Mr. Market is both charming and bipolar

0:00 Welcome to Something More with Chris Boyd. Chris Boyd is a Certified Financial Planner Practitioner and Senior Vice President and Financial Advisor at Wealth Enhancement Group, one of the nation's largest registered investment advisors. We call it Something More because we'd like to talk not only about those important dollar and cents issues, but also the quality of life issues that make the money matters matter. Here he is, your fulfillment facilitator, your partner in prosperity, advising clients on Cape Cod and across the country. Here's your host, Jay Christopher Boyd. Well, hello, and welcome to another edition of Something More with Chris Boyd. Chris Boyd is off this week, so you have myself, Jeff Perry, and Russ Ball as your host for this week's episode of Something More.

0:48 Russ, thanks for making the time to join me. Yeah, of course. Happy to be with you, Jeff. We were joking, as we do frequently. We were joking as we started the recording of I wonder how many people are going to see the headline of the podcast and click it to see what it is. If you're just listening and you didn't see the headline because you just listened to all the shows and subscribed, then we appreciate you subscribing and listening all the time. Mr. Market, he's both charming and bipolar. I think it's the perfect time for to go back and to do some thoughts about the market, certainly, and to review a book that has been reviewed time and time again, The Intelligent Investor.

1:35 It's a famous book by Benjamin Graham, and what got it on my radar is I was reading Bottom Line magazine, which is a magazine that I enjoy, and there was an article about Warren Buffett. We all like to learn about the Oracle of Omaha and how he makes his decisions. For those listeners who might have heard his name and don't know who he is, he's the CEO of Berkshire Hathaway, and he's a legendary investor. Lots of people in the financial services business and individual investors really follow him, and he's proven to be right time and time again. When asked who he learned everything from, who was his mentor, where did he get his foundation for his investment principles, I guess he always says the same thing, that he got them from Benjamin Graham and the book, The Intelligent Investor.

2:32 Right. He actually studied under Benjamin Graham, so he's definitely a mentor of Warren Buffett. When some market volatility hits, it's always good to go back and see what the people who've been through it all have to say, and going back to their sage words of wisdom. Most people, when they have a career in a certain field, usually can point to something that a professor certainly is relevant, and that happens frequently, or a boss early in your career, a supervisor, or sometimes it's a book, or something that a class that you took. One of the first books that I read that had a meaningful impact on me was Peter Lynch's book, one up on Wall Street, the Main Street kind of logic, like keep it simple, invest in what you know, don't be too aggressive.

3:30 I still follow the lessons of Peter Lynch, and certainly Warren Buffett. Back to, I went on a small tangent. Have you read a book or had an impact that has seemingly stuck with you yet? I know you're relatively new in your career, but have something jumped out to you? I have actually read that book by Peter Lynch. I thought that was probably the first investing book that I read. It was a little bit over my head, I would say, some parts of it, but the core fundamentals definitely resonated. A little bit more recently, within the last few years, I read a random walk down Wall Street by, I think, Burton Malkiel, and he talks about all the different bubbles that have occurred over time.

4:15 It kind of goes through a little bit of a history of the market, and then gets a little bit more granular on the past allocation, and different trends that have guided markets. It's been updated over and over the years, but I found that to be a really useful resource, and definitely frames the way I think about investing now in this role. Well, I think it's important that you go back, and not you specifically, but all of us, and learn the lessons that have been learned from history, because in these times of volatile markets, and we're certainly in a time of extreme volatility, if you have that base of knowledge, if you have studied under people who espouse certain principles, like Benjamin Graham, Warren Buffett, Peter Lynch, and we could add others, we're missing some, of course, but you know not to make certain mistakes that feel right at the moment, or out of good times or bad times, and that's why the headline of this podcast is Mr. Market, so Mr.

5:20 Market is the stock market, primarily, both charming, because the Mr. Market can be charming, and bipolar, and lately, I guess since President Trump announced his tariff plan, I don't know if it's a plan, but his tariffs feel like a plan, I hope it's a plan, since his tariff policy, the market has been acting in a, not to misuse the word, I know it's a mental disease for some people, but in a very volatile way, right, up and down, seemingly for no reason, and that's part of what was in this article, so I thought as we're co-hosting today, it would be fun to go through the principles of Benjamin Graham, and now Warren Buffett, and many of us, and kind of try to relate them to where we are, because it's, you know, it's right on point, right, it's right on point.

6:22 Definitely, and you know, reading this article, this was definitely the first time I've heard of this idea of Mr. Market, kind of personifying the market, I think that helps, like to make it a little bit more relatable, where you're watching the market day after day, and it seems to swing on, you know, a tweet here, a tweet there, there's no, seemingly no rival reason some days. More amazing than in my memory, like that one tweet, or one suggestion, or one even comment at walking down the hallway, can, yeah, dramatically move, dramatically move the market, and you know, this is like an idea of making Mr. Market a character that you consider.

7:10 Yeah, maybe you want to dive into some of your thoughts on that, yeah. After, let me describe it, because it has four sections in this article that's going off of Intelligent Investor by Benjamin Graham. The first one is handling stock market volatility, and that's where we're introduced to Mr. Market. So Benjamin Graham describes Mr. Market as a bipolar fellow, very charming, but suffering from incurable emotional problems. Some days he shows up feeling euphoric, and will sell to you only at a reasonably high price. Other times he's no obvious reason, he's desperate to sell at any price.

7:52 Mr. Market constantly moves between degrees of unsustainable optimism and unjustified pessimism, and I think that's how many people feel lately, you know. The market's down. So how many times, you know, do you hear a client when the market is down, or a friend, or you know, just a neighbor or whatever, the market's down, and then the next statement is something like, I gotta get out. I can't stand this, I gotta get out. Or when the market was at record highs, people would say, the market's doing so good, have you seen it?

8:32 I gotta get in. I gotta buy more. And I think that's what Mr. Graham's suggesting, is that he's making kind of some wrong decisions at the wrong time. I mean, don't we want to buy low and sell high? I mean, that's not oversimplify it, but. Yeah, and I think a lot of investors and just people that have money in the market think, well, let's get out when things are starting to go down, let's get back in when things are starting to go up. If it were only that easy, we all wouldn't lose any money. Yeah, go ahead.

9:12 Yeah, I think this idea, one piece I highlighted here is just the idea that there's nothing you can do to reason with Mr. Market or, you know, there's just, there's going to be those mood swings, it's going to happen day to day. And maybe the more you focus on, I don't know if this was specifically noted, but the more you focus on it, the more you're prone to have that way of thinking sort of temperamental and all over the place with the market. Better to think of it, all right, that's what Mr. Market's going to do. And I'm going to do my own thing. Yeah, excellent point. And I think you're also right about the focusing of it. I think people who, there's a fine line between being informed and being just so emotionally attached to what's going on.

10:05 And this can be, geez, in the days of 24-hour breaking news, and you know, all the cable channels who are rooting for one team or another, and usually we watch what our team is, you know, so you can get, especially if you don't have a you know, distractions, if you don't have a job that you go to and leave the TV or the computer, you know, if you're focused in on these either market moves or news cycles, you can really get so absorbed into it that it can change your, certainly change your emotions, you can worry, you can be overly excited like Mr. Market sometime, and you can make the wrong decisions, or you can worry about things that you have no control about.

10:48 And I think that's, and taking into account that he wrote this book in 1949, he's not writing it in the, I'm describing the current setting where we have all this stuff coming at us, and we can get totally absorbed by it. He's writing this, you know, 76 years ago. And that's, it's very insightful. And it's still, it's probably more true today than it was in 1949. So your point is well taken. Don't get into the emotional decisions of the volatility, because it's probably going to be wrong. One another thing, you were listing some things that you've heard people say, and they're all correct is, I'm going to get out now.

11:32 And I'm going to get in back in when things settle. Yeah. I'm, you know, I've been in the market for 35 years, say, things haven't settled. It can be, you know, the economic cycle, boom or bust, it can be the political cycle, it can be wars or things in the news that you concern, it can be trade, it can be foreign relations, it can be whatever it might be, seasonal adjusted stuff, inflation, stagflation, recession, whatever it is, it's never settled.

12:14 There's no bell that rings and says, it's now a good time to get in. Right? Exactly. Yeah. So don't be affected by the day to day volatility. If you're hanging out with Mr. Market, and he's going off on one of his euphoric happiness, don't think that it's time to get in. And if he's having a bad pessimistic day, and you're a long term investor, it's not time to get out probably. Right. Right. One more part about volatility, I'm going to ask you about is dollar cost averaging, right? So take it from there, because I think a lot of people don't understand or don't appreciate the concept of it.

12:57 And why, especially the younger you are, but certainly any age, why it's so valuable and why people should participate in it. Yeah, well, personally, in my investing life, I definitely preferred dollar cost averaging and cost support. Now there's mixed research that says, you know, it might be better to just put all your money in at once. And just for context, dollar cost averaging would be, rather than investing all in one go, let's say you had $10,000 to invest, you can decide to invest it tomorrow, or you can spread it out over time. So if the market goes up, you're participating in that growth. If it goes down, you're buying at lower prices and you just spread out your $10 ,000, let's say, over a couple of months, three months, four months, whatever it is, any period of time that you like, that would be dollar cost averaging.

13:45 And for me, psychologically, it just is something that really resonates. It's like, if I continue to contribute, and that's usually what you're doing with a 401k or your work plan. If you continue to contribute, you're always going to be feeling like, well, you know, I had this at a loss, but at least I'm still investing now. So it's going to grow from here. So I think a lot of, as I said, the research is a little mixed as far as, is it more advantageous, is it optimal to dollar cost average or to invest all at once? Typically, the longer you're invested, the better. But psychologically, it's definitely a useful tool just to get over that hurdle.

14:27 If you don't feel like you're ready to commit, with all the volatility we've seen, not a lot of people are thinking, oh yeah, I'm just going to invest everything I have right now that's been sitting on the sidelines. Like now's the perfect time. You just don't know what the market's going to do tomorrow. And it can be intimidating. Some people don't care about that stuff, but other people do. Dollar cost averaging is a way around that. Very good. I share that sentiment. Exactly. And so, you know, with the volatility, don't make rash decisions, don't make emotional decisions. And if you're not sure, sometimes the best thing to do is nothing. And it's always a good idea when you're feeling uncertain is to call your investment advisor and talk it out.

15:08 Talk about if you're in the risk allocation, the risk profile and asset allocation. And, you know, I think some of the times the best service that we as fiduciaries, meaning people who put our clients' best interest first, both legally and ethically, I think sometimes we give them, our clients, the most value when they have these feelings, like Mr. Market, when they're feeling emotional about their finances, worried about them or too euphoric about them and talking to them about their long-term financial plan. I know we've been doing a lot of that with clients, reviewing their financial plan and saying, okay, what's changed since we reviewed it last time?

15:50 Often very little because these are long-term financial plans. And it gives most clients the feeling of stability. And, you know, once again, they can see what their long-term plan is, that their cashflow is there, and that we expect as part of our projections, corrections in the market, and we expect bear markets from time to time. And that's all factored into our clients' projections. Yeah. And we've been doing a lot of stress testing as well, at least over here, Jeff, I'm sure you have too, just looking at the what-if scenarios, what if the market goes down, what if taxes are higher, what if these tariffs go into effect, what is that going to do?

16:36 And a lot of clients come in understandably worried and saying, you know, this is different, this time it's different. And what I keep hearing and reading again and again, and as you can see with this article we're referencing, it's from the book that was written in the mid-20th century, that yes, it might feel different, but this kind of thing happens time and time again. And the market has consistently proven to be the best hedge against inflation. So there are certain assumptions that we can make based on history. There are things that are going to unsettle that in the short term. And I think that's Mr. Market, you know, I think that's the idea of this piece here.

17:16 And one other piece that I highlighted in the section we're discussing is, it says, view volatility not as a debilitating handicap, but as opportunity to sell to the optimist and buy from the pessimist. So I thought that was pretty useful and kind of being that contrarian mindset and you kind of have to take a step back and not go along with the flow just because everyone's nervous and panicking and freaking out. That's a great lead-in to number two is deal with investment at risk. And, you know, the concept of putting a fair value or a good value on a particular stock or a sector or whatever you're investing in, most of the sections talk about individual stocks.

17:57 They talk about Warren Buffett's, you know, the cigar butt reference and people think of a cigar butt as something that's been thrown away by someone. And Buffett has been famous for finding companies that are cigar butts, if you will, meaning they're not worthless, but they're not appreciated appropriately, right? And so when I was reading this, certainly all true, but it brought me back to Peter Lynch and how things I learned from his lessons and what he did at Fidelity is to set evaluations of a company and have a reason that you're buying it, right? Whether that's a price target, because you think it's a cigar butt and it's going to be appreciated in the near future, or if you think it's potentially going to be sold and, you know, get a premium for that.

18:46 But to have a reason why you buy it and to have a target, because it's, I believe, the hardest thing to do when you buy an individual stock, and it could be an investment, you know, it could be a mutual fund, but it's harder with an individual stock is not when to buy it. You know, you hear something, you read something, you do some analysis, your advisor maybe gives you advice, we think you should buy X, Y, or Z. It's when to sell it, right? Because two things, back to Mr. Market a little bit, but it's relevant in the category of having fair value and having good value. People get emotionally attached to a stock, they bought it, it did well, and they can hold on to it far beyond the price target they set, or it can go the reason that you bought it in the first place.

19:35 I bought it because I had a healthy view of this sector, I thought this company had good products and was not appropriately valued. So that says that you should sell it if the market recognizes that value and starts to give you a premium for it, but you might own it too long, or something could change on the negative, you could make a mistake when you bought it, and it could go down, and then it's tough to say I made a mistake, you know, personally, I made a mistake. Things have changed, or what I assumed was true was not, I should sell it and cut my losses. And I think dealing with that investment risk of being, this is the last one, I don't want to jump to it, but being disciplined and having a reason why you bought it, and having a reason why you would sell something, really makes a lot of sense.

20:29 Yeah, I think, you know, just looking at the companies you're buying, or whatever investments you're looking at, the idea of entry points kind of matter as well, and you know, every stock is going to come with risk, it's just inevitable. The stock swings, you know, year to year, and within the year, and then it ends up at a high, so individual names especially are, you know, always going to carry some risk, but part of that analysis is, you know, is this a company I like over the long term? Is this a company that is trading at a valuation that I think is reasonable relative to where it's going to be? I think definitely on our team, that's what Brian does in the stock portfolio that he runs, and he's taking a look at all the various analytics, and all the things that he's, you know, trying to do, and determine those different price points.

21:26 So just, yeah, I think having that perspective definitely changes the way you think as a long term investor. Yeah, and don't have, it's not in this article, but you know, investors, individual investors who do buy and sell stocks can have some some problems of being too confident in their own ability, right? I mean, you're buying and selling stocks with organizations against, basically, because you're buying something, selling or selling something somebody's buying, and they often have a lot more insight into the market, insight into certain company, insight into what just happened, you know, but inside a board room or with a sector.

22:11 So use caution and control your investment risk. And you can do that with diversification, you can do that with professional management. Yeah, I think that's the point there. The third point is you started to talk about was maintain a long term perspective. And that's, you know, the, it's bolded in the article, stop thinking of a stock prices as a bet on a flashing ticker symbol on your computer screen or TV. The reality is, you're part of a real business, you own, you own something, right. So and the other part of that was, and I like this very much. It's a quote from Benjamin Graham, remember that over the short term, the market is a voting machine.

22:54 Like on any one given day, at any one given moment, who do you want to be your president? Who's buying and selling the stock? That's not in the quote, by the way. Back to the quote. But in the long run, it's a weighing machine. Right? So it's more deliberate, it's more measured, it's looking at everything over periods of time. Yeah. And it's not, it's not just looking at the one day it's up, one day it's down, it's looking big picture, taking a step back. And I really like that what you what you mentioned. I thought that was a good point, too. It's not a bet. It's not like, yeah, this is a, this feels like a good bet. This is like a better than 5050 bet. It's like, no, if you like the company you're buying, you like the sector you're buying into over the long term, and you're going to be investing that literally, you're going to become a part owner of it or a participant in it.

23:47 With all the sports betting opportunities out there. Maybe, maybe you get a better chance at picking your favorite basketball team in the playoffs here, then you do have analyzing a stock and picking on a certain day at a certain moment, whether or not the price is right and what the future of that is. But that goes on to something he says in the last section of this article, with the title of the section four is develop emotional discipline. And there's a lot in there. But what I'm talking about is that one of the suggestions is to keep a mad money account. Um, so if you're compelled, I worked with a guy once, it was a long time ago.

24:29 This is when you used to have to call your broker to buy a stock before your day, Russell. So he would read something in the paper, or someone would tell him something. And if he thought it was a good idea, he would literally say, I'll be right back. Kind of like the movies, you get the tip, he would go and call and say, give me 50 shares of whatever. And seems like it's a whole nother world. Actually, I'm sure a lot of our listeners remember those days. Now you can do it yourself or your advisors doing it for you. But, and he never talked about and I would, I would remember I was interested in this.

25:13 I was investing myself. So I was listening and I didn't take notes. Obviously, he was a friend, but he never talked about his losers. Yeah. You know, and just like people who bet, right? Most people, most, most people who gamble, most people who go to Vegas or they do sports betting, and they say, you wouldn't believe it. I went to Vegas this weekend and I won $5,000. Right. Yeah. And they believe me folks. And I think, you know, this, there are no exceptions long-term. Somebody might get lucky, right? People do win the lottery, but most people who gamble or day trade, the data is very clear on either one.

25:56 They do not make money. Right. But still they tell you about their wins, right? Yeah. I have a very short memory for the, for the losers. So as part of this developing emotional discipline, I think Benjamin Graham and most people, most advisors, us included, know that some clients have this propensity that they want to pick their own stocks. They want to day trade. They want to invest short-term. They want to pick their own like things that they have a hunch about. And so they call it a, they call it a mad money account. We call it a sandbox account where clients will say, okay, I want you to manage our, this is super common.

26:38 I've been with Chris five years now, and I did not know that this was common, but people are prudent enough. And, you know, wise enough to say, here's my nest egg. I know what I don't know. So I want you to manage it. And we, I want a financial plan. I want it professionally managed because they are smart enough to know that they should have some help, right? But they also have this desire to trade stocks or to make investments on their own. And so they have a sandbox account and, you know, obviously it comes from the idea of we're all kids at heart. We like, are you still playing the sandbox?

27:20 So it's okay. If you have this propensity, it's having the discipline to keep it to a very small amount of your net worth and to keep it not part of your financial plan, just as if you had a, you know, a little secret fund where you gambled on sports that shouldn't be written into your financial plan. Either of that, when you turn 65, you're going to win the biggest bet of your life and that's your financial plan, right? Yeah. So emotional discipline. And it's interesting that it notes that Graham actually, it wasn't like, oh yeah, you can have your sandbox account and your mad money account. He actually advocated for the idea to have one of these like sandbox type accounts and speculating with restraint was what he recommended.

28:07 I think that's the idea. Just, you know, a little smaller sum of money that you can play around with. You can take bets on those. And that's a little bit more like the betting. It is like betting. I mean, really anything short term, the analogy with sports betting is, I think, very accurate because, I mean, if you're sports bet, you don't, it's not like you're playing bingo and you're waiting for your number. It's just a random spin of the roulette wheel buying a lottery ticket. That's gambling, certainly. But when you're sports betting, most of the people that I know think that they know who's going to win the game or they think that they're confident in, you know, which basketball player is going to get the most points tonight in a playoff game.

28:54 They make that bet with a feeling that they are going to win because of their knowledge and experience in watching basketball games. And the same thing really applies to day trading. Because you can be, you can study a company for a month. You can read everything. You can listen to all the earnings calls. You can watch CNBC. You can get advice from five different people about an individual stock. And if you're investing in it at one given time for a short term gain, there's no way any of those people that you talk to or anything that you read can accurately predict what's going to happen in the short term, which is, you know, a section we talked about long-term perspective.

29:42 So you can be totally right. You can be totally right about the talent of Jason Tatum on the Celtics and he can still have a bad couple of games. Yeah. Right. And you can be totally right about hypothetically buying Apple because of X, Y, Z reasons. And they can be very valid, but that doesn't mean that something in the world, a tariff, a war, you know, whatever, one bad earnings report doesn't submarine that bet in the short term. So having that long-term perspective, keeping that emotional intelligence, watching out for stock market volatility and controlling your investment risk of the lessons of the day from Warren Buffett.

30:25 Really, though, I mean, we give him credit for those, but really from his mentor and his professor and the author of The Intelligent Investor, Benjamin Graham. So thanks. Thanks for joining me today, Russ. I think it was a great discussion. It's really interesting to go back and put all that history starting in 1949, I guess, started before that, but when he writes the book 1949 and thinking about what Warren Buffett has learned from him, Benjamin Graham, and the success that he has had. And it just is smart to take these lessons of the people who've come before us and apply them to today's principles.

31:05 And it kind of takes you out of your bubble too. It takes you, you know, away from this thinking of, oh my gosh, the market's doing this and that one day to the next. And when you build a big picture, like this kind of stuff has been happening for a very long time and we're not the first to go. I mean, we're the many of the first to go through something specifically like this scenario. And every time there's a new, this time is different. It's going to feel like this is brand new. This is like, this changes the game. This changes everything. But that has been happening for, you know, the last hundred plus years. Forever. You're right. It could have been the financial crisis, could have been the housing crisis. It could have been 9-11.

31:47 It could have been COVID and now it's tariffs. So, you know what they say about mistakes, you're bound to repeat them unless you learn the lessons from history. So that was our intent today. And I hope you enjoyed the podcast and I hope you'll tune in each week to listen to something more with Chris Boyd. Chris Boyd will be back next week for another interesting topic. Until then, keep striving for something more.

32:37 Send us your questions to amr-info at wealthenhancement.com. You're listening to Something More with Chris Boyd Financial Talk Show. Wealth Enhancement Advisory Services and Jay Christopher Boyd provide investment advice on an individual basis to clients only. Proper advice depends on a complete analysis of all facts and circumstances. The information given on this program is general financial comments and cannot be relied upon as pertaining to your specific situation. Wealth Enhancement Group cannot guarantee that using the information from this show will generate profits or ensure freedom from loss. Listeners should consult their own financial advisors or conduct their own due diligence before making any financial decisions.