsIn this chapter, Larry explains the importance of never treating the unlikely as impossible and ensuring your plan includes the near certainty that black swan events will appear. Thus, your plan should consider their risks and how to address them.
Understanding the risk of fat tailsIn terms of investing, Larry says, fat tails are distributions in which very low and high values are more frequent than a normal distribution predicts. In a normal distribution, the tails to the extreme left and extreme right of the mean become smaller, ultimately reaching zero occurrences.
However, the historical evidence on stock returns is that they demonstrate occurrences of low and high values that are far greater than theoretically expected by a normal distribution. Thus, understanding the risk of fat tails is essential to developing an appropriate asset allocation and investment plan. Unfortunately, Larry notes, many investors fail to account for the risks of fat tails.
History of the black swansWith the publication of Nassim Nicholas Talebâs 2001 book Fooled by Randomness, the term black swan became part of the investment vernacularâvirtually synonymous with the term fat tail. In his second book, The Black Swan, published in 2007, Taleb called a black swan an event with three attributes:
It is an outlier, as it lies outside the realm of regular expectations because nothing in the past can convincingly point to its possibility.It carries an extreme impact.Despite its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.Taleb went on further to show that stock returns have big fat tails. Their distribution of returns is not normally distributed, and fat tails mean that what people think are unlikely events are much more likely to occur than people believe will.
To illustrate this, Larry uses an example: if you take stock returns, and in the last 100 years, you cut out one best month per year, which is 1% of the...
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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. 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 portfolioâby recognizing that the risk and return of any asset class by itself should be irrelevant."Larry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. 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 to help investors. You can learn more about Larryâs Worst Investment Ever story on Ep645: 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 RightlyIn 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.
Donât view an asset classâs returns and risk in isolationA common mistake that investors and even professional advisors often make is viewing an asset classâs returns and risk in isolation. Larry emphasizes this point by giving the example of Vanguardâs 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 Vanguardâs 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 returnAccording 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 portfolioLarry says there is only one right way to build a portfolioâby 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...
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Quick takeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 16: All Crystal Balls are Cloudy.
LEARNING: Estimated return is not always inevitable.
âIf returns are negative early on, donât withdraw large amounts because when the market eventually recovers, you wonât have that money to earn your returns.âLarry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. 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 to help investors. You can learn more about Larryâs Worst Investment Ever story on Ep645: 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 cloudyIn 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 youâll 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 riskTo demonstrate the danger of sequence risk, Larry asks us to imagine itâs 1973, and stocks have returned 8% in real terms and 10% in nominal returns. Weâve 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 1982âin just 10 years! (Note that from January 1973 through October 1974, when the bear market ended, the...
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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.
âThe simple things we can do with technology today make the customer experience so much better.âDamon Pistulka
Guest profileDamon 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. With over 20 years of experience, Damon is dedicated to transforming businesses, enhancing profitability, and helping founders create lasting legaciesââ.
Technology is your business allyIn todayâs episode, Damon, who previously appeared on the podcast on episode Ep649: 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.
Rapid innovation is outpacing businesses. Those lagging behind will be overtaken by competitors who have adopted new technologies.Aging workforce with limited new talent. Thereâs 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.Customers now expect top-tier service levels. Buyers are now demanding businesses provide instant feedback and real-time updates. Businesses that donât meet customer expectations will not stay competitive.
Using technology to deal with the threatsDamon 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 âlow-hanging fruitsââthese 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 advanceFurther, Damon advises seeking out experts who can help you advance in the particular area youâre 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 technologyDamon 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 fastAnother way to deal with the business threats is to move fast. Damon says that speed sells, and businesses must adopt a speed and...
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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 15: Individual Stocks Are Riskier Than Investors Believe.
LEARNING: Donât invest in individual stocks. Instead, diversify your portfolio to reduce your risk.
âDiversification has been said to be the only free lunch in investing. Unfortunately, most investors fail to use the full buffet available.âLarry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. 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 to help investors. You can learn more about Larryâs Worst Investment Ever story on Ep645: 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 BelieveIn 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, itâs baffling why investors donât hold highly diversified portfolios. According to Larry, one reason is that most investors likely donât understand how risky individual stocks are compared to owning a broad selection of hundreds or thousands of stocks.
Evidence that individual stocks are very riskyLarry 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 donât 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 marketâs return. The mean annualized return was -1.1%. This means that if you randomly pick one stock, the odds would say youâre more likely to get -1.1%. However, if you own hundreds or thousands of stocks, the odds are in your favor, and youâll 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 of all common stocks listed on the NYSE, Amex, and NASDAQ exchanges from 1926 through 2015 and
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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 youâre ready to be committed, take action, and focus completely on it. Beware of shiny object syndrome.
âIf youâre ever going to invest in something, you have to take action, or else itâs a total waste of time and money. And whatâs the point?âAva Benesocky
Guest profileAva 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.
She is the Host of Real Estate Investing Demystified with August Biniaz, who was Ep 784.
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 everAva 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 learnedIf you invest in anything, ensure youâre ready to be committed, take action, and focus completely on it.Beware of shiny object syndrome.
Andrewâs takeawaysEmbrace 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 adviceRefrain 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.
Avaâs recommendationsAva recommends listening to her podcast Real Estate Investing Demystified, 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 monthsAvaâs 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
âThank you so much for letting me be -
In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 14: Stocks Are Risky No Matter How Long the Horizon.
LEARNING: Stocks are risky no matter the length of your investment horizon
âInvestors should never take more risk than is appropriate to their personal situation.âLarry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. 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 to help investors. You can learn more about Larryâs Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 14: Stocks Are Risky No Matter How Long the Horizon.
Chapter 14: Stocks Are Risky No Matter How Long the HorizonIn this chapter, Larry illustrates why stocks are risky no matter how long the investment horizon is.
According to Larry, the claim that stocks are not risky if oneâs horizon is long is based on just one set of data (the U.S.) for one period (albeit a long one). It could be that the results were due to a âlucky draw.â In other words, if stocks are only risky when oneâs horizon is short, we should see evidence of this in other markets. Unfortunately, investors in many different markets did not receive the kind of returns U.S. investors did.
Historical examples of stock market risksLarry presents evidence from several markets, reinforcing the historical data that stocks are also risky over the long term.
First, Larry looks at U.S. equity returns 20 years back from 1949. The S&P 500 Index had returned 3.1 percent per year, underperforming long-term government bonds by 0.8 percent per yearâso much for the argument that stocks always beat bonds if the horizon is 20 years or more.
In 1900, the Egyptian stock market was the fifth largest in the world, attracting significant capital inflows from global investors. However, those investors are still waiting for the return ON their capital, let alone the return OF their capital.
In the 1880s, two promising countries in the Western Hemisphere received capital inflows from Europe for development purposes: the U.S. and Argentina. One group of long-term investors was well rewarded, while the other was not.
Finally, in December 1989, the Nikkei index reached an intraday all-time high of 38,957. From 1990 through 2022, Japanese large-cap stocks (MSCI/Nomura) returned just 0.2 percent a yearâa total return of just 6 percent. Considering cumulative inflation over the period was about 15 percent, Japanese large-cap stocks lost about 9 percent in real terms over the 33 years.
Taking the risk of equity ownershipLarry notes that the most crucial lesson investors need to learn from this evidence is that while it is true that the longer your investment horizon, the greater your ability to take the risk of investing in stocks (because you have a greater ability to wait out a bear market without having to sell to raise capital), stocks are risky no matter the length of your...
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BIO: Pritesh Ruparel is the CEO of ALT21, a leading tech company in hedging and currency solutions.
STORY: Pritesh found a good trade and invested 100% in it. His manager later advised him to liquidate that position because it was too concentrated. A day after Pritesh liquidated, a natural disaster occurred, and the spread went from $10 to $250 in an hour.
LEARNING: Put yourself in a position to get lucky. Never decide against your gut. Stay grounded between the highs and the lows.
âThe worst thing you can do is to trade on something or to make a decision that you donât 100% agree with.âPritesh Ruparel
Guest profilePritesh Ruparel is the CEO of ALT21, a leading tech company in hedging and currency solutions. With two decades of expertise in financial derivatives and structured finance, he leverages technology to make financial products accessible and affordable, aiming to save small and medium-sized enterprises (SMEs) millions annually on international transactions.
Worst investment everPriteshâs first trading role was as a market maker in commodity relatives. One summer, he put a ton of analysis into a particular commodity spread trade. Pritesh thought the risk-to-reward looked good, but the trade was not doing anything. Nobody was marking the trade. Pritesh thought this was insane, so he went all in. He had the biggest position possible in that trade and it was 100% of his portfolio.
A manager advised Pritesh to liquidate the position because it was too concentrated. A day after Pritesh liquidated, a natural disaster occurred. The position benefited from this disaster and went from $10 to $250 in an hour. Unfortunately, Pritesh could have earned so much if only he had not liquidated.
Lessons learnedPut yourself in a position to get lucky.When you start any role, listen, learn as much as possible, and take advice.Never decide against your gut.Never make a decision that you donât agree with 100%.
Actionable adviceStay grounded between the highs and the lows. Ultimately, youâll be fine if you make decisions that align with what you believe in. This can give you a sense of confidence and conviction in your decisions.
Priteshâs recommendationsPritesh recommends building systems, processes, or resources that suit your risk appetite, emotional intelligence, and patience. This can enhance your decision-making and risk management, as it aligns with your personal attributes.
No.1 goal for the next 12 monthsPriteshâs number one goal for the next 12 months is to have repeatable, scalable processes for his go-to-market and use that to make an impact globally.
Parting words
âRemember, itâs a marathon, not a sprint.âPritesh Ruparel[spp-transcript]
Connect with Pritesh RuparelLinkedInWebsite
Andrewâs booksHow to Start Building Your Wealth Investing in the Stock Market -
In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 13: Between a Rock and a Hard Place.
LEARNING: Past performance is not a strong predictor of future performance.
âIf you must invest actively, find active funds that design their strategies more intelligently to take advantage of the problems and at least avoid pitfalls.âLarry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. 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 to help investors. You can learn more about Larryâs Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 13: Between a Rock and a Hard Place.
Chapter 13: Between a Rock and a Hard PlaceIn this chapter, Larry illustrates why past performance is not a strong predictor of future performance.
Academic research has found that prominent financial advisors, investment policy committees, and pension and retirement plans engage top academic practitioners to help them identify future managers who will outperform the market. Such entities only hire managers with a track record of outperforming. They analyze their performance to see if it is statistically significant.
However, research also shows that, on average, the active managers chosen based on outstanding track records have failed to live up to expectations. The underperformance relative to passive benchmarks invariably leads decision-makers to fire the active manager. And the process begins anew.
A new round of due diligence is performed, and a new manager is selected to replace the poorly performing one. And, almost invariably, the process is repeated a few years later. So whenever pension plans interview Larry and he notices this hiring pattern, he always asks them what their hiring process is and what theyâre doing differently this time since, you know, the same process failed persistently, causing regular turnover of managers. Nobody has ever answered that question.
According to Larry, many individual investors go through the same motions of picking a manager and end up with the same resultsâa high likelihood of poor performance.
Doing the same thing over and over expecting a different result is insanityLarry observes that the conventional wisdom that past performance is a strong predictor of future performance is so firmly ingrained in our culture that it seems almost no one stops to ask if it is correct, even in the face of persistent failure. Larry wonders why investors arenât asking themselves: âIf the process I used to choose a manager that would deliver outperformance failed, and I use the same process the next time, why should I expect anything but failure the next time?â
The answer is painfully apparent. If you donât do anything different, you should expect the same result. Yet, so many investors do not ask this simple question.
Larry insists that it is essential to understand that neither the purveyors of active...
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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 12: Outfoxing the Box.
LEARNING: You donât have to engage in active investing; instead, accept market returns by investing passively.
âYou donât have to play the game of active investing. You donât have to try to overcome abysmal oddsâodds that make the crap tables at Las Vegas seem appealing. Instead, you can outfox the box and accept market returns by investing passively.âLarry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. 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 to help investors. You can learn more about Larryâs Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 12: Outfoxing the Box.
Chapter 12: Outfoxing the BoxIn this chapter, Larry aims to guide investors toward a winning investment strategy: accepting market returns. He uses Bill Schultheisâs âOutfoxing the Box.â This is a simple game that you can choose to either play or not play. The box contains nine percentages, each representing a rate of return your financial assets are guaranteed to earn for the rest of your life.
As an investor, you have the following choice: Accept the 10 percent rate of return in the center box or be asked to leave the room. The boxes will be shuffled around, and you will have to choose a box, not knowing what return each box holds. You quickly calculate that the average return of the other eight boxes is 10 percent.
Thus, if thousands of people played the game and each chose a box, the expected average return would be the same as if they all decided not to play. Of course, some would earn a return of negative 3 percent per annum, while others would earn 23 percent. This is like the world of investing: if you choose an actively managed fund and the market returns 10 percent, you might be lucky and earn as much as 23 percent per annum, or you might be unlucky and lose 3 percent per annum. A rational risk-averse investor should logically decide to âoutfox the boxâ and accept the average (market) return of 10 percent.
In all the years Larry has been an investment advisor, whenever he presents this game to an investor, not once has an investor chosen to play. Everyone decides to accept par or 10 percent. While they might be willing to spend a dollar on a lottery ticket, they become more prudent in their choice when it comes to investing their lifeâs savings.
Active investing is a loserâs gameActive investing is a game with low odds of success that many would consider a losing battle. Itâs a game that, when compared to the âoutfoxing the boxâ game, seems like a futile endeavor. Larryâs advice is to avoid this game altogether.
In the âoutfoxing the boxâ game, the average return of all choices was the same 10 percent as the 10 percent that would have been earned by choosing not to play. And 50 percent of those choosing to play would be expected to...
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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 11: The Demon of Chance.
LEARNING: Donât always attribute skill to success, sometimes it could be just luck.
âJust because there is a correlation doesnât mean causation. You must be careful not to attribute skill and not luck to success.âLarry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. 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 to help investors. You can learn more about Larryâs Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 11: The Demon of Chance.
Chapter 11: The Demon of ChanceIn this chapter, Larry discusses why investors confuse skill with what he calls âthe demon of luck,â a term he uses to describe the random and unpredictable nature of market outcomes.
Larry cautions that before concluding that because an investment strategy worked in the past, it will work in the future, investors should be aware of the uncertainty and ask if there is a rational explanation for the correlation between the outcome and strategy.
According to Larry, the assumption is that while short-term outperformance might be a matter of luck, long-term outperformance must be evidence of skill. However, a basic knowledge of statistics is crucial in understanding that with thousands of money managers playing the game, the odds are that a few, not just one, will produce a long-term performance record.
Today, there are more mutual funds than there are stocks. With so many active managers trying to win, statistical theory shows that itâs expected that some will likely outperform the market. However, beating the market is a zero-sum game before expenses since someone must own all stocks. And, if some group of active managers outperforms the market, there must be another group that underperforms. Therefore, the odds of any specific active manager being successful are, at best, 50/50 (before considering the burden of higher expenses active managers must overcome to outperform a benchmark index fund).
Skill or âthe demon of luck?From probability, itâs expected that randomly, half the active managers would outperform in any one year, about one in four to outperform two years in a row, and one in eight to do so three years in a row. Fund managers who outperform for even three years in a row are often declared to be gurus by the financial media. But are they gurus, or is it just luck? According to Larry, it is hard to tell the difference between the two. Without this knowledge of statistics investors are likely to confuse skill with âthe demon of luck.â
Bill Miller, the Legg Mason Value Trust manager, was acclaimed as the next Peter Lynch. He managed to do what no current manager has doneâbeat the S&P 500 Index 15 years in a row (1991â2005). Indeed, that could be luck. You canât rely on that performance as a predictor of future greatness. Larry turns to academic...
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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 10: When Even the Best Arenât Likely to Win the Game.
LEARNING: Refrain from the futile pursuit of trying to beat the market.
âOnly play the game of active management if you can truly identify an advantage you have, like inside information, but you have to be careful because itâs illegal to trade on it. Also, play only if you place a very high value on the entertainment.âLarry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. 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 to help investors. You can learn more about Larryâs Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 10: When Even the Best Arenât Likely to Win the Game.
Chapter 10: When Even the Best Arenât Likely to Win the GameIn this chapter, Larry illustrates why individual investors should refrain from the futile pursuit of trying to beat the market.
It seems logical to believe that if anyone could beat the market, it would be the pension plans of the largest U.S. companies. Larry lists a few reasons this is a reasonable assumption:
These pension plans control large sums of money. They have access to the best and brightest portfolio managers, each clamoring to manage the billions of dollars in these plans (and earn hefty fees). Pension plans can also invest with managers that most individuals donât have access to because they donât have sufficient assets to meet the minimums of these superstar managers.Pension plans always hire managers with a track record of outperforming their benchmarks or, at the very least, matching them. Not the ones with a record of underperformance.Additionally, pension plans will always choose the manager who makes an excellent presentation, explaining why they succeeded and would continue to succeed.Many, if not the majority, of these pension plans hire professional consultants such as Frank Russell, SEI, and Goldman Sachs to help them perform due diligence in interviewing, screening, and ultimately selecting the very best of the best. These consultants have considered every conceivable screen to find the best fund managers, such as performance records, management tenure, depth of staff, consistency of performance (to make sure that a long-term record is not the result of one or two lucky years), performance in bear markets, consistency of implementation of strategy, turnover, costs, etc. It is unlikely that there is something that you or your financial advisor would think of that they had not already considered.As individuals, we rarely have the luxury of personally interviewing money managers and performing as thorough a due diligence as these consultants. We generally do not have professionals helping us avoid mistakes in the process.The fees they pay for active management are typically lower than the fees individual investors... -
BIO: Andrew Pek is a co-founder of Amiko XR Inc., a groundbreaking company that leverages VR and AI technologies to create immersive, personalized learning experiences available 24/7.
STORY: Andrew shared his worst investment ever story on episode 376: Build Revenue in Your Startup Before You Build Up Cost. Today, he discusses his new business.
LEARNING: Learning can be more immersive, sparking curiosity and excitement.
âThank you so much, Andrew, for having me on your podcast. Itâs great to see you. I am excited about the future.âAndrew Pek
Guest profileAndrew Pek is a co-founder of Amiko XR Inc., a groundbreaking company that leverages VR and AI technologies to create immersive, personalized learning experiences available 24/7. He is a recognized C-Suite advisor on innovation and human transformation. Andrewâs insights on leadership and design thinking have been featured in prominent media outlets such as ABC, NBC, Forbes, and Entrepreneur.
Andrew shared his worst investment ever story on episode 376: Build Revenue in Your Startup Before You Build Up Cost. Today, he discusses his new business.
Worst investment everMuch of Andrewâs work has involved teaching leadership, innovation, product design, and business development skills. Heâs always seeking new ways that technology can engage people to absorb learning and become more engagedânot just a boring, traditional training program, but something that would really involve learners in a more immersive way, sparking their curiosity and excitement.
Andrew and his team successfully prototyped a solution in which learners get an immersive learning experience through a headset and talk to a coach avatar who can teach just about anything.
So, if youâre interested in finance, investing, sales, leadership, career preparation, and just about any topic matter, youâll find it on the app. This includes job-related skills, general management and leadership courses, and personal development topics.
You can obtain information at your fingertips through generative AI and large language models. What sets the application apart is the combination of artificial intelligence and a VR experience. Through simulations, role plays, or evaluation, learners can master any particular topic or get support in any particular challenge. Unlike mobile device applications, VR experiences significantly reduce distractions, leading to more focused and practical engagement.
The solution is also unique because it is curated and configured to the expert level. You teach the avatar, and the avatar then teaches others. It ingests your content to become a master in your subject and attain the same level of intelligence as you.
Learners who use the solution talk to someone as if theyâre talking to you in an interactive, dynamic environment. If something is unclear or learners want to probe further or even get additional guidance or resources, the solution will facilitate that. Learners get videos and information transcripts and donât have to take notes.
Andrewâs solution is a smart choice for mid-to-large-sized corporations or even smaller corporations that canât afford expensive training or trainers. Itâs a cost-effective solution for those looking to provide any training, such as onboarding new employees. Employees can use the application on an ongoing basis to access courses specific to their...
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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 09: The Fed Model and the Money Illusion.
LEARNING: Just because there is a correlation doesnât mean that thereâs causation.
âJust because there is a correlation doesnât mean that thereâs causation. The mere existence of a correlation doesnât necessarily give it predictive value.âLarry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. 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 to help investors. You can learn more about Larryâs Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 09: The Fed Model and the Money Illusion.
Chapter 09: The Fed Model and the Money IllusionIn this chapter, Larry illustrates why the Fed Model should not be used to determine whether the market is at fair value and that the E/P ratio is a much better predictor of future real returns.
The FED modelThe stock and bond markets are filled with wrongheaded data mining. David Leinweber of First Quadrant famously illustrated this point with what he called âstupid data miner tricks.â
Leinweber sifted through a United Nations CD-ROM and discovered the single best predictor of the S&P 500 Index had been butter production in Bangladesh. His example perfectly illustrates that a correlationâs mere existence doesnât necessarily give it predictive value. Some logical reason for the correlation is required for it to have credibility. Without a logical reason, the correlation is just a mere illusion.
According to Larry, the âmoney illusionâ has the potential to create investment mistakes. It relates to one of the most popular indicators used by investors to determine whether the market is under or overvaluedâwhat is known as âthe Fed Model.â
The Federal Reserve was using the Fed model to determine if the market was fairly valued and how attractive stocks were priced relative to bonds. Using the âlogicâ that bonds and stocks are competing instruments, the model uses the yield on the 10-year Treasury bond to calculate âfair value,â comparing that rate to the earnings-price, or E/P, ratio (the inverse of the popular price-to-earnings, or P/E, ratio).
Larry points out two major problems with the Fed Model. The first relates to how the model is used by many investors. Edward Yardeni, at the time a market strategist for Morgan, Grenfell & Co. speculated that the Federal Reserve used the model to compare the valuation of stocks relative to bonds as competing instruments.
The model says nothing about absolute expected returns. Thus, stocks, using the Fed Model, might be priced under fair value relative to bonds, and they can have either high or low expected returns. The expected return of stocks is not determined by their relative value to bonds.
Instead, the expected real return is determined by the current dividend yield plus the expected real growth in dividends. To get the...
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BIO: Pavan Sukhdevâs remarkable journey from scientist to international banker to environmental economist has brought him to the forefront of the sustainability movement.
STORY: Pavan ignored his investment rules and invested in a bond, which caused him to lose almost his entire investment.
LEARNING: Donât make exceptions; the rules are the essence. Set up concentration risk limits. Diversify.
âA lot of investment mistakes are about not following your own disciplines. Had I followed my own disciplines, I wouldnât be telling you this story.âPavan Sukhdev
Guest profilePavan Sukhdevâs remarkable journey from scientist to international banker to environmental economist has brought him to the forefront of the sustainability movement. As CEO and Founder of GIST Impact, he collaborates with corporations and investors, leveraging impact economics and technology to measure a businessâs holistic value contribution to the world.
Worst investment everPavan is a relatively disciplined investor who always tries to maintain his moneyâs principal value by investing it wisely. For this reason, Pavan follows a couple of personal investment rules.
First, wherever he invests, he either makes friends or has friends. Second, Pavan follows a strict logic when investing in financial assetsâhe only invests in sovereign bonds. Third, Pavan has set up a concentration risk limit of $100,000 for a single sovereign emerging market. He never invests more than $50,000 on a credit. Fourth, Pavan always reads about the company he wants to invest in to understand what it does and its credit rating. Fifth, Pavan typically invests in sectors where he would be above average in reading and knowledge about that company.
Once, a friend came along and asked Pavan if he knew of a particular company with a bond earning 8.75%. Pavan hadnât heard about it. But he happened to know the family that owned it, and he was interested in it. Pavan decided to invest $100,000 instead of putting his maximum concentration of $50,000.
As part of his investment strategy, Pavan reads about companies. A news flash said that the company was involved in a contract in Malaysia. Pavan thought this was great, but that was that.
He never followed up on the news. It happens that the company lost the contract. Losing the contract was a big thing that caused the bond price to go down to $75 from $88. At this point, Pavan should have reduced his exposure by bringing the $100,000 down to $50,000, but he didnât. He continued to sit on the losses and hung on, and the price kept dropping. Finally, at some point, when it was just too low for it to make any difference, the company stopped paying coupons.
Lessons learnedDonât make exceptions; the rules are the essence.Set up concentration risk limits and reflect the volatility of that asset.DiversifyDonât sit on losses.
Andrewâs takeawaysFollow and stick to a stop-loss system.Donât buy something just because youâve sold something else.
Actionable adviceSet your concentration risk limits, put your trading style in place, and diversify.
No.1 goal for the next 12 monthsPavanâs number one goal for the next 12 months is to get his company profitable because itâs nice to be right, but itâs better to be profitable.
Parting words
âAll the best, guys. Invest wisely and invest well, and when it works, do... -
In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 08: Be Careful What You Ask For.
LEARNING: High growth rates donât always mean high stock returns.
âEmerging markets are very much like the rest of the worldâs capital marketsâthey do an excellent job of reflecting economic growth prospects into stock prices.âLarry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larryâs new book, Enrich Your Future: The Keys to Successful Investing. 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 to help investors. You can learn more about Larryâs Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 08: Be Careful What You Ask For.
Chapter 08: Be Careful What You Ask ForIn this chapter, Larry cautions people to be careful what they wish for in investing. He emphasizes the daunting challenge of active management, a path many choose in the belief that they can accurately forecast market trends.
However, as Larry points out, the reality is far from this ideal. The unpredictability of the market makes it almost impossible to predict with 100% accuracy, a fact that investors should be acutely aware of.
High growth rates donât always mean high stock returnsItâs important to note that high growth rates donât always translate into high stock returns, underscoring the unpredictability of market outcomes. According to Larry, for todayâs investors, the equivalent of the âMidas touchâ (the king who turned everything he touched into gold) might be the ability to forecast economic growth rates.
If investors could forecast with 100% certainty which countries would have the highest growth rates, they could invest in them and avoid those with low growth rates. This would lead to abnormal profitsâor, perhaps not.
Nobody can predict with that accuracy. Even if one could make such a prediction, they may still not make the profits they think they will. This is because, as Larry explains, experts have found that there has been a slightly negative correlation between country growth rates and stock returns.
A 2006 study on emerging markets by Jim Davis of Dimensional Fund Advisors found that the high-growth countries from 1990 to 2005 returned 16.4%, and the low-growth countries returned the same 16.4%.
Such evidence has led Larry to conclude that it doesnât matter if you can even forecast which countries will have high growth rates; the market will make the same forecast and adjust stock prices accordingly.
Therefore, to beat the market, you must be able to forecast better than the market already expects, and to do so, you need to gather information at a cost. In other words, you canât just be smarter than the market; you have to be smarter than the market enough to overcome all your expenses of gathering information and trading costs.
Larry emphasizes that emerging markets are very much like the rest of the worldâs capital marketsâthey do an excellent job of reflecting economic growth...
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