The Compound and Friends - A Degenerate Gambler Walks Into a Stock Exchange and Ten Rules for Retirement Investing

Episode Date: May 22, 2020

A Degenerate Gambler Walks Into a Stock Exchange... What Are Your Thoughts? On an all-new What Are Your Thoughts - Michael Batnick and Downtown Josh Brown discuss the biggest topics in finance this week, including: - What should we make of massive one-day rallies in the stock market?  - What if the stock market is doing a better job of tracking the real economy than we think?  - Which is more dangerous for a degenerate gambler - legal sports betting or discovering the stock market?  - How will restaurants and bars conform to the new health challenge and make a comeback?  - What's one thing you've changed your mind about since the crisis began?  - How come people seem to begin investing as bulls and then get bearish when they're older?  Ten Rules for Retirement Investing Josh here - my colleague Anthony Isola put together this list of ten rules for retirement. Tony spends a lot of his time giving advice to people who aren't typically savvy about investing or finance in general. Many of his clients are teachers but these rules are truly universal. Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi guys, it's Downtown Josh Brown. We're here to play What Are Your Thoughts? It's a Tuesday, so I'm here with Michael Batnick. Michael doesn't know what I want to ask him about, and I don't know what he's going to ask me about. So stick around, play along with us, and we'll see you in a minute. Welcome to the Compound Show podcast. Each week, we let you in on some of the best conversations we're having about markets, investing, and life. Just a quick reminder, the hosts of the show are employees of Ritholtz Wealth Management. All opinions expressed are solely their own opinions and do not reflect

the opinion of Ritholtz Wealth. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Okay, here we go. Okay, so I'm going to ask you about the monster day we had yesterday in the market. I think it's one of the best days. I mean, it's not a huge day on the year, but just in general, it's a major day because of how many of the losing stocks had 6%, 7%, 8%, 9%, 10% moves within the scope of one day. Would you say that's why it was so notable?

It was. And before we get there, can I just say that I love your new Green Day look. You look like you're in Green Day. What? Because you're like a middle-aged man. All right. But still kind of young. The hair.

You look good. I like it. Okay. Thank you. I'll keep it coming for you. Okay. Yes. Yesterday was very notable for the exact reasons that you mentioned. And I did a

post about this outlining exactly what was going on. So what happened yesterday was so interesting because, and listen, it's one day. So it's way too early to get excited over this. Dude, you're just actually yourself. That's what I was about to do. But okay, go on. Go on. Well, yeah. But the stock market yesterday was acting as if this thing is going to end because the stay-at-home stocks got slammed relative to the market. The losers became winners. So all of the most sensitive stocks, the airlines, the cruises, retail, hospitality, they all had monster days. So, again, it is one day, but we'll take it.

Right. No, I start somewhere. I totally agree. And, you know, it's important to have a day. trying to find a bottom and trying to convince ourselves that we've seen the bottom already. It's important to have a day or two here and there where like a hotel chain that's 50% off a tie has a plus 10% day. I think like the shorts need a little bit of fear in those names, right? Like the shorts are not screwing around with Google and Microsoft. That's where they are. And I think like they need a little dose of fear, just like the lungs are getting

on a weekly basis. So I think that's a little dose of fear, just like the lungs are getting on a weekly basis. So I think that's a good point. Yeah, keep them honest. Keep them honest. Totally agree. All right. What do you got for me? Let me ask you a question, sir. The S&P 500, up 35% off the lows, just 13% off the highs, up 6% year over year. I don't know if you've noticed, but the economy is not doing so well. Is the stock market wrong? Well, one of my posts from last week where I talked about the stock market actually is doing its best to attempt to capture what the economy is now. economy is now, looked at the idea that just we have this confluence of events that favors the companies that happen to have the biggest market capitalizations already.

So it's not worth rehashing all the things that work from home and cloud computing, etc. But people that say, I don't understand the disconnect between the stock market and the economy. There really isn't the disconnect. The companies that are doing badly out in the world, their stocks are doing badly to go look at a rental car company, go look at Live Nation. It's like the stock market gets it. And then when you see the 52 week high list, it just so happens those are trillion dollar companies and they're more important. So people are like, oh, but what about Hilton and Hertz and Avis and Royal Caribbean? They're this big. These are two billion dollar

market caps. Who gives a shit? So my point was not the stock market should be 30% off the low. It's look at the composition of the S&P. And if you really want a feel for how corporate America is doing, maybe it's better to look at the Russell 1000, which doesn't look as good as the S&P 500 or because it's got mid caps in there. Or you can look at the Russell 2000. Look at how like a typical publicly traded business that's not Microsoft is doing. Those stocks look more like the European stock market in terms of how much they went down and how meager the bounce off the lows had been, you know, at least prior to yesterday. So I think the stock market's like kind of getting it right. I know it pisses people off because the indexers are winning again. How about this?

But. This is interesting, though. Like, the Russell 2000 and the Russell microcap indexes are only down 20% year-to-date. Say it again. Russell 2000 is year-to-date down 20%. That's a lot.

And the microcap. That's a lot. Is that a lot? Also, forget year-to-date. I don't think that's that much. But that's not from the peak because they rallied in January and most of February. So they're down more from the peak because they rallied in January and most of February.

So they're down more from the peak. The drawdown is deep. I mean, it just so happens that they're both 22% of the highs. That's it? Yeah. And in the last year, year over year, they're both down around 14%. That's not a lot at all. Yeah.

The other thing is indexes are very misleading because of the because of the industry breakdown. Like the Russell is like almost de facto a financial index now. It wasn't always forever. So you kind of like if you're going to comment on the level of the markets, I look not to like talk down to anyone else. But there are a lot of people that have an opinion of where the markets are and what they should be. And then you ask them, what percentage of the S&P is healthcare? I don't know. Well, roughly, can you come with an even 10%? No, not offhand.

So why are you saying anything? Like, why do you have anything to say? It's like somebody saying to me, Josh, do you think Moderna's vaccine is going to work? You want my opinion? Wait, actually, sorry, I have to actually you here. The Russell 2000 is only 15% financials. Healthcare, tech, and industrials are all bigger.

Okay. In Russell 2000 value, it's like all financials. Okay. It's like 35%. So I guess my point is made well for myself. I don't have a view on how high the Russell 2000 should or shouldn't be. But when I think about the S&P, I have a view. Why?

Because I'm looking at what's in it. And I understand the things that are driving those stocks higher or lower. Same thing with international stocks. People are like, China's stock market shouldn't be going up. What's in it? I don't know. Alibaba? Have you heard of it? Tencent? Have you heard of it? Tencent.

Have you heard of it? All right. Degenerate gamblers. What? Where did that term come from? No one says gambler. It's funny. There are other words that are only used with another word. Like they're attached at the hip. You never hear degenerate without gambler to follow. There's another word. There's a few other examples like. You never, you're a degenerate without gambler to follow what there's another word. There's a few other examples like that. I can't think of any off offhand. Oh, consummate professional,

consummate professional. Yeah. Nobody says that guy's a professional. That guy's a consummate professional. It comes from somewhere. We'll find out. You never say, you never say consummate human being,

right? If you know where, if you know where the term degenerate gambler came from, put it in our, put in the comments below. Anyway, here's what I want to ask you. What's more dangerous for a degenerate gambler came from, put it in our put in the comments below. Anyway, here's what I want to ask you. What's more dangerous for a degenerate gambler? The legalization

of sports gambling or to discover the stock market? Like what's more dangerous for them personally, not for the whole system? Let's say you are a degenerate. What would be more dangerous for you? The stock market because with i guess listen what's the difference it's the same thing if you're if you're a degenerate gambler with sports there's always a season what if it's not basketball it's baseball or football

or hockey uh but the stock market's open five what's the difference i'll tell you tell me i'll tell you the difference if you're a degenerate gambler and sports gambling gambling is legalized you're definitely gonna lose a lot of money like fine you might have a little bit of fun doing it at least at first but you're not putting a hundred thousand dollars on a game like you're true you're just not if you're a degenerate if you're a degenerate gambler they close down sports for three months and you discover day trading first of all your family members walk by you on your computer and you're like oh i'm just going over our investments it doesn't look like what you're doing is degeneracy it actually looks the opposite oh he's so responsible he's

taking over our uh finances and using his free time to figure out. I'm saying he because it's always a he. So that's number one. It's got this imprimatur of respectability that sports gambling will never have. amounts at stake are almost always going to be bigger with somebody managing a portfolio that doesn't understand that what they're doing is not investing but speculating. So for those reasons, I think – Well – Would you do a costume change? One more thing that I would add to that. Would you do an earphone change? My AirPods died.

New cut. You're 100% right. If you will never put $100,000 on a game, but what you could do is you could start a brokerage account with $100,000 and it's a slow bleed. You're not going to lose it all at once. You're going to have some highs, some lows, some in-betweens. And if you're down $5,000, you know you're scrapping and clawing and revenge trading to get back to even. And it's just going to get worse and worse and worse. And you're down to $60,000. I'm not going to stop now. Down to $30,000. Screw it. I'm not going to stop now. So that's the danger with trading stocks. I completely agree

with you. I'll tell you one other thing. With sports, even if you're a gambler, you still know that there's flukes and anything can happen and you accept that randomness because you're a sports fan with with stocks you actually think that there's a way to do it like you actually think there's a way to consistently make money every week and there isn't like i know consistently profitable traders and they'll tell you it doesn't exist so but you can talk yourself into that because there are people wearing suits and ties doing it. And then the last thing I was thinking about, at least the game ends. In other words, you bet the Super Bowl, you do a stupid bet with another stupid parlay on top of it, and you do all these prop bets in the middle and you lose. The game ends, you go to sleep. The markets are 24 hours a day. There's Bitcoin when they

close stocks down on you. There's interest rate futures. It never stops. One final point. I used to gamble a lot on sports and you can only take so many horrible beats before you're like, I'm never doing this again. This is so stupid. It's so infuriating. Yeah. With the stock market, you don't really have those really bad beats that stick in your craw. Like I'll never forget the time that the Jags were supposed to play whatever, the worst team in the league. And the Jags were good at the time. And Byron left, which whatever, whatever happened.

You know what I mean? Like, so you just don't have that same experience in the stock market. All right. You also don't have the Fed to blame. The sports gambler, they have the commissioner of football. So if you had the Saints in that game where they got robbed from going to the Super Bowl, you have Goodell. And you have New York City where they call the play from remotely. But you don't have the Fed.

Like the stock market, the stock market junkie trader who keeps losing because they're shorting, you know, momentum stocks, whatever they're doing. They always have somebody to point that and say, this shit is being manipulated. I'm a victim. So, all right, go ahead. Wanted to get your take. I also listened to the podcast on The Ringer when they were talking about restaurants closing and the economics of it. And I think that just hearing them talk about it,

the economics of it, the reality behind it, like bars, for example, are going to change forever. just hearing them talk about it, the economics of it, the reality behind it. Bars, for example, are going to change forever. A bar that used to be able to hold 20 people is going to be able to hold, what, 12? If people even want to go back. What does the future of restaurants look like? I'm not talking about five years. I'm just talking about on the reopen.

How does that get back up and running? I joke around. So my wife is like a neat freak. So we'll check into a hotel. And if it's not like really, really clean, the whole trip is ruined. Like she'll spend the whole trip. Like I can't wait to get home. It's disgusting. So we do a lot of research before we go places so that I don't, you know, have my, have my marriage end over it. So I was joking with her. I said, the next hotel we stay at is going to be the most immaculate thing that you've ever seen in your life

because standards for hygiene are going up across the board. That's going to be the new table stakes. And to me, it's very similar. I don't know if I've made this analogy on the channel before to 911, where security standards went up, like used to just be able to walk in and out of skyscrapers in Manhattan, and just do whatever you wanted, basically. And now there's

cameras everywhere, there's security guards posted, show me your ID, let me go through your bags, obviously, what went on with the TSA. So I think we're going to have that. But for hygiene, obviously what went on with the tsa so i think we're going to have that but for hygiene and if you're a bar if you're a restaurant that's going to be part of your cost now there's a negative way to look at it which is a lot of these businesses can't afford an additional health and hygiene safety uh cost like vents and the and the air ducts and stuff to filter out the the dirty air i'm thinking more like Purell and acrylic, clear acrylic guards. Sneeze guard.

You know, walk-in lunch buffet is over, you know, stuff like that. But I would just say, if you're a restaurateur like David Chang, who obviously is not going to back down, he's going to figure out a way to make it feasible. And on the other side, three years later, five years later,

we might be saying to ourselves, can you believe we used to like, go sit in a bar, and the guy would like wash the glass out and hand it to somebody else, like without putting it through a dishwasher? Like, can you believe we used to live like that, like animals. And a great example of that is I'm old enough to remember sitting on an airplane and watching people smoke cigarettes, cigarettes on an airplane. I remember it. Like I saw it happen. So, and now you just look at that, like we were like cavemen. So that's the other side of this. It's going to be expensive, but A, it'll be your business. How about this though? People will make money. And if you don't make it –

That would be. So I don't know. What do you think? All right. I think that investor appetite for new projects is going to just dry up. I think they're going to look at the new realities. In restaurants. Yeah.

Like you're in restaurants. If you're an incumbent, that favors favors you you don't want 10 new hot restaurants opening up every year um the other thing i didn't i didn't even i didn't even consider those walk-in buffets which are like a huge part of new york city and i'm sure many other every other city food courts people like breathing like one guy's walking with a slice of pizza exposed to the air and there's 90 people around them having a conversation. Get out of here. It's enough already.

We got to figure something new out. It doesn't work. It doesn't work. And they know it doesn't work in Asia. They're ahead of us. They're not playing that game in Shanghai. All right. I want to ask you about your post, Young Bulls, Old Bears.

I agree with you. And I'm always on guard to have this happen to me. So you basically, you reference a book from 1870, where a guy explained that people begin their career in the stock market as bulls. And by the time they're retiring, they're bears. What do you think is the cause of that? There's a bunch of things. I think one of them is just when you're young, you have your whole life ahead of you. So I think that's very natural. Old people see the end ahead of them. So it's just natural to be less optimistic. I also think that when you're young,

you have a clean slate. You haven't been burned. You haven't had time to get jaded yet. Cynicism hasn't set in. Exactly. It's the same thing with gambling. You open up a brokerage account or DraftKings and you're ready to take on the world. And then you grow like, oh, it's not so easy. And you just become hardened. I also think there's a component of when you are... So everybody that crushed it on Wall Street, or maybe not, but when you're in your 30s, 20s, 30s, 40s, things worked a certain way. The world looked a certain way. And then when you're in your 70s and 80s, things look a lot different. And it makes you uncomfortable because you don't recognize your surroundings. It's like the guy, I forget the character in Shawshank, who when he got out of jail, he just couldn't take it in the new world around him and he killed himself. So I think that's what it is. You just don't recognize the world around you.

And then naturally, you're less optimistic because you don't understand. Yeah, I think there's a lot to that. And I think we should be clear. It's not everyone. Because you know, somebody watches and be like, oh, how do you explain Bill Miller? He's been investing for like almost 40 years. This guy's going YOLO on airline stocks right now. It's not everyone.

It's just a general trend that happens throughout the course of people's lives. A, they become more conservative because they know they can't replace the capital and they should. B, they have more to protect. And when you're young, you have nothing to protect. And C, ways of doing things change around you, technology, culture, trends, and you realize the world doesn't really need you. You're not important to what's happening. And it turns you somewhat bitter, somewhat. Oh my God. I'm going to be, I'm going to be, I'm going to be Rubini when I'm in my seventies. You kidding? You're going to be warning about crashes every five minutes. He's not even that old, that guy. I know, but I'm pretty sure that I'm going to follow the same track that most people do.

I think that's like a natural curve, you know? Yeah, no, and it makes perfect sense. And I bet it's not just limited to the stock market. I bet like when you talk to like sports writers, let's say, and they see like a young new player coming up, they're super skeptical about, ah, he's not a superstar. I remember Oscar Robertson. I remember.

Yeah, I remember. Yeah. Like, oh, Michael Jordan, his prime will beat any player that ever comes along ever. Really? I don't know about that. Yeah. I also think that now is a great time to think about it just because of what's happening with Buffett getting cautious and Tepper and Druckenmiller being outright banished.

Tepper and Druckenmiller are both in their low 60s, so they're not necessarily old. But I thought that when you contrast that with what's going on with the day traders, with Robin Hood, with who's bullish and who's bearish, I think that's sort of a permanent feature, but it was just a good time to talk about that. Some of the guys that are just the most dramatic in their bearish pronouncements, like either they're not in the game anymore or you look at what they do, like they manage a fund that generates 2% returns a year. Like who gives a shit? What's the point even of having this statement when you're trying to track the 10-year treasury total return as your benchmark, what are we talking about? Maybe there's something to be said that people in their 40s, and I'm not saying this because I'm 43, but maybe people in their 40s and 50s are like the right mixture of they've seen a lot of loss and they've been burned and they've seen a lot of scams. So they have that healthy skepticism. But you're not close enough to the end where everything displeases them.

And everywhere they look is risk. Maybe that's something to think about in terms of portfolio management. How old are this team? I think 35 is the new 43. Okay, that's fair. Are you 35? Nice. Well, also, there's something to be said about being aware of pop culture, what people are talking about, knowing people that are getting Pelotons and going to Chipotle.

These are the stocks that are driving the market, and if you completely are out of the loop with them, it's hard to catch up. You know TikTok and you also know Mel Brooks. Yeah. I'm very odd that way. I have one last thing. What, if anything, have you changed your mind on over the last few weeks where in the beginning you felt that, as an example, commercial real estate is gone. And now I don't think that. Is there anything that you've changed your mind on or not really? Oh, from the start of the crisis to now? Yeah. I've done a 180 on Cuomo.

I think it's enough already. I was down with the stay home, hashtag stay home. I was with it. I totally understand it. I don't know anything about health or medicine. I understood the idea that we can't overrun the hospitals and we can't put frontline people at risk by having people doing whatever they want. I totally agreed with it. There were 130 deaths in New York yesterday.

Why are my kids standing on street corners and them talking about not having summer camp? It's ridiculous. There are now roving bands of teenagers everywhere you look in our town. Multiply that times a million towns in America. That's what the summer is going to look like if they have all activities canceled. It is a bad idea. It's unorganized.

These kids are all over each other. They're riding around in carloads of five and six teenagers. You got 10, 11, 12-year-olds sitting on bikes in front of closed pizzerias. It's just, it's bad. And I'm not saying send them back to school.

I get that it's too early for that. But they're already talking about canceling things for July, August, canceling Little League. Get these kids on a ball field. I heard a summer camp was closed. I'm sure a lot are going to follow. I don't think that's going to happen.

The owner of my camp is very vocal and he's on the board of the advisory panel to reopen the state. So he's talking to Cuomo and he's a big operative in Democratic circles. He owns like 12 camps. They seem to be convinced that that camp will open, but like modified. So you can't have visiting day.

But here's one thing that people don't know about camp. It actually started out as a quarantine. So that the origin of summer camp. Yes. of summer camp. Yes. The origin of summer camp in the Catskills and the Poconos was parents with children in Manhattan and Brooklyn and the Bronx in the 1940s and 50s wanted them out of the city in the summer. It's 110 degrees in New York City in the summer. And they had polio outbreaks and tuberculosis and all types of diseases that we don't have anymore. I think they had typhus, but they had things that we don't really have anymore. But the idea was get the kids out of

the city, somewhere safe up in the mountains where it's 10 degrees cooler, and they're not falling prey to these summer waves of disease. That's the origin of summer camp. There is no safer place that you can have 300, 400 kids and a staff of 100 young, healthy adults overseeing them and close the gates. No outside visitors. Do it for four weeks. Do it for six weeks. You cannot have kids standing on street corners for 10 weeks uninterrupted with no school assignments, like literally nothing to do. It is a bad idea. I have two kids. They're relatively well behaved. They have a nice group of friends. I'm telling you, it's going to be Lord of the flies shit. If we don't put these kids somewhere constructive

by July. All right. That's all I got. Listen, let us know what your thoughts are. I hope you're reading Michael's posts. I'm going to link to both of the ones I referenced. He's doing some of his best work right now in Corona times. Go ahead and give us a like. If you haven't subscribed to the channel yet, I don't really know what's going on with you. We just broke 40,000 subscribers and we're only going in one direction. So you got to get involved. Subscribe. Tell your friends.

We will talk to you soon. Hey, guys. Subscribe, tell your friends. We will talk to you soon. Hey guys, I'm here with Anthony Isola, who is a financial advisor at Ritholtz Wealth Management and an expert on teachers' retirements, 403B plans. And we're going to talk about his 10 rules for retirement investing. This affects teachers, but it really affects everyone. So if you plan on retiring and having the money to do it, rules for retirement investing. This affects teachers, but it really affects everyone. So

if you plan on retiring and having the money to do it, I suggest you stick around as we go through these rules. Stand by. All right, Tony, let's go through these rules. I'm going to read them to you and I want you to react. But these are your retirement rules, right? Pretty much. I made them up. Yep. All right. First of all, number one, ask your advisor how they get paid. Why is it so important and elemental? Absolutely essential. Because if someone's selling you a product, they're just going to sell you a product that pays them the highest commission. And if they say, you know, there is no cost, then they're just lying, which is even worse.

So ask them. And better yet, get it in writing. Okay. You say to tune out the advice of most of your colleagues. So assume we're talking to someone that doesn't work in financial services, someone that works either as a teacher or in construction or at a law firm. Why is this so important? Because pretty much, to be honest, they're absolutely clueless. And the only thing they care about

is if the person's nice to them. And a salesperson is trained to be nice. So if you ask them, it's pretty much a death sentence for your portfolio because they're going to say, oh, go to my guy. He's a nice guy. And they're paying 4% for a new deal. Right. So in the case of a teacher, that could be the insurance broker that lounges around in the teachers, in the faculty lounge, handing out business cards and bringing donuts. Exactly. Okay. And in the case of any other workplace, there's this really nice guy, or I play golf with this guy. That doesn't mean it's good financial advice. No, it's like, what? You're going to find somebody that you're going to hate to sell your products?

Of course he's nice. I mean, it's just, it's a ridiculous assumption on their part, but it's human nature. They understand, you know, psychology and they just play people, you know? Right. Avoid scare tactics, number three. Yeah, I mean, someone's going to come in and say, you know, the market's going to collapse. Oh,

your index fund owns Neiman Marcus. Do you understand that? It just went declared bankruptcy. You better buy this fixed annuity and earn 2% for the rest of your life when inflation's 3%. You know, great plan. Yeah. I feel like two thirds of the investors I've met in my life. I mean, I'm making up that statistic, but that's my guess. Two thirds were motivated by the fear of something bad happening in making financial decisions. And then the other third are more greed motivated investors. If someone says I'm very conservative, it's almost like they're telling you exactly how to sell them. And what they're saying is, sell me with fear. Exactly. And they know, you know, teachers, let's be honest, they're not like Google entrepreneurs. They became a teacher because they have a certain,

you know, mindset towards things. They like tenure, they like security. So, you know, you're selling them a conservative investment, quite frankly, is really easy. Or selling them an investment predicated on the idea that any other investment they might conceivably consider is too risky for them. Absolutely. And they take advantage of that fact. Right. So they prefer a 4% guarantee as opposed telling them how fraught with peril the road toward trying to average 8% or 9%, which is what a stock market investment has done historically.

Right. And they have no concept of the damaging effects of inflation, how that could ravage your portfolio. So that is never brought into this. It's so true. We have friends that are teachers. We're friendly with some couples where both the husband and the wife are teachers. And they'll talk about the guaranteed 5%. They've been raking in over the last 10 years.

And like not to one-up anyone, but I'll just be like, all right. But the S&P 500 in the 2010s decade just finished 10 years compounding at 13.5%. So it wasn't guaranteed, but you did way better taking the risk. Yeah, and I might take the under on the 5% too. Well, right. That's a whole other discussion. Number four, ignore the free pizza. I love this.

Talk about it. Yeah, I mean, that's it. Here, come in. You know, you're sitting there eating your tater tots with a spork, and this guy comes in and says, here, here's some pizza. Here's some donuts. You know, of course. Hey, that's great.

Now the laws are, you know, to be reciprocal to a relationship. It's human psychology. He did something nice for me. to a relationship. It's human psychology. He did something nice for me. Now I'm going to give him my $100,000 403B, pay 3% and pay him $3,000 for that slice of pizza. Great, great move. Yeah. People get uncomfortable not reciprocating. It's like a social cue that becomes instinctive. And it's so obvious from the like, and it's so, it's so obvious from the outside looking in, but when you're in the moment, somebody does something nice for you, you just, you will at least listen to what they have to say. Yeah. And, and let's be honest,

teachers are like usually super nice people. So they're, they're going to go overboard on it too. You do something nice for them. They're really going to go out of their way. And these guys know it. Happy hour, donuts, you name it, little tchotchkes they give them. And they don't understand the enormous price they are paying for the next. And they usually never change their investment. So this is like a 20-year annuity for the salesperson. They know that. Right. So let's get into the salesperson. Beware the guy lurking in the teacher's lounge. This applies to all investors. There's always somebody lurking at the country club, at the synagogue or the church.

There's always somebody hanging out who's there and he's on the move or she's on the move. Yeah. It's like in Seinfeld, that episode with Elaine said, you know, the lurker, that guy that stood by the desk. That's what this guy's like. Let's think about it. If they really had the secret sauce, would they be hanging out in the teacher's lounge, like to sell you these investments? If they were that great, like sometimes people just lack, you know, common sense. I would think there'd be other clientele that they would, you know, not to insult I would think there'd be other clientele that they would, you know, not to insult teachers, but if this was such a great thing, they could probably sell it to, to, to institutions and, and other types of, you know, very large, large, you know,

money amounts of money, you know? So here is where, so here is the moment where it's really important though. And I know you do this all the time, where we draw the distinction between the person and the system they're in. If you got a job and you were trained to do this, it's not because you're a bad person. It's the compensation system that you're in, unfortunately. And I spent 10 years as a retail broker cold calling. So you don't have to tell me about flawed incentives and trying to be a good person in a bad system. So it's never about the guy or the girl. It's about the system. Bad incentives equal bad behavior. Iron law of finance. And a lot of these people, I mean, I've had people reach out to me and said, look, when I worked there, I was not going to get my health insurance that month if I didn't reach a quota.

So what do you want from these people? I actually feel bad for many of them. They're young. They tell them you're going to be a financial planner and do all these great things with people. And then they just send them into schools to sell horrible products. into schools to sell horrible products. So yeah, the other aspect of that is when you're young, the Nick without getting into specific names, but the names of these big insurance companies and asset management firms, they're like, these are companies that sponsor golf tournaments. So when you tell your dad or your mom, hey, I just got a job at blank, they say, Oh, I know

that company. So it's really, really hard to get a foothold in that industry and then just give it up because I feel like you get drawn in by degrees. Number six, protect your outside investments. Oh yeah. This is the worst because what they'll do is once they figure out, okay, here's a sucker. I can sell them this tax-deferred product in their tax-deferred 403B. They'll believe anything. So, oh, your husband has a rollover IRA? Oh, you need some insurance? Why not get that whole life policy?

Sure, it'll pay you 100 grand. You'll pay me four grand a year and that'll cover nine months of insurance. So that's just a great plan for you also. So they literally, like a virus, they will infect all the other accounts. And many times it will be the same. We've seen people where there'll be a 25-year-old teacher, a 50-year-old, a 60-year-old, they all have the same annuity. How is that? How could you all have the same product? Well, I guess that was the product of

the month that needed to be pushed. So everyone ends up with the same product and all these different accounts. Right. In other words, that was the annuity that bought the steak dinner that month or the best golf trip or whatever. All right. Don't assume your pension is enough. This applies to nurses, teachers, firefighters, like all kinds of people who are reliant in some respect on a pension in addition to their private retirement assets. Can you talk about that? things. Number one, inflation, right? The pensions are not indexed to inflation. So in 20 years, and if a teacher could retire at 55, now they're 75, their pension is worth 50% less. That's number one. Number two, we obviously have- Hold on, back up, back up. Nominally, they're getting what they were promised. The problem is the cost of everything has doubled. Yep. Their purchasing power has not kept pace with that reality. And when you consider the longevity of our lives now, even versus the 70s and 80s,

people are living longer. And so that purchasing power issue is even more important than ever. Right. Do the math. 50,000 pension, 20 years, it's 25,000 of purchasing power. 20 years after that, it's 12 and a half thousand of purchasing power, right? Maybe not going to finance your retirement. Number two, with all that's going on in the world, obviously, a lot of municipalities are in big trouble. And to rely on a pension 30 years from now, especially for new teachers,

and you have to work 30 years, by the way, to get that full pension, I don't think is a good gamble at this point. All right. So the pension is not going to be enough. Number eight, seek out the lowest cost option. Yeah, very simple. Most schools will have 10 to 15 options. And usually, usually there's one or two on there that are decent. And that could be Vanguard, that could be Aspire. There's a few others, but for the most part, find out the lowest cost option. If you do that, it's going to put yourself way ahead of the game. And if there isn't a low cost option, guess what? You could ask for one or open up an account at Vanguard or something and do a Roth IRA or a regular IRA if you're only going to put $5,000 or $6,000 in anyway. It's better than putting it in something where you're not going to get a match and have to pay 3% for it.

assume all choice is good. But the academic literature makes it very clear that increasing choice infinitely actually leads to people making worse decisions. It's not better for there to be 15 versions. It would be better if there were three to five versions and they were all decent. But that's just not the reality. And that's actually the argument always used to include all of these things is that, well, it's choice. How can choice be bad? Dude, choice can be very bad. All right. Nice guys may not give the best advice. Talk about the cardinal rule of salesmanship is likeability and how ability and, and how that plays into, uh, people

making financial decisions. I mean, I mean, that's it. Let's, let's picture yourself. You're the average teacher. You, you know, nothing, you are pretty much financially illiterate. Some guy comes up to you. He's like the nicest guy. He's well-dressed, usually like good looking guy, young guy comes up, starts complimenting you. Yeah, like you, somebody like that comes in, but you know, but you have better hair. But anyway, they'll come in and they'll say, you know, oh, you know, you're dressed well today. Wow. You know, look at your classroom. It's so neat. You know, all these ridiculous things and people, wow, wow, this is a nice guy. Next thing you know, he pulls out a contract and with basically knowing nothing about what you're buying, he knows nothing about your financial needs. You sign that all due to the fact that he gave you a few nice compliments and maybe gave you a pin or a button or a cap or something. So, so, you know, another aspect of this, um, is that a lot of the people

that fall prey to, um, a bad financial pitch, part of the reason why is because no other financial professionals are paying any attention to them. So it's almost like, well, well, maybe this isn't the best person to be giving me advice, but it's the only person talking to me. It's the only person interested in me. So there's an aspect of that. Yep. And they also do that too. I call it, it's like the lamest excuse in the world because they'll defend themselves and say, well, if we didn't do this, you wouldn't have anything, right? It's like going back to the Civil War and saying, you know what? We'll chop off your leg to save you from a bullet wound, right? Yes, maybe you saved the person from the bullet wound, but chopping off the leg is obviously not the best solution. So they're using a strategy from 100 years ago

to solve someone's modern retirement problems, which was indefensible. I never liked the argument that there has to be some obscene profit margin involved if you're going to sell the mass affluent, which I guess mass affluent is investors with between $100,000 and half a million or however they define it. I never liked the argument that, well, we're here for these people. So we should be able to charge whatever we charge and recommend whatever we recommend. I never liked it. All right.

Let's do the last one. Sign up. Rule number 10 of Tony's retirement rules. You see 30% of teachers participate in their school plans, which is very low. I think the number nationally of workers who have a 401k plan and actually contribute to it, even that I think is only 50%. Is that right? Yeah. Yeah. I think it's probably maybe a little higher. I think it's basically double. It's double what teachers do. And obviously a pension is a part of that because most private employees don't have a pension, but still sign up. Once you follow these rules,

if you find the lowest cost option and hopefully find an advisor, a fiduciary advisor, then you really need to sign up because all of these rules are useless, right? They're completely useless if you don't start saving for your retirement. So obviously, that's what I had to put for the last one. Listen, you've done a great job. I love these rules. I know you're

going to publish these as something people can read. I want people to watch this. I want people to share this. And the last thing I'll say is if you are an educator, a teacher, someone with a 403B as an option, whether you're taking advantage of it currently or not, if you're looking for someone to speak with, this is the guy. Anthony Isola, full disclosure, an advisor at my firm, but one of the preeminent voices in this space nationally. Anthony and his wife, Dina, they've done a wonderful job educating teachers on investments. And if you're looking for someone to talk to, how can you not talk to Tony? You can throw Matt in too because he helps us greatly. Without a doubt.

Shout to Matty. All right. Let us know what your thoughts are on these rules. I thought they were great. Go ahead and like the channel if you haven't already. Like this video. Subscribe to the channel. And we will be back.

Thanks for listening. Check us out at thecompoundnews.com for daily investing and market insights. You can watch all of our videos at youtube.com slash thecompoundrwm. Talk to you next week.