We Are Talking Money Ep.4: How FOMO is affecting the markets.

All right, good morning, or good afternoon, Sarah. Gosh, I was confused, and now we're back on at noon. We are, it's afternoon. Super. Well, I'm actually glad to be back on at noon. I don't think I cared for ten o'clock, and I know that was a trial run. Yes. But I'm glad to be back on at noon. Feels right. It does. All right, it feels like I'm much more awake and ready to go, especially to talk about wine.

We have a really interesting subject today, the FOMO thing. Yes, yes, and I'm sure some of our listeners are wondering what in the heck FOMO is. Don't worry, we're gonna talk all about that, along with some wine and another recipe. Love it, though, the wine Wednesday.

Something else that didn't feel right last week: talking about wine at 10 o'clock in the morning. I get it, I love to talk about it anytime, and I think you do, but talking about it at 10, I just felt like I wasn't on my game yet. So those extra two hours really get you prepared. Well, I have at least a little more time to get out of the mindset of breakfast and coffee, and now I move it a little more towards wine. So we've got a pretty interesting one today on wine, one of my favorites for sure. So tell us what we're gonna talk about.

Yeah, so rather than I highlight a couple of wines, well, we are going to talk about a couple of their wines, but we're also gonna focus on a winery. It is Molly du coeur, which is a winery out of Australia, and the McLaren Bell region. Like Phil said, it's one of his favorites. Some of us got to test it last week.

One thing that I want to ask before we get started, though: I know we're talking about wine every week, we have a poll, and I just wonder what everyone's favorite wine is and what wine they want to hear about. So if you'll just vote on what your favorite is, whichever one gets the highest votes, or whichever one maybe we like more, this is what we'll talk about next week.

Let's see. So I've got some cab, of course. That's my frontrunner. Yep, for sure, every time. Arn a vote, nor everyone knows we talked about Zim Fidel last week. So what do we show there? Oh, you do have a Pinot, and then the cab, and a Chardonnay. If we're gonna talk Chardonnay, I'd love to do that on a show, and especially as we're coming into summer. Oh yeah. Chardonnay and things like seafood, a particularly really good scallop dish, hard to be that with a good Chardonnay. A big, rich, buttery Chardonnay, as much as I'm not a white wine drinker, that is definitely one that I don't mind doing every now and again if it's got all the right components. Some shortened days are built really big, and much too - a lot of the popular belief out there, some shortened days can actually aged pretty well.

One of the things we don't have on here is Rosa, and Phil just mention summertime and wine drinking, so I know that that will be one that we highlight eventually. But it looks like almost everyone's voted. Yeah, I think Cabernet might win. Cabernet. You know what, you don't have to talk me into that one. Cabernet is so good. I love it, and I love it as a blend.

Cabernet was made so popular from California wines years ago in the US, but Cabernet goes back to the days of French winemaking, when Bordeaux's were at the turn of the century. Cabernet was a primary grape in French Bordeaux, and still that way today. In fact, if you're gonna build a Bordeaux, it's one of the grapes that must be used for it to qualify. But interesting choices there. Tells us we've got read listeners, which I like. No, not at all.

So, well, it's interesting you said something about Rose a, so I think we add that to our poll if we use this again, the Rose a thing. Molly Duker, who we're gonna talk about today, they don't have a rose a, but they do have a bubbly, if you will. It's a red wine, and it's made from there, I think they're two left feet, and then they turn it into a bubbly. So exactly. So it's a very interesting wine. We've tried it a time or two. It's not everybody's thing, but if you like Rose a and you still want a little bit of the bolder red, if you will, it's an interesting wine. Put it on my list. All right, good.

Well, let's dive into Molly Duke her wiry. This is something that maybe you've heard of, maybe you haven't. Their story's amazing. So these people have gone broke two, three times. They were on quite a roller coaster. It's Sarah and I'm Sparky. Sparky, yes. So those are the owners of this winery. It's a very family based winery. They always want to keep it small batch. Their focus is always keeping a small batch. I know they've tried to sell bulk Feld but FL, but they just realized that that wasn't really them, so they stayed true to themselves this whole time. Those two loved wine. When they got into it, it was, what do we really want to do? And they both loved wine, and that's really how their story was born.

Neither of them was ever built to create mass-produced wine. They really are about building something that, as you said, it's more boutique style, it's smaller batch, and very focused on particular things. They're one of the few wineries that I know of that tries to build wine with fewer sulfites, which is what gives everybody the headaches and the sinus issues. And so for people that say, gosh, I just can't drink a red wine because it has sulfite, moly Duker might be willing to give a shot, because they use nitrogen in place and they try to drive down right the sulfite whit, which is where that famous Molly du coeur shake. Yes, from. We got to talk about that.

All right, so Molly Duke ER, when you drink their wine, they will tell you this when you buy the wine at the winery, on their website: to enjoy their wine properly, because they do preserve it with nitrogen rather than the sulfite arena, you have to pour half a glass, a little less than half, I believe, is what they say. Then you close the cap. Oh, by the way, this is a twist top as well, keep that mine. Yeah. Close the cap, invert the bottle, and shake it. Basically just shake it like hell, and open it up. Shake it, pour the wine. Yep. And that's where the nitrogen, I guess, gets released, and the true, what they really want you a taste in the wine, comes out.

Yeah, basically they say that it really contribute, and so now the preservative, if you will, is gone. You don't have all the sulfite, so you get a much more enjoyable drink. It develops its flavors, you enjoy that, and then you don't wake up with that headache the next morning from the sulfite. So to me, Mali dukers a win from that perspective, but Mali dukers a win from the perspective of just building really high quality wine at prices across the spectrum and really being devoted to doing it the right way. They've never really veered away from that. They've always stayed true to what is, to them, exceptional wine, and they do a great job.

One of their standards, and they do have very high great standards, is the marquee fruit wait. I'm not something they've trademarked. It's a sensory term for the percentage of your palate that's covered with that velvety sensation a fruit before you experience any of the structural components of the wine. So they send their guys out into the field, they taste the grapes, they taste the wine, and if it doesn't meet their standards, it's out. They don't sell substandard wine. I like it.

So for our listeners who said they love Cabernet, don't worry, Molly duker makes some Cabernets. We're going to be talking specifically about Shiraz and those grapes today, but we're that great today, but they make Cabernet. Big grape coming out of Australia, but Australia's flagship is it Shiraz. So pretty good stuff that dukers putting out. I can't wait to talk about our two selected wines today that they come from Mali Duke er. Yeah, go ahead, let's open with that. Let's get started with it.

Well, one thing that you didn't mention is, or is this a question that we're gonna ask the audience, which is, what may occur, what does Mali do cursed, and for what, what is the meaning behind Mali Duker keeping - Australian. So if anybody knows the answer to that, go down to our Q&A at the bottom of the page and just answer: what does Mali Duker stand for? And what's everyone answers, if someone answers correctly, you will win a Yeti. We have a on East our Yeti descent the whoever answers correctly, and also will tell you why they named it Mali duker.

Yeah, it's a pretty cool story. Their story in general, as you said, it's really, really interesting. These are people that they've stayed true to who they are, and today they have one of the most successful wineries, one of the most successful brands in the industry. But interestingly enough, as with all great brands, not everybody knows what Mali Duker is, or who it is, or where it is, right? So it's interesting, as successful as they've been, you don't always know all of those things. So I'm excited that we share that today.

So what did we, I didn't even want to get the answer. I see an answer that just popped up, but I can't read it. Let's see, it looks like up somebody answered correctly. Aha, let's check it out. Let me pull it on my screen so I can read this. Probably need my glasses, they were in here somewhere. Yeah, I need this. Maybe another couple seconds for anybody else to answer. We've got a couple answers here. J, and someone answered correctly. Perfect. All right.

All right, so the meaning of Mali duker is left-handed in Australian speak. So the reason why Sarah and Sparky named this winery, in 2006, this is when they started marketing Mali duker, is because they are both left-handed. So they are both Mali dukers in their world, and it works perfect over here in America. We think it's just the coolest name. It is a cool name.

And Natalie and I, my wife and I, tend to be Molly dukers. We're both left-handed, and I'm not sure if that's why we love Molly Duker, but when we heard that story years ago, it was pretty fitting, because we're left-handed, and boy, we definitely drink some Molly Duke or. It is, it's one of our favorites, and probably is definitely one of her favorites, particularly their premium cuvee, which is called velvet glove. When she has an opportunity to drink that, it's an experience. So, oh yeah.

And for the velvet glove, going back to that marquee fruit wait, you don't believe it ask to cover 95 to a hundred percent, maybe 99 percent of the palette before they let that grape get put into the wine. They have extremely high standards for that one. Their standards are so high that if it doesn't meet that an on their marquee weight system, which I think is an amazing system that they put together years ago, but if it doesn't meet the standard, velvet gloves not produced, period, for that vintage, and they'll just skip it. And so there's been years where there was no velvet glove to be sold.

And of course there was one year when no velvet glove was sold. That was because the forklift operator in their factory turned the corner to sharp and took out all of the bottled velvet glove, which was a travesty, and no one knows where he went. It's a good thing it's not Italy, because the man might not have survived, but I'm guessing he probably did. Heck, knowing Sara and Sparky, they probably kept him. They're pretty easygoing people.

All right, so let's roll into the two wines that you're gonna highlight today. All right, so boxer, which is one of the dukers, that's one of their famous wines, and then Carnival of love. So boxer is a Shiraz, or Shiraz, however you like to say it, but Shiraz, and Shiraz from Australia would be the same grape that we think about a California called Syrah. So the same grape, but really different growing conditions, Sarah.

So the boxer is a very good wine, all Shiraz, lower price point, that would be a good value wine. You can pick that one up. I've even seen it in Costco recently for around $25 a bottle. And then Carnival of love, now we're going up the scale about two or three places here, and so we run up to there carnival of love, still screw-top, all of their wines already been that velvet glove, that sells for close to $200 a bottle. But the Carnival of love, another Shiraz, so comparing two of the same grapes here, really different style, much bigger, much better fruit, more concentrated.

Both of these wines, though, remarkable. If you like big, fruity, almost jammy, like we talked about last week, anything from Mali dukers gonna give you that, but boxer and Carnival of love in particular, those are going to light up your palate in a big way. And being that these wines are Shiraz, Shiraz is well known to go with things like barbecue. So not much better here than a slow-cooked pork shoulder, so traditional barbecue, and big barbecue sauces. This wine can stand up to its surahs' and Shiraz can stand up to the big bold flavors of that kind of

Cooking, so smoked or roasted meats, grilled meats, those kind of things, those kinds of foods rather, perfect for these wines. And so we're gonna share a recipe at the end of today's episode. It'll be on, where's it, Instagram? Gonna go on our Instagram, so follow us there if you want the top secret recipe.

Yeah, so we'll talk about what to put with these wines so that you enjoy them more. But to Sara's point before the show, you could probably just enjoy them by unscrewing the cap, shaking and drinking.

Yeah, they send update, they send Preet all by themselves. It could be a very nice light dinner, and they're great wines, no doubt about it.

So all right, well, there's wine Wednesday. Let's dig in now to a little more, shall we say, industry speak. Let's talk about the matter at hand, which is, okay, for everyone listening to say, FOMO is the fear of missing out. It's nothing new. In fact, it's an emotion that's permanently linked to the core of human nature. Been around forever. Once we talked about it, didn't know what it was before, you'll know about it now. Something everyone's experienced. It's not limited to investing. It's omnipresent, and particularly when it comes to things which are quantifiable. Think of the cliche, keeping up with the Joneses. If you're active on social media, you see it a lot, and memes, things like that, but the emotion seems to be magnified via social media. Later in the show we're going to talk about some ways to kind of reduce your FOMO, and a lot of that will have to do with social media.

Speaking of, make sure you're following us on social media. We might give you FOMO, but it would be a good, refreshing FOMO of, oh man, I should drink or eat that.

Definitely, if you're following us on social media, it's not all business. We try to put out the right amount of business, the right amount of investment speak, wealth management things. After all, that's who we are, it's what we do. But over the last few years we've tried to turn that a little bit and actually bring some things that are fun, educational, so recipes now a big thing for us, especially with the addition of the wine Wednesday. So definitely follow us on, what do we have now, Twitter, Facebook, LinkedIn, YouTube. I forgot about that, so that's new now that we're doing our live versions here, everything. So if you don't find a podcast that you want to listen to, check out our YouTube channel. You can find all of our live versions there. They'll always be at your disposal. You can take a listen anytime you'd like. So let's dig a little deeper in this FOMO thing.

They're on, absolutely. It drives our society right now. It's a phenomenon that's so powerful. We're starting to perceive others there as experiencing better outcomes and accumulating material possessions faster than self. Basically it's a regret that's forecasted. So you're not feeling, you're feeling a regret that may or may not have any substance, so it's not something that's happened yet.

Good way to put it, forecasting the result, if you will. So you're thinking about what you might not have or what you might miss. I'd say really that's a good way to say it, and I think we live in that world today. I think you're exactly right, Sarah, that today, no matter what it is, if we see lots of people doing it, and our friends are doing it, or our family's doing it, or someone's doing it, and we perceive that as them being rewarded faster than maybe we are, and we lose sight of self, we lose sight of what we're trying to accomplish, it's pretty easy for this phenomenon to affect you. And I think it affects a lot of people, and I don't think it's admitted. A lot of people say, no, no, no, I don't do what my friends do, I don't keep up with the Jones. But if you're around people enough and you listen, you can hear it, and if you happen to visit their home, a lot of times you can see it. So I think it affects people more than they care to admit.

But part of the way you solve it, we're going to talk about, and it's really learning how to focus on you and what you're trying to accomplish, and not keeping up with everyone else. And that includes investment returns, trying to measure someone else's performance or measure an index's performance and think that yours should match that. Really everything about your performance should match what it is that you're trying to accomplish, not all these other factors. So really good, really point there to get us started, Sara. So what's next?

Nothing, just the fear of missing out. It's the behavior, like you just said, huge role investment. As long as markets have existed, sideline investors eventually jump into markets based on FOMO. However, their timing, it's just not ideal. Let's look at, let's pull up the emotional cycle of investing. Now I'm gonna let Phil talk you through this rollercoaster. You'll see what we mean when you're able to see that.

Yeah, and we've been using this picture or this chart for cash. We've changed it a lot. We've changed the art on it, or the graphics of it, but we've been using this thing for twenty years, maybe more. And I think it still holds true today. Maybe it's more important today than ever, particularly in the last eight or ten weeks around this COVID-19 thing, and what it's created in terms of not only a pandemic but in terms of investing in trading and really irrational markets.

So if you just look at this, sort of looks like a roller coaster really. And if you look at the left side, where it says optimism and then excitement and thrill, so the words that are used in this thing that they're building, and we get a little more as we go up in terms of the words. So the idea here, or the emotion that's beginning to occur, it's getting more and more pronounced with each word. And so finally you reach the top, what we call the point of maximum financial risk, is euphoria.

So it used to be said that when everybody's doing it, and this goes back to our herd bias, so when everyone's doing it, that's the feeling of euphoric. And there used to be a joke in our industry, I remember early in my career, it was said that when your taxicab driver is telling you to invest in particular stocks, rest assured that we're probably at a point of euphoria. So I never had that happen. No matter what city I was in, if I was in a cab, I never had that happen. But now you're in an Uber. You know what, if my Uber driver starts telling me, I might question. And I've had some interesting Uber drivers, that's another show.

But when you hit that euphoria, this is when people say, oh my goodness, I've got to get in. This is the classic FOMO. I am, this is it. And you could apply this roller coaster, or this set of words or phrases, what have you, you can apply this to a lot of places in life. Oh my goodness, the sale's almost over, got to go buy it. Or, oh my goodness, they only had one more when my friend bought his, I got to go get one. And so you can apply this in a lot of places as it relates to life.

Then you get anxiety. So now the market, in this case the markets would already have topped, or the buying would have peaked, and so now anxiety sets in. Did I do the right thing? Now it's denial. So all of a sudden what we bought, now it's coming down in price. Oh my goodness, did I do the right thing? And now little fear. It's still coming down, maybe I did the wrong thing. That turns into desperation, panic, and then capitulation. And capitulation is a long-standing word in our industry, or our profession, and it basically means when something turns all of a sudden. It's in one direction, and then 180 degrees later we're moving in another direction in a very, very pronounced way. So capitulation happens anytime we see market reversals.

And then there's despondency, and finally we get to the bottom of the fulcrum, and it's depression. And not to say that our listeners or any of our clients reach that level. I've never seen that, but I think it's because of the education that we provide is to keep him off of this roller-coaster. So, and this will take us into a conversation about planning. That's really what it's all about. It's not about these points of euphoria and then all of a sudden you're depressed. And of course once you pass depression, then you see hope and relief, and we get back to our starting point, which was optimism.

So here's what happens, Sarah, when we talk about FOMO. People, as you just said, they'll dive in. They finally come off the sidelines, and they rarely do it at the right time, and that's because they're following the crowd, and lots of talk, lots of pointless news and pointless online information is driving their emotion, that fear of missing out. And so they want to jump on because they've seen everybody making a fortune, so let me dive in. And so it happens, and then they all of a sudden decide, oh my gosh, get me out, I gotta sell everything, because I think I need to just protect what little bit I have left, at which point the cycle restarts itself.

Yes, you sell it at the bottom, and now you got to wait on it to rise. You buy it at the top, sell it at the bottom. That is a losing game. It's why individual investors rarely outperform professional money managers.

Absolutely. And like you said, FOMO, its key consideration for investors. By investors, though, what we're talking about is not money managers. We mean those that are a carpenter by day, a pharmacist, a doctor, a dentist, a mom, that are calling us in with their highly trained crystal balls saying, I'm an exceptional day trader, here's what I want to buy, here's what so-and-so told me to buy. They've got no history of success in it. It's just the FOMO has hit them. They call us and they say, you know what, I've got to get this in this. Compare that, though, investors to professional investors or money managers who's in the business of managing money. FOMO's the last thing you're gonna find in their playbooks.

That never happened.

No, that's not something. They're looking more at the fundamentals, the economic cycles, stock market cycles, events around the world, so current events, what's going on, what's gonna go on this year.

Well, think about ours, Sarah. If you are a part of our investment committee meetings, which you are, when you think about that, everything that drives our strategies and our portfolios are a couple of things: rules, technicals.

Technicals, yep.

Fundamentals. But those rules basically say, here's what will qualify, and other things, if they don't meet those rules, they're not gonna qualify. So, but we never get FOMO. We don't say, oh my goodness, this stock is running up so high and everybody's doing it, maybe we should. We rely on the fundamentals, we rely on our technical charts, and we rely on what we know to be fact.

Mm-hm.

We don't rely on fear of missing out. And so to your point, professional money managers, it's just not in their playbook. They don't go by gut instinct, they go by fundamentals, and they do something else that I think is so important, and it's one of the tenets of our management, and that is consistency. They consistently do those things over and over. Irrational behavior will never get you success. We're constantly changing your game plan if you don't give it time to work. And if you know you have a good game plan built, you don't give it time to work with subtle adjustments, you're never going to have success.

So I would start by saying, or I guess as we in that chart, that trying to have those words memorized, and make sure when you start getting yourself close to those kind of words, just remind yourself, hey, you know what, We're Talking Money live said take these things and push them to the side. I should not be investing based on this kind of psychology.

And you're right, we've had clients call us and say, I want to buy this, I want to buy that, outside of our purview, if you will, so not something that's in our strategies, but they've heard something. I'll never forget, and this client's deceased, but I'll never forget, a client called me one day and he, Phil, I really want to buy, and he named three tech companies. Now this was back during the tech bubble, or the dot-com bubble, so back in the early 2000s, and he was adamant, had to buy these three stocks. And so I did my best to talk him out of it, because I knew he was doing it for the wrong reasons. All it was really, greed. And that's the emotion that gets kicked in. That's what drives FOMO, is greed, quite frankly.

And so once we decided that he wasn't gonna listen, we bought the stocks, but I asked him, what was your deciding factor? And I'll never forget, been, gosh, 20 years almost, and I'll never forget his answer. He said, a buddy of mine in Atlanta, really smart guy, said that I should buy these stocks. Now the funny part was, I asked him as well, what does your buddy do? Well, he's a mechanic. He builds custom cars. Very wealthy guy, very well-known in that industry. But those stocks that he bought

proceeded to take him down some 70% by the time the dot-com bubble was over. Never in my life have I experienced someone so adamant yet so angry and depressed about the whole thing. So truly he followed that cycle to a tee. He followed it, so definitely the thing not to do.

Absolutely. That's what we're talking about: individual investors, they're not gonna spend time understanding corporate earnings and economic trends and cycles, all those things that affect performance.

Yeah. Example: today earnings in the US are decelerating, and arguably in the first half of 2020 could see significant profit retraction and weak to neutral guidance. However, stocks have rally more than 30 percent off their March lows, and investors seem determined to continue pushing the market higher. That's what they've done over the last several weeks. So we saw it fall 35%, then it rose by 3035 percent, but nothing changed, right?

Right. So the fundamentals didn't change. We still have earnings being written down. We have a lot of companies who are neutral on guidance. Now, long term our confidence is huge. America will dig out of this, the world will dig out of this. We'll get better, we'll be done with the pandemic, and we'll learn from it, and companies will flourish once again. There is no doubt. People have to buy things, people need things, and they're gonna buy, and particularly now with the pent-up demand. In the next few months, maybe as many as four or five months, we're gonna see that gradually pick up. Come the end of this year, beginning of next year, we will see spending at record levels, so companies will rebound.

Right now we have guidance that we don't hear from these companies that we're used to hearing, and yet investors say buy, buy, buy, let's get this before the sale is over. And most of that, Sarah, it's FOMO, and it's been driven by most of the technology. So it's coming in on your smartphone, you're hearing it on CNBC. This wacko named Cramer that rolls up his sleeves and yells at the screen tells you to buy, buy, buy, and it just drives me nuts when I listen to this guy, because if you look at the things that he's talking about, he's wrong 80% of the time. But people watch him because it's so entertaining, and then they make decisions based on that, as opposed to setting goals, building a plan, focusing on that, and not being distracted by what everybody is saying in this cacophony of information that you hear from all these places. It's confusing.

Oh yeah. As a consensus around the firm, everyone's confused at all these reactions happening across the markets. People are taking the bearish or the bullish stance when we're in unprecedented times. How are you gonna say, I'm bullish, we're, let's go, when you have no idea?

Yeah, it's a guess at best. So here we, I've had a number of our clients tell me, man, this market's going sky-high, and then we have others who say, oh my god, the bottom's falling out, should we go to cash? Well, our opinion is you don't do either of those. You don't start buying everything hoping it's going to the moon, and you don't start selling everything hoping that you preserve what you have left. What you do is you trust the fundamentals, you trust your long-range plan, and you look at the markets. I think you made some good notes in our, for our broadcast today, and you look at all the things that our world, our economy, our country has been through for the last hundred years. Great Depression, no recession, two world wars.

Yeah, Korean, Vietnam.

Right, terrorist attacks.

Yeah, still above 8% historically.

Not to mention the pandemics.

Not to mention the pandemics. The Spanish flu, the Hong Kong flu, we had a couple of rounds now of something, of SARS, so in the second one today, and, or this, this year. And so all those things, yet we still managed to average about 8% in the markets. And no, that's not 20 or 30 percent, which is what people would love to have, but let's be real.

Over the last 10 years we've gotten so used to irrational behavior. Today we live in a world where there's no bad that can happen. Either fundamentals are really good and they support rising stock prices, or if things go all to pieces, the Federal Reserve steps in and they create helicopter money and they rescue us. Well, one, you can't have a correction like that, and two, if no one understands that there can be a correction and we constantly save the day, there's a real question becomes, where do you finally pay the price?

And for me, I don't worry about stocks right now or investments. I think long-term they're gonna be just fine. I'll worry more about what our government's doing with trillions of dollars going into this thing, being thrown at it. Is it the right prescription? And I don't know. I don't know if they know. But I do know if we continue to expand our balance sheet in this country, we're running a pretty big risk, and it's not just us, it's around the globe. Every central banker out there is doing it, and that's more concerning to me than the volatility in the stock market.

Right, and someone's gonna have to pay for that.

Yeah, no, that's true. There's no free lunches.

No, no. All right, so how does investing FOMO happen? So we've talked about the emotional cycle, we know that FOMO is very prevalent right now, so how does it happen?

Good question. It's not new, been around for a long time, and FOMO's been around for a long time. We just didn't always call it fear of missing out.

No, that's new. I would like to say the Millennials. I think that is a millennial thing. It came around probably in the last ten years.

So one more of those millennial acronyms. You all live by acronyms. I'm not sure if I really like that, but y'all live by this language of acronyms. We have so many words in our language, I just wish you all would learn them. We have beautiful words in our language with precision, and you all use these stupid act, I mean these acronyms. So, yep.

Yep, right.

So here's how it happens. So these things, they develop over time, and as they develop, it happens something like this. You're watching friends, you're watching family, you're seeing people achieve things that you have somehow decided equal your success. And when you see others doing it, you want it, and pretty soon you get to a point, it's very easy to get your mind into a place, or to let it go into a place, of I deserve that, or I should be there now, or I want to be there now, and so I just need to hurry this thing up. And then you start making moves that others are making, but their situation is, in most cases, vastly different.

Right.

Yet you'll follow them because you think what they're doing is gonna yield you the same results. So I think one of the biggest drivers today, and I think everyone around our firm supports this, I think it's social media in a huge way.

Comparison at the root.

Yeah, yeah. So if you go out and look at social media, there's a couple things. One, you can't unlike something or dislike something, you can only like it, so you can't hate it. And really the only thing on social media, everybody's a sunshine pump. They tell you what you want to hear, they tell you how great they are. In fact, it's been proven most people on social media, their profiles and what you read about them and their pictures, all the things they show you, it's only the perfect setup or the perfect view, if you will, into their world.

Lots of filters.

I think it's very filtered type situation.

It's totally filtered. So you're seeing things, yet those things are not real per se, yet they're very influential. And so all of a sudden you begin to say, I want to be like that person, or I want what they have.

Oh look, they got a new boat, look at them out on the lake in their social media. But you don't know what their financial condition is. Can they really afford that boat, or did they just inherit millions of dollars from their family and that boat's small change to them? Or do they keep their income and their success a little hidden, so maybe they can easily afford the bedroom, whereas when you're around them you feel as though you're on the same page?

Yep, absolutely. And so then you start to measure their accomplishments, their assets, their material possessions, and you somehow get confused that you should have those things sooner. And so you start making bad decisions based on all of this information that probably does not match your goals, your objectives, certainly may not match your ability, at least not at that point. So in my opinion, that's how it starts. And then I think it can become exacerbated. The more that happens, the more we hear it reinforced on commercials, television, we start to, and believe me, once you get something in your mind, the mind's powerful and it becomes your reality. And so then you start making mistakes, and sometimes we'll make the same ones over and over in hopes of getting to that point of success.

Oh yeah. In terms of FOMO, I know everyone, like we've already talked about, all the individual investors, so to speak, they've been getting all of this information, if you should buy this stock or you should do this. I just want to ask the question. I know a lot of our clients have called in with these type situation saying, so-and-so told me we should bind at this, this is gonna skyrocket. Does anybody listening today, what are the stocks that everyone's been telling you to buy? I have my list in my mind of what everyone's called in with, but I just wonder what's out there. So what if your friends and family said, oh my gosh, you have to go get this?

So are they gonna answer that? Are you waiting on to answer some of those questions?

Sure, throw it in the Q&A. I'm just curious if there's anything I haven't already heard.

One of the most interesting things, we're going to talk about this in the next section, but one of the most interesting things about the market right now is that the market is not participating across the board equally, if you will. So a lot of what we see happening now is coming from a few stocks, just a handful of the mega stocks, things like the Amazons and the Facebooks, those types of companies, Netflix. They're driving a lot of this recovery effort. And the rest of the market, say if we talk about the S&P 500, 300 and 400, maybe even 450 stocks really aren't doing a whole lot, and there's 10, 20, 30, maybe 40, 50 stocks that are participating, and then there's about five to ten that are over participating, and they are becoming over weighted simply because they're rallying so much. But it's not 500 stocks that are evenly contributing to the rise in the market.

I think that's a great point. I don't think a lot of people understand that. Some of the things, so these are things that we've heard from clients: oil, cruise lines, airline company. So everyone's getting all this feedback, go buy this, go buy this now. It's just very interesting to see what everyone's pushing you towards, and I would say there's not really a whole lot of surprise in the ones that we've, all these answers that we've gotten today.

No, I think what you hear is it's pretty consistent.

Mm-hmm.

In the news channels, they're gonna talk about the same things, and as certain stocks rise or rally, that's what becomes news, and so people want to talk about that. And then they'll talk about all the losers here and there. But really, people get all this information and then they think, okay, well, if that's what I'm hearing about, I probably should invest in that. That can create a part of FOMO, or a level of FOMO.

And I think the other thing, if we go back to, one thing that probably should be mentioned here is, we go back to 2010, really 2008, when we went through the Great Recession, as it's called. There was a lot of investors who finally fled the markets, went on the sidelines, and they were so fearful.

Mm-hmm.

That getting back into any kind of investment, that was a foreign concept to them. They weren't gonna do it.

Right.

And so let's stay on the sidelines. Well, inevitably what goes down goes up, and inevitably the markets began to recover. And as they did, over the last 10 years we've seen some very, very solid performance. Now, why it's been solid, there's lots of debate about that, but it's been solid nonetheless. And a lot of those folks are still on the sidelines, and over the last several years we've begun to hear this tone, or sort of this thought, that not gonna let that happen to me again.

Right.

Yep. And so now they're seeing this as, wait a minute, maybe this is my chance. The markets just fell 35 percent, some sectors fell 55 percent. Energy, for example, was down well over 50 percent. So now they're saying, all right, I'm vowing not to let that happen to me again, what happened in 2008.

Right.

I'm gonna get in. And so now we have computer trading driving the markets up, and now we have individual investors beginning to follow that. And I think that is part, and we'll talk about that in a minute, but that's part of what's driving the markets right now. So it's an evolutionary process, if you will, but not necessarily a

Good one, right? So let's talk about how you can avoid or reduce FOMO.

Absolutely. Obviously one of our answers is gonna be develop a financial plan, stick to the long term. I feel like everything that we talked about, all the bad can usually be solved by sticking to your financial plan. So following those rules, following consistently what you've set up or what your adviser set up, that's really gonna prevent you from having FOMO because you're focused on your personal goal, so your personal return, rather than, oh my god, the market did this or my best and did this or my parents did this or my siblings did this. You're really focused on yourself, which is what it really should be.

Well, we plan around something that we call a family index number or a personalized index number versus the S&P 500 or versus the market. And the reason we do that is because not everybody should be in the market, not everybody should be fully invested in stocks, and not everybody needs a twelve percent or ten percent or 20 percent return. Some of our clients, their index is four and five percent because they've done a very good job of saving and they've stuck to a plan for the last ten, twenty, thirty years. And so their index might be much lower than another client.

Absolutely, and that's what they focus on as opposed to saying, well, I want the returns of the index. And I think there is a fallacy, it isn't talked about enough. You shouldn't be batting for the fences necessarily if that's not what you need to accomplish or if that's not what you need to accomplish your goals.

So one of the things that I like to think about in our points, Sarah, is be grateful for what you have. Think about how your life is today. It's probably better than you might imagine, but because we get so focused on the desire to have more, and the desire to have more typically comes from great marketing and friends, family and all those around us. So the news, the media, those things remind us all the time, well gosh, I think I need that, or let's buy this. But I think sometimes just stepping back and saying, well, you know what, I actually have a pretty darn good life, and we're blessed, we're richer than most nations around the world, and maybe we should stop wanting so much and focus on that a little bit. And then focus on what we're trying to accomplish tomorrow and how do we want to improve what we have today for the next phase of our life. And if you can think that way, you tend to stay focused more on a plan versus always making these impetuous decisions to hurry up and do something to keep with someone else.

Absolutely, and that goes into our next one of how to avoid, is just realize social media and take it for what it is. It's everyone's high points, it's not really gonna be their low points, although recently it's become trendy to post your bad stuff too. Congratulations, nobody really wants to know all about your life like the Hat. But realize what social media is. It's just a tool for everyone to share themselves with others. It may not be realistic.

Take time away from social media. So a lot of the psychologists that have looked into FOMO and how much it's really penetrated our life recently say take a break from social media. So if you're on your Instagram, on your Facebook, limit your time there, because you're absorbing what you see no matter why. You could skim over and say, ah, that doesn't bother me, it may look like everyone's doing better than me but I don't care. Everyone cares, everyone's human, it's gonna affect you no matter what. So you're gonna absorb everything that you see, but just take breaks from it and you'll realize how much better it is to not constantly be fed all of that information.

Yeah, Natalie says this all the time, that particularly people all over social media, they love to comment on everybody else's life, I'll tell you how great theirs is, but the end of the day their life is rarely as grand and perfect as they promote on social media. That is truly a perception that they want to deliver, and it's rarely true. But I think people need to clean their own front porch, as she says a lot, versus always trying to influence the front porch of others. Get your own cleaned up, because probably it could use some cleaning.

So it's a very interesting time where we're in this big win mindset and we can't seem to get ourselves out of that. I think it's because we've reached this point in our country, in the world really, it's instant gratification at the highest level. We can have anything we want. Even in this pandemic, when we have this proverbial closing, you can still order things and literally it shows up from Amazon the next day or two days, whatever. Instant gratification, I definitely believe, fueled a lot of this and continues to fuel it.

But there's one other thing that, when you talk about focusing on the long term, Sarah, I want to bring this into our conversation, because I know we're running out of time, but there's the old theory of day trading and trying to track all of this stuff and trying to pick the winners. One of the things that I wrote for my part of our show today was building wealth over the long term. It ignores day trading in the futile fight over the next big one. And that trying to pick a needle out of a haystack mentality, it never goes out of style, right? But it's so hard to accomplish. So we like to think of it more of buy the haystack. So a diversified portfolio, a non correlating portfolio, buy the right things but spread your risk. Don't try to pick a needle from a haystack, because rarely will you find the needle, and a lot of times you'll think you found it and realize that you didn't.

Right.

So one more part to that long-term argument, and I think sometimes we need to remind listeners: get away from the day trading thing. Rarely does day trading make a lot of winners, but it definitely makes a lot of losers. I read more stories about people going broke from day trading than I read about people becoming wealthy through day trading. It's just not something that happens on a regular basis.

For sure. So the money that you're using to speculate or to buy those type of stocks, you want to do it with no more money than what you're willing to lose.

Yeah.

You're gambling, just straight out, you're gambling if you're going to do day trading. You're just risking it all. So make sure that if you are going to do some self-directed accounts, know that, just consider that money lost.

Yeah, yes there is, right. I agree more, and that to me is about as close to gambling as it gets. And so building strategies that have a rhyme or a reason to them, and they have a period or a term by which we're going to implement that plan, and we have a number of years to let that plan do its thing, and with some adjustments, you have a greater chance of being successful versus saying, oh wow, there's the next big one, let me grab that. That's about as close to gambling as you get.

Absolutely. If you love to gamble, take that money and put in the stock market account and do it. But yeah, don't expect your advisor that's done it forever to listen to your stock picks. I think everyone respects, okay, so this client really feels like they really love this stock, it gives us an opportunity to educate, but we're probably not going to take your advice. Just like I wouldn't expect my dentist to listen to what I tell him to do, because he's so much more educated every day.

No, such a great point, Sarah. And while we'll listen to our clients, we always want to hear what they say because it helps us understand how they're thinking, but we're not gonna simply take their stock pick and throw it into our strategies. We might look at it, we might check the fundamentals on it, and we might say, wow, you know what, there's something here. But there's a reason why it doesn't make it to our buy list, and that's not because it's necessarily a bad stock, but it's because it doesn't meet the stringent requirements that we apply in our filters to get a stock to actually show up on our list of buys or sells. So, and if it doesn't meet them, it's naturally going to the sell list. But for it to become a buy in our book, it has to meet a lot of rules, has to pass the test, so to speak, and if it doesn't, then you're right, we're not gonna listen to that.

So I think it's interesting that the more emotional people become, or the more emotional the event, the less sensible we become. We're humans, we all do it.

Yeah, last eight weeks has proven that.

Yeah, and I think we've kind of gone crazy and it's showing, but things will get better. So what's our last question of the day, just to sum it up? How do we feel as an office, and I know this belet's the answer, do you think FOMO is to blame for higher stock prices? Let's tell our listeners what we think about that.

Yeah, it's a good question. I would probably answer that partially. I'd say that we're not a hundred percent in the camp that it's FOMO, but I would also say, I would add to that saying that yes, I think it's a big big part. So partially and in a big way.

If you look at investors today, they're ignoring fundamentals. You talked about that earlier. They're just simply buying because it sounds like the right thing to do. So that's one thing. If you look at the market, it's been good for the last ten years. For it to be bad, or for that bull market to end, it just seems obnoxious. Everyone just thinks, oh my god, no, that can't be. Well, of course it is. That's why we have something called corrections.

So if a correction can't occur without the government flocking to our rescue, then how is it a correction? A correction means that something changed and we had to deal with it, and then as a result there's a rebuilding. Well, we're having a correction economically, but our government's trying to lift that and keep it from occurring. And so I think you're working against the natural forces of an efficient market.

Right, so the natural cycle is being toyed with.

Yeah, well, let's look at a couple. Take Bitcoin, for example. Here we have all these rescue packages out there, but let's just get down to the brass tacks of it. Bitcoin, that stock or that equity, was trading at over $20,000 per share. I got a lot of media hype, unbelievable. I had clients calling me left and right saying, Phil, don't we need to buy some Bitcoin? Well, how do you measure it? Number one, that's not a legitimate currency, but there's a lot of hype, a lot of FOMO there. So now that very security that was trading over twenty thousand dollars per share trades at about ten thousand today. It has been slashed by fifty percent. But people drove it to those prices, no basis for why it was going there, no valuations that supported it, but they did it anyway. So I think FOMO was a culprit.

Let's take another one. Let's take Amazon. Who on our call today, or any of our listeners, who would pay a hundred and sixteen dollars to buy one dollar of earnings?

Hard pass.

Amazon is a great company, don't get me wrong. Jeff Bezos has built something unlike any other, and I do believe that long term it'll continue to pay some big big growth dividends, if you will. They don't pay a dividend, but it will grow. But today that stock trades at a hundred sixteen times earnings. Now that means that for you to get one dollar of earnings, you pay one hundred and sixteen dollars for that dollar. You better hope it grows. You need that stock price to rally, and rally hard. I remember when that stock traded in the low hundreds, and we recommended it when it was as much as seven hundred, but then we started losing faith in it, not because we didn't think it would go up, but because it was just way outside of what we believed to be value.

And then take Tesla. Here's another perfect example. Tesla doesn't have a price to earnings multiple. Why? They're not profitable, they don't make any money yet. Yet that stock trades today at what, eight hundred dollars per share, and it's run to that level literally in the last few months. It's gone from three, four hundred dollars over the last year to eight hundred, and they have no earnings. You can't measure a stock that has no earnings. So here's a price divided by earnings. You can't justify eight hundred a share, but it's there, and they don't make any money. I think FOMO has a lot to do with that. They hype it, it's marketed the right way, and all of that drives people's decisions. Because what is Tesla? It's safe for the environment, it's electric cars, and Elon Musk, he's gonna take us to the moon.

And they're very cool.

Oh, they're just there help. So yeah, I think to answer your question, 100%, I think FOMO is driving a lot of this market, and I don't think it's gonna change until we see the second wave of the correction. And I think in second quarter we're gonna hear earnings that are drastically lower, we're gonna hear guidance that's different than

what we're used to hearing. And so at least for the next few quarters, I think volatility remains high, and I think we're probably gonna see some sell offs that I believe will present some good opportunity. But I don't think this is the time to rush and follow the FOMO emotion and hurry it up. I think now is the time to step back, be prudent, be vigilant, follow a plan and listen to your advisory counsel so that you can make good plausible decisions, not irrational type of reactionary decisions.

Right, and just to sum it up, I know we've said a lot about individual investors, but if you do have an idea of a stock you and a buyer someone's told you, do call us. Do call us, we want to talk to you about it. We either want to talk you off that ledge and give you reasons why, okay, maybe this stock's very overvalued, or just like Phil said, Tesla, they're not profitable, we're gonna stray away from it. Or maybe we say, you know what, that's a good idea, use that for your gambling money. But talk to us about it. Make sure that you're talking to the right people about it.

Yeah, no better point than that. I think when you're about to make decisions like that, part of having a planning partner or a wealth management firm on your side is being able to go through those things and having the ability to analyze that data and then tell you, does this work in your situation, does it work for your long-range plan, or should you ignore the hype and these desire to do these things? And so I think the fear of missing out, it affects all of us. So everyone watching today, anyone listening, it affects you. It affects everybody. If you're human, it affects you. But I think the phenomenon as much as it can of a invade your life and cause you to make decisions that ordinarily would not seem logical, which can lead to disaster.

Yeah, I think you have to be very reluctant to submit to those things. You have to have a plan. You need a good developed plan. You need a working wealth advisory firm that can help you make better decisions, to Sarah's point, and you have to stick to a long-term plan that's based on fundamentals, own reality, things that are boring. They're never gonna get you bragging rights around your office or around your group of friends at the Country Club. Not gonna create bragging rights, because the strategies that we talked about, they're not designed to bat at the fences. They're designed to make base hits and get you where you are trying to go in a predictable way. And I think that level of thinking, that way of thinking and planning in such a way helps eliminate

Absolutely, absolutely. All right, well, we will wrap it up. Thank you so much for joining today. We will have the recipe post on Instagram, don't forget to follow us on there, and we will see you next Wednesday.

That's awesome, Sarah. Thanks, everybody. Next week.