SI #19: The 4 Biggest Investing Mistakes with Dr. Daniel Crosby

SI #19: The 4 Biggest Investing Mistakes with Dr. Daniel Crosby

Please allow up to 30 seconds for the podcast to begin upon clicking Play.

The 4 Biggest Investing Mistakes with Dr. Daniel Crosby

Take How to Start Investing with $1000 or learn more about Stratosphere Premium at

Start investing or switch to the discount brokerage that Braden uses, Questrade (affiliate link).

Dr. Crosby shares the 4 biggest behavioural mistakes that investors often make. Emotions play a huge part of investing and Daniel brings some interesting facts to the conversation.

Dr. Daniel Crosby, author of The Laws of Wealth and The Behavioural Investor available on Amazon.


There will be errors with transcription.

Braden: (00:01)
Today's guest on the show. Dr. Daniel Crosby is an expert on behavioral finance linked in the show notes, his two books, the laws of wealth and the behavioral investor will provide a lot of insight on the subject of behavioral finance. We dive into some of the things that investors need to be thinking about on the show. I know I really enjoyed listening to what he has to say because of the amount of facts and research he's done on subject. Hope you guys enjoy the show. What's going on everyone? A stratosphere investing podcast. And today our guest, Dr. Daniel Crosby. How you doing man?

Daniel: (00:36)
Really good. Thanks for meeting with me this early.

Braden: (00:39)
Yeah, no it doing a little early recording here today, but uh, it's Kinda nice man. Like getting up at this hour. It's some of the, I never really do, but kind of always glad you'd do it. And I know you had mentioned you're kind of lifestyle has changed a lot lately and uh, this is what you do now. So good for you.

Daniel: (00:58)
Yeah, I got, I got three kids too. So this, uh, you, you take your quiet moments when you can get them, when you have three kids.

Braden: (01:06)
That's right. Yeah. I can't, I can't relate, but I'm sure I'll be looking back at this conversation and be like, ah, that's why he gets up at the crack of dawn. So I know, um, you've kind of switched in a little bit in your career here, um, and really focusing on behavioral finance, which is what you talk about in your book a lot. Um, how can people get your book by the way?

Daniel: (01:30)
Yeah, I have a couple of books so that the ones I'd recommend would be the laws of wealth as sort of a starter. And then the new book is called the behavioral investor. That's maybe the, the 200 level course. Um, so yeah, the laws of wealth in the behavioral investor and you can find them wherever fine books are sold. Amazon is usually the easiest place to do that.

Braden: (01:52)
Yeah, no, definitely. So I can link that in the show notes. And I think what you are writing about behavioral finance and making sure you're kind of in the right mindset. And how to react, especially in financial markets and a time where volatility seems to be the new norm. It's 2019 now and stocks have had a pretty good run. Um, as they bounce back from something like Christmas Eve where at Christmas Eve, the dowel lost its largest of all time and then bounce back on boxing day with, I think its biggest gain of all time. And, and then it just, it seems to be like, you know, not even a, not even surprising anymore. And what are the kinds of things that are going through your mind, um, and maybe what the average person's mind and how they can start to really implement the things that you talk about when these kinds of, you know, 5% ups and downs in a broad market kind of happen.

Daniel: (02:54)
So it's interesting. I think one of the things that you said, which is, uh, which is true I think, but can be misleading to investors is, you know, it was the biggest, uh, I think the biggest point drop in the biggest point increase. But from a percentage standpoint it's, you know, nowhere close. And so the way that the news reports it, I mean the news reports it for sort of maximum bombast or maximum fear, uh, fear or greed. And so I think the first thing that we need to do is start thinking of these things as percentages instead of points. And, you know, even on a percentage basis it was a big drop. But I think, uh, for me as a bit of a market historian, uh, that that all sits in perspective. And so I, you know, I think of a couple of things, you know, I think of over the last 35 years, the average intro year drawdown peak to trough entry, your draw down has been 14% and the market has finished a positive on the year 27 of those 35 times. And so last year, I think our largest peak to trough draw down in the, in the s and p was about 19%. Um, that's not all that different than normal. And you know, we ended the year slightly negative, but, but only slightly. And so

Daniel: (04:19)
I think when you understand how frequently these things happen that that on average you're going to get a correction as regularly as you get a birthday, then you start to put these things in perspective some. So yeah, like was it, was it unpleasant for sure. Um, was it unusually volatile? It really wasn't. Um, despite, you know, what, what I think the news was reporting.

Braden: (04:47)
Yeah. That's so interesting. And it really comes down to maybe a bit of a recency bias with, you know, the, the, the market historically, as you say, has had those kind of peak, the troughs, but maybe not in the last 10 years. It hasn't necessarily. So yeah, I guess it, I guess it kind of has a bit of a recency bias with it becoming old. Sudden the market's acting way differently than that in the past. Um, but really at the end of the day, maybe history is not repeating itself, but it's definitely rhyming.

Daniel: (05:18)
Yeah. You, you make a great point about recency bias because if you ask the average investor, they would say, oh, you know, last year it was such a crazy, crazy year in the market. You know, the, the crazy year in the markets was 2017 where we did, I believe we didn't have a single down month that had never happened before. So 2017 a year where it was extremely placid. Um, that's the anomaly, not, not last year where it's bouncing around. That's, that's what it does. But we've had such a good decade that I think people are not accustomed to volatility anymore. And one of the things that we know about human nature is that people tend to project what's going on now into the future indefinitely. And so, yeah, you know, after a year, like 2017 where you just got, had nothing but good news, people think that that's going to be the way that the market is going forward. And that's, that's certainly not the case.

Braden: (06:18)
And it's hard. You know, the average retail investor, they're fed, they're fed the news and you know, CNBC isn't paid to tell good news stories. So would you add, would you advise the average retail investor to kind of turn off the TV, turn off CNBC, um, and just kind of focus on what they can control and not get sold a negative news story all the time?

Daniel: (06:46)
So, um, there's a couple of points I would make here. You know, one is just around the frequency with which you look at your accounts. So if you look at your accounts every day, you're going to see a lost 47% of the time. So that's, I mean, that's scary when we think that, you know, from the behavioral finance literature, we know that a loss looms about two and a half times as large as a gain. It feels good, right? A loss feels about two and a half times as bad as a gain feels good. So if you're seeing a loss, 47% of the time, it, it feels like you're seeing a loss all the time. Right? If you look once a year though, you just see a loss about a quarter of the time. So the more you can, you know that that principle, the less you can keep your finger on the pulse of these things, the less you can watch every zig and zag of the market, the better off you're going to be.

Daniel: (07:45)
I also share an anecdote in, in my new book, the behavioral investor, uh, that shows a bit of how the sausage is made. You know, I, I'm on CNBC periodically and um, you know, this most recent time I was on CNBC, you have, it's a very weird experience because you've got this like clear little microphone headphone thing in your ear and you can hear what's going on on the TV, you know, the whatever the viewers or are hearing. But you can also hear the director, like there's a producer, director in the background kind of giving you instructions. And so they're counting me down to go onto my segment, which was all about market volatility and you know, they're going five, four, three, two and then she goes, don't be a nerd nerd. Like, give us, you know, like give us something good here, uh, effectively. And you, you know, in that moment, I mean, you kind of know that that's how TV works, but in that moment when you're there in that seat and you're like, come on man, you know, it's like, I, I came here to be a voice of reason and academic voice and you know, you're saying don't go in there

Speaker 3: (09:02)

Daniel: (09:04)
Yeah. Because you know, the stuff that gets press is when, you know, some analysts as sell everything or you know, this, you know, this guru predicted 2008 here would, he has to say now, nope. Wants to hear a message like mine, which is, you know, stay the course. Don't look at it, uh, you know, work with a professional to keep you in your seat kind of thing. Uh, it's not, not quite as sexy, even if it's a research back.

Speaker 3: (09:31)
Yeah, no, it's, it's so funny. Like most of the time, yeah. They'll get someone on the, this person, they knew exactly what percentage drop would have been in the financial crisis. They shorted Lehman brothers like four hours before it went bankrupt. Like these kinds of people go on the show and yeah, they just sell a similarly bad news story. And I never know if the people that are saying this and having this kind of negativity towards the market, I always just wonder if they got lucky or they're just really, really bad investors. There's

Daniel: (10:13)
a, there's a couple of things I'd encourage you to do. I wish I could give you chapter and verse on this. Someone on Twitter shared it recently. It was the performance of the market immediately in, in the months immediately following a CNBC markets in turmoil, special. You know, anytime the market gets a royal, the bed don't have this markets in turmoil special. Okay. And so, you know, the, the takeaway was that historically the market's done really well like that, that I'm markets in turmoil. A segment has actually been a fairly good by indicator. Um, and then the second thing I'd encourage people to do is to check out the longterm track record of people who make big calls. Because if you look at people who've made big calls, like some of the people who are featured in the big short and you know other books like that now, uh, what they tend to do, we find in the literature is make one big call and then to kind of bang that drum going forward and history doesn't tend to repeat itself.

Daniel: (11:18)
They were right about some black swan event. Um, but then they keep thinking that's what's going to happen into the future and they tend not to be right going forward. So you look at a lot of people that were featured in the big short, their track records, uh, over the last 10 years in, in many cases have been abysmal because there, there are still fighting that last war. They're still trying to make that big improbable call. And mostly history is just boring. You know, mostly what happens is just nothing. And so when you're out there always predicting end of the world, you know, one of the things that Philip Tetlock out of Ucla found in his study of prediction and so called experts is uh, a, the more famous a predictor, the worst their predictions tended to be a, and the corollary to that was the bigger, the more improbable a past call, the worst a future call tended to be. Because if you think about how people get famous as market prognosticators, they get, they get famous or making a large improbable call. Um, but that's not how you get good. So, uh, that's in mind when you, when you hear that

Speaker 3: (12:36)
becoming an investor as a beginner can be extremely intimidating for a variety of reasons. I think the number one reason is that the financial services industry has done a really good job of creating an illusion that becoming an investor on your own is very hard to do. You'd be shocked at how simple it is now with the new age of technology and discount broker services and the widespread broad based index funds bought and sold through exchange traded funds. Again, this might sound confusing, but you'll be shocked at how easy it is to do. If you have an internet connection. You can become an investor of index funds with a few clicks of a button and requires minimal portfolio maintenance, maybe 15 minutes a year to rebalance them and check out your portfolio. To do this, I created a how to start investing with $1,000 course.

Speaker 3: (13:28)
The course is $63 and go to, I'm a beginner exclusive listeners to the SBI podcast. We'll get 15% off using promo code [inaudible] 15 the course. We'll give you lifetime access. I will continue to update it and show exact model portfolios that you can buy and sell. These portfolios will be shared on my screen as I show you exactly how to execute it and become an investor. You're going to go from knowing nothing to being an investor of broad based index funds. Where are you going to outperform your friends who are paying for active management? Mutual funds paying insanely high fees for honestly not much of a service at all. So got to get stock and use [inaudible] 15 for 15% off. Let's get back to the show.

Braden: (14:23)
Yeah, no that they don't have really a correlation between, you know, one of these big calls and being a successful longterm investor. In fact, they probably have a negative correlation if you really think about it. And I guess I kind of brings me to price analysts and how, you know, there's essentially every single company that's publicly traded that has analysts that cover, that meets him a market cap requirements, have a group or smaller large group of analysts covering the company that put price targets on the share of every single company, which is just insane to me. The fact that that even exists. Um, and how is the retail investors, small investor, large investors supposed to act? How are they supposed to train their brain to convince themselves that they bought some company x at share price acts and all the analysts are downgrading it to $20 less or however much less than what you bought it for or what it's currently trading at. Um, and the market just absolutely punishes it because of, you know, some analysts or group of analysts have downgraded the stock. How are you supposed to, you know, it actually implement longterm thinking here and because they cover the stock way more than me, how am I supposed to know things that they don't?

Daniel: (15:59)
So there's a, um, there's a sub facet of overconfidence, you know, everyone knows kind of what overconfidence is. In psychology, there's a sub facet of it called over precision. Um, an analyst targets are, are wildly prone to over precision. Either the thought,

Braden: (16:17)

Daniel: (16:17)
That we could put a price target on the s and p 500 or the Tsx or you know, any, any individual security is so bananas and unsupported in the literature. Um, so I think that analyst's estimates and price targets should be roundly ignored. And I mean, you look at like go just for a laugh, go look at the price targets for 2018. I mean, no one was, I mean no one was within a hundred miles of, of, of what happened. And what people tend to do is there's a strong career risk around them, right? You know, people will say, oh, the markets usually up 10% ish, so I'm going to guess seven or 8%. Well the market does 10% on average, but it almost never does 10% or or anything like it. You know, you're going to get a lot of, you know, you're going to get a lot of years where it's up 20 and you're going to get some years where it's down 20, you're not going to get many 10% years. So David Dreman, um,

Braden: (17:19)

Daniel: (17:20)
David Dreman is a guy who's written a couple of books that I really enjoyed and wood would commend to anyone who's listening, but he did it. He did a research of, he did a study on analyst price estimates and found that a one time in 170, so whatever percentage that works out to be, but only one time in 170, uh, where they within 5% of the, of the realized, uh, of reality basically. So, you know, you're talking about less than 1% of the time are they even in the ballpark. And he found that they had about a coin flip chance of, of even determining whether they were directionally right, right. Whether they were red or green, whether they were up or down. And so a few things in life are worth ignoring, uh, with the kind of fervor that you should ignore an analysts estimate. Uh, and this doesn't even begin to speak to some of the perverse incentives that are there because you know, the way that these companies work, um, you know, historically we've had about nine by ratings for every cell rating.

Daniel: (18:33)
Um, and if, if an analyst does boldly slap a sell or a hold rating on a stock, they can even get blackballed by the marketing teams. And the information powers that be at that company, that company might get upset and say, well, if you're going to do us like this and we're going to withhold information from you and that can adversely impact, um, that individual's career. So yeah, there's a, the whole, the whole thing is a mess. The way that's incentivized, the way that it's structured, the way that career risk plays in the way that the flow of information is kinked. If you say something unkind about a company, there's just a, there's, there's nothing to recommend. Looking at analyst's estimates as a way to invest.

Braden: (19:20)
That makes so much sense because the person who's writing this piece or pregnant price target, their neck is just always on the line and they pretty much have to act in a way that would seem the exact opposite of how you'd want to behaviorally act when investing capital and financial markets because you're never going to be a contrarian. You're never ever going to be a contrary. There's never, there's never a circumstance where your analyst is going to put his neck out on a contrarian piece against the company that all of the rest of the investment banks are completely downgrading.

Daniel: (20:02)
Well, and you saw it, you know, you saw last year when every analyst had, you know, the s and p up seven or 8% or whatever the sage gas was. And then we started to have volatility and then they all overreact to the downside. Right. And so, you know, everyone revise their estimates. Well you know, if you, if you just revise your estimate every time, reality changes as your estimate is not were worth a whole heck of a lot. So yeah, those, those things are best ignored for sure.

Braden: (20:31)
Yeah. No, they definitely are. And what can they do? A, you had mentioned the four behavioral mistakes that investors tend to make and I guess they can try to avoid these mistakes. And in the grand scheme of things, when investing, do you to speak about those ones?

Daniel: (20:48)
Yeah. So in, in the behavioral investor, I take this universe of a investor misbehavior. So a psychologist like myself have identified nearly, nearly 200 at my last count, uh, types of different ways that we make mistakes and financial markets and are sort of bad with money. Um, but underlying these 200 or so or so behavioral biases are, are a handful of, of tendencies that sort of undergird them. And so I looked at the literature and I said, look, you know what, let me simplify this a bit. What are the four or five things that underlie them? And the first of these is, is what I call it ego. So this would be the overconfidence that we touched on a bit earlier. And so the takeaway here is that good behavioral investors have to rid themselves of the notion that they are different or that they're special.

Daniel: (21:48)
And that's a notion that's very protective to us day to day. Like, you know, we, we want to think we're, we're better, we're smarter, we're better looking, were funnier than the average person. And that actually does a great deal of good for our ego. It helps us bounce back from failure. It helps us, you know, talk to the pretty girl at the bar. Well, you know, whatever it is, um, that's all fine, you know, that's all fine. Good, good luck. You know, Godspeed be, be a little bit overconfident in your personal life, but try not to bring that to markets. And you know, I tell this story of a guy who came up to me after, um, after a presentation I gave and he had $2 million and $1 million of it, uh, was in, uh, was in a single stock. You know, you got $1 million diversified and then $1 million in apple stock.

Daniel: (22:43)
And I was in credit, this is a couple of years back. I was incredibly bullish on apple stock at the time. And he said, Hey doc, I've got, you know, half of my money, you know, spread around and half my money in apple stock. What do you think about apple stocks, prospects? And I said to him, you know, it, it doesn't matter what I think about apple stocks, prospects, you know, what you're doing is stupid. You know, because you're, because you're being overconfident. And I did not let on in the least that I was, that I was bullish about apple. Now apple is up a ton in that time and yet I still hope this guy sold and diversified because the thing about being a behavioral investor is, is that you can be right and still be a moron, right? Like you can get the right result for the wrong reason, but that's a, that's a dangerous game and if you play that game over time, you're going to get a, you're going to get smacked. So understanding that you're susceptible to all the same foibles and and biases as the next person, I think is the first step to overcoming ego and being a good behavioral investor.

Braden: (23:53)
This makes a lot of sense to me because it's natural for you think that things happen a little differently to you. The whole concept of ego and is something that I see in finance a lot, especially with people who think that they're on to something that no one else knows in the short term because they've outperformed the market and two month span outperforming the market and a two month span doesn't mean abs. That means absolutely nothing. Um, and it really comes down to I think the, in the education system a, a big, a big problem is, is they teach university and college students to go into these investing type competitions. Their classes will, we'll be simulations of picking stocks and a three, four month semester span. And then it really comes down to, it's a competition between them, their cost mates on how they can perform in a very, very short timeframe. And this, as you may know, means nothing in terms of how they'll perform in markets over a long period of time. So I think it's kind of built into the way that investors are supposed to act and it's supposed to think that they know something that other people don't. And it really comes back to bite them as you had mentioned. Um, when it comes to mutual fund managers to doesn't necessarily mean that you're going to win the next year if you won this year and it actually decreases your chances of being right again.

Daniel: (25:25)
So it's, it's interesting that, um, you know, what did I say in my book, the laws of wealth, that the truest words in investing are this too shall pass. And so one of you know, that's, that's a phrase that should give you comfort in bad times, but should scare you in good times. You know, when you have a, when you have a 2017 where everything goes your way, you have to tell yourself, you know, this too shall pass. There will be years that aren't as good. Um, but when you have a, you know, when you have a 2008, 2009, when you're getting, you know, when it's getting gutted and you just are scared to death and you want to hide, you have to tell yourself, you know, this too shall pass. And like not every year will be like this. And so that's one of the reasons why you see, um, that failure of persistence among some managers is because the styles come in and out of favor. A approaches come in and out of favor. Uh, it's, it's really less about, um, you know, which sort of way to invest is the right way. And it's more about picking away and sticking with it because styles tend to come in and out of favor, value, quality, momentum, right. Come in and out of favor. So they all work, right? Like they all work over a long enough periods, but they don't work. If you're always chasing what worked for the last five years, you're going to tend to do exactly the wrong thing.

Braden: (26:52)
Right? Yeah, no, that makes a lot of sense. At the end of the day, when stocks are, their performance is based on how their business results are and if value all of a sudden is out of favor and fundamentals are all of a sudden not a favor, that's usually a time that you should, the signals, you know, a little bit of unusual pandemonium in the market when you get pre earning startup. That completely dominate the market and value just as crap, even though their business is altered. A great, um, it's usually a time that investors should be wary of, of these kinds of things and maybe maybe value all of a sudden is unsexy, but that's where you want to be. So it's hard to say. What's the, another a classic behavioral mistake.

Daniel: (27:37)
So this second of mistakes is a motion, which is probably not a surprise to anyone. Um, but you know, I'm, I'm a big advocate of a rules based decision making. I think that's, if I had to give one good piece of advice to do a listener would just be to automate all of your processes and you know, automate, automate everything from saving to investing, uh, to, you know, the rules by which you invest. Um, because emotion, I go into it in great, great detail in the book, why it's the case. Um, but emotion is just the enemy of good investment decision making. And I looked at over 200 studies that compared a discretionary decision making versus simple rules based, um, decision making across a variety of contexts. Everything from, you know, stock picking to trying to look at prison recidivism numbers. And we found that, uh, you know, about 95% of the time, simple rules beat your discretion and they beat it with a lot less brain damage, right?

Daniel: (28:46)
Like they beat it with a lot less effort. So spend the time to create a rules based system and follow it. Um, the, the third one is a tension, which is basically that, uh, we as a human race are tuned in to things that are scary or lurid and not things that are probable. Right. You know, I, the, the example I give in the book is that more people, uh, by a factor of I think five more people died last year, taking selfies, uh, then, then being attacked by sharks. And, you know, yet we're, we're scared of sharks and we're not scared of selfies. Um, so we, you know, we do this, so we do this all over the place and investing. There's, you know, we're, we're scared of the next big crash, but in the meantime we're doing stupid things like not diversifying, you know, uh, we're, we're trading too often.

Daniel: (29:43)
We're paying too much in fees. We're not getting the advice we need. So the thing that's going to ruin your financial future is, is probably not the next big crash because if you're young, you're gonna live through a handful of crashes like you, you just will. There's no, there's no getting around it. Uh, the thing that's going to kill you is, you know, a lack of diversification or excessive bees are churning your account. Um, which is stuff that no one worries about that bankrupts many more people than you're sort of the, the kind of crashed we get every five or six years and the, it's amazing. Yeah. And then the last one is a conservatism, which is this tendency for us to confuse what we know with what's safe. You know, the most obvious way that that manifests is his home bias. You know, I spent the summer in, in Canada, had a great absolute blast living in living in western Canada.

Daniel: (30:43)
But one of the things, yeah, that's right. And I, that's another story. I am so high on Canada going forward. I think it's going to be, I think it's going to be one of the great success stories. But, um, you know, one of the things that I found in Canada that's, that's true all over the place, it's just a not as big of a problem depending on where you live, is that Canadian investors tended to have most of their equity exposure in Canadian equities. And if you look at the worldwide, um, you know, the worldwide economy, it Canada accounts for about three or 4% of the worldwide economy. And yet these people had, you know, 90% of their exposure to Canadian companies. And we find that all over the place. You know, you see when the, when Greece had the Greek debt crisis, um, you know, Greek investors were way, way, way overweight Greek equities and you know, Grace's like less than 1% of the, of the worldwide economy.

Daniel: (31:42)
So as a general rule of thumb, you should hold a, you should have equity exposure that's roughly equivalent to the size of, of, of that exposure to the world economy. So the, the u s is about half, right. So, so about half of your exposure, uh, to stock should be in the u s and about half should be spread out over the rest of the world. And yet people don't do that. People people hold, you know what they know, which if you're Greek means you're overweight, you know, tourism and olives and it's not your turn, not, yeah, that's right. You're not an end delicious meats. Yeah, I know Ben. So you're not a, you know, you're not well diversified.

Braden: (32:28)
Yeah. The vanguard actually has a really good piece. Fingered Canada has a really good piece on Canadian home bias and it's a real thing. And it's something that in my premium subscription service where I have people follow my real money portfolio, I actually have it linked at the bottom for why I own broadbased us and international index funds to accompany Canadian stock picks and for a Canadian or anyone else living in the world, ETFs are such a good thing for these people because they can buy and sell them on their own exchange. So you're not suscept to, you know, losing an instant 25% on your dollar like a Canadian will when they go buy a company listed on a US based stock exchange. You can go ahead and buy the broad based basket in Canadian dollars and not have to break a sweat on losing, you know, some percentage due to currency exchange because I have no idea what's going to happen with the US DOL US versus Canadian dollar exchange. How am I supposed to know? How am I supposed to know how to predict what's going to happen. So it's better to focus on the things that you can control and being overweighted in Canadian stocks because of the Canadian home bias is definitely not a good way to run a portfolio.

Daniel: (33:56)
Well, yeah. And so, you know, it's not, it's not a knock on any country, right? It's just like if you, if you're overweight, candida, you're affectively overweight commodities, right? You know, whatever that country does well, um, you end up being overweight, that thing. And you know, US investors do it right along with the rest of everyone else. The U S is just bigger. So it's like, you know, it's less of a, it's less of a problem, but, but this is something that we see across cultures. We also see people are overweight. Um, you know, whatever their geography does well in the u s people in the northeast, uh, tend to be overweight financial stocks because that's where, you know, New York and Philadelphia and Boston and all the large financial centers of the u s are there, uh, in the Midwest, people tend to be overweight agricultural stocks. And what's crazy though is if you live in Kansas and you, you know, work for a farm supply company, your, you know, your personal real estate is contingent on farming of values. Your job is contingent on farming values and now your portfolio is contingent on, on how farming does. So you know, if anything you want to be underweight the industry where you work or the, you know, the or, or what the geography where your houses located. So yeah, you don't want to be triple, triple loaded on risk because you've fallen prey to this tendency to be conservative

Braden: (35:26)
because you, yeah. So as you put it, that makes sense. You tend to confuse with what we know and what is safe. And this is especially funny because I find if

Speaker 3: (35:38)
you work at some fortune 500 company that you're in there like matching program and their stock program and then you'll get someone who their investment portfolio consists of a 70 to 80% of the stock of the company that they work at. You also are suscept to your entire livelihood of working at that company. So if something happens, not only is your investment portfolio just gone down the drain, but you also don't have a job.

Daniel: (36:11)
So I work in Atlanta, which is the number three fortune 500 headquarters in the u s right? We've got a bunch of big, big companies here. And what I see in and around Atlanta is people who own, you know, ups stock or Coca Cola stock or AFLAC or whoever the big companies are around here, it will be 80% of their equity holdings because they've accumulated stock over time. And in some cases there they're reticent to sell because, you know, ups gave me a life, you know, that it's almost like as a favor to them, you know, they, they did right by me. So I don't want to sell that is crazy. And all you have to do is ask people who worked for Enron, uh, you know, or for GE or for bear Stearns, like any of these companies, you know, any of these big companies. Um, if you had been, you know, if you had had all your wealth concentrated in Enron stock, you would have lost your job. And your entire nest egg and that happened to many, many people. Um, partially because Enron was encouraging their own employees to pump the stock. So yeah, that is, that is nothing you want to do. If anything, you want to be underweight the stock of the place where you work because that's your job, right? That's all you're already making money off of that. If anything, you want to be underweight that position.

Speaker 3: (37:37)
Are you looking to gain an extra edge in your portfolio? I created stratosphere premium to follow my exact real money portfolio. If you want to buy exactly what I am buying with my own money to the dollar amount, I will show you that every single month with stratosphere premium. If you're interested in learning more about stratosphere premium, head over to get stock and press. I'm already an investor. For those who are listening to the show exclusive for stratosphere investing podcast listeners type in Sif 15 for 15% off the entire year. Let's get back to the conversation, right? You can think of the whole balance of things is you don't really necessarily want to have any position in the company that you work at. That being said though, how does that relate to to insiders and in executive management? When you look at a company, uh, behaviorally, I know that on Christmas Eve when I saw a stock selling off like crazy and I saw insiders of some of my highest quality holdings that all the sudden their valuations were rock bottom low inside is buying it up like crazy. And this makes me miss, makes me think that this is obviously a really good thing and the stock is really cheap and business results are probably going to continue to be really great. Is this type of thing that you think investors should be looking at as something that obviously is a good signal to, to investors that, you know, the broader market might have something wrong here?

Daniel: (39:14)
Insider, um, insider transactions are noisy but, but I don't think they're useless. And so I'm, I'm always more excited about insider buying than I am inside selling. Um, because there's, there's really only one reason to buy and large amounts and that's just because you're, you know, you, you believe in the future of your company and maybe you have some sort of inside track knowledge that things are going to get good. There's going to be a new product roll out. There are, there are a million reasons to sell. So I mean you might be, you might be dumping stock because you know that, that a bad quarters coming, but you might also be, you know, buying a boat or a second house or you know, paying off your missing

Speaker 3: (40:01)
dress or whatever you scandal.

Daniel: (40:05)
Right? Yeah. I mean there's a, there's a lot of reasons to, to need money and to, to sell the stock if you're an insider. There's really only, um, there's only really one good reason to be buying hand over fist. So it's something I look at, I look at buys as being more predictive as then themselves though.

Speaker 3: (40:25)
Interesting. Yeah, that's, that's true. And the attention rule that you brought up was really one that was interesting to me, how you brought the selfie versus sharks example, which is by the way, hilarious. Uh, which makes sense though because I swear everywhere you look someone's taking a selfie. So that's just statistically bound to happen. But yeah,

Daniel: (40:49)
drunk and drunk and Selfie takers walking into traffic as the big, the big problems. So be careful.

Speaker 3: (40:55)
Oh my God. Yeah. I live downtown Toronto and the amount of times I see people walking blindly on the streetcars are blinded. They cross the street with their on their phones. Like we're just assuming that everyone around us as a good driver at this point. Like, which obviously is not the case. Yeah. Just like walking around right in front of traffic with on your phone is this is like the Zombie, the Zombie walk. I don't understand man. Like what did, she can't get off your phone for three seconds and cross the street. Anyways, besides the point, I think you bring up a good point that we're automatically to

Braden: (41:34)
a bad news story. And it kind of also hits the point of if you check your account every day that you said for what, 42% of time your stocks are down,

Speaker 3: (41:47)
it says 48, 46.7 46.7. Okay. Yeah

Braden: (41:53)
that, that and, and that kind of resonates, you know, more bad behaviors. They're going to start happening if you do that because your, your mind is attracted to a bad news story. And I think you said like two and a half times it'll loom more than, than a win. So this just kind of all comes full circle and, and, and the fact is the just have to be logical in the markets. And for me, the only really sure way to to, uh, focus on a bad, on a, sorry, not avoid a bad news story, is to just constantly look at income statements, cashflow statements, and look at the real business performance. And if everything is good and they just posted a quarter with record profit record revenue and the stocks beating it up, for some reason, that's just good enough for me to close my a brokerage and, and move on with my day.

Speaker 3: (42:46)
Yeah, absolutely.

Braden: (42:48)
I think it's just better to focus on what you can control and, and, and just kind of leave out the rest while Dr. Crosby, thank you so much for coming on the show.

Daniel: (42:58)
Yeah, my pleasure. Great. Great talking to you.

Braden: (43:01)
And so the, the books are,

Daniel: (43:04)
sorry, the laws of wealth in the behavioral investor.

Braden: (43:07)
Okay. I'll link to those in the show notes on Amazon because that's just how books are bought these days. It is, is, is there audio book for it?

Daniel: (43:18)
There's one coming for the laws of wealth.

Speaker 3: (43:20)
Oh, cool. And that's the first one. That's the first one. Yep.

Braden: (43:24)
Cool. Well that'll be a linked in the show notes and uh, yeah, if, if anyone wants to reach out to you, can they get ahold of you?

Daniel: (43:32)
Yeah. Easiest place is on Twitter at Danielcrosby, and I'm also very active on Linkedin, so I just, you know, Daniel Crosby, phd on Linkedin.

Speaker 3: (43:42)
Awesome. Okay. Thanks for joining us on the show. Thanks so much.