GMB Ep #87: Top 10 List: Behavior Biases Impacting Your Investing

In today’s episode we’re diving into ten behavioral biases that negatively impact your investment decision-making. Throughout the episode, we explore the psychological background of these ten behaviors, how they get in the way of sound investment decision-making, and how you can be conscious about your financial decisions so that you won’t make mistakes because of them.

Show Notes

[3:10] Oversimplification – Grant explains what happens when our brains are overwhelmed and are trying to process information in the most efficient way by oversimplifying complex scenarios in an attempt to break them down into bite-sized pieces, ultimately leading to poor investment decisions.

[6:15] Restraint – When we come across an opportunity that we think is beneficial to us, it’s very hard to show restraint. The problem that gets in the way of our sound investment decision-making is our overestimation of our ability to show restraint. Grant explains how this practically affected the cryptocurrency market.

[8:53] Familiarity – People naturally trend toward investments that they know and are familiar with. Grant dives into how this can negatively affect your investments and how to avoid falling into this trap.

[11:20] Incentive Bias – How some of the systemic features in our financial systems, in some cases, lead people to make poor decisions and how the general public can identify these incentives that could potentially lead them toward poor investment decisions.

[14:40] Self Attribution Bias – Grant dives into one of the behaviors in which our egos play a major role. He explains how this behavior is largely visible among day traders and how to be aware of this trait of human brains.

[18:05] Information Bias – Picking reliable data is crucial for making savvy investment decisions. For instance, not being able to grasp the difference between correlation and causation can lead to disastrous investment decisions. We talk about why we need to be vigilant about the information we consume.

[20:55] Groupthink – Since humans naturally like to be in groups, it can be extremely uncomfortable to make a decision that severely deviates from what everyone else is doing. In investments, succeeding in some scenarios may require exactly that. Grant explains how we can grow beyond the herd mentality while being open to new ideas to make savvy investment decisions.

[24:30] Anchoring Bias – When we take time and energy to research something and come to a decision, we like to be anchored on that decision, making us less open to ideas that are contrary to our decision. This tendency to remain anchored on our original decision is something that simply gets in the way of making sound decisions.

[26:50] Loss Aversion – The losses in our investment accounts feel worse than the gains feel good. And because of that, people make investment decisions very commonly, in an attempt to avoid the losses, without appreciating the opportunity for potential gains in the same manner. Grant explains why you should try to avoid this behavior in your decision-making.

[28:40] Confirmation Bias – How our minds tend to cherry-pick certain information in an attempt to process information efficiently, how it affects our investment decisions and how to avoid making mistakes that occur due to confirmation bias.

Resources

Investing Myths #3: You Need To Keep Up With the Financial News: growmoneybusiness.com/podcast/ptkre5734rgwc

GMB Ep #86: Buying the Building Your Business Will Operate In With Justin Smith

Commercial real estate is something many investors seem to be interested in both as an asset class as well as a place for operating their businesses. Justin Smith, a broker, industrial advisor, and author, joins us today to talk about investing in commercial real estate. Throughout today’s episode, we explore what investing in commercial real estate is like as an asset class and what business owners who are considering buying buildings for their own businesses need to consider prior to day one and from day one to the day that the business no longer occupies the building. Stay tuned until the end of the episode, where Justin shares some strategies that help real estate investors with taxation.

Show Notes

[2:50] Justin’s Background – Justin has been working at Lee and Associates for 17 years, focusing primarily on industrial property. We talk about how Justin got into the real estate industry and what he learned through his long career.

[9:40] Buying a Building – Justin explains where to start if you’re looking for a building to buy and how the process differs according to the type of business, type of property, and whether it’s a lease or ownership.

[20:05] Transition From Tenant to Owner – Switching roles from the tenant to owner often calls for some construction work. Justin explains what potential property owners should know about working with contractors and other parties and maintaining compliance.

[26:55] Selling the Current Building and Purchasing the Next – What business owners need to think about when selling their current building to move to another and how their options differ based on liquidity, capacity, and capital.

[34:41] Potential Property – What makes a potential property or building an attractive investment in a portfolio, and what to look for in a potential real estate investment in terms of its cash flow.

[42:45] 1031 Exchange – Justin shares his thoughts on the future of the 1031 exchange, which gives business owners an option to avoid paying capital gains taxes when selling a property and reinvesting in similar properties.

[46:30] Tips for Pure Investors – Justin shares some tax strategies for people who are looking at real estate as a pure investment.

[49:00] Industrial Intelligence – Justin’s book, Industrial Intelligence: The Executive’s Guide for Making Informed Commercial Real Estate Decisions, came out last April. We talk about what he covers in the book and how it helps investors make smarter decisions for real estate investments.

Resources

Industrial Intelligence: The Executive’s Guide for Making Informed Commercial Real Estate Decisions: amazon.com/Industrial-Intelligence-Executives-Commercial-Decisions

Connect with Justin Smith

LinkedIn: linkedin.com/in/justinbsmith

Website: smithcre.com

GMB Ep #85: Investing Myths #3: You Need To Keep Up With the Financial News

Evaluating investment funds or any other type of investment is crucial for a savvy investor. In today’s environment, it’s easy for investors to get influenced by misinformation that ultimately leads them to make sub-optimal investment decisions. We dedicated today’s episode to inspecting the process of evaluating different mutual funds, ETFs, or any other types of investment funds. Throughout the episode, we explore the process of due diligence and how to decide whether or not a potential fund is worthy of including in your portfolio.

Show Notes

[2:40] The Myth – Although more knowledge is good, getting into deep details of things via mainstream financial news might tempt you to make short-term tactical adjustments to your portfolio. Grant dives into how this occurs and why it results in bad outcomes.

[3:40] Strategic Strategies vs. Tactical Strategies – Grant shares his thoughts on why savvy investors focus more on strategic strategies than short-term tactical actions.

[6:42] Clickbait Headlines – How digital media business models based on advertising negatively affect the quality of journalism and how this behavior influences users to follow unreliable and biased financial advice.

[8:55] “If you’re not paying, you are the product” – Grant explains how free news sources may often contain misleading information and why Grant always tries to digest financial information from sources he pays for.

[10:25] Social Media – Grant shares his thoughts on investment-related misinformation that are being shared on social media platforms and how to be mindful about misleading financial news.

Resources

Investing Myths #2: It’s Dangerous to Invest At All-Time Highs:
growmoneybusiness.com/podcast/Invest At All-Time Highs

Investing Myths #1: Rising Rates Will Crush Your Bond Portfolio:
growmoneybusiness.com/podcast/Rising Rates Will Crush Your Bond Portfolio

GMB Ep #84: This is How I Evaluate Mutual Funds & ETFs

Show Notes

[2:15] Sub-Optimal Investment Decisions – Why people make sub-optimal investment decisions by not using the right criteria to evaluate a standard investment fund.

[4:00] Terrible Evaluation of Potential Investments – Using the example of large-cap US equities, Grant explains how some of the most popular fund ratings do not provide a very good evaluation of potential investments.

[8:37] Structuring Your Portfolio – The most important decision one has to make in structuring a portfolio is allocating assets. Grant shares high thoughts on why this decision is far more important than focusing on a specific fund and how long-term asset allocation can improve the integrity of your portfolio.

[13:46] Evaluating Strategy – How to evaluate the strategies of different investment funds and how to decide whether the strategy of a specific fund aligns with your goals.

[18:05] Historical Performance – Why it’s important to take a look at the history, stability, and performance of the fund management company before you invest.

[21:33] Path to the Best Outcome – Wrapping up the episode, Grant shares his take on how having a consistent allocation, a consistent philosophy, and remaining invested through harsh conditions combine to create the path to the best investment outcomes.

Resources

ETFs vs. Mutual Funds: What’s the Right Investment Vehicle For You?
abovethecanopy.us/mutual-funds-vs-etfs-whats-the-right-investment-vehicle-for-you/

GMB Ep #83: Consider This Strategy If You’re Paid In Company Stock

Compensating employees with some form of equity has become a fairly common practice among employers. This may come in several flavors, including restricted stock units, employee stock purchase plans, incentive & non-qualified stock options. In today’s episode, Grant dives into how these programs work, how they’re taxed, common issues employees face when they’re compensated with equity, and a strategy that allows employees to benefit from equity compensations while reducing their tax bills.

Show Notes

[02:48] Common Issues – Grant shares his thoughts on two common issues that employees face when they are compensated with equity.

[04:51] Risks Associated with Company Shares – Grant talks about some of the disaster stories of a few companies that put their employees in deep financial trouble with equity compensations. However, he also talks about how equity compensations can create a whole lot of wealth for employees if the company continues to flourish.

[07:01] Restricted Stock Units – Grant reviews a few common equity compensation programs, starting with RSUs, a performance-based method of compensating employees.

[09:57] Employee Stock Purchase Plans – While rare among private companies, employee stock purchase plans are quite common in publically traded companies. Grant dives into how these plans are taxed and the pros and cons of these plans.

[13:35] Incentive & Non-qualified Stock Options – Grant dives into the benefits of another two types of equity compensation and what employees should keep in mind about them.

[15:23] Strategy – Grant shares his out-of-the-box strategy of utilizing equity compensation that allows employees to pay as little tax as possible.

Resources

Employee Stock Options: The Top 5 Mistakes That Leave Money on the Table:
abovethecanopy.us/employee-stock-options-the-top-5-mistakes-that-leave-money-on-the-table

GMB Ep #82: Debunking Investing Myths #2: It’s Dangerous to Invest At All Time Highs

A few weeks ago we started a series of podcast episodes dedicated to debunking popular misconceptions around investing. In today’s episode, we’re continuing that discussion by covering another investment myth: that it’s too dangerous to invest new money at market highs. Buying low and selling is an obvious objective for any investor, but avoiding the markets simply because they’re breaking new highs is a common mistake for many. Throughout the episode, Grant dives into why this concept is a myth and data from a few studies conducted by reputed organizations that show the potential dangers of the delay in waiting till the markets fall.

Show Notes

[04:56] Historical Data – We often use historical data to assist our investment decisions. While it is a good starting place, it comes with a lot of shortcomings. Grant reviews why we need to look beyond historical data to make savvy investment decisions.

[06:33] Study on S&P 500 Returns – Grant dives deep into a study that analyses the returns of the S&P 500 companies right before the dot com bubble crashed and after the market crash.

[11:13] Investing on Random Days vs. All-time Highs – Last year, the investment firm JP Morgan conducted a study to compare the returns of investing on any random day versus selectively investing only on the days when the markets reach certain points. Grant dives into the findings of this study and how they relate to the misconception.

[16:20] Risks – The risks associated with investing in financial markets and some of the methods we can use to mitigate the risks and the limitations.

[18:31] Looking at a Wider Dataset – Grant reviews a chart from Dimensional Fund Advisors, which uses a wider data set, a total market index, and a longer time period than the previous studies. He shares his thought on why this chart contradicts the other two studies and what investors can learn from it.

[21:23] Dividends and Distributions – How dividends and distributions can reduce the impact of a market crash and significantly increase your returns if the markets do not crash.

[24:37] Dollar Cost Averaging – How dollar-cost averaging helps us reduce risks associated with investments.

Resources

Is it too late to get invested?
jpmorgan.com/wealth-management/wealth-partners/insights/top-market-takeaways-is-it-worth-considering-investing-at-all-time-highs

The beauty of doing nothing:
jpmorgan.com/wealth-management/wealth-partners/insights/the-beauty-of-doing-nothing

GMB Ep #81: There Are Only Three Ways To Make Money In Crypto

The popularity of Bitcoin and other cryptocurrencies has exploded over the last few years, and many investors are asking about the various ways they could make money investing in them. A few months ago in episode 65, we talked about how cryptocurrencies work. In today’s episode, we’re extending that discussion and sharing the only three ways to make money with cryptocurrencies. Throughout the episode, Grant reviews how some of the money-making methods of the gold mining era relate to cryptocurrencies and three methods you can use to make money in the cryptocurrency space.

Show Notes

[02:11] Understanding Cryptocurrency – Grant reviews a framework that he’s been using to shape his understanding of the inner details of cryptocurrency and the ways to make money in the cryptocurrency world.

[06:45] Risks Associated with Crypto – Compared to rare minerals like gold, cryptocurrency does not have a long history yet. Grant explains the risks associated with cryptocurrencies due to their relatively short history and the high volatility.

[07:46] Process of Mining – Grant takes an in-depth look at how a network of computers carry out cryptocurrency mining and transaction tracking.

[12:52] Profitability of Mining – Why the awards for mining go down over time and how it affects the ROI of mining.

[15:45] Speculating – How cryptocurrency investors can make money by speculating cryptocurrency prices.

[18:11] Regulations – Grant reviews some of the regulations that are in effect in Europe due to the highly volatile nature of the cryptocurrency world and some of the instances that prove that cryptocurrencies aren’t completely out of the reach of governments.

[22:47] The Levi’s Approach – How investing in platforms that enable people to interact with cryptocurrencies can become a way to make money in the cryptocurrency arena.

[27:32] Smart Contracts – How smart contracts work, how they’re related to the technology used in crypto, and some of the investment opportunities related to smart contracts.

Resources

Ep# 65 – My Take on Bitcoin & Cryptocurrency:
growmoneybusiness.com/podcast/episode65

GMB Ep #80: Digging Into Healthcare Costs With Sailee Bhambere

The healthcare system in the United States is extremely expensive compared to other developed countries, and it has escalated to a point where healthcare costs have become a major financial burden for many people. In today’s episode, we have a distinguished guest who specializes in public health. Sailee Bhambere, a medical doctor with a master’s degree in Public Health from Harvard University, joins us today to talk about why healthcare is so expensive in the United States. Throughout the episode, we dive deep into Sailee’s research on the issues of the US healthcare system, why it’s extremely expensive, and how it could be improved.

Show Notes

[02:28] Sailee’s Background – We start the conversation with a brief review of Sailee’s work in the healthcare industry and how her research contributes to improving the quality of healthcare.

[05:56] Studying the Healthcare System – Sailee shares with us what she focuses on in her research to identify issues in the healthcare system.

[09:00] Why Healthcare is Expensive – Sailee shares her take on how expensive the US healthcare system is and some of the contributing factors to these high costs.

[14:00] Preventive Healthcare and Personal Responsibility – How our personal habits contribute to our health over a long time and how preventive healthcare could be improved in a way that makes it easier for citizens to develop healthy personal habits.

[17:12] Free Market Capitalism and Healthcare – Grant and Sailee discuss their views on how the free market environment in the United States influence the healthcare system and how other developed countries have taken measures to reduce healthcare costs.

[23:00] Most Important Policies – Sailee shares her thoughts on what policies she’d put in place if she had the authority to do so.

[26:00] Complexities – Why the US healthcare system is extremely complex and how the policymakers can approach reducing the complexities.

[31:40] Administrative Costs – The administrative costs in the US healthcare system are significantly higher than they are in other developed countries. Sailee shares her thoughts on the reasons that cause this discrepancy.

[36:34] Burnout – One of the major issues healthcare professionals are facing across the industry is burnout, which is a result of overworking as well as complex administrative tasks embedded into their workload. Sailee shares her thoughts on how this affects the performance of the healthcare system.

Resources

Connect with Sailee: linkedin.com/in/sailee-bhambere
Sailee’s Research: www.researchgate.net/profile/Sailee-Bhambere

GMB Ep #79: The Sacramento Startup Climate With Cameron Law

In recent years interest in entrepreneurship has been steadily increasing around Sacramento and around the country, leading younger generations to explore self-employment as a career option. In today’s episode, we have a distinguished guest who specializes in educating entrepreneurs and guiding them toward success. Cameron Law, Executive Director of the Carlsen Center For Innovation & Entrepreneurship in Sacramento, joins us today to talk about the startup climate in the region. Throughout the episode, we dive into how Cameron’s organization helps entrepreneurs, common mistakes entrepreneurs make, trends in the startup arena, and what entrepreneurs should know about creating successful business ventures.

Show Notes

[01:40] Cameron’s Background in Startups – Cameron shares how he got into the business world, his work in the venture capital arena, and his contribution to helping entrepreneurs thrive.

[06:18] Cameron’s Organization – Cameron dives into the mission of his organization, Carlsen Center for Innovation and Entrepreneurship.

[10:50] Generating Interest – Cameron’s organization works with students and people who are already in business. He talks about what his organization is doing to generate interest in entrepreneurship and to make its programs more accessible in the region.

[15:30] Evolution of Entrepreneurship – How the mindset of entrepreneurship has evolved over the years in the region and how recent trends in the markets and technologies have influenced it.

[28:48] Avoiding Mistakes – Common mistakes Cameron sees entrepreneurs make in their startups and bits of advice Cameron has for entrepreneurs to help them avoid their mistakes.

[35:39] Taking Risks – Entrepreneurs often have to take risks to make their new products or services successful. Cameron shares his take on what entrepreneurs should keep in mind about creating solutions that successfully solve a problem.

[38:11] Blockchain – Cameron shares his take on how cryptocurrencies and blockchain technology are being adopted in the region.

[46:05] Sports – Both Grant and Cameron were baseball players in college. They talk about how sports fit into their lives and how experiences from sports have influenced their professional skills.

[52:47] Get Involved – Cameron shares how you can get involved in entrepreneurial communities in your region and how you can utilize the resources available at the Carlsen Center for Innovation and Entrepreneurship.

Resources

Connect with the Carlsen Center for Innovation and Entrepreneurship:

Website: www.csus.edu/center/carlsen
LinkedIn: linkedin.com/company/carlsencenter

GMB Ep #78: Investing Myths Debunked #1: Rising Rates Will Crush Your Bond Portfolio

Recently, we’ve seen quite a few myths and misconceptions about investing circulating in popular media and amongst investors. Today’s episode is the first of several episodes we plan to publish with the focus of debunking these myths. Throughout today’s episode, Grant debunks the misconception of negative effects on bond portfolios caused by increasing interest rates on bonds. Stay tuned until the end of the episode, where Grant shares his take on how to get the best outcomes from bond portfolios.

Show Notes

[01:58] Understanding Bonds – Grant reviews how bonds work and how they’re different from stocks.

[07:30] Interest on Bonds – The structure of interest for bonds and how the concept of duration comes into play.

[10:35] Fluctuation of Prices – Grant shares his thoughts on why fluctuation of bond prices does not have a significant effect on long-term investors.

[13:18] Interest Rates – Grant reviews how increasing interest rates affect long-term portfolios, using an example of a worst-case scenario.

[18:39] Path to Success – Grant shares his thoughts on why consistently applied strategy and long-term focus are the keys to the best outcomes for bond portfolios.

[20:33] Unlikely Outcomes – Why it’s highly unlikely that we’ll see a huge rise in interest rates in the next five to ten years based on how our current monetary system is structured.

Resources

What is the Worst Case Scenario for Bonds? – Cullen Roche:
pragcap.com/what-is-the-worst-case-scenario-for-bonds

Bond Duration:
en.wikipedia.org/wiki/Bond_duration

Don’t Ditch Those Bonds
aarp.org/money/investing/info-09-2013/dont-ditch-those-bonds.html