The Physician Philosopher Podcast
MMM 53: Why Hitting Home Runs Isn’t the Best Way to Generate Wealth!
A lot of people have this misconception that in order to invest successfully, you need to be hitting all of the home runs. This just isn’t true.
You’re going to have strike outs and close calls. Overall, it’s a long game. There will be ups and downs and that’s okay! You can take big risks, but you can also achieve those money goals from hitting singles.
Keep on listening to learn why it’s not just about hitting the home runs in your journey to generate wealth.
Today You’ll Learn
- Why personal finance is actually a lot like baseball!
- How you’re going to have a lot of hits and misses (but the misses aren’t that big of a deal).
- Why you need to take big risks!
- Why it’s okay to just be taking small steps too.
- And more!
- You Can’t Have Home Runs Without Strikeouts
- SPIVA Statistic & Reports
- The Effect of Myopia and Loss Aversion on Risk Taking: An Experimental Test
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Jimmy Turner 0:00
Personal Finance is a lot like baseball. All anyone talks about are the homeruns they hit what's not really true or hitting homeruns really the best way to build wealth? Keep listening to find out.
Ryan Inman 0:17
Welcome to the money meets medicine podcast where we talk all about the personal finance topics you had wished you learned in medical school. I'm your host, Ryan Inman, and here's your co host whose baseball career came to a crashing in, even before it started when he realized he couldn't hit the curveball. Dr. Jimmy Turner.
Jimmy Turner 0:34
Yeah, so that's actually a true story. So I was at, I think, was high school practice. And the coach literally brought out a pitching machine. And he set it on curveball. And he told me, I mean, he didn't throw a curveball and just
Ryan Inman 0:48
said, Oh, it's gonna go this way. Nope. even gave me the heads up.
Jimmy Turner 0:52
Yeah, heads up. curveballs coming couldn't hit it. I love baseball is my first love as a sport. But I can never do that. And baseball analogies are going to continue throughout the show, because why all the shows about homeruns and singles and stuff like that. And so, in the financial world, maybe hitting homeruns isn't the most reliable way, or even the best way to generate wealth. That's what we're gonna dive into today. And we're gonna talk about your own curveballs that you might be throwing yourself. I
Ryan Inman 1:14
went out with a bang in baseball, because I was the kid that had to wear the goggles, I couldn't see like, even the big he think I was bigger than everyone so we could actually make fun of me. But yeah, I hit a homerun and quit the next day, I was like, I'm done. I can't see the ball. I just got lucky hit. I loved baseball, but I wasn't very good at it.
Jimmy Turner 1:32
I never hit a home run. I was more of a singles. I hit one,
Ryan Inman 1:35
one homerun, that's strong. And I was out like triple A or whatever. Alright, before we get in the show, though, here's a quick message from resolve a physician contract review company, then at resolve. They believe that knowledge is power for physicians. And that power gives you control over your financial future. They believe that by mining and analyzing and synthesizing all the data, that they can provide you with the information and insight that empowers you to diagnose the health of your career, fully understand your worth. And honestly maximize your full potential. As a company founded by a doctor for doctors resolves, focus is on the well being of those whose purpose in life is to care for the well being of others. To have this incredible company review your employment contract, find them at doctor podcast, network.com, slash resolve, r ey s o l v. link is also in the description of this show that you're listening to right now.
Jimmy Turner 2:33
So as we dive into this, I got me thinking about baseball. And I mentioned earlier, that's my first love. So I thought that hey, why not talk about Mickey Mantle because that's actually a really interesting story. Mickey Mantle, someone that even if you don't like baseball, you've probably heard of Mickey Mantle, right big name in baseball. This guy was one of the greats. And he actually got demoted because he had a three strikeout game. He was basically striking out at about a 20% raise 18.7%. And that's kind of hilarious if you think about baseball these days, because right now, everyone's obsessed with homeruns. And if you know anything about baseball, you know that if you're a home run hitter, that also means you strike out a lot because you're swinging for the fences all the time. So with homeruns comes a crazy amount of strikeouts. And, in fact, it's changed so much since mantle's days that is 18.7% is not that bad anymore, like 100 of the top 160 hitters in 2019, had a strikeout rate that was the same as his or worse, and they were considered the best hitters in baseball. And that's because basically, the majors changed philosophies to where like the focus was on hitting the home run. And I think that's a super interesting thing. Because the same can be said about the investing world, people love talking about hitting homeruns. They love it. If you are in the doctors lounge or chatting it up about people stuff, or even looking on social media these days. I can't scroll very far without hitting some posts about Tesla or Bitcoin or what have you. And it's because people love talking about these raging success stories. And I'm not really sure if it's more because they want to talk about the money that they've theoretically made. Or just to put it in people's faces that they didn't jump on the same train. But it really just kind of begs the question like is hitting home runs and personal finance really the way to go? And if not, why not? Should that be our focus? That's what we're gonna talk about today. So I'm excited to dive into this topic and kind of dive into this more because this is a favorite pastime of people is just bragging about how awesome they did when they picked that one stock.
Ryan Inman 4:26
Well, it's the behavioral finance side of this too, but also just human behavior. You like things that make you excited and happy and you want to share those with others and things that make you upset or have anxiety and things you keep more personal and most of the time personal finance with your expenses. No one goes out. It's like Jimmy, I just saved $48 when I did my budget, and I realized that I spent $40 less on my entertainment than last month. like hmm, no one says that, right? That's not fun. It's not sexy. And it's talking about expenses in something in terms of personal life. Since the budgeting side that everyone, it's called dreaded B word, no one wants to talk about it, and confronted. But if I said, Hey, Jimmy, I actually put $500. And I did an option on Tesla. That was like, out of the money. And now it's like, not only in the money, but I am like making a crap ton of money, I turned 500 to 25,000. Right, I'm probably going to tell everyone in the world like how smart I am, quote, unquote, because I took an insane amount of risk that probably would have resulted into a complete loss, a, you know, 95 or more percent of the time. But that was the fun, sexy thing to talk about. So I think part of this in the way I'd want to frame the conversation and Jimmy kind of chime in with how you'd like to phrase this. But I think there's things that when we look at personal finances, we should all be hitting singles, and maybe the occasional double Yes, you might have a strikeout that might occur, that's okay, you might lose some money, right? You know how the disclaimer is that you hear that past performance does not guarantee future results like it doesn't at all. But when we look at this, you shouldn't be swinging for the fences. And right now, I think this is a fantastic and we've had this plan, by the way for months to talk about this show. But I think Tesla and Bitcoin have really accelerated what we're seeing in our Facebook feeds and Instagram feeds, whatever. And I think this is a perfect time to talk about these specific things on those that are taking a think way too much risk. And honestly, their investment profiles should look like compared to what the portraying in the public eye.
Jimmy Turner 6:27
I think it's the analogies, interesting singles in homeruns, just in that with homeruns, you're gonna have strikeouts, you're swinging for the fences, you're gonna pick some things that don't work out. And with singles, the idea that like you just keep hitting a single after single after single after single, with much higher rates of success, and potentially over a longer period of time score more runs. And the reason that I like this concept is because this is my bet, right? Like I love behavioral finance and psychology, but like personal finance is 20% math and 80% behavior, like I am just more and more unconvinced of that. And if anything has changed, maybe it's 10% 90%. The math is honestly not that challenging. But when it comes to making decisions about investments, one of the reasons I've always focused on things that are more proven or a short bet, as opposed to taking risky homerun type investments is because I know that our brain works with myopic loss aversion happening all the time. Like you hinted at this earlier, we really like to talk about the things that go well, and we really hate, hate hate, like we hate twice as much as losing as we do winning. And so this idea this concept, myopic loss aversion actually comes from Amos Tversky. And Daniel Kahneman and Richard Taylor's work, and they had a study in 1997. They looked at this, and this isn't just like me, like talking off the hip like, this is something they studied in finance. And they basically asked the question like, hey, if you check your portfolio more often, are you going to do better or worse, and directly from the abstract, they say, the investors who got the most frequent feedback. In other words, they checked it the most, and thus, the most information took the least risk and earn the least money. And it's a fascinating thing, because what I'm getting at here is, how often do you think you're going to check your phone to look at Bitcoin, or Tesla, or any other individual stock that you're investing in, as opposed to taking a broadly diversified approach that's just not sexy or exciting, you are much more likely to check your portfolio when you start trying to hit homeruns. And I know that since money, personal finance is 80% behavior, that's not a good thing. So if you're going to try to start hitting homeruns man, you better have a coach, you better have a therapist, you better have every sort of mental health help you can get to create a situation where you're not going to sell stuff when it goes down. Because that is what people do. That is the way our brains are wired. And because of myopic loss aversion. So I think singles have always been sexy to me because it makes it easy to ignore. And I think that's important, but today's day and age with social media, like you're hitting that earlier on with all these cryptocurrencies and all these other things, it kind of makes it hard because even if you want to ignore stuff, like you're still seeing it from other people,
Ryan Inman 8:56
yeah, that's the Facebook lifestyle, right? You go on Facebook, you see everyone's perfect lives. You're like, Oh, I'm like in the trenches here. This is tough with our kids in the pandemic and my wife working at the hospital and all these things and I see everyone else's Facebook feed and it's all these rainbows and sunshine, it's not Are you just getting a filtered view, the same thing happens when you look at it from an investment perspective. Very few people unless they're nerdy, like Jimmy and I are going to go off and put in their Facebook newsfeed man, I am so excited that I made point 7% today in the market because I am in passive index funds. Like I said, Nobody ever right? But guess what, the dude or gal that is leveraged along and using margin and our trading options and is like neck deep in Tesla or Bitcoin you will hear them scream from the rooftops that they made a crap ton of money, but they fail to tell us if they weren't in the money on those options that would expired and gone to zero, right? That is not investing. This is like casinos are closed. So eff it, let's throw our stimulus money into the lottery or the cycle of what's the flavor of the month in the investing topic, and they're gonna use leverage and crazy and but it's not investing that is speculation.
Jimmy Turner 10:15
And I think that's important to define because I do have friends, I don't do this personally. And Ryan, I think you do this actually, where you have a certain amount of money that you play with. And it's like, just fun money, gambling money, if that's what the money is, for, by all means, like I do the same thing. Like when I go watch a movie, I'm spending money to go have fun, I'm going to Vegas, I'm definitely going to play Texas Hold'em. I love playing cards, but I'm not gonna put $500 on the table and consider that investment. Those are different things. And so when we're talking about singles and homeruns, we're talking about with money that you plan on investing for your future for retirement for future savings goals, and the money that you're going to need someday, not speculation and gambling, those are different things. Now, if you want to speculate, you want to gamble and want to have a pot of fun money, by all means go all and do it. No big deal. Just don't do that with the money you're planning on having 30 years from now.
Ryan Inman 10:59
So I think we need to define a few kind of terms, because even you and I might be different in this Jimmy but are defined singles. I the way I look at this is look simple, simple personal finance right here, your income minus your expenses has to be greater than zero, right? Because that means you're saving something. fact, I think everyone should be writing down their goals. From a very simple standpoint, take the emotional side, what is it that you want to do? Why do you get out of bed every single day? Right? What is it that you're building towards? What's that ideal life look like? Great, you've done that. Now you're going to put together hopefully a financial plan, and you're going to have part of that plan is going to say, Well, my income minus my expenses equals something, whether that's too much too little, that's up to your plan to decide and what you're trying to do with your goals. But let's just say that number is $5,000 a month that you can go save towards investing and other things. Well, there's pieces of that money that should be allocated to more safer or more riskier investments. Depending on your risk tolerance, there's a need to take risk and your ability to take risk hitting singles to me, and I'm throwing this out here, this is not investment advice, please don't take it as really crappy entertainment. Okay, that if let's say I'm an 80%, stock 20% bond investor, that if I'm going to put my money to work for me, I know that 80% of it is going to end up in stocks and 20% is going to end up in bonds. And when I look at my stock allocation, that I have followed this index investing, passive investing, where I'm highly diversified, low cost index funds that not only just own US stocks, but own the entire world, I want to be invested everywhere. And there's debates of how much international versus us Honestly, it doesn't matter. But let's just say you've broken this all on your investment policy statement. This is the stuff that I'm looking at hitting singles. When money comes in, a lot of it gets deployed to the right, specific things. There's something called diversification. This is what we talked about passive investing, that you're going to own not just one stock or one sector because Tech's doing so well, now that everyone's locked down in quarantine, I'm going to shove all my money in tech, no, no, no. Right. That is one sector out of many sectors. That's why we're diversifying across all that. But there's other forms of diversification and specifically talking about like alternative investments, some people view real estate inside there, some don't. Right? Definitely what belongs in there, though, is something like Bitcoin, right? Or something like I'm going to go invest in wine that belongs in an alternative. And that should be a very low percentage of your portfolio. But it is okay to have more risky wild, even somewhat speculative stuff in that alternative space. But that is not 1020 50% of your net worth and your investable assets. So if you're one that wants to invest in Bitcoin, awesome, I don't care if Bitcoin was the $3 or $42,000. If you're investing in Bitcoin, it should be a very, very small percentage of your net worth. And you should also understand how the damn thing works. And if you can't explain it to your spouse or to appear, that is knowledgeable and say, This is what it is, this is why I'm investing. This is what I believe in, you have no business investing, and I don't care if it's Bitcoin or wine or whatever it is, you need to be able to explain what you're investing in. So if you can't explain blockchain technology, or mining Bitcoin, or the various things involved in it, if you can't explain it, how you would go buy a multifamily property and start investing it if you can't explain how single family properties or syndications or investing in storage or any other thing that comes out, you can't tell me about the company, you're going to go and try to hit it pre IPO and you can't tell me what that company does specifically, or if you're going to buy an individual stock. And you can't tell me everything about that specific company because that also I think, is very speculative. You're going to put a whole bunch of money into Tesla, if you can tell me everything Tesla does. Great. But again, speculative belongs in that very, very small place. percentage of your net worth not 20% of your net worth and definitely not using leverage or margin, or it's definitely not taking options and trading options. It's it's not I don't even care about the interest rate, some people say I can take out margin and it's got such a low interest rate, it's like you're still leveraging, and you're still using debt to do that. And, again, if you want to have it be very speculative, and a very small percentage, think anything is okay. But it's going to be 1% of your net worth.
Jimmy Turner 15:28
So to back up and redefine some of those words, so and when Ryan's talking about using leverage, he mentioned by using debt. So that's what some people do with this, not only do they do speculative or risky gambling sort of investment opportunities, but they do it on debt money that they don't have, that they'll owe back to someone else. So that can get as you can imagine, potentially dangerous very quickly. But I do want to just mention one thing, Ryan, which I think super interesting, because index funds, for example, like you mentioned earlier, there's still stocks, there's still risk involved. And I think what people have gotten down to because speculation and social media and sharing has made everything so easily accessible in terms of what people are doing, and the sexiness of everything that we now view index funds in equities and stocks, which are risky, as like this just completely unreal ski thing that like doesn't have any chance of losing money. And it's just the boring old way to invest. And so I just find that fascinating that a lot of our perspective on these things have changed so rapidly, just with the information age and social media.
Ryan Inman 16:29
Well, the volatility has caused that right when the Federal Reserve looks at everything they've printed over hundreds of years, even digitally. And in one year 2020. They increased our money supply by 24%. There's more money sloshing around, there's more volatility happening. I mean, look, we dropped 30 something percent in 30 days in March, and then rebounded up and finished at all time highs because the volatility is crazy. But there was just more money sloshing around and more institutions being able to do but when you look at something that is now mainstream, and I actually think the volatility is decreased quite a bit with Bitcoin, back to at one point it was down like 90%, like when it was trading at $20 and then dropped to $4, or whatever it is, that's insane, vaulted, it might not seem like much, when you look at it now at 40,000. And it moves to 30,000. That is 30%. That was all one movement in March, they were like, Wow, that is some volatility and stoneware, that's two days or a day. I think people are getting desensitized. It's kind of like they're with debt, you become debt immune, when you have so much in student debt, you're like, well, EFF it, what's one more thing on top of this, let me go toss my car into that and leverage it, because I have so much already. And that's part of what we're seeing in the investment philosophy around risk.
Jimmy Turner 17:42
Yeah, and it's actually interesting, cuz we did a study that it's submitted, but not published yet, that we did awake, actually. And we saw exactly that it was crazy. And our residents and fellows, that their financial literacy rates on the quiz that we gave them would go up, and up and up and up until it hit a point at which, you know, I guess you could argue they became apathetic because they became debt numb, and their literacy scores actually started to drop again. So it was a curve where as you gain more debt, you might start to care more about it become more knowledgeable about it. But then after you pass a certain level, all of a sudden, you probably for just mental health, sanity, like you just stopped caring as much and became apathetic about it. But I think having conversations about these perspective are really important, because we're talking about singles and homeruns, and personal finance. And I find it really interesting. I started reading, I haven't finished it yet, but Morgan housel, his book on the psychology of money, and he talked about something that I just never really thought about it this way, but retirement and how, like 100 years ago, 1920, people didn't retire, they just kept working until they die. And so like this idea of retirement, like if you think about the 1000s of years that humans have been around, it's only in the last 50 or 100 years that this idea of retirement has come out, and how rapidly like, you know, 50 years ago, it's okay, 65, that's a reasonable age. And now it's like there's this fire community. And if you're not retiring at the age of 21, like you're just so far behind. And I think it's interesting, because I wonder if any of that is driving this desire to hit homeruns. Because people are saying, I'm unwilling to wait until age 65 or 60, or 55, to retire and they feel this need or this urge to get there faster. Because our views our perspective have changed so rapidly from 100 years ago, not retirement not even being a thing to now where it's like, if you're not firing by age 50 like you're missing out,
Ryan Inman 19:27
you failed at this because you didn't retire then. I don't know. I like it. It is a lot of the people in the fire community that are at least vocal are very knowledgeable. And I think I've done a lot of research and they're not taking and swinging for the fences. It's the ones that and I don't have data to back this up. But I just can tell just from some of the posts and things I've seen that they are trying to take too much risk and into getting where they're at now they're doing some of the right thing, but I think they're still swinging for the fences in a in a big part of their portfolio that they probably shouldn't and it's because Because it comes, I think it comes back to this emotional decision making, when you see all the things around you that are happening. And I think the fuel in the fire actually is these Bitcoin millionaires, right? These IDs that were trading Bitcoin for dollars and $8 and $20, and now have 10 1530 $50 million wrapped up into bitcoin. And I think the fire community are seeing this and going like, I've busted my butt, I'm working in jobs, I don't even necessarily like I am saving 60% of my income. And I'm nowhere close to that. So how do they get closer, they take more risk, right. And right now, because the fire movement is still I think, relatively new. And I think that since definitely since 2000, but let's call it since 2009. We've been in this massive bull market. So the more risk you took, you were rewarded, but you were like really rewarded and you couldn't lose, it was very hard to lose money. If you just bought something and never sold it didn't matter what it was, it could be honestly a crap company, everything has gone up, it's throw a dart at a dartboard and hit a stock, you could have been money, very few didn't make money in this massive Bull Run. So I think they've been conditioned now and trained that more risk is more reward and that it always is worth
Jimmy Turner 21:16
Yeah. And Howells book dives into that exact concept. Like it's crazy. He has a quote that is interesting where it's he's basically talking about, and he puts like seven zeros behind this, I don't know what number this is, but point 0000, whatever 1% of your life's experience is the entire world's life experience. But your one life experience probably makes up 99% of what you think about money. And it goes to show that were like people who lived during ages when interest rates skyrocketed, have very different views on bonds, for example, than people who were born into a generation that had the opposite situation. So depending on which generation you're born into bonds might be a great wealth building vehicle, or they may be worth nothing in your view. And it has a lot to do with the age in which you grew up that the decade in which you grew up.
Ryan Inman 22:00
And I think a lot of people listening are in that decade or just outside of it because Jimmy and I are in our mid to late 30s. And when we look at our parents, and when they first bought houses, or were able to buy houses, their interest rates were like 16%, or maybe even a little higher, I think Taylor's parents were paying 18% right now, the cost of the house is much, much smaller. But that's insane. To think about, right? When I bought our first house, I used a physician mortgage, and I had it 3.5% for 30 years, that is a very, very different outcome perspective. And so I think a lot of people listening are looking is like, Well, I know bonds are safer. So I'm going to put some money there. But I want to be more aggressive, I want to be more leaning towards the equities. Because bonds don't pay me anything. Why am I over there playing with those. And it's not the right mentality to have. Not everyone needs to own bonds. And we've talked about before, I don't physically own bonds in my portfolio. But I have what I look at as a bond proxy. And so I every month pay more towards my house, even though my rate is super tiny. I would much rather do that. Because I want to get out of having debt on my house faster than I am trying to conserve or have my wealth appreciates in bonds. Now bonds is more conserving stocks are more about appreciation and growth. And I look at it as that if I put money into my house, I live in Southern California, real estate market is usually very strong here even during the big housing crisis. And oh wait, maybe it was down 20 25% compared to Vegas, that was down 65%. So I think there is some downside, but I'm willing to risk the downside, to continue to try to pay it off faster. That is me specifically. Again, this is not meant for any of you out there listening. You need to have your own portfolios, your own risk tolerances. And I think honestly, almost everyone listening should probably have some bonds in their portfolio. But how much is really specific to the person. But I think coming back and doing this with a level head and being framed from the perspective of like, I don't have to hit these homeruns most of you listening are going to be earning way more than the average American pretty much everyone listening is going to be there. But even some of you that are in high paying specialties. I have clients that make a million dollars a year in their head, they think that they need to hit these home runs and invest in crazy things like oil and gas and hard money lending.
Jimmy Turner 24:29
And you know, I'll point you back to the episode that we talked about where everyone's got a plan to they get punched in the mouth, right? Like, oh, Mike Tyson, and good old Tyson iron Mike. But yeah, I mean, think of where we're at is I don't know when it's gonna happen. I don't know when the next sustained prolonged recession correction bear market is going to happen. But what I will say is that all of these people who have these huge risk tolerances in their mind are going to find out that they don't when that happens, and the more speculation the more homeruns you've been trying to hit when that happens. The harder it's going to be to hang on to your hat. And to stay, of course, and to not pull money out of the market, you're going to start timing the market, you're going to start trying to jump in and jump out at the right time. And that my friends is a psychological and financial nightmare, like there are very few things that you can do that are more financially catastrophic than time to market, because we're not good at it. And it's just a fascinating thing, because we happen to be born into this period where for the last 10 or 12 years, the markets been on a tear that places us in a situation to have certain perspectives and thoughts about money and about investing and about finance and about debt. And our risk tolerance, that we may not have had we been born in the the 10 or 15 years prior to this. So you have to recognize that matters. And that the risk tolerance you think you have right now, you might find out is very different. When that first correction happens, you know, for sustained bear market happens.
Ryan Inman 25:53
One thing that won't be different, as you'll hear this, it's different this time, it is not different this time,
Jimmy Turner 25:58
the four most expensive words and personal finances this time is different. It's not, it's never going to be different. Yeah,
Ryan Inman 26:04
maybe the catalyst of something is occurring. But in general terms, like it's not different. Now we are in somewhat uncharted territories. And I think you will listen to whether it's the news, you're reading blog posts, you're listening to other podcasts or YouTube, whatever it is, you might hear some things that we are in some different times. And we are right, we've never had a Federal Reserve that literally increased money supply by 24%, and is committing to increasing this in keeping rates at literally zero, for as long as they technically need. They don't want us to hit into a prolonged recession or depression. And so they're going to try to get us out any way they can. But trying to jump ahead and either fight the Fed, that's stupid, don't short market, even if you think that is the case, just don't do that you will pretty much lose every time. Because they can go on forever, and you can't remain solvent forever. But also trying to be cute and trying to figure out well, where is all the money going and how is it flowing, you will end up taking way too much risk, you're gonna end up speculating too much, you're going to end up trading too much, you're going to end up thinking more than you do, which usually results into I think I know where the market is going, therefore, I'm going to trade in a certain pattern or way, and you don't, because if you did, people would pay you literally hundreds of millions of dollars a year, you would be managing billions of dollars a year in funds. And everyone would be putting money with you because you knew what happened, and no one else did.
Jimmy Turner 27:32
And that's the exact thing that I like to tell people when this conversation comes up about picking individual stocks. I always tell people like if it was that easy, all of these active fund managers who get paid to do just that, they would be crazy successful, like these people would be raking it in because they are able to beat the index for whatever we're talking about large cap, mid cap, small cap or total market. And we know based on good research that greater than 90% of the time over a 15 year period, they don't do it. So if it was that easy, why don't they do it. And in addition to that, you're a busy hard working doctor. So if they can't do it full time with all the research infrastructure that they have, beneath them, you know, which is worth millions of dollars of research goes into this stuff, and they still can't get it right. How
Ryan Inman 28:15
are you going to sit on your iPhone in the doctors lounge and research a company well enough to pick the one that's happens to take off all the analysts that they have working for him and these big, beautiful buildings, and they have floors, I mean, these headphones are massive or other funds are massive, and they have all these people in the quants. And there is close to they can get to the stock exchange so they can basically trade as quick as they possibly can and execute in front. Robin Hood got a whole crap ton of slack, because they were selling market data and trades to these firms that were jumping in front of the Robin Hood traders and they're trying to make money off of the trades coming in just the momentum between it, there's so many different ways that people are trying to jump ahead and create their alpha create their extra return that you will never be able to create. And they're still not that successful. You take that study out that we're talking about kind of Nobel Prize winning research. And they said over a 10 year period, the active investors will only beat the market less than 10% of the time. But that's for one fund. Think about how many people not only own one active fund, but they own a dozen active funds, that rate goes from like, let's just call it 10% can beat it down to probably one or 2% is actually going to outperform the market. It's silly and you're paying them a ton more money to do that.
Jimmy Turner 29:30
Yeah, I think it's super important to mention too, because we're talking about hitting homeruns. And you might be listening to this and be like well, I can't hit a homerun. Yeah, but how often can you hit a homerun over and over and over again? Because the second question is, okay, great. You beat the market. What's the chance that this fund that has beaten the market over X number of years, five years, let's say five years because of research on that? You beat it over five years? What is the chance that is in the top quartile? Again? The following five years answer my friends is like 10 to 20% so So great, like Ryan saying, like you picked one fun, actually, you're investing in 12. And in addition to that the 12 funds, you have have a greater than 90% chance of not beating the index. In addition to that, even if they do, there's an 80% chance that they're not going to do it the next five or 10 years. So like, the idea of hitting a homerun is not really what we're talking about, we're talking about stepping up to the plate, and hitting Grand Slam after Grand Slam after Grand Slam. And that's just not really what happens. Now people talk about it, that's what happens. But that's not the way reality works out for the vast majority of people. So not only can you not hit a home run, but you're probably not gonna do it every time you step up to the plate.
Ryan Inman 30:35
And if you did, please get a hold of Jimmy and I LS now, we would love to chat with you. Because we would love to piggyback off those trades. Joking aside, if you think out of all the millions of investors in the world, most of you can name one person that can hit home run after home run after home run. And that's Warren Buffett, how many Warren Buffett's are there in the world? Well, there's only one technically I get that. But maybe there's a few people 234 people that have actually been able to hit several home runs in a row. And it'd become extremely famous, incredibly famous for what they've been able to do. And even they're turning around going like we got lucky. We did this over time. Yes. And we've utilized these cash flows and to buy more of these things we've done great. But Warren Buffett literally is going well, when I pass away all the money that we have isn't staying here, it's going into the s&p because no one is going to be able to recreate what I did, because I'm Warren Buffett. And I was able to see and do this, but it's not able to be recreated. So why as all of us tiny little piano investors down here, think we can be Warren Buffett, it's a joke.
Jimmy Turner 31:40
Yeah. And the only other person I can even think of that belongs in that conversation is Peter Lynch, who ran the Magellan fund for like 13 years and beat the market time and time and time again, running that fund. But at the same time, like it was 13 years. And so you could argue that had Lynch stayed in for another 20 years that he would have reverted back to the mean, like every other fund. And so that didn't happen, because for whatever period time and I would argue for Warren Buffett, it's a little bit different when you buy like 50% of the company, become the majority owner and then have a say and how it's run. And I would argue that Warren is just as good of a businessman as he is a stock picker. And so he ends up running a lot of these companies and having a say in what their business dealings, how they happen and what they do. And so that's not the same thing as like you picking a stock, like you're not showing up to the board meeting and saying, Hey, guys, we're making a change in trajectory in terms of where we go like Warren Buffett, it's a different world around the Warren Buffett, he also just isn't buying like the common stock, he's getting preferred. He's going in and negotiating like sweetheart deals, he comes in and bails out the bank. Well, he's gonna be on the debt side, but it's convertible. And non callable means like, the company can't go, Oh, yeah, Hey, good pick,
Ryan Inman 32:42
we're gonna pull it back. And you only gonna make this much. He basically controls what they do, and how they do it with the instruments that he's putting together, he's not just going to be like, well, gonna buy Bank of America today. And like, types it into his little e trade account. That's not how this works. Like, he's obviously buying in millions and millions of dollars. But he's also contacting them and being like, hey, look, I'm going to do this, I'm going to take this position, this is how this is going to work. Right? It's very, very different than any of what we could be putting together. So to wrap this up, I think when we look at it in terms of singles versus homeruns, and maybe there's some doubles in there, because maybe the market ends up rebounding, maybe you got a lump sum, a nice bonus, whatever you put it in the market, and it doubled in a year or two. Because the overall market had done really, really well you time to bottom to a top grade. That can happen. But in terms of singles, it's being responsible, maxing out your 401 K's, your four, three B's, your IRAs, your HSA is setting up a taxable account. And the way that you invest those accounts are in low cost, highly diversified index funds. That's your hitting singles. I'm perfectly fine with anyone that I know and talk to you. If you said, Hey, Ryan, I really want to have a little bit of real estate. Cool, I think a certain percentage of your portfolio, probably single digits, sometimes double digits depending on if you have connections you work in and your spouse works in or whatever to maybe something like real estate, even if you want to say hey, I want to gamble on Bitcoin or Hey, I want to buy a little gold or Hey, I want to, I think Silver's gonna go to the moon because of blah, blah, blah, whatever. Take 1% toss it in 1% if it goes to zero, you're going to move on with your life and all those singles are gonna keep hitting singles. Right and if Bitcoin 10 X's from here and goes to $500,000, great, get 1% in and at 10 x's and it's worth quite a bit more just keep trading in and rebalancing as we go along. But great, you made a great call tell the world who cares. But please don't take 50% of your net worth and be like YOLO go into bitcoin see how this works. And I pick on Bitcoin because that's like the flavor of the month right now. I don't care if it's Tesla, Apple, Google, Netflix, any one of the Fang stocks Facebook, I don't care if it's Bitcoin or cryptocurrencies or real estate or wine or farmland or whatever the hell you have. Take a small percentage, and treat it as diversification. But once you get above one or 2%, that is heavily speculating. And I would expect those things to be extremely volatile. And just be really, really careful.
Jimmy Turner 35:13
Yeah, and I'm just gonna round it out by saying that if you feel like you need to do that, because of FOMO, and the fear of missing out, just do some work and try to figure out, like, what is the reason that you really want to get into that stuff. And if you have part of your portfolio doing it, great, I think it's great. But also recognize there's nothing wrong with just hitting singles.
Ryan Inman 35:32
Absolutely nothing wrong with it. But if you do have FOMO, and let's pick on Bitcoin, again, for a second, if you have FOMO. And let's say yeah, guys, I know, I should probably understand what this is. But like, I don't want to spend the time what I just want to jump in, I want to play the momentum game. Fine. Well, 1% in and if it gets cut in half, you're gonna learn not a very expensive lesson, but you're gonna learn a lesson. And that should teach you on Hmm, maybe I shouldn't be doing this. Like, maybe I should research because you're gonna see the price move that stuff is super volatile, which is fine, inherently, that's what it is. And there's tons of new data and research coming out. And lots of big institutions are actually backing it. But you still need to know what you're doing. But if you aren't going to listen to us, listen to the one thing I say here is, if you're going to do it, just don't put a lot in 1%. Treat it as a diversification play. It is honestly speculation, but kaput, don't let this go crazy. Don't let your emotion go nuts, and go everyone's doing all this stuff. The more emotional decision you make the higher probability and possibility that you're investing something one that you don't understand, too, it's probably too aggressive and three, you're probably gonna lose money.
Jimmy Turner 36:38
Totally. Well, before we end, let's give you the link for our sponsor. Again, if you need help reviewing your employment contract before you sign reach out to a company with great online reviews and a reputation for doing that and more find resolve at Dr. podcast network.com slash resolve, that's r e s o l ve to get the review process started today. You can also find that link in the show notes before we end time for that important disclaimer. All right, everybody. Thank you so much for listening. We appreciate you tuning in and hanging out with us each week. Send your thoughts, comments, questions concerns our way. If it's a good comment, send it to me if it's a bad comment, Senator Ryan? Well, well, well, well, well.
Ryan Inman 37:15
I think you saw that in reverse, sir. Sure. Okay. Anyway, we look forward to next week deleted. So it's all good. Oh, I'm kidding. We love all of you. Thank you so much for being here. And please share this podcast with other physician families so we can nerd out with them. help them understand money. Who knows, maybe they'll learn a thing or two. So have a great week and we'll see you on Wednesday. Cheers. Take care.
Jimmy's daughter 37:41
My dad Dr. Jimmy Turner is a practicing anesthesiologist. Mr. Edmund is a fee only financial planner, you should know that this show is not personalized financial advice for you. In fact, this shows only for your general education and entertainment purposes. So keep listening to learn how to become a three yourself and Joker or go find a great fee only financial planner like Mr. Edmund to create a personalized financial plan.
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