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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 30: The Economically Irrational Investor Preference for Dividend-Paying Stocks.
LEARNING: The dividend policy is irrelevant to stock returns.
“Stock prices tend to rise in the month before they pay the dividend, because dumb retail investors overvalue dividends, and then they tend to revert back after the dividend gets paid.”Larry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 30: The Economically Irrational Investor Preference for Dividend-Paying Stocks.
Chapter 30: The Economically Irrational Investor Preference for Dividend-Paying StocksIn this chapter, Larry discusses why many investors prefer cash dividends, especially those using a cash flow approach to spending.
Larry explains that experts have established that dividend policy should be irrelevant to stock returns, which is supported by historical evidence. Stocks with the same exposure to common factors (such as size, value, momentum, and profitability/quality) have had the same returns, whether they pay dividends or not. Despite theory and evidence, many investors express a preference for dividend-paying stocks.
The fallacy of the free dividendAs Larry explains, investors tend to assume that dividends offer a safe hedge against the large price fluctuations that stocks experience. However, this assumption ignores that the dividend is offset by the fall in the stock price—the fallacy of the free dividend is a common misconception in the investment world.
Larry adds that stocks with the same “loading,” or exposure, to the four factors (size, value, momentum, and profitability/quality) have the same expected return regardless of their dividend policy. This has important implications because about 60% of US and 40% of international stocks do not pay dividends.
Thus, any screen that includes dividends results in far less diversified portfolios than they could be if they had not included dividends in the portfolio design. Less diversified portfolios are less efficient because they have a higher potential dispersion of returns without any compensation in the form of higher expected returns.
Taxes matterLarry notes that what is particularly puzzling about the preference for dividends is that taxable investors should favor the self-dividend (by selling shares) if cash flow is required. Taxes play a crucial role in investment decisions, and understanding their implications is essential for making informed choices.
Even in tax-advantaged accounts, investors who diversify globally (the prudent strategy) should prefer capital gains because the foreign tax credits associated with dividends have no value in tax-advantaged accounts.
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I, Coffee: The Capitalist Miracle Behind Your Morning Cup
I am the cup of coffee warming your hands right now. A simple drink with a story no government could brew. My journey from a cherry on a tree to your morning ritual is a testament to freedom, ambition, and human ingenuity.
I exist not because of a single plan by a government or business but because of countless decisions, risks, and exchanges made by individuals and companies.
I am the child of voluntary trade, fierce competition, and the pursuit of profit, all working without a master plan. These forces grow me, move me, roast me, and deliver me to you.
No single person could make me from start to finish, yet billions of cups like me are made every day.
Private ownership gives rise to ambitionI began as a cherry on a small farm in Costa Rica, grown by Manuel. Because he owns the land, he has reason to think long-term, studying prices, testing new methods, and planting varieties that take years to bear fruit. He’s not just farming for today; he’s betting on tomorrow. That’s what capitalism rewards: patience, planning, and the courage to take risks.
Manuel’s commitment to tomorrow propels his green coffee bean across borders, where profit and competition transform local harvests into global goods.
Profit connects personal effort to progressOnce picked, my journey begins from fruit to finished drink. I pass through the hands of workers and businesses, each driven by their own needs. No one is in it for love. They’re in it for a paycheck. And that’s precisely the point. The drive to earn a living keeps the whole system in motion.
Profit isn’t greed; it’s survival. Prices tell people what is scarce and wanted; markets change direction overnight. To survive, you adapt. To win, you innovate. That’s how competition works; it’s the quiet engine pushing new ideas forward. In capitalism, you don’t get to stand still. Evolve, and you’ll thrive. Stay stuck, and you’ll disappear.
Trade works without central controlAs I leave the processing facility, my journey goes global. I cross oceans and borders. The people along the way live in different countries, speak different languages, follow different beliefs, and may even hate each other, yet they still cooperate. Peace is the quiet miracle of capitalism. The market’s invisible hand turns individual pursuits into shared progress.
Each region plays to its strengths. Manuel grows coffee in Costa Rica. Luigi builds espresso machines in Italy. They’ve never met, but through trade, they both win. By trading rather than trying to do everything alone, both end up better off.
Consumers determine what survivesAt the roasting factory, experts dial in flavor. The process begins with precise heat control, powered by machines and fuels from distant places. Roasters adjust their methods to meet customer expectations because you, the consumer, decide who wins.
I don’t exist by chance. Every choice, a dark roast or a decaf, oat milk or cream, sends a signal. You’re the boss here. I’m shaped by what you sip. That’s why quality matters. Even minor errors lead to waste, lost sales, and the risk of being replaced by someone who gets it right.
Every job contributes to final valueEach role, from warehouse staff to maintenance teams, shapes the outcome. The technician who calibrates the roaster’s heat, the quality inspector who catches defects, and the logistics coordinator who ensures delivery affect how I taste in the end.
In this system, no task is too small. A green coffee warehouse worker in Indonesia who rotates inventory properly helps ensure I arrive fresh in Denver. One mistake and a competitor gets the next order.
Specialization turns effort into excellenceAt the café, baristas add their expertise,...
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Saknas det avsnitt?
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BIO: Collin Plume, a precious metals expert and serial entrepreneur, helps investors maximize returns with minimal risk.
STORY: Collin inherited some money from his grandmother at 18. When two of his college friends came to him with the idea of creating a TV show, but on the internet, he cut them a check that was way too much than what he should have. The business didn’t work.
LEARNING: If you’re going to make a mistake in something, make it yourself and learn from it.
“If I’m going to make a mistake, I will make it myself. I will put my blood, sweat, and tears into it.”Collin Plume
Guest profileCollin Plume, a precious metals expert and serial entrepreneur, helps investors maximize returns with minimal risk. Founder of Noble Gold Investments and My Digital Money, he champions alternative assets like metals, real estate, and crypto. He is a dedicated family man who prioritizes integrity and client success in navigating complex financial markets.
Worst investment everCollin inherited some money from his grandmother at 18. He did some traveling and a few other things with the money. Two of Collin’s college friends came to him with the idea of creating a TV show but on the internet. In theory, it made a lot of sense. They raised money, and Collin cut them a check that was way too much than what he should have.
Unfortunately, Collin didn’t fully engage with the idea beyond writing the check. He didn’t foresee the potential pitfalls. The business, however, didn’t pan out. Collin’s deepest regret in this investment was not actively participating in the business and learning from it. He lost money and the opportunity to grow as an entrepreneur.
Lessons learnedIf you’re going to make a mistake in something, make it yourself. Don’t give money to someone else to make a mistake on your behalf—they will learn from it, you won’t.Teach your kids how to make money from an early age.
Andrew’s takeawaysFamilies should take it upon themselves to protect the next generation.
Actionable adviceIf you get that opportunity, take it and learn from it, but know that if you invest, you’ll probably never see $1 come back to you. Also, you could jump on the bandwagon of a totally new and exciting idea, but there are some successful businesses out there that you can invest in.
Collin’s recommendationsCollin advises seeking out new mentors in different areas every year. Continuous learning and growth through mentorship is a powerful tool for personal development, and Collin himself has found it invaluable in his journey as an entrepreneur.
No.1 goal for the next 12 monthsCollin’s number one goal for the next 12 months is to train some people to take over more of the day-to-day operations in two of his businesses. On a personal level, he wants to go on one of the big hiking trips he’s never been able to do.
Parting words
“I love this show—everything about it. You’re a great guy to talk to. I appreciate you having me on; it’s been a pleasure to be with you.”Collin Plume[spp-transcript]
Connect with Collin Plume -
In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 28: Buy, Hold, or Sell and the Endowment Effect and Chapter 29: The Drivers of Investor Behavior.
LEARNING: Smart people are humble and able to admit when they have made a mistake.
“As humans, we make all kinds of behavioral errors. Thus, it should not be surprising that we make them when investing. Smart people are, however, humble and able to admit when they have made a mistake.”Larry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 28: Buy, Hold, or Sell and the Endowment Effect and Chapter 29: The Drivers of Investor Behavior.
Chapter 28: Buy, Hold, or Sell and the Endowment EffectIn this chapter, Larry discusses one of the more frequent risk management problems: holding or selling an asset and how the endowment effect affects this decision.
The endowment effectLarry begins by empathetically explaining how the endowment effect, a common behavioral quirk, often causes individuals to make poor investment decisions. For example, it leads investors to hold onto assets they wouldn’t purchase if they didn’t already own them. Whether it’s because the assets don’t fit into their asset allocation plan or because they view them as overpriced, they’re no longer the best choice from a risk/reward perspective.
Larry shares the most common example of the endowment effect. People are often reluctant to sell stocks or mutual funds that they inherited or a deceased spouse purchased. Many people will usually say, “I can’t sell that stock; it was my grandfather’s favorite, and he’d owned it since 1952.” Or, “That stock has been in my family for generations.” Or, “My husband worked for that company for 40 years. I couldn’t possibly sell it.”
Another example of an investor subject to the endowment effect is stock accumulated through stock options or some type of profit-sharing/retirement plan.
How to avoid the endowment effectLarry says you can avoid the endowment effect by asking: If I didn’t already own this asset, how much would I buy today as part of my overall investment plan? If the answer is, “I wouldn’t buy any,” or, “I would buy less than I currently hold,” you should sell. The rule applies whether the asset is a bottle of wine, a stock, a bond, or a mutual fund.
He adds that you should only own an investment if it fits into your overall asset allocation plan.
Chapter 29: The Drivers of Investor BehaviorIn this chapter, Larry discusses how investors make errors simply because they are humans prone to behavioral mistakes. He reviews some of the more common ones to help you avoid making such mistakes.
Ego-driven investmentsIn this type of mistake, investors want more than...
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BIO: Stu Heinecke is the author of How to Get a Meeting with Anyone, named one of the top 64 sales books of all time and the #1 sales book ever written on prospecting.
STORY: Stu discusses his updated book edition, which caused a worldwide stir when the first edition was released in 2016. He talks about how to get a meeting with anyone.
LEARNING: Be audacious and try to get that meeting that seems impossible.
“When trying to get meetings, we have to make human-to-human connections. We must be audacious and surprise people and have them just say, wow.”Stu Heinecke
Guest profileStu Heinecke is the author of How to Get a Meeting with Anyone, named one of the top 64 sales books of all time and the #1 sales book ever written on prospecting. A hall-of-fame-nominated marketer and Wall Street Journal cartoonist, he is known for oblique perspectives and utterly unique strategies for selling, entrepreneurship, explosive growth, and, of course, getting meetings.
Worst investment everIn today’s episode, Stu, who previously appeared on the podcast on episode Ep503: Never Cling to One-to-One Leverage, discusses his updated book edition, which caused a stir worldwide when the first edition was released in 2016. Stu shares how his book has inspired a global community, including the founder of Reach Desk, who raised $48 million in funding, and many others who have found inspiration in his work.
AI and B2B salesStu highlights the transformative role of AI in B2B sales, a significant development that is miraculously changing the landscape. As AI becomes more prolific, Stu believes there will be a clamor for uniquely human things.
He underscores the importance of human-to-human connections and creativity in making audacious and surprising efforts to get meetings in the new AI world, ensuring the audience is well-informed and prepared for the future.
Creativity and overcoming self-doubtGetting people to meet you can be overwhelming, and self-doubt may creep in occasionally. Stu encourages people to make breaking through part of their character. He adds that having a sense of mischief and adventure is essential because if you can’t get a meeting, you can’t sell. Stu urges people to get as good as possible at getting meetings and reaching out to people that they think they would never be able to reach. Just be audacious and try.
Stu also emphasizes the importance of involving assistants in outreach efforts and making them part of the process to extend your reach.
No.1 goal for the next 12 monthsStu’s number one goal for the next 12 months is to get into bodybuilder shape.
Parting words
“One of the best investments you can make is to get good at getting meetings with people that you might think are completely out of reach. Reach out, and you’ll see they aren’t out of reach.”Stu Heinecke
Connect with Stu HeineckeLinkedInWebsiteBooks
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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 27: Pascal’s Wager and the Making of Prudent Decisions.
LEARNING: Use Pascal’s wager to avoid making devastating mistakes.
“You have to think about the cost of being wrong versus giving up on that hope or the ability to brag about how you pick the best-performing stock. Pascal’s wager gives you the right way to think about the answer. And then, you get to enjoy your life much more.”Larry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 27: Pascal’s Wager and the Making of Prudent Decisions.
Chapter 27: Pascal’s Wager and the Making of Prudent DecisionsIn this chapter, Larry discusses Pascal’s wager, a suggestion posed by the French philosopher Blaise Pascal that emphasizes the importance of considering the consequences of decisions rather than just the probability of outcomes.
Pascal’s wagerIn Pascal’s wager, the philosopher asked how we should act when we cannot prove or disprove if God exists. To answer this question, the philosopher said: if a Supreme Being doesn’t exist, then all the devout have lost is the opportunity to fornicate, imbibe, and skip a lot of adult church services. But if God does exist, then the atheist roasts in hell for eternity.
Pascal concluded that the consequences of your actions matter far more than whatever you think the probabilities of the outcomes might be.
Using Pascal’s wager to make financial decisionsPascal’s wager empowers individuals to make informed financial decisions. It encourages us to carefully consider the consequences before accepting the risks involved in case we are wrong. This approach can be applied to a wide range of financial decisions, instilling confidence in our choices.
Buying life insuranceImagine you’re an average 28-year-old. You got married a few years ago and have your first child. Now, you must decide whether you should have life insurance. If you buy the life insurance, you know with a very high degree of certainty for the next 40 years, you’re going to be paying away a premium to the life insurance company and foregoing their earnings that you could get by taking that money investing in the stock market and maybe get a seven to 10% per annum return.
Yet, most people buy the insurance because of the consequences of their being wrong, and they happen to be unlucky enough to die, either through an accident or some disease that wasn’t forecasted for them. Then, their wives and children may live in poverty. And that’s just a consequence that’s not acceptable.
Asset allocationIn another example, Pascal discusses
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BIO: Wes Schaeffer is The Business Fixer®. He sees the message you want to convey but can’t find the words and gives them to you because if you don’t toot your own horn, there is no music.
STORY: Wes discusses the evolving landscape of business and marketing, emphasizing the importance of human connection, trust, and information.
LEARNING: Future-proof your business with trust, strategy, and agility.
“It is time to spring clean your business. Get light, get lean, get focused, and build a legacy.”Wes Schaeffer
Guest profileWes Schaeffer is The Business Fixer®. He sees the message you want to convey but can’t find the words and gives them to you because if you don’t toot your own horn, there is no music. He’s a brown belt in Brazilian Jiu-Jitsu and the president of his HOA, so mow your lawn and pay attention to what this AF veteran, father of 7, and grandfather of three has to say. He’s written a couple of books, spoken around the world, published over 700 podcasts, and was once duct-taped to a bar in Korea.
Join his free 12 Weeks to Peak program designed to help individuals and teams build a life cadence and achieve their goals.
Worst investment everIn today’s episode, Wes, who previously appeared on the podcast on episode Ep280: Do Your Research and Trust Your Gut, discusses the evolving landscape of business and marketing, emphasizing the importance of human connection, trust, and information.
Effects of technology on marketingWes starts the discussion by noting how the salesperson’s role has evolved since the internet came around. Before the internet, he says, salespeople were the keepers of the knowledge. If you wanted to buy a car, you had to go down to the dealership. Now you have CarFax and online shopping in comparison, and you can compare models and negotiate before you get there. People freely share information online, so salespeople are no longer the keeper of knowledge.
Despite the abundance of knowledge, buyers often find themselves in a state of confusion. In the past, this confusion stemmed from a lack of information. However, in today’s digital age, the problem has shifted to an overwhelming amount of information.
This is where the salesperson’s role becomes crucial. As a salesperson, you have the opportunity to step in as a trusted advisor. Your role is to help your customers navigate the sea of information available online, assuage their fears, and instill in them the confidence that they are making the right decision.
The role of trust and information in marketingAndrew and Wes delve into the significance of trust in marketing, with Wes underlining that trust is the cornerstone of purchasing decisions. He points out that despite the advancements in technology, people still crave individualized treatment.
As a salesperson, it’s crucial to ask yourself: What am I doing to connect with the human being on the other side of the screen? This connection, built on trust, is what reassures customers and gives them the confidence to make a purchase.
Wes reminds salespersons that customers don’t want to be treated like numbers, so they should be consistent and congruent in their approach to marketing and spend enough time building trust.
Adapting to market changes and future-proofing businessesWes and Andrew discuss the impact of global competition,...
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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 26: Dollar Cost Averaging.
LEARNING: Invest all your money whenever you have it.
“If you want to put the odds in your favor, which is the best we can do because we don’t have clear crystal balls, you should put all your money in whenever you have it to invest.”Larry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 26: Dollar Cost Averaging.
Chapter 26: Dollar Cost AveragingIn this chapter, Larry discusses why lump sum investing is better than dollar cost averaging.
Should you invest your money all at once or spread it over time?According to Larry, the issue of Dollar Cost Averaging (DCA) typically arises when an investor receives a large lump sum of money and wonders if they should invest it all at once or spread it over time. The same problem arises when an investor panics and sells when confronted with a bear market, but then there are two questions: How does the investor decide when it is safe to reenter the market? And does she reinvest all at once or by DCA?
Constantinides, a University of Chicago professor in the 1960s, studied this question. He demonstrated that DCA is an inferior strategy to lump sum investing. He termed it logically dumb as it makes no sense based on an expected return outcome. From a purely financial perspective, the logical answer is that if you have money to invest, you should always invest it whenever it’s available.
Another paper by John Knight and Lewis Mandell compared DCA to a buy-and-hold strategy. Then, it analyzed the strategies across a series of investor profiles from risk-averse to aggressive. They concluded that DCA had no advantage over the two alternative investment strategies. Combined with their graphical analysis, their numerical trial and empirical evidence favored optimal rebalancing and buy-and-hold strategy over dollar cost averaging. Optimal rebalancing refers to the strategy of adjusting the proportions of assets in a portfolio to maintain a desired level of risk and return.
Dollar cost averaging versus lump sum investingKnight and Mandell conducted a backtest to compare the performance of DCA versus LSI (lump sum investing). Backtesting is a simulation technique to evaluate the performance of a trading strategy using historical data. They backtested the two strategies between 1926 and 2010. Transaction costs were ignored (favoring DCA, which involves more trading). The authors assumed the initial portfolio was $1 million in cash, and the...
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BIO: Elvi Caperonis is a former Harvard University Analyst and Technical Program Manager at Amazon and LinkedIn’s top Voice and a career strategist who has mastered the art of storytelling to create a six-figure personal brand on LinkedIn.
STORY: Elvi decided to be her own boss and started an e-commerce business for which she had no knowledge or passion. It turned out to be a nightmare that cost her $30,000.
LEARNING: If you don’t have passion for something, don’t do it. Happiness and delivering value should be the ultimate goal, not just making money.
“Yes, you want to start a business. But first, sit back and ask yourself, “Will I enjoy this? Is this going to tell the story that I want to live in the world?”Elvi Caperonis
Guest profileElvi Caperonis is a former Harvard University Analyst and Technical Program Manager at Amazon and LinkedIn’s top Voice and a career strategist who has mastered the art of storytelling to create a six-figure personal brand on LinkedIn.
With a track record of helping job seekers land their dream jobs and supporting millions across the globe through her content on Linkedin, Elvi Caperonis has become the go-to expert for those looking to build a personal brand and land their dream job.
The ability to connect with her audience through storytelling and content strategies has made an impact and helped build her brand. Elvi is passionate about helping and inspiring others to achieve results similar to hers.
Land Your Dream Job and Succeed 10X Faster!: Access the same strategies that transformed my career Growth by landing jobs at top companies like Harvard University and Amazon—all for a fraction of the price.
Worst investment everA few years ago, Elvi decided she wanted to be an entrepreneur and her own boss. She discussed it with her husband, who was very supportive. Elvi chose to launch an E-commerce business. She had heard many people say it was a fun and profitable business and believed she could do it.
Elvi took an online course and started learning about E-commerce and how to do it step by step. She did her due diligence. Unfortunately, Elvi didn’t have a passion for E-commerce. It was a lot of work, and it was a nightmare at the end because she was putting in a lot of hours and didn’t turn a profit. She lost about $30,000 in that business.
Lessons learnedIf you don’t have passion for something, question yourself 1,000 times before starting that business. Passion allows you to tell a story that resonates with your customers.Learn from people who have done it before and get a mentor.If you don’t have experience in the kind of business you want to start, don’t go all in; be agile and try to sell a few units of your product, then double down as you continue to grow and adapt.Happiness and delivering value should be the ultimate goal, not just making money.
Andrew’s takeawaysWhatever job or business you start, ensure it’s built around the core thing you do naturally today.
No.1 goal for the next 12 monthsElvi’s number one goal for the next 12 months is to spend more time with her kids, husband, mom, sisters, aunts, and whole family.
Parting words
“Even if you cannot see it now, whatever you are going through will be okay. Just keep reminding yourself of this.”Elvi... -
In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 25: Battles are Won Before They Are Fought.
LEARNING: Be well-prepared for potential disruptions in the market.
“Many investors let emotions drive their decisions, and they end up buying high and selling low—the opposite of what you are doing when rebalancing.”Larry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 25: Battles are Won Before They Are Fought.
Chapter 25: Battles Are Won Before They Are FoughtIn this chapter, Larry emphasizes the importance of strategic planning to anticipate market shocks, which occur approximately once every three or four years. This proactive approach ensures that investors are well-prepared for potential disruptions in the market.
Historical distribution of stock returnsGene Fama studied the historical distribution of stock returns and found that the population of price changes if it was strictly normal on any stock, then a standard deviation shift from the mean of five standard deviations should occur about once every 7,000 years.
The reality, though, is it occurs about once every three or four years in the US equity markets. That means the distribution of returns is not normally distributed. To illustrate this, Larry shares evidence of big fat tails in the distribution. From 1926–2022, in 26 out of the 97 years, the S&P 500 Index produced negative returns. In 11 of those years, the losses were greater than 10%. In six of the years, the losses exceeded 20%. In three of the years, the losses exceeded 30%. In one year, the loss exceeded 40%.
Prepare to live through a big market downturnAccording to Larry, the data unequivocally shows that stocks are risky assets, with risks that are more prevalent than historical volatility would suggest. Investors must be prepared to face severe losses at some point. It’s not a matter of if these risks will manifest, but when, how sharp the declines will be, and when they will subside.
For investors, Larry underscores the importance of winning the big fat tails battle in the planning stage. Successful investors know that bear markets will happen and that they cannot be predicted with a high degree of accuracy. Thus, they build bear markets into their plans. They determine their ability, willingness, and need to take risks.
Larry notes that, on average, prudent investors prepare to live through a big market shock once every three or four years. They ensure that their asset allocation does not cause them to take so much risk that when a bear market inevitably shows up, they might sell in a panic. They also make sure that they don’t take so much risk that they lose sleep when emotions caused by bear markets run...
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BIO: Fabrizio has always wanted to fly jets and has had a career flying both private jets and for various airlines worldwide. He has shared the cockpit with pilots from over 65 nationalities, giving him a broader perspective on people and life.
STORY: Fabrizio invested in a luxury car business in Italy but chose the wrong person to run the show, and because of this, he lost all his money and a very good friend.
LEARNING: Do not mix business with friendship. Hire the right people.
“Business decisions need to be made to make money. If that money helps people as well, great. But trying to mix charity with business is a very bad idea.”Fabrizio Poli
Guest profileFabrizio Poli has always wanted to fly jets and has had a career flying both private jets and for various airlines worldwide. He has shared the cockpit with pilots from over 65 nationalities, giving him a broader perspective on people and life. For the last 14 years, Fabrizio has been buying, selling, leasing, and chartering private jets for the ultra-wealthy.
Fabrizio is the author of “The Quantum Economy” and other books. He often shares his aviation expertise in the media and is featured in the Financial Times, Bloomberg, Social Media Examiner, and Chicago Tribune.
Worst investment everBeing in the private jet business, Fabrizio decided to venture into the car business a few years ago. He figured people who buy private jets also collect cars. Fabrizio teamed up with a friend of his in Italy. The idea was to buy Vespers, Alfa Romeos, and Ferraris in Italy and sell them internationally. They bought a bunch of cars and opened a showroom in Italy on the road where the first Ferrari was driven. However, Fabrizio was in England at the time. He assumed that his friend was doing things properly.
Since the showroom was on a popular road with all these flashy cars parked outside, many people were walking into the showroom, unfortunately not to buy but to look at them.
Fabrizio sent over a web designer to help tweak the website and suggested that his partner let people into the showroom by appointment only. This way, he’d avoid spending 90% of his day talking to people who are not there to buy a car. The friend did not heed his advice, and eventually, the business went under.
Fabrizio had invested in the right business but in the wrong person, and because of this, he lost all his money and a very good friend.
Lessons learnedHire the right people and create a supportive environment for them.Separate business decisions from personal emotions and make independent evaluations.The product and the process can be great, but if you pick the wrong people to run it, they’ll screw the whole thing up.
Andrew’s takeawaysFind an independent, objective, knowledgeable third party to help pick a business partner.Separate the business idea from the person in charge of bringing it to life.
Actionable adviceIf you are going to invest with your friend, you are emotionally engaged, and that’s dangerous. Bring somebody else to play the bad guy, someone who can make tough decisions and keep emotions in check if you cannot take the emotion out.
Fabrizio’s recommendationsFabrizio recommends reading a lot—both fiction and nonfiction—to open up new possibilities and perspectives. He also recommends listening to other business leaders to learn from their...
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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 24: Why Do Smart People Do Dumb Things?
LEARNING: Past performance does not guarantee future results. Change the criteria you use to select managers.
“There are only two things that are infinite, the universe and man’s capacity for stupidity.”Larry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 24: Why Do Smart People Do Dumb Things?
Chapter 24: Why Do Smart People Do Dumb Things?In this chapter, Larry discusses why investors still make mistakes despite multiple SEC warnings.
The past performance delusionLarry explains that it’s normal for most investors to make mistakes when investing, often due to behavioral errors like overconfidence. Being overconfident can cause investors to take too much risk, trade too much, and confuse the familiar with the safe. Those are explainable errors.
However, there’s one mistake that Larry finds hard to explain. Most investors ignore the SEC’s required warning that accompanies all mutual fund advertising: “Past performance does not guarantee future results.” Despite an overwhelming body of evidence, including the annual S&P’s Active Versus Passive Scorecards, that demonstrates that active managers’ past mutual fund returns are not prologue and the SEC’s warning, investors still flock to funds that have performed well in the past.
Today’s underperforming manager may be tomorrow’s outperformerAccording to Larry, various researchers have found that the common selection methodology is detrimental to performance. The greater benchmark-adjusted return to investing in ‘loser funds’ over ‘winner funds’ is statistically and economically large and robust to reasonable variations in the evaluation and holding periods and standard risk adjustments.
Additionally, the standard practice of firing managers who have recently underperformed actually eliminates those managers who are more likely to outperform in the future.
Why Are Warnings Worthless?Larry quotes the study “Worthless Warnings? Testing the Effectiveness of Disclaimers in Mutual Fund Advertisements,” which provided some interesting results. The authors found that people viewing the advertisement with the current SEC disclaimer were just as likely to invest in a fund and had the exact expectations regarding a fund’s...
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BIO: James “Jimmy” Milliron is Co-Founder & President of National Brokerage Atlantic, specializing in Wealth Enhancement, Estate Planning, and Asset Protection.
STORY: Jimmy wanted to invest $100,000 in Bitcoin, but when he couldn’t find an easy way to do it, he bought a car instead.
LEARNING: Research and learn all you can about investment opportunities before investing.
“Don’t be afraid to pick up the phone and make a few calls. There’s nothing like picking up the phone and talking to a real person on the other end instead of just texting them.”Jimmy Milliron
Guest profileJames “Jimmy” Milliron is Co-Founder & President of National Brokerage Atlantic, specializing in Wealth Enhancement, Estate Planning, and Asset Protection. An insurance veteran, he previously served as Executive Vice President at NexTier Bank, building a $400 million premium finance portfolio. He holds a BA from VMI and various securities and insurance licenses.
Worst investment everJimmy’s worst investment is a mix between marrying a second wife and buying a car in 2016. He invested many resources in his second marriage, but it did not last that long.
When Jimmy married his second ex-wife, he wanted to invest about $100,000 in Bitcoin. But he was busy and did not have time to research and learn more about Bitcoin. When Jimmy could not find an easy way to do it, he purchased a car instead with that cash.
Lessons learnedGo the extra mile in research and learning about investment opportunities before investing.Consider all the investment options available.
Actionable adviceIf you’re young, seek advice from a mentor or your parents about what they would do instead of arbitrarily investing in a make-me-feel-good investment. Their guidance can be invaluable in navigating the complex world of investments.
Jimmy’s recommendationsJimmy recommends reading Donald Trump’s Art of the Deal as a valuable resource for negotiation and decision-making.
No.1 goal for the next 12 monthsJimmy’s number one goal for the next 12 months is losing weight.
Parting words
“Thank you very much. Andrew and I wish everyone well.”Jimmy Milliron[spp-transcript]
Connect with Jimmy MillironLinkedInWebsite
Andrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 Points
Andrew’s online programsValuation Master Class -
In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 23: Framing the Problem.
LEARNING: Understand how each indexed annuity feature works before buying one.
“I would never buy an annuity that didn’t give me full inflation protection.”Larry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 23: Framing the Problem.
Chapter 23: Framing the ProblemIn this chapter, Larry discusses how we, as human beings, are subject to biases and mistakes that we’re almost certainly not aware of. He introduces the concept of ‘framing’ in the context of behavioral finance, which refers to how a question or a problem is presented and how this presentation can influence our decision-making, often leading us to answer how the questioner wants us to.
Examples of framingLarry shares the following examples from Jason Zweig’s book Your Money & Your Brain to support the theory of framing in decision-making. These examples illustrate how the same information, when presented in different ways, can lead to significantly different decisions, highlighting the impact of framing on our perceptions and choices.
A group of people was told ground beef was “75% lean.” Another was told the same meat was “25% fat.” The “fat” group estimated the meat would be 31% lower in quality and taste 22% worse than the “lean” group estimated.Pregnant women are more willing to agree to amniocentesis if told they face a 20% chance of having a Down syndrome child than if told there is an 80% chance they will have a “normal” baby.A study asked more than 400 doctors whether they would prefer radiation or surgery if they became cancer patients themselves. Among the physicians who were informed that 10% would die from surgery, 50% said they would prefer radiation. Among those who were told that 90% would survive the surgery, only 16% chose radiation.The evidence from the three examples shows that if a situation is framed from a negative viewpoint, people focus on that. On the other hand, if a problem is framed...
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BIO: Mitch Russo is a serial entrepreneur who built and sold his first software company for eight figures, scaled a $25M business with Tony Robbins and Chet Holmes, and was twice nominated for Inc. Entrepreneur of the Year.
STORY: Mitch bought several Amazon stores to make passive income, which he did for a while. Unfortunately, the lucky streak ended after Amazon significantly reduced the commissions it paid to its resellers, and Google changed its algorithm. Now, Mitch’s SEO pages were not working, and nobody was finding them.
LEARNING: Never start a business without knowing who will buy the product. Try to sell your product/service before you build it.
“Please do not create a product until you understand exactly what the client needs. Try and sell it first before you build it.”Mitch Russo
Guest profileMitch Russo is a serial entrepreneur who built and sold his first software company for eight figures, scaled a $25M business with Tony Robbins and Chet Holmes, and was twice nominated for Inc. Entrepreneur of the Year. He’s the author of four books and the creator of ClientFol.io.
Worst investment everMitch highlighted two particular investments that have left a lasting mark on his life as an investor.
The Amazon storesA couple of years ago, Mitch embarked on an exhilarating journey to create recurring revenue by investing in businesses that required minimal participation. The Amazon stores, a hot trend at the time, became his focus. With significant investments, these stores flourished, and Mitch was able to generate a substantial monthly income of $18,000 to $20,000, almost passively.
Then the whole thing came crashing down. Two things happened simultaneously: Amazon significantly reduced the commissions it paid to its resellers, and Google changed its algorithm. Now, Mitch’s SEO pages were not working, and nobody was finding them.
The peer-to-peer accountability platformMitch created an earlier version of ClientFol.io called resultsbreakthrough.com, a peer-to-peer accountability platform. Mitch had to invent some technology to do it. At the time, the platform worked fantastic.
To succeed with the the peer-to-peer accountability platform, Mitch poured his heart and soul into it. He was deeply passionate about what he had created. However, the platform did not receive the response he had hoped for. Despite his belief in the platform’s potential, it remained unsold, a stark reminder that success is not guaranteed, no matter how brilliant the idea.
Lessons learnedNever start a business without knowing who will buy the product first.Try to sell your product/service before you build it.It’s never over until you quit.Hire a coach to accelerate business growth and learn valuable lessons quickly.
Andrew’s takeawaysSolving a problem is not enough; you must ensure your target customer can pay for the product. Is the pain valuable enough that they’ll pay high enough prices?
Actionable adviceIf you are smart and you can see what’s happening around you, you can make almost any mistake, recover from it, learn from it, and grow from it.
Mitch’s recommendationsMitch recommends reading Crossing the Chasm, which beautifully encapsulates the power of focus.
No.1 goal for the next 12 monthsMitch’s number one goal for the next 12 months is to continue building recurring revenue through internet processes and funnels, a path he is deeply passionate about. Additionally, he is on the verge of publishing two fiction books, one of which he...
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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 22: Some Risks are Not Worth Taking.
LEARNING: Don’t put all your eggs in one basket; diversify your portfolio.
“Once you have enough to live a high-quality life and enjoy things, taking unwarranted risks becomes unnecessary.”Larry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 22: Some Risks are Not Worth Taking.
Chapter 22: Some Risks Are Not Worth TakingIn this chapter, Larry discusses the importance of investors knowing which risks are worth taking and which are not.
The $10 million bet that almost didn’t pay offTo kick off this episode, Larry shared a story of an executive who put his entire $10 million portfolio in one stock.
Around the late 1999 and early 2000s, Larry was a consultant to a registered investment advisor in Atlanta, and one of their clients was a very senior Intel executive. This executive’s net worth was about $13 million, and $10 million was an Intel stock. To Larry’s shock, the executive would not consider selling even a small%age of his stock to diversify his portfolio. He was confident that this stock was the best company despite acknowledging the risks of this concentrated strategy. It was, in fact, the NVIDIA of its day. It was trading at spectacular levels. The executive had watched it go up and up and up.
Learning from the pastLarry pointed out that there were similar situations not long ago, from the 60s, for example, when we had the Nifty 50 bubble, and, once great companies like Xerox, Polaroid Kodak, and many others disappeared, and these were among the leading stocks.
Like this executive, many had invested all their money in a single company and had seen their net worth suffer greatly when these companies crumbled.
This history serves as a powerful lesson, enlightening us about the risks of overconfidence and the importance of diversification.
The Intel stock comes tumbling downSince he was a senior executive, he believed he would know if Intel was ever in trouble. Larry went ahead and told him some risks were not worth taking. He advised him to sell most of his stock and build a nice, safe, diversified portfolio, mostly even bonds.
The executive could withdraw half a million bucks a year from it pretty safely because interest rates were higher, and that was far more than he needed. Larry’s advice didn’t matter—he couldn’t convince him.
Within two and a half years, Intel’s stock was trading at about $10, falling about 75%. It was not until late in 2017 that it once again reached $40.
Some risks are just not worth... -
BIO: Craig Cecilio is a visionary disruptor and CEO of DiversyFund, dedicated to democratizing wealth building. He has broken barriers in private markets, raising over $1 billion and offering investment opportunities once reserved for the elite.
STORY: Craig had a potential business partner introduced to him by a friend. The partner had a land deal and convinced Craig to invest $10,000. A couple of other people joined in and deposited about $250,000 into the land development deal in New Mexico. A week went by, and the investors got ghosted by the land deal owner.
LEARNING: Don’t mix friendship with business. Do your due diligence on all the parties involved in the transaction.
“Assume everybody is a crook and work backward. That’s the key to underwriting and any investment.”Craig Cecilio
Guest profileCraig Cecilio is a visionary disruptor and CEO of DiversyFund, dedicated to democratizing wealth-building. He has broken barriers in private markets, raising over $1 billion and offering investment opportunities once reserved for the elite. Craig empowers others to reclaim financial control and make meaningful, lasting impact.
DiversyFund offers a unique opportunity to invest in multifamily real estate, making wealth-building accessible to everyone. By investing in DiversyFund, your audience can take part in a diversified real estate portfolio typically reserved for high-net-worth investors—no accreditation needed.
Worst investment everCraig had a potential business partner, and they were doing a land deal. The partner always liked to chase big deals, while Craig is a singles hitter. However, he decided to invest $10,000 in this deal. A couple of other people joined the deal and deposited about $250,000 into the land development deal in New Mexico. A week went by, and the investors got ghosted by the land deal owner.
Realizing the gravity of the situation, Craig took it upon himself to investigate the deal. He delved into the intricacies of the financial system, learning about wire transfers and the sequence of events. His thorough examination of the circumstances and the paperwork revealed crucial oversights in basic information and essential due diligence items.
While Craig lost $10,000, losing that potential partner and the trust was the biggest loss. Craig had to sever that relationship as well.
Lessons learnedWhen underwriting, ensure all the boxes get checked, and ask those questions a little more.Don’t mix friendship with business.
Andrew’s takeawaysBefore you transfer any money, stop and go through a checklist to make sure you know what you are doing. You have to assume that once it’s gone, it’s gone.
Actionable adviceDo your due diligence on all the parties involved in the transaction, and if it sounds too good to be true, it is not.Assume everybody is the crook and work backward. That’s the key to underwriting and any investment.
Craig’s recommendationsCraig recommends checking out the online courses he plans to launch next month. He also recommends his upcoming book, You Know What You Got To Do.
No.1 goal for the next 12 monthsCraig’s number one goal for the next 12 months is to launch his online courses. He also plans to put them on the map.
Parting words
“Just get started. Lean into it and get started. Take the first step. Read about it. You have so many... -
In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 21: You Can’t Handle the Truth.
LEARNING: Overconfidence leads to poor investment decisions. Measure your returns against benchmarks.
“If you think you can forecast the future better than others, you’re going to ignore risks that you shouldn’t ignore because you’ll treat the unlikely as possible.”Larry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 21: You Can’t Handle the Truth.
Chapter 21: You Can’t Handle the TruthIn this chapter, Larry discusses how investors delude themselves about their skills and performance, leading to persistent and costly investment mistakes.
The deluded investorAccording to Larry, evidence from the field of behavioral finance suggests that investors persist in deluding themselves about their skills and performance. This persistent self-deception leads to costly investment mistakes, emphasizing the need for continuous vigilance in investment decisions.
Larry quotes a New York Times article in which professors Richard Thaler and Robert Shiller noted that individual investors and money managers persist in believing that they are endowed with more and better information than others and can profit by picking stocks. This insight helps explain why individual investors think they can:
Pick stocks that will outperform the market.Time the market, so they’re in it when it’s rising and out of it when it’s falling.Identify the few active managers who will beat their respective benchmarks.
The overconfident investorLarry adds that even when individuals acknowledge the difficulty of beating the market, they are buoyed by the hope of success. He quotes noted economist Peter Bernstein: “Active management is extraordinarily difficult because there are so many knowledgeable investors and information does move so fast. The market is hard to beat. There are a lot of smart people trying to do the same thing. Nobody’s saying that it’s easy. But possible? Yes.”
This slim possibility keeps hope alive. Overconfidence, fueled by this hope, leads investors to believe they will be among the few who succeed.
Why investors spend so much time and money on actively managed mutual fundsLarry also examined another study, Positive Illusions and Forecasting Errors in Mutual Fund Investment Decisions,...
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BIO: Michael Episcope is the co-CEO of Origin Investments. He co-chairs its investment committee and oversees investor relations and capital raising.
STORY: Michael invested in a multi-family property in Austin with a friend who had vouched for somebody else. Unbeknownst to Michael, the guy in Austin had taken a loan against his property to save other properties in his portfolio.
LEARNING: Do not justify the red flags because an investment opportunity looks great. Investing is about how you behave and not what you know.
“When looking at an investment opportunity, do not justify the red flags because the investor investment opportunity looks so great.”Michael Episcope
Guest profileMichael Episcope is the co-CEO of Origin Investments. He co-chairs its investment committee and oversees investor relations and capital raising. Prior to Origin, Michael had a prolific derivatives trading career and was twice named one of the top 100 traders in the world. Michael earned his undergraduate and master’s degrees from DePaul University. He has more than 30 years of investment and risk management experience.
Worst investment everIn 2004, Michael, a commodities trader, ventured into an investment with a friend’s recommendation. His friend’s assurance and Michael’s financial stability made him believe he was impervious to mistakes.
The investment was a multi-family property in Austin, Texas. Michael trusted his friend and thought he did the due diligence, but he did not. The deal was okay, as they had the right city and the right piece of land. But then the communication from the individual in Austin was not going very well, and things just weren’t adding up. But Michael’s friend kept insisting everything was good.
Still, something didn’t sit well with Michael, so he went online and Googled his property. He saw his property was sitting on a bridge lender site. The guy in Austin had taken a loan against Michael’s property to save other properties in his portfolio.
The whole thing just went sideways. Michael took a lot of time and effort to wrangle away from that investment, wasting a year of his life. He got pennies on the dollar back from that investment.
Lessons learnedInvesting is about people.When looking at an investment opportunity, do not justify the red flags because the investment opportunity seems so great.Investing is about how you behave and not what you know.
Andrew’s takeawaysEven though you may sometimes have the wrong outcome, it doesn’t mean you didn’t do the right thing.
Actionable adviceDo as much due diligence as possible. When investing with someone, ask yourself:Do they have something to lose if the investment fails?Do they have their skin in the game?Do they have a balance sheet?Do they have something here at risk more than you do?
Michael’s recommendationsMichael recommends that anyone wanting to learn about personal finance read Morgan Housel’s books. He also recommends downloading his free Comprehensive Guide to Real Estate Investing.
No.1 goal for the next 12 monthsMichael’s number one goal...
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In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 20: A Higher Intelligence.
LEARNING: Choose passive investing over active investing.
“Passive investing involves systematic, transparent, and replicable strategies without individual stock selection or market timing. It’s the more ethical way to go.”Larry SwedroeIn this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 20: A Higher Intelligence.
Chapter 20: A Higher IntelligenceIn this chapter, Larry discusses prudent investing.
The Uniform Prudent Investor ActThe Uniform Prudent Investor Act, a cornerstone of prudent investment management, offers two key benefits.
Firstly, it underscores the importance of broad diversification in risk management, empowering trustees and investors to make informed decisions.
Secondly, it promotes cost control as a vital aspect of prudent investing, providing a clear roadmap for those who may lack the necessary knowledge, skill, time, or interest to manage a portfolio effectively.
Ethical malfeasance and misfeasance in investingIn this chapter, Larry sheds light on Michael G. Sher’s insights. Sher extensively discusses ethical malfeasance and misfeasance. He says ethical malfeasance occurs when an investment manager does something deliberately or conceals it (e.g., the manager knows that he’s too drunk to drive but drives anyway).
For example, consider the manager who invests intentionally at a higher level of risk than the client chose without informing them and then generates a subsequently higher return. The manager attributes the alpha or the excess return to his superior skill instead of the reality that he was taking more risk, so it was just more exposure to beta, not alpha.
On the other hand, ethical misfeasance occurs when an investment manager does something by accident (e.g., the manager really believes that he’s sober enough to drive). Thus, the manager doesn’t know what he’s doing and shouldn’t be managing money.
Avoid active investingLarry highly discourages active investing because the evidence shows that active managers who tend to outperform on average outperform by a little bit, and the ones that underperform tend to underperform by a lot.
Either they don’t have the skill, and they have higher expenses, and the ones who have enough skills to beat the market, most of that skill is offset by their higher costs. So it’s still really tough to generate alpha.
Passive investing is the ethical way to goAccording to Sher, managing money in an efficient market without investing passively is investment malfeasance.
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