Power Up Wealth podcast – The Patient Investor – Episode 12 transcript:
Sharla Jessop 0:00
The stock market has a way of taking money from impatient people. I’m Sharla Jessop. Today we will explore how patient investing leads to long-term success with our guest and expert Jordan Hadfield.
Welcome to the SFS Power Up Wealth podcast, where we provide impactful insight and expert opinions on timeless financial principles and timely investment topics, preparing you to make smarter decisions with your money.
Jordan, thank you for joining me today.
Jordan Hadfield 0:47
I’m glad to be here.
Sharla Jessop 0:48
Jordan is a Wealth Management Advisor with Smedley Financial Services. And he holds a Certified Financial Planning designation as well as a Behavioral Financial Advisor designation. Jordan, why do patience and investing go hand in hand?
Jordan Hadfield 1:01
I think that’s because free money isn’t cheap. You know, when we invest in the market, we expect free money. We expect to turn $1 into two with very little effort on our part. But the truth of the matter is there is a cost to investing. And it’s not a financial cost. It’s an emotional cost. The market is volatile. And sometimes that can be that can be difficult to handle from an emotional perspective, I think that if we change our outlook to investing. If we look at the returns that we make as payment for our patience during volatile times. With that outlook, I think we’re setting ourselves up for success. The markets are volatile. We all know it’s volatile. That doesn’t surprise anybody. But when the volatility hits, our reaction to that volatility can be very damaging. It’s hard to overstate the wealth destroying impact of fear born out of volatility, right? Whenever we invest, we need to have our time horizon in perspective. We need to have a clear understanding of our risk tolerance. And we need to expect some volatility. And if we do so with patience, we’ll have success investing. You know, it’s interesting in terms of volatility in the stock market. The average return day to day is just over 50%. In other words, there’s a 50% chance slightly more than 50% chance that the stock market will be positive tomorrow. Which is not much greater than Vegas. If we go to Vegas and throw $100 on black, it’s a 48% chance. So we’re gambling in the stock market if we’re investing day to day, it’s gambling. But over a 15 year period, the chances of making money in the stock market is almost 100%. And so if we’re investing for the long-term with patience, then our risk is reduced. Our chances for success are increased. That requires patience. The first rule of compounding interest is don’t interrupt it unnecessarily. When we invest in the stock market, what we’re trying to take advantage of is compounding interest. That takes time. We live in a world where we want instant results. Instant gratification. Whatever it is. If we’re at the gym, or we’re at work, we’re looking for something on the TV. If we’re not instantly gratified if we don’t instantly see the results of our work, we tend to want to tinker, we tend to want to make changes, right? We expect immediate results. And as technology advances and higher productivity is reached. And those faster results become available to us, we become more inclined to expect quick results. And that’s not how investing works. A lot of people ask Warren Buffett, what did you do to become such a good investor? And there are books and books and books written on Warren Buffett and the strategies that he’s implemented. And people forget that he’s been investing for three quarters of a century. The guy has been consistently investing. Patiently investing his entire life. And that I think, more than anything is the key to Warren Buffett’s success. I think if someone were to write a book about how to be successful as an investor, I think the best title would be “Calm Down and Be Patient.”
Sharla Jessop 4:12
That makes sense. If we know volatility is inherent with investing, which we all do we hear about volatility. Why do so many people get shaken out of the market at the wrong time?
Jordan Hadfield 4:22
Couple reasons. Fear I would say is probably the biggest. We’re emotional beings, and subconsciously, we tend to make rash decisions off how we’re feeling. And then we look for evidence to back up how we’re feeling. In other words, the decisions that we make are often made before we’ve had time to process or analyze any information. And fear is a very, very powerful emotion. Particularly when investors have lived through periods of time in the stock market that have not been friendly, right? 2008 is a good example. That brings an image to mind for those who experienced it, and it’s probably not a good feeling, and nobody wants to experience that again. And so, whenever an investor feels fear, they look for reasons to back up that fear. Their decisions to move out of the market often feel very logical. They’re often backed by “facts,” right, that they have come across to backup how they’re feeling. And fear is an investor’s worst enemy. Emotional investing always feels good. But just because it feels good doesn’t mean it is good. Investors feel the pain of loss much more than they feel the benefit of gain. In other words, they’re far more likely to react to risks that have potential for greater loss than risks that have potential for gain. And I think that can be problematic. And it’s important to remember that volatility doesn’t create losses, volatility creates opportunities. It’s our reaction to the volatility, that creates the loss. And that can be difficult to remember in a time when things get shaky, right, in the markets. I would also say it’s very important to have a clear understanding of your risk tolerance. Investors tend to overestimate risk when things are bad, underestimate risk when things are good. In other words, if the markets going up, I can handle all the risk in the world, right. In fact, I’ve had clients reach out to me. I’m thinking of one one client in particular, who reached out and wanted to invest a significant amount of money in to some very risky tech stocks. Some newer companies, very risky. And this was a much older client. She was very excited about the possibilities there. I didn’t feel like it was suitable for her based on what her goals were, her assets and where she was at that moment in time. And so I talked her out of it. And interestingly, about a year later, the market got a little bit shaky. And she called me up and was concerned about a 6% drop in the market. And it just highlighted that when, when the market seems to be doing well, we all have a really high risk tolerance, and we’re able we can afford to take those risks. But as soon as things get shaky, it doesn’t feel good any longer. And we want to make decisions. And so it’s very, very important to recognize what your risk tolerance is. And so when those shaky times come, you’re not out over your skis. You’re not invested too aggressively. And the losses don’t give you heartburn. They’ll keep you up at night.
Sharla Jessop 7:30
It seems like investors that adjust their plans based on current events, are impeding the very goals that they’re trying to achieve.
Jordan Hadfield 7:39
Absolutely. The time of crisis is not the time to tinker with your plan. You know, a good plan is created with volatility and down markets in mind. And when that volatility in those down markets hit, that’s the time to lean into your plan and not shy away from it. And that’s, that’s very important. And that’s very difficult for investors sometimes to get a grasp on. You know, relative to fear there’s always something to fear in the market. If we look, it doesn’t take too long before we can find something that will scare us, be it economically or politically. There’s always talk of recession and bubble and this and that. And the other thing, and the news is always blasting it in our face about all these these dangers and things that we need to look out for. It’s funny, in front of me, I’ve got a chart of Time magazine. It shows the cover of Time magazine throughout history, and the dates change. But the headlines often stay the same. You know, for example, March 13 1972, the cover of Time magazine, “Is the US going broke?” In July 14, ’75, “Can capitalism survive.” In October of ’79 is “The squeeze of ’79.” I’m talking about the market squeeze. “Unemployment” in February ’82 was the headline. Unemployment was the biggest worry. In November 2 of 1987. “The crash! After a wild week of Wall Street, the world is different.” In September of ’92. “The economy, is there light at the end of the tunnel.” On the cover of Time magazine in March 1995 was a picture of a torn up Social Security card. In other words, is Social Security going to be around? “Is the boom over” was the title in September of ’98. And in 2002, “Are we ever going to be able to retire?” Right? So if we look out through history, there’s always something to cause fear in the market. The important thing is to create a plan, and when that fear strikes, we lean into the plan.
Sharla Jessop 9:35
That’s very fascinating. The Time issues and the headlines. They seem very they seem like they could be yesterday versus you know, 50 years ago. So what do investors do? So as they’re seeing all of these headlines and getting this information, which you know, information hits us from so many sources? What can they do so they don’t overreact?
Jordan Hadfield 9:52
Yeah. So there’s a couple things I like to recommend to investors regarding this topic. And the first thing is, whenever you make a decision. Ask yourself what the motivation for that decision is? Is it fear? Or is it based on economic data? Right? I think I think if investors stopped and ask themselves that before making a decision that in most situations will leave a wise outcome. The second thing I would say is, again, trust your plan, right in the moment of crisis is the time to lean into the plan. And third, I would say it’s very wise to have a financial advisor who you trust. Someone who you can bounce off ideas off of, and someone who is emotionally detached, that can help you navigate some of the more emotional tricky areas of investing. The most wealthy people I know, have advisors. It’s very uncommon that you have wealthy people that are managing their own investments, because they recognize regardless of how smart they are, or how much experience they have, that emotion is a weakness, they also carry. We all carry it. And so to have someone emotionally detached, who can help you and guide you through some of those decisions is very valuable.
Sharla Jessop 11:03
That sounds like providing that reassurance is very helpful when things get volatile. Absolutely. Jordan, thank you so much for joining us.
Jordan Hadfield 11:10
Yeah, thank you.
Shane Thomas 11:16
Thank you for joining the Power Up Wealth podcast. Smedley Financial is located at 102 S 200 E Ste 100 in Salt Lake City, UT 84111. Call us today at 800-748-4788. You can also find us on the web at Smedleyfinancial.com, Facebook, Instagram, Twitter, and LinkedIn.
The views expressed are Smedley Financials and should not be construed directly or indirectly as an offer to buy or sell any securities or services mentioned herein. Investing is subject to risks, including loss of principal invested. Past performance is not a guarantee of future results. No strategy can assure a profit nor protect against loss. Please note that individual situations can vary. Therefore, the information should only be relied upon when coordinated with individual professional advice. Securities offered through Securities America. Inc., Member FlNRA/SIPC. Roger M. Smedley, Sharla J. Jessop, James R. Derrick, Shane P. Thomas, Mikal B. Aune, Jordan R. Hadfield, Lorayne B. Taylor, Registered Representatives. Investment Advisor Representatives of Smedley Financial Services, Inc.®. Advisory services offered through Smedley Financial Services, Inc.® Smedley Financial Services, Inc.®, and Securities America, Inc. are separate entities.
