478 | 2024 Investing Update | Brian Feroldi

27:00Yeah. Good candidates, the perfect way of putting it. And yeah, every person's going to be different. But yeah, I like that. And I like also how that stat ties with David Gardner, who we mentioned before, right? You said S &P 500 on a one-year period, 68%. So that's, yeah, that's pretty darn close. I like that. All right. So let's talk about what we're doing. So 2024, I think people are interested, right? Just in, Hey, what are Brad and Brian doing with their own personal finances? What are they doing with their investments? Has anything changed? Where are you in terms of, has your portfolio changed in any meaningful way?

27:38Where's new money going? What are you thinking about moving forward? So 2023 was a very profitable year for me. My portfolio returned 40 % overall, which sounds great until you realize that that was after the bludgeoning I took in 2022 when my portfolio fell 49%. So I'm still not back to the absolute bubble peaks, but it was a good recovery. But despite the fact that I think I'm known for buying individual stocks, I am not a very active investor at all. I make a handful of trades each year, buying a handful of new positions and selling a handful of new positions that I think I no longer have faith are going to work out.

28:20So 2023 was a year of very low activity for me. And this is when it gets into being the benefit of the stock market. The number one thing I did to improve my wealth in 2023 was nothing. I didn't sell. And that was the most profitable thing that I did all year long. So my personal investing philosophy is I think of my personal finances and my investing finances as two different buckets. And I basically view them with completely different mindsets. My personal finances are hyper conservative, hyper conservative, zero debt, paid off house, six plus months of emergency fund in just cash, earning whatever the interest rates are of the time.

29:03So that is my personal finances, extremely conservative. My investments are effectively 100 % stocks and 0 % bonds at this point. And they have been for years because I don't need that money to pay for my personal life. I use the income from my business and the income from my assets to pay for my life. My wife and I are both still working. So that is the way that I have structured my portfolio. And what do I plan on doing in 2024? More of that. Effectively, keep running the playbook that I have, knowing full well that we might be at a market peak right now. 2024 might be a great year for the markets.

29:41I have no clue what's going to happen next. But I am fairly confident that 10 years from now and 20 years from now, the markets will continue to hit new all-time highs. And I believe that keeping the majority of my wealth in the stock market is the best way for me to continue to compound my wealth. Sounds about right. So when you said 100 % stocks, that includes certainly a significant amount of index funds. You're lumping that all together, right? Just for clarity. Absolutely. Yes. So all of my retirement accounts, so IRAs, 401ks, Roths, those are all just index funds purely for simplicity. And then all of my personal and my taxable accounts, all of that is in individual stocks.

30:22Gotcha. Okay. I know we've had people like Carl Jensen, Mr. 1500, come on and talk about this as well, where for him, I don't think it's as much a sense of like your investing checklist that you've talked about in the past and how you are constantly readdressing it. I think when he's considering selling some of his high flying tech stocks, and it's certainly not just Tesla, It's more just a sense of not that I got lucky necessarily, but okay, this obviously worked out better than the average stock market return. I feel like I'm to the good on this. I'd like to consider liquidating some of this position and maybe buying some more total stock market or S &P 500 index fund type thing.

31:07So I think that might be different than your more rigorous analysis of the checklist. And maybe you can give a high level overview or we can reference the episode where you talked about that on choose a five. But I guess my succinct question to you is, do you consider ever selling just based on, Hey, this has worked out way better than I could have ever imagined. Like I'm so far to the good. Maybe I should consider paring back some of this, or is it purely okay? okay, if the thesis still holds, then I'm going to keep on rock and rolling with X, with Tesla or whatever the company is. Yeah. Selling in general, I find to be many multiples harder than buying.

31:51Buying is a pretty binary decision. Does it meet my criteria? Does it not? Am I interested in this company? Is it not? Do I think this company can go up or does it not? When it comes to selling, that is a much harder thing to do because you're selling based on information that you had. Either you've bought a stock and it's made you money, in which case it's up, or you've bought a stock and it's lost you money. And in both cases, it can be really tempting to sell your winners and buy more of your losers. Because if you liked a stock at 10, and now that stock's at five, well, isn't that cheaper?

32:25Peter Lynch calls that very thing, selling your winners and buying more of your losers, cutting your flowers and watering your weeds. And with so many things about proper investing, what your natural inclination to do is exactly wrong. So I have historically done better by selling my losers and using those to buy more of my winners, which is very mentally challenging to do. Because if you bought a stock at 10 and now it's at 30, it's really hard to put new money in that company at 30, even if that is the smarter thing to do. And when I look back at some of the best investments that I've made, many times they were adding to stocks that were already up huge for me and those winners went on to keep on winning.

33:17Having said that, I do think there are a couple of reasons when it's okay to to sell, just to put them in a couple of broad categories. Number one reason I sell is I was wrong. So I bought our stock for ABC reasons. They didn't pan out at all. And I was just flat out wrong about the analysis of the company. So if your thesis for a company changes, it's perfectly okay to say, I got that one wrong and sell. Another reason is there can be emotional reasons when it can be a good time to sell. If you're losing sleep because a stock is up so much and it's become a big part of your portfolio, that is a really good reason to want to sell a stock.

33:59It has to pass for me the sleep well at night test. If I'm thinking about I have too much in one stock, it's not worth continuing to hold that even if it goes up from there because that would be affecting my life in a negative way. Another bucket of reasons that I sell are related to taxes. So sometimes there can be tax advantages to selling losers, right? You get to take that off of your adjusted income at tax time, or it can offset the games of winners. And then my absolute favorite reason to sell, Brad, has to do with the reason I invested in the first place, which was I want to use that money to fund something in my everyday life.

34:39In 2017, I actually sold a big chunk of my stocks and we used that capital to pay off our house. financially speaking, that was stupid because the market is up substantially since 2017. And I was using it to pay off a very low interest rate. Emotionally, I would do it again in a heartbeat because now I don't have a mortgage to my name and money is no longer automatically being sucked out of my checking account on the first of a month. And there's nothing that can happen to me that would cause me and my family to get kicked out of our house. So that to me is a great reason to sell when you want to use the money that you invested for your personal life.

35:17And this gets back to Bill Perkins' whole die with zero thing, which has had a tremendous influence on my money psychology over the last couple of years. So your money and your investments are designed to give you a better life. So if giving you a better life includes selling to go on a vacation or buy something that you want or pay down debt. I personally believe that is a very good use of capital, irregardless of what the math says. Yeah, I like that. I think that's really important. And money is there to give you a better life. I mean, that's just a beautiful quote. And I also enjoy how you're so ultra conservative when it comes to personal finance, which is great, but yet you're somewhat aggressive.

36:05I think when it comes to your investing life and they both work together, you might not even conceptualize yourself as aggressive. Maybe I'm putting words in your mouth, but with high flying individual stocks and the likes of Tesla, et cetera, like they can work in tandem and like it actually affords you more opportunity to be so conservative in your personal life. Like you said, your mortgage is paid off. You and your wife are both still earning income. On some level, that can almost be, and I suspect very strongly, you are still saving money based on those incomes and your life expenses. So it's certainly more than a cost-fi.

36:42But even if you wanted to just look at it as, hey, we're just bringing in exactly what our lives cost, all that significant net worth that you have, which probably almost by any definition puts you at traditional financial independence or FATFI, that's just compounding and growing in the background while you're covering your life expenses with your current income. I mean, Brian, that's about as close to bulletproof as you can come up with, right? Let's hope, unless the market falls 99%. Unless Robert Kiyosaki is right, then I could be in a world of hurt. But yeah, absolutely. There are things that I could have done differently that would have resulted in a higher net worth.

37:20But if it would require more stress along the way or less life satisfaction along the way. That to me is a trade-off that I'm perfectly happy with. Yeah. And that sleep well at night test. That's an important one. I mean, I use that in so many aspects of my life. It's just, it's not worth the dot, dot, dot. And it's essentially waking up in the middle of the night, stressing about anything. Like I even, I think about that in terms of just little aspects of my life that how can I cut this out? because if one day a year, the annoyance of something is keeping me up at night, or I'm stressing about it, or there's some potential, it's just, it isn't worth it.

37:55It's just not worth it. So I think my entire operating system is stress mitigation. So I'm glad that you, you think similarly there. So, you know, you mentioned Bill Perkins and I was zero. So that's something that, I mean, you know, from listening to choose a buy that I've talked about dozens upon dozens of times on this podcast. People are probably almost sick and tired of hearing about it at this point. But I think it's just such an important rethink on how we look at the evolution of our financial lives, right? Because let's be clear, our financial lives do evolve. And the place where you are now, where I am now, it's different than it was 10 years ago.

38:34It's different than it was 15 years ago before I had kids. And I think that's okay. That's part of the FI journey is it is going to evolve. It just is. And I'm curious how that book and that mindset, more importantly than the book, but the mindset has really impacted you in a nuts and bolts way. The biggest thing that book did for me is it opened my eyes to the idea that there are certain seasons in our lives when we will do certain things. And it's really important to take advantage of the energy levels and the situation while it exists. I personally have never been backpacking through Europe.

39:13I have many friends that did that when they were in college or right out of college. And backpacking through Europe sounds fun until I get to the whole, I have to stay at hostels thing and live a lifestyle like that. Not to mention the fact that I now have kids that are elementary slash middle school age and the logistics of that would just be extremely hard. So the opportunity to do that, to backpack through Europe for me is effectively over. I could certainly visit Europe, but I wouldn't be backpacking through it for months given what I have in life. And I look back on that now with a little tinge of regret that that is something that I had the opportunity to do, but did not do.

39:53So when I'm thinking about my life today, I'm 41 years old. I really want to take my kids to Japan at some point in our lives. And it's been something I've been thinking about for a couple of years. And when I've always thought it's been like, oh yeah, that'll be something we do like in the way distant future. But I'm now more thinking, nope, that's something I need to actually think about doing in the next like two to three years while they're at the right age for doing so. Even if financially it's extremely expensive for me to do so, and it'd be easier for me to do that financially 10 or 20 years from now.

40:29It's just the opportunity cost to get back to that of my kids are a certain age. It's the right time to do that. And I really want to pull forward many of those experiences that I want to have with them, even if it's more money than I would normally spend to do so, because there's just a certain season in my life that is a time to do that. So that was the real big thing that that book did for me. It completely shifted the idea of saving the big experiences for quote unquote retirement, but I have far less energy than I do today. Yeah. I like that seasons of life. I think that is important. And that was also what I was alluding to at the outset of even asking you about Diva Zero, right?

41:05It's like, there's seasons of life, there's seasons of five, there's seasons of every aspect of our life and things are going to change. And yeah, like I could push back on your, your backpacking and say like, well, yeah, you could still backpack. You just, you don't have to stay at hostels, but the point is well taken that it's a very different trip than, cause I did that. So when I was 22, just graduated college, I went backpacking for, it was a short time. It was like four or five weeks with my brother. and yeah, we did the hustle thing and it was awesome. And those were memories that last a lifetime.

41:35Right. But like, could I do that now at 44? Yeah. But I mean, I'm not going to want to, but I could still say it at hotels or something like that and, and still get the essence of it, but it's a very, it is a very different trip. So yeah, I mean, I think it's almost similar to like the stoicism, the memento mori, which is, you know, remember death, which is some of these things sound kind of negative or morbid when you just on the face of them, which is like, Hey, I'm going to die someday. Or, Hey, my kids are going to grow up and be out of the house and not out of my life, but out of my day-to-day life.

42:11And while I think there's the initial quick hit thought of that is, wow, that's really sad. Like that's, that's awful. I think what it actually does is say, man, I have to maximize this. I really need to hold on to every day. And I mean, Brian, no kidding. I have every day I open up notepad on my, I have just a PC. So notepad opens and I have a countdown for the days until each of my daughters graduates high school. And I literally update it every single day. And it's like a very visceral way of seeing like, wow, this time is finite. Cause you think about how fast a week goes, seven days, 30 days a month, like they just zip by.

42:49And I mean, this countdown is happening. And what it does for me is it says, I need to really enjoy this season with them because once they go to college, it's a very different season of life. So again, on the face of it, that might sound like a morbid thing, but it's not at all. It's really proven to be something very, very useful for me. I love that. That is a great idea. I remember growing up, we had a countdown timer to the year 2000. That was like something that we just like had in the, in the middle of the house to like, you know, see when the millennium was coming. It's a great idea to do that exact same thing, but for your kids graduating high school.

43:22element. So yeah, I do it in a very manual way. There's probably somebody's yelling at the screen saying, Brad, you need to have some, uh, some app on your desktop that has this. I'm sure there's, if you have it, send it into me feedback at choose a buy.com. I'd love to, uh, to find that, but you know, Brian, just going back one thing you said in passing. So you were talking about Kiyosaki and you're talking about ultimately like do rich people think differently. And I think in a very positive way, like the millionaire next door, the five millionaire next door does think very differently. And I think that's, we've cataloged that.

43:56That's a wonderful thing. I think one aspect of investing that I find really vexing, let's say, or like people get caught up on is that there's some secret. There's some like investment behind the veil that when you get to a$4 million net worth, like the club lets you in on and it's unicorns and Ramos from here on out. Like I'm kind of setting this up in a, in a silly way, but like, Hey, do you hear people talk about that and talk about like some secret investing or like hedge funds? Or I can vividly remember one of my coworkers who is a boss of mine talking about, like, it was like his life goal to invest in a hedge fund, to be wealthy enough.

44:39And I'm like, Oh wow. That's just like, you just want affirmation. You don't actually want to be wealthy. You want to tell your neighbor or the guy at the country club that you're investing in a hedge fund. That's solely what it was. I guess the short way of asking the question is, what do you think when people say that? Because undoubtedly, you've heard people talk about, oh, well, rich people get access to this, or, oh, when I'm that wealthy, I'll find out the secrets. What do you think about that? It's an understandable thing to have, especially since for years, the brokerage industry would only work with people once they had a certain amount of money.

45:14You literally couldn't open up a brokerage account with you. They would just completely ignore small people to say nothing of the fact that brokerage costs used to be$50 a trade. So if you wanted to invest$100, it would be impossible because you're$100 are getting eaten up in just commissions, let alone anything else. So I think it's natural to have the initial mindset of, oh, once I reach fill in the blank, then all these magic opportunities open up to me. It's not entirely untrue because there are certain hedge funds, family funds, private equity, endowments, et cetera, that will only work with people that are above a certain net worth.

45:53There's also something called being an accredited investor. And that is a thing that you have to reach only when you have, I think the number was a million dollars in investable assets or something along those lines. So it would be disingenuous to say, oh, there aren't these pretend things, these pretend milestones that you can get to that open up new investment opportunities to you. But personally, I have no interest in investing in any of that. I can't imagine changing that dramatically my investing style, no matter what my net worth is. I still want the vast majority of my wealth in the stock market.

46:26Perhaps I might have some more income coming from the stock market with like real estate investment trusts or master limit partnerships or, you know, just more focus on dividend income. But I personally have no interest in making any big changes as my net worth hits different milestones. Yeah, same here. I've yet to be convinced that while you said there are these essentially like these little pretend clubs of like, okay, look, you get access to this. It doesn't mean you're going to get a better return by any means. And certainly net of fees. I think that's the biggest thing. Net of fees, the likelihood of it being better returns is slim to none, as evidenced by Warren Buffett's famous bet with the hedge fund managers, which is something that if you're hearing this, just Google that.

47:08It's kind of fun to research. Tim versus Ted Seides, yeah. Yeah. And it was a 10-year net of fees, right? They could pick any hedge fund or fund of funds, and he basically just took the S &P 500, right? And needless to say, Mr. Buffett trounced them very hand-pulled. Even though he started off in the hole, because I think it started in 2009, and the S &P 500 plunged in 2009, and the hedge funds didn't fall nearly as fast. And then the S &P 500 overtook it and never looked back. Yeah. So exactly your point. Any of those exotic investments, I don't understand what they would give me that the market already can't give me for dramatically lower cost and dramatically lower complexity.

47:49Yeah, agreed. And speaking of lower costs, so this is something I wanted to talk about on the podcast because I mentioned this in my newsletter a couple of weeks ago. So for anybody who's not on my newsletter, choose about.com slash subscribe or just any page on the website in the upper right corner, you can get on the newsletter. and a lot of people. So obviously in the five community, VTSA X has become almost like a, like a meme on some levels in that, like it's taken on a life of its own because obviously the wonderful JL Collins talks about it in the stock series and simple path to wealth.

48:22And I think people now go out of their way to invest in VTSA X. And I think I'd love to, to set the record straight that essentially what you're looking to buy there is a total stock market, very low cost fund. But I think people again, get caught up in the allure of Vanguard and VTSAX because they've heard about it so many times in the fight community. And I've seen people do this at, let's say other brokerage firms. So they'll have, let's say an account at Fidelity and they try to buy VTSAX. And now you can, Fidelity lets you, but I think they charge you a$75 fee every single time you purchase.

49:03So the long and the short of it, I don't want to waste a lot of time on this, but I have had a lot of people write me back saying, oh my goodness, I was doing this. You just saved me a whole lot of money. I didn't know I was spending. When you're at a different brokerage, in very broad general terms, you do not want to buy a mutual fund, the actual mutual fund of another brokerage. So that said, you can buy the ETF F version at the other brokerage. And then it's just whatever the rules for commissions are at that brokerage. So I think Vanguard, Fidelity, and Schwab, actually, according to our good buddy, Frank Vasquez, who told me about this, they have$0 commissions on stock trades and ETFs at all of Vanguard, Fidelity, and Schwab.

49:47So in essence, if you were gung-ho about buying a Vanguard total stock market fund, let's say, or ETF, you can just buy VTI. So if you have a Fidelity account or a Schwab account and you desperately want to get Vanguard, just buy VTI and there go the fees. So I actually had somebody, Brian, write into me saying they have a Fidelity HSA and they contribute, I think it was$150 monthly or every, or twice a month. And they were buying VTSAX. So they got hit with a$75 fee every single time on$150 transaction, literally 50 % to fees. I think luckily it was happening in a short period of time, but them reading that newsletter was like, oh, wow, I didn't realize this.

50:31Let me just quickly switch. I mean, Fidelity has their own funds if you desperately want a mutual fund or you could buy an ETF. So that's just something really important because when you come on, we think about the nuts and bolts of investing. And that was just something I've been really desperate to mention. Yep. Great point. It's always important to know the costs involved with anything. So like you said, even if you want to be in the club that owns VTSAX, just make sure that it's extremely low cost to get into that. Because if there's any costs involved, you're neutralizing the whole benefit of investing in the first place.

51:03Exactly. Yeah. So right. If you're at a different brokerage, don't buy anybody's mutual fund, just as a general back of the envelope rule, you can buy the ETF in almost every case. It's virtually identical. So just keep that in mind and obviously do your own research, but that's how I think about this. All right. Well, Brian, thank you as always for coming on. I think this has been a fun, just conversation, right? This is like a, not a random walk down Wall Street, but a random chat about, hey, how are we thinking through the environment now? And I think it's important to just have these check-ins, just a bunch of nuggets of wisdom.

51:38So I really, really appreciate your time. I think this is going to be really valuable for people. So, okay. Obviously people know that they can find you on Twitter. So you're at Brian Feraldi and you are one of the most prolific people on Twitter. I think at last count, you have 530 ,000 followers, which is just truly remarkable. Where else can people find you these days? Yeah, I'm very active on Twitter or slash X. Yeah, I refuse to call it X. So we're going with Twitter. I do too. I'm also very active on LinkedIn, if that's your jam. But I do want to let people know I just launched a free five-day email-based course that just kind of goes over the basics of what the stock market is and how it works.

52:16If anybody's interested in that, the website there is just stockinvesting.school. Oh, I like that. Stockinvesting.school. So it's a.school website address. That's neat. Figured that would be a cool way to end it. Yeah. Yeah, that's really cool. All right. So at Brian Feraldi on Twitter or stockinvesting.school. I like it. All right, Brian, as always, thank you, my friend. And we certainly will have you back in the very, very near future. Thanks again. Thanks for having me, Brad. Always a pleasure to be here. Thank you for listening to today's show and for being part of the Chooseify community.

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