My Worst Investment Ever Podcast

Andrew Stotz
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My Worst Investment Ever Podcast Podcast

Welcome to My Worst Investment Ever podcast hosted by Your Worst Podcast Host, Andrew Stotz, where you will hear stories of loss to keep you winning. In our community, we know that to win in investing you must take the risk, but to win big, you’ve got to reduce it. Your Worst Podcast Host, Andrew Stotz, Ph.D., CFA, is also the CEO of A. Stotz Investment Research and A. Stotz Academy, which helps people create, grow, measure, and protect their wealth. To find more stories like this, previous episodes, and resources to help you reduce your risk, visit https://myworstinvestmentever.com/

  1. Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance

    1 DAY AGO

    Enrich Your Future 13: Past Performance Is Not a Predictor of Future Performance

    In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 13: Between a Rock and a Hard Place. LEARNING: Past performance is not a strong predictor of future performance.   “If you must invest actively, find active funds that design their strategies more intelligently to take advantage of the problems and at least avoid pitfalls.”Larry Swedroe  In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks. Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 13: Between a Rock and a Hard Place. Chapter 13: Between a Rock and a Hard PlaceIn this chapter, Larry illustrates why past performance is not a strong predictor of future performance. Academic research has found that prominent financial advisors, investment policy committees, and pension and retirement plans engage top academic practitioners to help them identify future managers who will outperform the market. Such entities only hire managers with a track record of outperforming. They analyze their performance to see if it is statistically significant. However, research also shows that, on average, the active managers chosen based on outstanding track records have failed to live up to expectations. The underperformance relative to passive benchmarks invariably leads decision-makers to fire the active manager. And the process begins anew. A new round of due diligence is performed, and a new manager is selected to replace the poorly performing one. And, almost invariably, the process is repeated a few years later. So whenever pension plans interview Larry and he notices this hiring pattern, he always asks them what their hiring process is and what they’re doing differently this time since, you know, the same process failed persistently, causing regular turnover of managers. Nobody has ever answered that question. According to Larry, many individual investors go through the same motions of picking a manager and end up with the same results—a high likelihood of poor performance. Doing the same thing over and over expecting a different result is insanityLarry observes that the conventional wisdom that past performance is a strong predictor of future performance is so firmly ingrained in our culture that it seems almost no one stops to ask if it is correct, even in the face of persistent failure. Larry wonders why investors aren’t asking themselves: “If the process I used to choose a manager that would deliver outperformance failed, and I use the same process the next time, why should I expect anything but failure the next time?” The answer is painfully apparent. If you don’t do anything different, you should expect the same result. Yet, so many investors do not ask this simple question. Larry insists that it is essential to understand that neither the purveyors of active...

    16 min
  2. Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play

    SEP 2

    Enrich Your Future 12: When Confronted With a Loser’s Game Do Not Play

    In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 12: Outfoxing the Box. LEARNING: You don’t have to engage in active investing; instead, accept market returns by investing passively.   “You don’t have to play the game of active investing. You don’t have to try to overcome abysmal odds—odds that make the crap tables at Las Vegas seem appealing. Instead, you can outfox the box and accept market returns by investing passively.”Larry Swedroe  In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks. Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 12: Outfoxing the Box. Chapter 12: Outfoxing the BoxIn this chapter, Larry aims to guide investors toward a winning investment strategy: accepting market returns. He uses Bill Schultheis’s “Outfoxing the Box.” This is a simple game that you can choose to either play or not play. The box contains nine percentages, each representing a rate of return your financial assets are guaranteed to earn for the rest of your life. As an investor, you have the following choice: Accept the 10 percent rate of return in the center box or be asked to leave the room. The boxes will be shuffled around, and you will have to choose a box, not knowing what return each box holds. You quickly calculate that the average return of the other eight boxes is 10 percent. Thus, if thousands of people played the game and each chose a box, the expected average return would be the same as if they all decided not to play. Of course, some would earn a return of negative 3 percent per annum, while others would earn 23 percent. This is like the world of investing: if you choose an actively managed fund and the market returns 10 percent, you might be lucky and earn as much as 23 percent per annum, or you might be unlucky and lose 3 percent per annum. A rational risk-averse investor should logically decide to “outfox the box” and accept the average (market) return of 10 percent. In all the years Larry has been an investment advisor, whenever he presents this game to an investor, not once has an investor chosen to play. Everyone decides to accept par or 10 percent. While they might be willing to spend a dollar on a lottery ticket, they become more prudent in their choice when it comes to investing their life’s savings. Active investing is a loser’s gameActive investing is a game with low odds of success that many would consider a losing battle. It’s a game that, when compared to the ‘outfoxing the box’ game, seems like a futile endeavor. Larry’s advice is to avoid this game altogether. In the “outfoxing the box” game, the average return of all choices was the same 10 percent as the 10 percent that would have been earned by choosing not to play. And 50 percent of those choosing to play would be expected to...

    15 min
  3. Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill

    AUG 26

    Enrich Your Future 11: Long-Term Outperformance Is Not Always Evidence of Skill

    In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 11: The Demon of Chance. LEARNING: Don’t always attribute skill to success, sometimes it could be just luck.   “Just because there is a correlation doesn’t mean causation. You must be careful not to attribute skill and not luck to success.”Larry Swedroe  In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks. Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 11: The Demon of Chance. Chapter 11: The Demon of ChanceIn this chapter, Larry discusses why investors confuse skill with what he calls “the demon of luck,” a term he uses to describe the random and unpredictable nature of market outcomes. Larry cautions that before concluding that because an investment strategy worked in the past, it will work in the future, investors should be aware of the uncertainty and ask if there is a rational explanation for the correlation between the outcome and strategy. According to Larry, the assumption is that while short-term outperformance might be a matter of luck, long-term outperformance must be evidence of skill. However, a basic knowledge of statistics is crucial in understanding that with thousands of money managers playing the game, the odds are that a few, not just one, will produce a long-term performance record. Today, there are more mutual funds than there are stocks. With so many active managers trying to win, statistical theory shows that it’s expected that some will likely outperform the market. However, beating the market is a zero-sum game before expenses since someone must own all stocks. And, if some group of active managers outperforms the market, there must be another group that underperforms. Therefore, the odds of any specific active manager being successful are, at best, 50/50 (before considering the burden of higher expenses active managers must overcome to outperform a benchmark index fund). Skill or “the demon of luck?From probability, it’s expected that randomly, half the active managers would outperform in any one year, about one in four to outperform two years in a row, and one in eight to do so three years in a row. Fund managers who outperform for even three years in a row are often declared to be gurus by the financial media. But are they gurus, or is it just luck? According to Larry, it is hard to tell the difference between the two. Without this knowledge of statistics investors are likely to confuse skill with “the demon of luck.” Bill Miller, the Legg Mason Value Trust manager, was acclaimed as the next Peter Lynch. He managed to do what no current manager has done—beat the S&P 500 Index 15 years in a row (1991–2005). Indeed, that could be luck. You can’t rely on that performance as a predictor of future greatness. Larry turns to academic...

    28 min
  4. Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t

    AUG 19

    Enrich Your Future 10: You Won’t Beat the Market Even the Best Funds Don’t

    In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 10: When Even the Best Aren’t Likely to Win the Game. LEARNING: Refrain from the futile pursuit of trying to beat the market.   “Only play the game of active management if you can truly identify an advantage you have, like inside information, but you have to be careful because it’s illegal to trade on it. Also, play only if you place a very high value on the entertainment.”Larry Swedroe  In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks. Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 10: When Even the Best Aren’t Likely to Win the Game. Chapter 10: When Even the Best Aren’t Likely to Win the GameIn this chapter, Larry illustrates why individual investors should refrain from the futile pursuit of trying to beat the market. It seems logical to believe that if anyone could beat the market, it would be the pension plans of the largest U.S. companies. Larry lists a few reasons this is a reasonable assumption: These pension plans control large sums of money. They have access to the best and brightest portfolio managers, each clamoring to manage the billions of dollars in these plans (and earn hefty fees). Pension plans can also invest with managers that most individuals don’t have access to because they don’t have sufficient assets to meet the minimums of these superstar managers.Pension plans always hire managers with a track record of outperforming their benchmarks or, at the very least, matching them. Not the ones with a record of underperformance.Additionally, pension plans will always choose the manager who makes an excellent presentation, explaining why they succeeded and would continue to succeed.Many, if not the majority, of these pension plans hire professional consultants such as Frank Russell, SEI, and Goldman Sachs to help them perform due diligence in interviewing, screening, and ultimately selecting the very best of the best. These consultants have considered every conceivable screen to find the best fund managers, such as performance records, management tenure, depth of staff, consistency of performance (to make sure that a long-term record is not the result of one or two lucky years), performance in bear markets, consistency of implementation of strategy, turnover, costs, etc. It is unlikely that there is something that you or your financial advisor would think of that they had not already considered.As individuals, we rarely have the luxury of personally interviewing money managers and performing as thorough a due diligence as these consultants. We generally do not have professionals helping us avoid mistakes in the process.The fees they pay for active management are typically lower than the fees individual investors...

    27 min
  5. Andrew Pek - Immersive Learning Experience with VR Technology

    AUG 14

    Andrew Pek - Immersive Learning Experience with VR Technology

    BIO: Andrew Pek is a co-founder of Amiko XR Inc., a groundbreaking company that leverages VR and AI technologies to create immersive, personalized learning experiences available 24/7. STORY: Andrew shared his worst investment ever story on episode 376: Build Revenue in Your Startup Before You Build Up Cost. Today, he discusses his new business. LEARNING: Learning can be more immersive, sparking curiosity and excitement.   “Thank you so much, Andrew, for having me on your podcast. It’s great to see you. I am excited about the future.”Andrew Pek  Guest profileAndrew Pek is a co-founder of Amiko XR Inc., a groundbreaking company that leverages VR and AI technologies to create immersive, personalized learning experiences available 24/7. He is a recognized C-Suite advisor on innovation and human transformation. Andrew’s insights on leadership and design thinking have been featured in prominent media outlets such as ABC, NBC, Forbes, and Entrepreneur. Andrew shared his worst investment ever story on episode 376: Build Revenue in Your Startup Before You Build Up Cost. Today, he discusses his new business. Worst investment everMuch of Andrew’s work has involved teaching leadership, innovation, product design, and business development skills. He’s always seeking new ways that technology can engage people to absorb learning and become more engaged—not just a boring, traditional training program, but something that would really involve learners in a more immersive way, sparking their curiosity and excitement. Andrew and his team successfully prototyped a solution in which learners get an immersive learning experience through a headset and talk to a coach avatar who can teach just about anything. So, if you’re interested in finance, investing, sales, leadership, career preparation, and just about any topic matter, you’ll find it on the app. This includes job-related skills, general management and leadership courses, and personal development topics. You can obtain information at your fingertips through generative AI and large language models. What sets the application apart is the combination of artificial intelligence and a VR experience. Through simulations, role plays, or evaluation, learners can master any particular topic or get support in any particular challenge. Unlike mobile device applications, VR experiences significantly reduce distractions, leading to more focused and practical engagement. The solution is also unique because it is curated and configured to the expert level. You teach the avatar, and the avatar then teaches others. It ingests your content to become a master in your subject and attain the same level of intelligence as you. Learners who use the solution talk to someone as if they’re talking to you in an interactive, dynamic environment. If something is unclear or learners want to probe further or even get additional guidance or resources, the solution will facilitate that. Learners get videos and information transcripts and don’t have to take notes. Andrew’s solution is a smart choice for mid-to-large-sized corporations or even smaller corporations that can’t afford expensive training or trainers. It’s a cost-effective solution for those looking to provide any training, such as onboarding new employees. Employees can use the application on an ongoing basis to access courses specific to their...

    39 min
  6. Enrich Your Future 09: The Fed Model and the Money Illusion

    AUG 12

    Enrich Your Future 09: The Fed Model and the Money Illusion

    In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 09: The Fed Model and the Money Illusion. LEARNING: Just because there is a correlation doesn’t mean that there’s causation.   “Just because there is a correlation doesn’t mean that there’s causation. The mere existence of a correlation doesn’t necessarily give it predictive value.”Larry Swedroe  In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks. Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 09: The Fed Model and the Money Illusion. Chapter 09: The Fed Model and the Money IllusionIn this chapter, Larry illustrates why the Fed Model should not be used to determine whether the market is at fair value and that the E/P ratio is a much better predictor of future real returns. The FED modelThe stock and bond markets are filled with wrongheaded data mining. David Leinweber of First Quadrant famously illustrated this point with what he called “stupid data miner tricks.” Leinweber sifted through a United Nations CD-ROM and discovered the single best predictor of the S&P 500 Index had been butter production in Bangladesh. His example perfectly illustrates that a correlation’s mere existence doesn’t necessarily give it predictive value. Some logical reason for the correlation is required for it to have credibility. Without a logical reason, the correlation is just a mere illusion. According to Larry, the “money illusion” has the potential to create investment mistakes. It relates to one of the most popular indicators used by investors to determine whether the market is under or overvalued—what is known as “the Fed Model.” The Federal Reserve was using the Fed model to determine if the market was fairly valued and how attractive stocks were priced relative to bonds. Using the “logic” that bonds and stocks are competing instruments, the model uses the yield on the 10-year Treasury bond to calculate “fair value,” comparing that rate to the earnings-price, or E/P, ratio (the inverse of the popular price-to-earnings, or P/E, ratio). Larry points out two major problems with the Fed Model. The first relates to how the model is used by many investors. Edward Yardeni, at the time a market strategist for Morgan, Grenfell & Co. speculated that the Federal Reserve used the model to compare the valuation of stocks relative to bonds as competing instruments. The model says nothing about absolute expected returns. Thus, stocks, using the Fed Model, might be priced under fair value relative to bonds, and they can have either high or low expected returns. The expected return of stocks is not determined by their relative value to bonds. Instead, the expected real return is determined by the current dividend yield plus the expected real growth in dividends. To get the...

    25 min
  7. Pavan Sukhdev - Don’t Make Exceptions Rules Are the Essence

    AUG 7

    Pavan Sukhdev - Don’t Make Exceptions Rules Are the Essence

    BIO: Pavan Sukhdev’s remarkable journey from scientist to international banker to environmental economist has brought him to the forefront of the sustainability movement. STORY: Pavan ignored his investment rules and invested in a bond, which caused him to lose almost his entire investment. LEARNING: Don’t make exceptions; the rules are the essence. Set up concentration risk limits. Diversify.   “A lot of investment mistakes are about not following your own disciplines. Had I followed my own disciplines, I wouldn’t be telling you this story.”Pavan Sukhdev  Guest profilePavan Sukhdev’s remarkable journey from scientist to international banker to environmental economist has brought him to the forefront of the sustainability movement. As CEO and Founder of GIST Impact, he collaborates with corporations and investors, leveraging impact economics and technology to measure a business’s holistic value contribution to the world. Worst investment everPavan is a relatively disciplined investor who always tries to maintain his money’s principal value by investing it wisely. For this reason, Pavan follows a couple of personal investment rules. First, wherever he invests, he either makes friends or has friends. Second, Pavan follows a strict logic when investing in financial assets—he only invests in sovereign bonds. Third, Pavan has set up a concentration risk limit of $100,000 for a single sovereign emerging market. He never invests more than $50,000 on a credit. Fourth, Pavan always reads about the company he wants to invest in to understand what it does and its credit rating. Fifth, Pavan typically invests in sectors where he would be above average in reading and knowledge about that company. Once, a friend came along and asked Pavan if he knew of a particular company with a bond earning 8.75%. Pavan hadn’t heard about it. But he happened to know the family that owned it, and he was interested in it. Pavan decided to invest $100,000 instead of putting his maximum concentration of $50,000. As part of his investment strategy, Pavan reads about companies. A news flash said that the company was involved in a contract in Malaysia. Pavan thought this was great, but that was that. He never followed up on the news. It happens that the company lost the contract. Losing the contract was a big thing that caused the bond price to go down to $75 from $88. At this point, Pavan should have reduced his exposure by bringing the $100,000 down to $50,000, but he didn’t. He continued to sit on the losses and hung on, and the price kept dropping. Finally, at some point, when it was just too low for it to make any difference, the company stopped paying coupons. Lessons learnedDon’t make exceptions; the rules are the essence.Set up concentration risk limits and reflect the volatility of that asset.DiversifyDon’t sit on losses. Andrew’s takeawaysFollow and stick to a stop-loss system.Don’t buy something just because you’ve sold something else. Actionable adviceSet your concentration risk limits, put your trading style in place, and diversify. No.1 goal for the next 12 monthsPavan’s number one goal for the next 12 months is to get his company profitable because it’s nice to be right, but it’s better to be profitable. Parting words  “All the best, guys. Invest wisely and invest well, and when it works, do...

    37 min
  8. Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return

    AUG 5

    Enrich Your Future 08: High Economic Growth Doesn’t Always Mean High Stock Market Return

    In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 08: Be Careful What You Ask For. LEARNING: High growth rates don’t always mean high stock returns.   “Emerging markets are very much like the rest of the world’s capital markets—they do an excellent job of reflecting economic growth prospects into stock prices.”Larry Swedroe  In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks. Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 08: Be Careful What You Ask For. Chapter 08: Be Careful What You Ask ForIn this chapter, Larry cautions people to be careful what they wish for in investing. He emphasizes the daunting challenge of active management, a path many choose in the belief that they can accurately forecast market trends. However, as Larry points out, the reality is far from this ideal. The unpredictability of the market makes it almost impossible to predict with 100% accuracy, a fact that investors should be acutely aware of. High growth rates don’t always mean high stock returnsIt’s important to note that high growth rates don’t always translate into high stock returns, underscoring the unpredictability of market outcomes. According to Larry, for today’s investors, the equivalent of the “Midas touch” (the king who turned everything he touched into gold) might be the ability to forecast economic growth rates. If investors could forecast with 100% certainty which countries would have the highest growth rates, they could invest in them and avoid those with low growth rates. This would lead to abnormal profits—or, perhaps not. Nobody can predict with that accuracy. Even if one could make such a prediction, they may still not make the profits they think they will. This is because, as Larry explains, experts have found that there has been a slightly negative correlation between country growth rates and stock returns. A 2006 study on emerging markets by Jim Davis of Dimensional Fund Advisors found that the high-growth countries from 1990 to 2005 returned 16.4%, and the low-growth countries returned the same 16.4%. Such evidence has led Larry to conclude that it doesn’t matter if you can even forecast which countries will have high growth rates; the market will make the same forecast and adjust stock prices accordingly. Therefore, to beat the market, you must be able to forecast better than the market already expects, and to do so, you need to gather information at a cost. In other words, you can’t just be smarter than the market; you have to be smarter than the market enough to overcome all your expenses of gathering information and trading costs. Larry emphasizes that emerging markets are very much like the rest of the world’s capital markets—they do an excellent job of reflecting economic growth...

    14 min
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About

Welcome to My Worst Investment Ever podcast hosted by Your Worst Podcast Host, Andrew Stotz, where you will hear stories of loss to keep you winning. In our community, we know that to win in investing you must take the risk, but to win big, you’ve got to reduce it. Your Worst Podcast Host, Andrew Stotz, Ph.D., CFA, is also the CEO of A. Stotz Investment Research and A. Stotz Academy, which helps people create, grow, measure, and protect their wealth. To find more stories like this, previous episodes, and resources to help you reduce your risk, visit https://myworstinvestmentever.com/

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