AWM Insights #17: Gambling or Investing – Which Game Are You Playing?

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Erik Averill (00:01):

Hey, everyone. Welcome back to another episode of AWM Insights where we cover all things investing. Along the way we’re going to debunk the lies sold to you by Wall Street, the myths of the cocktail party stock tips, and of course we’re going to provide you with the latest evidence-backed insights to help you capture the returns you deserve. And where we want to jump into the conversation today is talking about the return of volatility with a vengeance in the markets. Last week it started on Sunday when we saw stock future prices go absolutely haywire when there was confusion over comments made by the White House from trade advisor Peter Navarro.

Erik Averill (00:40):

Then all of a sudden we saw the markets completely do an about-face when Trump sent a tweet, and so this volatility is something that isn’t new that we’ve seen over the last few months, but in historical context it is completely crazy. We’ve experienced three of the worst 25 losses, and two of the largest 25 gains for the S&P 500 just this year. So Brandon, the question I really want to cover today is, a lot of the headlines are hitting on how volatility and these changes are swinging the markets back and forth, and maybe this is actually the time for the active investor. What advice would you have for our audience on how much they should pay attention to what media is telling us?

Brandon Averill (01:26):

Well first off Erik, I just love the intensity you’re bringing today. That was quite an opening. But yeah, I mean I think the volatility is an interesting thing. I think when we really look at the numbers, I think volatility traders actually got destroyed this last week. You would think when you have volatility spike up like this, that they would be able to take advantage, but just with all the events you just went through, it’s pretty crazy, right? None of it could have been predicted, and so I think it’s very difficult for any trader to sit there and try to react back and forth to these different moves. So I think when we look back at the entire year, it’s been volatile. When you look back at this last week, I mean a simple tweet, a simple comment, could send things haywire.

Brandon Averill (02:12):

So at the end of the day I think there’s … We also saw a really good article from Jason Zweig this week that talked a little bit about comparing investing to gambling, and it was mostly centered around the author that wrote A Random Walk Down Wall Street who is pretty famous for describing how investing is a long-term game, stock picking is not effective, and we’ve seen people really recently jumping into the market and wanting to play this day trading type game. He talks about it as a replacement for sports gambling, and that seems to be a common thread that a lot of investors do take some affinity for this gambling stuff. So it’s not necessarily wrong, but I think it’s looking back at what we’re trying to do here. Are we trying to play a gambling game, or are we trying to be long-term investors?

Erik Averill (03:06):

It’s interesting you bring up just the reference for gambling. Right? We’ve seen this covered in the media lately with Dave Portnoy of Barstool Sports, where he’s been capturing eyeballs of a lot of this community that has been historically focused on sports gambling or betting. Now all of a sudden with sports on hold, the question becomes, how do you capture eyeballs? Portnoy is literally made a joke out of investing, and the crazy thing is how many people are following his insights or his comments. Can you just talk about maybe what the truthfulness or how much credence we should give news sites and CNBC when it comes to the investing decisions we should be making?

Brandon Averill (03:52):

Yeah Erik. I mean I think this is actually one of the simplest concepts to get. Let’s just peel back to motivations. What are the motivations of all these news networks? Sell ads, and to get you to continue coming back. If they just produced content that said, “Hey. Let’s just be boring. Let’s click the coupons. Let’s just stick with our strategy over the long term, and we’ll end up in a really good situation,” I don’t think they’re going to have anybody tuning in to hear that story on a daily basis. Dave’s a genius. He’s been able to capture, like you said, so many eyeballs. I mean even our clients haven’t been immune to this. Right?

Brandon Averill (04:33):

I’ve gotten tons of questions. “Can you believe the gains that Portnoy’s making?” Blah, blah, blah, and it’s just pretty funny because then you go on and look at some of his comments, and he even admits that he’s in the entertainment game, and that he’s really just here to drum up that entertainment. This is nothing new. I mean we’ve seen examples of this over history where certain people really, they’re in the entertainment game. They’re not in the long-term investing game, and they’re just there to make people laugh, make people kind of interested in things, and they make a lot of money off of it, more so from the investments. I mean Dave Portnoy is making far more money from his podcasts than he certainly would be investing on a daily basis.

Erik Averill (05:16):

Yeah. It’s crazy. Right? You bring up history. Ben Carlson and his book Don’t Fall For It: A Short History of Scams, it’s one of these things of let’s learn from history. That in the 1980s there was a guy, Joe Granville, who literally made over $10 million a year selling his investment newsletters. This guy was a known trickster, and it was all about entertainment. But I think we know this because this is human nature is, you made fun of my excitement when I started the podcast is, we don’t like boring. Right? We want to believe that if we put in more effort, or we have some special knowledge, that we should get better returns than anybody else.

Erik Averill (05:56):

And the relation to the athlete world that I just absolutely love is … We stumbled across this interview with Shaquille O’Neal talking about his incredible free-throw talents. Right? His career free throws was 52.7%. Just to put that in the context of how bad it was, the league average is around 75%. So it’s like if Shaq just became average, he’s already elite, but he would have gone down as one of the best. But they asked him, “Hey. There’s a proven method of you doing the underhand shooting of a basketball at the free-throw line that has actually led Rick Barry, really the expert in this, to be considered the fourth best free-throw shooter in NBA history.

Erik Averill (06:42):

When they asked Shaq why he wouldn’t do it, he literally said, “Because it’s boring,” and I just crack up because he said, “I’m just too cool for that.” And I think we see that in investing, is a lot of times even when we have evidence staring us in the face, that it’s just really hard to actually accept the boring, long, uncommon, kind of just average, returns. What advice would you give to people of, how do they remain disciplined? How do they stay long term and not fall victim to this day trading information on the news?

Brandon Averill (07:17):

You know it’s going to be a boring answer Erik, but it’s back to the plan. Right? I think one, when you sit down with your advisors it’s figuring out what’s important to you, what do you want your money to do for you, and try to stay focused as much as you can on that long-term objective or whatever your goals might be. They may even be short term, but matching up your money with those goals. Say a goal is, we want to put our kids through school. We want to pay for their private schooling. I don’t think there’s a single listener that’s going to take their $30,000 to Vegas, and sit down at the blackjack table and be like, “This is how I’m going to fund my kids’ education.” So it’s the same thing. Right? It might be exciting, but you’re certainly not going to risk that.

Brandon Averill (07:57):

I think when you start to think about it that way, hopefully it brings you back to, “Hey. What is financial success? Is it making all my friends jealous that I got lucky and I hit blackjack in this short time period? Or is it going to be 15, 20 years down the road, when all my teammates, and friends, and family, were playing this whole gambling game, but now I’m sitting in my comfortable home. My kids are being put through school. I’m not stressed out about whatever environment’s going on because I made really good decisions over a longer period of time.” So I think it’s just focusing back on the plan.

Erik Averill (08:37):

That’s great advice. It reminds me, just in summary, of what you said at the very beginning of the podcast. If you want to day trade, that is completely fine. Just make sure that we understand what’s the game that we’re playing and what’s at stake. Hey, the same amount of money that you want to take to the casino, you want to take to Vegas, you want to bet on a sports game, as long as you understand what’s at risk, and that one is entertainment versus one is investing, you can enjoy both.

Erik Averill (09:05):

But when it comes to the sustainable long term capturing the returns you deserve, and making sure that your money actually accomplishes what you want it to do, is having that long-term sustainable investment plan is so important. Audience, we appreciate your guys’ attention as always. If you guys want to be able to access the show notes, or you want to be able to access previous recordings, you can head directly over to, and all of that information will be there for you. As always, we’d love to hear from you if there’s a certain topic that you guys want us to tackle. But until then, stay humble, stay hungry and always be a pro.

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