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You’ve Reddit in the News; Now Get Our GameStop Take – Episode 269


Gamestop analysis episode

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As you accumulate wealth, you need to know the difference between speculation and investing

Hedge funds, financial justice, short squeeze, and of course GameStop have been front-page news lately. On this episode of the Dentist Money™ Show, Ryan and Matt define these terms as they reveal what’s at the core of the frenzy that has recently been the talk of Wall Street.

While Ryan and Matt understand the thrill of scoring on a long-shot, on this podcast they explain why being committed to value investing should anchor any financial philosophy.

 


 

Podcast Transcript

Ryan Isaac:
Hey everybody, welcome back to another episode of The Dentist Money Show sponsored by Dentist Advisors, a comprehensive fee-only financial planning firm just for dentists all over the country. Check us out at dentistadvisors.com. Today, Matt and I are discussing a crazy story in stock market that’s current recent events, but that has long-term principles and things you can learn to make better financial decisions in your future by thinking about how this story is playing out and how other people are behaving with this. We’ll see it again in the future in some other way.

Ryan Isaac:
Thanks for tuning in, thanks for joining us. If you have any questions, go to dentistadvisors.com. Click the book free consultation button and have a chat with one of our very friendly dental specific advisor today, and always, guys, enjoy the show.

Announcer:
Consult an 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, a registered investment advisor. This is Dentist Money. Now, here’s your host, Ryan Isaac.

Ryan Isaac:
Welcome to The Dentist Money Show, where we help dentists make smart financial decisions. I am Ryan Isaac, your non-day trading friend on The Dentist Money Show here with my other non-day trading friend is the mighty mountain Hollywood, Matt Mulcock. What’s up, freshly shaved, no beard mountain?

Matt Mulcock:
I am beardless. I don’t think-

Ryan Isaac:
Beardless Samson.

Matt Mulcock:
I wasn’t worthy of the names before, but now I’m definitely not worthy of the names because I am just completely beardless. I look like just a little guy.

Ryan Isaac:
Your strength is gone. Your face coat in the middle of winter [crosstalk 00:01:30].

Matt Mulcock:
My face coat is gone. My face does feel colder now with the brisk breeze coming. The winter breeze of Utah is …

Ryan Isaac:
You’re feeling it.

Matt Mulcock:
… hitting me a little bit more now.

Ryan Isaac:
A little brisk. All right. We are in, what’s the exact day today? Because this is just … This is moving at the speed of light here.

Matt Mulcock:
What is today? I don’t know how you-

Ryan Isaac:
The 28th.

Matt Mulcock:
28th. I don’t know how you feel, Ryan. I lose track of the days now. I think it’s working from home probably. Every day feels more the same than it did ever before working from home. But yeah, [crosstalk 00:02:01] even know.

Ryan Isaac:
I wear the same pair of sweatpants and a different Dentist Advisors t-shirt every day and [crosstalk 00:02:07].

Matt Mulcock:
I’m on shower like every fourth day now. It’s weird.

Ryan Isaac:
I’m a big shower. I actually get made fun of that in my house.

Matt Mulcock:
I am too.

Ryan Isaac:
Yeah, I’m like at least twice a day. Okay, so January 28th, 2021, we are in the middle of one of the … I mean, I’m sure something was just as crazy two years ago, we’ve already forgotten about it, but right now it just feels like the craziest stock market story that we’ve heard in a while.

Matt Mulcock:
Yeah. It’s crazy. That’s the only way to put it. It’s so nuts.

Ryan Isaac:
When I first started hearing about this, I was trying to wrap my head around why the stock of a company that I remember going into these stores and renting the original Xbox, or checking out like a Nintendo, super Nintendo game. Why that store A is still in business, and B, why its stock is shooting off into space up.

Matt Mulcock:
Up over 1700% or something like that.

Ryan Isaac:
Is it really?

Matt Mulcock:
I mean, no, well, today, there’s some more news today. In fact, we should probably get a live look.

Ryan Isaac:
Yeah. You get a live look.

Matt Mulcock:
While we’re doing this.

Ryan Isaac:
Let’s back up a what feels probably like a year ago, but it’s like a week ago, or maybe two weeks ago. If you don’t know what’s going on with this, at this point, it’s a comical, fascinating, sad tale of a few different principles here. But what happened basically is over, I don’t know when this began, a few months ago probably.

Matt Mulcock:
Yeah, I mean-

Ryan Isaac:
[crosstalk 00:03:35] a few months ago?

Matt Mulcock:
Yeah, as far as the-

Ryan Isaac:
When did the Reddit thread begin?

Matt Mulcock:
I think the talk of GameStop, that’s the company we’re talking about. I don’t know if we’re holding it out till later.

Ryan Isaac:
Yeah, we’re talking about GameStop, by the way, where I used to rent Zelda.

Matt Mulcock:
Yeah. GameStop, the talk of it, I went back and read it and tried to find some of the history of this, of when this all started. The actual start of it and conversation around it was like a year or so ago. It actually started with a fundamental shift in the company. They hired a new CEO, and there actually was some like somewhat of optimism. It started the chatter of the discussion.

Ryan Isaac:
They were going to take the company from like a physical base media, like discs, some things, I guess to a digital game.

Matt Mulcock:
I think that just generally there was optimism about this guy they brought in about what he was going to do, the changes that he was going to make.

Ryan Isaac:
His name is Link. CEO’s name is Link. He is also the Star of Zelda, new CEO of GameStop

Matt Mulcock:
Exactly.

Ryan Isaac:
Or is it Mario?

Matt Mulcock:
I was like, is his name really Link? Because that would be crazy.

Ryan Isaac:
Is it Sonic?

Matt Mulcock:
That’s where it started. I think it was a year, year and a half ago when that happened, but within months of that, then the real fun started, which you’re going to jump into I’d imagine.

Ryan Isaac:
Oh yeah. Perfect. Yeah, then the big banks and the hedge funds picked up on the news and they do what they do. They did what they do. They decided to take a position for, or against the company. In this case, they decided to take pretty large positions against the company. Something called short-selling. The irony behind this that we’ll eventually arrive at in this saga that’s … It’s funny, and it’s ironic, and it’s sad, and angering at the same time is, short-

Matt Mulcock:
All the emotions.

Ryan Isaac:
Yeah, it’s all of it. Short-selling a stock, especially in big chunks like a hedge fund can do is kind of a weird concept. I guess it’s a necessary component of the open, what you would suppose is a free market system. It’s probably a necessary component, be able to have the other side of buying something, obviously selling something, but the shorting of a stock, especially like leverage shorting, you go borrow money to pile up on selling a company.

Ryan Isaac:
It’s funny because not only is someone saying, I want to get rid of this asset because I think it’s going to perform poorly, but if we try to get rid of enough of this asset, then we can actually make it perform poorly. We can kind of manipulate it into performing poorly, and then self fulfilling prophecy, oh look, we guessed it correctly. We got good returns. We made billions, more dollars. They picked up on that. GameStop’s going to make some changes, some fund start short-selling it, and then what happened [crosstalk 00:06:13]?

Matt Mulcock:
Yeah. Like you were saying, the shorting of stock, I don’t know if we … Should we break that down really quick? Just quick, simple. Basically, shorting a stock is where you go out and borrow it. You’re borrowing shares that aren’t yours and then you sell them. The idea is that you’re doing that hoping that the stock then drops. Let’s say the shares are worth a hundred dollars, or you sell one share at a a hundred dollars. You’re hoping that it would drop to $50.

Matt Mulcock:
You then go, and what they call, cover your position, your short position by buying it at that $50. Well, you just made a $50 gain. So, it’s the reverse basically of what we normal people, as non-hedge fund people.

Ryan Isaac:
Buying and then selling at a higher-

Matt Mulcock:
We just think about buying a share, hoping it goes up. There’s a lot of conflict of whether or not shorting is good for the market or not. We won’t go into that today, but basically, like you just said, Ryan, these hedge funds started shorting, significantly shorting GameStop. The number of shares that were short actually exceeded the actual number of shares that were even available. Just because they were all being borrowed.

Ryan Isaac:
Which if you want to try to explain that, go ahead. Good luck. I don’t even know anymore.

Matt Mulcock:
Over what’s called short interest, was over 100%, which is possible, again, won’t go to the technical side of it, but let’s just say that the short position was massive. This group of people on Reddit, it’s a Reddit thread called wallstreetbets, at the time, this is also crazy, Ryan, after all this has happened. So, 2.8 million people at the time were on this thread. Now, as of this morning, I checked, over 4 million people on this thread. But basically, these people got together via this thread, and they said, you know what-

Ryan Isaac:
The online book club.

Matt Mulcock:
online book club.

Ryan Isaac:
I loved that.

Matt Mulcock:
They said, you know what, forget these hedge fund people. They’re trying to short this. There’s a lot of antiestablishment sentiment, I think in this group, it’s a Reddit group, and I get it.

Ryan Isaac:
It’s cool. A little rebellion rising up.

Matt Mulcock:
A little rebellion, right?

Ryan Isaac:
It’s very Star Warsy. It’s cool.

Matt Mulcock:
Yeah, so they started buying it. They started buying it and they started actually buying what’s called call options on it. Same thing, basically is using leverage to drive the stock up. Well, they drove it up and it started going on a rampage. So, it was up like 1700%. I just checked, it’s down 30% today. Will jump even more [crosstalk 00:08:52].

Ryan Isaac:
Normal swing. No big deal.

Matt Mulcock:
Totally normal swing. Well, so these hedge fund companies now had to start again, what’s called they’re trying to cover their positions. Well, to do that, they have to go and buy, which only further drives the stock up. So, it’s just been out of control. The technical name for this is called, they call it a short squeeze, if you’re hearing that around. Just like with COVID, you’d never think you’d know the term social distancing, I don’t think anyone would ever think they’d know the term, a short squeeze, but that’s what this is,

Ryan Isaac:
Short squeeze. My mom’s short and I always thought that’s when I got a hug from my mom.

Matt Mulcock:
Yeah, get a little short squeeze.

Ryan Isaac:
Short squeeze. Yeah, no big deal. Here we are today, and this has happened so quickly. Fast forward, the price started skyrocketing, which caused all the hedge funds that had borrowed money to sell this position, or short this position. Their lenders go to them and they do what’s called a margin call basically, and they’re like, hey, not only have you borrowed too much, you’ve exceeded our thresholds.

Matt Mulcock:
It’s now moved against you. Yeah.

Ryan Isaac:
You’ve moved against you. Your position is now losing money. We need the money back, and now these funds are like, oh my gosh, we’re losing money. We never thought this could happen.

Matt Mulcock:
No, I can’t believe it. That’s the funny part about it. I’ll be honest. It’s pretty funny.

Ryan Isaac:
I’m sorry, I think it’s funny. I think it’s funny, man, because that’s a lot of how they’ve operated in some ways. Anyway, price shoots up. I was just saying this to our advisory group this morning. A week ago, the talk about it, as it started hitting the internet was like, oh my gosh, how cool is this thing? This company’s rising and no one saw it coming. We should get in, and everyone, everybody is texting you and talking about it like, “Should I get some GameStop? What do you think, bro? Should I get GameStop?

Ryan Isaac:
But then, a week later, today, now it is far beyond just this stock that went up that no one saw coming, and how cool would it have been to get in on that? Now it’s clearly this movement of justice in the financial and market system.

Matt Mulcock:
They’re starting to do at other companies now too.

Ryan Isaac:
Yeah, and they’re doing with other … What else is going right now? Is like AMC Theaters.

Matt Mulcock:
AMC.

Ryan Isaac:
Nokia, BlackBerry.

Matt Mulcock:
Nokia now, BlackBerry, Bed Bath & Beyond, I believe.

Ryan Isaac:
It’s basically these companies that are still hanging on, that A lot of these firms and banks and hedge funds are trying to sell and short-sell and drive down the price and make money on it’s downfall. They’re getting bit up, but now it’s like a war. The little guy versus the man.

Matt Mulcock:
It is. People are comparing it to like Robin hood, like Robin Hood’s out. These guys are the Robin Hood of a trading, which is-

Ryan Isaac:
The Robin Hood, which by the way, the original like Disney Robin Hood cartoon, that song like Robin Hood Little John running through the forest, Oo-de-lally, man, this is like the best song ever. Anyway, I just love that song so much, man.

Matt Mulcock:
Can we play that real quick.

Ryan Isaac:
It’s like childhood. But yeah, now it’s like this passionate social … Now it’s just on principle. Right now, online, everyone’s like, don’t sell, all the platforms that these people bought and borrowed money to buy stocks and shares and options for these companies have now halted trading. So, it’s almost kind of like the big guys got hurt by the little guys, and then the companies that held the money for the little guys, all the banks, now they’re like halting trading and they won’t let anyone trade and get out of their positions, and then the big guys are like, yeah, see you little guys. Then the little guys are like-

Matt Mulcock:
This is what I was thinking about, and maybe this is a bad analogy. You can tell me if it is. But I kind of feel like this is like the schoolyard bully who finally gets ganged up on and beat up.

Ryan Isaac:
Popped in the nose [crosstalk 00:12:27], and he’s like, oh my gosh, it hurts.

Matt Mulcock:
Finally popped in the nose by yeah, by courageous little guy that’s like, you know what? I’m sick of your crap. Punches him in the nose, and then the school yard bully runs off crying to the principal, and then the principal comes out and shuts it all down. That’s how I feel right now. Let them do their thing. Hedge funds have been doing this, and here’s the crazy thing too, is that 20 years ago … I mean, hedge funds have been using tactics like this forever. Short-selling, short squeezes, all sorts of things to manipulate the market in their favor.

Matt Mulcock:
But not until right about now in the day and age we’re living in could we even have an ecosystem and an environment …

Ryan Isaac:
A facilitator.

Matt Mulcock:
That facilitates you fighting back as an average person.

Ryan Isaac:
Yeah, it’s crazy.

Matt Mulcock:
I’m sure we are going to jump into some of the negative ramifications and the cost of this going forward and some of the things that are really scary about this, but right now, I’m just still laughing.

Ryan Isaac:
It’s fascinating, man.

Matt Mulcock:
To give you an idea, Ryan, of the magnitude of this, this isn’t like … We’re not talking peanuts here. This is as of last night. GameStop short-sellers have lost, I just pulled it up here, $5 billion [crosstalk 00:13:42].

Ryan Isaac:
These are the funds. Yeah, these are the hedge funds. Yeah.

Matt Mulcock:
The funds. This is according to a S3 Partners, $5 billion betting against the stock.

Ryan Isaac:
The other side of it is the little guys in the news who put up a thousand bucks are up like $10 million. Matt, The other day I ran into someone who said they had never listened to a webinar. I was like, I don’t even know what to tell this guy.

Matt Mulcock:
I mean, you should have told them we are the connection generation texts, social media, lots of screens, interactive webinars, baby.

Ryan Isaac:
Baby, that’s right. It’s easy to join our webinars. We discuss an element in-depth each month. Go to dentistadvisors.com, click on the webinars under education library and join us for the next one. Thanks for indulging us for a little bit. The Dentist Money Show isn’t a news program, because this story will be old in like a few months. It’ll be just like a funny story and we’ll be onto the next crazy thing in the world or the market. It’s a cycle. This stuff repeats itself. But there are some principles here, and some of these principles have to do with not really like the little guy going after the big guy or what’s the big guy doing in the market anyway?

Ryan Isaac:
Are they manipulating things? We’ll touch on that, but the principle here that has legs, and two years from now, this episode will hopefully still matter to somebody, is that the stories of the people making money on these crazy bets, turning ordinary amounts of money that a lot of people have in their bank accounts, a thousand bucks, five grand, 10 grand into millions of dollars, that just reaches your soul, man. Because you’re like, I’ve got five grand.

Matt Mulcock:
I could do that.

Ryan Isaac:
Man, a couple of million dollars at five grand would feel so good. The problem with this is just a terrible example. It’s an awful example of an outcome that worked out positively for a few people and probably devastating for a lot of people. The story is current and it’s funny, and it’s sad and angering, and I’m kind of proud of those guys too, to be honest. I feel a little proud.

Matt Mulcock:
I have-

Ryan Isaac:
I’m like, shout out.

Matt Mulcock:
Let’s be honest. These people, whoever in this original group, this original online reading club …

Ryan Isaac:
I found that person’s tweet, [crosstalk 00:15:53].

Matt Mulcock:
Yeah. Okay. We got to post that or talk about it. These are some smart people. Let’s not get it twisted.

Ryan Isaac:
I mean, they’re spending hours and hours and hours of their days, and weeks, and … yeah.

Matt Mulcock:
Yeah, these are some smart people in here that are structurally creating this trade to make this happen.

Ryan Isaac:
This will be studied. This will be a case study. There will be like laws and legislation that happens after this. There’ll be regulation that … Which is funny, because everyone wants, all the big banks, they all want like free open markets and as little government interference as possible until [crosstalk 00:16:23].

Matt Mulcock:
Until it come back to bite them.

Ryan Isaac:
Hey, can we get a little regulation around these guys?

Matt Mulcock:
Yeah, we need to regulate those guys. Honestly, the sad part is honestly, is that they will get it done, and it will not be in the favor of the little guy. The Redditors will be screwed.

Ryan Isaac:
Yeah, it will end. This will end. It won’t-

Matt Mulcock:
It’ll end, and that’s the sad part is like, because the people in power will be the ones that can control it and get regulations in place to stop it.

Ryan Isaac:
Man, we just turned into a conspiracy theory podcast.

Matt Mulcock:
Man, we really did.

Ryan Isaac:
Here’s the first point we’re going to make. We’re going to make a few points here that hopefully give just some context and insight and apply these principles to other situations that’ll be like this in the future, inevitably. Point number one, there is a difference between speculating and investing. I think everyone hearing that phrase might just nod their head and be like, totally. I agree with that statement.

Ryan Isaac:
But we’re human beings. One of our most base instincts and desires in this life is to gamble. I mean, it’s right up there with like sleeping and eating and drinking water. Man, we love to gamble, and maybe it’s a cultural thing, like an American cultural thing where it’s worse here than other parts of the world. I don’t know.

Matt Mulcock:
And it’s gotten bad the last couple of years.

Ryan Isaac:
But we love a quick buck. Man, we love a quick book. Maybe if we just blanket it all and said it’s like, it’s the Western culture. We just love a quick buck, and we love-

Matt Mulcock:
We love the idea of getting the payout with no effort.

Ryan Isaac:
We do. We do. No one’s exempt from that.

Matt Mulcock:
And the idea of that.

Ryan Isaac:
All of us have been like either in one, something like this in our lives, like we’ve tried our hand at it. Like, who’s buying lotto tickets right now? I know, just like for fun-

Matt Mulcock:
Yeah. That’s the reason the lottery even works. Yeah.

Ryan Isaac:
It’s pocket. But someone’s buying lotto tickets right now as you’re listening to this podcast. Someone’s been in a multi-level marketing thing. Someone’s tried their hand at something to try … I have, I think a lot of people have done this [crosstalk 00:18:25].

Matt Mulcock:
Yeah, someone’s given money to their brother-in-law to do something. It’s always the brother-in-law.

Ryan Isaac:
Brothers-in-law, all the time. There’s a difference between speculating and trading. While you’re thinking of this, Matt, I’ll ask you how you would define that to a client, but I was just going to mention this. I was trying to find what a different definitions of speculation look like, how would people describe it? I was looking for famous quote from smart people. I found this quote from a guy who wrote a book. His name was Philip Carret. It’s a book from 1930, but it’s called The Art of Speculation, which sounds awesome.

Matt Mulcock:
Ooh, I like this.

Ryan Isaac:
In 1930, no less. It’s like, what a time to write the book, The Art of Speculation. Probably some good hindsight. But anyway, he had one line in there from this, it was just a blog post, a review about the book, there was a line that said that the main takeaway was that motive is the real test for speculation versus investing. I would say there’s probably some fundamentals behind, even regardless of motive. But I think motive, it’s interesting to think about it that way.

Ryan Isaac:
If you think about a client who’s telling you about something, that as they’re explaining it, you’re like, I don’t think either one of us really know what you’re saying, and this sounds crazy.

Matt Mulcock:
I have no idea what you’re saying right now.

Ryan Isaac:
Like, I don’t know what you’re talking about. I don’t think you do either. So, we’re both a little lost. But this sounds a little scary. The motive is usually like, when it comes down to it, most people are so … Most people we deal with, man, are like, they’re humble and they’re cool, and they’re pretty like they’ll acknowledge things. They’re self-aware, I would say, for the most part, it’s how people are that we work with. When it comes down to it, they’ll be like, yeah, I don’t know. If I lose it, I lose it, but if it goes big, man, and I retire early, that’d be sweet.

Matt Mulcock:
It’d be so great. Yeah.

Ryan Isaac:
I’m like, we all relate to that feeling.

Matt Mulcock:
We’ve all played the game when buying lottery tickets, where we sit around with our family or friends and we talk about what we would do with a billion dollars.

Ryan Isaac:
What if, dude.

Matt Mulcock:
We’ve all done that, and that’s the fun part about it.

Ryan Isaac:
Huge, man. I liked this. I liked the line that motive is a good test, because when I think about clients and friends and people I’ve talked to over the years that have brought to me ideas that are a little sketch, it usually comes down to them just laughing a little bit and being like, yeah, I guess you’re right. But man, it would just be sweet if this worked.

Matt Mulcock:
It would be really cool.

Ryan Isaac:
I think motive is a great test. How would you define it, Matt? If you’re trying to explain to a client, hey, here’s the difference between speculating and investing.

Matt Mulcock:
I found a definition. Someone had posted again on Twitter. I get all my information, I think, and no worries.

Ryan Isaac:
It’s fair.

Matt Mulcock:
It’s probably sad.

Ryan Isaac:
I love Twitter.

Matt Mulcock:
But someone had posted this idea of like the difference between a trade, or trading, or speculating and investing. I’ll hit the investment side where they posted this, but for a trade we’ll hit the first one, speculating or trading or gambling. To me, it’s a guess. That’s what it is. Or it’s a hope, let’s say that. It’s a hope that whatever you’re throwing down on it is going to turn out in your favor. There’s nothing else more behind. If I-

Ryan Isaac:
There’s no precedent.

Matt Mulcock:
What?

Ryan Isaac:
Sorry. I was just going to say there’s, like you were saying, there’s no precedent for anything it’s done in the past.

Matt Mulcock:
Yeah. It’s just like, if I go to Vegas and I put some money into a slot machine, it’s hope. It’s just a hope that it’s going to turn out in my favor. The definition here of investment that I saw on Twitter, and I think this is one of the actual like Webster dictionary definitions is an act of devoting time, effort, or energy to a particular undertaking with the expectation of a worthwhile result. To me, that is a clear delineation of I’m putting in something, effort, time, energy, and I have the expectation of a worthwhile result.

Ryan Isaac:
I think that’s the key word, man, is expectation. In our industry, as a lot of people know, there’s something that applies to different types of asset classes or investments called expected return. It’s just based on the fact that something has been proven to do something, and then there’s a reasonable expectation that when you interact with that thing in a certain manner, that you can have some expectation for an outcome that’s … Has been happening in the past. When there’s something that’s never existed before, there’s no precedent, there’s no history, there’s no expectation, then it’s just hope. I mean, I like the word expected in there because anytime we talk about either an event, like GameStop is a publicly traded stock, which has a history and there’s science around it.

Ryan Isaac:
We know what publicly traded stocks do over long periods of time, but what we don’t know is when an online book club forges a rebel alliance and goes after the institution and bids up a stock 1700% in seven days. We don’t know. There is no expectation of that outcome. When the world invents a new digital currency that still is on regulated and unwatched and unmonitored, that might have promise, but might not. There’s no history, so it’s still just like … That’s speculation. We don’t know yet. What’s crazy is, when those things become regulated, they become normal, they become the new thing we adopt in the world and use regularly, the risk goes away, but so does that sexy return too. It’s funny how that safety and efficiency eat at your return.

Matt Mulcock:
Yeah. I mean, there’s an unavoidable, unavoidable, completely unavoidable connection and relationship between risk and return when it comes to these things. You cannot hack that. There is no way to get around that.

Ryan Isaac:
No, there’s no universal law, man.

Matt Mulcock:
It’s impossible.

Ryan Isaac:
Matt, do you think clients and just dentists that you’ve talked to you over your career, do you think they really don’t know sometimes when they’re being speculative, or do you think people know?

Matt Mulcock:
That’s a good question? I think it’s what you said earlier. Like, if you really press them on it, or you ask them, they’d admit it.

Ryan Isaac:
They’ll be like, oh [crosstalk 00:24:35].

Matt Mulcock:
Like, yeah, I know. But I also think the mind is a powerful tool for justification and rationalization. I think that they, again, they understand the difference and they understand when they’re involved in one or the other, but maybe I’d say more afterwards than when they’re in it.

Ryan Isaac:
When they finally lose the money, I mean, man, I’ve seen this a lot of times, they finally lose money and then they’re like, yeah, I knew it. It was a gamble, but I don’t care. I knew I could have lost the money the whole time, and it’s fine. It’s not fine.

Matt Mulcock:
I think, just the last thing I’d say on the difference between a trade and an investment, I’m sitting here thinking about this. We’ve talked about it so many times, the relationship and the difference between outcome focused and process focused. Being focused on one or the other. The only thing that you have control over repeating is the process. I’m sitting here thinking, I feel like trading is more, or speculating, gambling, they’re all, to me, all kind of one and the same. It’s like this hope for an outcome as opposed to a focus on a process, right?

Ryan Isaac:
Yeah.

Matt Mulcock:
Whereas, investing is solely focused on the process.

Ryan Isaac:
Totally.

Matt Mulcock:
I can repeat this process. I can control what I can control.

Ryan Isaac:
With a degree of predictability.

Matt Mulcock:
With a degree of predictability if my time horizon is long enough and my process is sound enough, that to me is probably the biggest difference. One is really outcome focused, and really just hope for an outcome where the other one is more process-oriented and focusing on what you can control, and having that be repeatable.

Ryan Isaac:
Yeah. We’re going to go back to one of our favorite lines in personal finance history, and probably forever, from the man himself, Dr. Daniel, Crosby, PhD, psychologist.

Matt Mulcock:
Shout out, because I know he listens to the show.

Ryan Isaac:
You know he’s there. Best lines from some of his books ever was, “You can be right and still be a moron.” Just that encompasses … Here’s one more thing I want to say about this difference between speculating and investing. This is really common. This is a common dentist behavior so you could probably relate to this. When the numbers are small, when it’s 10 grand, 50 grand, maybe even a hundred grand, even that’s a lot of freaking money.

Matt Mulcock:
It’s a lot of money.

Ryan Isaac:
So you know, the career of dentistry is so great and the cashflow opportunity is so awesome when a hundred grand doesn’t seem that crazy. But when the numbers are in the tens of thousands … I don’t know. You just see people make some of these really risky speculative decisions with 10 grand, or 50 grand, or 20 grand or whatever, and there’s a lot of confidence behind it and there’s a lot of surety. But as their career progresses and that 10, 50 turns into 100, and 200, and quarter million, and half a million, and 750, and then what do you see? That confidence from day trading or speculating 50 grand turns into half a million dollars sitting in a business checking because they’re paralyzed. There’s two things that go on there.

Ryan Isaac:
One of the primary ones that I worry so much about is early habits early in a career when you have money, how to learn how to invest. When you get in these bad habits and you learn these false sense of security, and even like, you got lucky and had a good outcome, despite having a moronic process, or no process, that translates later into like … At some point, people who do that, they just know, what works with 20 grand doesn’t work with 200, and they don’t dare anymore. Then what happens is they just pile up cash.

Ryan Isaac:
What’s crazy is that’s almost just as risky, sitting around with hundreds of thousands of dollars in cash and never doing anything, because you’re paralyzed. You’re like, what did I learn about investing when I was 29? Well, I joined a Reddit thread and I bought some GameStop and I crushed it. Then I made real money from my job, and then I had no idea what to do with real amounts of money. That’s a real behavioral pattern that is repeated constantly. What you do with small dollars does not translate into big dollars, and it’s so important to learn good, just fundamentals early in your career.

Ryan Isaac:
Learn what it’s like to have a real investment process with a thousand bucks a month before you’ve got 500 sitting in the practice and you’re just too scared and paralyzed to do anything with it.

Matt Mulcock:
Yeah. I’d actually say too, there’s another side of this. I mean, you just highlighted one path, one kind of a consequence that comes from this type of behavior.

Ryan Isaac:
The other one-

Matt Mulcock:
I’d say the other one is almost even scarier is that this overconfidence that is created out of one lucky outcome basically starts to permeate the rest of your behavior in life and investing.

Ryan Isaac:
That does translate even into bigger ticket items.

Matt Mulcock:
And it does translate. I think a lot of that is personality driven, but you trick yourself into thinking, oh yeah. Everything’s inevitable in hindsight. You sit here and tell yourself again, you rationalize to yourself, like I knew that was coming. You don’t think, man, I got lucky. Then what happens is you think you can do it again, but now, that a hundred thousand and you put in because GameStop got lucky and you won that game, now you have, let’s say 500,000, or a million, or whatever it is. Well, you start doing it again and again and again, and I promise you, you will lose.

Matt Mulcock:
If you continue to do this, you will lose, and that’s what we’ve seen before, and that to me is almost scary than anything.

Ryan Isaac:
It is, man. You’re totally right. A dentist who learn bad habits early, but is now sitting on half a million dollars in cash, that’s a fixable situation. You can retrain that person and how to behave healthy and smart and in their own best interest and have really good long-term outcomes. The person who’s still making wild bets with half a million bucks or a million dollars, I hope it works out because that’s a huge bet. The bigger the bet, the bigger the payoff could be, but also, one bad move from one of those, and you could wipe out a whole career in dentistry and end up as the statistic that no one wants to be, where practice is done, your body’s done, no more dentistry and you didn’t have enough money, and you could have, and you had your hands on it, but it’s gone.

Matt Mulcock:
Yeah, on paper it was there.

Ryan Isaac:
It was there, man.

Matt Mulcock:
Yep. On The Dentist Money Show, we teach dentists how to make smart financial decisions.

Ryan Isaac:
You’re correct.

Matt Mulcock:
I mean, is that all it takes, Ryan, to make smart financial decisions, listening to our show?

Ryan Isaac:
Matt, it’s a good first step, but to put your financial future on the fast track, the next smart decision is to go to dentistadvisors.com. What you do there is you click on the book free consultation button right in the middle of the home screen, and then you schedule a time to talk with one of our very friendly dental specific financial advisors today. Let’s just hit one more point I think that is important, and this is like the practical, okay, now what kind of question is, we all admit that all of us humans like to bet a little bit and gamble. It’s fun. Some more than others, honestly.

Ryan Isaac:
Some people are just like wired to want to be crazy sometimes, man. Other people are a lot more reserved and conservative and it’s just their nature. But how do we do this? What do we do about it if you have a client and they just want to do something? You, as an advisor, don’t want to … It reminds me having kids and then never, ever, ever letting them have any candy or soda.

Matt Mulcock:
Can’t do that.

Ryan Isaac:
Restricting it, like, no, we do not drink soda.

Matt Mulcock:
Ever.

Ryan Isaac:
Then, dude, as soon as the kid gets some soda at grandma’s house, or a friend’s, or a public gathering, or a potluck dinner or something with the neighbors, you’re so embarrassed because your child’s like fiending at the soda table.

Matt Mulcock:
Yeah, going to have to join a rehab program after that.

Ryan Isaac:
Just cracking them, dude, just over the head, and they’re just pouring them on themselves. They’re just like, “I’m drinking soda.” I don’t know. It reminds me … That’s human nature. If we restrict ourselves, dieting is the same way, like I’m never going to eat sugar ever again in my whole life. I’m never going to touch another carb. The more we restrict ourselves, the more we just want it, and then the crazier we might snap and behave. How do we, or what’s the practical side of this? How do we, Matt, help a client indulge that behavior a little bit, give a little room, leave some room to say, totally get it. Let’s do it in a safe way. If it works, probably not going to be that much money because we didn’t allocate too much to it.

Ryan Isaac:
But if you lose it also, it’s not going to ruin you and destroy your whole dentistry career path. How do we do that?

Matt Mulcock:
Yeah. The examples you just gave were perfect. I think, accept the fact that you’re a human being, congratulations. We’re all human. We all have flaws. We all have biases. We all have all these weird funky things that … We can’t reign in all the time. As opposed to, think about trying to be like coldly rational all the time, and think that you’re going to just, by sheer willpower, fight against these urges again, accept them and build a portfolio and your plan around them. The way I would-

Ryan Isaac:
That’s like the Buddhist portfolio, man.

Matt Mulcock:
Yeah.

Ryan Isaac:
Just accept it, acknowledge it.

Matt Mulcock:
Accept. Accept you for who you are.

Ryan Isaac:
Don’t push it away. Yeah. Let it in.

Matt Mulcock:
[crosstalk 00:33:46].

Ryan Isaac:
Give it space.

Matt Mulcock:
I would look at this and say, what is my core long-term rational strategy? Build your portfolio, let’s say, 90% of it in that core rational strategy, maybe 95%. Leave yourself a little bit of that gambling money to go have fun with and just go crazy. The rule there that you should set for yourself is, any amount of money you put in that again, 5% to 10% of your investible assets should be, if I lost this, it’s not going to change the trajectory of my life.

Ryan Isaac:
Yeah, won’t make me have to work longer, I’m no t going to jeopardize something. [crosstalk 00:34:23].

Matt Mulcock:
That way, if you hit a big, awesome. I’m cheering for you. I want you to hit it big. But if you don’t, then you’re going to be okay.

Ryan Isaac:
You’ll be okay, and that’s the hard part I think to swallow, is like, when you’re like, okay, I’ll rationally just gamble with 5% of my investible assets, because I can stand to lose it. It won’t ruin me. At the same time, 5%, unless the pile is really big, if it’s 5% of multiple millions, then okay. I think that’s where it gets fun. That’s kind of an incentive, I guess. It’s like, look, let’s help you build a solid net worth that’s not going to go anywhere. Let’s make all this dentistry and all the sacrifice and debt you’ve been in actually pay off and be worth it. As a dentist, there’s no reason why you shouldn’t retire fine. You should be okay mathematically. I know there’s circumstances, but it should work out.

Ryan Isaac:
Let’s not destroy that, but man, if we can build that up and a lot of liquidity over the years, and 5% of your portfolio is like a meaningful amount of money to invest in, and you hit it big with a few hundred thousand bucks, that’s-

Matt Mulcock:
That’s awesome.

Ryan Isaac:
It could be super cool. But the other side of that though, the paradox of it is, by the time that 5% represents a huge dollar amount, you probably have a big enough net worth anyway that it doesn’t matter to you.

Matt Mulcock:
It doesn’t matter. Exactly.

Ryan Isaac:
That’s when like, does the psychology change? When your net worth’s big enough to sustain your spending forever and you’re technically financially independent, do you even have the need to gamble anymore? I wonder like, do you think that’s sometimes where people have that need and it’s just like, “I got to do this, I’m so into this, I’m so emotional,” and you’re just like, I wonder if it really has anything to do with that, or maybe if you just had more security, if you’d even care about that. Maybe you just feel like really insecure for some reason. Can we fix that first before we go chase some speculation?

Matt Mulcock:
Yep. I think about that all the time with people. Like you said, once you get to this place of financial independence, let’s say you’re at a 30 TT, you’re done, sitting on whatever that is, $4 or $5 million, $3 million, but enough to sustain you for the rest of your life, and you can walk away from work forever, dentistry forever. I think your mindset does change. I don’t think you’re sitting here, because that whole end game, for most people, the reason they’re wanting to speculate, and let’s be real, it’s mainly younger people.

Ryan Isaac:
[crosstalk 00:36:37] financially independent.

Matt Mulcock:
It’s usually younger people. The whole reason, if they really dug down, is to get them to their goal of making work optional. What they’re trying to do is just find a fast track to it. Let’s be honest, they are.

Ryan Isaac:
It could be a factor of net worth, like it’s not large enough and that’s a insecure feeling. Net worth might be fine, they just don’t know it. They’re not organized enough to know that it’s heading in the right direction. You’ve probably seen that a lot in your career. Dentists are in a great spot, and they feel really pessimistic about where they’re at.

Matt Mulcock:
So many times. How many times, Ryan, did we come together after we onboard a client and we show them … One of the first things we show them is their net worth. I just had a client the other day who’s been with me for a couple of years now. I showed them the update progress they’ve made over the last couple of years, and the response she gave me was, is that a real number? I was like, “Yeah, that’s real. That is you.

Ryan Isaac:
Like, wait. I’m okay?

Matt Mulcock:
Yeah, oh, I’m doing well? Yeah, you’re crushing it.

Ryan Isaac:
I think that has to be one of the best outcomes from hiring a good financial advisor, is just getting that assurance that all this work you’re putting in as a dentist, all the sacrifice you’ve made up to this point is paying off. It actually means something, you’re going somewhere. Yeah, so if you’re listening to this episode, actually, it would be really fascinating. If you are later in career or you’ve achieved financial independence and your attitude has changed on your appetite for speculating and risk, go to the Dentist Advisors Discussion group on Facebook if you’re not a member in there, and just comment to us.

Ryan Isaac:
Let us know, hey yeah, when I was in my 20s and had a negative net worth, I wanted to speculate all the time.

Matt Mulcock:
I had nothing to lose at that point.

Ryan Isaac:
Nothing to lose, then I turned 55, I sold five offices, do a DSO, and I made 10 million bucks, and I don’t want to do that ever again. I’d love to hear how that changed. It also makes me wonder too, Matt, sometimes it’s not mathematical, and you’ve seen this a lot too. There are a lot of times in all of our careers where there’s just something jiving. We’ve pushed down a road in our career in some facet or another that is like not us, and we hate it. It’s just like a grind in our … It’s draining our energy.

Ryan Isaac:
A lot of times you find dentists just realign their career, or just like change something in their practice, the way they do business. Then all of a sudden they’re just energized like, “Oh, I can go 20 more years. I’m so happy now, now that I got rid of that satellite location, or I picked up an associate,” or whatever it is. Sometimes it’s non-financial. Dude, cool discussion. Our goal here is to entertain with a lighthearted story that’s true and crazy.

Matt Mulcock:
So crazy.

Ryan Isaac:
And also give a few principles for how to deal with this stuff in the future when it inevitably repeats itself with some other scenario, like two months from now. Because now, I don’t hear anything about Bitcoin or Tesla, and GameStop will stop being talked about in like a month, and there’ll be the next thing, and I’m excited for the next thing.

Matt Mulcock:
There’ll be something else. I can’t even imagine. I’m really, really excited.

Ryan Isaac:
That’s the returns are there.

Matt Mulcock:
I’m really looking forward to it.

Ryan Isaac:
Because you can’t imagine what it is. That’s why the returns are there.

Matt Mulcock:
Exactly.

Ryan Isaac:
Thanks everyone for joining us. We thank the beardless Matt for being here and testing out his new fresh face in this episode.

Matt Mulcock:
It feels good. My face feels lighter. Yeah, it feels good.

Ryan Isaac:
Yeah. It’s like slapping your face with some shaving aftershave. Do people do that anymore, slap their face with aftershave? Did you do that after you shaved that?

Matt Mulcock:
Yeah. I think so. I use tea tree oil.

Ryan Isaac:
Okay. That’s mainly. Thanks everyone for tuning in and for joining us and all the support in all these episodes. If you have any questions, there’s two things that will help you out. You can go to our website, go to dentistadvisors.com, click the book free consultation, chat with one of our advisors. That’s a great help, or go to that discussion group on Facebook, Dentist Advisors Discussion Group, and post a question, we’ll answer it. Thanks everyone, and we’ll catch you next time.

 

Investing

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