16 April 2017

In this episode, Preston and Stig review the top selling investing book on the market at the end of the first quarter 2017. The Book is titled, Unshakable, by Tony Robbins.  Tony is a world-renown self-help expert that has written numerous #1 selling books and his personal net worth is $480 million.  Like Tony’s book from 2014, he does a great job of explaining the hidden fees on Wall Street.  His recommended approach is extremely simple: buy low-cost ETFs every month and don’t try to beat the market.  Instead of most financial books trying to teach you how to beat the market, Robbins’ book is instead trying to teach people how to capture the market’s average without losing much to the Wall Street fees.  Through education and statistics found in the book, Robbin’s educates the reader on how to stay the course and what the final outcome might look like.

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  • What you can and can’t control in the financial markets.
  • The truth about diversification.
  • Why private equity funds are not worth their high fees.
  • Why you should write down your personal rules before you invest.


Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

Preston Pysh  0:02  

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 dollars. 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.” This book was number one in business on Amazon for a few months. 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 “Unshakeable,” we were excited to see what kind of new investing highlights he had in 2017.

Stig Brodersen  0:41  

In this book, Tony Robbins provides a step-by-step playbook, and he’s taking you on the journey to transform your financial life with the intention to accelerate your path to financial freedom. 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.

Preston Pysh  1:09  

Alright, so if you guys are ready, we’re going to review Tony Robbins book titled “Unshakeable.”

Intro  1:19  

You are listening to The Investor’s Podcast where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected.

Preston Pysh  1:39  

Alright guys, so thanks for joining us this week. Like we said there in the intro, we’re going to be covering Tony Robbins new book “Unshakeable.” 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.

He starts off with a story. He says, “You know, you’re living in a strange time when even the greatest financial minds admit to being confused.” And he talks about how he was at this event called the Platinum Partners event where there was seven self-made billionaires and they’re talking about different ideas and opinions on the market. Tony talks about how he was sitting across from none other than Alan Greenspan, the former chairman of the US Federal Reserve. 

So if you’re not familiar with Alan Greenspan, he was the Federal Chairman for four presidents before retiring in 2006. He has probably seen more than most Fed Chairmanss through his duration. And Tony asked Alan Greenspan a really unique question, and this is how he writes it in a book: “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 US 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?”

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And Alan Greenspan paused for a while. Finally, he leaned forward to Tony and said, “I’d resign.” And so and so that’s how he starts off the book that kind of gives 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 Shiller PE of 30. 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. A lot of it comes down to buy stocks and buy stocks through an ETF. 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 it 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?

Stig Brodersen  4:26  

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 other asset classes. So this is another interesting discussion that we also had, not only when we talked about his previous book, “Money: Master the Game” in Episode 18, or several times before, but yeah, that was definitely how I read it. He refers to the Bogle a lot of times, the founder of Vanguard, and the ones who really introduced the low cost ETFs. So when 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.

Preston Pysh  5:08  

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. 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 investments. You don’t see any of that in this 2017 book. 

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 trumpeted throughout that entire book for how many chapters, Stig? Probaly a hundred chapters?

Stig Brodersen  6:03  

Definitely feels like it. In general, I like how he kicked this off in terms of underlying that the key word here is “control.” You need to have control. And this is really a paradox because then he’s also asking the question, how can you have control in financial markets? Well, by definition, you don’t have any kind of control. What he’s saying is that it all boils down to understanding. So if you understand what’s happening, you are unshakeable, because you don’t mind if the market tanks.

Preston Pysh  6:33  

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. I know it’s part of the process. I think that that’s maybe what Tony’s really getting out with the name of the title of the book, which is “Unshakeable,” is if you know these things, and you know the stats on how often things happen. 

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 unshakeable, and you can have the right temperament to not get scared and sell out of your positions, which I think is a great piece to what he’s talking about here. I think that that’s really valuable information and something that people need to understand.

Stig Brodersen  7:32  

That leads me to the second chapter, which is called “Winter is coming.” But for those of us who watch Game of Thrones, they probably know that catchphrase. 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 will see it drop. 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. The first fact he talks about in the stock market is what he calls a correction. The way he defines a correction is that it’s a 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 it does every time. And early 2016, when we saw a correction, I think it was around 10%. It might be a good example of that. 

Then he talks about bear markets, which happens every three to five years on average. And this 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 10% drop, but on average, you will experience a 33% drop whenever you see a bear market. It would take one year on average to recover from that. 

But he also underlines that always remember that bear market becomes bull market eventually. So basically his point of saying that is that the greatest danger in the stock market is being out of the market. I think I really like this. For someone who’s 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 is actually 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. We’ll probably expect 8% to 9%

Preston Pysh  9:54  

Kind of piggybacking on Stig’s comment for the new investor and heck, this could be even applied to the long term experienced 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 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. 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 gonna move on to chapter 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 ARP 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 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 is the founder of Vanguard. Just to give people an idea of Vanguard. Vanguard manages $4 trillion dollars. 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 and 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.” This is Jack Bogle’s quote, “Let’s assume that the stock market gives you a 7% return over 50 years. 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 in 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, your mutual funds, or in even some cases, index funds that are much higher fees than others.

Stig Brodersen  13:11  

Robbins also talked about how you shouldn’t be fooled by historical high returns because the counter argument or 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 performance?” 

The reason why a lot of bonds actually show 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 don’t outperform, they will just be closed. So all you have left is basically funds that for one reason or the other, not necessarily because they have a good strategy, but perhaps they’ve been lucky and show that they have historical high returns. And that’s the new fund that will now be promoted and marketed throughout the financial world as the best money managers, the best investments. 

So the advice is you should understand why a fund has outperformed. And you should read through the material you get from the fund. If they’re saying something like, :Iur analysts are constantly monitoring the best position throughout the world,” what 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 of your fees, than the potential upside, which is the historical returns.

Preston Pysh  14:35  

Let’s assume that you have two investors that both start with $100,000. Both of these investors are making a percent 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, 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 to 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… I think the vanguard one is what point .05%? 

Stig Brodersen  15:33  


Preston Pysh  15:33  

I mean, that is crazy how low the fees are. And, you know, there’s other stats in this book, which that 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 or a mutual fund. And you’re lowering your fee structure by almost a percent and a half. This really, really adds up 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 when you go to retire, focus on the fees, focus on the financial instrument that you’re using ETFs. We totally agree with Tony in the book.

Stig Brodersen  16:38  

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 say in the sense that you can find the cheapest ETF to invest in so that would at least give you a headstart compared to other investors investing in mutual funds. 

Then he talks about in this chapter how Warren Buffett, Carl Icahn and Paul Tudor Jones can outperform the market. He’s also saying that perhaps you shouldn’t go that route. So I thought a lot about this. And again, that’s something we’ve talked about on the podcast earlier. Based on the research and based on the discussion that we had, Preston, I’m curious about your thoughts, because he constantly talking about that you should buy into the market, you basically buy the S&P 500. How are 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 .05%, but it’s 0.09% in fees, and what they do is that they buy into smaller companies, and with the value tilt. So basically, they would buy into companies with a lower PE, lower price to book, and a few other metrics. But still, it’s on a large scale. We’re talking hundreds and hundreds of companies. Would you expect, Preston, that an ETF like that would perform better in the future, given that they were valued at the same multiple right now?

Preston Pysh  18:09  

You know, I forget the stats on large cap compared to mid cap compared, to small cap performance. But I know a lot of it depends on the timeframe that you choose. So if you look in the last 10 years, you might find that small caps outperformed others. But if you go back 10 years before that, it might actually be mid caps. 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, while we’re just you know, recording, I don’t know that I can necessarily say one or the other, Stig.

Stig Brodersen  18:58  

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 Wesley Gray talked about where he’s only using like 30 or 50 stocks, but it’s more like, take half of the stock or the bottom third off the pool of the stock and invest 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?

Preston Pysh  19:34  

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. 

So I think if you’re the type of person that understands why that should outperform, and you’re comfortable going into 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. 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.

Stig Brodersen  20:19  

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 a retirement plan that your company offers. He’s saying that 93% of all retirement plans, they manage less than $5 million, and those companies only have very poor investment choices to offer for their employees. Some of them can get market funds, and those that can they are priced at a really, really high expense ratio. 

One example he provides is that while the Vanguard market ETF that tracks the S&P 500 should have an expense ratio of .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%.

Preston Pysh  21:33  

Jumping over to chapter five, the title of this chapter is “Who can you really trust?” 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 consumers’ 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: 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 the brokers don’t have to recommend the best product for you. They are really kind of selling you on their companies mutual fund or their companies that has high fees, and they get a kickback and a commission and everything else 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, and 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 5000 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. 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 interest forward.” So that was an interesting development in the book.

Stig Brodersen  23:55  

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’re 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 is 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, you should look at the experience and track record. You should also make sure that you have aligned your investment strategy with them and that they understand what you want to do. 

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 the end of the day, it’s your kids. You are in charge of raising them and 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 with a lot of things, for instance, tax planning, that might be 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 yourself.

Preston Pysh  25:13  

Okay, so moving on to 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 Stig 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.

Now, he talks about this idea in the book. 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. 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. So if you take $100,000, you cut it in half, let’s say you, you know, lost 50% of that. Now, you’ve done the 50k. Now, you 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 a S&P 500 ETF and don’t try to beat the market, but just try to get exactly what the market performs at.

Stig Brodersen  26:36  

The second principle is called asymmetrical investments. The example he provides is his friend Paul Tudor Jones, where he’s talking about how you can have a downside of $1 and an upside of $5. That is how Paul Tudor Jones looks at his potential investments.

Preston Pysh  26:54  

So he’s talking about asymmetric risk reward, and what he’s getting at is the best yime 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. So when you’re most fearful, that’s when you need to be taking the biggest positions, because you’re actually gonna have an asymmetrical payoff by getting more capital into the markets whenever it’s down. 

Alright, 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 minimize their tax burden is by avoiding mutual funds. The reason that he says that is because a lot of mutual funds, the way that these managers can promote their service of what they’re doing is to show, “Oh, you know, look at all these trades.” 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. 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. That’s where the investor needs to avoid that by just not investing in mutual funds and going to an ETF.

Stig Brodersen  28:23  

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 trait was that you should diversify. And Tony Robbins explains that you should buy into different asset classes and different assets within that class. 

So for instance, stocks would be one asset class, when 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 performance and how you should do this in a nice simple way. And in this chapter, 4.4, he talks about how you could go into different currencies and also different asset classes. I’m not sure I agree with that. I think you should make it as simple as possible. I think just buying into the stock market for a lot of investors might be enough.

Preston Pysh  29:22  

Okay, so chapter seven is called “Slay the bear.” And this is all about how do you overcome the fear of a market crash or a downturn? And how do you continue to have the temperament or the unshakeableness 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.” I think that that summarizes exactly what he’s getting at here. How do you navigate this? And I think what it comes down to is 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 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. 

I think that he does a great job of kind of talking through this idea. I think that that’s why there’s so much simplicity in what he’s recommending for most people is 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, that over time, those companies are going to continue to earn a profit. 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 and you stay inside that circle of competence. That’s what he’s getting at with this chapter.

Stig Brodersen  31:20  

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 where and how you could buy into those funds through him. And what you said was, “It’s actually worth the high fees because you will have access to other types of investments that you would *inaudible need $10 million to buy into.” 

I just want to say that for not only the beginning investor but for all investors if you ever hear something like this is normally hard to buy into because it’s very expensive, but I will give you a break. You should be very, very cautious. I remember this specifically after we read Howard Marks’ book, “The Most Important Thing.” And he actually told us 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. He’s using Warren Buffett as example, where he’s saying he’s as smart as he is today, than when 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.

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 1000 bucks, I could buy a computer that would make everything and lots more efficient.” And yes, that makes a lot of sense, but we’re talking about capital. It’s just a 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 was reading the book and who was following all the advice from the book. I think it has 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. I think you should be very cautious about it.

Preston Pysh  33:22  

Alright, so moving to chapter eight. This is called “Silencing the enemy within.” And 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, talking about anything, fall victim to confirmation bias. You want to study something that’s gonna help you improve is 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 gonna go down. If I come across something that says that the stock market’s gonna go up, 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 is 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 would go up. And you read these arguments back and forth and you try to balance that opinion, 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.

Stig Brodersen  35:21  

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, 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 price fluctuations.

Preston Pysh  35:53  

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 is a whole ‘nother 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 a know-ita-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 Stig, I’m curious to hear your thoughts on this. How do you think people should go about keeping themselves in check and not having overconfidence?

Stig Brodersen  36:39  

It’s super, super tricky, because it tends to be in alignment between our confidence and our values. So I’m pretty sure most parents would say that they are better parents than average, and why do they think so? That’s probably because they raised the kids giving their own values. So they might be really good parents because they’re really strict, so they have a value set that is strict. So if they’re strict with the kids, then they’re good parents. Or they might say, “Oh, we are really good parents because we give our kids candy every day and it makes them really happy.” In that sense, I think we are all prone to overconfidence. 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 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.

Preston Pysh  37:31  

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 homeruns.

Stig Brodersen  37:49  

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. 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. 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 $1,000. If I don’t do anything, I don’t buy lottery tickets. I don’t go to the casino, 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% of even $1,000 is a lot of money at the end. But it’s just a very, very hard sell.

Preston Pysh  38:46  

Okay, so mistake number five: staying home. It’s a big world out there. So how come most investors stake 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 US only invest equities in their local market in the US? This is something that Meb Faber is really big on. I don’t know if you’re familiar with Meb Faber. We had him on our show probably about a year ago, I’d say. And he talks about, “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 US 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, which, you know, 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.

Stig Brodersen  40:08  

And really the good news for our Americans is that even though they’re prone to stay at home, US Mark habits, so 49% of the global market cap, and whenever you’re seeing ownership in the 70% Plus, for the US, it’s the same throughout the world. He’s mentioned Sweden’s as one example. He also mentioned, Japan, is even more prone to homebuyers. So just before the bubble burst in Japan, the Japanese investors had 98% in Japanese stocks. So definitely a lot of countries has this home bias. And this also makes a lot of sense, because we talked 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 should you invest in those stocks? And this really makes me think of the interview we have with Raul Paul not long time ago and he’s talking About how he is looking into Iran, 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 thing was like 14% dividend yield P of 5.5. I’m not saying you should go invest in Iran or not go and rest 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 immediate I feel like I can go there, even though it might be a great investment.

Preston Pysh  41:38  

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 anytime 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. 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 got to have the temperament and the unshakeableness in order to act accordingly, whenever you’re faced with those difficult circumstances or 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 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 adding value to other people’s lives, that’s mutually beneficial for not only them, but also you. 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.

Stig Brodersen  44:22  

The funny thing is, this is probably my favorite chapter throughout the book. And this is the chapter that’s the least about money. He’s talking about how we associate money with happiness, and we’re doing that because money is the 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. And he talks about how he previously said that the most important decision you can make them life is who you will spend time with. And now he’s actually saying that it’s the commitment to being happy.

Preston Pysh  45:07  

So this isn’t 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. And evidently, Tony’s friends with Steve Wynn. 

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. 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 100 bucks worth of paint and I can duplicate this in an hour.’ He wasn’t overly amused. Apparently, this was one of the biggest paintings by the abstract artists, Mark Rothko.”

So he tells this story, because he’s talking about the idea of achievement, and fulfillment. And he says, 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. 

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. 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. So I just want to leave it at that he gets into a lot more, I would argue the price of the book is 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, 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. He gives you a simple solution to how to get market returns.

Stig Brodersen  48:13  

All right, guys, that was all that Preston and I had for this week’s episode of The Investor’s Podcast. We will see each other again next week.

Outro  48:20  

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