Apr 4, 2018
Hi everyone, welcome to another wealthy and wise Wednesday on a day that the market is dropping again, well maybe not the day you actually listen to this or watch this podcast or video but the day that I am recording it, we got another six or seven hundred point drop off, this is supposedly because of China's retaliation to Trump's tariffs on aluminum and things like that we export to them. You know I am just not a fan of tariffs altogether, it basically picks and choose industries that are [00:00:57] or help them. It is just not good for anybody, you know when we have to pay an extra tariff, that is the money that we could have spent somewhere else. So if I am paying a tariff for a particular product an iPhone let's say and I am paying an extra fifty or a hundred or two hundred dollars for that because of the tariff. Well, that is another fifty or two hundred dollars that I could have been spending on some other goods, some other manufacture goods that I could be helping them out. So tariffs really don't help, there is a really good book on this by the way. If you want to take a second, his name is Henry [00:01:35] he wrote this years ago and I remember reading this several years ago, it is called economics in one simple lesson and just read through that and you will kind of get an idea that tariffs really don't help us at all. [00:01:49] but that is what supposedly driving this market down again today because a lot of our manufacturers are going to be punished for the tariffs that China have just now raised and again in retaliation to what Trump is doing. I wish we would just leave the economics alone, somehow the economic will always figure out a way, it will always let the winners be winners and the losers unfortunately be the losers. That is just exactly how the economy should work, we shouldn't be protecting any one company or helping anyone company. It should be by the merits of that company's products or services that help them become successful or not. [00:02:33] anyway that is maybe a little more economic and politically minded than we need to be. But read that book and it gives you a better sense of how the economy works and why tariffs really don't help any of us in the long run. But every time the market drops, I seem to get a few panic emails or phone calls or some kind of indication that people are really nervous and they don't know what to do and I find that when I get those calls or those conversations, it is because of really one thing, these people think they are investors or maybe they really aren't. So let's talk about the three types of, we will call them investors, so we have got traders, speculators, and then what I call real investors. So what does a traders do, how do they take their money and make it work? Well they basically tend to buy and sell very quickly and quickly to one trader from another, might mean minutes, might mean seconds, might be days, might be you know a month or two or even maybe a year but the idea is that they are trading that stock for instance and they mainly go off their charts and momentum and [00:04:03] and moving averages and what they are trying to do is that they are looking at opportunities where something has either gotten cheap for some reason and they can buy it at a quick profit and watch it ride up but they are very trader oriented, meaning they are not looking at the company as a company. They are looking at it as a stock or investment, as something that they can make a quick buck off it. There are lot of traders and there are probably more traders out there now than ever before and what telltale sign as to whether or not this market might be tapping out is how many trading advertisement and enticement do you get on a daily basis. [00:04:59] In fact, I was listening the other day to a radio and this happens in L.A, well actually should say up to L.A 06,07 where trading company were opening oh, let us teach you how to trade. In fact, you can even trade off our money and we will show you how to reach charts and graphs and suddenly you become a trader. Well those are the first people to go when the market crash, because they realize that trading is a momentum play and as long as the momentum in your favor, you are going to usually do okay but momentum goes against you pretty quickly when market starts to sell-off. [00:05:39] the next thing we have here are speculators and this is probably the vast majority of the American public, because the speculator kind of think they are investors, they are not looking to trade, they are not running off with charts and graphs. What they are really doing is that they are typically buying into mutual funds, maybe into stocks or bonds but they are doing it on a regular basis. They don't really know what they are buying, they might be using an advisor who is telling them to buy XYZ fund and they are just investing, speculating and they really don't know what they are buying. So here is a little quiz for you, let’s suppose you have a 401K and in that 401K you have got some mutual funds, if I will ask you, number one what mutual funds do you have, that might be a difficult question to answer but if I asked you what stocks or what companies do the mutual funds owned or even the top five or top ten companies that they owned. That would probably be an even more difficult questions to answer. Most people who think they are investors have no idea what they have invested in, they don't know why the mutual funds company bought it, they don't know anything about the fundamentals of the company, they are just simply speculating, that this mutual fund manager, this financial advisor that they know what they are doing and they are going to protect you from harms when the day comes. [00:07:20] and that never happened by the way. In fact, most mutual funds by prospective, in other words by their bye-laws, they have to stay as much as 80, 85, 90% invested at all times no matter what the markets are doing. So you might want to find that out as well. Can your mutual funds, you know sell off and pulling the cash and wait for brighter days? Most of them can't again because you are paying them to invest the money not to sitting cash. So what I call the investing public are really speculators, they are hoping that historically because the market gone up x% that they were to and so they speculate and they put in to these investments that they may or may not go up and the main thing is that they have no idea what the company is that they are buying or why. [00:08:23] Now, contrast that with an investor, what an investor does is they really, they understand the company, they understand the number and they understand the company's revenue and cash flow and frequent cash flow debts, and all of the things that make a company you know successful and not successful by understanding the numbers, they understand the products they sell, they understand the market they sell and they understand who their competition is and they have done a lot of research to make sure that this is a kind of company that they want to own because if you do it as an investor, what just you know one of the greatest investor of all time have said it, you know. Who knows how many times on this podcast and video, but you know Warren Buffet have really given us the model investing formula and the first thing he does is he says well, I want to understand this company, I want to make sure, I know what they are doing, what they selling, I like the product, I feel comfortable with product, I mean that is just first and foremost. He wants to be able to understand the company, if he doesn't understand it, he walks away. They he wants to understand the numbers and their profit, their projections, their revenues and cash flow and all the different things that goes into the numbers then you are an investor. [00:09:43] so here is another example for you, have you ever watched shark tank? So you know shark tank, got those five sharks up there and they are grueling this business owner as to what they do and the numbers and the revenues and all the projections because they want to make sure that before they do any investing that this company have a pretty good chance of being successful and the first thing you will hear often is you know I just don't even like what you are doing, I am out or I don't get it I am out. So they are kind of taking Warren Buffet philosophy right from the start, if they don't like it, don't get it, don't understand it or you know any of their products or services. They are just out immediately, then it is all about the numbers, you know what were your sale last year, what kind of revenue do you project? And then it became a negotiation as to the value of the company and then the price they are willing to pay. That is an investor and I find when this market start dropping like this, the two types of quote, unquote investors that are panicking are typically traders and speculators. Because they don't know why they bought the companies, they don't understand the numbers and they don't know how to live through some sort of sell off and actually take advantage of it and think of it more as an opportunity to buy more of their favorite company that they love because they don't understand or they know what they have even bought into. [00:11:30] so here we go, I got another market drop, how you are even feeling about it, how you are nervous, do you have any idea of what you own, do you know why you owned it, do you know if this company is something that you really like, appreciate, maybe buy, maybe buy their products or is it just something that you let financial advisors and mutual funds buy and you hope that it is something that you like. You know a lot of people out there want to feel good about where they are investing the money, you know you may be very pro-something or very con-something and you may own something that you have a moral hatred towards. Whatever that might be, [00:12:23] buy companies that you know make things with sugar. Alright, well that is because they think sugar is killing off their kids, who knows? Other maybe that is gambling or cigarettes or alcohol or medical devices or whatever that you know maybe you have a moral opposition towards but you might own them. It is always interesting to kind of go through that with people to see what they actually own and say oh my Gosh, I didn't know I was investing in the company like that and maybe from a moral perspective, you don't care what you own as long as it makes money and I am not trying to pass any kind of judgement here, all I am saying is that if there are companies that you are not necessarily wanted to help and support and you own them, you are kind of indirectly helping and supporting them. [00:13:25] so take a look at that but again in this market, when they are dropping off, it is a good time, it is actually a better time to have done this many months ago before this market started dropping to see if you are owning what you think is important to you, what you like and are the numbers making sense. There comes a time with almost any good companies out there that they get overpriced. There is a difference between values and price and you need to understand that, what is the actual value this company and where is the pricing relationship to its value. Is it overpriced, is it underpriced? And again using Warren Buffet philosophy, we want to buy in when it is underpriced. When market is irrational and they sold off way more than they should have. The values up here, the prices down here, we understand the company that makes you a good investor and it is not that hard, I probably make this more complicated than it should be but it is really not that hard, it takes a little bit of understanding, little bit of education but you can literally become a very good investor. [00:14:40] so here we are, market is dropping, how do you feel? Take a quick step back, reevaluate, are you a trader, are you a speculator or are you an investor? And a lot of time when I see investors right now, they are hoarding cash. Warren Buffet has a hundred and five hundred and ten billion dollars in cash right now. He sees no values in this market and he is not buying a whole lot of stuff and that tells me that as an investor, he is being very patient. He is probably going to be the guy who is buying in like crazy if and when this market has a significant drop. So think about that, maybe it is time to be just packing away the capital and putting away enough so that when the time is right, you truly can be a good investor. [00:15:37] Now there is a fourth type of investor that we really are to include in this discussion as well and that is those that just want to get out of traffic. If you recall several weeks ago, I did a podcast and video on getting out of traffic. Wall Street and financial advisor just want you constantly in the middle of traffic with all these oncoming risks of market risk and inflation and interest rate and risk and all the different things and every time you try to get on the sidewalk, they are pushing you back into the middle of the road. Well there are times and this might be I don't know 5, 10 years away from retirement where you just want to be out of traffic, you just want to make sure you have got plenty of assets and that those assets are going to be there when you retire and that those assets can produce some income for you as well and you just want out of traffic, you don't want to take the market risk, you don't necessarily want to be studying the market and figuring out what you should invest in, it is just time for you to kind of take a breather, sit back protect the pile of money that you have got and not worry about it again. And that type of investor is certainly someone that it makes a lot of sense especially when again you are five or ten years from retirement and you want to protect that capital and those are really things where we can help because we have got some great strategies for helping people protect their capital and then produce an income that they really can't outlive. [00:17:22] so if you have some question on that be sure to shoot me an email as well. But you don't always have to be a speculator, you don't always have to be a trader, in fact, you don't even always have to be an investor and you can protect your money, in fact, with some of these thing out there, you can go up with the market and participate on the upside but you never have to take a loss if the market goes down and believe me there is a lot of people who likes that idea right now, especially as they are seeing 401K and IRA and different investments dropping with this market condition. So it is certainly a consideration if you are getting close to retirement or again if you just want out of traffic. So that is it for this week, any other questions, make sure you shot them to questions@wisemoneytools.com. Answer them just as quickly as we can, any suggestion on features, podcast and videos, I will be happy to take those suggestions as well. Alright well you have a great week and until next week take care.