Ep702: Spencer Jakab – Don’t Take Investment Tips from People

Andrew Stotz 00:02
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning in our community we know that to win in investing, you must take risk but to win big, you've got to reduce it. Ladies and gentlemen, I'm on a mission to help 1 million people reduce risk in their lives to join me go to my worst investment ever.com and sign up for our free weekly become a better investor newsletter where I share how to reduce risk and create grow and protect your wealth. Fellow risk takers this is your worst podcast host Andrew Stotz from a Stotz Academy, and I'm here with featured guests, Spencer Jakab, Spencer, are you ready to join the mission? I'm ready. Let me introduce you to the audience. Spencer is the global editor of The Wall Street Journal's financial and economic analysis column heard on the street. Prior to becoming a financial journalist 20 years ago, he was a top rated emerging market stock analyst. He's written two books, the most recent being the revolution that wasn't about gain about novice investors caught up in the game, stop mania. Spencer, take a minute and tell us about the unique value that you are bringing to this wonderful world.

Spencer Jakab 01:18
Well, you know, I used to work at a job like you, you were an emerging markets analyst. And analysts are supposed to talk to very sophisticated people and market to them all the time. And it's, it's really something such as you know, it's not about the quality of the ideas, it's about the quality of how you present the ideas. And you have to couch it in very complex terms. You can't couch it in simple terms, because then what are you selling? What's the value that you're, you're giving to people, and that's generally the case in finance, too, right? People tried to make things seem a lot of numbers and ratios and terminology, and very complicated. But these days, last 20 years, you know, I write for the general audience and heard on the street is for a somewhat more sophisticated audience. But, the whole point of my job is to take what's happening, explain it, bring a little bit of insight into it, but not to baffle people, and you need to explain things to people, you don't want people to be confused. And so that's that I feel is like sort of my superpower, if it will, is taking things that are a little complicated have a lot of moving parts, although finance is not rocket science, and it is rocket science. And you know, when you get into some aspects of it, you know, sort of derivatives and what have you, but and simplify it because that is conducive to success in investing in an understanding the business world is, is just breaking things down in the best way you can.

Andrew Stotz 02:41
And maybe you could give us like a behind the scenes, like how you're sourcing the ideas, how you're then like, and what's your schedule, like? Like, how often are you publishing? And how much lead time do you have? Are you, you know, crunching to the last second or because I'm thinking about I used as a head of Research at Citibank and CLSA here in Asia. I used to have my Friday, you know, email I sent out and yeah, it was it was it was a, it was a, it was a, I would say stressful process. And just a process that required keeping on top of everything that was going on. I'm just curious, maybe you could just give us a little picture behind the scenes.

Spencer Jakab 03:19
Yeah, you know, journalism is all about deadlines. And I personally am not bothered by it, I would not function without deadlines. When I have written my books, I've set all sorts of artificial deadlines for myself artificial word count targets and deadlines or what have you. And that's how I operate. And so there's a newspaper that's in print is always done, there's newspapers still exist. And if you don't make the print deadline, then the stuff doesn't, you just have a big whitespace in the paper. So you don't want that that's never happened. I run a team, I still do write, I'm a, I guess the first editor of heard on the street, who also writes for it regularly. But most of the time I edit, there are 13 of us around the globe, including some in Asia, in your region. And we operate around the globe with kind of, I have two people who work for me in the other two time zones. So one that is in Europe and one in Asia, and then I'm responsible for the bulk of the people in the US and there has to be enough copy to fill the newspaper and there has to be varied enough copy and most of the ideas are really yourself generator you know, we generate them days in advance and other things are generated by by headlines. You had news. I don't know when exactly this we're running. But you had news this week about finance being sued by the SEC and then a day later Coinbase being sued by the SEC. Well, obviously that was something that we had to comment on, you know, things happen, and you have to tear up whatever plans you had to read about something that was more thematic and jump on the news and then you have earnings. You know, a company is going to report earnings or you know the Fed is going to meet or you know that there's going to be a US CPI report or job ABS report that's pretty important for markets. So the schedule is either set for you or you know, ideally, you can have a long lead time and just work on something really, really smart and insightful. But it's a mix.

Andrew Stotz 05:15
And for the listeners out there, particularly for young people that are thinking about a career, you know, in this type of career, it is there is a certain excitement about deadline or intensity, about deadline that if that's something that doesn't kind of turn you on, it's probably not the best place to be. But I know, I love the intensity. And that's what I enjoyed about, you know, writing. And so that's kind of interesting. And, you know, I can remember back in the old days when I was in the US, and occasionally in Thailand, where I would receive the Wall Street Journal, which was like, premium content, in my perspective, and there's many people that have read the Wall Street Journal front to back their whole careers. And then of course, it's not just in print anymore. It's all online and all that. I'm just curious, from your, for your, for her on the street, are you able to understand like which of the stories that you're doing is drawing more attention? And therefore, maybe building on that story? Or how does it work? As far as you getting more information of what your audience is? is, you know, appreciating?

Spencer Jakab 06:23
Yeah, absolutely. It's very scientific. Now, there's more information than you can possibly cope with, really, in terms of the audience, because we have programs where I can see if someone clicked on it, you know, when it's online, and most of the readership is online, through the legacy website, through their iPhone, through their Android device, what site led them to it, do they come to it organically through through the app, to they come to it, linked through, and I wrote something last week about the recreational vehicle market, I wrote it. And so I looked at it and you know, you it gives you a pie chart of where the readers came from. And one of the big sources of readers was an RV publication where they kind of, I don't know, didn't plagiarize it, but they basically copied half the article, the bottom is a link saying read the rest. And people, luckily did click to read the rest, but they had about half of it there. So you know, stuff like that. LinkedIn, Twitter, not that much through social media, a lot of it is really through people who, who come to the site or through Google, Google News or Google search, or they're searching for a topic. And then, you know, our articles, one of the first ones to come up and we, we know what time of day people watch it, we, we even I don't really do it. But some people do a B testing, where you have two different headlines. And the headline matters a lot. Sometimes it matters for search engine optimization, but just Just what headline catches people's fancy, sometimes you have ones that are oblique, that like an SEO professional will tell you like, that's not really gonna work. And it works like wildfire. I'll give you one example. My colleague, wrote a piece at the beginning of this year, and then we turned it into a series that we all contributed to called the rich session, he made up the term he said, I want to write about the rich session, because that we're not in a recession, but we're in a slowdown. And in this slowdown, the wealthier people, not that they're worse off, wealthier people are always better off. But typically, the wealthier people kind of ride out an economic downturn and poor people really take it on the chin. And now you have pretty full employment, you know, lots of job openings, a pretty good pool of savings, relatively speaking for lower middle income people, and wealthier people. And you can see the layoffs and finance and especially in tech, they're, they're more anxious. And it was such a success. And it had like a million pageviews, which is a really a lot, even for the Wall Street Journal for any individual article. And it like, within two weeks, we're getting pitches from PR people about hey, have you heard about the rich sessions. So that's when you know, that you've succeeded when people are basically we should have trademarked it, you know, people are taking the thing that you've invented and sending it back to you. So that's, that's the ideal, but we only had a few home runs like that a year.

Andrew Stotz 09:20
That's exciting. And if you think about my audience, who's let's say, you know, a broad base audience, maybe 50% of my audience is in the US 50% outside obviously, I have a lot of listeners in Thailand, where I am and around Asia, some people may not have a huge budget to get and they may not be able to get the written format. What's the best way for them to you know, to subscribe and start receiving heard on the street or just the journal in general? That's the kind of lowest cost way is it to go on the website? Is it to download the app or like what would you recommend for people?

Spencer Jakab 09:58
Well, they're always if I compare us to our competitors. So there's like the LEX column at the Financial Times, which, which I used to write for. Until 12 years ago, when I came to the journal. There are a few other competitors like Bloomberg opinion, that not only do I think we're the best, we're also the, we happen to be the cheapest, because you don't have to pay a premium subscription to get the hurt on the street. It's just one of the other articles, it's a section you can find it. And there are always deals for The Wall Street Journal. I mean, there are $4 a month, you know, or even cheaper than that. So it, you know, it's not free, and we will have to feed our families. And so yeah, and subscription revenue is more than half of the revenue that the Wall Street Journal gets, it used to be different used to be mostly advertising. But now advertising is because the print paper is not so dominant. We make probably, I think two thirds of our revenue through subscriptions. And so you can't sort of give everything away. But it really is not that expensive. There are all kinds of student deals and whatever. So it's, you know, in terms of the content, you get, think about what a newspaper is a newspaper is like the length of a book every day, right? I mean, there's a lot of stuff in there. So I think it's good value for money. If you're paying $4 a month for a book a day with lots of up to date information on the book was written yesterday or written during the day. And that's, that's, that's pretty good. Someone told me when I was in graduate school, and that's when I started reading the journal. I used to read, I still do read other newspapers. But they told me that if you read the Wall Street Journal every day, it's like getting an MBA, which is not literally true, but I took it as a literally true, and I was not doing an MBA, I was doing a different kind of degree, but I was taking lots of classes. I was at Columbia University at the business school. And, you know, taking the MBA finance coursework, and yeah, I mean, the paper, there's a lot more of the paper, then it was only in print, there was no internet in the beginning of the 1990s. But yeah, I would read as much of the paper as I could every day, I love getting it. I mean, I went crazy for it.

Andrew Stotz 12:11
So I'm gonna, I'm gonna put in some links, I'm going to search around and go through some stuff to put in some links for everybody who's listening or viewing, if you're not subscribing, I mean, we have to face the fact that the competition in the media space is so tough. That number one, maintaining a position, like the Wall Street Journal is, you know, impressive. And the second thing is that, you know, we get the benefit of the competition, because as you say, the price is quite low. So I'm going to put that in. So everybody can, you know, check it out. And, in Follow, follow what you're doing with heard on the street, as well as the overall everything that's in the Journal. So now it's time to share your worst investment ever. And since no one goes into their worst investment thinking it will be. Tell us a bit about the circumstances leading up to and then tell us your story.

Spencer Jakab 13:02
Okay, so I moved out to Eastern Europe, I was very excited about all the changes that were going on the fall of the Berlin Wall and the opening up of the region. And I wanted to make money, but I also wanted to see history being made kind of a twofer. And I moved out to Hungary because my mom and dad are from there, and I'm bilingual. And it was a good way, you know, no, I wrote to all these investment banks and said, Hey, I'm bilingual, and whatever I wrote to their offices in New York and other places, and a few wrote back, but they're like, No, I don't think so. But then, of course, everyone was really desperate for people who are bilingual and bicultural in the region. And so every I basically did different internships. I was in graduate school, just to get the addresses, there was no internet, like I said, you know, in 1991 9293, as you recall, that did not exist. And so I got people's addresses, wrote them letters, call them on the phone when possible. It was an expensive long distance call and said, Hey, I'm gonna be in Budapest on this week, you know, and I got one of those courier flights. You remember those? Like, they were like these really cheap flights you could get before UPS and FedEx were so efficient, and you basically took someone's box abroad, and then you got like an almost a free flight. You couldn't take any suit, a suitcase, I wore my suit, took a box to Helsinki knowing who knows what was in it, and then got a connecting flight to Budapest and had all these interviews with the local accountants and banks and stuff like that. And they all offered me jobs because they were like, That's great. You know, and, and so I got my start. I was a country analyst in Hungary, and I had no idea what I was doing. I mean, I sat down what you so I did not know what I was doing. I had no idea. I mean, I was hired. And I gave a very convincing spiel. But I didn't know what I was doing and I was here Usually I had like a real kind of imposter. Complex and, you know, would meet these fund managers, who were very wealthy, very nicely dressed, very suave, talking about all these things that they had done. Of course, they only talked about the good things they had done. And I just thought that they were so smart, and they would talk about how much money personally that they had made investing to. And the people at the investment bank as well, my, my boss included, he told me when he hired me that like, oh, yeah, last year was the first year that I made more in salary than I made investing in like a decade, I was like, Well, how much do you make investing because his salary is really high. I mean, I just thought these guys, I thought like it, if I follow their lead, I'm gonna be really, really rich. And so I didn't have money at first, as a matter of fact, Andrew, my first investment phase, say, $5,000, I went home to go see my girlfriend, my mom, and whatever, in the States went for a friend's wedding. And I wrote a check for $5,000 to Fidelity Investments. And I was so proud of having saved $5,000. And I made two investments, this was in 1994, beginning 94 and 93. And one was a Southeast Asia fund, and you know, all about this, top of the market, half of it went in there and half of it went into a US bond fund, which also was about to hit a bear market, and then the four as you recall, so that was that's not my worst investment. But that was pretty bad. That was like, a wake up call I, you know, kind of suddenly kind of dawned on me that it wasn't so simple to make money investing. But I was undeterred. And I would ask people, and some of the worst investments really, if you think about it are things that you don't do, right? So there was cell phones were taking off, I did not get a cell phone, I think until 1996. But 1995, I asked the analysts to cover Nokia. This looks pretty good. I mean, what do you think? I mean, this is do you think that I should invest in and he gave me some, he really discouraged me. And I think he basically like he had just changed his call on it. It was a totally tactical call. But I mean, what I wanted was some investment that do really well. And you remember, like, every cell phone in the world was like a Nokia, and Ericsson, five years later, like it would have been an amazing investment.

Andrew Stotz 17:15
In Bangkok. It was all Nokia.

Spencer Jakab 17:17
Yeah, right. I mean, it was like, like Apple is today. And it's okay. Well, he knows what he's talking about. And he did. But obviously, the his long term vision was lacking. And I was looking for something to put money into and just not check it for five or 10 years. And then I met a fund manager was very suave, very sophisticated. And he offered an investment to me, I mean, it wasn't his company. But he sort of put his hand on my shoulder said, You should look at this company called Why BM magnetics. It's really interesting. And they do this stuff, they make these permanent magnets. And it's, you know, it's really high tech, and it's very cheap has a P E ratio of, I think it's like eight or nine, which is very low. And I looked it up and read the annual report. And I still don't know what a permanent magnet is. But it sounded impressive, and very high tech, and they had all these PhDs working for them as a Canadian company. And there are all kinds of red flags in hindsight things that like as an analyst, you really should know, right? And not only did I invest in it, my first cassette savings, kind of besides that bad investment, I made it Fidelity Investments. I, you know, I bought the stock, and that I told my good friend who's now one of my best friends, you know, we my colleague, that this guy had told me about it. And he invested the same amount of money that I had, it was actually like, not a small amount of money, not at the time, for sure. And, you know, some time went by, and then I'm reading the newspaper, and I read that the FBI has raided the offices of this company, and that the whole thing is run by my mobsters. And the thing was like, just a front it was the whole the entire thing was a fraud. And it was run by this guy named Semion Mogilevich who was the godfather of the Russian mafia. And of course, it went to zero. And there were years of, you know, I just would read articles and I felt so tired. I felt much more terrible about having told my friend to invest in it than investing in it myself. But it was a total zero. And I mean, it's obviously there are other zeros and people's investing lives, but this is the worst kind of zero because they just go to zero because the company did poorly. And I've kind of taken a flyer I just had no idea I just went completely on this guy's word, who sort of disappeared and actually I looked him up right before the show. He's a professor somewhere. Teaching is a bit of business school. Now, so I won't say his name or where it is, but um, You know, I guess he thought it was good. He wasn't, you know, like, raising money for the company. My little bit of money didn't make much of a difference. But that is I was so embarrassed. And you know, for years, you know, I'd read articles, the prosecution and the liquidators, and I think 45 People were indicted. And the guy kind of escaped justice. And then later he was, I'm not sure what happened to the guy, I think he's in Russia or Belarus somewhere. So still free, but like all those sort of accomplices, and the whole, the whole thing was fake.

Andrew Stotz 20:30
And how would you describe the lessons that you learned from that?

Spencer Jakab 20:34
You know, no one is going to tell you a great investment. No one I mean, you should not, especially if you don't investigate yourself. And, you know, in hindsight, I Of all people, I mean, not that I was a very experienced analyst at the time, but I had the tools to investigate it. And there are all kinds of red flags. And in hindsight, first of all, it had gotten its start and not to denigrate Canada, but Canada has much looser securities regulations than the United States does. I got to start on a junior Exchange, which was filled with all kinds of flaky companies, did a reverse merger bought this company in the US? You know, I didn't know what a permanent magnet was it had these activities was suspiciously cheap. And I really couldn't explain to you what the company did. I mean, if you asked me, I'd say, oh, yeah, they have this business making permanent magnets, whatever the hell that is. And it just, the guy was just so suave, and convincing. And I just wanted someone to, you know, tip me on to the next big thing. And I have to say that, you know, over the years, I mean, there have been cases, when people have told me you should invest in this thing. And I was much more cynical. It was after that, of course, and, and then I regretted not not doing it. And there's one case that my sons bring up all the time to tease me, when someone asked me to invest in an airline wasn't even like, didn't have an airplane yet. It was just a business plan. And by that time, I had been in the business a longer time, I think I was just about to become a financial journalist, but I had some savings. And I was like, What are you crazy? Like, you know, and I read to him some like, quote, that Warren Buffett had made about how airlines are terrible investments in any right thinking capitalism would have capitalist would have shot down Wilbur at, at Kitty Hawk, if he had no, and no way and I would have made millions of dollars, I would it would have been, it has turned into a huge success. And I would have gotten in when it was at the stage of like a business plan or napkin basically. So you know, that those the breaks, you have to miss out on those things sometimes. You know, at the time, it seemed very risky, and much more risky than investing in a listed company that you know, had accounts and everything. So, there you go. I mean, you need to do your own research, you need to be diversified. Certainly don't invest more than you can lose, which I was making good money. So you know, I guess I could afford to lose it. You know, and then I told my friend about it, and he invested it. I mean, I guess he's much less at fault, because I told him to invest in and he was also an analyst. But he also didn't really investigate it. And it just sort of, I was like, really too embarrassed to say anything about it for four years, you know, and I wound up making, you know, pretty good money in the next several years. So it just it seemed, I won't, I won't say it's a rounding error. But it wasn't a devastating loss. But still, it was a very embarrassing loss and a lesson to be learned just don't, don't take investment tips people, you know, those who say don't know, and those who know, don't say that's, that's generally the case.

Andrew Stotz 23:46
Yeah. Interesting. Maybe I'll share a few things. The first one is, do your research. And what I like to say is, don't one rule is never buy a stock recommended by a person. And whether that's by phone call by in person, and many people will, will respond to that by saying, but Andrew, how am I going to find a stock? If I'm not getting a recommendation from someone, but everybody who's recommending something has their motivations behind it, which you don't know. And therefore, it's not to say that you wouldn't invest in that, but you need to do your research once you do that. So that's the first thing. The second thing is you reminded me of episode 62 with Jeremy Newsome a long time ago, where he basically invested his some of his father's money in his first investment, it went really well. He went back to his father, and he said, Hey, let's do the next one. And his father gave him access to more money. And he proceeded to lose 100% of that money, and it turned out that that was 100% of his father's retirement savings. Oh, wow. Okay. And so when you talk about the feeling of shame of guilt of you know, the way that you feel when you tell somebody, something, you know, I think it's a good lesson and you've been real open about that feeling. It's a great lesson for the listeners and the viewers out there, to make sure when you are into something that you're really excited about, calm yourself down when it comes to your friends and family. Because if it goes wrong, you're gonna feel awful. And so that's the second thing that's really critical is, you know, focus on, you know, taking care of yourself, but be very careful about starting to promote something to other people, because it can lead to some really painful, you know, experience, anything you would add to that.

Spencer Jakab 25:43
Yeah, I mean, the only thing I would add to that is, let's say that that history had worked out differently, and that this guy had told me about some great investment that I'd never heard of before. And I did the perfunctory research that I did, which really was perfunctory because I had no idea what I was looking at. And I'd made 10 times on money. And it'd been a great investment, I would have thought that, that I was a genius. And success is the worst teacher. So in you know, I wrote this book about Gamestop mania, and a lot of the people who participated in that they opened their first brokerage accounts. Right around the time that the pandemic began, there were about 10 million brokerage accounts opened by young people, Gen Z and millennials, right around that time, because the stock market was a very exciting place. And you really could not go wrong. So in the year from the pandemic bottom, until a year later, 96% of American stocks went up. And the stupid stuff went up the most the things that were sort of the you know, financial influencers on Tik Tok, the things that didn't have any profits, probably an index of profit, this company's went up the most. So the sorts of things that other young people were egging you on to buy whether through ulterior motives or just because it seemed cool, went up the most. And that turned out to be a horrible initiation into investing for that group of people because they thought that it was easy, and that they had some knack for it, because they had picked so many winners. And they proceeded obviously, to have a terrible time last year, and many people kind of threw in the towel. So yeah, so I guess I'm fortunate in a way to have started out with such a bad and embarrassing experience, because it made me think very carefully, probably maybe too cynical. In a way, I probably have missed out, like not just the airline, but other things that I could have invested in. And these days, because I'm a journalist, I don't invest in individual stocks. I investing in funds, which is not the road to overnight riches, for sure. But is actually the the soundest thing, I think for most individual investors to do is, it's kind of plain vanilla and boring as that sounds, you know, I think if you want to, if you fancy yourself a stock picker, and you want the intellectual exercise of investing, do it with a small amount of your money, don't do it with you know, with the bulk of your money. And because if you invest in, in diversified low cost funds, buy and hold, keep things there, don't try to time the market, you'll do okay, you'll do better actually than 85% of fund managers over any 10 year period. So you will actually be doing really well. Statistically, that's true. And then if you really want to sort of, you know, test your mettle, and then it might be luck anyway. But if you want to, you know, sort of play the game, play the game with a minority of your money and a portion that you can lose. I think that's a very important lesson.

Andrew Stotz 28:47
Yeah, and that, you know, one of the things you just talked about is the idea of the index fund, the benefit of using some sort of fun or index fund, is if you're in a position of privileged information about stocks, you know, one of the steps that you want to take, at least I know, in the CFA curriculum is to avoid even the appearance of, you know, taking advantage of inside information or something. And so, that's also a benefit of doing that for those people that are in that, you know, situation. And, also, I think that the other thing is, what's kind of fun is when you look at people over time, and how their perception of risk and of investing are shaped by these different, you know, events that happen in their life. And one last thing is when you talked at the beginning about investing in the Southeast Asia Fund, which I believe was roughly around 1994, which was about the time that I started as an analyst here in Thailand. The stock market collapsed by about roughly 85% and in US dollar terms, more like nine You need to 95%. But the thing that I want to highlight is that the stock market in Thailand is still not back to the 1994. High. Wow. Okay. And that's same case, after the US Great Depression, that it wasn't until World War Two eventually got the US stock market out of it, and through World War Two. So 1935, let's say to 1955 or so. And then you have the Japanese economy, the Japanese stock market that still, you know, it's taken 30 some years to get back just to where it was at its prior peak. And I've never done the any research on it. But I've always had the opinion that the reason why one of the main reasons why is because there's a generation that gets wiped out. And then that generation, the risk and the pain that they suffered, prevents them from participating in the market. And so there's nobody participating in the market until a whole new generation comes. And so I'm just thinking about the the memes story and all the young people because it's not just mean stocks is crypto, that just wiped out the, you know, so much money for young people that it could be that we have now, America is a little different, because you have international participation in the stock market. So even if a portion of the youth are not participating in the stock market for the next 20 or 30 years, it still could be that there was you know, foreign participation, but it's just a theory that there's a generational impact that doesn't change people's get their perception of the market from that first extremely painful event.

Spencer Jakab 31:44
Yeah, you're absolutely right. I mean, it's so interesting, you know, that that generation, in the late 1920s, that was really the first time that the broad American public invested in stocks before that it was always seen as sort of a casino control by insiders. And you know, this still before the SEC existed, and all these protections, but it was seen as a kind of a legitimate not not a form of gambling, for the first time was seen as legitimate thing, the first mutual funds really began to appear in the 1920s. They're called union unit trusts. And they, they generally did not feel comfortable investing in stocks. So had you had you purchase stocks, at the depths or near the depths of 1932, you would have done very well, I mean, think the stock market had a P E ratio of five or six had a dividend yield of seven or 8%. I mean, there was, you know, obviously, with the benefit of hindsight, a great time to jump in, even if you were a little bit early, or a little bit late in terms of hitting the bottom. But it would be 25 years before the Dow Jones Industrial Average, would get back to its previous level. And 25 years later, it wasn't the same people, those the people who were 30 years old or 35 years old, weren't participating. 1950 was a great year for the stock market. By the way, the year that it finally went over the 1929 Hump, there was a whole new generation that really wasn't scarred by that. This generation that got into the meme stocks, I see a different problem with them. Because it wasn't such a jarring, WipEout, they did not have a lot of money at stake, they had maybe their stimulus checks, they had a small amounts of money, it was a bounce of money that maybe they were embarrassed. And paste obviously is painful to lose money, it's always more painful to lose money than it is pleasurable to make money. But I think the problem with this generation is that they have this notion of stocks or cryptocurrencies as being like a line that goes up, they don't know why it goes up. It's something that you need, you need to get in early. And it's a whole sort of It's a greater fool theory, the you know, they were buying, you know, hurts when it was bankrupt. They were buying all kinds of companies when they were known to be worthless when people on television with no, you know, dog in the fight, we're saying, don't buy the stock, it is worthless, it has gone bankrupt, you will lose all your money. And people were saying what do you know, or it's going up and it doubled yesterday, and it's going to, I'm going to try to get it on this train and then get out and find a greater fool. And that's, that's, that's very damaging, because that's not the basis of investment, the investment is, is literally something that you know, it's speculation rather than investing. And there is a difference between the two. Speculation is more of a gambling type of activity. And investing is something that you could put it in a drawer for 10 years and be pretty confident in it. And the other thing about investing is that the stock market exists in order to raise capital you know, if people generally come to think of the stock market as something that you just take a flyer you get in get out and you got lucky and you know, you pick the right time and they all somebody on Twitter was talking about the stock and it went up and did not get lucky. That's messed up because the stock market exists. So the next Apple can be born right so so obviously there are a lot of companies that want to be the next Apple that don't make because the vast majority do not, but the next Apple is raising money today in the stock market, and in 20 or 30 years, it will be Apple the way Apple is today. And if that company and it might not be doing anything, especially sort of shiny or interesting, that kind of captures the public imagination, if it can't raise money, it basically people view the stock market as a sort of more like a gambling parlor, then that hurts the ability to form capital. And that's bad.

Andrew Stotz 35:33
Yeah, and it's markets money. I mean, all the markets around the world are trying so hard to have deep markets and good trading volume and all that. America's got all of that. So let's just hope that people can, you know, maintain that. So let me ask you, based upon what you learned from this story, and what you've continued to learn in your life, what would be one action that you'd recommend for our listeners to avoid suffering the same fate?

Spencer Jakab 35:58
One action that I would recommend, and I think this is just the most common sense thing that I recommend to any neighbor, stranger, or whatever, is that they should stop looking for the needle in the haystack. They are not a productive exercise, there's a very small chance even if they have a friend or a resume, we talked about my biggest my most embarrassing, worst investment, right? Very few people want to talk about that. And when you meet someone at a cocktail party, they do not talk about that they talk about when they made a killing people, people tend to play up the positive and downplay the negative. Don't Don't fall for that the vast majority investors in the majority of stocks lose money, relative to risk free investments that that's, that's a given of US stocks, not to mention stocks in other countries where the markets aren't as well regulated, like Canada where IBM Magnus was, I mean, I don't know what the numbers are, like there, but they probably are not any better, right? So you can instead of looking for the needle in a haystack, by the whole haystack, it's you're not, you're not going to get as rich because that needle is in there. It's gonna go up the apples and Amazons, and what have you, plus all the failures. But you get, you're basically buying into a big diversified pool of investments, that, you know, unless the society collapses, you know, unless you're, you know, had an index fund existed in Czarist Russia, in 1915, you would have lost all your money in 1970, no matter what, obviously, there's no getting around that you had bigger problems. But assuming that American capitalism continues, and that the economy doesn't fall off of a cliff permanently, we don't have a Japanese type scenario. And even if we do, because the Japanese stocks is like, they went to zero, right? They continue to pay dividends. And they, you know, took a few decades, but they got back to where they were in 9090. You'll do okay. And even if there's inflation, by owning stocks, mostly rather than fixed income instruments, you will do okay, because stocks are a natural inflation hedge. So obviously, you know, don't don't bet it on a very risky index. But there are broad based indexes, very low cost to invest. And this is something you could not have done decades ago, by the way, you, you hear all those stories, like, if you would invest at $1.19 26, it would be worth, you know, $121,000 like, Well, no, it wouldn't, because there was no s&p 500 Index Fund, you couldn't even just investing in just a basket of stocks that represent to the market, you would have been charged money to reinvest the dividends. So it used to be really expensive, just to just gain an entry ticket into the stock market. Today, it's very cheap, the costs are basically zero, it's a huge gift to you, you can reinvest your dividends for free, they're all these tax efficient vehicles, just stick the bulk of your money in that I know it's boring. People don't want to hear it. And they kind of nod and say, Yeah, you're right, and they go out and buy something dumb anyway, I if I can convince 1% of the people listening to this, who are thinking of buying some hot stock to do that, then that's that's 1% you know, more than they were doing it before is that that is really the the route to success, because cheap and lazy by a fund that you don't have to look at and don't worry about it. And don't get spooked by headlines especially just stay in there. As matter of fact, you know, when you blood is running in the streets, that's when you want to re up your investments, you know, so that's my advice. It's a great resource. The investing world today is far more individual investor friendly than it ever has been.

Andrew Stotz 39:34
And ladies and gentlemen, spoken by a man who wrote the book on gamestop mania. So is the index fund your recommended resource? Are there any other resources that you'd recommend?

Spencer Jakab 39:50
I mean, I think that another resource that I would recommend at least those people in the United States and a few other markets and if people are listening to this in other countries, but I think this is spreading Are robo advisors, robo advisors are a very good resource. robo advisors are basically not a robot, it's an algorithm. So instead of, sort of, you know, I don't know you don't, you don't, you might not know how much to put into an index fund. When you get dividends, you might not know to reinvest them. Or let's say if you put money into, you know, 60% of the stocks and 40% of the bonds, and then you check it a decade later, and then you're 9010, right, something not appropriate to your risk profile. Robo Advisor is basically a very cheap mechanical advisor that's appropriate for most people who, especially who don't have a lot of money. An actual advisor is even better. I think, as long as that person is a fiduciary. That's a legal definition, you should always ask your advisor here, the United States, if they are a fiduciary and only invest with someone who has to be prudent about your investments, not someone who's just a salesperson selling you, some overpriced annuity, only invest with fiduciary, but a robo advisor basically does it on autopilot and does it as cheaply as possible, they typically charge about a quarter of a percent of your assets a year or even less, and they will act in a very tax efficient way. So they'll sell your losers. They know what your tax bracket is, they will rebalance your portfolio on an automatic basis. Which by the way, is a way of being contrarian. If you rebalance your portfolio, according to some mechanical formula. The way a robo advisor does well, you could do it yourself, if you are sophisticated enough, that is a huge edge over the years. Because basically, you hear about people who can buy low and sell high. How do you do that? Well, let's say you have a portfolio of fairly risk free investments in a portfolio fairly risky investments, like stocks, which let's face it are pretty risky. In the short term, they're much more volatile. And the stock market has gone down a bunch and bonds have gone up a bit because there was a flight to safety. Well, all of a sudden, whatever percent you had an each, when the next anniversary of setting your investments has come around, you're way out of kilter, you you have less stocks and you allocate it to and you said, my risk tolerance is that I will have this much in stocks, well, you're going to be in order just to get back into balance, you're going to be acting in a contrarian way, you're gonna be moving, you're gonna be zigging where everyone else is zagging because they will be kind of running away from the stock market. And you'll be buying stocks, not necessarily the bottom because no one buys the bottom except liars. But you'll be buying stocks, when once they've gone on sale, and you'll be selling some of your bonds once they've been bit up in a flight to safety. So by doing that on a regular basis, and vice versa, by the way, you know, when stocks have been an epic tear, and they're they're much bigger part of your portfolio than they really should be based on what you've assessed is your risk tolerance, then the robo advisor or if it's a target date fund will do the same thing will on a given date on the calendar, sell down those stocks and buy more bonds and kind of take take some money off the table. So it's, it's a really good strategy that in the long run adds to your performance, if you had a half a percentage point or a percentage point to your performance, over decades of savings is you get out an Excel or a calculator and do the calculations and tell me what you see. It's gigantic, it's a huge boon to your long run size of your nest egg. So those are our great resources. Again, I don't know I should have like gotten a commission from some of these robo advisors. I can mention a few in the US but you can. I'm thinking about like, Well, I think Vanguard and fidelity have their own Schwab, I think as its own, and then they're like Wealthfront is one of the ones here is Betterment still when you're there, they're a bunch but one of the sort of better known reputable robo advisors, they're all much of a muchness, and I I do recommend them to people.

Andrew Stotz 44:04
All right, last question, what's your number one goal for the next 12 months?

Spencer Jakab 44:09
My number one goal for the next 12 months is to mix sense of this kooky economy. And I mean, professionally, that is my goal. I think that this is a really, I mean, you could say that anytime we're at a crossroads is a unique time. We're in a unique time, we have several indicators that are historically reliable, that are telling us that the United States economy is going to go into a recession. We have and but you know, when the US catches a cold, or sneezes, the rest of the world catches a cold, right? So that's basically we're talking about a global downturn in all likelihood. And then we have several indicators that are completely inconsistent where there never has been a recession. So this is the most difficult economy to read. And so my goal professionally, and this of course, cuts across all the things that we write about in the world is to a understand what's going on and be nuanced and don't get caught in a head fake. When people say, you know, when I'll go and speak to a group of individual investors or whatever, and they're like, you know, you're telling us not to take advice from people, you're telling us to just invest in index funds and not to chase these individual stocks. You write about individual stocks and your column you write about, there might be a bull market, there might be a bear market. How do you reconcile that? I'm like, Well, that's what people want. You know, I mean, there's, there's a huge audience. I don't know what else to say, there's a huge audience of people who, who crave that I try to obviously, I have no agenda. I'm not, you know, I can't. even accept, you know, bus fare from any outside organization. So, you know, so that I'm my, I'm not kind of corrupted, you know. And so, you know, I'm calling it like I see it, but certainly not necessarily calling it consistently correctly. But I want to just intellectually, and for the readers interest is sort of to get things ready to figure out what's going. And it's always about trying to do but especially now, it's just a total head scratcher. It's a really weird, but interesting moment.

Andrew Stotz 46:09
And here we are out in emerging markets where we're on the whipsaw, impact of a US recession, if it happens, it can hit us particularly hard. So we're all interested in that. And I think that that, that is a big challenge for all investors, so and you've got a good enough flow of information that you're, you can judge that I think, when I look at it, it's it's, it's a bit muddled, I've have enough information to say, I feel kind of negative. And these signals like the inverted yield curve and unemployment at an all time low, knowing that that's kind of just happens just before recession. But on the other hand, also, you have an element that wasn't there when we started in the markets, and that is the Fed, you have this money printing machine that can basically go in and pump up the stock market at any time, and the Fed has yet to go in and buy stocks, they came up with a scheme to buy bonds in the 2000, you know, collapse, which was an interesting method that they did to get around kind of their guidelines by having the Treasury set up a separate entity, and then the Fed using that entity with Blackrock to signal that they're going to buy bonds that really didn't take much money, just the the indication that the Fed would do that. And so you've just got, you know, all kinds of other factors. So, it's a laudable challenge for the next 12 months. Well, listeners, there you have it another story of loss to keep you winning. Remember, I'm on a mission to help 1 million people reduce risk in their lives. If you've not yet joined that mission, just go to my worst investment ever.com And join the free weekly become a better investor newsletter to reduce risk in your life. As we conclude, Spencer, I want to thank you again for joining our mission and on behalf of a Stotz Academy I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

Spencer Jakab 48:24
My motto is and it's my motto outside investing to is beat be cheap and lazy. You know, just that that is the formula for success. Maybe not outside of investing, but it is in investing. Cheap and lazy.

Andrew Stotz 48:37
Keep it simple. That's a wrap on another great story to help us create, grow and protect our well fellow risk takers. Let's celebrate that today. We added one more person to our mission to help 1 million people reduce risk in their lives. This is your worst podcast hose Andrew Stotz saying. I'll see you on the upside.