What the NBA Draft Lottery Can Teach You About Investing

On this episode of The Dentist Money Show, Matt and Taylor explore the often-overlooked role luck plays in financial success. Using the NBA draft lottery as an example, they discuss the difference between luck and skill, why investors often mistake one for the other, and how gratitude can be a better response to success. They share lessons on market performance, risk, financial planning, and the importance of focusing on what you can control when building long-term wealth. Tune in to learn how understanding the role of luck can help you make better financial decisions and build a more adaptable, long-term plan.

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Podcast Transcript

Matt Mulcock: Welcome back to the Dentist Money Show where we help Dentist make smart financial decisions. I am Matt and I’m joined here with Taytay Milk Mustache, Taylor Sutterfield. Taylor, how are you?

Taylor: Oof. I prefer milk mustache to TaeTae, so hopefully milk mustache.

Matt Mulcock: Okay, we’re gonna let the people decide. We’re gonna throw them both out there and just, you know, you don’t get to choose your own nickname. So we’ll let the people decide, but I think Tay-Tay might be in the.

Taylor: I… Yeah. I know you have to deal with Matt the mountain, Mulcock, you know, something that makes you, something that makes you seem Herculean and strong. And I get to be called Tay-Tay. So I mean, it feels so bad for you, Matt.

Matt Mulcock: I’ve had to deal with that for Yeah. Yeah. Yeah. Well, I feel very sheepish about the mountain one and don’t like it. So again, we don’t get to pick our nicknames. So we have to admit this topic is quite selfish, Taylor. Right. We’ve got to be honest with the people that. Yeah.

Taylor: Yeah. 1000 % this is I had this podcast scheduled and just to give people a peek behind the curtain because I don’t know when these are coming out, but I was scheduled to record this podcast with Matt on Monday. What would that day have been Matt Monday, May 11, which is a day after, you know, May 10, NBA lottery. So

Matt Mulcock: Yeah, I probably screwed it up and moved it.

Taylor: I wanted to be able to talk about a topic that would allow me to really talk about what I want to talk about, which is the NBA draft lottery.

Matt Mulcock: Yeah, we, we happened to work in with money and obviously with dentists, but I think selfishly we wish we had a sports podcast, right? I know Jake has mentioned that. So today we’re, yeah, we’re going to mix the two. We’re going to mix. We’re going to use this as a, as a selfish excuse to just talk MBA lottery.

Taylor: Yeah. And before you listeners tune out, we promise that it’s not just going to be NBA lottery. I know there are people that listen to the podcast that could probably care less about sports and the NBA. This is just going to be an anecdote that we use to teach important principles that you can apply in your life, which is what we always do. Right. So again, we’re not going to talk any actual sports today. We’re just going to talk.

Matt Mulcock: We will land this plane. Yeah, yes.

Taylor: the lottery system, right? So just to give some background on what even I mean by the NBA draft lottery, what this means. So in team building in any sport, right, there’s several ways that you can improve your team, right? ⁓ So if you’ve never heard of a draft, a draft is something that happens every year where if there’s new players coming into the league, certain teams get the rights to draft or pick players that are coming into the league, right? And so naturally, hockey, you name it, right? Any team sport, this is a very, very common thing that you can do. There’s also free agency, which allows a player that’s finished their contract to change teams, right? And there’s what’s called trades, right? But those are really the three, only the three ways that you can improve your team is either through drafting, free agency,

Matt Mulcock: Baseball, football, basketball, yeah. Yeah.

Taylor: or trades, right? And let’s face it, Salt Lake City, for whatever reason, is not LA or New York, and some people don’t want to come here, right? And so…

Matt Mulcock: which I don’t get, so it’s an amazing city.

Taylor: Well, the funny thing is, is they may not want to come here, but everyone else does because our real estate prices keep going up and the growth rate in our state, our growth rate in our state is insane. So used to be affordable. That is not the case anymore. ⁓ but anyways, the draft is a really, really important team building tool for any small market team, right? Because it gives you a chance and the rights to a player that could be really good.

Matt Mulcock: Yeah, exactly. Someone wants to come here, clearly. Yeah.

Taylor: To make it fair, the NBA created a lottery system to not just make it so that the worst team would get the best pick because that incentivizes losing. Because again, you want a league that’s competitive, you want people to be trying to win. If everyone’s trying to lose to get the best player, then it de-incentivizes winning and makes the product worse. So a lottery system was introduced in 1985. So that means for the last 41 years, there’s been some type of lottery system where odds are assigned to teams and there’s a draft or a drawing that happens to see who’s going to get the number one pick. Right. And just to give some background, it started in 1985 and there was originally just the number one pick was the lottery. Then they expanded it to a three team. So one, two, and three were part of the lottery system from 1994 to 2018. And since 2019, it’s been a four pick lottery, meaning one, two, three, and four are on lottery. And then everything after that is just assigned based off of record. Right? So getting or having the worst record again, usually means you have a bad team. You really need help. Right? But because of the lottery, it doesn’t always mean that you’re going to get the best player. You need a little bit of luck on your side.

Matt Mulcock: Yeah, that’s the interesting tension here, right? Because you said we don’t want to incentivize tanking, but the whole reason they do this is to create parity in a league. So not one team in a league just takes over and dominates. But that’s an interesting tension or paradox there, like something they’re trying to navigate.

Taylor: Yeah. And you said the word tanking, which again, us sports fans know what that means. If you’re not a sports fan, you may not know what that means, but tanking just means that you basically throw away your season to try and get better lottery odds. Right. And in the NBA, we call them ping pong balls because the way the lottery works is they draw out at random four numbers for four numbered ping pong balls. Right. So anyways, long story short,

Matt Mulcock: Yeah.

Taylor: If we go back over the last 41 years, there are 30 teams. What would you just think the chances of a team at least winning a lottery pick would be over the course of 30 years or 41 years? How many times would you expect them to win or move up?

Matt Mulcock: I mean, I would think at least once, twice, you know, maybe a few times just out of pure luck.

Taylor: You exactly. You’d expect at least occasionally you’d move up. Right. And to give you a sense, it’s not, if there’s 30 teams in the league, but not all 30 are in the lottery, it’s only the teams that don’t make the playoffs. So really every year, if you’re in the lottery, you’re one of 14 teams that didn’t make the playoffs that have a chance at these picks. Right. And then not only that it is weighted so that the losing as teams have better odds than So if you were the worst team versus the 14th worst team, you would have better odds as the worst team. So the worse you are, the better your odds. So the Utah Jazz, my favorite team, in 41 years, they have never improved in the draft order.

Matt Mulcock: Yeah. Shout out, Jess. which is just, I have theories on this, but that’s wild. Yeah.

Taylor: There are a lot of theories on this. There’s a lot of frozen envelope weighted ping pong balls, conspiracy theories galore on this. And the thing about it, again, this is a silly game that people play and at the end of the day, you’ve got grown men playing a child’s game. Sports are not that important. However, this is a multi-billion dollar industry. There are literally billions of dollars at stake.

Matt Mulcock: Yep. Yeah.

Taylor: Every year from this lottery system, right? And for the Jazz to never have improved their position, literally some of the worst luck of any team in the NBA, right? So this is the background that I want all of you listeners that enjoy living in the LAs and the New Yorks and the Miamis of the world to appreciate for the Jazz going into this most recent lottery, right? So…

Matt Mulcock: Yeah, it’s wild. Ha Yeah.

Taylor: On May 10th, a day that will live in infamy, the jazz moved up in the lottery. Right.

Matt Mulcock: Yes, for the first time in 41 years.

Taylor : They won the number two draft pick in a great draft. So I am ecstatic. Every ounce of free time I have done over the last week has been just, you know, potential drafty highlights and, you know, takes on who they should pick and everything. It has consumed my life. Right.

Matt Mulcock: Amazing dress. Much to the chagrin of a lot of the people in our office, it also dominates a lot of in-office banter.

Taylor: but I am ecstatic. I am through the moon. I couldn’t be more excited. Right. ⁓ but, you know, the reason why this is so important is again, it’s the one way that the jazz can improve one of the few ways that jazz can improve their team moving forward. So really, really important. But what I wanted to do is give some context of why this matters so much. Right. And so There’s another team in the NBA called the San Antonio Spurs, right? And if you’ve never heard of the San Antonio Spurs or you don’t know anything about their team, they’re currently up 3-2 in the Western Conference Semi-finals, right?

Matt Mulcock: By the time this comes out, the playoffs will probably be done. Or close. Yeah, probably.

Taylor: We’re that far ahead. So we’ll know. Maybe the Spurs have won the championship at this point. But the Spurs even… Yeah. Well, let’s hope the Spurs do it. But anyways, the Spurs in 2023, 2024, and 2025 were a bad team. They were in the lottery. Same with the Jazz. The Jazz and the Spurs were effectively tanking over the last three years.

Matt Mulcock: Yeah. The Thunder have, but yeah.

Taylor: Right. And it just so happened that the Spurs in 23, 24 and 25 won or moved up in the lottery every single year. the jazz, so they walked away with the number one pick, the number four pick and the number two pick. Meanwhile, the jazz walked away with the number nine, the number 10 and the number five pick. Right. Still decently high picks.

Matt Mulcock: Make that make sense. Yeah.

Taylor: But in the NBA, in a team sport that only has five players on the court at one time, any one singular player can have an outsized, outweighed effect more than any other one. So people are heralding the Spurs as this incredible franchise that’s incredibly smart and does all the right things. But they never fail to say anything about the fact that they won the lottery four years in a row.

Matt Mulcock: Yeah.

Taylor: And not only that, they won the lottery and probably the most important lottery in a quarter century. And they won a player named Victor Wembenyama, which again, if you’ve never heard of this person and you don’t like sports, just Google him. He literally is an alien. He’s a seven foot seven Frenchman that moves like he’s six foot. Right. ⁓ there have been this tall of players before.

Matt Mulcock: Go look them up. Yeah.

Taylor: No one moves like he does. in it is every time you look at him on a basketball court, it feels wrong and unfair. Right. So they not only won the lottery that year, but they’ve also won it in important years. And, know, to their credit, they’ve done a good job. Right. But they have had their expected average draft position during those years was five based on their order where they were in the draft.

Matt Mulcock: Yeah. Yeah, it just feels odd.

Taylor: Their average position was 2.3. So they improved their lottery luck by 2.67. Meanwhile, the Jazz’s average expected draft position was six and their average draft position at that time was eight. Right? So lottery luck matters, right? Luck really, really matters. In those same years that the Spurs moved up, another team called the Detroit Pistons

Matt Mulcock: Yeah. Big deal. Yeah.

Taylor: had the best odds, they were the worst team back to back years, and in both years lost the lottery and moved to five. Huge deal. Right? So winning, losing, a lot of times comes down to a four letter word we call luck. Right? Which is the principle, as much as I want to talk NBA draft lottery and on record,

Matt Mulcock: Which is a big deal. Yep.

Taylor: The draft may have happened by the time this podcast comes out. I want Darren Peterson. And if we do anything different besides Darren Peterson, I’m going to be upset.

Matt Mulcock: Yeah. He’s so mad. I agree.

Taylor: so we’ll see what happens, but that’s neither here nor there. Well, I want to talk today about specifically for Dentist and for investors in general is the role that luck plays in our lives for better or for worse. Right.

Matt Mulcock: Yeah, I love it. This is a critical counter kind of other side of the coin type topic from risk. We talk a lot about risk, but we haven’t talked a lot about luck. I think that’s a great setup as selfish as it may be, Taylor, for us to want to just sit here and commiserate about the jazz bad luck. I really do think it’s a it’s a great setup for this discussion around how luck. know, playing a role in career success and being able to build wealth to be a successful investor. It’s a big deal for sure.

Taylor: Yeah. And just so that we can have different anecdotes, not from the sports world, ⁓ we wanted to share another anecdote we’ll call from the nerd world, which I’m also a part of, right? And we want to talk a little bit about a guy named Bill Gates. So Matt, ever heard of Bill Gates?

Matt Mulcock: Yeah. I’ve heard of Bill Gates. I’d imagine everyone listening who may not know who Victor Wemmell and Yama is, those people definitely know who Bill Gates is.

Taylor: So ⁓ this story, I read this the other day in a blog that our own Jake Elm wrote, and I had never heard this story, which again, maybe that’s on me, but kind of a mind blowing story when you think about it. So just to give some background again, Bill Gates, probably one of the most respected successful ⁓ billionaires of our generation, right? We can attribute a lot of success to his own efforts, right? But at the same time, there’s a pretty wild story about just his background growing up that I don’t think gets mentioned as often as the success does, right? So just to give some background, in 1968, and this is when Bill Gates was coming up, school age, 13-year-old boy. 0.01 % of high school kids in the world had access to a computer. But…

Matt Mulcock: 0.01%.

Taylor: Yeah, insane. 0.01 % had access to a computer when he’s grown up. But when he turned 13, right, his upper class background, private education landed him in a school called Lakeside School. And as it turned out, this specific school in the suburbs of Seattle was the only school in America that had a computer.

Matt Mulcock: Wild.

Taylor: Right? And so during the formative time of his life, he and his friend, Paul Allen, ever heard of him? Right? They were able to use a computer whenever they pleased. And at the time, most colleges didn’t have access to this technology. So had Bill Gates lived even in a different suburb in Seattle, he probably wouldn’t be Bill Gates.

Matt Mulcock: Anywhere else. Yeah.

Taylor: Right. It would be some other name that took his spot. Right. Now, again, Bill Gates may have had the aptitude and fortitude to be able to be successful, but it stands to reason he would not be Bill Gates as we know him today. Had he just lived in a different suburb of Seattle.

Matt Mulcock: Without that opportunity. Yeah, that’s a great point.

Taylor: Which is insane to think about because again, when we see people this successful, the ⁓ Elon Musk’s, the Jeff Bezos, the Bill Gates, a lot of times we just think, man, they must be just this superhuman that was born different, right? ⁓ But in most instances, there’s probably a lot of luck that was involved in that happening.

Matt Mulcock: Yeah. Yeah. Yeah. Yeah. And I think it’s a general rule of life. Speaking of that, like when you’re from the outside looking in, it’s probably better to try to emulate the inputs they had control over. like looking at Bill Gates or whom, whomever and saying like, man, I want to emulate their, like you said, their resilience, their fortitude, the efforts, like those are the lessons you should be focused on. Cause it kind of feels weird being like, they were just lucky. But then when it comes to your own success, I think a good general rule is to be really open about the luck that you’ve had in your life. I think that’s kind of like a, probably a fair trade off to making in your life and lesson to learn.

Taylor: Yeah, well, and this is as I’ve been thinking about this and prepping for the podcast, I really there’s two ways that you can approach luck in your own life when it happens to you. Right. And I have summarized these as attribution versus gratitude. Right. When you get lucky, right, you can either attribute it to your own doing and say, you know, and that’s when luck no longer becomes luck internally. That’s when luck becomes

Matt Mulcock: Yep.

Taylor: well, I’m just that good, right? It’s because of me. It’s because something I did or I am that caused this to happen, right? Versus gratitude, right? When you are grateful when something lucky happens to you, it allows you to kind of rise above the circumstances and recognize like there are other forces at play and I just happened to be really lucky that it happened to me. And in my experience,

Matt Mulcock: Yeah.

Taylor: Being grateful versus attributing the success is typically a better outcome and a better outlook on when luck does happen to you in your own life.

Matt Mulcock: Yeah, it’s so true. And that’s a choice, right? We all have control over that of. And you’re so right, I think the default is to internalize the wins and say, like, I was all because of me and then outsource the blame and be like, well, I wasn’t successful because of X, Y, Z thing, but I think it’s a really critical point of the choice you have of of what credit, like where you want to place the credit and realize the role of luck in your life. I think it’s a great point you make, Taylor.

Taylor: Yeah. Well, and I think it really applies in investing. I think it applies in, you know, your profession. It applies in your relationships. Like, this is not a principle that only is applied to the MBA draft gods, right? And the lottery luck, right? This is something that can really be an important lesson learned and outcome that you can use in your life in almost every aspect, right? Because life is a million

Matt Mulcock: Yeah. Yep, yeah, totally agree.

Taylor: You know, it’s a bunch of happenstances that happen to line up, right? For better or worse, and how you approach those things that happen to you is, are you going to be happy and enjoy your life, or are you going to be sad and upset about things that happen in your life? Right? Which, I want to kind of circle back to something you mentioned earlier, which is the opposite side of luck, and it’s the four-letter word of risk.

Matt Mulcock: Yeah. Yeah. Yeah.

Taylor: Right. And to spare the listeners having to hear my voice over Matt’s voice, I’d love Matt to read this quote because it’s a little long, right? But Matt’s got that beautiful sultry podcast voice. So we want to hear this from Matt, right?

Matt Mulcock: Yeah. Yeah. ⁓ but we need to get Will on here. Yeah, yeah, I love this. It wraps up really succinctly what we’re talking about. So it’s from Morgan Housel. says, when most people experience bad times, they consider it risk. The idea that a force outside their control influenced outcomes more than anything they did intentionally. Rarely is that logic turned around because what’s the opposite of risk? Luck. And what is luck? The idea that a force outside their control influenced outcomes more than anything they did intentionally and there are no easy answers to how to manage luck. There are so many things in life where distinguishing between sustainable momentum and temporary luck is only known with hindsight. the broadest way to protect yourself is the simplest rule that the luckier you are, the nicer you should be. That’s probably the best or only way to guard against entitlement, which is the main thing that blindsides you when luck turns the other way. I love that.

Taylor: Bye.

Matt Mulcock: Repeat one word or the one sentence there to the luckier you are, the nicer you should be.

Taylor: And that’s probably the best or only way to guard against entitlement. So Morgan Housel friend of the pod, we talk to him all the time.

Matt Mulcock: Yeah, love that. Friend, listener of the pod. We’ve emailed once. Yep. We emailed once when he turned me down for a speaking gig. Yep.

Taylor: Yeah, he likes to pick our brain. And when he writes these books, his best sellers, he usually pulls things from us. ⁓ But ⁓ yeah, Morgan Housel, one of the great financial minds, I would say, ⁓ out there. So if you haven’t heard his stuff, please go read it. I mean, he’s got just some incredible books on finances and life in general. But just a powerful quote ⁓ that really makes you think about

Matt Mulcock: Yeah, exactly.

Taylor: You know, go back and think about your own life and like ways that you were lucky and how did you choose attribution or did you choose gratitude when those things happened?

Matt Mulcock: Yeah, yeah, or to use the word that Morgan Housley uses, which is entitlement. You choose entitlement or you choose gratitude, and that truly is a choice to you. Like you have control over that.

Taylor: Yeah, and I think, again, the reason why I use attribution is entitlement. We all hate that word, right? ⁓ No one wants to feel entitled, right? But what leads to entitlement? It’s when you attribute your success to your own doing and not other things, right? You become entitled because, it was me, I did this. It’s kind of that look at me mentality. And I wanted to now bring this…

Matt Mulcock: Yeah.

Taylor: Try and land the plane, right, as we say, ⁓ and bring this full circle into this attribution versus gratitude when it comes to your investing, right? So a lot of times in the news, we hear a lot of stories of what I would deem luck, right? They would call them stories of success, and I would call them stories of luck. And… I think that these are probably the most dangerous stories that get published all the time. Because when you read these stories of luck, you immediately kind of attribute it to that person knowing something or figuring something out. And then we naturally think, well, I’m smart. I can do that. You know, let’s replicate this, right? And I don’t care what it is. Let’s insert Apple, Tesla, cryptocurrency, NVIDIA, Beanie Babies.

Matt Mulcock: I agree. Yeah.

Taylor: You name it, right? ⁓ The idea is I put money in 20 years ago and look at this meteoric rise, right? So my question for you, Matt, is like, if that happens to somebody, right, what are the risks if they choose to attribute it to their own knowledge or something that they did? What are the pitfalls that you’ve seen in your career?

Matt Mulcock: Beanie Babies, yeah man. Yeah. I think, I think one of the greatest risks to long-term investing success is tricking yourself that that luck was skill. And I think with time, we tend to do that. We tend to look back and with rose colored glasses, think you, you mix up this idea or conflate the outcome with a, with the proper process and ⁓ decision. And so that can lead to a lifetime of not only being broke, but being miserable. If you start to think that every outcome was attributed to you just knowing that, I knew that was gonna happen. ⁓ And that early success or that early luck leads to a lot of poor decisions. And I think the biggest risk on oftentimes with early success is that usually if you believe that later in life, you’ve got more at stake. You’ve got more money at stake. You’ve got less time to recover from big mistakes. So I’ve always said this, think early success with a poor decision like picking a stock and then making yourself think you had the answer the whole time. I think that is one of, again, one of the greatest risks to overall long-term wealth.

Taylor: 1000%. It’s that desire again. I found some of the pitfalls are like, because you had that success, you it’s that rose colored glasses that you mentioned of like, you focus on your success, but you ignore the larger picture. And you fail to mention the losses you had, you fail to mention the picks that you made that didn’t work out. Right. And we attribute that well, that’s because of this. And that’s because of something else. But the one that won

Matt Mulcock: Yeah.

Taylor: That’s because I knew what was up. But I, you the other ones are someone else’s. You know, when you choose an attribution, you attribute the good to yourself and you attribute the bad to someone else. Right?

Matt Mulcock: Yeah. Yeah, exactly. Well, and you see this too, Taylor, with people, there’s endless amount of people out there. We see it all the time trying to predict ⁓ clout chasing, attention grabbing, whatever, saying, this time is different. The market’s going to crash. Like I’ve been hearing this since the beginning of my career. There’s very well known people out there that do this. And that that’s kind of the same thing that you’re talking about here is they’re going to keep repeating it, keep repeating it. Eventually they’ll be right. If I keep saying it’s going to rain tomorrow, eventually it’ll be right. What, what often will happen at those situations is then they’ll try to claim that they knew it was happening this whole time that 99 % they’ll forget the 99 % of the times they were wrong to focus on the 1 % that they were right and put all the attention on that. And because we live in such a noisy world that it works a lot of times, you know, I can’t even tell you how many times I see like. Oh, this is the guy who predicted 08 09. It’s like, no, no, they didn’t. But they’re because they did it over and over and over again. The one time they were right gets all the attention.

Taylor: Yeah, and you can see this, again, these are numbers from professional investors, but I pulled up, ⁓ what we’re describing here is like stock picking, right? We’re describing you feeling like I know which stock, I read a Reddit blog or watched a YouTube video and somebody sounded smart and I put money in this thing and it ended up working out. But if you look at like the sustained success of portfolio, active managers, over five year period, about 70 to 80 % of large cap managers fail to outperform a benchmark. Just over five years, right? So you’ve got maybe a 30 % chance of picking the right amount of stocks to put in, right? Over 10 years, that number drops to around 81 to 90%, 15 years, more than 90 % of active managers perform. 20 years, 96 % underperform. And at 30 years, less than 1%.

Matt Mulcock: Which is wild. Yeah.

Taylor: Right? Which is insane. Like, why would you take those odds? Right? It doesn’t make any sense, but we see it time and time again. Right? We see people doing this, and they take bets on things. And again, what I would caution is like, if you want to do it, great, do it. But just do it in the confines of a smart plan. Don’t bet the farm. Don’t put everything on it. Right?

Matt Mulcock: Yeah.

Taylor: Open up a small account and do money and play with money that you would not care if it went to zero, right? Because the odds are not in your favor and let’s call it what it is. It’s gambling. Right? So the problem here is if you are successful, right? It’s really easy to ignore the bad. It’s really hard to, you know, there’s this desire of when is enough enough, right? It’s like, well, it did really well. It’s I, you know, I’m not going to sell now.

Matt Mulcock: Yeah.

Taylor: It’s going to keep doing well, which can prevent you from then actually cashing out and realizing the luck that you got. And it’s just when is enough enough.

Matt Mulcock: Yeah. Yeah. The thing that I’d hear Taylor is this happens to people regardless of whether they actually had that success themselves or not. Meaning I think we all do this. Take NVIDIA as an example. We see what’s happening with NVIDIA over the last five, six, seven years. And I think it’s really easy for all of us. think everyone listening has probably thought there’s anyone who’s paying attention to anything in the market has thought crap, dude, I totally knew. I totally knew Nvidia was going to do that. Some former fashion of that. I’ve done that. Like, I heard about Nvidia six years ago. I knew I should have put in some money. Amazon in early 2000s. I knew that Amazon was going to become like whether we’re actually telling someone else or not, we’re all thinking it. And so this is a pervasive problem and something we have to battle all the time of us telling ourselves a story after the fact, after knowing the result. And then deluding, like being delusional and saying, I knew, definitely knew. And then that, so, so I’m just saying this is even a risk. Even if you weren’t, even if you didn’t have that success yourself, just the very fact that there are companies and there’s out, there’s outliers in every part of life. We’ll always look at those outliers and say, I knew that was going to be the case. And then next, and then what that leads to is you thinking you can find the next.

Taylor: 100%, right? And that is the worry of when you do get lucky, where do we attribute? Are we going to attribute that luck to ourselves or are we gonna be grateful that we got it? And that all comes down to this choice that we have to be aware of in ourselves and really fight it because it’s really easy to take credit. And it’s something that naturally we want to do. And we’re actually trained to do it, right? In our professional lives, like you want to be forward about your successes and the credit that you have, right? So it’s not a normal thing. And I think it’s important to recognize and be aware of it in yourself so that when that does happen to you, you can avoid some of those common pitfalls.

Matt Mulcock: Yeah. Yeah, totally agree. Yeah, Taylor, I mean, you’ve got other things here of like, even outside of investing of where, where we see this, what other things come to mind for you of where luck plays a role?

Taylor: Well, and again, this may, I don’t know if this is happening to you, Matt, but the market’s been on a pretty good tear. I don’t know if any of you listening have seen that, right? And just to put some background on things, I started, I graduated with my master’s in accounting. Again, I say that because people listening, my one joke I tell all my clients, I have a master’s in not having a personality.

Matt Mulcock: I’d say so, yeah.

Taylor: I love the numbers, I love these sides of things, but I graduated in 2018 and I started working in the financial planning industry. And it wasn’t until October of 2021 that I started actually working as a full-blown financial advisor managing my own clients. Before that, I was in support roles, I was cutting my teeth, I was learning the ropes but my first client signed October 12th of 2021. And so I was curious and I wanted to look back and say, okay, what was the S &P 500 mark on that date? And so it closed at 43.50. And then I wanted to see as of today, when I looked at it, the close was 74.2747, right? So this ended up representing about a 70 % return just in appreciation. But most people don’t just do appreciation. They also do, you know, they reinvest the dividends that are paid out from this. So like the total return since 2021, that first client and those first clients, they know who they are. They were Garrett and Jennifer. So shout out Garrett and Jennifer if you’re listening. That return has been 86.58 % in five years, right? And if you don’t know, that’s pretty good.

Matt Mulcock: Yep. Yeah. That’s not bad. It’s not a bad return.

Taylor: And that is just the first time, like my first client signed up, right? And I started bringing on more and more clients and it built. And again, just for context, I now have about 140 clients, right? But through the years, right? There was a time I started October, 2021. Do you remember what the market did in 2022, Matt?

Matt Mulcock: 2022. we’ve had a, I believe 2022 was a negative year. It was a down, I don’t remember exactly, but it was the last down year we’ve had, because then we’ve had a 20 % plus gain since each year.

Taylor: Yep. Yeah, last down year we’ve had in a while, right? It was in 2022. So I was bringing on my first clients, building my client base. And at the worst point of 2022, the market was actually down below 3,500. And now we’re up to 74. Yep. Yep. So I have quite a few clients that since they’ve worked with me, the market and their investments have doubled.

Matt Mulcock: Yeah. Yeah. Yeah, I think it was down like 18 % at one point for the year. Yeah.

Taylor: Right in a very relatively short span, right? And it’s almost gotten to the point where again, I feel really lucky because I look at the numbers and I’m like, man, I could have started my career at another point. And it’s really, really, uh, it’s really easy when you get on a call with a client and you say, Hey, we anticipate the market’s going to average 10 and it does 25 for the year. Right? It really like it’s instant gratification for my clients of like, man, Taylor’s underselling himself. He said I was going to do 10. I just did 25. And I did this three years in a row and the market’s crazy. And I’ve had some clients that have been like, really gotten the vision and they’re just like wanting to put money in the market. And they’re just putting in money hand over fist in the market, which that is honestly. Yeah, because what I’m doing is I’m I am affecting these returns.

Matt Mulcock: Yeah. Yeah. Yeah, because you’ve got diamond hands, as they say. Clearly. Clearly it’s working. Yeah.

Taylor: But it’s happened, you know, I’ve seen this and I’ve seen this happen in my clients lives. I’ve seen some people really catch the vision and get really excited and they should like long term. This is what they should be doing. But I’ve also seen the opposite side of the coin where I’ve had some people who have had money on the sidelines in emergency funds in business liquidity that those dollars have missed out on some of this growth. Right. And they have, for example, I was talking to someone just yesterday and they have about $400,000 of excess cash above and beyond their personal liquidity and business needs. The reason why they have this is they’re hoping to buy a home in the next six to 12 months. And they’re like, well, why shouldn’t I just put it in the market? We just did 25 % returns. And they’re like, if I put this in the market, I could have another 100,000 by the time I go do this house. And I’m seeing this a lot.

Matt Mulcock: Yep.

Taylor: Right. Especially because of recency bias and just the time period that I’ve started my career and advising clients where the market has just been really, really good year over year over year. And I feel like it’s really important to help clients understand and people listeners out there that like, these are the good years and we need them, but they’re not, you can’t depend on this year over year. Right. And we can’t make decisions because we’ve gotten lucky.

Matt Mulcock: Yep. Yeah. Yeah.

Taylor: Right? Just because we’ve got $400,000 and we could potentially have $100,000 in growth if there’s a 25 % return, we forget the opposite, which is, what’s the risk that the market drops 20 %? Right? And suddenly, when you need a $500,000 down payment on your $2.5 million home, which they’re trying to do, right? We’ve suddenly lost $100,000.

Matt Mulcock: Yeah. Yeah, exactly. And it’s what we can’t come back to Taylor earlier of a sound decision versus a specific outcome, either good or bad. Those are two very, very different things. And so I think, again, a theme of this discussion is let’s not conflate a sound process driven systematic decision, is what we focus on with whatever, whatever the outcome comes out to be. So your client in particular, but saying, well, look what the outcome has been the last three years. Like, why don’t I just keep doing this? We would never ever advocate for someone to put cash in any investment, whether that be public, private, or real estate, but we deal a lot in public markets. We would never advocate for somebody with a short-term timeline of two years or less to bank on truly positive luck of like this just continuing to go. That is not a sound decision. Even if we had another double digit year this year, which right now it looks like we’re going to, but even if we did, it still wouldn’t be a good decision.

Taylor: No. And that’s the problem is like, we tell stories because we want to educate people, right? And stories help us as humans like understand and conceptualize life and things that are happening around us. And when it comes to the market, the story we tell is if you put money into the market, you’re going to average 10%. Right?

Matt Mulcock: Yeah.

Taylor: And so a lot of times people hear that and they think, well, if I put the money in, I’m going to get a 10%. Right. And we say, well, that’s a long-term average. Right. But again, I don’t know if people ever actually look at, you know, the actual long-term, how even a 10 to 10 year period, how incredibly different they can be. Right. Or even 20 year periods, how incredibly different.

Matt Mulcock: Yeah.

Taylor: Those periods can be. And a lot of it is just luck. Right? Like, I, we’re now like hits on YouTube. I don’t know if any of you listeners know that. But we’ve been, we have been, we have been posting these podcasts on YouTube. So I we’ve been told that we can now share our screen to show some graphs. So I’m going to talk through this for the listeners. But if there are

Matt Mulcock: Yeah. Yeah, like and subscribe. Yeah, you can. Yes.

Taylor: You know, the tens of people out there watching us on YouTube, you’ll be able to actually see these graphs.

Matt Mulcock: The dozens, yeah.

Taylor: Okay. are you seeing this, Matt? Am I doing this correctly? YouTube? Okay. So I just wanna show up the S &P 500 returns by decade, right? So if we go back to the 1920s and we just take the 20s, 30s, 40s, 50s, so on and so forth through the 2020s, it kind of highlights the average return annually by decade.

Matt Mulcock: I do see it, yep.

Taylor: Right, so spoiler alert, right, like we said, the average annual return since 1920 has been 9.9 % or about 10 % return. But if you look back, again, people on YouTube or CNS, for those that aren’t Matt, how many times did the market actually get a 10 % return during a decade?

Matt Mulcock: Never.

Taylor: Zero. Never. There’s never been a decade where it actually got a 10 % return.

Matt Mulcock: for a 10 year period, which is wild, yeah.

Taylor: You just don’t see it. So when we say you’re gonna get a 10 % average annual return, it doesn’t mean over 10 years, you’re even gonna get a 10 % return, right? If we go back, what were the 2020s?

Matt Mulcock: The roar in 20s, we got over 18 % per year for the 10-year period, which is wild.

Taylor: for the 1920s, but what about the 2020s?

Matt Mulcock: Oh, the 2020s, 14 and a half.

Taylor: 14 and half, 2010s.

Matt Mulcock: 13, just under 14.

Taylor: Right. So we’re crushing it. Right. We’re in this new normal. Right. ⁓ look at that. We’re going to be even better than 10 percent. Well, what was the 2000s?

Matt Mulcock: Yeah, lost decade. We had a negative 1 % return.

Taylor: So, Matt, you’re way older than I am. So, you probably were like working during this time, you know?

Matt Mulcock: I was not, I was graduating high school, going into college during that time, during the great financial crisis that happened while I was in college. But I have a similar, because we’ve had 20 years basically since the 2010s, similar experience to you, Taylor, where I started my career in 20 my career here, sorry, in this industry. I started it in 2013. So 2013 is when I started my career.

Taylor: So you were like just after that 2012 dip again, 2013 dip. So you really were like from a return perspective, really favorable. People investing with Matt Mulcock doing a great job.

Matt Mulcock: Yep. Very favorable. Yeah. So, but it’s interesting. I had very similar experiences and even worse so, right? Because in 2013, when I started my career at Fidelity, the remnants and the history was so fresh from 08, 09, very, very fresh. And so for, I was at Fidelity for five years and for a good portion of that career at Fidelity, I talked to countless people who were sitting on the sideline waiting because they were so fearful and they still have this fresh memory of 0809. And the impact that has, I don’t know any of those people anymore, I haven’t followed up on them, but thinking now, how long are you gonna wait? tons of cash sitting on the sideline thinking, well, now’s not the right time. Like the massive cost that plays in their life is huge.

Taylor: I can’t even imagine it. and Matt, because again, I’ve started and for some of my clients that came on board in 2022, which is a big chunk, right? You I had started October 21. So I had a lot of people coming on board in 2022 when the market dipped, right? And so since then, it has doubled in value. So I have a lot of people that their first dollars invested with me and the money they rolled over since has doubled in five years, right?

Matt Mulcock: Yeah. Yeah.

Taylor: I can only imagine starting my career in 2000, right, and going a full decade with clients and saying, hey, you’re gonna get a 10 % average annual return, and there being no, nothing to show for it, right, being a average annual return of negative, basically 1 % for a 10-year period.

Matt Mulcock: Yeah. Yeah. Yeah. And I want to highlight something here, Taylor, because that’s a really good point. This something we say ad nauseum that people probably get tired of, but we repeat it for a reason, which is the power diversification and a systematic approach to investing. The last decade, which is that period from 2000 to 2009, that full decade there, by the way, worst decade as you’re showing here for the S and P 500 worse than the Great Depression decade, but where we had literally a negative 1 % rate of return per year for the whole decade on the S &P. If you would have been properly diversified and globally diversified and invested in international stocks, both developed and emerging, you would have actually probably averaged somewhere between 7 and 8%. The emerging market and the developed markets, foreign markets crushed the US.

Taylor: Wild.

Matt Mulcock: For that decade. It’s since reversed over the last 20 years. But I’m just glad this is a bit of a side quest, but anyone who ever says like, wouldn’t I just be S &P, it and forget it? This data point is what I point to all the time. That’s exactly why you.

Taylor: Yeah, but you’re talking about not fun things like diversified portfolios. The point of this podcast is that they should be put by an Apple, the next Apple and the next Nvidia. Yeah. But this is insane. I can’t, again, I don’t think I would probably be in the career if that were the case, right? If I was at a place as a financial advisor where I’m telling clients, you’re gonna get a 10%, you’re gonna get the 10%, you’re gonna get a 10 % and then I have a decade long track record,

Matt Mulcock: I know, it is boring. Yeah, they should find the next Apple. Exactly. Yeah.

Taylor: Of getting a negative 1%, who’s gonna believe me? I’m not gonna have clients again at that point. And the thing that we have to realize is like, just because it’s been good doesn’t mean it’s always going to be good. This is a graph, again, shoutin’ out our Jake Elm. Jake put together in a recent article he wrote, so if you’re interested in lookin’ it up, that’s on our denisadvisors.com.

Matt Mulcock: Yeah. Yeah. Sure. Yeah.

Taylor: But it just shows the different generations starting with the greatest generation to the silent generation, the baby boomers, generation X, millennials, and it just has the graph of the S &P 500 through the generations. And the way that it starts is the years that it does is when they turn 22. Assuming they’re out of college, they’re now able to work and start investing. And you look at this and it’s… just the generation you were born in affects how successful you’re gonna be long-term from an investing perspective, right? And you look at this and you’re like, man, the baby boomers had it bad. But honestly, to your point here, Matt, if they can get over the bad returns and not sit on the sidelines, that was actually the best time to be investing because if you can be investing while the market’s bad, you’re buying a whole lot of stocks while the market’s cheap.

Matt Mulcock: Yep. Yep.

Taylor: And then when they’re 42 and the Gen X explosion happens, all that money that they accumulated at cheaper prices is now going to be worth way more, which is why we see baby boomers now with massive amounts of wealth, right? The wealthiest generation we’ve ever seen.

Matt Mulcock: Yep. Exactly. This is why the stock market that something like I don’t have it in front of me, but ⁓ it’s something like 90 % of stocks are invested by 10 % of the population. And it’s baby boomers because they have two things on everyone right now. They’ve got time, way more time than everyone. And they had a bad market during a quote unquote bad market. They had a worse market than certainly what we’ve been born into. In the sense of, and to your point, they were able to accumulate far more shares than our generation even now is able to because of the price. So that’s why Baby Boomers much lower. Exactly. So to your point, you look at this and say, man, Baby Boomers got screwed. No, they actually

Taylor: Price per share was way lower.

Matt Mulcock: They were actually quite lucky with where they were born.

Taylor: And you could say, you know, we’re actually unlucky because we’re having such amazing returns right now for us. look at Gen X. They haven’t experienced, you know, relatively, I mean, basically, if you look at Gen X and millennials, like their whole working careers, it’s done nothing but continue to go up and up and up and up, right? So that’s the problem is we don’t know. We don’t know what the future holds.

Matt Mulcock: Yep. A true down market. Yeah.

Taylor: We kinda need some luck, right? And we need to be grateful when those returns happen and we need to not attribute that luck to ourselves, right? Because otherwise we’re gonna fall into some really, really costly pitfalls when it comes to our investing.

Matt Mulcock: Yeah. Yeah. Yeah. I’m actually glad you brought this up. Taylor, this graph here, speaking of talking about generations and where you’re you’re placed in the order here, ⁓ because there’s data. This supports it. We were just saying earlier of. Early early luck can lead to you thinking you’ve got the skills to do this on your own data supports this. If you look at what’s happening with the younger generations in regards to like trusting the advice of an advisor, right, or using an advisor. It is actually far worse among younger generations right now. the, believe I don’t have, again, don’t have the data in front of me, but I’ve read that like the Gen Z and younger generations are relying less on advisors. And I think one of the reasons, there’s a pretty, to me, there’s a pretty easy dot to connect here. They’ve never experienced these younger generations, by the way, including us kind of outside of COVID, which was like a blip. We’ve never really experienced what it is like to withstand a sustained down market where things feel like they’re never going to recover and the world’s going to end. And so I think you’re seeing that if you connect that dot, I think a lot of the younger people today are falling prey to this conflation of luck versus skill and thinking like why would I need help with any of this? I got this. Because of where they were born, when they were born.

Taylor: Yeah. So luck, risk, you know, we talk about them all the time, but I don’t think we fully like appreciate and recognize just how important and pivotal they are to what actually happens. Right? Like we run Monte Carlo simulations, which again, people love to see. But all the Monte Carlo simulations is basically showing, you know, if you were born at this date or this time had these market conditions. And a Monte Carlo simulation is great because it shows you the percentage chance in a bunch of different market conditions how successful you’ll be. But the honest truth of it is, at the end of the day, it doesn’t matter what the simulations say. What matters is your actual journey, right? What were your actual returns that you experienced rather than what some simulations say that it could be, right? And we’re gonna need a little bit of luck, right?

Matt Mulcock: Yeah.

Taylor: And we need to also recognize that luck is involved, right? And because luck is involved, there’s also risk involved. And we need to try and safeguard ourselves as much as possible on the off chance that we don’t get quite as lucky as the baby boomers did, right? That we may have great returns early on when we’re just starting, and we may have a decade in our 40s and 50s, like 2000s.

Matt Mulcock: Yeah, yeah, so true.

Taylor: Where the market’s pretty stagnant. And that’s really gonna hurt, right? That’s your peak earning, your peak compound interest years. So when it comes to these things, we can’t use recency bias, we can’t use the luck that we’ve experienced. We have to put things in context of our financial plan and what the data has been historically and say, even though it’s been so good, we cannot anticipate that moving forward, right?

Matt Mulcock: Yeah. Yeah, it’s a great point, Taylor. And it’s again, counterintuitive. But I think a lot of this too is changing if we’re speaking in the context of investing in the stock market specifically. I think a lot of this is changing your mindset in the context of what we mean by being unlucky. Because if you are our typical listener, let’s just be honest, our typical listener is in is definitely in the middle of their accumulation phase, mid career usually high cash flows, or maybe they’re just getting started, but they’re starting to save money, invest. They’re building a career though. They’ve got, they’ve got decades in front of them. The counterintuitive piece of this is a having better luck would actually having would be actually having a stretch of bad markets. That would actually be luckier than what we’re facing right now. Like if you’re 40 and you’re a net saver, what’s been happening over the last couple of years, it would, is not as lucky in my mind. And what data would show is if we have a sustained stretch of two or three years of like a flat market or even a negative market. If you have strong cash flows, you would prefer that to accumulate as many shares as possible over the next 10, 20, 30 years. So that again, that’s counterintuitive, but people feel lucky right now when it’s like, depending on where you are, depending on where you sit, yes, but for net accumulators, I’m not so sure it’s all that lucky right now.

Taylor: And just bringing this back to the lottery, Risk and luck are two sides of the same coin. When someone’s getting lucky, someone else is getting unlucky, right? So as you’re describing, it’s probably a little unlucky that we’re having these great years for me, where I’m young and I’m a net accumulator and I’m putting money in. But it’s probably really lucky for the person who’s 60, 70.

Matt Mulcock: I’ve seen it.

Taylor: depending on these assets, they’ve seen their wealth double in the last five years, right? And usually you expect 10 years for that to happen, right? But it’s happened in five years because the market’s been so good, right? And when you’re living off those assets, that’s really, really lucky, right? Now you might hear that again, big caution here I wanna make sure we highlight is like, well, if you want it to be the worst, like this doesn’t mean sit on the sideline, don’t put your money in the market, right?

Matt Mulcock: Yeah. For sure. No, no, no.

Taylor: We need these returns. It’s still good that you’re getting these returns even if they’re early because the inverse is it’s sitting in cash and you didn’t get any of the return, right?

Matt Mulcock: For sure. Well. Well, and I think the point to that point here, I think the point here is that there are certain things you can’t control. There are certain risks you can’t control. Carl Richards wrote, and I love this quote about risk is, risk is what’s left over when you think you’ve thought of everything else. Like there’s certain risk and there’s certain luck that you can’t control. think what the whole point of this is acknowledge it, attribute it to the right things, be grateful when like, when you… when you are able to capture luck, but don’t rely on it as a long-term plan or strategy. So to your point, it’s like, no, we’re not saying like shift your mindset a little bit. Yes, depending on where you sit in life, but don’t change your approach just because I’m saying, hey, if you’re a net saver, you’d have negative years, you still invest either way. Keep saving either way.

Taylor: And I think that’s the most important thing is like, again, we’re focusing a lot here on the outputs and not the inputs, right? And the outputs are going to hinge a lot on the risk and the luck involved, right? But the one thing you get to control, we don’t get to control the outputs, right? We don’t get to control what happens in the market. I wish that I could say, I am the reason why the market’s been so good for the last five years. I wish I could tell my clients that, right?

Matt Mulcock: You should tell everyone that.

Taylor: But I’m like sitting here looking at all the data and all the numbers and every time I get on the call, I’m telling my clients and I’ve done this, some of my clients are like laughing now, but I’m like, I promise this is not how it’s always going to be, right? Like I promise this isn’t always gonna be this good. Like bad years are coming because I want to prep them like there are gonna be times where we get on and there’s negative returns. But for the majority of my clients, that’s yet to happen.

Matt Mulcock: They’re like, sure, Taylor. Yeah. Yeah.

Taylor: You know, I’ve yet to jump on and show them a negative return and I keep telling them it’s gonna happen, right? But the idea here is like, we don’t get to control that what we do get to control to your point, Matt, is we get to control, are we a net saver? Right? And that is far more important than if the market was good or bad this year, right? If you are putting money in, that is the luck that you create, right?

Matt Mulcock: Yeah, it’s gonna happen. Yeah.

Taylor: Because you are living your life in a way that I have enough left over after taxes, debt, and spending to put money away for the long term, right? And the bigger you can make that number, the more you create your own luck and you don’t depend on the luck of what’s going on with the market.

Matt Mulcock: Yeah, exactly. Yeah. Yeah, it’s a great point. We’d be remiss if we didn’t mention one thing here. We talk about like the younger generations and where you, when you were born and luck and bad luck. ⁓ We should have probably hit this earlier as opposed to near the end. But ⁓ one thing we do want to acknowledge that I think is a great example of this is real estate. Like right now, first time home buyers, it is so unlucky with where you are. like, I think this is the quintessential example of when it comes to that specific thing, you were just born at the wrong time. just truly there’s nothing that you’ve done that puts you in this position other than just bad luck versus my generation, quite a bit older than you, Taylor. Obviously I’m the old guy, but my generation could not have been luckier with when we were born, when it comes to buying a home and just to generate the next generation completely flips. So there are certain things you just can’t control and that is a great example of one of them.

Taylor: Well, I think the moral of story is go jazz.

Matt Mulcock: Go jazz.

Taylor: That the jazz moved up in the lottery for the first time in 41 years and finally, ⁓ sometime in June. ⁓ Couldn’t it can’t come soon enough because I am literally like nervous all the time. The jazz are going to do something stupid and mess up this one chance that we’ve had. So ⁓ I’m excited, but nervous. But I’m excited that we even have a shot.

Matt Mulcock: And by the time this comes out, when is the draft, Taylor? I can’t remember when it is. Yeah. Yeah. Yeah. Yeah. They got a lucky. Yeah, that’s good. Yep.

Taylor: Because there are other teams that got very unlucky and we have been on that side more times than any other team. So.

Matt Mulcock: Yeah. Yeah. Hopefully by the time this comes out, we will have Darren Peterson on the jazz roster. It would be great. ⁓ This is great, Taylor. ⁓ I think the takeaway for me personally was the line from Morgan Housel, which is, if you take nothing else away, which is the luckier you are, the nicer you should be. I think that’s ⁓ a great line by him. And just acknowledge, I would say this too, it’s a skill, it’s a craft of being able to decipher what is luck and what is skill.

Taylor: That’s the hope.

Matt Mulcock: What can you control? What can you not? And I will say this is something we definitely help with. So if this is something you’re listening to, piques your interest, you’re like, man, I need help with any of this stuff. We are here to help. to dentistsadvisors.com. You can click on the book free consultation button. We talk to hundreds of dentists every year. We want to hear your story, hear the things you’re dealing with and see how we can help you. We would love to talk. So Taylor this is great. Thanks for coming with with these ⁓ Notes these this insight. It’s a great topic and as you said go jazz, right? So everyone thanks for listening again Taylor. Thanks for being here and sharing your words of wisdom till next time. Take care. Bye. Bye

Taylor: Go Jazz.

Keywords: luck, investing, NBA draft lottery, success, risk, gratitude, diversification, market returns, behavioral finance

Behavioral Finance, Investing