Roaming Returns

022 - How Awareness Of Cognitive Biases Makes You A Better Investor (Part 1)

December 05, 2023 Tim & Carmela Episode 22
Roaming Returns
022 - How Awareness Of Cognitive Biases Makes You A Better Investor (Part 1)
Show Notes Transcript

Human biases are an innate part of us, so we have to learn to navigate them. Otherwise, they'll throw monkey wrenches into your life and finances. 

Awareness is the key to being able to do this. And once you're able to slow down and see what's going on, you'll be able to make much better investing decisions and understand why other people are acting they way they are. 

Today we discuss 3 cognitive biases that have a direct impact on investing.

  • Herd Mentality
  • Overconfidence
  • Confirmation Bias

The others will be covered in part 2 in the next episode. 

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Welcome to Roaming Returns, a podcast about generating a passive income through investing so that you don't have to wait till retirement to live your passions.

In today's episode, we're gonna start digging into financial biases, or what they call behavioral finance. I know it sounds boring, but once you actually understand these pieces, you can start dissecting your own like triggers and how you're behaving. And once you understand what is going on and you have that self awareness, you can exponentially increase the results of the success that you have with investing. So, tune in, and then take some time to reflect on this stuff.
Or Tim or live stop licking the microphone. Sorry, why do you always lick the microphone? It's how I make it mine.
Oh my gosh. So like Cards Against Humanity. I like things to claim them as my own.
Cats with their legs. I licked things you haven't used. Welcome from the icebox. That is the Northeast first case. It was like allegedly It was super warm today. It was like 45 degrees, but they felt like it was like 12 There was no sun. I was so cold and it was just gross and dreary and terrible. So I got home and the markets were air. So that was whatever but if y'all listened a couple of Ira those last podcast on the podcast before I said get into EBIT Oh, that is up like 20% Since I recommended that so when I recommend stuff, there's a reason, just man that was me patting my back.
Tim always has a tune his own horn to to bitches
okay, that we said last week, we're gonna be talking about the psychology of investing. I know this is gonna be super fun, but it's important to be able to identify flaws in your investing system.
Self awareness is really, really helpful when it comes to anything with finances and anything with life. So this can actually bleed over into other areas to help you out.
So this is going to be a three parter, unfortunately, because I don't feel like making like a four hour long podcast because if I was you I wouldn't want to listen to this guy talk for four hours straight about psychology.
Yeah, psychology. You gotta take in small pieces for sure. Small pieces self reflection is difficult. It's not difficult. It's just can be difficult when you don't want to own
Do you want this voice telling you have this be self like, reflected that take a look inside. Are you doing that? How does that make you feel?
Trying to be a therapist? Yes.
You got enough years of therapy? I guess you'd have to do it. Oh, that's funny. All
right. So this all started they actually what's it called? I forget already. It's called biases, financial, behavioral finance, behavioral finance, behavioral finance. This this started in the 80s. Prior to that, everybody would just assume that everybody that invested invested rationally and then they were trying to figure out like why there was peaks and troughs? That didn't make any sense. And then some, some schmo came along and said, Hey, maybe investors aren't rational. And everyone said, Oh, you're full of crap every we all know that investors are rational people. So they started studying behavioral finance and they found that everybody that invests like 95% of them are irrational.
But everything I've read and not in the finance world, humans in general are not rational creatures, because we're just not if you actually think about a robot or robot, every decision that a human human makes human, human and human makes, I felt like lubob every decision that a human makes is actually based from an emotional place, like a desire wants, they all stem from some emotional. So if you think back,
what happened in the 90s, like the late 90s and the early aughts, as I say, the early aughts, they started having computer trading like algorithm trading and stuff like that. It's because they realize, oh shit, humans are irrational. So let's do it to computers. And now we have computers doing it with algorithms and soon it's gonna be aI doing it, and soon, so that's kind of a so forth pretty soon we're just not even gonna have like records to cancel just be like, computer. I want this to kind of like, I've already taken care of that sir.
I can see you having a butler being like, yes, Butler. Yes.
Butler bot. Butler bot. Okay, so the first one we're going to discuss is one that everybody that I've ever known investing is guilty of, I was guilty of it. And then I tried to like use the other side of it, and try not to be guilty of it, but then I was guilty of it because I was like purposely not trying to do it. It's the herd mentality. Herd fatality is self explanatory. Like everyone's doing it. So why not meet you know, like when you're a kid, if everybody jumped off the bridge, would you do it? Yes. That sounds fun.
Well, actually, I find myself in the opposite boat. If the herd is doing something, I actually have a bias of not doing what they're what
I started doing. And then I found out that that's just as bad a bias. It's the same reality by but it didn't like
retro there. I
almost spiteful bias. Yeah.
I kind of think it should have its own terminology because you do have two different I want to say two different kinds of people, but there are kind of two different camps of people where people want to be part of the group part of the herd. And the other people who want to go to the drop tune have their own drum that as soon as you'd say that they're following a trend or something they geek out that would be me, and that would be Tim. We always talk about being wild ponies adult. What is it? You guys tell me? Don't tell me what to do.
No Tell me what to do. I'm a wild pony be
absolutely hilarious. But I've noticed and I used to do this to be at work where they realized that I was always would always Buck what somebody would tell me to do. So you could actually like get me to do something that I they wanted me to do by telling me the opposite. Just because I would rebel. But I have actually realized on my own that I have to really step away from that gut urge to do the opposite and actually contemplate the situation and be like, well, am I actually shooting myself in the foot by not following what's happening because of just the spiral. The reason
why that it's super bad. If you think about it from the investing point of view, if you follow the herd you're actually not doing the research. You have no idea if the company you're investing in has good financials is a good company. You just start doing it because everyone else is doing it which that's not good, but I mean, I guess it makes people money because like Apple did it and tested it and Amazon, but they're
so short term, it might not cause you pain. But what happens is if you're following a trend, the people who are leading the trend jump ship, take profits, and then the people who stayed in it have that hope and kind of go into that one of the other biases we're going to talk about with overestimating and they'll stay in it longer than they should so they'll actually get losses
not overestimating overconfidence, sorry, overconfidence,
I knew was an over word, but you're never ending. Oh, not overheating
but like that's the key part that you can follow a trend if you do the research. At that point you you got the idea from all the trends, the trend setting, but you have to do the research and stick to the like the rules that we discussed like don't over overpay. So make sure the PE and the peg and all that is good. If you'd like say if you wanted to buy like Amazon, like we said like I think it was two months ago Amazon's PE was like 200 That's a ridiculously high so don't follow the herd off a cliff. That's if you do the research and you stick to the rules you can actually use what the herd is doing. As a way to actually identify micro trend macro trends in the market. But but not in that individual stock. Ai right now is a huge macro trend that everybody's in. So you'd like oh, so AI is a trend and then you can start studying then you can start researching and studying the little AI stocks that no one's looking at because they're all focused on. I don't know, Microsoft,
the big trendy stuff. So you can get ideas from trends and from herd mentality but that doesn't mean that you should jump on the same things that they are because what they tend to do is they tend to create these overpriced situations where you're paying more for something than you should be and that's where you set yourself up for losses
where you can use it and I do believe that is where you'll maximum is actually an advantage from is like okay, well everybody's in apple. So I'm assuming if we create an apple options, like specific stock Yeah, people will get into it and they sure as hell have like the apples like probably the highest one that everyone's in Coinbase now because the macro trend that all the herd mentality is focused on is the Bitcoin ETF and Coinbase is stock is like through the roof as as well as Beto and I forgive there's like five other like cryptocurrency stocks that are all just like up like 50% like in a week because the trend now is cryptocurrencies Bitcoin ETF.
But what we were actually just going to segue into is what happens when everybody jumps on a trend it creates these bubbles and guess what happens with bubbles they pop?
That isn't it's been it's happened time and time and time again like the trend in the 1990s was Everybody Oh is the thing and so all these heard these these people's dot com all piled socks and all hell broke loose and they did the same thing with Financials in 2008 and they did the same thing with the stock market in 2022 before like all hell broke was like you you can't follow the herd because the herd. It's like if you look at the data the herd is always wrong because 95% of people lose money.
Yeah, so you can ride it for a time but you got to get out before everybody else realizes they need to get out and then they all panic sell and then that goes in the opposite direction where it pushes things down way further than it should be. Because everybody's panicking and selling it to hurt as following that trend.
You use herd mentality to your event. Like that's what I'm pretty sure Warren Buffett does is he sees oh all the all the herds have vacated the market and this is a really good stock, they all sold off. I'm going to buy it and so he uses the herd mentality to his benefit. You can do the same thing. Just be but I want you to be aware that if you're doing it to catch yourself and make sure that you're doing it for the right reasons, if you're investing in something make sure it's for the right reasons not because everyone else is investing.
And for an example we were just talking today about was it the coin coin base at your max ETF Tim just saw this morning that it went up how much percent
were up 35% And the Coinbase you the value
we're not talking dividends at all we're talking about the value of what we bought it in terms like holy crap, this is spiking this hard right now is like I kind of feel like I should sell it before
I think I'm going to do with that when I've like I've I don't know if I mentioned it in the podcast. But I like the I went into the Amazon yield Max, the Coinbase yield Max, the Microsoft do max, the Tesla yo Max, and there's one I've written in the video yield Max. I put $1,000 into four of them and I put a $5,000 into Tesla one because YOLO and right now the Coinbase ones it's a it's like a 14 songs so I'm probably going to just take out my 1000 them I did my initial investment of 1000 from the Coinbase one and just whatever happens happens because it's all house money at that point
because that was the thing we were trying to figure out if the trend is going to die sooner than later or if there's still more ups but I like the idea of taking the initial investment out and then if it goes up we still reap benefits and we're still getting dividends. But if it goes down we can actually take that initial investment and put it back in at a
lower price or ever actually mentioned that but I tend to do that with the majority of my investments I like I like I'm a buy and hold for dividends investor but I also like to get my initial investment out.
When we do that kind of hybrid with value investing and there just comes a certain point where something's so the price jumps up so quick that it seems logical and it's not
like Hercules capital at Main Street capitals and things like that. Like obviously you don't like withdraw your your initial principal because they're always they have
a pattern. The thing with the yield Max stuff is they're so new, we don't really know there's no past pattern to really reference at this point.
But so that's that so that's how I use herd mentality to my benefit, because I foresaw that. Okay, this is going to be a good one because of the factors that I mentioned last week like cryptocurrency you can hate it all you want. I don't like it some of the time but like it's here.
Doesn't matter if it's trending remember Tamagotchis you remember the Ugg boots you remember all this others here and
it's going to make a lot of money for people so deal with it. That's all you can you don't have to believe in it but you can use it to make money well those
silly bands they're silly man, but I think made that dude like a million dollars like it doesn't have to be anything amazing. You don't have to believe in it in any way, shape or form. You can still jump and profit as long as you're not sticking with crazy optimism of the general public.
That's a herd mentality. And I'm sure everybody has been guilty of that bias when it comes to investing. And
don't feel bad if you do succumb to that because we're humans the biological component from the animalistic So
the whole point is to not say oh my god, I'm a horrible investor because I have these biases. Yeah, it's to identify them as the catalyst for the moment but like Okay, so I'm following the group. Why am I following the group did I do the research behind the stock group couldn't be right. Like I think they were right about Amazon and Apple, they can be right. But make sure that when you do that, that you do your pre your required research ahead of time so that you're good, because sometimes they're wrong, but the majority of time they're wrong.
Let's I think it comes down to timing more so you just can't stick stay within step with their timing. You have to be more conscious and aware of veteran during majority
the time when the herd gets wind of something that big institutional investors have already been in it already. Yeah. And they're getting out of it ready
to go. So they pump it potentially to the media, maybe they spark the whole thing, who knows? And they get the prices pushed up. So they can actually get out well,
I'm example of herd mentality being bad was in 2022, I believe when game stops, shit was going crazy. Like that. If you recall back in the day, back in the day, so many years ago, right. Back when I was your age, we had this stock called Gamestop and people went on Reddit and they said this talk to awesome and they pumped it up. Well, that's a prime example of her mentality. Everyone's like everyone started seeing Oh Gamestop Gamestop Gamestop and they started getting into these meme stocks and they were losing a shit ton of money because, like the people that use the herd mentality for benefit have already got out and I knew the price is gonna go down and they were shorting it at that point. Yeah,
created a bubble. And they said, actually, that happens a lot more now with the whole social connectivity. You get these influencers, that they'll pump something, and though they'll say those drop a name for something and they'll pump it, then everybody else jumps in follows and then it just dies. You get those that's really
a conspiracy of, I guess, conspiracy theorist by getting that back, but I'm not a conspiracy theorist. person, but like, I'm a firm believer if you get an email from a publication saying this stock is the next big thing they have already have a sell limit on the stock and they're trying to get you to buy their stock so they can make a profit. Profit on it. Yeah. I'm a firm believer that that's why like, I there's plenty of stocks that I would recommend to a new investor to get into but I very rarely actually make recommendations. Because I want people to do their research and like understand the process to finding good things so that they can actually find good investments on their own that aren't like what
I'm when the other thing with our our investment strategy, we don't really profit as much if the price goes up, we would actually rather have the price kind of stay flat
sideways markets are your are the bomb and for dividend, a dividend
investing approach because there's the price then your dividends that get reinvested get reinvested at that lower price, which gives you more shares and then more income. So if we ever recommend or even suggest things, it is definitely not an automation game.
I can show you a prime example of not listening to the herd being detrimental. Earlier in 2023. Icahn had that report came that came out saying that they are inflating their assets and that they're going to cut their dividend and the herd said oh shit and they got out of it and I said I don't think they're right well turned out they're actually right and because I didn't write
because they panic and they created the sell price that's why I kind of had to cut the dividend it's because the sales the price of the shares dropped so dramatically. They had
a prime example of when the herd right and I was wrong, not following the herd. Like if you get the email we that was a pretty the weekly email was about like the my failures for 2023.
Three, the three big ones
for the year three, three huge ones.
I don't know if I call them failures as much as big as losses or potential failures because we haven't sold completely out of all of them. So I don't know if they're completely in the books middle
medical property is probably going to be a failure for years I don't know how long that's going to take to come back.
We certainly know second
bias that we will dress is below me already mentioned.
She mentioned that raise overconfidence and that's it's a human trait like you're gonna you're the if you do enough research you're gonna feel that you're invincible that you know what you're doing okay. I know the PE I know the revenue, I know the dividend yield. I know the dividend coverage. I know this is a good stock. I know. I know. I know. I know. And you putting feeling into your knowledge and you become overconfident? Where you ignore any like red flags like I know I know better than the expert
What do you do that or you get lazy with doing some of the research because you just kind of like gloss over things. I think that comes into play too. I catch myself
say your your area of expertise is energy stocks or utility stocks like I know a couple publications that the all they invest in is utilities so they know everything about utility stocks, I can see the overconfidence and utility stocks leading to less research. And just I know that the P E is for the utility should be this I know the prices for the 70 some stocks should be in this range here and they just become overconfident. And then when she hits the fan, like what happened with ne ne en which was the which is the parent of NDP, which we made a shit ton of money off off of because we didn't listen to the herd. But they didn't see that coming because they just they thought they knew exactly what was going on with the green energy and they used in the utility sector that it was it was it was properly properly valued and it was still making money so it would never drop and it bucking cratered by like 60%
I actually think we could stick IEP in that category because you were just saying how you got the report from a random influencer, even though you were looking at the actual books and the quarterly reports of iKON. And you said nothing really looks bad. Still, to this day, nothing looks bad. I'm saying we made the decision based on the actual logical stuff, but the emotional people still tanked it so we saw no possibility of it going down because of that faith in the data we were looking at. And yet the emotional erratic people caused us to be wrong.
More aspects like the okay I forgot to mention that with herd mentality, but it works with overconfidence. One of the biggest detriments is with herd mentality. You can justify a piss poor decision because everyone else did it. The same can be justified with overconfidence just tweaks slightly like my logic is sound everyone else is an idiot. Yeah, we do that a lot. I know we do that a lot. Yeah. So like that's how you like that's how you justify a piss poor decision.
We have absolutely said that. One of the hardest lessons that we've had to learn in investing is realizing that it's not about all data. There is the emotional irrationality of other investors. Influencing the prices. It's that's such a hard aspect to corporate
majority of the information that you need to actually grasp when it comes to investing is the emotional side the psychology piece is the hardest part of this whole trip down this boring as crap came from I was like there has to be like a way to use psychology to become a better investor. And here we are.
Well, even if you do our strategy, and you do mess up here and there. The dividend approach kind of actually pays you back your losses.
Like I always say AECC like bumper cables I get I get comments all the time, but oh ECCS went down in price. Yeah, it's going to go down in price because it's not a real it's not a really good company, but I've never lost money in it because its dividend is 60%. If you hold it for a year, the odds of the probability of it going down by more than 60% is slim. So you just hold it until you're up five or 6% and then sell it so no matter what the share of like no matter what the share price did, you've made enough in dividends to actually cover for the poor decision. Maybe that'd be a really good
training wheel one for people to like, test their skills with or evaluating things and then if they screw up, they'd be like, Oh, I just have to wait now to get my money back. Yeah, and then go in again. You caught the EC chain training wheel.
That's how I learned about dividend stocks. To be honest, like I when I first started with her mom's retirement, I was doing like the index funds and the CDs and the little things that were only yielding like two or 3% but because they were less volatile, and they didn't like they didn't really move in price very much like my acid was was covered. And then I then I found out that when you made a mistake and you only have a 2% dividend, you're basically you have to eat that mistake. That's my soul. There has to be a better way that you can cover your losses with dividends. So then I started branching out to like six and seven and 8% yields and I started to see that okay, I can have wiggle room on the because my biggest problem has always been when to buy a stock and selling I'm usually pretty alright with that. Like I'll sell it too early, but I still make profit on it. But when to buy it, so I'm not overpaying for it. That's always been like my biggest that was my biggest hang up for years. So then I was like, Oh, I had to cover that to cover my air I'm gonna get a high yield or that yields 8% So I have you know, 5% wiggle room there where I can get in like 5% too high I still make money. And that's
how that they call that a margin of safety. That's how this all
came about because I was just covering my ass with investments. And then I was like, well
technical terms.
My calculations, Steve had spotted me all the margin of safety
and I just popped in my head with the biggest thing you can like, don't get too cocky. You can be sitting on like, like a like, for example, we're up like 50% on Trinity capital. You don't get too arrogant, like we've been taken profits. I'm not under the I'm not under the illusion that trend is gonna keep going straight up and the line line like that was probably the second Best Buy ever had. I got that like right at the like the day that I bought it. It bottomed out, like 20 cents below where I bought it and it's been straight up since then. Yeah,
that was the most incredible actual buying price I've ever seen him do. But at the same time too. We've made the mistake a lot of times by selling off for positions when things are up and missing out on profits. So that's why we like to take pieces off the table.
That's really how we how we adjusted our strategy because when I was doing it, I'm like, Oh, I'm up 10% So I'd sell everything and then he wouldn't you know that it ran like another 30% Like, oh, had I not sold that I'd be up 40% And so 10% So like I what I started doing and then I started tweaking with the strategy a little bit to basically Okay, I'm going to take a large chunk like $500 or $1,000 of this. And I always keep track of what I put in like my spreadsheet it has exactly what I put into it. And then when I take like say all sell up, sell some profits, I'll take that off what I owe, then I know exactly how much I need to break even. And I keep doing that and then eventually it's in the negative so I'm up and then it's that's all like at that point. I don't care.
That's what I mean, when it's house money at that point, you can let it run and it doesn't even matter what happens to it. We're
still getting a dividend, and it's money that's not actually affecting your bottom line. So that's like the ideal situation. To me. Obviously, other people have different views on that.
I mean obviously as long as it's still a good company and meet your criteria other than potentially being overconfident
that we wanted to discuss.
I did kind of have one with the herd mentality thing back herpetology. So, one of the other points that we have when we were discussing going into this I have also noticed that people like to do things in a group so if you're the only person that messed up or got into something, sometimes you'll actually talk other people into messing up to to make yourself not feel as bad for missing or messing up. Be careful when you're talking to some people because sometimes people do that. It's a really messed up thing where I guess you try to feel better about yourself by dragging other people down into your pet pisspot of misery.
Like I don't know about the listeners, but like I don't really talk too much about like our portfolio.
Yeah, no, I'm not saying us but I've saw their process.
But I don't really talk about our personal holdings generally.
Which is funny because he was just talking about doing an episode that goes through the portfolio why needs
like so they can see like what we're in, like, just so they can get an idea like because, like I think the way that account comes across because I've had people listen to and say you guys invest in some shady risky shit. It seems that way. But we really don't if you saw the whole wholesale
the whole thing.
Only like a fraction of the portfolio. I mean, Tesla's yield Max is pretty less 5000 That
was a big jump and that's the one that's down the most that was
what the hell are you thinking? Only downside 7% net
because that one actually paid out and that's the other thing if you mess up we just said that dividends make up for the loss. So I
actually wanted to do a podcast on that write this down. I want to do a podcast with like real life examples. So it would probably be a good one the portfolio showing the power of dividends and like the margin of safety, you've shut up the margin of safety according to my calculations. Because the Tesla one, we bought it and we I bought it at $16 It's currently like 1120 and we're only down like I think six and a half percent after the dividends.
Well, and even if you were on the newsletter, I don't know if it was MPW if it was one of the only ones I know
icon like icon icons down like 67% this year, but because we've been in it for so long, it has so many dividends we're only down like 25% and icons. Yeah,
that's what I was gonna say. But even though it's down as much as it is from where we technically bought it because of all that reinvesting in the dividend payouts, like we're down a fraction of that
so like I really want to do an episode sometime so that people can see the power of dividends on the bottom line. Like it would be interesting. And I mean, I have like the data with the with the with the spreadsheet that I could actually plug it into, like here's this when we bought it at this price. You see, people start you'll see that it fell off a freaking Cliff really fell off a cliff, but we're only down this much like that's where like when we when we were talking about like your portfolio like when you go in there and it says your cost basis, the cost basis is never right. Because they'll actually take your dividend reinvest reinvestments and they'll actually add it to your cost basis price. So you have to keep track of say like you bought, like say you bought Hercules for $1,000 and Hercules will keep track of you bought $4,000 track
of your original dollars into it and then you keep track of the number of shares you started with. That's really the only two things you need and then like going forward, just keep a running tab of how much delivers on
you. So every time you sell profits from Hercules you just take it off your original 4000 and that like 4000 is you're paying like for next episode. It's your anchor point your anchor point that's different than next podcast is going to be dough as shit so
we'll make it fun. Oh my god. I have to like transgress your ridiculous right out.
Now tying everything together. This is why like this wasn't the order that I wrote them in. Nope. But tying them all together. The third one that we're gonna discuss his confirmation so confirmation bias. That one’s insidious. is people do it like you see it all the time like we politic with politics with news religion religion is basically if you have a preconceived a thought or opinion or belief, any data that strengthens that or upholds that thought or belief or opinion is all you all you hear so you hear sample
and you disregard anything that applies my
example was say that you are under the your belief is Amazon is the best company ever. Every all the news that comes out on Amazon only stuff that actually like sticks in your head and that you comprehend is that Amazon's the best company ever. That kind of goes with the overconfidence that you're so out you're you're confident in the company.
I think a good example of that might be the Macy's one since Macy's like dying to like the old people that love the Macy's department store. I can see people having a bias for that. But I'm just saying like if they stick with that mentality and fail to see that management is not getting up with the times and going digital and having online purchases and all that other stuff like That's why Macy's is shitting the bed, they refuse to
evolve. They're trying to evolve now
now that it's too late, literally dinosaurs. That
was we discussed that a couple of podcasts ago with the whole you have to have like some forethought like you. You can't be in and in what we're doing and not have the ability to think beyond like two weeks from now,
but that could have been a confirmation bias themselves. That they just disregarded the newer generation wanting the online sale
but you're seeing it now with the housing market. And we like we literally just had this conversation like everyone says the housing market is going to recover what they're not looking at because they have a confirmation bias that everyone wants to own a house is that the generation that is coming into the time of their life where they want to buy houses, they don't want to own houses, they want to rent so they can travel they want to rent because they want to be more they can do the remote work so they can be wherever the hell they want to be. They don't want to own a house they want to rent and that people aren't seeing that. So that's why if you have Rei T's that deal with like apartments, I actually think they're better than Rei T's that deal with single family, single family homes, single family homes, specifically because the generation that's coming up, doesn't want to own homes.
And we've had an argument with some one maybe not an argument, but we're having a discussion with somebody who's like cash is king, but then he's like real estate is king and it's like, well, he used to be king. You have to look like again, Tim was just saying if they're building to keep up with demand, they're failing to take into consideration that the older generation is actually going to be going into homes, which means their houses are going to be either getting sold to pay for that or they're going to die and they're going to give them to their relatives who are then going to not need it and sell
them are either going to move from their house to the family home and sell there anyway looking at the houses getting sold, there's a house that's going to be going to be on the market. So
you increase that with the ridiculous amount of buying and then the ridiculous amount of houses that are going to come on the market. There's going to be an over flood of available houses here at some point. So like I was like, like years ago,
we're just gonna push values down years ago we were contemplating getting into real estate flipping like we did I got the classes and we got like we learned we learned ourselves how to do like the comps for like the rooms and everything. And I see like there's a lot of a lot of flippers out there still that are going to be confused because they're like, well we have all these houses that we got at the perfect price. But we can't sell them because they're no one wants to buy a house anymore. That's going to be a lot of that and we're gonna get eaten a lot. I'm not saying like two years from now, because every time I can have an idea, it's usually years down the road, but there's going to come a point in like the next 20 years when there's so many houses and no one wants to buy them and they're going to be confused, and they're not going to know what to do with them. I think it's more like 10 but that's why I want to live in a van because, you know, cool.
We were just using that as the confirmation bias thing that
implies anything like the old people have the confirmation bias of gold and silver, which they're refusing to see that the cryptocurrency is the new gold and silver basically
with the cash buyers like have you noticed a lot of places won't take cash from other
yeah they had the gold silver in the cash they never put the cash in the bank have they had the gold and silver just in case that all hell broke loose in their with their cash was worth nothing. Now that's the there's still people like that out there but like the Pete they're not good that they their confirmation bias is that the government's going to fold and that gold and silver and cash are going to be what saves them and that's not like it's going to be skills. It's going to be water it's going to be having cryptocurrency and it's the hand has nothing to do with gold. So maybe bullets I mean bullets I could see. I could see bullets Well good, solid, like like it's going to be skills and like that's like yeah, I've been guilty of this like so many times when it came to investing. I'm like I know that. For example, we invested in back and when I say Ambarella like in 2016 I was like I know this is a good company. I know it's a good company and we lost so much money on it because I was two years ahead of the time.
We really need to dial in Tim's like for thought I'm gonna start tracking that because I had I
just stayed in Amba we would have made a shit ton of money but like we were in it for like I don't know how many months and it just kept like going down. I was like, This doesn't make any sense. I know. This is the way of the future. And I just got into one today. I'm not going to tell you guys about it because I have to make sure everything but like I just got an one today that I know is going to be pretty good. I just don't know when it's going to be really good. Yeah. And that's confirmation like it's confirmation bias. I'm guilty of it today as like, I know it's going to be good. I basically leveraged some money in my IRA to put into it I basically sold our bullet shares in our portfolio to put money into this because I know that it's going to be I don't know what year but I know it's going to be
so I'm gonna make sure he stays patient for this one. It doesn't sell too early with Watson.
It's going to be I'm betting at least a 500x. But I don't know what we do here.
I don't know when it's going to be Yeah, but we only put like a little bit in put 1000 into it. I know but that's still only like a 1%
of the portfolio. So way 500x is going to be worth while I'm like what I'm saying
we were saying that we seems like we make all these risky, risky things but we only do with small fractions of
a penny stocks like I have a couple penny stocks in the portfolio and they're like you've mentioned a couple of to your $20 but like I again, a confirmation bias. I know they're good companies like I got into an AI company that I know. They basically invest their venture capitalists for AI medical companies. I know they're going to be good. I do see 15 cents a share. So I put 25 bucks into it. Yeah,
makes sense. It does. But again until you get your dividend stuff all worked out. You don't have the extra cash and then do some of these flyers. Start with those first. Yeah.
And like I'm like I'm pretty confident, not to the point yet where I'm going to recommend that like if I recommended a startup or a starter portfolio, but I'm pretty confident the yield Max is a good way to generate income for your dividends. But
you have to if you go into your max, you have to assume that that money is going to go to zero but it's just a cash cow generator. So you put the cash you put into it is no longer cash. It's like you buying a house and you collecting rent. It's
like so I fully expect that I fully expect to lose the $5,000 or $5,000 in that TSL why one, but I fully expect to make 7500 or $10,000 off it before it goes to zero. That makes sense. Yeah,
we're using it as an actual income stream. It's a it's a really weird mentality but we're looking at as like like an asset not
some of the higher yield stuff is like that. Like we're tips is another one for example that I've been telling people for years. It's a preferred share that supposed to trade at $100 it'll never get to $100 it's trading at like right now it's 33 but like a while ago, it was like 25 that one pays $8 a year so they literally you have to have that for three years and you've paid off what you what you less. So it can go to zero at that point. Who cares because you're just generating income that you're putting into other stuff that the stuff that matters like Hercules and Main Street and ASG and the Ag one, calm, calm, keep calm. And that was another confirmation bias. I know Camping World is going to be good. And so I wrote it down to fucking like $15 Because I know it's a good company.
It was hard. It was painful.
Whoopsie daisy, but I still I stayed we're
still gonna stay in it. We're not going to cut the losses because we do know like we know why they took on debt. They bought every dealership in America and it makes sense. They're expanding like mode extremely are
like they're like $10 billion in debt and they're buying more dealerships you
totally just spit on me.
Sorry. You're not sorry. I'm not sorry. So that's three biases. We have, I think eight more thoroughly only going to do three today. Not going to overwhelm you. But like the most important thing is to identify when you're having an emotional, irrational thought that's attributed to one of these biases and be like, Oh, okay, I'm in that mode right now. So you have to snap out of it. You have to do the research, verify that you were actually making a good investment regardless of if a bias led you to it. It doesn't matter as long as you do the research
if you can snap out of it. I had a bit of a boy emotional block this morning myself. I think it's because I'm getting slightly hormonal. And when I get in that mode, I literally just let every irrational thing come out. Of my mouth and Tim's over here judging the crap out of me as it's happening. Like all day, he's been giving, like making fun of me poking me and all this other stuff. But I do have clarity through after getting all that stuff out of me. And then I reel back and I'm like, Okay, now I can go back to like logic mode and be like, Okay, this was an irrational thought. I know this is rational, but I just have to let the biological construct like release that so that I can go back to thinking this needs to happen. This needs to happen. That doesn't matter. And then
move multiple channels you
can come so say if you can snap if you're an employer, you don't have a lot of pressure. For
example, you see all your friends got into stock why? And then you did the research on stock. Why? And you're like, I know this is a good company, UK so you're guilty of two biases right there. But if it got you to the point where you did the research, you verified everything. It doesn't matter that a negative, it doesn't matter logical, negative illogical situation brought you do right. Exactly. It's verify that it's good. Yeah, that bias
brings you there like if all your friends are talking about and you get the FOMO thing going on, which kind of is like my lifeblood is FOMO but then I get interested in it and then I start researching and then I'm like, Okay, does this make sense? Are they dumb? Are they on point are they missing things that might actually be better for this? Or do I wait or should I have bought before or
just oh what I'm guilty of just FOMO in or out doing in America and be like I'm just gonna buy this stock because I know it's good or that all my friends says good. That's horrible decision making. Yeah,
find data to back it up but then don't do confirmation bias where you're only looking at the specifics.
Well, yours will stick we mentioned this. I don't remember what
episode if you try to prove yourself wrong, you do better
No, I meant like anytime I if I come across a stock I want I don't ever buy it the day of I'll put an order in, like at night or in the morning before the market opens to like a low price for a limit order and then I'll sit back and collect my thoughts. Then I'll do a little bit more research and I'll look at it some more and then then I can always go in and either change the order to a price that's more in line with its valuation or I can just cancel the order entirely. I never like I very seldomly will just go in and buy a stock, say at 10 o'clock in the morning because I just have I just want to buy that.
So that's another reason I think if you don't use market orders, you will prevent yourself from making emotional buys. To what
I'll do for example with the with the AI penny stock. I went in and I put it on a limit order that was like 10% lower than what it was with no intention of heading that while while I contemplate it so that way I know it's there. I know I have to actually make an effort to think about it and to get more data. So I did more research and I actually adjusted the Bible by price down five more percent because I said the valuation is kind of in and it bought at a really good price and I'm up like I think 29% on already I mean it's not a lot of money because it was only 25 If you
talk and present what I was like what like
that's like I don't know how to like actually educate people to do that. Like never buy stuff, spur the moment always. Actually put your order in after the market closes and just think about it overnight and then in the morning go with a clear head and after you did your research that night and then like okay, is this the right price is this price. Once I started doing that I actually started buying at better prices. That's good that works. And it gave me a chance to like get the whole out of my system and actually have like a logical rational approach to buying something because
humans do want stuff now you want instant gratification. You just gotta fight that and have if you
want so hard though is like okay, well you can also do if you like like me, I have a spreadsheet that has all these investments that I'm I'm interested in or I've thought about my research. So if you say you got a dividend from like, one year ETS SLV Oh, it pays in cash, you have $200 burning a hole in your pocket, I have to spend I have to spend well you just go to your chart. You already have all the research done. So then you can put your buy order in for whatever it is your chart says in your in your spreadsheet, then you can think about it some more but I was asked is it still good? Is it still good as is still good because you did the research and now you're just actually cooling off to think about your entry price. Yeah.
And you have the money then to put it in.
But like I think the rest of it will be next week. We'll talk about more stuff because I think it's kind of ties into that next week. Yeah, due next week. Next week is going to be anchoring and regret aversion or some
stone even use the technical terms. They sound retarded so it's more helpful when you actually hear what they are real. How they relate to real stuff, stellar
stuff that I can't stress enough you really want to tune in next week. It's so awesome. Or you can just subscribe the newsletter because it's in the newsletter. And I'm
actually yeah, I'm gonna post that newsletter. Hopefully by Friday. I actually
would recommend listening to the podcast and reading the newsletter actually, in this incident because the newsletter is really it looks like a psychology paper.
And Tim is such a technical writer because he goes into like frickin technical paper writing mode. So I have to go through and like translate it into layman's terms. Jesus, ah, dude. So what we're gonna do is we're gonna next week we're gonna probably do Section two of this bias and then we're going to do the group
section two into section three next week because that's the second week because I want to do a build on next week probably because I want to do a portfolio cast before the end of the year and then I want to do like a just a fun okay, here's my fuck ups. Here's what we excel that for the last week of the year.
Yeah, so like the things that went good the things that went bad like the reflections we'd like to do that around New Year's and see where we
might normally do around my birthday. My birthday is that New Year, everybody's birthday should be the new year like when it comes to stocks you do kind of help and like I'm pretty like December I originally had hypothesized that December will be an up month but because November like shot up 10% I think December is gonna be a sideways month. So I think anything that you're interested in, you could probably get into it a good dip point just month because it's not going
to go straight really think that's a good idea, but sorry, everything usually goes down in January. Because people are reallocating portfolio.
If you're getting into cryptocurrency stocks you were going to do it in December. Yeah. We're gonna get into like REI T's you never know and they're gonna lower the interest rate.
So it does depend. We'll talk about that when we do the overview.
When interest rates could stay consistent through 2024 We don't know I'm just saying like you have to that's when you have to make sure that you're buying at a good price like ABR was at a good price like two weeks ago it shot up like 20% Yeah, they tend to do that. It's like one of the best Rei T's Do you think an arbor but they do Arbor move actually, every time they every time they do a loan they do they get to know I'm asking for like a lumber company know every time they do a loan, they get someone to treat a plant. That's where they got that armor.
It's actually really, really cool.
They're cool, competent. So that's that. I hope you guys enjoyed this. Walk down being human, psychological. It's fun. I think it's fun. I enjoyed it in college, but I haven't really cared for it now. Since we were
so excited about the last couple weeks ago I knew you're gonna love it cuz I was in a mood today
for sure was what a cranky bitch all day. Oh my god. Horrible. Been Oh logical and they're like I don't know how to react to like illogical, feeler stuff. I'm like,
Oh, you did yell at me there for a while and I just ignored you because I was like, I can just seriously yell back at him. Like
escalate What are you gonna do? I'm like, well, there's like you. There's five things to do before you get to
that not having guilt. That's another one of the biases I'm going through label a bunch of different crap right now. Stop licking the microphone mine. Alright. Alright, I'll see you next week.