The Meat & Potatoes of Stock Market Investing – Episode 193

Has recent market volatility got you skittish? To feel better, get back to basics. 

The markets are (once again) a bit jumpy. What to do, what to do? On this episode of the Dentist Money™ Show, Reese and Ryan get into the meat and potatoes (well steak and sweet potatoes) of what’s going on as they discuss the three staples of smart investing. 

Using examples of perilous economic events from the past 20 years, they offer advice on how you should react to today’s negative headlines. It’s current, and definitely an episode you’ll want to tune into. 

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Podcast Transcript:

Ryan Isaac: You don’t know when they’re going to happen, but you can probably count on it about once a year. Do you remember December of 2018? It’s probably a blip on the old memory bank by now, but we went through a pretty good market adjustment and had a lot of people nervous. Well, it’s time once again for a skittish market and some financial negativity. News of a coming recession has captured recent headlines. Reese and I thought we’d take a little bit of time and discuss how we should be reacting as investors. The financial press loves uncertainty. It makes great headlines and gets lots of clicks, but we’ll take you back through some significant events over the last 20 years and show you why what’s happening today is actually pretty normal.

Ryan Isaac: Now we have a little time to discuss our favorite subjects of all, a little steak and a little potatoes. I’d like to invite you to book a free consultation and have a conversation with one of our dentist specific advisors today. Just go to our website at dentistadvisors.com and click on the big green button that says book free consultation. Once you’re there, you can check out the calendar and find a good time that works for you and your schedule. Or you can call us at 833-DDS-PLAN. We’re always happy to talk to you. Thanks for tuning in. Thanks for listening to another episode. Enjoy the show.

Speaker: Consultant advisor or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by Dentist Advisors or registered investment advisor. This is Dentist Money. Now here’s your host, Reese Harper.

Reese Harper: Welcome to the dentist money show where we help dentists make smart financial decisions. I’m your host Reese Harper here with my trusty old cohost, sir Ryan Issac.

Ryan Isaac: Yeah. I’m in the studio today and I feel welcome because someone bought a small desert succulent plant and put it on the table next to me.

Reese Harper: They always do.

Ryan Isaac: That was like, Ryan, we know you’re out of the desert and we need you to feel comfortable in your chair.

Reese Harper: We know it’s not hot enough here at 94.

Ryan Isaac: Yeah, no, that’s a chilly day outside. That’s like out. That’s like yard work weather 94.

Reese Harper: I spent most of my day up in the high mountains in the evenings-

Ryan Isaac: Perfect.

Reese Harper: … and at worked. Since I only… since basically my job is talk on the phone for 17 hours.

Ryan Isaac: You just wander the mountains with your headphones.

Reese Harper: You might as well do it up in the mountains.

Ryan Isaac: I like that man. I tried to take… I do that too actually. I tried to take calls while if I can, if I don’t have to be staring on a screen. If I just need to have a conversation, I’ll do it while out on walks.

Reese Harper: We need to have an episode at some point-

Ryan Isaac: When we’re out.

Reese Harper: … a day in the life-

Ryan Isaac: Of an advisor?

Reese Harper: You really get to know what it’s like. It’s like, hold, please got to take this one and then someone’s like, “I know that it’s not probably different this time, but my account’s down again because the market is imploding.”

Ryan Isaac: Yeah.

Reese Harper: Our president-

Ryan Isaac: Can we talk. Can we just talk?

Reese Harper: We talk something about politics, China. I don’t know.

Ryan Isaac: Inflation, yield curve.

Reese Harper: Could be Brexit, it could be negative interest rates.

Ryan Isaac: Could be.

Reese Harper: Might be with the president of the United States.

Ryan Isaac: Yeah. I like those conversations. You do usually start with the sentence, I know I shouldn’t do… But… Can we talk? Which is cool. I mean that’s what we… that’s what we’re out here preaching, right? Is like how-

Reese Harper: That’s the only value we have. We can be that person that you can call and say look-

Ryan Isaac: Just call and talk.

Reese Harper: Sometimes your reaction is the right one. It really, it can be your intuition’s telling you something that for your own specific situation, you really do have unique insight into. Sometimes it’s that you’re feeling pressure from your peers or a colleague or the news.

Ryan Isaac: Yeah. Or just like a subject that you don’t normally have to deal with. It’s kind of like when I always think about when I go into the dentist and they start talking about clinical stuff about my mouth and I’m like, “Oh, is that bad? That sounds bad. Is that bad?” They’re like, “I’ve seen a hundred of these this week. Calm down. It’s okay.” But it’s not my realm. So freaks me out a little bit.

Reese Harper: I like it.

Ryan Isaac: [00:04:05] Okay, so today appropriately, we are going to talk about three staples of smart investing basics. Okay. That’s the point of today. You don’t know what’s coming.

Reese Harper: Steak, potatoes and asparagus-

Ryan Isaac: Nope, milk. If you have steak and potatoes, you have a milk-

Reese Harper: I had to go off dairy a while ago.

Ryan Isaac: You’re off?

Reese Harper: Like didn’t go like completely off. But I can’t, that’s like what I’m I… I can’t have a lot of dairy and a lot of gluten.

Ryan Isaac: That’s a potato, so glass of milk dinner would not do ypou well.

Reese Harper: Potato and asparagus with a lean filet.

Ryan Isaac: Okay. All right.

Reese Harper: It’s a different diet.

Ryan Isaac: So threes staples are potato, asparagus, and a steak.

Reese Harper: Mm-hmm (affirmative).

Ryan Isaac: Well, okay, so the first thing I wanted to talk about that before-

Reese Harper: Is this the steak, the potato or the asparagus?

Ryan Isaac: This is the steak actually. This is actually the steak because I have a little bit of a story. I recently purchased a Traeger.

Reese Harper: You did?

Ryan Isaac: Smoker. Yes. My first one ever.

Reese Harper: Little chief, big chief, ironwood.

Ryan Isaac: So this is the story and this ties into the first point of our three staples here. We’ll call it the steak because this is my Traeger story. Traeger, makes like 35 different models of smokers.

Reese Harper: Sometimes hard to know which one is for you.

Ryan Isaac: It’s very hard to know which one is for you. It’s not the in and out burger have menus of barbecue menus. It’s very complex. I kind had an idea of what I wanted to get, but then I was at Costco and Costco was doing their Traeger does like roadshows at Costcos. They kind of, they’re there for like a month and then they’ll leave and they’ve got three models on the floor.

Ryan Isaac: The biggest model, which was in my price range, what I wanted to spend was their model that’s called a select elite. If you know what that is, but it’s the one that’s shaped like a normal barbecuer. The hood opens and it’s got like the… it just looks like a normal barbecue but it’s still their smoker. So the Traeger guy, I’m a sucker at Costco anytime I’m in Costco period. Plus I’ll kind of buy anything. You know, if you’re my friend and you’re just telling me what to buy.

Reese Harper: You don’t want to offend a salesman.

Ryan Isaac: He was nice, and he knew his stuff. He knew his Traeger. He was a Traeger guy.

Reese Harper: You’re like at a normal dentist doesn’t want to offend his whole life selling patient.

Ryan Isaac: Yeah. I’m just like, I’ll listen to you. So I leave with that Traeger model and I’m feeling good because I’m like, “Oh, it’s discounted from their website. It’s got double paneling. He says the customers are really loving this design.”

Reese Harper: Did it have wifi control.

Ryan Isaac: I get it home and I build it. Now if you’ve built a Trager before, it’s a four or five hour project, if you’ve never done it before. I build the thing and then I start doing more research and I realized that there’s a whole bunch of new technology on different models that I’ve now missed out on. I’m sitting there staring at my fully built Costco Trager model that lacks the wiFIRE.

Reese Harper: Oh, you don’t have the wiFIRE?

Ryan Isaac: I do see see exactly your reaction was mine, and there’s some new drive technology with the little auger that pushes the pellets through called D2.

Reese Harper: Yeah. More frequent.

Ryan Isaac: I don’t have D2

Reese Harper: So you have D1 tech?

Ryan Isaac: I might even have like D0 tech.

Reese Harper: Because that pushes the pebbles through at a slower pace and not as frequency.

Ryan Isaac: See. I build this whole thing and then I-

Reese Harper: You got a good deal on it is what I’m guessing.

Ryan Isaac: But I don’t care about that. I want the right thing.

Reese Harper: You should think about the value instead of being focused about this.

Ryan Isaac: No.

Reese Harper: I’m not going to analyze your decision here.

Ryan Isaac: My point is… here’s point number one. Okay, we’re talking about the three staples of building a smart portfolio, the smart investing basics. This is the stake one. But my first point that I wanted to talk about was I feel like people have a basic lack of understanding of what a stock market even is before they participate in it. It’s kind of a thing you just do. The Traeger salesman gets you all set up with your 401k and you just do it and then it’s not for a while. It’s not until you’ve owned it for a while that you even start asking questions about what is this thing in the first place and did I fully even understand what I was getting myself into? Did I have the right expectations? Did I know what kind of pros and cons to expect from what I just got myself into?

Reese Harper: Or that it can’t even get above 450 degrees.

Ryan Isaac: So yeah, you’re right here and I do think it’s probably important that we talk about finance on this podcast today, but I would like to just keep going on the trade.

Reese Harper: Okay. Let’s talk about meat for a few more minutes.

Ryan Isaac: Keep going, keep going.

Reese Harper: I’ve smoked meat like a lot. Okay. Like this. I have-

Ryan Isaac: That is our next tee shirts.

Reese Harper: I have three Traegers currently.

Ryan Isaac: Okay. You do, oh, you have that portal [inaudible 00:08:48]?

Reese Harper: I have a ranger. I have the traditional little chief, the first generation. Which is a small, nice-

Ryan Isaac: Little barrel

Reese Harper: Single-

Ryan Isaac: You can get two-

Reese Harper: Are you a Timberline guy?

Ryan Isaac: And I’ve got the Timberline 1300.

Reese Harper: [inaudible 00:09:02]

Ryan Isaac: Now for those of you who don’t know, this is like the semi-truck.

Reese Harper: Yeah. It’s literally like a semi truck.

Ryan Isaac: The Ford ranger from 1996 and a little Datsun from 1974. This is what I’m running with and I just think there’s a place for each of these in the person’s life that smokes often.

Reese Harper: Okay.

Ryan Isaac: But I did just sell, we’ll call it the Ford ranger. I sold the little chief. Now I’m stuck with the giant Timberline 1300 and the ranger, which is um, it’s a portable camping.

Reese Harper: Very small. Beautiful.

Ryan Isaac: Yeah, it’s a, just a really, and it’s nice. These things only go up to 450 degrees. So if you’re wanting to see or meet, you’re not going to do it.

Reese Harper: I want to see her meet.

Ryan Isaac: You’re not going to do it in the trigger as well. It just doesn’t get hot enough. It’s very difficult. You want to, you want a pansee, cheese, bacon burger with green onions and you want to get that Patty, really like the right sugar you want-

Reese Harper: Yes.

Reese Harper: Condensation level, you got to get a seared plate, you can’t put it on it. You’ve got to get a Webber. You’ve got to have a Weber grill.

Reese Harper: My God.

Ryan Isaac: You got to get up to 600 degrees.

Reese Harper: Yeah-

Ryan Isaac: It’s just not going to happen,

Reese Harper: …it’s not happening-

Ryan Isaac: …with the wifi or technology.

Reese Harper: So, although I probably, we should just close the podcast and call this. I mean this is just a side note and we talked about meat and grilling. We can go back to though knowing what you own and why you own it. What did it…. so I’m going to go back to these core, this set of questions. You don’t, you don’t know what these questions are, but my first point was I don’t think that a lot of people who get involved in buying stocks in public markets really know what it is. So question number one, would be, what are you buying when you buy a stock?

Ryan Isaac: People do not know this. They did not know.

Reese Harper: And what are you hoping happens?

Ryan Isaac: I mean I, there is massive confusion around this still.

Reese Harper: Yes. I mean in the United States right now, if I asked each of you listeners, how many stocks are there in the United States right now? Total. I didn’t think of it. In your mind, what do you think the number is? Total amount of us stocks in the United States. I actually don’t actually know the exact number.

Ryan Isaac: We play the jeopardy song, while-

Reese Harper: It changes probably every couple of days. At least every quarter because companies are going bankrupt all the time. I know it’s between 3000 and 4,000, yeah, as of today. I just don’t know the exact number. You could Google that and tell us.

Ryan Isaac: That we roll with that. That’s good.

Reese Harper: So probably closer to 3,500 now.

Ryan Isaac: Yes.

Reese Harper: I don’t know if you know this either, but what is the value of all of that stuff? What are those? Number one, what is a stock.

Ryan Isaac: Exactly?

Reese Harper: Well, stock is a ownership that you have in a company just like your practice. Right, and then all of these businesses in the United States are all owned. These are not all the businesses in the United States. These are the ones that finally trade on the public stock market. They’re the ones that have matured, grown, scaled, proven that the public likes them enough to where they have a market for public ownership or people are like, yeah, that makes sense. I think that investors and buyers and sellers and thousands of people every day are willing to say, I want to own a part of that. So it’d be like a dental practice. Finally getting enough public support and attention that they could say, instead of a bank giving me all my capital to keep growing, we’re just going to go to the public and we’re going to give $10 shares to thousands of people and convert all our stock that used to be private that we owned to stock. It can be sold by the public. Which is an interesting concept when you think about a company starts small and private and goes public because now, now you’ve got like thousands of bosses, right? Thousands of eyeballs that care deeply about your financials and they’re actually voting on whether they like what you did.

Ryan Isaac: If you should keep your job. Every freaking day.

Reese Harper: Yeah, and they’re saying-

Ryan Isaac: Every day

Reese Harper: …and they’re like, “Oh, you are the guy who used to make all the decisions before.” Cool. Now we need 12 smart people to talk to you about every decision you make from here on out. And in each one of those 12 people are going to have a specialty that their one person’s going to know marketing and another person’s going to know HR and another one’s going to know clinical and now you need a board of smart people. Let’s keep on that question then. What does it actually mean to own a stock and what are you hoping for?

Ryan Isaac: Yeah. Well, when you buy it, when you, the reason that you would own a stock, or the reason stocks came into existence in the first place, really was about how to provide companies with capital, liquidity. Because these businesses start to get so big, like in the 19th hundreds, early 19th hundreds, there was insurance companies and banks and then there was a lot of private companies, very large ones. But then these very large companies started getting to the point where it’s like, okay, we’re worth, at that time, hundreds of millions of dollars in a company and it’s all in your family’s name and you’re like, it’d be nice, apparently we’re rich, but we can’t do anything with this richness. We just want to be able to buy a house finally, or,

Reese Harper: I want a few bucks out of that.

Ryan Isaac: We’d love to have a family cabin up to the Lake. Well, you can’t because you’re worth $100 million and it’s in your company and your company only spits off a certain amount of cash.

Reese Harper: And there’s no one to buy it.

Ryan Isaac: And there’s no market for purchasing. And so, people started buying and selling stock privately and then, eventually that’s where the stock market originated is a small, it was a very… it wasn’t 3000 stocks on the exchange. The New York stock exchange had a very small number of companies and people would, people started to be able to… The impetus was I want to create liquidity for myself and for my company to be able to grow and not feel so much pressure from our lack of liquidity. We want to share the ownership with more people and bring the risk down.

Reese Harper: Mm-hmm (affirmative).

Ryan Isaac: And that’s a beautiful thing about the public market. Because when you’re private, your incentives are different, right? When you’re private, your incentives are I want to get the fewest number of investors at the largest dollar amount possible so that I can preserve my simplicity of my cap table. I want my company to not have as many people that own it. And I want to own large chunks of it so that we don’t have like all these people who have to communicate with, we don’t have like hundreds and then the bigger you get what you want is you want to have your value of your company actually be spread across more votes. You want it to be more democratic. You want a market, a group of people with small dollars invested to say, do I feel like this. It just diversifies your risk as a company because you have more people owning your company in smaller quantities instead of one investor controlling your company owns like half of it and threatening to bail on you or sell to someone else. It starts to put the company’s control back into more democratic kind of a situation. And I don’t think people realize like how-

Reese Harper: Just what’s happening but…

Ryan Isaac: … and how in line that is with what they would want to have happened with their money. It’s like, would you rather have your money invested in a company that’s controlled by one or two people?

Reese Harper: Making all the decisions, whether they have the breadth of expertise and experience or not?

Ryan Isaac: Or would you rather have your money spread across thousands and thousands of voters? Who are saying whether they think that the price is fair or not and um, both institutions and individuals and, it’s pretty cool to see how fast, our companies and stocks reprice every day because of that dynamic.

Reese Harper: Yeah. No, I think that’s a really interesting point. If you are going to go invest in two dental practices and one was ran by one person making all the decisions, had all the control and the other one had a board of 10 people that had, that were like specialists over unique parts of the business, which one would you feel more confident giving your money to?

Ryan Isaac: If they were valued the same?

Reese Harper: Yeah. If they’re the same size and be like, well, I want the one with the 10 people because they have a marketing expert and they have a clinical expert and they have, I mean it was just…

Ryan Isaac: Yeah. And that’s why does the… You could look at like myriad studies on this, but the stock market, which is just, we’ll get that in a second.

Reese Harper: I would imagine your next question, maybe you don’t know. You don’t know. I don’t know. It’s going to be more.

Ryan Isaac: Next question is what is the stock market, right?

Reese Harper: Yeah. what is it. I mean, ultimately that’s like the stock market is these thousands of companies being run this way. And the reason it gets a return that has been so consistent over time is because there really isn’t a, another form of investment that can compound this quickly, that over an extended period of time. There are some investments that over a short period of time you’ll find that do a lot better than the stock market because they’re taking more risk. They’re less democratic, they’re more controlled by one individual taking a pretty sizeable amount of risk. But if you look at what we call an expected return, and expected return is a return that you can count on based on historical data. You can look at it and it has enough repetitions, enough frequency in its bell curve that you can say, I’m going to get, I know I’m going to get a certain expected return from this investment because the historical data is so strong and the stock market’s expected return has what we would call and finance the highest risk reward or risk return ratio of any investment. It offers the most liquidity and the highest return, and the most predictability of any asset class of any type, at least-

Ryan Isaac: Amount of your time required low barriers to entry, low costs.

Reese Harper: Yeah. Real estate on average, if you take all real estate, commercial, residential, pick your asset class, it doesn’t have the same return expected from that asset class. Individual projects that you build yourself and take more risk in and put intellectual capital into. And structure a deal-

Ryan Isaac: Add more time, more risk,

Reese Harper: …add more time and more risk. And those individual projects can.

Ryan Isaac: You have to get higher returns.

Reese Harper: Offer higher returns. They can also offer lower returns. But on average, if you just say as a passive investment, as a truly passive instrument in the stock market has the still currently of any asset class as the highest risk return that may not continue in the future, but for the past hundred years that’s been the case. And it’s because of all of these dynamics that are at play, the transparency, the number of participants, all the checks and balances that are in the system. It doesn’t, it’s extremely volatile. Like it goes up and down like a lot.

Ryan Isaac: But that’s just the pricing mechanism. That’s just the nature of the market that gives it its liquidity.

Reese Harper: Yeah. I mean, in order to be that liquid, in order to be that fair-

Ryan Isaac: It has to be priced.

Reese Harper: …to move quick, in order to accommodate that many participants at a given time, it has to be, it has to move like that. And so you guys are probably, you’re, this isn’t, I don’t know what’s going to be happening at the time this is released, but right now there’s a lot of stuff going on with China and you’ll see that when the federal government says that they are going to extend the time that they will place tariffs on Chinese imports in the technology sector, the market went back up. But when the public thought that they were going to enforce those in October, the market went down.

Reese Harper: And as soon as any, like any piece of political news that affects the economy is released, you see a market reprice, you see a shift. Because a lot of these companies, not every stock in the whole market moved. And it was primarily a lot of the companies that would be significantly impacted by technology having a 30% tariff or tax placed on all of these Chinese imports because they’re distributing all these products in United States based on using these Chinese manufacturers to fulfill their order for various parts, for their different pieces of hardware. And so all of these companies that thought they’re going to have to pay more in taxes are immediately going, Oh geez, well we’re not worth as much. Or the prices of our goods are going to have to go up. And if they go up, then there won’t be as much demand from the public to buy them. And so immediately the market repricing.

Ryan Isaac: I think what gets lost here in translation is people take that, especially less experienced investors, they’ll take that as a sign of what the overall future outcome is going to be. What happened today is somehow an indication of what’s going, my experience in 20 years in this thing, which is not, just couldn’t be further from the truth. What happens today based on instantaneous information in a liquid market that has to accommodate millions of buyers and sellers at any given point is not an indication of what it’s going to be like in 10, 15, 20 years.

Reese Harper: Yeah.

Ryan Isaac: Because all you’re doing is you’re saying, I’m just investing in the hope that thousands and thousands of business owners around the country, just like me, the dentists who runs a business has every incentive in the world to grow and grow revenues and increase profits and people who also have boards and shareholders and more pressure than I do as the private dentists owner to grow a business and make money and send the money to my investors. I mean, I’m just investing in 14,000 of those around the world that are just like me but have more pressure and more tools to make more money and have more profit.

Reese Harper: Well, you said 14,000 we didn’t really tell her that topic, but in the US there’s that 3000 number. But if you take the whole world combined, that’s-

Ryan Isaac: Approximately like-

Reese Harper: …that’s a whole nother, group of stocks and a lot of stocks have similar return expectations.

Ryan Isaac: Over time.

Reese Harper: Most of the data shows that even though during certain periods of time, like Europe, when it’s going through Brexit or when there’s, when Greece is like imploding, developed countries in Europe and the Mediterranean might be going through a lot worse period of returns then the companies in the United States. Latin America.

Ryan Isaac: This point number two.

Reese Harper: Yeah.

Ryan Isaac: You’re right.

Reese Harper: I’m going to stop. But ultimately, just know that the stock market is not the United States.

Ryan Isaac: Yes.

Reese Harper: You can be investing there, but and you should, and probably since it’s the largest market in the world, that should also be your largest… the largest portion of your investments should be there. But it, but the markets markets generally behave in a similar way over time. And I think that’s the beauty of like, if you think about it, like are you in your own dental practice since 1926, the US stock market’s been about around 10.2%, 10.1% per year. In compounded annual average returns since the stock market open. Some short periods, some five or 10 year periods, it might be higher or lower than that.

Reese Harper: And if you think about growing something indefinitely, like at 10% per year compounded, it’s really, it’s pretty impressive. If you think about it as a dentist, you’re like at a million collections, then you’re going to go to 1,000,001 and then you’re going to go to a million to two, and then you’re going to go to a million three in middle, then you’re can go to almost 1.5, and you’re going to keep doing that forever. Like never stopping indefinitely. That’s the passive predictable return that public companies offer investors. And that’s a pretty impressive place to, it’s a compelling place to say like, “I don’t have to do anything. I’m just going to sit here and earn that expected return without making any effort.” At least for me as an investor, like that’s quite appealing after having lost a lot of my hair and weight, stress.

Ryan Isaac: If you’ve lost a lot of hair.

Reese Harper: You’re, you’re in a different situation.

Ryan Isaac: I’m in and… Yes. That’s very nice.

Reese Harper: Anyway, bottom line is, I’m just saying it’s a compelling place as an entrepreneur who’s had to burn myself out to grow something at an above average return like that, if that’s a very compelling and still maintain, still is a constantly compelling place for me to just put my, put my discretionary income.

Ryan Isaac: We did a full episode on what you should know about public markets long time ago. It was like 150 episodes ago, if you can believe that. Episode 24 so you can check that out. But I want to, we’re going to go to a break after this, but I want to ask you one final question. This Raese, as a financial advisor, why is it important for you? Like, why do you want your clients to know just what the nature of the stock market is before they get into it? Like why would that be like a pillar, a staple of?

Reese Harper: Well, people who have conviction or understanding of what the stock market is tend to have better outcomes. The people who, and I would say it’s the same thing with anything. If you understand nutrition, you’ll tend to eat better. Um, if you understand exercise science-

Ryan Isaac: You’ll give it more time.

Reese Harper: …You tend to give it a little bit more emphasis in your life. You’re more patient with things and you just have more confidence that you’re heading the right direction. And I think if you don’t understand the stock market, you won’t succeed that well in it because you’ll hold unto too much cash. You’ll be less aggressive about putting your money to work.

Ryan Isaac: You’re more inclined to like listen to opinions that, because you to sway back and forth in different strategies.

Reese Harper: You’ll be a little bit more volatile. You’ll be comparing the market to private investments and going like, “Well man, my friend over here is, made eight and a half percent in just office building and rent and then not really think about the difference between those two things.” One is a completely active higher liability, lower returning venture where the other one is highly liquid, less liability. It’s a higher return but you have to have volatility is you’re, the price you got to pay.

Ryan Isaac: Yeah, we’ll take a break. When we come back we’ll hit the other two pillars or staples if you will, of a smart investing portfolio. Have you been enjoying our dentist money show podcast?

Reese Harper: I think so.

Ryan Isaac: I hope so. Let’s set up a consultation so you can find out how our services can help you. It’s easy to do and Reese, it’s completely free.

Reese Harper: Really?

Ryan Isaac: Did you know that?

Reese Harper: No, for me I’m paying these guys to answer the phones every day.

Ryan Isaac: All you do is go to the website, dentistadvisors.com and click the huge green button you cannot miss called book free consultation or call us or text us at 833DDS plan. Okay. And we’re back. Number two, second pillar of our, what do we call it meal this like this…

Reese Harper: There’s too many analogies at play.

Ryan Isaac: Yeah, there’s a lot of stuff.

Reese Harper: It’s like a stock or meal.

Ryan Isaac: It should be like potatoes.

Reese Harper: Yeah, we’re in the potatoes.

Ryan Isaac: We’re in the potato section. Okay. So actually-

Reese Harper: What kind of potatoes?

Ryan Isaac: We’re talking to Yukon golds [inaudible00:29:10]

Reese Harper: I’m a sweet potatoes.

Ryan Isaac: Sweet potatoes. You don’t eat sweet mashed sweet potatoes.

Reese Harper: Yes, You do.

Ryan Isaac: Thanksgiving.

Reese Harper: Oh, I love sweet potatoes, man.

Ryan Isaac: I mean, I love a good sweet potato. I just, it doesn’t like pair to me with a steak as well.

Reese Harper: It’s delicious with some butter and some sweet potato.

Ryan Isaac: Everyone listening, please put into the Facebook group that we [inaudible00:00:29:32]

Reese Harper: Which potato?

Ryan Isaac: We were expected to pull in there and-

Reese Harper: I want to pull?

Ryan Isaac: What’s your potato option? What are the options?

Reese Harper: It’s not which one better.

Ryan Isaac: Okay.

Reese Harper: It’s which one you pair with a state.

Ryan Isaac: Okay. What are your options? I’m going to make this a poll in the Facebook.

Reese Harper: Okay. You have a baked potato.

Ryan Isaac: Okay. All right. Which is you could, you will, we’re not going to specify the variety. We’re not going to get into whether [crosstalk00:29:51] or whether it’s a-

Reese Harper: Russell.

Ryan Isaac: …russet or a golden.

Reese Harper: It’s no red.

Ryan Isaac: You’re not going to bake, you’re not going to bake that. Like I know Idaho guy, like I don’t know.

Reese Harper: You’re going to bake a big regular potato.

Ryan Isaac: Okay.

Reese Harper: So just say a regular big baked potato.

Ryan Isaac: Okay.

Reese Harper: Then you have regular mashed.

Ryan Isaac: Regular mashed. Okay. Alright.

Reese Harper: You’re never…

Ryan Isaac: Which is a classic.

Reese Harper: Yeah. Then you have regular mesh, then you have garlic mashed.

Ryan Isaac: Okay.

Reese Harper: Then you have Yukon gold, which is a-

Ryan Isaac: I don’t know.

Reese Harper: Yukon gold, kind of like a yellow potato and then people use it a lot in restaurants for mashing.

Ryan Isaac: Okay.

Reese Harper: So you have your, then you have your red potato mash, which you know like it’s keep the skin on.

Ryan Isaac: No good.

Reese Harper: We love, I’m going to put this out. I’m going to put this to the public that I’m just saying.

Ryan Isaac: That’s your opionion. You can’t share that in an objective way, that’s no good.

Reese Harper: I’m projecting on people, but that’s not good.

Ryan Isaac: And then-

Reese Harper: You got your sweets.

Ryan Isaac: And you have your sweet potato now. I think it’s for fair fairness sake. You can say sweet potato mash or sweet potato, straight.

Reese Harper: Really. I prefer a sweet potato with butter on it and not mashing it. That’s my personal.

Ryan Isaac: Okay.

Reese Harper: But like some people like a mash. If I’m going to do a mash sweet potato, I think it’s appropriate to say that one does have a few toppings and fixings in it. You’ve got some Brown sugar, some butter.

Ryan Isaac: We use the word fixing. This is complete.

Reese Harper: So those are your options.

Ryan Isaac: Okay. This is all hit. They’ll hit the polls with, I like, actually this is a perfect one.

Reese Harper: With a steak.

Ryan Isaac: With a steak. Is that what you’re saying? You’d prefer that with any circumstance. You prefer the sweet potato. I just love a sweet potato. In the middle of the day, I’ll bake a huge sweet potato and put a bunch of cottage cheese over the top.

Reese Harper: I see that.

Ryan Isaac: it’s delish, I’m just wondering if a steak dinner came, would you order a sweet potato versus a bake? I’m asking you that.

Reese Harper: If I had two choices. Okay, here’s the two that I have a hard time deciding between a sweet potato, baked or mashed and just a traditional mashed potato. That’s hard because that is just a classic.

Ryan Isaac: I think people would struggle with that. So the question that you could either say which potato do you like the best, which you might lean more towards the sweet.

Reese Harper: I would say-

Ryan Isaac: Which one pairs best with the steak.

Reese Harper: Okay.

Ryan Isaac: We’ll leave this up to the people to decide.

Reese Harper: I want the public to decide.

Ryan Isaac: People decide this. So this is perfect because pillar number two, ingredient number two, whatever you want to call it is diversification. And I thought about this concept that diversification is not only your friend, but it’s usually also one of your biggest frustrations in a well-built portfolio.

Reese Harper: So it’s not only your friend, but it’s your enemy.

Ryan Isaac: It’s your friend and your foe, if you will.

Reese Harper: All right. But here I have to like help me see this vision here.

Ryan Isaac: But well, so what’s interesting is this week, we’re in the middle of August, 2019 and the great country of Argentina saw a crazy decline in the stock market in one day. It actually ended up being the second largest single day percentage decline in any market in the history of any of the whole world.

Reese Harper: Anyway. So what was your thought on this potato subject?

Ryan Isaac: Well, I mean it’s like the potato and to the point of this one market crashing, it goes hand in hand. Also, we did an episode called, Deer investments suffer because of where you live. Number 87 that talked about something called home country bias. And so I think the point, number two is a diversified portfolio will save you from stuff like this. It will save you from a certain sector of the market energy crashes or technology, tumbles or certain part of the world takes a dive, right?

Speaker 1: Mm-hmm (affirmative)

Ryan Isaac: Diversification will save you from that because you are not the hedge fund placing a bet in one place in your portfolio. You’re spreading it around. But diversification is also kind of a source of constant frustration because if you own a large and small companies and grow stocks and value stocks and everything in between in the United States, but you also own those kinds of stocks in Europe and in Asia and emerging markets and Russia and Japan and China, all those places, then at any given time, one of them is going to be doing above average.

Ryan Isaac: Well and another one’s going to be doing below average poor like at all times. Yeah, I mean that’s just like the nature of it. If you look at, for example like the two thousands when the United States performed over a course of a whole decade, pretty poorly, like not much growth after 10 years, but the rest of the world during that period of time performed above average. And then basically after 2010, it flip flopped. We’ve seen the United States outperform quite a bit above their historical averages while everything outside of the United States is well below their highs which it goes to the point of, you hear this quite often lately, we’ll, stocks are really expensive right now. Stocks are at an all time high, shouldn’t buy stocks. They’re too expensive. But that, that’s not like a true description of the whole world stock market.

Reese Harper: Yeah. It’s not a true description of stocks generally.

Ryan Isaac: Yeah.

Reese Harper: It’s some sectors in the United States stock market right now are expensive relative to where they’ve been historically, but not all sectors are, and not even the, currently the US market isn’t even substantially more expensive than it has been in previous cycles. It’s not as expensive as it was in 1999, and, but it is more expensive than other places in the, and Latin America and Europe and Asia have not yet had the type of growth that the United States has experienced in the last 10 years. A lot of that has to do with the their government. A lot of the governments and these foreign countries are in worse or as bad of shape as the United States from a debt perspective.

Reese Harper: One of the reasons Argentina plummeted so much was they are massively strapped in debt and that’s, I think the thing that I would ask people is it’s like, okay, if you knew in 2000 that the United States stock market was going to do awesome for… from, if you could jump in and out, like if you could go 1992, 1999, I’m going to be in the United States and go all in. I’m going to catch that kind of tick.

Ryan Isaac: I’m going to bail bubble.

Reese Harper: But then I’m going to bail. And I’m going to go all in emergent [crosstalk00:36:38] countries like Latin America. Yeah. Then I’m going to run that up.

Ryan Isaac: Which you’d never do that after like 10 years of like killer US returns. You’d never leave it. And then they’d go to the crappy stuff.

Reese Harper: I’m going to go to the worst stuff.

Ryan Isaac: And then I’m going to go back and I’m going to go back now to the worst.

Reese Harper: In 201.

Ryan Isaac: Because 20…

Reese Harper: After 10 years of the US doing nothing, I’m going to now go up.

Ryan Isaac: Yeah, think about that, the way to do this is either you own the whole world and just like get this average return that we talked about and even it out pretty easily too, by the way. Like you just go back to work and still get it. Or you have to like, you just try to guess which places are going to move. So, if you had to go hard, us specifically software from 1990 to 1999. NASDAQ don’t even go us go all in there.

Reese Harper: Go NASDAQ, all tech.

Ryan Isaac: And then from 2010, just know that the US is just a massive imploding nightmare because the internet bubble will burst and we’ll have a real estate crisis and a recession.

Reese Harper: So now you’ve got to go to the tiny country-

Ryan Isaac: You got to go on LA, Chile and Brazil and Peru and Argentina and Mongolia and-

Reese Harper: Give yourself some Rassia.

Ryan Isaac: China little Russia, get into these small underdeveloped countries. And then at the latter half of that decade, maybe like jump on Europe’s bandwagon, then go with Germany and France and England, but not during the first part of that decade. And then, I mean this, it’s just a mess. It’s like trying to guess at all. This will drive you nuts, but you can either just, own all of it in a representative share and be okay with the fact that sometimes your portfolio will be underperforming.

Ryan Isaac: The person that is less basically like you just have to be okay that during some times people that are not as sophisticated as you are going to be in one market that they’re going to do really well or one stock or one company. And when they come tell you a story about how well they’re doing, really what you should tell them is that’s nice that you took more risk right now and-

Reese Harper: You’re getting paid for it.

Ryan Isaac: …and you’re getting paid for it, but you better figure out where the next bet is that you need to make because you’re going to get screwed if what you own right now isn’t the right thing.

Reese Harper: And then I’ll do okay.

Ryan Isaac: And I’ll still do okay the whole time.

Reese Harper: Just just like a lifetime of, okay, that’s what it is. But I mean that, but that’s what the whole point-

Ryan Isaac: But here’s the thing is, “Okay, it’s still the highest average returning asset class of any asset class in the world. Okay. Is still really good.

Reese Harper: And the cost keep going down and the buried entry is nothing [inaudible00:00:39:23].

Ryan Isaac: Because okay. Is owning the whole market.

Reese Harper: Yeah. I just think people need to start with a foundation, a little understanding of what the market,

Ryan Isaac: Yes. And then you can build from there.

Reese Harper: And obviously, I mean that’s probably hours worth of discussion. So the invitation would just be like, look, if you’re wondering how your portfolio is built, just call us. Let’s just have a discussion about it. Let’s talk about it. Let’s talk about every type of account you have and the goals you have with each account. What’s the timeframe for all the money and how’s it invested? How should it be diversified? What does it actually mean in your situation? So, call us 833DDS. Plan. There ain’t no 800 in this. It’s 800DDS. Plan or go to dentistadvisors.com. Click the book free consultation buttons. Have a chat.

Reese Harper: Number three. Well, and this actually goes, it was a great segue talking about trying to like avoid this stuff. Here’s the phrase you hear a lot lately. We’re in 2019 we’re kind of, we’re 10 years deep into a pretty great run. That’s not to say that people don’t, people either forget about this, so they never knew it happened. But over the last 10 years, there’s been three of those 10 years that had like 15% or greater drops during the year. That eventually just came back up, that were like, everyone thought it was ending then too. Like almost every four years since 2008. It’s happened. So you, people either forgot or they just didn’t know that happen, but it’s been a good 10 years, right?

Reese Harper: Yeah, totally.

Ryan Isaac: You hear this phrase a lot, Raese markets are going to go down soon. Like it’s calming. Right? And the reason why this drives me crazy is because that statement is always true. This statement is always true. And the third point I want to make about markets, about public markets is that trying to navigate the ins and outs and trying to avoid times when the market will go down. It’s a landmine.

Ryan Isaac: But as I thought about this, I’ll just give you some statistics, so every time you hear someone say the market’s about to drop, I always think like, well that’s not, that’s not very groundbreaking analysis here. For the last 100 years, this is US markets for the last 100 years. Here’s often market’s dropping by how much every year on average for the last century, there’s a 10% drop. Every freaking year. That’s called a correction. They last on average about five months. So if you just looked at the whole, so anytime someone’s like, we’re about to see a correction, Ryan. I’m like, “Well, yeah, like every 12 months. That’s historically happen for a whole century.”

Reese Harper: Yeah. I mean, people don’t like realize…

Ryan Isaac: Meaning it goes down and then comes back.

Reese Harper: We’re like, okay, what happened in two- Let’s go like back. Let’s look at some years in a row. It’s like what happened in year 2000, where you had dotcom burst and you have tech bubble. What happened in 2001 one year later? Well you’ve got nine 11, You got September 11 terrorist attacks. What happened in 2002? Well I remember in one it was also like Enron, like Enron corporate slew up and it was corporate governance issues and corporate fraud was a big deal.

Reese Harper: Then you have the stock market crashing right after nine 11 in 2002 it was a huge, one of the worst periods we’d seen in quite awhile. We went down, I don’t know, it was a significant decline and that was like a major freak out period. Then you have the Iraq war. The next year you’re like 2000 early in 2003 then you have there was a bunch of China world dominance, China rhetoric and Oh five and Oh six and how like there’s all this like talent and technology and they’re going to take over the world and our schools can’t compete and that was a really big thing then.

Reese Harper: Then you have Katrina and hurricane Rita natural disasters. But then you have a subprime housing. And you got a mortgage crisis housing bubble and that blows up and you’ve got Bernie Madoff happening and no one trusts the stock market in Oh eight and Oh nine then you have the recession, the great recession. Then you got bear Stearns and Lehman brothers and…

Ryan Isaac: And then it was chill for Oh nine 2010. 2011 was scary again, that was a European debt crisis.

Reese Harper: There’s, I mean, my point is every year I could give you like every year I can give you something where you’re like, “Oh yeah, like that was pretty bad.” And, so when people are saying

Ryan Isaac: We’re about to see something,

Reese Harper: The bottom line is you can write the story of we’re about to see a big thing go down and I know what’s coming and you don’t, and create that fear and you can write a book on that and sell that book and do really well and then you’re always going to be right. Because there’s always something, the book that really should be written as though how like.

Ryan Isaac: despite how often that’s actually happening.

Reese Harper: Thats happening after 20 years, it still miraculously just ends up being pretty great per because. 20 years later I still got 10% average returns per year. And even though I had some really bad times and so I would say, it’s just, it’s easy for, there’s a lot of negativity in financial press because it’s easy to be right about negative things. I mean people are patient with you and you’re really negative. They’re like, you could start saying like the world’s going to implode and in 2002 and people just like to hear that man. I mean people love to hear that.

Ryan Isaac: It’s true. Why are we like that?

Reese Harper: Like yeah, it really is bad. Like right. So bad. Like it’s ,every, something’s going to be bad every couple of years. The question is in the interim is the person that ignores that and continues to invest, are their returns better than the person who acts on the negative news.

Ryan Isaac: Constantly statistically, historically that has been proven more time that is such a dead argument that the people who don’t react to that stuff constantly get better returns on the people who tried to react to it. It’s like it’s not even an argument anymore. It’s not even close anymore.

Reese Harper: Scientifically measured in an academic setting, master’s degrees, undergrad classes in finance. This is a topic that’s just like proven. If like you can’t invest that way.

Ryan Isaac: I mean the hope is like let’s empower you next time you hear a friend or a colleague or just someone say, “We’re headed for something.” It’s empower you to just be like, “Yeah, you’re totally right. We always are.” The last hundred years, every year on average there’s a 10% correction. Every three to four years there’s a 20% drop. That’s what’s called a bear market. On average those lasts for about 12 to 14 months historically.

Ryan Isaac: So, I mean the big question too, because you hear this a lot. Well we’re headed for a bear market. Every three to four years. That’s always true. And they last for about a year and a half. So if you can answer yes to the question of if my account dropped 20% or more and I had to wait a year and a half for it to come back up, can I afford to wait a year and a half? If you can answer yes to that question then like it’s not a thing…about once.

Reese Harper: You shouldn’t be worried if that, if you can say yes to that.

Ryan Isaac: Yeah. About once a decade is where you see a 30% or more drop historically and then recessions through from like the twenties through the eighties, recessions were happening about every five years. And then since the 80s, recessions have been happening about every eight years. And what’s interesting about recessions, those also last about a year and a half on average and not every recession interestingly coincides with a big bear market in the stock market.

Ryan Isaac: About 60% of the time there’s a bear market when a recession happens and the bear market usually follows which bear markets is 20% drop usually follows recession. But there’s 40% of the time we have a recession and we don’t have a huge drop in markets either. I mean it’s kind of just… anyway, I just want people to feel empowered and not scared when their friends or someone they respect is saying we’re headed for something big. Because that’s, it’s always the case.

Ryan Isaac: But what’s so funny, what you’re just basically saying is despite that, if you hold a good investment portfolio for a long time, despite all this stuff, you still get really great returns and you didn’t have to trade your time or huge costs or a lot of risk for it. You just had to deal with the stress of hearing people constantly say your whole life it’s about to crash. And that’s the cost.

Reese Harper: I think it’s just the way to approach investing in the stock market. You don’t have to be a stock market investor. You can choose to invest in other stuff that’s in higher risk, maybe lower risk with lower return or you, there’s a lot of options on how to invest. The stock market just happens to be, there’s a great argument for it for the majority of our listeners. And I think the way you approach it mentally has a ton to do with how you feel during your life about your money.

Ryan Isaac: Yeah. Just don’t, just don’t buy the triger and then be mad that it wasn’t what you assumed it was going to be before you even knew what it was going to be when you bought it.

Reese Harper: It’s not a weber.

Ryan Isaac: It’s not a Weber it can’t see or it doesn’t get the 600 degrees and there is no wifi on that thing, but I bought a cheap, so whatever. All right, Raese, thank you very much.

Reese Harper: Thank you.

Ryan Isaac: For the Insightful commentary.

Reese Harper: Good episode.

Ryan Isaac: It’s timely. I mean, it’s always going to be a thing. So, if you have any questions for us, here’s two places that you can get answers. One of them is our Facebook group, Dennisadvisors.com/group. We have this really great group of people and there’s always questions and apparently there’s going to be a poll question about potatoes coming up. So hard hitting that. Don’t miss out on that one. If you go there post questions. We take a podcast content from that group quite often, so please go and submit some questions there. Also just get on our calendar sometime if you want to chat, you want to talk about any of this stuff, you want to talk about, your concerns about your portfolio, your planning, obviously all the stuff we’re talking about here is very personalized.

Ryan Isaac:What you should do with your portfolios in your time frames and everything else, the hundred other things you have going on in your life and career in business and finances. We’ll play a part of these decisions. So get a second pair of eyes to walk through the three decisions with you. Just go to our website, dentistadvisors.com. Click on the green button that says book free consultation and let’s have a chat. And thanks everyone for listening. We’ll catch you next time.

Reese Harper: Carry on.

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