In episode #17 of The Big Bo $how, Big Bo (a.k.a. Jason Blumstein, CFA®, CEO & Founder of Julius Wealth Advisors) helps listeners answer a simple question — how do I become a successful investor? And while the question is simple, the answer takes a bit of digging.
In this show, you’ll hear:
Hope you enjoy the $how!
Timestamps of topics discussed:
Welcome to episode 17 of The Big Bo $how. On the show we’re going to talk about some essential knowledge for long-term investment success. We’re going to first talk about ways not to lose, we’re going to then talk about ways to win, and we’re going to wrap it up and relate all of this to the current Miami Heat run to the eastern conference finals at an 8-seed. So sit back, relax and enjoy episode 17 of The Big Bo $how.
So you want to be a successful investor? Well me too. This was my goal and has been my goal since the age of 10. If you’ve followed along on The Big Bo $how, you have known that I bought my first investments from my grandfather at the age of ten — five shares of Goodyear Tire, five shares of Pepsi — and this catapulted me on my personal finance and investment journey. Through that journey, it has taken me to make many investments through the DotCom Phases of the early 90s through working on Wall Street for many years, for many top firms, getting the opportunity to meet and talk one-on-one with some of the brightest minds in this industry studying to get some top designations managing billions of dollars at some top firms. And I will tell you being a successful investor —it 's difficult. It's very difficult. It's time-consuming. It's also very rewarding. So what I thought I'd want to do in this episode is go through some of the lessons and essential knowledge that I've gained through the past 30-plus years of studying investing since the age of 10 and pass these tools on to others. And the first thing I'm going to do is go into the common mistakes that we make. And why am I going to talk about the mistakes first? Because there's a saying in sports that, “offense wins games, yet defense wins championships.”
As I talked about in prior podcasts, on the episode KISS, a lot of times winning is about not losing. And the first way to look to win is by stop beating yourself. So let's go through some of the top mistakes I often see people make and some mistakes I've made myself.
So, the first mistake that I see is bad behavior, and bad behavior comes from emotional investing. And we've talked about this plenty of times, human beings are emotional. A lot of times we make decisions based on emotions and not the numbers. You can see this in FOMO investing over the I would say three to five years — the past three years, definitely. You’ve seen this all throughout time, whether it be all the way back to the tulip bulb craze, the DotCom bubble, the housing crash, you see emotional investing take place all the time and people following the crowd. So the first thing you need to do if you want to stop losing and have that mindset that defense wins championships,
the first thing we need to understand is that as human beings, our emotions cause us to have bad behavior, and this bad behavior is going to work against us.
The second mistake I often see people make is a lack of time. You see, time, no matter how rich or poor or smart or dumb, or whatever you are, time, is the great equalizer. We only have 24 hours in a day to do what we want to do to make ourselves a better person. And when I think about time, I think about a book that I read multiple times — the first time was about three to four years ago — a book called Extreme Ownership by Jocko Willink. It's Extreme Ownership: How US Navy Seals Lead and Win. And one of the biggest takeaways, if not the biggest takeaway that I personally had when I read this book was the chapter on prioritize and execute. This chapter talked a lot about how as leaders, or as humans, we try to take on way too much and when we take on so much, we end up losing at everything versus prioritizing, “What's the most important thing?” And then pulling putting all of our effort in all of our energy into that one task. Or that one goal. And then moving on to the next. Prioritize what's important. You might have 10 things you want to accomplish. Prioritize what's important and then execute on one at a time.
But here's the conundrum. Unless you're doing this full time, unless you're investing full-time, you have a lot of priorities in your life, you have a family, you have your job, you have friends, you have yourself. Then you also have your finances. But many of us try to accomplish all of these and be great at all these all at once, and we end up sacrificing. And many times and what the numbers of this country show us, we sacrifice our finances and all these things are important, your family, your job, your friends, yourself, your finances. All of these things are important. Yet, you will most likely sacrifice one or all if you don't get yourself some help and then prioritize and execute. And I can talk from experience on the investment side. When I was working at a major firm helping to manage a small cap fund, it was a 24-hour-a-day-job. At the time, I also had two young kids, I had a family I had myself to to try to take care of and going to the gym and staying healthy. And a lot of that can lead to burnout over fatigue or one of those things walking in your life.
So what do you got to do? You got to go ahead and you got to ask yourself, ask for help. Whenever you have different things and you want to prioritize and execute, there's a way you can outsource to get the help. Now, I see this all the time. I think it's interesting to say the least, to put it nicely, where a lot of times, I see people have help at their home. They have a nanny to help with their kids, or to help with the family side, they pay for a nanny. Okay well you're outsourcing that, you're getting some help. You're spending a fair amount of money on that. You take vacations. Well that's again, prioritizing your family, prioritizing yourself. You spend money to go to places for work to travel for work to go to conferences. Okay, you're prioritizing your work, your job. But the funny thing is that many people are reluctant to outsource and get some help on their finances. And again, the numbers of this country show it, the numbers that I talk about all the time about how the percentage of millionaires in real terms, hasn't increased in this country for over 20 years. So we go ahead and we outsource and we spend money on nannies, on vacations, on going to conferences for work, but we do not and we’re reluctant to outsource help in our investments and our finances. Think about that for a little bit. So, again, common mistake that I always see people have is a lack of time. Are you going to prioritize and execute, put all of your efforts towards one object, prioritize and execute and move on to the next? Sometimes this means you need to potentially outsource and get some help.
The third mistake I see people make is not having a plan. As Benjamin Franklin once said, “If you fail to plan, you are planning to fail.” And what I mean by that is a lot of times and what I saw when I was on Wall Street is that people push investments. “Oh, I got the best investment for you, right?” Like, come on, we're working with people's lives here and we’re to sell them a quick fix. These are people's lives. And frankly, it made me a little disgusted with the industry and why I wanted to start my own firm, Julius Wealth Advisors to try to change the way this industry operates. So, what I'm talking about here is many times people do not tie their investments to their goals. What are you actually investing for? Again bringing this back to prioritize and execute — what are your priorities? What are you investing for? Because of your investing for certain things, you want to buy a house next year,you want to start a family in 10 years, you want to, you want to hit financial freedom in 20 years, you want to pass on assets to your kids … Those things have different investments and different goals that are tied to those investments based on planning,
And then there's other parts of planning that you'll need to take care of as well within it. You got to wrap planning with your investments to try to understand and make sure that you actually have a plan going forward because as Benjamin Franklin said, “If you fail to plan, you are planning to fail.”
So, with that, we're going to take a quick break, and then we're going to shift from ways not to lose, and we're going to talk about ways to win as we pass along essential knowledge for your long-term investment success.
Alright, welcome back. So now that we learned how to stop beating ourselves and playing defense, let’s play some offense. We’re going to shift to learning how to win. And I’m going to share some successful steps that I have taken in my personal life and things that I have learned through the years in 30 years plus of investing that have helped me and I’ve seen have helped others. So the first one, the first step that I think people can take to help them become a successful investor is obtaining knowledge. We talk about that a lot at Julius Wealth Advisors, it’s a core value of our firm, integrity, knowledge, passion. You need to obtain knowledge because you see in life, there’s things that you know you know, there’s things that you know you don’t know, but there’s also things that you don’t know that you don’t know.
And if you don't understand investing, how can you expect to succeed? And let’s bring this to Warren Buffett, a famous quote that he uses, he states, ““the stock market like the Lord helps those who help themselves, but unlike the Lord, the market does not forgive those who do not know what they do.” So let’s figure out what to do and why it’s important to obtain knowledge.
The first reason is because a lot of times when I talk with people about investing and why they make certain investments, there’s usually no fundamental basis behind their decisions. So they’ll tell me about an investment or what do I think about this or what do I think about that. The first thing I ask them is well, “What does the company do?” “I don't know, Jason. I don't know what they do.” Maybe that’s a good place to start. “Who are their competitors?” “I have no clue.” “What's their competitive advantage?” “Why is this a sustainable business model? “Beats me.” Got it. So maybe now you do know about the business. Awesome. So what does their balance sheet look like? What does their cash-flow statement look like. “What’s that? I have no clue what you’re talking about.” What’s their profitability? What’s their return on invested capital? “Stop talking gibberish.” You see, when you make an investment, you are literally in the stock market, you are literally buying another business so you have to understand the business itself.
Ok, great. So then they say, “Well I don’t need to buy individual businesses. I’m just going to invest in an index fund. That’s what they tell me, just buy an index fund.” Ok, great. Well there’s thousands of them out there. Which one? Which one of the thousands? Who’s doing the due diligence? How much do you put in larger companies? How much do you put in smaller companies? How much do you put in companies that are domiciled outside the US? There’s a concept called home bias. How much do you put in real estate? Do you have market cap weight? Do you have equal cap weight? These are things that people typically do not have knowledge of.
And I’m going to go into a good study that I’ve always liked. It’s called the 1 over N study. To help solve and get people to invest in 401(k)s, they thought it was a good idea to put more options into people’s 401(k)s. They said “Ok, the more options we have, the more people will be interested in this.” Then through the years, they noticed that people would put in 1 over N and essentially divide their investments equally. So for example, if there was 10 different funds, they would put 10% in each. 1 over 10. If there’s 20, they’d put equally over the 20. Irregardless of what those individual funds were investing in. Maybe they were investing in bonds. Maybe they all were investing in US. Maybe they all were investing outside the US. Didn’t matter. People did not have the knowledge to know how to properly allocate their 401(k)s. Step number one, success tip number one, obtain knowledge.
Now let’s move on to step number 2. Good decisions. Obviously good decisions lead to good results. And what I’ve found and what’s interesting is that many people think that successful investing and really in life to be successful you have to say, “yes.” And the truth of the matter is that being successful when it comes to investing is more about saying no. Saying no more than you say yes. And the proof is in the pudding if you look at Berkshire Hathaway and Warren Buffett. And they talked about this in their latest annual letter. I’m going to read a quote from the latest annual letter. “Our satisfactory results have been the product of about a dozen truly good decisions. That would be about one every five years. And a sometimes forgotten advantage that favors long-term investors such as Berkshire.” So here we go. We have what is regarded as the best investors of all time inWarren Buffett and Charlie Munger and Berkshire Hathaway and they make a good decision once every five years. Once every five years. Yet every day when we read the media or we listen to Wall Street, they try to tell you what you gotta do now. What are we buying now? Ok, it went up, I’m selling it. Ok, it went down, I’m selling it. Ok, why? Say no. Investing success is more about saying no than about saying yes.
The next successful tip that I have found to become a better investor is patience. And I’m going to repeat that. Patience. They say good things come to those who wait. But unfortunately in today’s world of instant gratification, clicks, likes, all that fun stuff, no one is willing to wait anymore. And let me share again with you a study, there’s many different studies that I’ve read and seen on this but let me bring up this one study that I’ve recently come across. It was a study of New York Stock Exchange data by Reuters. And this study has shown that the average holding time of position — of someone buying a stock or buying an investment — has shrunk to five-and-a-half months. And this is down from almost 8 years in the 1950s. Let me say that again. The average holding time of a position has shrunk to five-and-a-half months, down from 8 years in the 1950s. And I think a root cause of this is a lack of patience. Patience. If you buy something and it was fundamentally based, backed with knowledge, and we’re only supposed to be making decisions once every five years like Berkshire Hathaway — good ones — why are we buying and selling things and holding on to things for only five-and-a-half months? It’s kind of absurd. You are owning a business. What do you think has fundamentally changed in only five-and-a-half months? And a good way to think about patience is that a lot of times people will come up to me and say, “Oh Jason, what do you think is going to happen in the market this year or this month or this quarter? Some people even ask me tomorrow. And I tell them honestly,, I have no clue. I don’t know. But let me paint a different picture for you. So you’re coming to me, you’re talking with me, many people I worked with are what we call HENWYs, we work with HENWYs, small-business owners, athletes and entertainers, and on average clients are in their late 30s, early 40s, so let’s just say 40. And we’re trying to develop a strategy and a plan that’s going to last to get them to financial freedom in about 20 years. And then they’re going to be in financial freedom for at least another 20 to 25 years. So one year of a down market is only about 2% of the journey, just 2%. But wait. Many of these clients, they have children. Well do you want to pass your assets on to your kids? Do you want to pass your assets on to your grandkids? So again, patience. Relax. Patience.
And the final step, the final way to have investment success in my option is getting help. So let me share a story with you, many people do not realize this, but Berkshire Hathaway was a defunct textile mill that Warren Buffett rode into bankruptcy. He bought the equity, he bought some debt, the company eventually went into bankruptcy. And he was the largest shareholder, he took over the company. And then he eventually met Charlie Munger. And Charlie Munger said, “Warren, you need to change your investment style.” You’re investing in what he called cigarette-butt investments. Let’s focus on owning the most profitable business, let the most profitable businesses bought at a decent price do work for us. So Warren Buffet got some help from Charlie Munger. So if the world’s greatest investor needs help to get a leg up, why shouldn’t you get help? So get some help. Everyone needs help in different facets of their life. When it comes to investing, get some help. I need help, I talk to many people about investing, I try to read books, I try to talk to people, I try to get as much help and obtain as much knowledge from other people that have knowledge from me to get some help on investing and other areas of life as well.
So let’s wrap this segment up and take a quick break. And when we get back, we’re going to relate all of this, everything we’ve talked about so far on The Big Bo $how to the Miami Heat and their improbable run to the Eastern Conference Finals.
Okay, welcome back so now let's take all of this and let's relate this to, as everybody knows, my biggest passions in life, as I tell people, are food, football and finance. Well, it's not football season, so I don't really have a lot of football to watch, but I am a big Miami Heat fan. Now, I'm not a huge NBA fan — I'm a big Miami Heat fan and as you may have heard if you listened to one of my other episodes — I usually don't get into the NBA until the Heat make the playoffs or if the Heat make the playoffs and generally into the second round of the playoffs. And why am I a big Heat fan? And why does everything I've talked about previously on this episode relate to the current Miami Heat run from getting in as an eight seed?
They had to play in the play-in games to the improbable run of now being in the Eastern Conference Finals. They knocked off the number one seed in the Bucks, and now they just knocked off the Knicks. So, let's get into this. First of all, the first thing we talked about is you win by not losing and the first thing you need to do is not get emotional. So if you watch Erik Spoelstra or Pat Riley, The Godfather, they rarely get emotional. Erik Spoelstra, you look at him, he always has this unemotional laser focus, killer instinct look on his face. He rarely gets emotional. The next thing is prioritize and execute. The Heat prioritize and execute and round one we double-teamed Antetokounmpo. Round 2, we did this Hack-a-Robinson. They had a player on the team, Robinson, who couldn't shoot free throws so our priority was well hey, if we're down late or we don't want them to score points, let’s just foul Robinson and he'll probably miss, maybe both, maybe one of his free throws. They also at the end look to say, well, we're probably not going to stop Brunson, so we'll let him eat. We’ll let him get what he gets, but we're going to try to shut down everybody else and we're gonna out-hustle them to the ball and out-rebound them. So, they prioritized and executed. And they had a plan. The plan again, this is just me and I know he's been the MVP, but again Antetokounmpo, to me his plan is always, I'm gonna bowl you over, bulldoze you, I'm going to put my head down and I'm gonna run you over and that's my plan. If I can't bulldoze you and beat you with my power, I'm going to lose. Antetokounmpo only has one plan. Same thing with Thibodeau, the head coach of the Knicks. They came in, I mean I don't even know what their plan was, but I didn’t see them make any adjustments. I didn't really see any adjustments or any plan when I was watching Thibodeau and the Knicks play the Heat. This is versus Spoelstra who has a unique plan depending on who they're playing. Again, we talked about earlier, round one, what do they do? Round two, what do they do? In the middle of the games you saw them tweak some of their plans to try to win. Do I put this player on the court? Do I put that player on the court depending on what's going on? Does Lowry play, does Caleb Martin play? So the Heat have a plan. So the first thing they did is they’re winning by not losing.
So then how do they win? What do they do to win? The first thing, again, is knowledge. Did you know the Miami Heat have five undrafted players on their 10-man roster? Five. That's Hightower. Duncan Robinson. Caleb Martin. Of these five, two of them are actually starters in Max Strus and Gabe Vincent. The Heat go deep into knowledge and scouting and understanding who players are. They get five undrafted players on their 10-man roster. Five. That's half — a tenth — 50%. That's insane in my opinion. They make good decisions.Watch the Heat play, they have ball movement, they are unselfish. Someone has a good shot of a 3. Maybe the guy they're going to pass the ball that's open has a better percentage of making threes. Jimmy Butler, he's an OK, three-point shooter. Sometimes he passes it to Duncan Robinson because Duncan Robinson is a better three-point shooter. Okay, well Duncan Robinson. Maybe I'm not wide open and I see Adebayo in the paint. I'm going to pass the ball to him, ball movement, making good decisions with the ball. Taking charges, Kevin Love, taking charges, making good decisions. The next is patience. And the person I see on this is Jimmy Butler. They call them Playoff Jimmy. So you typically see Playoff Jimmy, Jimmy Butler having patience throughout the game, seeing and feeling out the game. Seeing what the team’s strengths and weaknesses are, what his players on his team, their strengths, who's hot, who's not? And then when he needs to, he'll turn it on in the fourth quarter and dominate the game if the Heat and his team need that, he has patience.
And the final is getting help. And the best part of this is that the Heat are a team, the Miami Heat are a team. You call them the Miami Heat. You think of the Lakers, you think of only LeBron and AD? You think of the Nuggets? Only person I can name is the Joker, Jokic. The Heat are a team. You called them the Miami Heat. They get help from one another.
So, let's wrap this up. In this episode, we talked about some essential knowledge for long-term investment success. We talked about winning by not losing — bad behavior, a lack of time, not having a plan. And when you first start to win by not losing, then you can actually focus on winning. Knowledge. Good decisions. Patience getting help. Hope you like the show. We then related it to the Miami Heat, watch the Heat tonight. Hopefully, we make it to the NBA finals. Maybe there will be a rematch from the bubble a couple years ago, Heat-Lakers. Whatever happens, always remember to live a life of integrity, a life of knowledge, obtaining as much knowledge as you can and always live a life that you're passionate about.
Until next time, all the best.
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