We Study Billionaires - The Investor’s Podcast Network - TIP134: Unshakeable by Tony Robbins (Business Podcast)

Starting point is 00:00:00 You're listening to TIP. So one of the most famous self-help gurus on the planet is Tony Robbins. And Tony has a personal net worth of $480 million, but more importantly, he's a personal coach to various billionaires, famous executives, and even presidents. So back in 2015, we did a review of Tony's book Money, Master the Game, and this book was number one in business on Amazon for a few months. And in general, it was a decent book that captured some interesting. ideas from various high-profile investors. So when Stig and I saw Tony had a new book titled,

Starting point is 00:00:36 Unshakeable, we were excited to see what kind of new investing highlights he had in 2017. And in this book, Tony Robbins provides a step-by-step playbook, and he's taking you on a journey to transform your financial life with the intention to accelerate your path to financial freedom. And he does that by giving you highlights from his interviews with billionaires and other great financial minds. This book is a simple book. It's a book for the beginner and it's a book for the novice investor who's just starting to build his portfolio. All right. So if you guys are ready, we're going to review Tony Robbins book titled Unshakeable. You are listening to The Investors Podcast where we study the financial markets and read the books that influence self-made

Starting point is 00:01:25 billionaires the most. We keep you informed and prepared for the unexpected. All right, guys. So thanks for joining us this week. And like we said there in the intro, we're going to be covering Tony Rob's new book on Shakeable. So let's just kick this off with the first chapter. And I really like a story that he tells early on in this chapter to kind of highlight how crazy things are in 2017 with respect to the financial markets. So he starts off with this story. He says, you know you're living in a strange time when even the greatest financial minds admit to be.

Starting point is 00:02:07 confused. And he talks about how he was at this event. This is called the Platinum Partners event where there was seven self-made billionaires there talking about different ideas and opinions on the market. And Tony talks about how he was sitting across from none other than Alan Greenspan, the former chairman of the U.S. Federal Reserve. So if you're not familiar with Alan Greenspan, he was the federal chairman for four presidents before retiring in 2006 and probably had seen more than most Fed chairmen through his duration. And Tony asked Alan Greenspan a really unique question. And this is how he writes it in the book.

Starting point is 00:02:48 As our two-hour conversation drew to a close, I had one final question for this man who had seen it all, who had guided the U.S. economy through thick and thin for 19 years. So he asked, Alan, you've had 90 years on this planet and have seen incredible changes in the world economy. So in this world of intense volatility and, insane central banking policies around the globe. What is the one thing you would do if you were still the Fed chairman today?

Starting point is 00:03:14 And Alan Greenspan paused for a while. Finally, he leaned forward to Tony and said, I'd resign. And so that's how he starts off the book to kind of give you an idea of how crazy the situation we're seeing today in 2017 with interest rates next to nothing. They've been down next to nothing for a decade. And, you know, you have an extremely high market cap with a Schiller P.E. of 30. And that's how he starts off this book. Now, with that said, I think people might be surprised at what he talks about in this book and what you should do as an investor. And a lot of it comes down to buy stocks and buy stocks through an ETF.

Starting point is 00:04:01 And we're going to talk more about more of the advice in the book. which really kind of gets down to how you go about doing that to mitigate the most amount of friction. But at the end of the day, Stig, I'm curious, is that how you read the book was basically buy stocks, buy them consistently, buy them every month with your free cash flow, and just stick to that strategy and do it through an ETF vehicle. Is that how you read the book? Yeah, exactly. To me, it makes a lot of sense. It probably doesn't make a lot of sense to me to write a long book about why I should just buy the market, but that's basically what he's saying. And he's also talking about how you might diversify into all asset classes, which is

Starting point is 00:04:40 another interesting discussion that we also had, not only when we talked about his previous book Money Master of the Game in episode 18, but you have it several times before. But yeah, that was definitely how I read it. And he refers to Jambogel a lot of times, the founder of Vanguard and the one who really introduced the low-cost ETFs. So, you know, whenever I said in the intro that This is a book for someone who just started investing. I also think it makes a lot of sense why you should only buy the market. You know, the thing that I found interesting between this book in 2017 and his book in 2015 was there were some changes to what he's recommending.

Starting point is 00:05:19 Because back in the 2015 book, he was really, I mean, recommending this Ray Dalio approach where 60% of your portfolio needs to be in bonds and fixed income investment. and you don't see any of that in this 2017 book. And for the most part, I thought there was a lot of similarities. You can see that a lot of the original book, which was massive, it was a large book. But you can see that a lot of the same research was just completely cannibalized from the first book and placed into this one. But what he had extracted out of it was this all-weather portfolio mix that was, I mean, trumpeted throughout that entire book for how many chapters? stick, probably 100 chapters.

Starting point is 00:06:03 Definitely feels like it. In general, I like how he kicks this off in terms of underlying that the keyword here is control. You need to have control. And this is really a paradox because then he's also asking a question, how can you have control in financial markets where you, by definition, don't have any kind of control? And what he's saying is that it all boils down to understanding. So if you understand what's happening, you are unshakable because you don't mind if the market tanks.

Starting point is 00:06:33 You know, that's Buffett's big word, him and Charlie Munger. They always say the word temperament. I was born with the right temperament to trade stocks because when it goes down, you know, call it 40%. I don't get scared or lose my mind. It's, I know it's part of the process. And I think that that's maybe what Tony's really getting at with the name of the title of the book, which is unshakable, is if you know these things and you know the stats on how often things happen for like one of the stats in the book is every year the market on average experiences a 10% contraction. So if you know that and he calls it winter, he refers to it as one of the seasons, if you know winter's coming every year with a 10% contraction and you're armed with that knowledge and understand those statistics, then you can be unshakable and you can have the right temperament to not get scared and sell out of your positions, which I think is a good.

Starting point is 00:07:25 great piece to what he's talking about here. I think that that's really valuable information and something that people need to understand. That leads me to the second chapter, which is called Winter is Coming, but when? Which for those of us who watch Game of Thrones, they probably know that cat's praise. But in any case, when he's talking about winter is coming, he's talking about that sometimes when we're talking about the stock market, you'll see it drop. And I think chapter two is one of my favorite chapters because he brings up some very interesting statistics here. So the first fact, he has like seven facts. And the first fact he talks about in the stock market is what he calls a correction. And the way he defines a correction is that it's a

Starting point is 00:08:07 decline of 10% from the peak. It happens once a year on average since 1900. And on average, and this is what is really interesting, it takes 52 days to recover from that correction. He also says in the second fact that only 20% of corrections turns into a bear market, which he defines as 20% of the peak. So basically he's saying you shouldn't sell after the 10% drop. You need to hold on before it bounces back, which is 8% of the time. And early 16, when we saw a correction, I think it was around 10%. Might be a good example of that.

Starting point is 00:08:46 Then he talks about bear markets, which happens every three to five years on average. And the statistic he brings on is that over the past 150 years in the stock market, we have seen 34 bear markets. So if you remember a bear market was at least 20% drop, but on average, you will experience a 33% drop whenever you see a bear market. And it would take one year on average to recover from that. But he also underlines, always remember that bear market becomes bull market eventually. So basically his part of saying that is that the great. The greatest danger in the stock market is being out of the market. And I think I really like this.

Starting point is 00:09:27 For someone who is actually more or less out of the stock market like me, I actually like this advice because it's an advice that's tailored at the new investor. He doesn't talk at all about valuation in his book. And he's saying, now it might be priced high. He actually is saying that in the book. But if you buy on average for the same amount, well, you will eventually end up with the average stock return, and that's not all too bad. You'll probably expect 8 to 9%. Kind of piggyback in on Stig's comment. For the new investor, and heck, this could be even

Starting point is 00:09:58 applied to the long-term experience and advanced investor. This is a neat little quote that he has in the book. As you can see from the chart, the market ended up achieving a positive return in 27 of the 36 years that he did the analysis. He says that's 75% of the time. So if you can't predict, whether it's going to go up or down. But you just consistently allocate cash flow every month into an ETF, a low-cost ETF with minimal friction. And when we say the word friction, we mean fees, you are 75% of the time going to experience an upturn in those positions.

Starting point is 00:10:39 So sometimes, I guess, just keeping it as simple as possible might be the best approach. That's definitely what Tony Robbins is recommending here in his book. Okay, so we're going to move on to chapter 3. three, and this one's titled Hidden Fees and Half Truths. And this chapter is all about how Wall Street fools you into overpaying for underperformance. So here's a way that he starts off the chapter. He says, the nonprofit organization AARP published a report in which it found that 71% of Americans believe that they pay no fees at all to have a 401k plan. And so then he furthers that stat.

Starting point is 00:11:14 And he says, meanwhile, 92% of people admit they have no idea how much. they're actually paying for the fees of the people that knew that there was a fee associated with their 401k. So that's an important fact. Just show people that there's these fees that are being sucked out of their returns that they're unaware of. Then what's really startling is he talks about how much those fees are sucking out of their returns annually. So he refers to a discussion that he had with Jack Bogle, who Stig mentioned, who was the founder of Vanguard. just to give people an idea. Vanguard manages $4 trillion.

Starting point is 00:11:54 That's $4 trillion to give you an idea of how big Vanguard is. So Jack Bogle was the guy who was the founder of that. And also the founder of ETFs index funds. So Tony says, why does this matter so much? Because excessive fees can destroy two thirds of your nest egg. And he says, Jack Bogle spelled it out to me quite simply. And this is Jack Bogle's quote. Let's assume that the stock market gives you a 7% return over 50 years.

Starting point is 00:12:22 At that rate, because of the power of compounding, each dollar goes up to $30. But the average fund charges you about 2% per year and cost, which drops your average annual return to 5%. At that rate, you get paid $10. So $10 versus the $30 you could have made if you didn't have the 2% fee. So you put up 100% of the capital, you took 100% of the risk, and you got 33% of the return. And I think that that's a really, really powerful quote to tell you how important it is to watch the fees and the amount that you're being charged in order to own a mutual fund, if you're in mutual funds, or in even some cases, index funds that are much higher fees than others. Robbins also talk about how you shouldn't be fooled by historical high returns because the counter argument for someone saying, well, you have to pay 2% in fees might be that, well, we outperform the market by 5%. So why won't you pay 2% extra for that outperformance? The reason why a lot of funds actually shows really good historical returns is that whoever comes up with these funds, they actually set up a bunch of different funds to start the track record as early as possible. So those funds that doesn't outperform, they will just be closed.

Starting point is 00:13:45 So what you have left is basically funds that for one reason, the other, not necessarily because they have a good strategy, but perhaps they've been lucky, can show that they have historical high returns. And that's the new funds that will now be promoted and marketed throughout the financial worlds as the best money managers, the best investments. So the advice is you should understand why a fund has outperformed and you, you know, You should read through the material you get from the fund. If you're saying something like our analysts are constantly monitoring the best position throughout the world,

Starting point is 00:14:20 but they're basically saying is fees, fees, fees. So fees are always there, returns are not. So you should be much more cautious about your downside, your fees than the potential upside, which is the historical high returns. Let's assume that you have two investors that both start with $100,000. And both of these investors are making 8% over a 30 year period of time. But one of the investors has fees at 1% and the next investor has fees at 2%. When it comes time for these two individuals to start withdrawing their funds,

Starting point is 00:14:55 the one individual that had the lower fee by only 1% will actually have 10 years more money than the other person. So I know that sounds crazy, but this is actually true with the math, when you do the math, you'll see that just a 1% decrease in fees will actually yield 10 years of money in retirement. And that's starting with $100,000 investment compounded at 8%. So that's important. That is something that I think everyone really needs to think about. And you know what? Some of these ETFs out there that just track the S&P 500, their fee structure.

Starting point is 00:15:29 I think the Vanguard one is what, 0.05%. Yeah. I mean, that's, that is crazy how low the fees are. And, you know, there's other stats in this book, which I can tell you, Tony does a great job of giving you some stats and some statistics on how ETFs perform compared to mutual funds compared to all these different forms of investments. And when you're thinking through, hey, I'm currently in a mutual fund that's charging me 1.5% in fees. And I could switch that and probably get, most likely get better performance. I think it's 96% better chance that you get better performance in an ETF over a mutual fund. and you're lowering your fee structure by almost a percent and a half, this really, really adds up.

Starting point is 00:16:13 All the comments that we were talking about with respect to, do you just continue to invest and do dollar cost averaging or do you kind of adjust your portfolio? All that stuff is really fancy. But if you really want to make some serious changes and add a lot more dollars into your bank account whenever you go to retire, focus on the fees, focus on the financial instrument that you're using, ETFs. agree with Tony in the book. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is.

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Starting point is 00:20:46 All right. Back to the show. I think it really comes back to what you said in the very first chapter. It's all about control. You have a really hard time controlling the performance. of your fund. But you have a lot of saying in the sense that you can find the cheapest ETF to invest in. So that would at least give you a head start compared to other investors investing in mutual funds. And then he talks about in this chapter how Warren Buffett, Carl E. Con, and Paul Chudor Jones can outperform the market. And he's also saying that perhaps you shouldn't go that route. So I thought a lot about this. And again, there's something that we've talked about on the podcast earlier. And based on the research and based on the discussion that we had, Preston,

Starting point is 00:21:28 I'm curious about your thoughts because he constantly talking about that you should buy into the market to basically buy the SP 500. How do you like the idea of buying into an ETF with a lot of different stocks where there's a small tweak? So for instance, Vanguard, they have an ETF. I think it's nine basis points. So it's not 0.05, but it's 0.0.5. But it's 0.5. 09% in fees. And what they do is that they buy into smaller companies and with a value tilt. So basically, they would buy into companies with a lower PE, lower price to book, and a few other metrics.

Starting point is 00:22:07 But still, it's from a large scale. We're talking hundreds and hundreds of companies. Would you expect Preston that an ECF like that would perform better in the future, given that they were valued at the same multiple right now? You know, I forget the stats on large cap compared to midcap compared to small cap performance. But I know a lot of it depends on the time frame that you choose. So if you look in the last 10 years, you might find that small caps outperform to others. But if you go back the 10 years before that, it might actually be midcaps.

Starting point is 00:22:41 You know, I wouldn't have a problem investing in one of those. But I would tell you, for me, really the benchmark is more the S&P 500. I would tell you, I would look at it. I would look at the performance, and then I would also try to think through why maybe a small cap versus a large cap would outperform in the coming 10 years. That would be a consideration I would think about. But to say one way or the other,

Starting point is 00:23:03 while we're just, you know, recording, I don't know that I can necessarily say one or the other. I know I'm really putting you on the spot here, Preston. And you weren't prepared for this question. What about the tilt about buying into lower PE stock? It's not like what we have heard, which is the great talk about where he's might only choosing like 30 or 50 stocks, but it's more like take behalf of the stock or the bottom third of the pool of the stock and investing in those, which can still be done with a very low friction, so very, very little cost. Do you think that would be something for the beginning investor to go into because it's still relatively simple and it's still a very, very low expense ratio? I think if the investor doesn't understand that, the value proposition of why value works and why, you know, low PE ratios will outperform the market. I think that that might be a concern for somebody to buy that because then they're not going to have the temperament whenever things maybe don't outperform the S&P 500 because they don't necessarily understand why.

Starting point is 00:24:08 So I think if you're the type of person that understands why that should outperform and you're comfortable going into it, it, then yeah, sure, you should do it. But if none of that made sense what I was talking about, I think people should avoid stuff like that and they should do something that makes sense to them because that's what's going to give them the temperament to stand by it whenever the market turns down, which I think is really, really important. So the next chapter, chapter four, it's called rescuing your retirement plans. So basically what Tony Robbins talks about in this chapter is how it might sound easy just to buy into the market. But it's not always, possible with the retirement plan that your company offers. And he's saying that 93% of all

Starting point is 00:24:51 retirement plans, they manage less than $5 million. And those companies only have very poor investment choices to offer for their employees. And some of them can get market funds. And those that can, they are priced at a really, really high expense ratio. And one example he provides is that while the vanguard market ETF, that tracks the SPF, that tracks the SPF 100 should have an expense ratio of 0.05. What he saw was that it was actually at 1.68%. I mean, that's massive. That's way too expensive. If you do the math, it's more than 33 times as expensive as it should be. And he's saying that even if you find self-directing accounts, you'll have to pay high fees for the ability to manage it yourself. And he's seen fees as high as 1.9%.

Starting point is 00:25:42 jumping over to chapter five. The title of this chapter is, who can you really trust? And this gets down to the three different types of financial advisors. So he talks about all these people. He says 81% of people with more than $5 million have an advisor. He says 60% of respondents believe that their financial advisor acts in their own company's behalf more than their consumer's best interest. That's really interesting. 60% of people don't trust their financial advisors, but they still have them. But he categorizes the financial advisors into three different category buckets. He says these are the three categories that you have.

Starting point is 00:26:22 You have a broker. You have an independent advisor. And then you have a duly registered advisor. And in his previous book back in 2015, the Money Master, the game, this is where he really, I mean, it was a hard sell that a person needs to go to a fiduciary in order to get sound financial investing advice because he says that brokers don't have to recommend the best product for you. They are really kind of selling you on their company's mutual fund or their companies whatever that has high fees and they get a kickback and a commission and everything else.

Starting point is 00:26:59 And so they don't necessarily have to put your best interest first. And that's a broker. Then in his book, he talks about how a fiduciary has to put your interests first. Now, what's interesting between that book where he was really promoting the financial fiduciary in this book is that evidently a certain person came forward to him and said, out of the 310,000 financial advisors that are in the country, only 5,000 are pure fiduciaries. that's only 1.6% of financial advisors are pure fiduciaries. And so what he didn't realize is that a lot of these fiduciaries are dual registered as brokers as well. And so this was a big change from his previous book where he outlines, hey, you know, I know I told you all this talk about fiduciaries being the best choice, but actually they might be brokers as well and they might not have to put your best

Starting point is 00:28:01 interest forward. So that was an interesting development in the book. Think about going to the doctor and his main objective was not for you to get well. How bad would you feel about that? But he's saying that is actually what you're doing whenever you were talking to a broker. So I kind of found that pretty frightening. I didn't know about the dual registered advisor thing. Then he goes on and talks about, so what should you be doing? So what he's saying is that you should find one of those fiduciary, one of those true one point something percent, but clearly that's not enough. They need to be skilled, they need to be honest, and you basically need to test them before you hire them. So you should look at their credentials,

Starting point is 00:28:43 you should look at their experience and track record. You should also make sure that you have aligned your investment strategy with them, that they understand what you want to do. And I think a good analogy to this would be that you might put your children in daycare, you might outsource part of that task to someone else. But at the end of the day, it's your kids. You are in charge of racing him. You have the overall responsibility. And it's the same way you should look at independent advisor. One thing is that he can help you a lot of things. For instance, tax playing that might really well. But you need to be in charge. You need to know what he's talking about at the end. So you can ask the right questions. And you can only do that by educating

Starting point is 00:29:23 yourself. Okay. So moving on the chapter six, this is titled The Core Four and this is all about the key principles that can help guide every investment decision you make. So the first principle he has here is one that Stick and I have talked about a lot and that's don't lose money. You know, Warren Buffett's two rules. Number one, don't lose money. And number two, don't forget rule number one. And then he talks about this idea in the book.

Starting point is 00:29:47 Now, I know that this rule sounds almost stupid for a lot of people, but I think he gives a good example of why this is so important. And a lot of it comes down to, if you lose 50% of your money, now you have to make 100% on what's left in order to get back to where you are. So that's why it's so, so important. And so if you take $100,000, you cut it in half. Let's say you lost 50% of that.

Starting point is 00:30:17 Now you're down to 50K. Now you've got to make another 50K, which is doubling your money to get back to where you're at. That's where he's going with this. So when you're thinking through that, it's all about risk mitigation and thinking through what are all the things that can go wrong and how can I account for that. Now, with his recommendation, this really simple recommendation, which is just buy an S&P 500 ETF and don't try to beat the market, but just try to get exactly what the market

Starting point is 00:30:45 performs at. The second principle is called esmerical investments. And the example that he provides is his friend Paul Chudy Jones. and when he's talking about how you can have a downside of $1 and an upside of $5. And that is how Paul Chilli-Jones looks at his potential investments. So he's talking about asymmetric risk reward. And what he's getting at is the best time for investors to take advantage of asymmetric risk versus reward is when the market has a large pullback, even if it's 10% or 30%. That's when you're being afforded the biggest opportunity.

Starting point is 00:31:23 So when you're most fearful, that's when you need to be taking the biggest positions because you're actually going to have an asymmetrical payoff by getting more capital into the markets whenever it's down. All right. So the next principle that he's talking about is core principle number three, and that's tax efficiency. The way that Tony suggests that a new beginner for investing minimizes their tax burden is by avoiding mutual funds. And the reason that he says that is because a lot of mutual funds, the way that's the way that, that these managers can promote their service of what they're doing is to show, oh, you know, look at all these traits. And for the amateur that might not necessarily understand what's going on, they look at that and they say, this guy must be really good if he's conducting all these trades and moving my money around and

Starting point is 00:32:10 he's making intelligent decisions that I don't know how to do this stuff. But what's really happening is those are all tax burdens. Every time there's a buy and sell within that mutual fund, there's an enormous tax burden that's being added to the cost of what's being done. And that's a lot of friction. And that's where the investor needs to avoid that by just not investing in mutual funds and going to an ETF. And the fourth point in the core four, which is basically how he was talking to the rich and successful people and what he found was the common trade, was that you should diversify. And Turn Robbins explains that you should buy into different asset classes and different assets

Starting point is 00:32:50 within that class. So, for instance, stocks would be won as a class. Whenever I read that, I felt it was a good advice, but I was also a bit confused because throughout the book, aside from this chapter, he was talking about how you should invest in the stock market. That was really his benchmark for performance and how you should do this in a nice, simple way. And in this chapter, for point four, he talks about how you could go into different currencies and also different asset classes. And I'm not sure I agree with that. I think you should make it as simple as possible. And I think just buying into the stock market for a lot of investors might be enough. Okay. So chapter seven is called Slay the Bear. And this is all about how do you

Starting point is 00:33:39 overcome the fear of a market crash or a downturn? And how do you continue to have the temperament or the unshakableness going off the title of the book in order to go through that. Let me start off by reading this Warren Buffett quote. He says, risk comes from not knowing what you're doing. And I think that that summarizes exactly what he's getting at here with how do you navigate this. And I think what it comes down to is know where your level of competence lies and don't go outside of that. And if you do want to go outside of that, start reading, start studying, and start learning as much as you

Starting point is 00:34:21 possibly can before you take that first step. But as long as you know where your circle of competence is, stay inside the circle of competence. Because as soon as you step outside that, that's when you're going to get slammed. And I think that he does a great job of kind of talking through this idea. And I think that that's why there's so much simplicity in what he's recommending for most people was because he knows, and a lot of other smart people like Buffett know that the typical person's level of competence is that they understand what the stock market is. They understand that the S&P 500 ETF would be a basket of companies. And that over time, those companies are going to continue to earn a profit,

Starting point is 00:35:02 and that's going to continue to compound their returns. As long as you understand that and you stick to that, you're going to do okay. And you're going to do pretty well, actually. So that's why he's saying, if you understand that key premise, and you stick to it and you don't try to get fancy and cute, you can shake these 10% downturns. You can actually add to your position whenever it goes down 30% because you understand fundamentally what's happening

Starting point is 00:35:26 and you stay inside that circle of competence. That's what he's getting at with this chapter. I had one red flag about this chapter that I really need to point out. I think he had a friend of his, I think he was called Peter or something like that, who did the second part of this chapter. And he was talking about how, profitable private equity funds were and how you could buy into those funds through him.

Starting point is 00:35:50 And what he said was, it's actually worth the high fees because you will have access to other types of investments that you would typically need $10 million to buy into. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up. And customers now expect proof of security just to do business. That's why Vanta is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together

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Starting point is 00:39:37 And I remember this specifically after we read Howard Mark's book, the most important thing. And he actually tells that in the very first chapter. He's saying, if something is expensive to buy into, it doesn't give you a good return. And asking people to pay high fees for something that is hard to buy into is even more terrible. And he's using Warren Buffett as his example,

Starting point is 00:39:58 where he's saying he's as smart as he does today than whenever he was 30. But he has so much money now, it's really, really hard for him to compound. And it might sound counterintuitive when you hear that, because for most people, and for me, it would sound like that capital would really speed things up. And you might be thinking, well, if I have a farm and I had capital, I could buy a tractor. Or if I had a typewriter and I had a thousand bucks, I could buy a computer that would make everything a lot more efficient. And yes, that makes a lot of sense.

Starting point is 00:40:31 But when you're talking about capital, it's just the simple rule. The more money you need to buy into something, the more money you manage, the lower your returns will eventually be. I just wanted to throw that out there for anyone who's reading the book and who's following all the advice from the book. I think of a lot of great advice. I think this section about private equity funds being worth the high fees is probably one of the red flags that I have.

Starting point is 00:40:54 I think you should be very cautious about. All right. So moving to chapter eight, this is called silencing the enemy within. in this chapter, Tony goes through six mistakes that investors make and how you can avoid them. So mistake number one is seeking confirmation of your beliefs, why the best investors welcome opinions that contradict their own. I love this point. And I can tell you, most people, whether you're talking about investing, talking about politics,

Starting point is 00:41:26 talking about anything, fall victim to confirmation biased. You want to study something that's going to help you improve as just a human being in general, study confirmation bias. And if you're not familiar with this, this is what confirmation bias is. Let's say you are predisposed to think about something. Let's say I think the stock market's going to go down. As a result, I go online and all I look for are articles supporting that thesis that the stock market's going to go down. If I come across something that says that the stock market's going to go up,

Starting point is 00:42:01 I completely ignore it. I don't even read it because it doesn't support my opinion. As I read more and more about why the stock market's going to go down, guess what? All I do is I confirm my thesis and my bias that the market's going to go down and I just compound on that idea. So how you overcome this is you try to balance both sides of the argument. So if one person says the stock market is going to go up, then you should read just as many articles about why it's going to go down as you would, why it would go up. And you read these arguments back and forth and you try to balance that opinion.

Starting point is 00:42:43 That is going to give you so much power, just not in investing, but in life in general, to understand this bias and how most people fall victim to it. This is a big one as far as I'm concerned. The second mistake is recency bias, which is basically that you believe that the current trend will continue. Just because something went up 10% in price doesn't mean that it will continue. The solution to this is that you should write simple rules.

Starting point is 00:43:12 You should write simple rules in terms of your strategy. You shouldn't react to short-term news all the time. You should have a long-term view on the current event. and probably not react to those short-term plight fluctuations. Okay, so the third point is overconfidence. I think everyone can understand this one on the face of it, but actually putting it into application and making sure that you don't fall victim to it

Starting point is 00:43:39 is a whole another story. So, you know, if you ask any person, are you overconfident or do you think that you have an ego or do you think that you are know it all in this area? I think everyone on the planet would probably say, no, I'm not. That's obviously not true for all of us. And I don't know how you really kind of destroy this bias from yourself. But stick, I'm curious to hear your thoughts on this.

Starting point is 00:44:07 How do you think people should go about keeping themselves in check and not having overconfidence? It's super, super tricky because it tend to be alignment between our confidence and our values. So I'm pretty sure most parents would. say that there are better parents than average. And why do they think so? That's probably because they raise the kids giving their own values. So there might be really good parents because they're really strict. So they have a value that's strict. So if they're strict with the kids, then they're good parents. Or they're might saying, oh, we're really good parents because we give our kids candy every day and they make them really happy. In that sense, I think we're all prone to overconfidence.

Starting point is 00:44:48 And if you read the stats, you know, how many people think that they're better drivers than average, how many people think they're smarter than average, it's definitely something we're all prone to. If someone knows how Preston and I can combat it, send us an email because we haven't found the solution yet. Yeah, no, seriously, if anyone's listening to this and you have a good book or a good recommendation on overconfidence, send it our way. We'll post it as a blog or something and send it out to the community. All right, so the next one, stig was mistake number four, greed gambling, and the quest for home runs. Yeah, and the fourth point is basically impatience and why this is something we need to be very aware of. Because as human beings, we all want the big win. We don't want the incremental winnings.

Starting point is 00:45:35 And the way that Robbins provides proof for this is that he's saying, think about the big lotteries, think about how casinos are marketing to you. I mean, they can make you rich overnight, but that's not how accumulating wealth works in practice. And also, if you think about it, it's also, it's a hard sell. If I told you, you should invest in the stock market, you can get 8% on average. And you're sitting there and you're saying, I have a thousand dollars. If I don't do anything, I don't buy a lot of it takes. I don't go to the casino.

Starting point is 00:46:04 Then in a year from now, I will have $1,080. I mean, yes, over time, as we talked about before, compounding is a great force. and 8% even a thousand dollars is a lot of money at the end but it's just a very very hard sell. Okay so mistake number five staying home. It's a big world out there so how come most investors stay so close to home? And what he's talking about here is why do so many people I think it's 73% of people in the U.S. only invest equities in their local market in the U.S. This is something that Meb Faber is really big on. I don't know if you're first. familiar with Med Faber, we had them on our show probably about a year ago, I'd say. And he talks about,

Starting point is 00:46:48 hey, there's big opportunities in other locations around the world. And, you know, with these ETF vehicles, you can invest in other countries with a basket of companies and not just have risk by maybe owning one company in a foreign country. So if you're concerned about maybe the accounting differences between the U.S. and other regions of the world, you can kind of wash a lot of that away by distributing the risk across a basket of companies by investing in an ETF that maybe represents companies in India or China or wherever that you're looking. I think that that's a really important point. And that's something that Stig and I are looking at adopting into our TIP money platform,

Starting point is 00:47:28 which we'll let you guys know when that comes out. But that's something that we're strongly considering is this international value investing through low-cost ETFs that we're going to have available for people that will eventually be using that platform. And really the good news for our Americans is that even though they're prone to stay at home, the U.S. market cap is still 49% of the global market cap. And whenever you're seeing ownership in the 70% plus for the U.S., it's the same throughout the world. He's mentioned Sweden as one example.

Starting point is 00:47:59 He also mentions Japan, which is even more prone to home buyers. So just before the bubble burst in Japan, the Japanese investors had 98% in Japanese stock. So definitely a lot of countries has this home bias. And this also makes a lot of sense because we talk about how you should invest in things you know about. And you typically know more about the stocks that you have back home. So why shouldn't you invest in those stocks? And this really makes me think of the interview we had with Raul Paul not a long time ago. And he's talking about how he is looking into Iran.

Starting point is 00:48:36 And he's saying that Iran might be one of the best opportunities right now. All my alarm bells was just ringing whenever I heard that because the first thing I was thinking was that's so far away from home. I don't understand any of that. Instead of actually paying attention to what you said in terms of, I think it was like 14% dividend yield, the PE of 5.5. I'm not saying you should go invest in Iran or not go invest in Iran. I'm just saying that I can see myself as an investor. Whenever I hear about a country I'm not too familiar with, immediately I feel like I can't go there, even though it might be a great investment.

Starting point is 00:49:12 Okay, so the last mistake, this is mistake number six, is negativity and loss aversion. And in short, this is all you really need to understand about this one. It's your brain wants you to be fearful in times of turmoil. Don't listen to it is his recommendation. So what he's getting at in this section, this last mistake, is that any time that you have some of your biggest losses, you need to be. on the lookout for some of the biggest returns that could potentially come. Loss aversion is all about this psychological way that a person perceives losses and how they guard against these losses.

Starting point is 00:49:54 And so the trouble for a lot of people is losing money causes investors tons of pain and has ability to make people act irrationally just to avoid this possibility. And so being aware of that loss aversion and what it's psychologically doing to you as an investor is something that's very important for a person to understand because you've got to be able to think clearly and you've got to have the temperament and the unshakableness in order to act accordingly whenever you're faced with those difficult circumstances when maybe you see your portfolio lose 30% of its value. You know, for some people seeing tens of thousands of dollars, hundreds of thousands of dollars

Starting point is 00:50:36 just wash away in a downturn, that will cause people to act very irrationally. And so you need to be prepared for that and think through the situation before it happens. You need to think, okay, if I saw $100,000 disappear in my account, how would that make me feel? What am I going to do? Write something down like a pre-planned response if something like that would happen. And then you'd read that whenever that occurs so that you can stay the course and think through how you would manage it most appropriately. Okay, so going to chapter nine, this is the last chapter. This is called Real Wealth. And this is a fantastic chapter that Tony adds in there. And this is what makes Tony Robbins, Tony Robbins, because it's not just about making money. It's about being happy. It's about

Starting point is 00:51:26 adding value to other people's lives that's mutually beneficial for not only them, but also you. and he says that whenever you help somebody else and when you go out of your way to make another person more successful in life, that's what really makes you happy. It's not having $5 million in your bank account. That is a superficial happiness that isn't something that will endure. I'm curious what kind of highlights Stig had for this last one. The funny thing is this is probably my favorite chapter throughout the book

Starting point is 00:51:59 and this is the chapter that's the least about money. And he's talking about how we associate money with happiness. And we're doing that because money is a way to signal stability. And he talks about how our brain is wired to survive. And while that might sound like a good thing, whenever your brain is wired to survive, it also puts a lot of focus on all the things that are wrong in your life and not all the things that are right in your life.

Starting point is 00:52:28 And he talks about how he previously said that, The most important decision you can make in life is who you will spend time with. And now he's actually saying that it's the commitment to being happy. So this is in the last chapter. And I want to read this to the audience because this is just a really funny story that I think we need to end the episode on. So he talks about Steve Wynn. And for anybody who knows Steve Wynn, he's the billionaire casino developer out in Las Vegas. If you've ever been to the Wynn Hotel, you know who I'm talking about.

Starting point is 00:53:00 and evidently Tony's friends with Steve Wind. And so this is the story I'm going to read it from the book. A few years ago, Steve phoned me on his birthday to see where I was. As luck would have it, we were both staying in our vacation homes in Sun Valley, Idaho. So Steve invited me over to hang out. He said, when you get here, I've got to show you this painting. He said, I've coveted it for more than a decade. And I outbid everybody two days ago and finally bought it.

Starting point is 00:53:28 It cost me $86.9 million. So Tony says, can you imagine how intrigued I was to behold this precious treasure that my friend had dreamed of for so long? I was imagining some sort of Renaissance masterpiece that you might see in a museum in Paris or London. But when I got to Steve's house, you know what I found? A painting with a big orange square. I couldn't believe it. I took one look at it and jokingly said, give me a hundred bucks worth of paint

Starting point is 00:53:57 and I can duplicate this in an hour. He wasn't overly amused. Apparently, this was one of the biggest paintings by the abstract artist, Mark Rothko. So he tells this story because he's talking about the idea of achievement and fulfillment. And he says,

Starting point is 00:54:13 you know, one person's $86.9 million painting is another person's piece of trash and that's kind of the way Tony saw it was just, it was a blotch of paint. And so he says, what gives a person this feeling of fulfillment and achievement. And Tony says it's two things. So we're going to leave you with these two things.

Starting point is 00:54:33 The first principle is you must keep growing. You have to continue to improve. You have to continue to learn. When a person does that, they feel good. They feel like they're accomplishing things and they feel like they're being fulfilled. The second thing that he says that accomplishes this is you have to give to other people. And when you give to other people, that fulfillment is going to be achieved. And so I just want to leave it at that. He gets into a lot more, I would argue the price of the book is

Starting point is 00:55:06 worth it for the last chapter alone. I think there's very valuable information there. I think that the book in general is good, very basic. You're going to achieve market returns by reading this book, S&P 500 market returns by reading this book. And I know that sounds. like, oh, well, I, you know, who can't do that? Well, I'll tell you, 96% of mutual fund managers can't do that. So that's a hard task to do. And I think he gives you a smart and intelligent way to mitigate the things that you can control, which is fees, taxes, things like that. And he gives you a simple solution to how to get market returns. All right, guys, that was all that Preston and I had for this week's episode of the Investors podcast. We see each other again

Starting point is 00:55:52 next week. Thanks for listening to TIP. To access the show notes, courses, or forums, go to The Investorspodcast.com. To get your questions played on the show, go to Asktheinvestors.com and win a free subscription to any of our courses on TIP Academy. This show is for entertainment purposes only. Before making investment decisions, consult a professional. This show is copyrighted by the TIP network.

Starting point is 00:56:19 Written permission must be granted before syndication or rebroadcasting. Thank you.

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