Podcast Ep. 19: 5 Habits of Unsuccessful Investors
Invest In Your Life Podcast
Episode 19: 5 Habits of Unsuccessful Investors
In this week’s podcast episode, I talk about common habits that I see among unsuccessful investors. This isn't a comprehensive list, by any means. However, these are five habits that I consistently see that drag down investors' returns.
00:04 Welcome to the Invest In Your Life Podcast, the show where we explore the connection between personal growth and personal finance. My name is Patrick King, and in each episode we'll talk about what you can do to live a life that's truly rich. Don't take this the wrong way, but I am not giving you advice. I only give advice to clients who have hired me to be their fiduciary financial advisor. If you're not one of those folks, then just consider this to be helpful tips and information and be sure to consult with your financial advisor, your attorney, your CPA, your doctor, or your mom before you try this at home.
01:01 Hello folks. What's happening? Welcome to the Invest In Your Life Podcast today. I've got a great show for you. We're going to talk about five habits of unsuccessful investors. What do they do that you should maybe stop doing if you're doing it? Um, so yeah, that's exciting. But first, let's talk about The No Bullshit Guide to Investing. I want to let you know that I've created an online course, and if you don't have quite enough money to work with a fee-only, fiduciary financial advisor like me and you still want to know the right way to invest – at least starting out, I've created an online course that has over an hour and a half a video. It's got some downloadable guides to help you put together an investment strategy that makes sense and investment strategy that's going to set you up for the long term. So – cool thing about it – it's free for podcast listeners for a limited time.
02:11 Yeah, check it out. Go to www.investinyourlifepodcast.com, under the “Resources” section there. Check it out. It'll be The No Bullshit Guide to Investing when you go there. At checkout, use promo code TELL2 to access the course for free. And all I ask for you in return is tell two people about the podcast. Just let them know and give me some feedback whether you liked the course or not, whether there is indeed bullshit in there. It's my first time creating an online course and I'm proud of it, but I realized that it's something new and I’d love your feedback. So yeah, that's it. The No Bullshit Guide to Investing, promo code TELL2. Access that for free today and happy investing. And now on to the show.
03:20 Okay, folks, gratitude for today. Yeah, I've got some gratitude because my good friend John was in town for a conference. He was here at Atlanta, lives in San Fran, and I got to see him even though it was for a few minutes before the conference got started early in the morning, which was the crack of dawn for him. I think he was still on Pacific time, but I was grateful that I got to see a good friend that I normally wouldn't get to see. And even though it was for a short time, it was nice to catch up. So I'm very, very grateful for that this week. That's my gratitude.
04:05 All right, all right. Let's talk about five habits of unsuccessful investors. Yeah. Let's jump in on these bad boys, right here. Alright, first one that I got for you – and by the way, I reserve the right to create another one of these things when I think of some other unsuccessful habits – but I've just picked five and if you can think of some, send me what you got. I'd love to hear what you think. Email me at email@example.com. I’d love to hear from you. All right. The first one that I've got today is thinking that there's a secret or magic bullet that this whole investing thing got bad news for you folks. There's no shortcut to doing this. Now I will allow that some folks do get lucky. Sometimes folks will, by luck or very, very rarely by skill, be able to make a lot of money in a short amount of time.
05:24 Now the flip side of that is they often lose it just as quickly, but really there's no secret to doing this. It's all about doing the right things and being boring. Sticking to a strategy over time that we know is going to work. I know it's not what you wanted to hear. Bad news, but a yeah, you know, when you exclude those outliers that have made money every once in a while by luck or by skill. It's a long-term game. So, one example that I would point out to you is that Warren Buffet is a great example of this. Now he's kind of an old-school investor where he started picking stocks back in the day and you know, built this bankroll up. But if you look at a graph of his net worth over time, you'll see that most of it was made when he was older.
06:21 So, that's a testament to compounding compound returns, baby, an amazing thing in life. And that's available to you by having a normal regular patient, long-term investment strategy just like Warren Buffet. Magic thinking, you know, when you say, hey, there might be a magic bullet to this thing, it's going to cause you to take big bets. And you know, sometimes those big bets might pay off like I mentioned earlier, but it also means that you're very likely to end up blowing your portfolio up and not blow up like an artist blows up, like blow up as in go to zero. Nobody wants that. So, if you think there's really a secret to investing, if there's some sort of magic bullet, like some of these click-baity things you see on Yahoo! Finance – like “this one weird tip allows blah, blah, blah to make x amount of money.”
07:21 Well guess what? If you think that there is a secret, someone is going to be very, very happy to sell it to you and then good luck making it work, right? You'll be right back where you were except for you'll be out the amount of money that you paid for that secret. Yeah. No magic bullet, no secret sauce. That's one habit of unsuccessful investors. Next habit to break would be fixating on one company or sector. Now I see this quite a bit and it also ties back into the kind of that old school way of investing where if you pick one company or you pick one sector that you think is going to outperform over time. Sometimes you might be right, but that's really kind of an old-school way of investing back when there wasn't such democracy of information, there wasn't the 24 hours news cycle.
08:26 If there is some sort of advantage that a particular company has, usually that's reflected in the stock price almost immediately. It's hard to make those arbitrage plays these days. So if you've heard about it, it's already over, folks. If there's a hot stock out there that somebody told you about, guess what? The run is already done. Someone's already made the money on it. So, they're actually penny stock scam that is built off of this principle. Now what they'll do is they'll take a stock on the pink sheets, which is where all these penny stocks are sold and they'll buy a bunch of it. They'll bid it up and what's called a thinly-traded stock, which means there's not a lot of shares out there. So, they'll buy a bunch of it. Therefore the stock price will start going up. Then they'll start promoting it as the hot stock to other people.
09:24 So, they'll do that and then once folks start buying in – once the people who have been scammed start purchasing these stock shares – they'll unload their shares so they're buying low and sell high, and everyone else is doing the opposite. It's kind of a crappy thing. I've seen that a few times over the years. So, that brings me to the next point. You know, if you like a company's products, that doesn't necessarily mean they're a good investment. Tesla is a great example of this. Who knows if they're going to be a good investment over time. Who knows? They may be, I'm not saying that they're not. Their cars are fantastic. They've got a lot of debt issues. They certainly don't deliver on time, as we saw with the Model 3, but when you're thinking about investing, it's never a good idea to say, hey, I'm familiar with this company and I like what they do.
10:27 And then therefore take that mental leap and say they're a good investment. You need to kind of sever that tie there. I see it all the time, you know, the familiar names doesn't mean that they need to be in your portfolio. You know, if it's a big company like Apple, you know, hey, there's part of Apple in an index fund, if let's say, you're an index investor. Or if you're an asset class investor like I am or my clients are, you're going to have a slice of those big companies in there, new need to double down any more than you need to. So, yeah, those are my thoughts on the individual companies. The sectors are all also an interesting idea and an interesting mistake that a lot of unsuccessful investors make. I guess the latest version of this would be the CBD companies or the hemp companies or pot companies.
11:28 There are a lot of these companies that are popping up these days. I guess CBD is legal, but the medical medicinal and recreational marijuana companies. Yeah. A lot of interest on that. Is it going to be a viable industry? Yeah, absolutely. After all the billions that Washington and Colorado have raked in and tax revenue. Look, that genie's not going back in the bottle, folks – or I don't know, going back into the water pipe or bong or whatever. It's just not happening. So it's going to be around. That doesn't mean that you need to go out and invest in some of these companies right now. You know, it's still illegal on the federal level, so there are a lot of legal issues that need to take place, before this is going to be a mature industry that makes sense to start taking bets on.
12:25 But yeah, the folks that come to me and asked me about the CBD stuff – yeah, the answer is no. Because who knows what it's going to look like? There’s going to be a winner in this space because at some point it's going to be legal, right? But there is a lot of ground to be covered between now and then and the companies that are in business now, they’ve still got a lot of uphill battles to face before we can say, hey, this is going to be a long-term investment. The winners may not even be in business yet, folks, in that space, in that sector. So hey, sectors are similar to the individual company stocks. Yeah. And I'm not saying, just because you like weed, you need to invest just like, just because you like Tesla doesn't mean, their cars, doesn't mean you need to invest in their stock. Anyway. I just thought that was funny. So, leave you with one thought on this. Focusing on one company or one sector idea. Remember back in the days of 2007, 2008 when we thought there's no way a bank would ever go out of business.
13:47 I can put all my money and this Wachovia stock. You know, I'm laughing. It was a terrible tragedy because a lot of folks had a lot of money and some of these big companies that went under in the financial crisis. So, it's not really that funny, but it's a good example. It's a good example of even those staple companies you think are going to be around forever. They don't always last forever. And that's why I kind of want to bring up one of the original DOW companies. You know, the Dow Jones industrial average. Originally there were 12 companies, one of them National Lead, the lead company [laughter] was in the first Dow index, which is kind of crazy. Along with American Sugar, American Cotton Oil, American Tobacco, U.S. Leather. Yeah. A lot of companies, household names, well they were back then they were, yeah, they'd been rolled up into other companies years and years ago.
14:51 So, that just goes to show you focusing on one company. That can be a big mistake. All right, next habit of unsuccessful investors. This going to be a little quicker. Their strategy “strategy”, and I'm doing air quotes, if you're listening, um, let me get my other air quote. For those of you that are watching on YouTube, their strategy changes with the seasons and this is classic being inpatient behavior. If you've got a strategy that changes when the market takes a dip, you don't have a strategy. If you've got a strategy that you throw away when a particular sector has gotten hot, you don't have a strategy. Strategies need to be long term, and I'm not saying you don't need to change them. If you do, it probably just needs to be a nuanced change, right? The fundamentals should be the same. But if you talk to someone and they've talked about changing their investment strategy several times over a period of a couple of years, then they don't have a strategy.
15:57 That's classic investor mistake, classic habit of an unsuccessful investor, changing strategies. Next habit. They're emotional. Man, look, I'm an emotional person. I'm not saying you need to be an automaton or robot in life. I enjoy life. I enjoy the ups and downs, but when it comes to investing, emotion has no place. Zero place in your investment strategy. That means being frustrated, being excited, being fearful. All of these things can cause you to make bad decisions. So, when you think about your investments, it needs to be like Dr. Spock, man, complete void of emotion, compartmentalize that stuff. Have it in the rest of your life. I believe in having a joyful life, a joyful experience. But when it comes to investing, has got no place. You know, markets are generally efficient. There's this market efficiency theory, efficient markets. But there used to be a theory that markets are rational.
17:17 We know that's not true. So emotions, that's another habit of unsuccessful investors. Last one I got for today, the fifth one, they compare themselves to others. Now I know I've talked about the comparison game before. You know, you don't really know how somebody is doing, how they're really doing. You may have only heard about their wins and I mean heck, they could just be flat out lying to you. So, those folks who compare themselves to other investors, to their friends, to their “frenemies”, to the people in their social network. Man, they're just setting themselves up for failure. And you, I mean, those folks, even if they are telling you the truth and having big wins, they might have a much bigger bankroll than you. They might be what's called an “accredited” or “qualified” investor and have investments that are only available to those folks with these high net worths.
18:17 Maybe you're not in that game yet. And so they're doing, they're taking risks with like private equity stuff, right? So, you know, don't compare yourself to them and you know, it's a classic way to make yourself miserable. The comparison game in any regard, whether it's in your investments or in your life in general. Once you start getting miserable, you start making mistakes, you start doing things to get out of that miserable situation. You start getting into that short term, magical thinking. Where, ah, if I just put my money down on this, let me double down on that. Let’s get out until it's safe. Yeah. It's a classic way to be an unsuccessful investor. So yeah, so that's what I've got today folks. Those are the five. Number one, there's no secret or no magic bullet. Number two, fixating on one sector or one company. Number three, their strategy changes with the seasons. Number four, they are emotional. And number five, they compare themselves to others. It was a five great ways to be unsuccessful in this investing game. And with that, that's the topic of the day
19:36 All right. Q&A for today. I had a good question today. When I met with someone, they asked me, what is an annuity? Now, an annuity is a contract between you and an insurance company where they guarantee a certain stream of money based on how much money you give them. That's simply what an annuity is. You buy a guaranteed stream of income. So, it sounds great, right? Having guaranteed stream of income. Well, the devil's in the details on these annuities, sometimes you can get an annuity with – it's a single premium immediate annuity is what it's called – where you just pay them and they start paying you guaranteed payments right on spot. You can get to something – it's called a variable annuity – where you give them money and you invest it in these investment vehicles over time and at some point in the future that'll turn into a stream of income.
20:36 Many fewer guarantees on that one. A lot of financial planners like me really shy away from the annuities because the fees associated them are exorbitant in a lot of cases and they drag down returns and they're hard to get out of. They really, really lock you in. They're not necessarily going to kill your financial plan if you're in one, but I always feel like I'm helping folks get out of them. So, an annuity on the surface, it sounds like a good idea. In practice, it's not always the best for your situation. If you need help with an annuity, give me a shout. I'm happy to talk with you about it. If you're thinking about buying an annuity and want a second opinion, give me a shout. My email is firstname.lastname@example.org. And yeah, Q&A for today.
21:42 Okay. Last but not least is my Pura Vida for today. This last weekend was the Attack of the Killer Tomato Festival here in Atlanta and it's one of my favorite things to do here in Atlanta. It all started when a local restauranteur / chef, a guy by the name of Ford Fry noticed that there was a bumper crop of tomatoes that were getting tossed this time of year, just so many tomatoes. And so few folks were doing good things with him. So, he decided to put on this festival and a lot of the high-end restaurants here in town participate where the contest is. Each restaurant chef or bartender / mixologist has to come up with a dish or a cocktail that has tomato in it. And it is absolutely fantastic. Some just top chefs, like chefs that have been on Top Chef – like James Beard type folks are out here at this festival making these dishes.
22:50 It's absolutely fantastic. The food is amazing. Even the cocktails which sound like, okay the Bloody Mary is an obvious choice, but people have gotten really creative with what they can do with these tomatoes and it's just a fun time. It's just a lot of fun. It's a little warm. It's a little warm cause it's outside in July here in Atlanta. But it's one of my favorite things to do and that was my Pura Vida for this week. I ate a lot of tomatoes. So, okay folks, that is the podcast for this week. Thank you for listening. Go to www.investinyourlifepodcast.com. There you can get in touch with me or check out the resources. There's The No Bullshit Guide to Investing, which for a limited time, free for y'all. Use the promo code, TELL2, at checkout and get that for free. Tell two people about the podcast. And even if you don't download that online course, tell two people. I would appreciate that. And if you wouldn't mind, leave me a review on iTunes, grab your phone, hit subscribe to the podcast if you enjoy this. And until next time, thank you for being here and cheers
24:27 The thoughts and opinions expressed here are my own and or for general information only. They are not intended to be recommendations or specific advice for anybody. I'm not a doctor or a licensed therapist. So please consult with your healthcare provider if you have any issues regarding your physical or mental health. Any investment performance. This referenced here is historical and of course has no guarantee of future results. Last but not least, the Easter bunny isn't real.