September 1, 2025 • 42 mins
Today’s guest discovered the value of money long before most of us even thought about it. At just ten years old, he was recycling bottles, selling to classmates, and already planting the seeds of financial independence. But his journey took a big turn the day he stumbled upon CNBC as a teenager. That single moment sparked a lifelong passion for investing—Earl Yaokasin realized that true wealth isn’t built in classrooms or boardrooms—it’s built through experience, reflection, and learning from legends like Warren Buffett, Charlie Munger, and Mohnish Pabrai. By blending those timeless philosophies with his own insights, Earl developed a strategy not only to build wealth for himself but to help others reach financial freedom. He’s not just here to talk about investing—he’s here to show us how money can become a tool for living your dreams. Michelle interviews Earl Yaokasin, CFA, founder of WealthArch Investment Services, a seasoned investment advisor with over two decades of experience. The discussion centers on the psychological aspects of investing, including biases like confirmation bias and overconfidence, and the importance of maintaining a disciplined approach to investment.
Earl emphasizes the value of aligning his personal investments with those of his clients, advocating for a strategy that involves buying when the market is fearful and selling when it is greedy, echoing Warren Buffett's investment philosophy.
The conversation highlights the significance of understanding individual stocks versus index funds, encouraging listeners to conduct thorough research before investing or hiring one who does it well. This episode, which aims to empower listeners with financial knowledge and insights, underscores the importance of developing a healthy relationship with money and making informed investment decisions. The podcast serves as a resource for those looking to enhance their financial literacy and navigate the complexities of investing effectively.
00:00 - Building a healthy money mindset
05:60 - Contrarian investment strategies explained
14:12 - The importance of humility in investing
24:30 - Investing in individual stocks wisely
38:09 - Resources for financial education
Key Takeaways
For more tools and conversations about money mindset, practical money tips, confidence, and financial empowerment… Subscribe to the Money & You Podcast:
Apple Podcasts
Please rate and review & share the podcast with your friends and family members who want to better understand money, and feel more confident and in control of their financial lives. It's sooo important to us!!
Join the Limit Free Life Community Blog: https://limitfreelife.com/newsletter
Learn more about Michelle Perkins: https://limitfreelife.com
LinkedIn: Michelle on LinkedIn
Instagram: @livealimitfreelife
YouTube: https://www.youtube.com/@michelleperkins-limitfreel2446
Earl emphasizes the value of aligning his personal investments with those of his clients, advocating for a strategy that involves buying when the market is fearful and selling when it is greedy, echoing Warren Buffett's investment philosophy.
The conversation highlights the significance of understanding individual stocks versus index funds, encouraging listeners to conduct thorough research before investing or hiring one who does it well. This episode, which aims to empower listeners with financial knowledge and insights, underscores the importance of developing a healthy relationship with money and making informed investment decisions. The podcast serves as a resource for those looking to enhance their financial literacy and navigate the complexities of investing effectively.
00:00 - Building a healthy money mindset
05:60 - Contrarian investment strategies explained
14:12 - The importance of humility in investing
24:30 - Investing in individual stocks wisely
38:09 - Resources for financial education
Key Takeaways
- Warren Buffett's Wisdom: "When the market is greedy, be fearful. When the market is fearful, be greedy." This principle encourages investors to act contrary to market sentiment.
- - Continuous Reevaluation: Regularly reassess your investments and remain open to new information to avoid confirmation bias.
- - Alignment of Interests: Earl emphasizes the importance of aligning his investments with those of his clients, reinforcing transparency and trust.
- - Caution in Investing: Always approach investments conservatively and conduct due diligence before making decisions.
For more tools and conversations about money mindset, practical money tips, confidence, and financial empowerment… Subscribe to the Money & You Podcast:
Apple Podcasts
Please rate and review & share the podcast with your friends and family members who want to better understand money, and feel more confident and in control of their financial lives. It's sooo important to us!!
Join the Limit Free Life Community Blog: https://limitfreelife.com/newsletter
Learn more about Michelle Perkins: https://limitfreelife.com
LinkedIn: Michelle on LinkedIn
Instagram: @livealimitfreelife
YouTube: https://www.youtube.com/@michelleperkins-limitfreel2446
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
But what other kinds of emotional you know, kind of
reactions do you see from people? You know, what are
they calling you about in a panic?
Speaker 2 (00:11):
Yes?
Speaker 3 (00:11):
So I had one person she called me when this
stock was dropping like eighty percent. And people ask me
all the time what and by the way, that was
not my pick, just to be clear, that was not
my pick. That was their pick on their own. Okay,
So but the stock drop eighty percent, and then they're
(00:33):
asking me, what do I need to do? Do I
think I need to hold this through make to have
the stock rebound? And my I told I told them
that you don't need to make your money back the
same way you lost it. In other words, if it's
a lousy company and you just and it's not a
great investment, just go it and sell it and find
(00:53):
a new one. So people are so hesitant to take
a loss.
Speaker 2 (00:58):
They're so hesity that's called loss of version, and they're
so hesitant to.
Speaker 3 (01:03):
They always want to try to make the money back
in the same way they lost it. So it's just
important for people that what's happened in the past has
already happened, and what you have to think about is
going forward.
Speaker 1 (01:17):
Hey, there and Welcome to Money and You. I'm Michelle Perkins,
your host. My search for more fulfilling work led me
to career in business coaching, where I stumbled upon a
game changing discovery. Money issues often start with our mindset
and habits. You see, our relationship with money is the
key to overcoming those frustrating financial obstacles. As an entrepreneur, coach,
(01:39):
and problem solver, I'm passionate about helping you create a
great relationship with money, because turns out that's the foundation
for a limit free life. Each week on Money in You,
I speak with amazing guests about all things money, mindset,
practical tips, and everything in between. We're here to give
you new insights, education and empowerment. So money can be
(02:01):
one of your favorite relationships.
Speaker 2 (02:03):
So join us for some.
Speaker 1 (02:04):
Lively conversations and let's transform your financial life together. He Hello,
and welcome to another episode of the Money in You podcast.
So happy to be here with you today, so happy
to bring you a really wonderful guest, and we're going
to talk about investments. We're going to talk about some
of the psychological things that go on with money that
(02:27):
you know I love to talk about. So we're going
to jump in very quickly here with today's guest. So
I'm going to go ahead and give you a little
intro into Earl Yao Cossen. Earl is a CFO. He's
the founder of Wealth Arch Investment Services in Pasadena, California,
where he helps high net worth individuals and couples build
(02:50):
wealth through value investing and personalized financial planning. With more
than two decades of hands on experience and a prestigious
CFA designation, Earl blends the timeless principles of Warren Buffett
with modern behavioral finance to help clients achieve financial independence.
Invest his personal portfolio in exactly the same assets as
(03:10):
his clients, reinforcing full alignment and transparency. Earl takes pride
in offering advice free of commission, sales, quotas, or gimmicks.
His firm is one hundred percent fiduciary and his focus
is on long term results, not short short term hype.
Through education, clear planning, and thoughtful market navigation, Earle empowers
(03:31):
his clients to avoid common financial traps, stay on course
during turbulent times, and reach their goals with clarity and confidence.
Speaker 3 (03:39):
Earl Welcome, well, Thank you, Michelle, It's an honor to
be on your show.
Speaker 1 (03:43):
I'm so happy that you're here. We had such a
fun conversation a while ago, and I was looking so
forward to having you on. So yeah, I'd love for
you to just to start by giving us a little
background on what brought you to this particular career.
Speaker 3 (03:59):
Yes, So, when I was younger, one day I turned
on the CNBC channel and then I saw these things
going up and down, and it interested me. It seemed
like a game. I've always been great at games, and
I also won a national math competition when I was
in seventh grade, so numbers and strategy was always my interest.
(04:24):
And then I tried every single thing I could I
could come across. I read every single book in the libraries.
I tried technical analysis, I tried fundamental analysis. I tried
all of these things and basically charting everything, everything you
can think of, and I figured out eventually. It took
me quite a while to find what suited me best,
(04:48):
and here I am today helping other people invest their
money in the stock market in a more safer and
less volatile manner.
Speaker 1 (05:00):
You that's great. I love that. I love even hearing
about it, because I get that my sister's a mathematician.
My daughter was so good at math. I mean just
from an early age. The teachers were asking her to
help the other kids, and I was so excited, and
I thought, you know, she will go into something math oriented,
but she didn't. So I feel like and she loved
(05:23):
games too. I think that's a clue. If you love
games and puzzles and things like that, I think math
is something that comes a little bit more easily to you. Possibly,
But yeah, okay, so that's great, And I'd love to
know a little bit about your philosophy around investing, because
I think it's a really one that a lot of
(05:44):
people can benefit from hearing.
Speaker 3 (05:46):
So one of the most important investments principles that I
use is called the margin of safety. In plain English,
that's just like a buffer. So it's just like going
to them all you're going shopping, you're trying to look
for a nice dress. If you see something that's fifty
percent off and it's selling for fifty dollars, that means
it's worth it was worth one hundred dollars initially. And
(06:08):
the same thing is true for stocks as well. If
my valuation of a specific company is one hundred dollars
and it's trading for fifty dollars. That difference is called
the margin of safety or the buffer, and that helps
investors protect themselves from losing money on a permanent basis.
(06:29):
And the reason for that is because if, for example,
that the competition comes up with a new product, then
your valuation of one hundred could drop down to ninety dollars.
Let's say the CEO mismanaged a strategy, a product launch,
or something, then that ninety dollars could drop to eighty.
Let's say I made a mistake in my own calculations,
(06:50):
I was over optimistic about the company. That eighty drops
to seventy, and so on and so forth. So if
if my ending valuation after all of those, expect that
negative events happen at the same time, drops my valuation
from one hundred to seventy, and I bought it for
fifty dollars, as long as the market's not panicking, eventually
(07:12):
the seventy dollars stock price will get hit and I
will still make some money. And so that's how the
margin of safety works extremely well in protecting downside.
Speaker 1 (07:22):
Okay, yeah, thank you. And how how does one I
mean you're an expert in this, but how does the
average person figure out what that margin of safety could
be or should be.
Speaker 3 (07:33):
Yeah, so, in terms of the average person, you need
to really delve into the financial statements to come up
with an estimated value for the company, and it's really
not for the average person to do. And so my
advice for the average person is to simply try to
(07:55):
take a look at what the market environment or what
the participants or the mood of the market is. So
Warren Buffett's famous saying is that when the market is greedy,
be fearful, and when the market is fearful, be greedy.
So just trying to get a sense and do the
opposite of what everyone's doing. So by doing that, if
(08:18):
everyone's excited, that means that stock prices are expensive and
there's no margin of safety, there's no buffer. But if
everyone's panicking and they're just selling stock prices, that means
stock prices are depressed, and that means your buffer is
so large. So that's one quick way for the average
person to take advantage of the margin of safety concept
(08:38):
without having to do complex math.
Speaker 1 (08:41):
Mmmmm, oh, I love that. Thank you. That's a great answer. Okay,
So let's talk a little about the psychological kind of
aspects of money, because I love talking about that on
their show, and we do really dive into people's relationship
with money, and you know, you're dealing with people and
their money all the time, and so what are some
(09:03):
of the things that you're seeing that both help people
and also get in their way? I mean, it works
both ways. It's not always adeptent, but yeah.
Speaker 2 (09:13):
Yes, definitely.
Speaker 3 (09:14):
And before I answer that question, I'm just gonna quickly
take a step back and kind of like go on
a bigger picture. So in the markets today are investing.
Everybody has access to the computer, everybody has access to
the internet, so informational advantages these days compared to forty
years ago, is much less existent. The other thing is
(09:37):
that there are so many smart people crunching the numbers
trying to get that intrinsic value that we talked about earlier.
And really, because this is a game of strategy, just
like poker, there's not much advantages left for Do you
want me to pot I think I froze.
Speaker 1 (09:57):
Oh sorry, I think it's my internet. And I'm calling
this afternoon.
Speaker 3 (10:01):
Because I don't Okay, no worries I can restart from
this question.
Speaker 1 (10:04):
Intrinsic value, and then you froze, So.
Speaker 3 (10:07):
But you can back up, Okay, I can back up, Okay, okay, okay. Yeah,
So let me take a step back and just answer
the question from a bigger picture. So the first thing
I wanted to say is that there are a lot
of people that have access to the Internet, have access
(10:29):
to information that everybody else has forty years ago.
Speaker 2 (10:33):
People know stuff that other people didn't know, and so
that's very different.
Speaker 3 (10:38):
And then the second thing is that there's so many
smart people calculating intrinsic value, which we talked about earlier.
So the real advantage for many people, including professionals and
average investors, is to focus on the emotional psychological aspects.
That's where you can get an advantage against professional investors.
(10:59):
And the best way to get an advantage is understanding
seven of the top investment biases out there, and the
first one is herd mentality. So what that is is
just you're doing what everybody else is doing. So I
mentioned earlier Warren Buffett's principle. So if you are buying
(11:20):
when everyone's buying, you are buying at very expensive prices
when you're selling when everyone's panicking. You are selling at
very cheap prices. So that is something you don't want
to do. And by doing the opposite, that's how you
can make money. The big money love that. And then
the second one is called recency bias. So many people
(11:44):
in whether it's forecasting things in their personal life or
things with their money, they think about what happened in
the last month, what happened in the last year, and
they think that's what's going to continue going forward. For example,
last year, the stock market was up more than twenty percent,
(12:05):
and people are thinking, oh, I think the stock market's
going to be up another twenty percent this year. But
if you look at the longer term history of the markets,
most of the time markets are actually what is called
mean reverting in plain English. What that means is just
it goes back to averages, goes back to the averages.
Speaker 2 (12:27):
So if something is super high, a.
Speaker 3 (12:31):
Stock price is super high, then eventually it will drop
to where it should go. And when when stock prices
are super low, eventually it will go back up to
where it should be in terms of the long term averages.
So what we want to make sure is we want
to make sure that when we evaluate certain things, we
want to take a look at a longer timeframe.
Speaker 1 (12:52):
Okay.
Speaker 3 (12:53):
The third thing is confirmation bias, and what that is
is that, Okay, I bought XYZ stock yesterday, and when
I'm tracking or re evaluating my investment opinion of this company,
I am going to look for people that agree with me.
(13:14):
And when you do that, you feel good. It feels
really good to have smart people agree with you. But
the best advice that I have for your audience is
to actually look for the opposite, which is you want
to look for the people who disagree with you. So
if you bought XYZ stock, you want to look for
people that say this is a bad investment because of
(13:38):
number one, number two, and number three.
Speaker 2 (13:40):
Then you want.
Speaker 3 (13:41):
To think about are those reasons valid, And then that
way you can challenge your own position and just to
make sure that your beliefs are actually correct.
Speaker 2 (13:52):
And it's not a one time thing.
Speaker 3 (13:54):
You always want to be reevaluating your investments periodically.
Speaker 2 (14:00):
The third one, the fourth one, is called over confidence.
And so.
Speaker 3 (14:07):
If we ask one hundred people, are you an above
average driver? Seventy people will say yes, But there's no
way seventy people are above average.
Speaker 2 (14:17):
So it's the same thing with investing. It's like how
good are you?
Speaker 3 (14:23):
When I talk to prospective clients, the first thing I
asked them is, on a rating scale of one to ten,
one being you don't know anything, ten being you're an expert,
where do you think you fall? And most of the times,
especially males, they say eight to ten when they're really
a one to three.
Speaker 2 (14:44):
So you know there's there's a lot of ego involved there.
Speaker 1 (14:47):
So but do you find the opposite with women where
they go too low?
Speaker 2 (14:53):
Yes?
Speaker 3 (14:54):
Yes, And actually in investing, that's a great thing. It's
actually extremely important to be humble in investing. And the
reason for that is if you're overconfident, then you're kind
of having like blinders and not paying attention to the
risks involved. And you think you're you're the best investor,
You're everything you invest in will go up, But that's
(15:17):
not true. Even the best investors in the world are
batting approximately sixty percent. So in other words, if you're
above fifty percent in terms of your batting average, you're
considered a really good investor. And so that's just something
to keep in mind. The other thing to keep in
mind is that in terms of this bias, if you're overconfident,
(15:38):
if you make a lot of money in the very
short term as a beginner, what's going to happen is
you're gonna risk more and more money. But if your
results were more due to luck than skill, then you're
gonna get slammed at the end. It's kind of like
going to a casino winning for a month on the
(16:00):
Let's table and if you think, wow, I've figured out
a pattern, but in reality, there is no pattern to
roulette people have tried unless you have like a like
an earpiece or like an electronic device that can manipulate
the relett table spin. You know, it's all just luck,
and that that's the danger of overconfidence, mistaking luck for skill.
Speaker 1 (16:25):
Wow, those are great. So that was really really helpful
and yeah, very important things for people to hear and understand. So,
you know, we can understand some of those ideas and
those concepts and the biases. But what do you see
(16:47):
I mean, those are also emotional, but what other kinds
of emotional you know, kind of reactions do you see
from people? You know, what are they calling you about
in a panic?
Speaker 3 (17:00):
Yes, so I had one person she called me when
the stock was dropping like eighty percent, and people ask
me all the time what and by the way, that
was not my pick, just to be clear, that was
not my pick.
Speaker 2 (17:16):
That was their pick on their own.
Speaker 3 (17:17):
Okay, So but the stock drop eighty percent, and then
they're asking me, what do I need to do? Do
I think I need to hold this to make to
have the stock rebound? And I told I told them
that you don't need to make your money back the
same way you lost it. In other words, if it's
a lousy company and you just and it's not a
(17:40):
great investment, just go ahead and sell it and find
a new one. So people are so hesitant to take
a loss.
Speaker 2 (17:47):
They're so hesit. That's called loss of version. They're so
hesitant to.
Speaker 3 (17:52):
They always want to try to make the money back
in the same way they lost it. So it's just
important for people that what's happened in the past has
already happened, and what you have to think about is
going forward. And so that's something that I encounter, you know, frequently.
Speaker 1 (18:10):
Yeah, that's a great answer too, because we do have
a tendency, you know, when when things are dropping to
even with real estate, I had a rental property that
really tanked in you know, twenty eleven or whatever, and
I found myself just sort of waiting for it to
get back to a point where I could just pay
my loan. And in hindsight, no, it wasn't the strategy
(18:35):
I should have used it all. But but it's it
is interesting. Yeah, it's almost like a natural let me
see it get back to a certain point and then
I'll sell it. Yes, and that's not even what you
want to do. Then you want to get it to
that point and let it. I mean same with the
rental property. I should have just kept it. It would
have been, you know, worth twice as much now. So
(18:57):
it's interesting how reactive we get at with these things,
especially when we see them start to take a dive. Yes, yeah,
so you know, patients is a big part of it,
I guess absolutely, But like you said, you also don't
necessarily want to hang onto things just waiting, and that's
(19:17):
a tricky decision making process to navigate.
Speaker 3 (19:20):
Yeah, if it's a lousy company with bad prospects, you
definitely want to think about switching out.
Speaker 1 (19:26):
Right because you're losing the opportunity.
Speaker 2 (19:28):
Cost of the opportunity cost. Yes, yeah, yeah, absolutely, very.
Speaker 1 (19:32):
Very interesting and so and I love the you know
what you talked about or what I mentioned in your bio,
which was that whatever you're advising clients to do, you're
doing yourself. Yes, And is that common in the industry?
Is that what everybody's doing or is that pretty unique?
Speaker 3 (19:48):
No, it's it's actually pretty unique. And if you can
believe it, about half of mutual fund managers have no
money in their own fund. And this was a study
done by morning Star. And many people who obviously have
even some money invested in in whatever their clients are
(20:10):
invested in, are are not one hundred percent invested like
I am. So my net worth, outside of my emergency
fund and my opportunity fund, is exactly invested in the
same investments as my clients are.
Speaker 2 (20:23):
And what that does is that it creates alignment.
Speaker 3 (20:26):
And so the most important thing for an investment advisor
is to grow their clients' money, not to get more customers.
And so by having one hundred percent of my net worth,
I am incentivized to make sure that the investments do
really well, because if my clients lose money, I lose money.
And if they make money, I make money. So it's
(20:48):
extremely important, and that way the client can really understand
that whatever Earl is investing for us, it's in our
best interest because he thinks this investment will grow. Unlike
other advisors or other investment managers, where they don't have
skin in the game, then they have the tendency occasionally
(21:09):
to recommend certain investments that just get a large commission.
Speaker 1 (21:15):
Okay, okay, And that speaks to being a fiduciary versus
h I don't know what they call the other the
opposite of.
Speaker 2 (21:23):
That selfish, self serving.
Speaker 1 (21:29):
You do have to check, right, yeah, oh, advisor or not. So. Yeah,
that's all extremely important for people to understand when they
sign on with someone. Yes, absolutely, And how do you
approach the planning process? So if somebody comes into your
(21:50):
office and you know, wants to build their wealth, what
are some of the other underlying questions that you're digging
into to help them with that?
Speaker 3 (21:58):
Yes, definitely, Retirement planning is one of the biggest things
that my clients ask me and what I do for them.
But the most important thing to consider is that there
are so many financial planners that they build a plan,
they come up with one hundred page, glossy, nice looking
colorful packet that they hand out to customers they charge
(22:21):
thousands of dollars for. But the problem is that the
execution of that plan many times is not done well.
And so if they project, for example, on their plan
to get ten percent returns, they don't get They don't
get ten percent returns. Sometimes it's just six percent. So
that plan is meaningless unless you can deliver on the
(22:41):
actual returns. And so for me, the most important thing
is about executing the investment strategy in order to get
good returns. And then once once the client portfolio is
already set up, then I do a financial plan. Then
we do financial projections. And what I recommend for professional
(23:03):
advisors as well as for those average investors who tied
to just google retirement plan projections is to come up
with conservative assumptions. So similar to the margin of safety
principle that we were talking about earlier, you want to
have a buffer. So, as an example, if you've been
(23:24):
generating ten percent returns on your money, just assume that
you would get eight percent. If you think that you
are going to live until you're eighty, think that you're
going to live until you're ninety. If you think that
inflation is only going to run three to four percent,
think about running it at five percent. So if you
(23:46):
do these assumptions that are more conservative, if unexpected things happen,
just like a buffer, like a margin of safety, you're
still going to be okay. The last thing we want
for anybody to do is to be work, working for
the clients, to be working at Walmart when they're at
ninety So that's the last thing we want.
Speaker 2 (24:04):
So you want to be.
Speaker 3 (24:05):
Conservative just to make sure that you don't retire too early.
And you also want to if you're still working, you
want to save as much as possible in order to
create that buffer.
Speaker 1 (24:15):
M M. Yeah, wonderful. Wonderful advice. And so are you
investing in individual stocks as well as funds? Is it
a mix you know within people's portfolios that they're looking for.
Speaker 3 (24:30):
Yeah, so my specialty is actually investing in individual stocks.
I do have a service that invests in funds, but
that is not our primary service. The primary service is
individual stocks. And the reason for that is that Warren
Buffett said this that if you know what you're doing,
you want you don't want to be super diversified. You
(24:51):
want to concentrate your ideas in your largest in your
strongest conviction. So in other words, why invest in one
hundred stocks when you should in invest in your top
ten ideas. But if you're not that good, or if
you're not you don't know what you're doing, it's better
to just diversify and invest in the S and P
five hundred, invest in foreign index funds, things like that,
(25:13):
and that way, no one single egg will destroy your
nest egg.
Speaker 1 (25:19):
Yeah, very interesting. So you are kind of doing that
hard work of figuring out what the best companies are
to invest in, which I think, you know these days,
everybody's talking about, oh, don't bother to do that. You
can't beat you know, you can't beat these funds, and
so you know, and you know better than I do.
(25:39):
How that that is for the general population. Maybe that's
true in the general sense. But if you're if you're
knowledgeable enough and you know, you enjoy it and you
can figure it out and then you can do what
you're doing, which I think is is pretty great, especially
in this day and age, because I do think the
upside on certain specific companies is far greater. It's just
(26:03):
what are those you know, who are those companies? So, yeah,
I think that's a little unique. But is it or
is that just my assumption?
Speaker 2 (26:14):
No, you're you're correct.
Speaker 3 (26:15):
It's absolutely uncommon for advisors these days to invest in
individual stocks, and I think it's an extremely important skill.
So most people don't understand that sometimes large indexes like
the S and P five hundred could go on for
many years without making money. In fact, if you invested
(26:38):
in the S and P five hundred in nineteen ninety nine, approximately,
you wouldn't have made money for ten years. That's an
extremely long time, and people don't understand that. You mentioned
earlier that when you invest in stocks, you can find
really good ones that would go up in value significantly.
But the converse is true too, where if you invest
in the S and P five hundred, you're investing in
(27:00):
the good, the bag and the ugly, the overpriced and
the underpriced. So if you know what you're doing, why
not just stay away from those overvalued securities and focus
on the ones that are undervalued, and that way you
tilt the odds in.
Speaker 2 (27:13):
Your favor of making money.
Speaker 3 (27:16):
And so I do think that a lot more people
should come back to studying how to invest in individual stocks.
Speaker 1 (27:24):
Yeah, yeah, that's a really good point, because people, you know,
aren't necessarily learning those skills at this point. Yeah, interesting,
you can kind of gloss over that all that effort.
I remember my dad pouring over the charts that came
in the mail. He loved the stuff that you love,
and so he would spend hours in his study every
(27:44):
night after dinner just going over these paper charts. But
he enjoyed it. It was fun for him.
Speaker 2 (27:49):
So yeah, it's absolutely fun for me too. It's just
like a game.
Speaker 3 (27:53):
And the beauty about investing in the stock market is
that it's a game that pays you really well if
you're good.
Speaker 2 (27:59):
So it's super fun.
Speaker 1 (28:02):
What's you know, since you've been doing this for a while,
what's changed in recent times, you know, since the time
you started in terms of how you do this work.
I mean, now we have AI, so I'm assuming you're
incorporating some of that into your analysis.
Speaker 3 (28:20):
But yes, absolutely so. There are things that have changed
and things that have not changed. But in terms to
answer your question, I remember when I was starting doing
this more than twenty years ago, I would have print
outs of the annual reports and the proxy statements, and
some of those are three hundred pages long and so
I would read them covered to cover using yeah, with
those booklets, and so I'd have like a stack of
(28:43):
stuff on my on my desk of stuff to read.
And then eventually I can now download them, which which
is better and it says paper, So that's definitely has changed.
And then with the advent of AI, like you mentioned,
now instead of trying to find what page was that
number on depreciation, I can just type in to chat
(29:04):
GPT or GROCK or whatever you use, what was the
depreciation for year twenty nineteen And I don't have to
find the twenty nineteen annual report things like that. It
will just serve it up to me. So AI has
made searching for information within those statements a lot easier.
But at the same time, as we were talking about
(29:25):
earlier in the meeting, with the advent of technology, always
keep in mind that everyone has access to this. So
if everyone has access to this, that means the information
that you think is special is not really that special.
And in terms of what has not changed, what has
not changed over the markets is that people continue to
(29:47):
be emotional about their money and about investing. If things
are going up, people pylon. If things are going down,
people panic, and I don't think that's ever going to change,
even with Ai.
Speaker 1 (30:00):
That's really interesting. That is so interesting. So what what
would you tell people? What do you tell people about
those feelings that they're having. Do you tell them just
ride it out? I mean, what what is something that
helps them to understand?
Speaker 3 (30:17):
I would normally share this parable, hopefully I don't butcher it.
It's a Chinese parable. So there was there was this
father who who was who has a lot of horses.
He's a farmer, he has a lot of horses. And
then the horse ran away and then the neighbor said,
you know, that's that's that's too bad. But the but
(30:43):
the but the father said, you know, maybe maybe not.
And then the horse came back three days later, bringing
five horses, and then the neighbor said, oh, that's fantastic.
That's that's that's great. And then the father said, you know,
maybe maybe not. Then his son was riding the horse
(31:06):
and his son fell off the horse broke his leg.
Then the neighbor said, oh, that's terrible news. And father
said maybe maybe not. And then a few months later
there was a draft for the army. And then because
his son's leg was injured, his son couldn't be drafted
(31:27):
into the army. And then the neighbor said, oh, that's
fantastic news. Maybe, and then obviously the fathers that maybe
maybe not. And that story goes on, you know, and
and that just tells you that in terms of life,
if you think about your own lives, there's there's ups,
there's downs. Nothing stays bad forever, nothing good lasts forever,
(31:47):
unfortunately as well. And so just reflecting on your own life,
reflecting on that parable, just understanding that this too shall pass.
It's kind of like in the movie Lord of the
Rings there was Gandalf and he he had this staff
and he said, this too shall pass or something like that.
So just always keeping that in mind that whenever you
feel an emotion, it's eventually going to pass. It's like
(32:09):
if you meditate and you and you feel something itchy
on your face, if you do nothing, it.
Speaker 2 (32:16):
Eventually just goes away by itself. So that's what I
would recommend.
Speaker 1 (32:20):
Oh that's great. That was a great parable, a great advice,
and I so agree with you. You really don't know. So
when you see these isolated events happen, is it good,
is it bad? Well, it's going to feel a certain way,
but ultimately, yeah, that's a really great way to look
at it. Thank you for sharing that.
Speaker 2 (32:40):
You're welcome.
Speaker 1 (32:41):
So, yeah, there are there's a lot to talk about.
Do you want to just comment on sort of today's world?
And you know, because there's a lot of emotion in
current times about everything economic right now and then more
than economic, but so you know, it is it is
(33:02):
a funny turbulent in some ways and mysterious and others.
I mean, people are I what I see is a
little bit of a standstill. You know, there's a little
bit of paralysis because we don't know where things are
going or what's going to be happening. I see that
especially in real estate right now, particularly because I have
an investment property have been trying to sell and it's
(33:25):
good to go quite like this. But yeah, what would
you kind of say to people just you know, about
today's world?
Speaker 3 (33:36):
And there's yes, yes, so a great investor named Howard Mark.
You always say, we can't predict the future, but we
can understand where we're at currently and what has happened before,
and so that's what that's what we can do. So
what people need to know is that the stock market
has been on a sixteen year bull run. It has
(34:00):
been less volatile compared to historical standards, and the reason
for that is there are three main reasons. The first
reason is that interest rates were solow from two thousand
and nine to twenty and twenty one. The second reason
is that there was a lot of money printing by
(34:21):
the Federal Reserve. And then the third reason, the government
has been spending like a drunken sailor for many many years,
no matter Democrat or Republican, they've all been spending too much.
So for example, during COVID, there's a lot of stimulus
being done. Last year, as the percentage of GDP, the
(34:45):
government spent six and a half percent more of GDP
more than what they made, So that's extremely large. The
only times we've seen that through history are during the
recessions of two thousand and eight and COVID twenty twenty.
Speaker 2 (35:00):
So what that tells.
Speaker 3 (35:02):
Us is that the market has been on an upswing
and people might be excessively greedy at this point. And
so if we go back to what Warren Buffett was
saying before, is that we want to be fearful when
everyone's greedy. So I would just caution people that before
(35:23):
they make an investment, and there are investments still today
that are very attractive, but before they make an investment,
just be on the conservative side before you actually hit
that enter button on your trading machine.
Speaker 1 (35:37):
Thank you. Yeah, very very interesting and good advice. Are
there any sectors right now that since you're looking at
sort of more underperforming companies is yes, I'm hearing. What
sectors are you particularly interested in?
Speaker 3 (35:54):
Yes, So my favorite sector right now is what's unloved.
That it's always been the case, and it's health insurance companies.
So they've been battered really hard. So if you look
at health insurance stocks, they're down forty fifty sixty percent
from their highs this year, and that's not insignificant, and
(36:19):
there are many reasons why. One of the reasons why
that it is they have been hammered is that the
expenses that they're incurring are larger than what they expected.
So in other words, people are going to the emergency
room more, seeing doctors having procedures more than the historical averages.
(36:42):
And I do think that in the future that the
health insurance companies will be able to bounce back because
every year they are able to reprice what they charge
their customers or what they charge the government, or what
they charge corporations. Every year, whenever it hits like November, first,
(37:03):
I open up my health insurance statement. I mean, you're
a business, so I'm a business. When I see how
much my health insurance premiums increase.
Speaker 2 (37:09):
I curse. And it's really crazy. It's crazy. And no
matter who's president, Republican or Democrat. For for decades, we haven't.
Speaker 3 (37:22):
We haven't seen anything material change that, and I wish
they would, but so far, nothing has happened.
Speaker 2 (37:29):
And there have.
Speaker 3 (37:30):
Been some rumors here and there, or some hopes that
the US will transform to a universal health care policy
like Canada, but just given how entrenched the tentacles of
the health insurance industry is, I don't think that's going
to change ever, and so because of that, I think
(37:50):
the decline in the stock prices recently are a fantastic
opportunity for your listeners to do some investigation. And it's
not FUNA advice, but do some investigation and make sure
you think about the risks thoroughly, and of course consult
a professional advisor if you need to.
Speaker 1 (38:09):
Wow. Very interesting, Yeah, that's not what I expected, but
thinking about it that that's uh super interesting. I yeah,
these are the kinds of things that I think would
surprise They surprise me, So I think it would surprise people.
And I think that's very cool that you're looking at
(38:29):
those kinds of things. And maybe that's an incentive for
other people also to think about that, you know too,
uh to look for these areas that are I mean,
everybody's jumping on the bandwagon.
Speaker 2 (38:40):
Of yes Ai Ai and the.
Speaker 1 (38:43):
Japanese and all of that. But and of course most
of us seem to miss the mark on that and
and sort of wake up when the prices are so high.
So I don't know what that does for us really,
but but yeah, very very interesting. I'd love to hear
another one because that was so it's surprising to me.
But is there one more that you can think of
(39:04):
off quickly off the top of your head.
Speaker 2 (39:08):
Instead of.
Speaker 3 (39:11):
It would be more individual stocks more than industries, Michelle, So,
I don't get myself in trouble, okay, giving financial specific
financial advice on your show, So let's probably skip that
for now.
Speaker 1 (39:23):
Okay, Okay, Well, how do people get in touch with
you if they want to have this personal conversation with you.
Speaker 3 (39:29):
Yes, So, first, we created a special web page for
your listeners.
Speaker 2 (39:35):
It is my wealth arch dot.
Speaker 3 (39:37):
Com slash money and you and let me spell that
m y W e A L t h A r
c h dot com slash m O n E y
A n d y ou and just for my website
(39:59):
engen just my wealth arch dot com. That is the
best way to get in touch with me. And I'd
love to have a conversation with any of your audience members.
We can talk stocks, talk industries, or talk just psychological biases,
which is my favorite.
Speaker 1 (40:12):
Yeah, now, thank you for that. That's fantastic. Thank you
for the special page for the listeners. And yeah, I
think I hope people will be listening and contact you
because you sound very, very dedicated and you know, passionate
about getting this right for people and for yourself. I
(40:34):
love that you're in it too. I think that's a
huge plus.
Speaker 3 (40:36):
So yes, well, thank you, Michelle. It's been an honor
and a pleasure. This is a fantastic show and I'm
grateful to be on your show.
Speaker 1 (40:44):
Thank you, Thank you so much. And we'll put we'll
put these biases a little summary of that in the
show notes. I think it's really important for people. It's
one thing to hear it, it's another thing to kind
of really sit with it for a minute and try
to figure out where that's showing up for you, you know,
all the different I see. So that's very very helpful. Well,
thank you, and yeah, I very much appreciate your time
(41:07):
and sharing your knowledge here on the show. So yeah,
thank you, thank you, Michelle. Okay, well, an audience, thank
you so much for joining us. Listen, and if you
like the show or you want to share it with
friends and family, we would love that, and we would
love to have you rate and review the show if
(41:28):
you got something out of it today, and that helps
us to continue to bring great guests like Earl on
the show. And yeah, so we will. I would really
advise people to give Earle a call see what he's
up to. If you you know, it's always good to
talk to a variety of people in the financial world
to see really who is the right person to be
(41:49):
on your team, because you know, and until you have
a conversation with people, I don't think you really know
that you can read their marketing material or what have you.
But it's really important to have a rapport with your
you know, advisors, and to know what they're doing. So
that's one thing Earle that I really loved about how
you're explaining things is people can really get a clear
idea of what you're doing for them in a concrete way,
(42:12):
how you actually do execute on your plan, and I
think sometimes people will leave it a little unclear, so
I admire the way that you do this. So all right, well,
thank you audience, and you can reach me at Michelle
two L's atlimit FreeLife dot com and please check out
the Limit Free Life website to join our blog community
(42:35):
and see what we have going on as well. We're
really dedicated to financial education and we deliver a lot
of it here on the podcast, but I have some
other programs and courses and information on ways that you
can learn to be more financially savvy so that when
you're talking to people out there like Earle, you know
(42:57):
how to have those conversations. All right, well, thank you
so much, and thank you U bin Go for producing
the show, and we'll see you next week.
But what other kinds of emotional you know, kind of
reactions do you see from people? You know, what are
they calling you about in a panic?
Speaker 2 (00:11):
Yes?
Speaker 3 (00:11):
So I had one person she called me when this
stock was dropping like eighty percent. And people ask me
all the time what and by the way, that was
not my pick, just to be clear, that was not
my pick. That was their pick on their own. Okay,
So but the stock drop eighty percent, and then they're
(00:33):
asking me, what do I need to do? Do I
think I need to hold this through make to have
the stock rebound? And my I told I told them
that you don't need to make your money back the
same way you lost it. In other words, if it's
a lousy company and you just and it's not a
great investment, just go it and sell it and find
(00:53):
a new one. So people are so hesitant to take
a loss.
Speaker 2 (00:58):
They're so hesity that's called loss of version, and they're
so hesitant to.
Speaker 3 (01:03):
They always want to try to make the money back
in the same way they lost it. So it's just
important for people that what's happened in the past has
already happened, and what you have to think about is
going forward.
Speaker 1 (01:17):
Hey, there and Welcome to Money and You. I'm Michelle Perkins,
your host. My search for more fulfilling work led me
to career in business coaching, where I stumbled upon a
game changing discovery. Money issues often start with our mindset
and habits. You see, our relationship with money is the
key to overcoming those frustrating financial obstacles. As an entrepreneur, coach,
(01:39):
and problem solver, I'm passionate about helping you create a
great relationship with money, because turns out that's the foundation
for a limit free life. Each week on Money in You,
I speak with amazing guests about all things money, mindset,
practical tips, and everything in between. We're here to give
you new insights, education and empowerment. So money can be
(02:01):
one of your favorite relationships.
Speaker 2 (02:03):
So join us for some.
Speaker 1 (02:04):
Lively conversations and let's transform your financial life together. He Hello,
and welcome to another episode of the Money in You podcast.
So happy to be here with you today, so happy
to bring you a really wonderful guest, and we're going
to talk about investments. We're going to talk about some
of the psychological things that go on with money that
(02:27):
you know I love to talk about. So we're going
to jump in very quickly here with today's guest. So
I'm going to go ahead and give you a little
intro into Earl Yao Cossen. Earl is a CFO. He's
the founder of Wealth Arch Investment Services in Pasadena, California,
where he helps high net worth individuals and couples build
(02:50):
wealth through value investing and personalized financial planning. With more
than two decades of hands on experience and a prestigious
CFA designation, Earl blends the timeless principles of Warren Buffett
with modern behavioral finance to help clients achieve financial independence.
Invest his personal portfolio in exactly the same assets as
(03:10):
his clients, reinforcing full alignment and transparency. Earl takes pride
in offering advice free of commission, sales, quotas, or gimmicks.
His firm is one hundred percent fiduciary and his focus
is on long term results, not short short term hype.
Through education, clear planning, and thoughtful market navigation, Earle empowers
(03:31):
his clients to avoid common financial traps, stay on course
during turbulent times, and reach their goals with clarity and confidence.
Speaker 3 (03:39):
Earl Welcome, well, Thank you, Michelle, It's an honor to
be on your show.
Speaker 1 (03:43):
I'm so happy that you're here. We had such a
fun conversation a while ago, and I was looking so
forward to having you on. So yeah, I'd love for
you to just to start by giving us a little
background on what brought you to this particular career.
Speaker 3 (03:59):
Yes, So, when I was younger, one day I turned
on the CNBC channel and then I saw these things
going up and down, and it interested me. It seemed
like a game. I've always been great at games, and
I also won a national math competition when I was
in seventh grade, so numbers and strategy was always my interest.
(04:24):
And then I tried every single thing I could I
could come across. I read every single book in the libraries.
I tried technical analysis, I tried fundamental analysis. I tried
all of these things and basically charting everything, everything you
can think of, and I figured out eventually. It took
me quite a while to find what suited me best,
(04:48):
and here I am today helping other people invest their
money in the stock market in a more safer and
less volatile manner.
Speaker 1 (05:00):
You that's great. I love that. I love even hearing
about it, because I get that my sister's a mathematician.
My daughter was so good at math. I mean just
from an early age. The teachers were asking her to
help the other kids, and I was so excited, and
I thought, you know, she will go into something math oriented,
but she didn't. So I feel like and she loved
(05:23):
games too. I think that's a clue. If you love
games and puzzles and things like that, I think math
is something that comes a little bit more easily to you. Possibly,
But yeah, okay, so that's great, And I'd love to
know a little bit about your philosophy around investing, because
I think it's a really one that a lot of
(05:44):
people can benefit from hearing.
Speaker 3 (05:46):
So one of the most important investments principles that I
use is called the margin of safety. In plain English,
that's just like a buffer. So it's just like going
to them all you're going shopping, you're trying to look
for a nice dress. If you see something that's fifty
percent off and it's selling for fifty dollars, that means
it's worth it was worth one hundred dollars initially. And
(06:08):
the same thing is true for stocks as well. If
my valuation of a specific company is one hundred dollars
and it's trading for fifty dollars. That difference is called
the margin of safety or the buffer, and that helps
investors protect themselves from losing money on a permanent basis.
(06:29):
And the reason for that is because if, for example,
that the competition comes up with a new product, then
your valuation of one hundred could drop down to ninety dollars.
Let's say the CEO mismanaged a strategy, a product launch,
or something, then that ninety dollars could drop to eighty.
Let's say I made a mistake in my own calculations,
(06:50):
I was over optimistic about the company. That eighty drops
to seventy, and so on and so forth. So if
if my ending valuation after all of those, expect that
negative events happen at the same time, drops my valuation
from one hundred to seventy, and I bought it for
fifty dollars, as long as the market's not panicking, eventually
(07:12):
the seventy dollars stock price will get hit and I
will still make some money. And so that's how the
margin of safety works extremely well in protecting downside.
Speaker 1 (07:22):
Okay, yeah, thank you. And how how does one I
mean you're an expert in this, but how does the
average person figure out what that margin of safety could
be or should be.
Speaker 3 (07:33):
Yeah, so, in terms of the average person, you need
to really delve into the financial statements to come up
with an estimated value for the company, and it's really
not for the average person to do. And so my
advice for the average person is to simply try to
(07:55):
take a look at what the market environment or what
the participants or the mood of the market is. So
Warren Buffett's famous saying is that when the market is greedy,
be fearful, and when the market is fearful, be greedy.
So just trying to get a sense and do the
opposite of what everyone's doing. So by doing that, if
(08:18):
everyone's excited, that means that stock prices are expensive and
there's no margin of safety, there's no buffer. But if
everyone's panicking and they're just selling stock prices, that means
stock prices are depressed, and that means your buffer is
so large. So that's one quick way for the average
person to take advantage of the margin of safety concept
(08:38):
without having to do complex math.
Speaker 1 (08:41):
Mmmmm, oh, I love that. Thank you. That's a great answer. Okay,
So let's talk a little about the psychological kind of
aspects of money, because I love talking about that on
their show, and we do really dive into people's relationship
with money, and you know, you're dealing with people and
their money all the time, and so what are some
(09:03):
of the things that you're seeing that both help people
and also get in their way? I mean, it works
both ways. It's not always adeptent, but yeah.
Speaker 2 (09:13):
Yes, definitely.
Speaker 3 (09:14):
And before I answer that question, I'm just gonna quickly
take a step back and kind of like go on
a bigger picture. So in the markets today are investing.
Everybody has access to the computer, everybody has access to
the internet, so informational advantages these days compared to forty
years ago, is much less existent. The other thing is
(09:37):
that there are so many smart people crunching the numbers
trying to get that intrinsic value that we talked about earlier.
And really, because this is a game of strategy, just
like poker, there's not much advantages left for Do you
want me to pot I think I froze.
Speaker 1 (09:57):
Oh sorry, I think it's my internet. And I'm calling
this afternoon.
Speaker 3 (10:01):
Because I don't Okay, no worries I can restart from
this question.
Speaker 1 (10:04):
Intrinsic value, and then you froze, So.
Speaker 3 (10:07):
But you can back up, Okay, I can back up, Okay, okay, okay. Yeah,
So let me take a step back and just answer
the question from a bigger picture. So the first thing
I wanted to say is that there are a lot
of people that have access to the Internet, have access
(10:29):
to information that everybody else has forty years ago.
Speaker 2 (10:33):
People know stuff that other people didn't know, and so
that's very different.
Speaker 3 (10:38):
And then the second thing is that there's so many
smart people calculating intrinsic value, which we talked about earlier.
So the real advantage for many people, including professionals and
average investors, is to focus on the emotional psychological aspects.
That's where you can get an advantage against professional investors.
(10:59):
And the best way to get an advantage is understanding
seven of the top investment biases out there, and the
first one is herd mentality. So what that is is
just you're doing what everybody else is doing. So I
mentioned earlier Warren Buffett's principle. So if you are buying
(11:20):
when everyone's buying, you are buying at very expensive prices
when you're selling when everyone's panicking. You are selling at
very cheap prices. So that is something you don't want
to do. And by doing the opposite, that's how you
can make money. The big money love that. And then
the second one is called recency bias. So many people
(11:44):
in whether it's forecasting things in their personal life or
things with their money, they think about what happened in
the last month, what happened in the last year, and
they think that's what's going to continue going forward. For example,
last year, the stock market was up more than twenty percent,
(12:05):
and people are thinking, oh, I think the stock market's
going to be up another twenty percent this year. But
if you look at the longer term history of the markets,
most of the time markets are actually what is called
mean reverting in plain English. What that means is just
it goes back to averages, goes back to the averages.
Speaker 2 (12:27):
So if something is super high, a.
Speaker 3 (12:31):
Stock price is super high, then eventually it will drop
to where it should go. And when when stock prices
are super low, eventually it will go back up to
where it should be in terms of the long term averages.
So what we want to make sure is we want
to make sure that when we evaluate certain things, we
want to take a look at a longer timeframe.
Speaker 1 (12:52):
Okay.
Speaker 3 (12:53):
The third thing is confirmation bias, and what that is
is that, Okay, I bought XYZ stock yesterday, and when
I'm tracking or re evaluating my investment opinion of this company,
I am going to look for people that agree with me.
(13:14):
And when you do that, you feel good. It feels
really good to have smart people agree with you. But
the best advice that I have for your audience is
to actually look for the opposite, which is you want
to look for the people who disagree with you. So
if you bought XYZ stock, you want to look for
people that say this is a bad investment because of
(13:38):
number one, number two, and number three.
Speaker 2 (13:40):
Then you want.
Speaker 3 (13:41):
To think about are those reasons valid, And then that
way you can challenge your own position and just to
make sure that your beliefs are actually correct.
Speaker 2 (13:52):
And it's not a one time thing.
Speaker 3 (13:54):
You always want to be reevaluating your investments periodically.
Speaker 2 (14:00):
The third one, the fourth one, is called over confidence.
And so.
Speaker 3 (14:07):
If we ask one hundred people, are you an above
average driver? Seventy people will say yes, But there's no
way seventy people are above average.
Speaker 2 (14:17):
So it's the same thing with investing. It's like how
good are you?
Speaker 3 (14:23):
When I talk to prospective clients, the first thing I
asked them is, on a rating scale of one to ten,
one being you don't know anything, ten being you're an expert,
where do you think you fall? And most of the times,
especially males, they say eight to ten when they're really
a one to three.
Speaker 2 (14:44):
So you know there's there's a lot of ego involved there.
Speaker 1 (14:47):
So but do you find the opposite with women where
they go too low?
Speaker 2 (14:53):
Yes?
Speaker 3 (14:54):
Yes, And actually in investing, that's a great thing. It's
actually extremely important to be humble in investing. And the
reason for that is if you're overconfident, then you're kind
of having like blinders and not paying attention to the
risks involved. And you think you're you're the best investor,
You're everything you invest in will go up, But that's
(15:17):
not true. Even the best investors in the world are
batting approximately sixty percent. So in other words, if you're
above fifty percent in terms of your batting average, you're
considered a really good investor. And so that's just something
to keep in mind. The other thing to keep in
mind is that in terms of this bias, if you're overconfident,
(15:38):
if you make a lot of money in the very
short term as a beginner, what's going to happen is
you're gonna risk more and more money. But if your
results were more due to luck than skill, then you're
gonna get slammed at the end. It's kind of like
going to a casino winning for a month on the
(16:00):
Let's table and if you think, wow, I've figured out
a pattern, but in reality, there is no pattern to
roulette people have tried unless you have like a like
an earpiece or like an electronic device that can manipulate
the relett table spin. You know, it's all just luck,
and that that's the danger of overconfidence, mistaking luck for skill.
Speaker 1 (16:25):
Wow, those are great. So that was really really helpful
and yeah, very important things for people to hear and understand. So,
you know, we can understand some of those ideas and
those concepts and the biases. But what do you see
(16:47):
I mean, those are also emotional, but what other kinds
of emotional you know, kind of reactions do you see
from people? You know, what are they calling you about
in a panic?
Speaker 3 (17:00):
Yes, so I had one person she called me when
the stock was dropping like eighty percent, and people ask
me all the time what and by the way, that
was not my pick, just to be clear, that was
not my pick.
Speaker 2 (17:16):
That was their pick on their own.
Speaker 3 (17:17):
Okay, So but the stock drop eighty percent, and then
they're asking me, what do I need to do? Do
I think I need to hold this to make to
have the stock rebound? And I told I told them
that you don't need to make your money back the
same way you lost it. In other words, if it's
a lousy company and you just and it's not a
(17:40):
great investment, just go ahead and sell it and find
a new one. So people are so hesitant to take
a loss.
Speaker 2 (17:47):
They're so hesit. That's called loss of version. They're so
hesitant to.
Speaker 3 (17:52):
They always want to try to make the money back
in the same way they lost it. So it's just
important for people that what's happened in the past has
already happened, and what you have to think about is
going forward. And so that's something that I encounter, you know, frequently.
Speaker 1 (18:10):
Yeah, that's a great answer too, because we do have
a tendency, you know, when when things are dropping to
even with real estate, I had a rental property that
really tanked in you know, twenty eleven or whatever, and
I found myself just sort of waiting for it to
get back to a point where I could just pay
my loan. And in hindsight, no, it wasn't the strategy
(18:35):
I should have used it all. But but it's it
is interesting. Yeah, it's almost like a natural let me
see it get back to a certain point and then
I'll sell it. Yes, and that's not even what you
want to do. Then you want to get it to
that point and let it. I mean same with the
rental property. I should have just kept it. It would
have been, you know, worth twice as much now. So
(18:57):
it's interesting how reactive we get at with these things,
especially when we see them start to take a dive. Yes, yeah,
so you know, patients is a big part of it,
I guess absolutely, But like you said, you also don't
necessarily want to hang onto things just waiting, and that's
(19:17):
a tricky decision making process to navigate.
Speaker 3 (19:20):
Yeah, if it's a lousy company with bad prospects, you
definitely want to think about switching out.
Speaker 1 (19:26):
Right because you're losing the opportunity.
Speaker 2 (19:28):
Cost of the opportunity cost. Yes, yeah, yeah, absolutely, very.
Speaker 1 (19:32):
Very interesting and so and I love the you know
what you talked about or what I mentioned in your bio,
which was that whatever you're advising clients to do, you're
doing yourself. Yes, And is that common in the industry?
Is that what everybody's doing or is that pretty unique?
Speaker 3 (19:48):
No, it's it's actually pretty unique. And if you can
believe it, about half of mutual fund managers have no
money in their own fund. And this was a study
done by morning Star. And many people who obviously have
even some money invested in in whatever their clients are
(20:10):
invested in, are are not one hundred percent invested like
I am. So my net worth, outside of my emergency
fund and my opportunity fund, is exactly invested in the
same investments as my clients are.
Speaker 2 (20:23):
And what that does is that it creates alignment.
Speaker 3 (20:26):
And so the most important thing for an investment advisor
is to grow their clients' money, not to get more customers.
And so by having one hundred percent of my net worth,
I am incentivized to make sure that the investments do
really well, because if my clients lose money, I lose money.
And if they make money, I make money. So it's
(20:48):
extremely important, and that way the client can really understand
that whatever Earl is investing for us, it's in our
best interest because he thinks this investment will grow. Unlike
other advisors or other investment managers, where they don't have
skin in the game, then they have the tendency occasionally
(21:09):
to recommend certain investments that just get a large commission.
Speaker 1 (21:15):
Okay, okay, And that speaks to being a fiduciary versus
h I don't know what they call the other the
opposite of.
Speaker 2 (21:23):
That selfish, self serving.
Speaker 1 (21:29):
You do have to check, right, yeah, oh, advisor or not. So. Yeah,
that's all extremely important for people to understand when they
sign on with someone. Yes, absolutely, And how do you
approach the planning process? So if somebody comes into your
(21:50):
office and you know, wants to build their wealth, what
are some of the other underlying questions that you're digging
into to help them with that?
Speaker 3 (21:58):
Yes, definitely, Retirement planning is one of the biggest things
that my clients ask me and what I do for them.
But the most important thing to consider is that there
are so many financial planners that they build a plan,
they come up with one hundred page, glossy, nice looking
colorful packet that they hand out to customers they charge
(22:21):
thousands of dollars for. But the problem is that the
execution of that plan many times is not done well.
And so if they project, for example, on their plan
to get ten percent returns, they don't get They don't
get ten percent returns. Sometimes it's just six percent. So
that plan is meaningless unless you can deliver on the
(22:41):
actual returns. And so for me, the most important thing
is about executing the investment strategy in order to get
good returns. And then once once the client portfolio is
already set up, then I do a financial plan. Then
we do financial projections. And what I recommend for professional
(23:03):
advisors as well as for those average investors who tied
to just google retirement plan projections is to come up
with conservative assumptions. So similar to the margin of safety
principle that we were talking about earlier, you want to
have a buffer. So, as an example, if you've been
(23:24):
generating ten percent returns on your money, just assume that
you would get eight percent. If you think that you
are going to live until you're eighty, think that you're
going to live until you're ninety. If you think that
inflation is only going to run three to four percent,
think about running it at five percent. So if you
(23:46):
do these assumptions that are more conservative, if unexpected things happen,
just like a buffer, like a margin of safety, you're
still going to be okay. The last thing we want
for anybody to do is to be work, working for
the clients, to be working at Walmart when they're at
ninety So that's the last thing we want.
Speaker 2 (24:04):
So you want to be.
Speaker 3 (24:05):
Conservative just to make sure that you don't retire too early.
And you also want to if you're still working, you
want to save as much as possible in order to
create that buffer.
Speaker 1 (24:15):
M M. Yeah, wonderful. Wonderful advice. And so are you
investing in individual stocks as well as funds? Is it
a mix you know within people's portfolios that they're looking for.
Speaker 3 (24:30):
Yeah, so my specialty is actually investing in individual stocks.
I do have a service that invests in funds, but
that is not our primary service. The primary service is
individual stocks. And the reason for that is that Warren
Buffett said this that if you know what you're doing,
you want you don't want to be super diversified. You
(24:51):
want to concentrate your ideas in your largest in your
strongest conviction. So in other words, why invest in one
hundred stocks when you should in invest in your top
ten ideas. But if you're not that good, or if
you're not you don't know what you're doing, it's better
to just diversify and invest in the S and P
five hundred, invest in foreign index funds, things like that,
(25:13):
and that way, no one single egg will destroy your
nest egg.
Speaker 1 (25:19):
Yeah, very interesting. So you are kind of doing that
hard work of figuring out what the best companies are
to invest in, which I think, you know these days,
everybody's talking about, oh, don't bother to do that. You
can't beat you know, you can't beat these funds, and
so you know, and you know better than I do.
(25:39):
How that that is for the general population. Maybe that's
true in the general sense. But if you're if you're
knowledgeable enough and you know, you enjoy it and you
can figure it out and then you can do what
you're doing, which I think is is pretty great, especially
in this day and age, because I do think the
upside on certain specific companies is far greater. It's just
(26:03):
what are those you know, who are those companies? So, yeah,
I think that's a little unique. But is it or
is that just my assumption?
Speaker 2 (26:14):
No, you're you're correct.
Speaker 3 (26:15):
It's absolutely uncommon for advisors these days to invest in
individual stocks, and I think it's an extremely important skill.
So most people don't understand that sometimes large indexes like
the S and P five hundred could go on for
many years without making money. In fact, if you invested
(26:38):
in the S and P five hundred in nineteen ninety nine, approximately,
you wouldn't have made money for ten years. That's an
extremely long time, and people don't understand that. You mentioned
earlier that when you invest in stocks, you can find
really good ones that would go up in value significantly.
But the converse is true too, where if you invest
in the S and P five hundred, you're investing in
(27:00):
the good, the bag and the ugly, the overpriced and
the underpriced. So if you know what you're doing, why
not just stay away from those overvalued securities and focus
on the ones that are undervalued, and that way you
tilt the odds in.
Speaker 2 (27:13):
Your favor of making money.
Speaker 3 (27:16):
And so I do think that a lot more people
should come back to studying how to invest in individual stocks.
Speaker 1 (27:24):
Yeah, yeah, that's a really good point, because people, you know,
aren't necessarily learning those skills at this point. Yeah, interesting,
you can kind of gloss over that all that effort.
I remember my dad pouring over the charts that came
in the mail. He loved the stuff that you love,
and so he would spend hours in his study every
(27:44):
night after dinner just going over these paper charts. But
he enjoyed it. It was fun for him.
Speaker 2 (27:49):
So yeah, it's absolutely fun for me too. It's just
like a game.
Speaker 3 (27:53):
And the beauty about investing in the stock market is
that it's a game that pays you really well if
you're good.
Speaker 2 (27:59):
So it's super fun.
Speaker 1 (28:02):
What's you know, since you've been doing this for a while,
what's changed in recent times, you know, since the time
you started in terms of how you do this work.
I mean, now we have AI, so I'm assuming you're
incorporating some of that into your analysis.
Speaker 3 (28:20):
But yes, absolutely so. There are things that have changed
and things that have not changed. But in terms to
answer your question, I remember when I was starting doing
this more than twenty years ago, I would have print
outs of the annual reports and the proxy statements, and
some of those are three hundred pages long and so
I would read them covered to cover using yeah, with
those booklets, and so I'd have like a stack of
(28:43):
stuff on my on my desk of stuff to read.
And then eventually I can now download them, which which
is better and it says paper, So that's definitely has changed.
And then with the advent of AI, like you mentioned,
now instead of trying to find what page was that
number on depreciation, I can just type in to chat
(29:04):
GPT or GROCK or whatever you use, what was the
depreciation for year twenty nineteen And I don't have to
find the twenty nineteen annual report things like that. It
will just serve it up to me. So AI has
made searching for information within those statements a lot easier.
But at the same time, as we were talking about
(29:25):
earlier in the meeting, with the advent of technology, always
keep in mind that everyone has access to this. So
if everyone has access to this, that means the information
that you think is special is not really that special.
And in terms of what has not changed, what has
not changed over the markets is that people continue to
(29:47):
be emotional about their money and about investing. If things
are going up, people pylon. If things are going down,
people panic, and I don't think that's ever going to change,
even with Ai.
Speaker 1 (30:00):
That's really interesting. That is so interesting. So what what
would you tell people? What do you tell people about
those feelings that they're having. Do you tell them just
ride it out? I mean, what what is something that
helps them to understand?
Speaker 3 (30:17):
I would normally share this parable, hopefully I don't butcher it.
It's a Chinese parable. So there was there was this
father who who was who has a lot of horses.
He's a farmer, he has a lot of horses. And
then the horse ran away and then the neighbor said,
you know, that's that's that's too bad. But the but
(30:43):
the but the father said, you know, maybe maybe not.
And then the horse came back three days later, bringing
five horses, and then the neighbor said, oh, that's fantastic.
That's that's that's great. And then the father said, you know,
maybe maybe not. Then his son was riding the horse
(31:06):
and his son fell off the horse broke his leg.
Then the neighbor said, oh, that's terrible news. And father
said maybe maybe not. And then a few months later
there was a draft for the army. And then because
his son's leg was injured, his son couldn't be drafted
(31:27):
into the army. And then the neighbor said, oh, that's
fantastic news. Maybe, and then obviously the fathers that maybe
maybe not. And that story goes on, you know, and
and that just tells you that in terms of life,
if you think about your own lives, there's there's ups,
there's downs. Nothing stays bad forever, nothing good lasts forever,
(31:47):
unfortunately as well. And so just reflecting on your own life,
reflecting on that parable, just understanding that this too shall pass.
It's kind of like in the movie Lord of the
Rings there was Gandalf and he he had this staff
and he said, this too shall pass or something like that.
So just always keeping that in mind that whenever you
feel an emotion, it's eventually going to pass. It's like
(32:09):
if you meditate and you and you feel something itchy
on your face, if you do nothing, it.
Speaker 2 (32:16):
Eventually just goes away by itself. So that's what I
would recommend.
Speaker 1 (32:20):
Oh that's great. That was a great parable, a great advice,
and I so agree with you. You really don't know. So
when you see these isolated events happen, is it good,
is it bad? Well, it's going to feel a certain way,
but ultimately, yeah, that's a really great way to look
at it. Thank you for sharing that.
Speaker 2 (32:40):
You're welcome.
Speaker 1 (32:41):
So, yeah, there are there's a lot to talk about.
Do you want to just comment on sort of today's world?
And you know, because there's a lot of emotion in
current times about everything economic right now and then more
than economic, but so you know, it is it is
(33:02):
a funny turbulent in some ways and mysterious and others.
I mean, people are I what I see is a
little bit of a standstill. You know, there's a little
bit of paralysis because we don't know where things are
going or what's going to be happening. I see that
especially in real estate right now, particularly because I have
an investment property have been trying to sell and it's
(33:25):
good to go quite like this. But yeah, what would
you kind of say to people just you know, about
today's world?
Speaker 3 (33:36):
And there's yes, yes, so a great investor named Howard Mark.
You always say, we can't predict the future, but we
can understand where we're at currently and what has happened before,
and so that's what that's what we can do. So
what people need to know is that the stock market
has been on a sixteen year bull run. It has
(34:00):
been less volatile compared to historical standards, and the reason
for that is there are three main reasons. The first
reason is that interest rates were solow from two thousand
and nine to twenty and twenty one. The second reason
is that there was a lot of money printing by
(34:21):
the Federal Reserve. And then the third reason, the government
has been spending like a drunken sailor for many many years,
no matter Democrat or Republican, they've all been spending too much.
So for example, during COVID, there's a lot of stimulus
being done. Last year, as the percentage of GDP, the
(34:45):
government spent six and a half percent more of GDP
more than what they made, So that's extremely large. The
only times we've seen that through history are during the
recessions of two thousand and eight and COVID twenty twenty.
Speaker 2 (35:00):
So what that tells.
Speaker 3 (35:02):
Us is that the market has been on an upswing
and people might be excessively greedy at this point. And
so if we go back to what Warren Buffett was
saying before, is that we want to be fearful when
everyone's greedy. So I would just caution people that before
(35:23):
they make an investment, and there are investments still today
that are very attractive, but before they make an investment,
just be on the conservative side before you actually hit
that enter button on your trading machine.
Speaker 1 (35:37):
Thank you. Yeah, very very interesting and good advice. Are
there any sectors right now that since you're looking at
sort of more underperforming companies is yes, I'm hearing. What
sectors are you particularly interested in?
Speaker 3 (35:54):
Yes, So my favorite sector right now is what's unloved.
That it's always been the case, and it's health insurance companies.
So they've been battered really hard. So if you look
at health insurance stocks, they're down forty fifty sixty percent
from their highs this year, and that's not insignificant, and
(36:19):
there are many reasons why. One of the reasons why
that it is they have been hammered is that the
expenses that they're incurring are larger than what they expected.
So in other words, people are going to the emergency
room more, seeing doctors having procedures more than the historical averages.
(36:42):
And I do think that in the future that the
health insurance companies will be able to bounce back because
every year they are able to reprice what they charge
their customers or what they charge the government, or what
they charge corporations. Every year, whenever it hits like November, first,
(37:03):
I open up my health insurance statement. I mean, you're
a business, so I'm a business. When I see how
much my health insurance premiums increase.
Speaker 2 (37:09):
I curse. And it's really crazy. It's crazy. And no
matter who's president, Republican or Democrat. For for decades, we haven't.
Speaker 3 (37:22):
We haven't seen anything material change that, and I wish
they would, but so far, nothing has happened.
Speaker 2 (37:29):
And there have.
Speaker 3 (37:30):
Been some rumors here and there, or some hopes that
the US will transform to a universal health care policy
like Canada, but just given how entrenched the tentacles of
the health insurance industry is, I don't think that's going
to change ever, and so because of that, I think
(37:50):
the decline in the stock prices recently are a fantastic
opportunity for your listeners to do some investigation. And it's
not FUNA advice, but do some investigation and make sure
you think about the risks thoroughly, and of course consult
a professional advisor if you need to.
Speaker 1 (38:09):
Wow. Very interesting, Yeah, that's not what I expected, but
thinking about it that that's uh super interesting. I yeah,
these are the kinds of things that I think would
surprise They surprise me, So I think it would surprise people.
And I think that's very cool that you're looking at
(38:29):
those kinds of things. And maybe that's an incentive for
other people also to think about that, you know too,
uh to look for these areas that are I mean,
everybody's jumping on the bandwagon.
Speaker 2 (38:40):
Of yes Ai Ai and the.
Speaker 1 (38:43):
Japanese and all of that. But and of course most
of us seem to miss the mark on that and
and sort of wake up when the prices are so high.
So I don't know what that does for us really,
but but yeah, very very interesting. I'd love to hear
another one because that was so it's surprising to me.
But is there one more that you can think of
(39:04):
off quickly off the top of your head.
Speaker 2 (39:08):
Instead of.
Speaker 3 (39:11):
It would be more individual stocks more than industries, Michelle, So,
I don't get myself in trouble, okay, giving financial specific
financial advice on your show, So let's probably skip that
for now.
Speaker 1 (39:23):
Okay, Okay, Well, how do people get in touch with
you if they want to have this personal conversation with you.
Speaker 3 (39:29):
Yes, So, first, we created a special web page for
your listeners.
Speaker 2 (39:35):
It is my wealth arch dot.
Speaker 3 (39:37):
Com slash money and you and let me spell that
m y W e A L t h A r
c h dot com slash m O n E y
A n d y ou and just for my website
(39:59):
engen just my wealth arch dot com. That is the
best way to get in touch with me. And I'd
love to have a conversation with any of your audience members.
We can talk stocks, talk industries, or talk just psychological biases,
which is my favorite.
Speaker 1 (40:12):
Yeah, now, thank you for that. That's fantastic. Thank you
for the special page for the listeners. And yeah, I
think I hope people will be listening and contact you
because you sound very, very dedicated and you know, passionate
about getting this right for people and for yourself. I
(40:34):
love that you're in it too. I think that's a
huge plus.
Speaker 3 (40:36):
So yes, well, thank you, Michelle. It's been an honor
and a pleasure. This is a fantastic show and I'm
grateful to be on your show.
Speaker 1 (40:44):
Thank you, Thank you so much. And we'll put we'll
put these biases a little summary of that in the
show notes. I think it's really important for people. It's
one thing to hear it, it's another thing to kind
of really sit with it for a minute and try
to figure out where that's showing up for you, you know,
all the different I see. So that's very very helpful. Well,
thank you, and yeah, I very much appreciate your time
(41:07):
and sharing your knowledge here on the show. So yeah,
thank you, thank you, Michelle. Okay, well, an audience, thank
you so much for joining us. Listen, and if you
like the show or you want to share it with
friends and family, we would love that, and we would
love to have you rate and review the show if
(41:28):
you got something out of it today, and that helps
us to continue to bring great guests like Earl on
the show. And yeah, so we will. I would really
advise people to give Earle a call see what he's
up to. If you you know, it's always good to
talk to a variety of people in the financial world
to see really who is the right person to be
(41:49):
on your team, because you know, and until you have
a conversation with people, I don't think you really know
that you can read their marketing material or what have you.
But it's really important to have a rapport with your
you know, advisors, and to know what they're doing. So
that's one thing Earle that I really loved about how
you're explaining things is people can really get a clear
idea of what you're doing for them in a concrete way,
(42:12):
how you actually do execute on your plan, and I
think sometimes people will leave it a little unclear, so
I admire the way that you do this. So all right, well,
thank you audience, and you can reach me at Michelle
two L's atlimit FreeLife dot com and please check out
the Limit Free Life website to join our blog community
(42:35):
and see what we have going on as well. We're
really dedicated to financial education and we deliver a lot
of it here on the podcast, but I have some
other programs and courses and information on ways that you
can learn to be more financially savvy so that when
you're talking to people out there like Earle, you know
(42:57):
how to have those conversations. All right, well, thank you
so much, and thank you U bin Go for producing
the show, and we'll see you next week.
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy, Jess Hilarious, And Charlamagne Tha God!