Debunking Stock Investment Myths | Paul Meeks | TEDxWWU

Alright, today I think you have a great opportunity and in fact I think maybe it's even a historic opportunity to invest in

stock

s using free real-time internet data and tools because what's happened recently has been a democratization of financial data. and today there are all kinds of There are many opportunities to take advantage of that, so if you are a do-it-yourself fan and could do it in about 15 minutes or if you prefer to delegate, you will be able to do it more efficiently, less expensively and generate more profits than before. So, friends, this is clearly a trip worth taking, so it's no surprise that I'm taking you on a road trip now.

I'll just be next to you in the car in the navigator and I'm a pretty original navigator and then you guys. You're going to drive, so now you have the keys before you go too far, we have to stop at the toll and at the toll we'll pay a toll, we'll get a map and we'll be on our way, but first of all. needs a little history, err, what is an action? Well, friends, a

stock

is a small piece of property and a business, a stock is synonymous with capital and if you take a look at Merriam Webster's dictionary, they define capital as property and the reason we all get involved in business is because we want to share the benefits which is the income generated today or in the future, so let's start with a good local stock story.

Soon we will travel a little south to Seattle, Washington, home of amazon.com. com will celebrate its 20th year as a publicly traded company in 1997, if you invested in a single stock, you were friends and partners with Jeff Bezos, who is the founder and CEO of the company, since then you have made approximately 600 times your money. 40 percent annually of course mr. Bezos is a little more important than you because his 18 percent stake in Amazon is today. Today we earn seventy billion dollars. For mere mortals like us, you can still expect to earn about nine percent a year on your stocks, that's not with heroic assumptions and so if you're a college student, today's audience and you work your whole life, you should be able to double your money. six or seven times, that's what we call the power of compounding again, it's the reason we're on the journey, so now You're moving away from the toll I'm your interesting navigator, let's say that and let's see on our journey six road signs that will keep us on the road the interesting thing about me and the six road signs are my directions.

They're a little different than current wisdom, so stay tuned. The first thing I say is investing passively, let me explain, active investors are those, like most of the industry, who promised to beat the market in the United States; The market is generally defined by the Standard and Poor's 500, also known as the S&P 500 index, a passive manager simply tries to get along and follow the index. It is an automated strategy that does almost nothing. The problem is that active managers who try so hard with all their Harvard MBA brainpower underperform passive ones. 80% of the time it's amazing and what they do 100% of the time is aren't they much higher in fees?

I will give you an example at the local level that is not unique throughout the world. There is a regional front company in this area. Their largest fund has over a billion dollars, that's a lot of money over the last decade, it has been crucified by the sp500 and that manager charges you 22 times more in fees than the passive substitute, so in the United States there are almost 10,000 mutual funds and there are only four thousand stocks in the way these 10,000 mutual funds collectively manage 15 trillion dollars two thirds of the industry are active, surprisingly, one third is passive, but since 2013 there has been a change of one trillion dollars in liabilities, what I'll tell you to do is this as you go down this path if you're actively investing and you're taking it away from a guy who's been trying to do it for 30 years, keep it in a really small portion of your portfolio and if becomes active, make sure your manager has what we on Wall Street call an advantage an advantage means you're something special of course the problem with human nature is that we all think we're special so be very skeptical so that our next signal I tell you to avoid what I call portfolio diversification, so the concept of diversification that you may have heard will be promoted by all

investment

professionals, even the academics here at the university, the problem is brought to the extreme, it actually dilutes your portfolio and can be problematic.

Let me explain that in 2008 a guy called Malcolm Gladwell published a book called Outliers, you may have read it in that book. He stated that it takes 10,000 hours of practice to master a skill that requires a lot of work. This is my rule. I'm not. I will hold you to that standard, but if you own a stock in your portfolio, you better commit to me that every 90 days you will spend one hour on the task, that's four hours a year, and the Securities and Exchange Commission , which has been regulating the US market since 1934 makes it a little easier because on the same schedule each quarter of the year they require that the US publicly traded companies allow us to see financial statements, things like a balance sheet, a income statement, a cash flow statement, maybe a little bit of color on how the business is doing and maybe even a forecast that you need to be on what I call the quarterly financial reporting schedule and so I would say let's take diversification and reverse engineer it.

This is my rule. Tell me how many hours a year you can dedicate to your stock work. We divide it by four and that is the number of stocks we have in our portfolio and friends. For most of you the answer may be 0 and then the portfolio should be totally passive, but you have to do your homework because the concept of diversification, if taken to the extreme, some of these institutional portfolios that I have worked with throughout of years have hundreds of names and when you have hundreds of stocks in your portfolio I bet the portfolio manager doesn't know what 20 or 30 companies even do so don't let your diversified portfolio become diversified you should be able to go long and short, and I have these words in quotes because I will explain it from the beginning of time, almost even before stocks and stock markets existed, people tried to buy low and sell high and capture the profits in the middle.

We call that going long a stock. I think I should say yes, it's okay to go long on a stock, but we also need to focus on going short or betting on the stock to go down, here's the problem with going long, we're all walking down the same narrow one-way street. , traffic is congested and we are going crazy. Really frustrated in my wicked Venn diagram, we have a situation where we can open another lane and then we also come up short, so we continue to bet against the stock. Now I'm sure this doesn't seem right for an engineer, but in my world you can go anywhere you want.

We go and make money in any direction and of course the traffic will be faster. Here's another reason you want to consider going short. We know that stocks rise 9% annually. However, we have reliable data going back to 1928. 27 percent of those years the market really goes down, and, friends, when it goes down, it can be really unpleasant in your grandfather's era for some of you students. 1931 the market fell 44% in 2008 during the financial crisis the market fell 37% even at the beginning of this century, when the Internet bubble burst, the market fell in 2000, 2001 and 2002, with a loss of at least 63% wouldn't it have been great to have at least some bets profiting in that horrible environment. arguments for short selling, we are not all supermodels, sorry guys, we are not all smart Albert Einstein, my apologies again, we are not all well-tuned professional athletes, look at me as an example, it's the same with companies, most of the companies. the ones they encourage you to invest in are nothing special, you might want to bet against them, they could be cheap no matter who runs the place and then the other thing I see, which is a bullish case for short selling, is that occasionally I will run into companies that actually have legitimate businesses, but the problem is that they are run by financial gangsters and these people will cheat in their financial accounting, exaggerate their sales and under-report, there are expenses, all to increase their profits or at least the perception to be able to get a bigger bonus and they can appeal to all of us, so what I would say is make sure you follow both terms.

The next thing is that I spend a lot of time on financial television, I'm usually on CNBC and what happens on CNBC is quite often they like to bring out the superstars that portfolio managers love to go on air or even when they write articles and They love to tell you all the cool, creative, brilliant ways they look for their next stock idea that no one wants to talk about selling everyone wants to talk about buying maybe it's more fun. In fact, I think a lot of time is spent buying stocks. I think I should spend a lot of time selling stocks, so here's my strategy, here's my bullseye, right? of these at home, I think a better strategy is that you don't worry about buying, you buy almost anything, so you take your dartboard, you add the Wall Street Journal and this is the stock quote page, a stock quote is a symbol of a stock that we can trade and what we are going to do is throw a dart at it and wherever that dart lands we will buy those stocks.

I don't care what he does today, we'll buy Under Armour. I know a little. a little bit about all the Under Armor exports, but I'm a technology analyst and I know for a fact that Under Armor doesn't make software or semiconductors, so I'm a little grumpy, but this is the key, it's not about what you know buys. It could be Under Armour, it could be anything, it's what you sell and when a stock reaches its full value you have to get out of there and make sure you don't stay at the party for too long. We tend to stay at the party. too long party unfortunately the hangover the next day is even more important, however, it is when you have a loser in your portfolio recognize that loss quickly minimize the loss if you are going to remove any message from my talk, it is to minimize your losses show something Humility Don't go to Vegas and double down when you're down because you have to get back to neutral before walking away from the table.

It's a suicidal strategy, so make sure you're thinking about selling, not particularly buying. stocks that are losers. I love this is my trading strategy. I call it playing with the pendulum. Most veterans and I'm a 30 year veteran so I don't like to think I'm old, but maybe I am, they'll say. buy and hold that's my old man's voice. In fact, I think you can make some money with a modest trading strategy. I call it playing with the pendulum, so my pendulum is a metaphor for stock valuation. We all know that the pendulum can swing in a very wide arc. and in my vision it doesn't stop for some time at the center, the center is the fair valuation of the shares, so why don't we own a great company maybe for our entire life?

We may own amazon.com, but when the pendulum swings undervalued we buy a piece when it swings to overvalued we sell a piece what has happened in the internet world is that the pendulum swings wider than ever and more quickly there are many undervalued opportunities. swinging from fair value to overvaluation this does not cause a day trading craze, but I think it is a modest trading strategy applicable to these times. Who is the greatest contrarian investor of all time? The only way to make money is to be contrary and do something different. Warren Buffett is right and the guy is deep into the 80's of him, he says: be afraid when others are greedy and be greedy when others are afraid.

I think this is a 21st century Internet where they have allowed strategy to be a great contrarian investor. Our last signal is: I want to make sure you're looking. in the portfolio broadly, so I say Vesely, take a look at this today, the US is a much smaller portion of the portfolio than you might admit, even a smaller portion of economic output global here measured by the gross domestic product, so look at this example, this is the gross domestic product of the world, each of these colors is a continent and obviously we are in North America in red, then there is the Asian block, including the world's second largest economy, China, in yellow and then there is the eurozone in green, the United States today in 2017, only twenty-four percent of the world's economic output Asia. around a third and growing much faster, much more important, and then the eurozone is also in the green, which believe it or not, is not muchsmaller than North America, so make sure you invest globally.

I am a sports fan and therefore I like others. Sports fans may have spent too much time watching ESPN on TV the other day. I'm watching and one of the sportscasters says he's criticizing a team that calls the fans home runs because they spent so much time following their local club that they've lost all their objectivity. They don't see the team's flaws so I see this in the wallets of The US is always full of American names the problem is that it does not represent the world seventy six percent of the business world is outside our borders so these are my road signs this is our strategy a little different from what you might hear from someone else but you want to invest passively you want to avoid portfolio diversification by holding too many stocks you want to make sure you go both long and short don't just focus on selling particularly your losers instead of buying play the pendulum , a great way to be a modern contrarian investor and don't be my home run, invest globally and I'll leave you with an example to show you how urgent this is if you're a student, can you give up a venti mocha from Starbucks a week?

That's five dollars, maybe you can't, the stock has been doing pretty well or on a Friday or Saturday night, can you cut back? If you go back to the bullshit rule, any one of those will save you five dollars at the end of the month, you'll have twenty if you invest it in the market based on just regular assumptions, it'll be a pretty sweet cup of coffee. When you're 70, Ernest, we'll make 350 grand, if you can give me fifty-eight dollars a month, then you'll be a millionaire at seventy and that's probably worth more than you can make in your career or even what you can make. money with his company-sponsored retirement plan, so people were at the end of the journey.

I will tell you this is not something you can have this is a must it is Saturday afternoon the stock markets closed but on Monday morning the New York Stock Exchange opens at 6:30 Pacific Time and you should be informed . Thank you.