Chit Chat Stocks - INVESTING UNSCRIPTED: Back To Basics

Starting point is 00:00:00 Welcome in. This is the Chit Chat Stocks podcast feed. My name is Brett Schaefer and today we have a special cross-promote podcast episode from our friends at Investing Unscripted. This is a podcast for those who like unscripted investing conversations, want to learn as a beginning investor, and hear fascinating interviews from authors and investment analysts. The title of this episode is back to basics. Let's get to it. All right. If you're serious about investing, you need to know about public.com. That's where you can invest in everything, stocks, options, bonds, crypto. They even offer some of the highest yields in the industry, like the bond account, 6% or higher yield remains locked in even if the Fed cuts rates. What sets public apart is how they

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Starting point is 00:01:25 Paid for by Public Investing. Full disclosures and podcast description. Hey, everybody. Welcome back to Investing Unscripted, where we ask the hard questions about investing. I'm Jason Hall, joined by my good friend, Jeff Santoro. Hey, voice of the people. How are you, buddy?

Starting point is 00:01:42 Hey, I'm good. the listeners won't know that it took you several tries to do that introduction. So congratulations on finally nailing it. I'm really proud of you. Oh, they know. They know. They can just assume. Yeah.

Starting point is 00:01:58 As many times as we've talked about it, they absolutely know it took me multiple takes to get the first 30 seconds of our show out of my mouth. We got a fun show planned. We're going to get back to basics, Jeff. We are. It's the beginning of the year. I feel like this is the time of year that in a lot of aspects of life, people are thinking about

Starting point is 00:02:17 restarting new beginnings. And we thought it'd be fun to have a conversation where we just revisit some of the basics about investing and the way we think about it. So it's going to be a little unstructured of a conversation, but we have some kind of main points we're going to hit on. So it'll be back and forth asking each other questions. But I would like to do a little call out to our listeners here if there's anything that this episode sparks in your minds in terms of other back to basics type topics you'd like us to discuss shoot us an email or hit us up on social media let us know you can leave comments in the spotify app if that's your preferred way of reaching us but for the first month or so here i think it'd be fun jason if we got you know some

Starting point is 00:02:59 listener ideas about like hey here's a basic concept i'd like a conversation on or here's something i struggle with or here's something i want to learn more about just to kick things off here in early 2025. You need to remember Jeff, one of our themes for 2025 was when the, where the listeners step it up. That's right. We're tired of pulling all the weight here. Yeah. Come on people on this podcast that we make, but in all seriousness, we do get call outs and obviously we do the mailbag and we have a lot of questions we go through and every once in a while, a mailbag question turns into a topic that's really big enough for an entire show. And we generally have a pretty good idea of what we want to talk about every week. And we have a list of ideas and

Starting point is 00:03:43 different things. And of course, topical stuff happens that drives the conversation a lot of times, but we do love to hear from listeners with ideas. So if there is a topic, like Jeff was saying, definitely send it to us, whether it's a kind of a back to basics thing, or even if it's something maybe obscure and kind of niche that you want us to delve into, I think that can be a really useful conversation and it can help just keep us grounded too, right? It's really easy to kind of chase the thread of whatever's happening in the investing world. And something I put on Blue Sky today is that I've found that the thing that oftentimes feels like it's getting the most attention that matters the most in the moment is the thing that doesn't matter at all over the

Starting point is 00:04:25 long term, right? And the things that matter the most over the long term are the things that we often don't spend a lot of time thinking about in the moment. So it's a good way to kind of remind us about that too. Yeah, for sure. And the last thing I'll say about it, and then we can dive in is it also helps us, I think, not to get too deep in the weeds. One piece of feedback I've gotten from some listeners over the past couple of years is, you know, sometimes we'll dive into a topic and not explain it, or we'll use an acronym and not say what it means, or we'll talk about a stock and not give the ticker. So it'll help us go back to our roots of helping anyone listening who might be on the earlier end of their investing journey as it pertains to getting started and learning

Starting point is 00:05:05 more. Having said all that, let's dive in here, Jason. So the first piece I wanted to kind of start with, as I was thinking about what it means to me to go back to basics, this is where my head went and you can tell me what you think about it. We spend so much time, you and I, both on the podcast and just talking to each other offline, talking about stocks specifically and investing in that aspect, because that's the thing you and I both enjoy the most. And you write about stocks for a living and I write about stocks as a part-time job. And I have to stop and remind myself over and over again, stocks are a small part of my invested wealth. Stocks are probably not going to be the main driver of me reaching my financial goals. They might expediate it.

Starting point is 00:05:53 They might be- In the aggregate, but- Right. Individually, right. Correct. Well, no, even in the aggregate, I guess there's a chance that they do become a substantial part of my portfolio over the next decade plus. But I guess my point is I'm going to reach my goals because of all of the index and ETF and mutual fund investments. When I say in the aggregate, I mean, that's what makes, composes those particular investments. Oh, yeah, I was just saying. But I thought you meant the aggregate of just my stock portfolio, because even that I think

Starting point is 00:06:22 is going to not be the main driver, I should say. But I think your point is that we spend an outsized amount of time talking about things that will typically have a pretty minor impact on the big picture of our returns. Yeah, and yes, that's a good way to say it. And I think for me, when I have conversations with people offline, like not involving the podcasts that are about investing or personal finance or anything like that i i don't give advice i don't feel like i'm qualified to i share my i share what i think i share my experience like what i've done in my life but i find myself when i closest i get to advice with 99 of people is

Starting point is 00:07:02 it's not about stocks it's like what are your goals when do you want to reach them what do you already do how much do you save do you watch your budget like it's all that kind of stuff so the place i wanted to start with like a back to basics conversation is simply the idea of knowing what your financial goals are and then having the conversations if there are other people in your life that are tied to your financial goals they got to have those conversations and that's going to be very different if you're 19 and you're listening to this by the way get a life if or if you're 22 or if you're 28 if you're married if you're single if you have kids if you have no kids if you have grandkids whatever your situation is that's going to differ but i feel like first

Starting point is 00:07:40 principles needs to be what am i doing all this saving and investing for right like what is my end goal yeah no and that's that's exactly right but first of all really good job instilling confidence in the teenager who's already weird so if there's a 19 year old listening to this they should know that a that was a joke but b even if i knocked your confidence down you'll be happy when you're my age and you are listening to an investing podcast when you're 19 because that is not what i was doing yeah you will be in a much better situation than jeff or jason there's no doubt about that you won't have to do a podcast for 13 cents every thousand listens to make ends meet yeah we did we don't do this for the money narrator they do it for the money anyway we're

Starting point is 00:08:27 getting silly here let's bring it back we're getting very silly we haven't done one of the silly rants in a little while so it's okay but no i think you're right because it's really investing the whole journey can be as simple or as complex as you want And I think that is one of the realities of people that are passionate about stocks or are interested enough in it that they're going to be listening to a podcast about it is that we tend to add complexity to it and we add complications to it just through the very nature of buying more stocks, owning a larger portfolio of individual stocks where you need to be doing more research to understand what you own, keeping track of everything. So when you have new money to add, that you're consistently diversifying and investing it where you think the best ideas are for your long-term goals. But I think you're exactly right. I think it's such a healthy thing to do to step back and really focus on the basics. I mean, if you think about professional athletes, I'm going to use one of my professional athlete analogies. And

Starting point is 00:09:31 one of the things that you consistently see with the most consistently skilled athletes is they consistently do the basic things over and over again they work on the basics they work on the fundamentals taking hundreds of shots taking thousands of swings working on repetition of their mechanics, like those basic things that even with all of their understanding of whatever their sport is and their own abilities and the knowledge of the people they compete with and the things they have that are skills that gives them advantages over certain players and vice versa, focus on those basics is so important. I think that's something that we as individual investors should do more often. And at the beginning of the year, it's not a bad time to really sit back

Starting point is 00:10:25 and almost start with a clean slate and say okay if i was starting from fresh today what would i say my financial goals are yeah right because you have to what i found or what i the way i think of it is if you don't have a clear idea of what you're trying to accomplish you'll end up being pulled in the direction of any number of things right like what's interesting what's hot what people are talking about. And I feel like that'll get you to chase. My biggest worry is that that makes you chase the things that you think will get you rich fast. And those are not the things that are going to build the wealth you need to meet your long-term financial goals, or at least that's the way I think about it. You start risking what you can't really afford to lose, trying to

Starting point is 00:11:12 capture what you don't really need to have. Yeah. Or just, so here's an example. I was talking to someone recently and they made it some sort of comment like because i know i do this podcast and it was they said something along the lines of like i really need to start buying some stocks and get my life together or something like that and all i said was like i'd love to talk to you about it but my thinking was well that's not really that's not really the place to start right because that's that stocks is a starting point is probably a terrible way if you need to get your life together well it just it read to me like the way i took that was i saw someone tweet about Nvidia and I need to do that. You know what I mean? And this person is in, this person's

Starting point is 00:11:51 probably in their late thirties, I would say. So, you know, not someone who's about to retire, but also not someone who's 22 and just starting out in professional life. So I offered to have a conversation and I said, there's a lot of stuff to talk about ahead before you like know what to go do and buy. And then we have not had this conversation yet, but I do feel like in a world where it's so easy to get influenced by influencers and what people are talking about online and it's generally not their failings it's all of their successes and even people just straight up giving facts like today i woke up this morning and someone just tweeted a screenshot of nvidia stock price and said like nvidia new all-time high pre-market fine just i don't think the person

Starting point is 00:12:35 doing anything wrong they were just stating a fact but i could absolutely see someone who's in their late 30s and feel like their financial life's not together, seeing that and going like, I got to buy that. You're exactly right. And that could be part of a strategy, but that in and of itself is not the strategy. That's what I'm getting at. Yeah. And I think the other thing too is that as we spend time doing something and we're in the middle of it, we're in the weeds, we're in the middle of the forest, it's really easy to lose track of the path and where we are on that path and to start making objective decisions, we start reacting to the market and reacting to what our portfolio is doing in the moment and what it's done over the past six

Starting point is 00:13:17 weeks versus what it's done over the past six years and what we needed to do over the next however long until our various financial goals are going to arrive. And it definitely moves us into decisions that are more influenced. We'll talk about this often by things that are incentives to do certain actions versus maybe really focusing back on what our goals are and are the things that we're doing setting us up for long-term success and short-term success too? Or are they potentially creating pools of risk that could upend some of our goals? So I think a big part of it for me is sitting down fresh and outlining financial goals and not just what the goal is, but when it is and how much it's going to cost, like within some

Starting point is 00:14:11 degree of directional accuracy to what it's going to cost. Some examples, Jeff, you and I share in common. We have kids. We want to help those kids pay for their post-high school education. My son is younger than both of your sons. You've got one that's pretty close to college here. my son's in second grade. So thinking about how you would want to think about that goal of helping pay for education for your oldest son versus the actions that I'd be taking for Tate, very different places in terms of where are you on track to that goal? What do you need to be changing? What do you need to be doing differently? Then we have retirement. We have all the other goals along the way.

Starting point is 00:14:54 The other thing too is I think it's more than just like the investing stuff. It's just the personal finance, like the block and tackling stuff. It's like, how am I doing on building up a safety net, right? The emergency fund. How am I doing on making sure I've got the money set aside for trips I want to take later this year? Little things like that, that sure, they're different from investing, but they're dealing with how you're allocating all of your resources. And it's easy to screw up one by focusing too much on something else. Hey, everybody, we'll be right back. But first, a word from our sponsors. Finchat.io is the complete stock research platform for fundamental investors. They have all the standard financial data on more than

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Starting point is 00:16:27 paid plan today. The link will be in the show notes. Hey, Investing Unscripted listeners, this episode is brought to you by our friends at Yellow Brick Investing. Yellow Brick is an aggregator of the best stock pitches across the internet. By tracking thousands of blogs, newsletters, fund letters, podcasts, and more, they're able to collect and summarize the best stock pitches from all over and bring them to you in one single place. Think of it like a modern value investors club. I have to say, this is pretty cool. I can just type in the company I'm interested in and get a bunch of different stock pitches from across the internet. It helps me think through new ideas and find opposing points of view on the stocks I'm interested in. And the

Starting point is 00:17:02 best part is access to Yellowbrick is completely free. Try it for yourself. Simply go to join yellowbrick.com and search a company or ticker you're interested in. You're bound to find a great report on just about any company. That's joinyellowbrick.com. Yeah. And it reminds me again, this is just another conversation I've had just in the past couple of days with this person is probably 30-ish, is a freelancer, so doesn't have a W-2 steady income kind of job. And I found out this person always maxes out their Roth IRA. And I was really impressed by that because for a younger person who has inconsistent money coming in, I would imagine there are pressures about like, great, I got this money today. I don't

Starting point is 00:17:45 know when the next check's coming, but he's able to put whatever the max is now, 7,000 a year or 6,000 a year, 7,000 a year, whatever it is in his Roth IRA. So I said, that's great. I'm legit proud of you that you can do that. That's awesome. And the response was, I can't believe they didn't tell me this in high school. That was the first thing. And then also it's just really hard. It's really hard to save and invest for the future when you're like a freelancer yeah and again i was we talked about maybe having a conversation in the future about it but it reminded me that that's someone who at least is cognizant of the fact that i have to save money for like my 80s you feel like i need stuff down the road and that that might be enough of a first step to then figure all the rest

Starting point is 00:18:36 of it as you go through life. Right. But just having that idea at the beginning of like, all right, I know where my end goal is going to be. So yeah, it's a timely thing for me to have this conversation just because I've had these other interactions recently that are tied to it. So you touched on it, but I think it'd be a good time to go to this part of the conversation, which is, you know, we did an episode, I think it was last year about the difference between goals and incentives. And we're obviously don't have to rehash the entire episode. People can go back and listen to it. That feels like the next logical step in our conversation today, like the difference between having those long-term goals and the incentives that

Starting point is 00:19:13 are maybe short-term or different. And the thing that I remember back from that conversation is like the difference between the individual stocks in your portfolio and the bottom of the brokerage statement where it tells you the total. And thinking of like your entire pot of invested money through that lens. It's not so much about this stock or that index fund or this crypto or that real estate. It's more about what's the aggregate number and how is that doing relative to your long-term goals. So I think that's a good next place to go. Yeah, I think you're right. So that episode, that was episode 49. That was April of 2023. So getting close to a year ago, about nine months ago at this point. And I want to stay on that

Starting point is 00:20:02 for just a second before we dig in a little bit more. I think the thing that I really want to highlight that we talked about in that episode is that, and I used company's goals versus how management and employees are incentivized as a good way to think about it. Because the bottom line is that there's how we objectively should act, right? We know, everybody knows they should set some money aside for retirement. And for most people, they know it should be more than they're setting aside now. Everybody knows they should have an emergency fund. Everybody knows they should eat more vegetables than they're eating now, and they should exercise more than they're eating now. But why do we behave the way we do? Because despite the fact that objectively,

Starting point is 00:20:53 we know that there are other things that we should do, we all are faced with incentives in our lives that typically pull us in different directions. So if you're an executive at a business and the largest portion of your bonus is tied to revenue growth versus something like a per share metric, like book value per share or earnings per share, or something along those lines, you could go out and find a company to acquire that is going to grow the company's revenue 10%, even if it doesn't create per share value and your bonus goes up. So it incentivizes bad behavior. Think about what happened with Wells Fargo. And this was kind of the catalyst that eventually led to Warren Buffett selling Berkshire's stake and it had been one of its

Starting point is 00:21:41 largest stakes for decades. And they were creating these positive and negative incentives, disincentives for branch level people that were dealing with clients to create fake accounts because there was this push to grow accounts even through illegal and unethical means that literally cost people money because they were being pushed so hard to grow deposits and they were not incentivized to act in ways that were in the best long-term support of the business right and their clients as well so i think one thing that we talked about on that episode jeff is like if you and you mentioned this earlier talking about how it's important with these goals that you need to be aligned with your financial partners in your life about these things and i

Starting point is 00:22:34 think this comes in with with your kids too at some point if you set up a like a utma or a 529 or some other instrument where they're going to be coming into any size sum of money that they're going to be able to control or that's going to be there to pay for their education. I think it's important for the kids to understand it's there too and what's going on with it. And the same way that with your retirement and your savings and all of those things, if you have a spouse, you have to be as aligned as you can with that person. Because if you're not, you're doing things that you know are going to freak them out and those things go bad, your incentives are going to be to fix it as fast as you can and

Starting point is 00:23:16 hide it from them, which is going to incentivize you to make more mistakes. So incentives are amazingly powerful and understanding the things that influence you that can run counter to what your goals are is so incredibly important. Yeah. And it's, I think that's a scary thing, or maybe scary is not the right word. I think it's something to be cognizant of if you're, if you are an individual stock investor, especially one who is like locked into what other people who like to buy stocks are doing and saying, because I fight that incentive thing all the time. Even if it's like low key joking with you about a decision I made or ragging on you about a bad one you made, that's still at some level, like there is this like incentive thing

Starting point is 00:24:01 in my brain of like, I want to buy stocks that do better than Jason so I can bust his chops about it and i i'd be lying if i said that didn't probably more than it should make me think about what i do but oh i'd love to hear that but that's an example i mean but i think anyone that's human nature right if you're subscribed to a newsletter or you're um following someone listening to this podcast or following someone on youtube or anything like that there is always going to be some level of oh the decision i made was better than or not as good as this decision this person made but that's all short-term thinking, you know, like that, that could contribute to, or could pull away from your long-term goal, but it's not the long-term goal. And to your point, that could

Starting point is 00:24:42 easily incentivize you to either pull back and be like, all right, I'm not going to, I'm going to stop investing, or I'm going to wait until the market pulls back, or I'm going to double down and try to, you know, it's December 10th and I'm trailing the market. So let me go crazy and try to beat the market in the last two months of the year. Stupid stuff, right? And that's why I just keep coming back to, am I on track? Am I on track for the long-term things I want to do? Yeah, no, that's right. And again, I'm going to say the short and medium term matters a lot too, because a lot of times the big mistakes, the ones that have the biggest implications are when people are so focused on their long-term goals. You've spent 5, 10, 20

Starting point is 00:25:19 years building out a portfolio of stocks and investing and watching the market go up and the value continue to move higher, it can be hard to make that transition to stuff that's more boring or not as fun or that you're not as interested in, like moving 10% or 20% of your wealth into bonds. That's nowhere near as much fun to talk about. I'm sorry, Jeff. Wake up, Jeff. Oh, sorry. I just dozed off there. I know. I use the B word. It happens. But the key there is that this can be one of the, I think the most catastrophic mistakes, because when people should begin to make that transition is generally when they've created three-fourths or more of the wealth that they're going to create.

Starting point is 00:26:02 And they're risking much larger sums of money at that point, especially at a period in time where they're not going to have time to recover before they're going to need to start turning that asset into money, right? So I think that's one of the things that's really important about taking that step every year and really looking hard at your goals and when they are and wiping the slate clean and saying, okay, if I were building an asset allocation today and I had the value of my portfolio and it was sitting in CDs, what would I do with it? How would I allocate it? And thinking about reallocating it from there. Yeah. And I want to say one thing about that. And then I want to ask you an unscripted question that you're not ready for. I'm ready for it.

Starting point is 00:26:48 The thing I want to say about it is, that's what I found. So I had been telling myself for years that I need to meet with a fee-only financial planner just to see if I really am on track. And I finally did it a couple months ago. And what I learned through that process was coming into that conversation with specific questions I wanted to know about was helpful. And it's related to what you just said of like, you'll probably, if you're someone who pays attention to all this, which you probably are because you're listening to this podcast, you're probably be a point where you get to whatever age it is for you, where you start to think to yourself, like, is the time now that I need to start thinking about this? That's the time to go

Starting point is 00:27:25 ask a professional, you know, in my opinion, right? But you're going into that conversation with that question in mind, right? Okay. I'm 45 years old. I have two kids. They're 16 and 12. The question I would want to ask is, look at everything I have. Am I too stock heavy? Having a professional opinion on that, I think can be helpful. That may be the thing you need to kind if you are supposed to be starting to transition to something a little less risky or a little bit more on the capital preservation side versus the capital appreciation side. But the question I want to ask is this. So one of the things that I was thinking about in terms of goals versus incentives is there was a large period of my adult life where the only time I thought about or saw

Starting point is 00:28:06 the amount of money I had invested was when I would get the paper quarterly statement in the mail from my retirement account or my wife's retirement account. It was before there probably were logins back then. I just never made them because I didn't care. And I don't know how much of that was age. It's really easy to not worry about that stuff when you're in your 20s versus just the technology was different back then. But there was a understanding and calm that I had about the markets when I finally got into buying individual stocks and paying more attention to all this stuff four or five years ago that i don't think would have been there had it not been for 20 years of being forced to sort of not follow it closely if that makes any sense so i'm curious

Starting point is 00:28:51 what your thoughts are as it relates to keeping your eye on the prize so to speak the long-term goal about checking your portfolio checking your balances checking your you know especially if you're or whether you're a stock investor or just an index fund investor like how do you think about that. So I think as a starting point, if there's a lot of emotions behind your checking of your portfolio, then not only do you probably need to check it less, then you need to figure out what is causing those emotions and how do you inoculate that. And most of the time it's spend less time logging into Fidelity or E-Trade or whatever, and just spend more time reading. I know this is going to sound like eat your vegetables, right? You showed up for barbecue and somebody just handed

Starting point is 00:29:34 you a kale salad but it's the blocking and tackling it's the understanding what you own you know uh learn more trade less so to speak and what i mean by if if there's large emotions around it particularly if you're checking it because you're nervous or worried or anxious right you you probably have multiple problems and i would say that the most likely is you probably don't know enough about what you own to find a way to not be driven by your fear or concern about your portfolio going down, that you're having to check it every day, you're not going to be able to outrun the market. I'm telling you, because what's going to happen is it's going to start falling and you're going to be like, oh, it's going to come back and it's going to fall some

Starting point is 00:30:17 more. And then a month's going to go by and it's going to be down 20 or whatever percent. And then you're going to say, okay, all right, I'm done. And you're going to capitulate when the downturn is over. It's human nature because you're reacting based on what the stocks are doing and you're not reacting based on having some fundamental knowledge of what you own. You also probably have a little bit of an asset allocation problem too, where you're too stock heavy because you're focusing on the volatile part of your portfolio too much. From the same perspective, if you get a super jolt from checking it, if you're enjoying it maybe a little too much, maybe it's become too much of a spectator sport

Starting point is 00:30:57 for you. Or again, it's finding that healthy balance where emotions aren't significantly driving it. As someone that works professionally in the field, I use that as an excuse way too much to look at my portfolio. Frankly, I could still thrive in my career and look at my portfolio 90% less. So I'm being exceptionally hypocritical. Maybe I'm kind of looking in the mirror while I'm saying that. Well, it's interesting because I love that you talked about knowing what you own. I think we should explore that for a little bit because I think we should put aside for a second the knowing what you own aspect for someone who truly doesn't care about any of this because they're probably not listening. But I do think knowing what you own is super important for

Starting point is 00:31:42 someone who has enough interest to be listening to this right now. So for me, one of the first things I did when I first started getting interested, it was actually my interest in individual stocks that got me to go back and look at what i already was investing in like that was the first time i like logged into the website for my work retirement account and actually clicked on the fund that my money was going into and then found the pdf that's really long and full of information and tried to see like what is this actually this is the word yeah i know what is this actually what am i actually invested in and i was so naive that i was surprised to see that when I could click and be like, oh, wow, 10% or whatever, 2%, 5% of this money is in Apple.

Starting point is 00:32:27 Like I had no concept that this pool of money was actually in individual stocks. I know that sounds like incredibly stupid. That's incredibly typical. Right. I just thought it was like this pot of money that almost like how interest works, I guess, is how my brain thought about it. Right. Like it's like stock market interest, you know, but when you actually look at it and go, okay, so there's, I have $10,000 in this fund, right? Just to pick a round number. And 2% of this fund is in Apple. I own $2,000 worth of Apple. That was, you know, $200. Sorry. That was mind blowing for me. I was like, Oh, and I finally started to understand like what I owned as it pertained to these like big index and mutual funds that were in this retirement account. And then I was like

Starting point is 00:33:13 hooked. I was like, well, let me go log into my wife's account and see what she owns. And She was in a target date fund. So I was able to see like, well, what's, what is the target date fund invested in right now? When you woke up, you talked to her about reducing her bond exposure. Yes. That was my first step, obviously. But I, so I do, to me, it's like, that's the highest level of understanding what you own.

Starting point is 00:33:33 Cause those are the big funds. Those are probably the thing that most people have a lot of money in. Cause I, my guess is most people start investing through just their work retirement account before they start thinking about buying individual stocks. If I was to guess, that would be the majority of people out there. One more thing about that. I think that's important because you should just know generally what you're invested in, right?

Starting point is 00:33:54 Because I found out recently I owned a lot more of the MAG7 than I thought I did just by going through all my different mutual funds and ETFs and index funds and adding it all up. But let's flip the script and talk about knowing what you own if you are buying individual stocks. I think that's also really important. Yeah, it absolutely is. And Peter Lynch was the biggest proponent talking to the investing world about knowing what you own and what you see in everyday life and that sort of thing.

Starting point is 00:34:21 I think you kind of have to be careful with that because there's tons of people that worked in the automobile industry that if they simply focused on investing in the big automakers who thought they would continue to dominate and still on a volume basis they do and completely dismiss Tesla, which is what the entire industry did. They suffered as the result. I think specialized knowledge can be really, really valuable. If you're a biochemist and you work for a biotech, you probably have specialized knowledge that can help you identify biotech stocks, particularly the ones that are still startup or they're still in clinical phases. They don't have anything commercial, you have a better chance of being to identify potential winners that might have blockbuster or commercially successful drugs, right? So I think you have to be really careful with that. But there is a lot to be said for just the idea of seeing things and identifying them

Starting point is 00:35:25 and saying, hey, this is a trend. This is big. All right, now let's go do some research and find out if there's money to be made behind it. Study the industry, study the companies in it, Find the company or companies that look like they can be winners. Figure out if they actually have durable moats against the competition. What are those moats and what makes them durable? Understanding stuff like Tyler Crow talks about this a lot, our friend at Misfit Alpha. Understanding how is management incentivized? Because if executive pay, I talked about it earlier, is tied to things and can incentivize actions they can take that are going to be good for their compensation

Starting point is 00:36:02 but aren't necessarily good for shareholders, the thing that's good for their compensation is the thing that's going to happen first. Even that doesn't mean they're unethical people. That means they're people, right? So understanding all of those little things is so incredibly valuable, not just to helping find better investments,

Starting point is 00:36:22 but to avoid all of the mistakes that we make along the way based on acting based on what the stock price is doing and not what's going on with the business or the industry or the competitors. Hey, everybody, we'll be right back. But first, a word from our sponsors. All right, if you're serious about investing,

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Starting point is 00:36:57 Fund your account in five minutes or less at public.com forward slash investing unscripted. get up to $10,000 when you transfer your old portfolio. That's public.com forward slash investing unscripted. Paid for by Public Investing. Full disclosures and podcast description. Hey, Investing Unscripted listeners. My name is Brett, one of the hosts of the Chit Chat Stocks podcast.

Starting point is 00:37:18 If you love Investing Unscripted, we think you will love listening to Chit Chat Stocks. On our show, we research individual stocks, interview investing experts, and, well, chit chat about investing every single week. From hot stocks such as Nvidia and Celsius to hidden small cap gems, we have something for every type of investor. Follow the Chit Chat Stocks podcast on YouTube, Spotify, or Apple Podcasts and start discovering new investments today. I'm so glad you said that because as you were talking, I was thinking back to like when I first started buying individual stocks and looking back, I now realize every single decision I made in those first couple months

Starting point is 00:37:57 before i learned enough to stop doing this was based on price and that manifested itself in a couple ways so like first of all i started out with a with an account at robin hood and they have all these lists top 100 stocks and things like that i don't remember the rest because i don't have the account anymore but my method of buying stocks was like scroll through that list see a company i i know mostly right oh i know apple i know google whatever click on it notice that the chart go to like last six months last three months last year and and if all those were like generally up i'd be like i'll buy that like that was it so that was like level one for me level two was like all right i graduated to schwab i opened a schwab account i was like i need

Starting point is 00:38:43 something a little bit more adult but then it's the same thing there they have these like little reports you can open. And I'm sure every brokerage does this. I don't look at them anymore. I use Fidelity now. I'm sure they have this too. And they tell you that basically there's scores and numbers. This is a buy. This is not a buy. It's a five out of 10. This is a two out of 10. And I don't understand any of that. I was just like, Schwab says this is a good stock. I should probably buy it. And that I think is completely normal. While I do think I'm an idiot for not understanding that my retirement accounts were in stocks, I don't blame myself for not knowing that that's not how you invest.

Starting point is 00:39:18 It's given to me by the brokerage. Surely they have my best interest in mind. No, they make money every time I trade. That's what they have in mind. I'm glad you said that because- Talking about incentives. It's about incentives. And the bottom line is that just because your brokerage

Starting point is 00:39:35 doesn't charge you a commission doesn't mean that they're not making money, right? Because they have deals with market makers that make a little bit of money on the trading. right? They're the party in between buyers and sellers, and they make a little bit of money on the price. Fractions of cents. Yeah, just fractions of cents, and that's all it takes. But the key is that the brokerages, they get a little bit of that action too, right? And there are other things too, asset management, of course, they want you to buy their ETFs and their mutual

Starting point is 00:40:07 funds and all those sorts of things that they're going to feed to you as well. But they're doing just fine is the key and if you're if you're not directly paying them you're the product right you're not the customer and then online brokerage accounts where you get free trading you're being sold your trading volume is being sold and look i i get this is why like i i've kind of landed in a spot where i don't want to say that if you don't want to do any research you shouldn't own any stocks because i i do think there are ways to do that like you like we've talked about you can outsource your research to a investment service that you pay for if you'd like i wouldn't do that personally only because i'm interested in it but some people do and that's fine but that's why i

Starting point is 00:40:50 feel like if you're not if you're trading the way i just described and finding that you're not successful over a long period of time you should either learn more or just buy index funds okay because you're going to end up getting pulled by other people's and other companies incentives that are not aligned with you making winning investments that are going to help you reach your goals. And we talked about it a lot back in 2021, 2022, about how the market whipsawed in 2020, right? The crash into February to end of March 2020 during the pandemic, the market fell well

Starting point is 00:41:25 over 30% in a month and then basically fully recovered. We went top to top in nine months and we've never seen that sort of recovery happen that quickly. and I don't know, something like 70 or more percent of stocks went up over that period, like this massive percentage of stocks. And we know the numbers are clear. Most stocks don't generate great returns for investors. It's a small percentage. And to a certain degree, 2024 was another one of those years where this really, really high percentage of stocks generated positive returns. And I wanted to mention that, Jeff, because if you're somebody

Starting point is 00:42:03 that's been trading a lot and you had a lot of success in 2024, you're not a fast swimmer probably. I'm sorry to tell you, you were swimming in a fast moving river in 2024. And it's not typical to get those sorts of things. So step lightly and maybe leverage that success and start shifting the proceeds of that success into something that's going to be more successful over the longterm. Now, I'm glad you said that because I was thinking about this the other morning, I think it was Ben Carlson in his wealth of common sense, just put the full year returns in a chart from 2020 to 2024, that five-year span. And it was like every year is either up 20, down 20. There was no up two, up three, something like that. And I realized I have no idea yet

Starting point is 00:42:55 if i'm a good stock picker i don't feel like i will know that until i'm much further in the future and you could probably say that about any five-year period really but this one in particular if you think about those five years 2020 was insane the markets basically doubled over yeah but like just just the individual years like 2020 was exactly what you said right like massive drop down complete recovery 21 was just a continuation of that recovery 22 was a long downturn and then it was two straight years of 20 plus gains four out of those five years the only really prolonged stretch i've been through as a stock investor is the 2022 downturn yeah i have to slow my roll in terms of the way i view my own

Starting point is 00:43:39 again which is why right i try so much to focus on like i'm going to reach my financial goal because otherwise i'll be if you're going to be just starting out and trying to figure it out it's a hell of a good time to do it when the tide is rising. So that's definitely a positive. But one of the things that's really interesting about 2024, even as a lot of times people kind of conflate, they might say, well, the stock market went down a lot in 2023, so it was a volatile year. Stock market went up a lot in 2024, so it was a really volatile year. And the volatility is more the whipsaw action. And 2024 actually wasn't a super volatile year. There weren't big swings in one direction.

Starting point is 00:44:20 Yeah, we had a pretty decent little sell-off there at the end of the year, but historically speaking, it wasn't substantial. So that's another thing that made 2024 kind of an oddball is that it wasn't super volatile. And that can be really misleading to investors about what to expect going forward. So the last place I think I'd like to talk about basics, because I think we should probably focus on the stock buying and selling aspect of investing for the last little bit here because again i think that's where most of our listeners are probably thinking about so let's talk about buying and selling like we we talk about those two things in multiple episodes throughout the

Starting point is 00:44:58 year in different contexts we've done whole episodes on buying and selling specifically selling but as you think of those two actions at through the lens of basics or a framework like if you're just starting out or if you're kind of resetting let's start with buying there's a lot of aspects to that. When do I buy? What do I buy? With how much money do I buy? In what account do I buy? And that's going to be different for every person, but there's got to be some basic tenants that at least you have in mind for yourself. I'll start out by saying that I think broadly, if you are an investor that's dollar cost averaging, whether it's into index funds or just your 401k or retirement plan through work, where it's just every pay period,

Starting point is 00:45:42 or your dollar cost averaging in individual stocks or ETFs or whatever with your own money and you have a plan where you buy every month or once a quarter or whatever, I will say that broadly, if you stick to that way of investing over a multi-year time period for many, many years, when you buy and valuation, trying to catch the perfect valuation, when you're looking at maybe a few percentage points up or down over a one-month period when you decide to pull the trigger, it's not going to be the biggest determinator of your long-term success the fact that you are regularly buying and you're getting that exposure to the market through the highs and the lows of the market cycles simply the fact that you're actively putting new money to work regularly

Starting point is 00:46:29 and then the thing that you're doing the most and holding because we talk about buying and selling a lot but the most important thing we do is holding the valuation probably doesn't matter as much over the long term. But if you are picking individual stocks and you're choosing the stocks to buy and you're choosing when to buy them, then I think the most important thing people can do better is not trying to get the perfect price on companies where the investment goal is disruption, very large growth in a very large market from a relatively small starting point we chase valuation in those sorts of businesses and then we rush to safety and overpay in these big stable blue chip businesses where getting a really good valuation is far more

Starting point is 00:47:22 important because if you're buying a crowd strike or z scaler or quantum scape any of these sorts of like disruptive hyper growth sorts of businesses, the thing that's going to deliver returns is going to be their ability to execute. If they execute really well, even if you pay a stretch valuation 10 years from now, you're probably going to do pretty well and you're probably going to bought something

Starting point is 00:47:47 that did better than the market did. If you pay 30 times earnings for any blue chip company that's growing revenues in mid single digits and they're growing their earnings maybe a couple percentage points above that, You're probably going to get shitty returns over the next five or 10 years. So I think that's the thing. We go to safety when it's expensive and we ignore and we focus too much on valuation

Starting point is 00:48:13 when we're trying to buy disruptive businesses. Yeah. I struggle with this still. Like I was just texting you today, like I might do this. And then a few minutes later, I was like, or not. Like I'm still trying to figure out. I'm thinking if I want to do different things in 2025, like part of me wants to buy a little starter position and like everything on my watch list yeah and then just balloon my portfolio back

Starting point is 00:48:33 up to like 55 stocks that i don't want to do and then part of me wants to sell everything get down to like 10 right right i just i can't and i'll feel differently in a week from now so for me personally i'm constantly thinking about what i might want to do differently but i'm generally doing the same thing which is on some fairly regular basis putting money to work i'm gonna to say something really crude here, but I mean, my first five or six years as an investor, I was, again, this is a horrible thing to say, but like bulimic investor where my portfolio would get really big and then I would just purge it out and I would try to get to some arbitrary small number of stocks.

Starting point is 00:49:16 And it took me a long time to really get comfortable with the idea of having a ton of stocks and a lot of them having very small positions because I finally figured out what I was trying to accomplish, which was like the kind of the venture capital approach where I take these small bites in these more speculative businesses and then add to them as they prove out. I was talking to Tom Gardner on the Motley Fool's Q&A live stream yesterday. And one of the stocks that we were talking about the idea of taking really small bites into disruptive, innovative companies.

Starting point is 00:49:51 And one of the things that he, we, like the thing that brought it up was somebody asked a question about like a nuclear stock. Nuclear is all the rage right now. There's the idea of these small modular reactors and there's startups that are working on it and there's all this stuff. So everything's way overvalued. And Tom talked about this study that he read that talked about how, and some other investors that talked about how they, if they found something, they're like, hey, this could be a good idea. They almost every time would take some really small investments and get that skin in the game, creates incentive, right? Back to incentive, creates incentive of to know what it is, to learn about it and study about it and follow your investment.

Starting point is 00:50:26 And one of the stocks that I use to talk about how I've done that in the past was Mercado Libre. The first time I bought it was over a decade ago. It was a small position that's up, I don't know, 30X or something since I bought it. And I think I bought it 20 times total I've invested in more shares of Mercado Libre. And every single time, except for one, every single time I averaged up, I paid more for the stock price. I wasn't trying to catch this perfect price. I found a winner, winning management, winning idea, winning execution, great tailwinds.

Starting point is 00:51:05 And I'm not going to miss the opportunity to put more money into that sort of business, right? Yeah. Here's the last thing I'll say about that aspect of buying. We'll use MercadoLibre as the example. go look up the stock chart for MercadoLibre anyone who's listening ticker symbols M-E-L-I and it generally has gone up into the right from its IPO to now just pick a point along that chart and you would have been happy to buy there you know don't go to like five days ago and show me that it's down two percent or something like that but like over any meaningful amount of time

Starting point is 00:51:39 now that's not the case with every stock right some go up and come back down and never recover and if you bought at the top sorry that didn't work out for you but to your point about finding the winner and struggling with the buying averaging up that's what i kind of always imagine like you can do this with apple and amazon and microsoft netflix go back there was probably some point in pick a year where someone looked at each of those companies and went man i doubled since i bought i can't pay that much meanwhile that's like way at the bottom of this huge chart you know right that's exactly i mean in the moment and again in the moment you look at the price action of a stock over a month or a year or a couple of years and you can look at it and

Starting point is 00:52:24 say oh that's where that was the best price oh man it was man that two months before god that's 20 percent more wow and then you hit that all-time thing you're like holy shit that whole year i can't even tell where it was like i can't see any of it anymore another fun thing to do just to drive this point home just look at a stock chart of the s&p 500 and do even just do a five-year look back from now and even the covid dip is starting to look like oh that's not that bad and the 2022 one that felt so awful to live through like we even did an episode called i don't know how to invest anymore in the middle of that that doesn't even look that bad and we're all we're still only two years away from that. And then if you go to 10 years, if you go to 20 years, they're like little

Starting point is 00:53:11 tiny on the huge chart. So yeah, perspective definitely can change how you think about those things. All right. Last thing, let's flip the coin here, Jason. If we think about going back to basics for investors, how do we think about selling? So this is one of my favorite things to talk about because if we look at it from its most pure, everything's work, I love everything that I own. I don't want to sell anything, but it's time to sell something. It's because you've reached a financial milestone. It's time to turn assets into money or turn stocks into bonds or CDs or whatever it may be. That's the most pure, perfect reason to sell. Congratulations. homie you did it you're there you're there it's time to reap the rewards of your of your labor

Starting point is 00:54:03 and that's the best and that's that can be the hardest to sell too because it's like okay so now you're telling me that i've got to sell some apple and nvidia and trade desk and these companies are going to keep going up i can wait a little longer i don't have to sell now i'm not retiring for four more years. I can get another year. Just imagine being the person in that situation and say, I don't know, late 2021. And then you decide to sell in early 2023. You're down 20%. It's why it's so important to have the plan and know when your goals are and build a framework to support that. So that's the best reason to sell is you've gotten there. I mean, so let me just, just a personal story with that. I've mentioned this before. I keep

Starting point is 00:54:53 saying, I'm not saying it to brag. And I really, really am not saying it to brag because this was a complete brainless, lucky timing of me buying Nvidia. I bought it a bunch of little, little, little times, like probably $50 here, eight, $80 there, $10. I mean, literally five, $10 there when I was really starting out. But I did all of that in like 2020 when the stock market was crashing. So I have $924.46 worth of cost basis in NVIDIA, okay? And that was like, again, $10 and $20 buys over the course of probably a year or two. That is now worth $5,300, okay? Now, I am at 570% gain.

Starting point is 00:55:35 I am far away from retirement. I don't need this money. It is not a life-changing amount of money. That's great. I'd love to have five grand. I'm sorry, it's worth 6,200. I was looking at the gain, not the total. Right, that was just the gain.

Starting point is 00:55:48 Yeah. I'd love to have $6,000 more in my bank account right now. I could buy something nice with that. If I were six months away from retiring, I'd probably sell that. Or if it were 10 times that amount, obviously. Different story, different situation. But there are people who face those decisions all the time. There's a very good chance when I do retire that that's double the amount it is now.

Starting point is 00:56:13 but it could happen where it's the same or lower you never know like nvidia's top of the world right now i don't know that they will be in 2040 right the key for me is that in those situations this is exactly what you're talking about is is that it's so easy to get trapped in the what it could do if i hold a little longer versus stepping back and say wait that's the down payment on my house that's my kid's senior year of college tuition see and that's where i think it would change for me that's where i so again like if it were a dollar amount i'll use the scene because i thought about this college thing because i i've said before i view my non-stock portfolio as the thing that i'm going to retire with and my stock portfolio is like icing on the cake where i might

Starting point is 00:57:01 because some of it's in a brokerage account i might be lucky catch a winner and be able to like do the thing people talk about, which is like sell a stock and buy the down payment on a retirement, like on a beach house or something like that, right? That would be great. I'm not planning on it. I'm not counting on it, but it would be really cool if I could. And I think that's a place where I might do it, right? If I'm coming up on the last year of paying for college for my second kid, let's just say, and I'll pick a random number. It's 30 grand and that's all I have left and i'm looking at my nvidia position and it's 32 grand like i might be like okay that's the time to that's the time to do it right yeah so anyway we're talking around the idea of

Starting point is 00:57:44 selling but i think i like your well i like your idea i just want to come back to i like the idea of that is a way you have to think about it in certain circumstances which is you you made it like that's why you were doing this like this is the whole that's exactly it it's it's so easy to forget why we're doing it and just focus on that we're doing it, that we can lose track of those financial goals and start making poor decisions. So I want to kind of step down the ladder of the decision-making hierarchy of when to sell a stock. So the next step below, I'm at a financial goal. I need to reallocate asset allocation, move stocks into bonds or CDs or whatever it might be. And then the next step below that is just rebalancing. We've talked a

Starting point is 00:58:26 little bit about this, and that's something that I think more investors probably should be doing, especially in this higher interest rate environment where there's more money to be made, reducing volatility and kind of creating some dry powder when we do go through downturns. If you have a longer timeframe that maybe you can, again, by rebalancing in markets when they're high and when they're low, you're putting more money into stocks when they're cheap and you're putting more money into bonds when stocks are expensive. So rebalancing is another time I think people should be selling. And both of those first two, this is just basic

Starting point is 00:59:04 financial planning 101. And honestly, it's the stuff that for most of us is probably if we're not doing it, we're leaving money on the table and creating additional pools of risk that we don't necessarily think about. And those things can be worth tens and in some cases, maybe even hundreds of thousands of dollars over an investing career, like over an investing lifetime, right? It can be tons and tons of money, just the basic fundamental stuff. I mean, this is like, again, thinking about just a stupid sports analogy, the fundamental stuff, getting some of those edge case extra free throws could be the reason why LeBron James now has the record for the most 30-point games in an NBA career, right? It's the little things like that that can add up and

Starting point is 00:59:51 create incremental value. Then of course, the next step below that, we get into, if we're talking about selling individual stocks, which we should be because all the other stuff is boring, then you start running into, do I have too much exposure to this individual company? This company did exactly what I bought it to do, but now it represents 25% of my net worth. At some point, like you've talked about somebody you know that turned a small investment in nvidia multiple decades ago into a seven-figure investment yep at some point you have to look at that and say this is found money right sure nvidia could keep going up from here but maybe it is time to kind of this again the same idea but not maybe looking at it from the i'm at my financial goals perspective but

Starting point is 01:00:42 this stock has exceeded all of my wildest expectations let me go ahead and take some of that and put it in something that's not nvidia just in case this is ge in 1999 right which also doesn't mean you have to sell the entire position either it can be a trim it can be yeah exactly exactly and then you start getting into the really like the individual company level stuff the bad stuff. Like this company hasn't done well and I need to sell. I need to reduce my exposure. There's a competitor in the space that I like a lot that I haven't invested in. I've decided that I want to reduce my exposure to company A and buy some company B. And a lot of it, this is I think the biggest one, is admitting when you're wrong. Like acknowledging when you're wrong about a

Starting point is 01:01:29 business. It's so easy, Jeff, to make excuses. Well, this has changed. Well, that's happened. Well, the business dynamics have changed. The industry opportunity has moved. Interest rates are higher. Interest rates are lower. All that crap we can throw out there to justify for many, many years a business not creating per share value for investors. Boston, Omaha, I think is a good example, right?

Starting point is 01:01:56 You can always find a reason to wait a little bit longer. And I will say this, I think you should wait. I think investors should be glacial about selling. But at some point, particularly if you're spending an outsized amount of your time working on this idea or thinking about this idea versus what it represents in your portfolio, time that you could be productively working on other things, sometimes it's time just to move on and cut your losses. Yeah. Selling is such a fraught topic. There's so many things that go into it. Like what is the company? How much do you have invested in it? Where are you in your life? What's your temperament? I mean, this is why we've done entire episodes on it and we are, we are running long here. So I'm just going to, I'm going to wrap this part of the conversation and wrap the whole podcast up.

Starting point is 01:02:42 This is my like one line thought about selling that I've kind of landed on, which is you should sell after you've given it a lot of thought. I think if most investors just did that, if they really only sold after like just giving it serious consideration which eliminates the oh it's down 20 today on news i'm selling you know or i've had this for three weeks and i'm whatever if you can just eliminate some of those spur of the moment gut reaction sort of reasons to sell i think you probably eliminate a lot of mistakes not all of them it's not a perfect system i don't think it's something that can be distilled down to just one thing you use the term and i like at being glacial about selling. And I think that's largely right. I can think that's kind

Starting point is 01:03:26 of where my head is too. It doesn't guarantee you're going to make the right decision, but I think a reasoned, well thought out sell decision is going to be better than a snap sell decision, just generally. Yeah. And sometimes a good starting point when you're in that position where you've become kind of intractable about it, or you don't know what to do is to ask yourself the question, say, how excited would I be? Not would I, but how excited would I be to buy this stock if I had never owned it before? And like, I would look at a business, I'm beating up on Boston Omaha right now. I would look at that and be like, that's a dog. No. And sometimes that can be the thing that push you over the edge. It can also help you maybe put

Starting point is 01:04:07 fresh eyes and be like, oh yeah, there's some things that are happening right now. And I think it's misunderstood. Maybe I should buy more. Because you get so caught up in the fact that it's been a dog in your portfolio, sometimes you forget to focus on the opportunities and risks of the business. Jeff, we're running along. This is one of the longer episodes we've done in a while here. Any last thoughts? I've got a couple of little last thoughts for 30 seconds or so, but anything before we wrap up from you? No, I just want to reiterate what I said at the top. We purposely wanted this to be a little unwieldy in terms of the conversation. So if anyone has a more focused part of this that they think would be a fun conversation. We'd love to hear it.

Starting point is 01:04:43 Email us, reach out to us on social media, however you want to get your ideas to us. Yeah, do that. The one thing I want to add as we wrap it up is that all of these things matter and they're important, but only if you have some method to track everything that you're doing, not just track the performance of the stocks you own, but to help you go back in time and to think about when you did things, why you did them, how you were feeling when you did them because that can really inform a lot of your decisions and help you identify mistakes of commission

Starting point is 01:05:18 and build things in your process to keep you from making those kind of mistakes but also figure out the things you've done that were really good and there was something innate about your actions that was behind it so you can grease the skids and do those sorts of things more. So simplifying and like going through your entire process

Starting point is 01:05:36 I think is a way that you can kind of help do that. Okay. As always, friends, we love to weigh in on these topics, share our thoughts, give our answers, but it's up to you to find your own answers to these hard investing questions out there. It's a fun journey and it's challenging. You can figure out the things that you need to do on your own, maybe with a little bit of help, blah, blah, blah.

Starting point is 01:05:57 But you know what? You can figure out the right answers for yourself. I believe in you. You can do it. All right, Jeff, we'll see you next time. See you next time.

Chit Chat Stocks - INVESTING UNSCRIPTED: Back To Basics

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