Interview with Mark Matson: Experiencing the American Dream

0:04If I don't have a purpose for my money in my life, then no amount of money will ever be enough. If you win the lottery, you win$100 million, that's not enough. It won't make you happy.

0:21That was Mark Matson, author of Experiencing the American Dream, How to Invest Your Time, Energy, and Money to Create an Extraordinary Life. I'm Motley Fool producer, Matt Greer. Now, Motley Fool contributor Rich Lumelo recently talked with Matson about investing, success, and experiencing the American dream. Welcome to Motley Fool Conversations. I'm your host, Motley Fool contributor, Rich Lamello. Today's guest is someone who spent his career helping people rethink the way they build wealth. Mark Mattson is an entrepreneur, investor, and founder of Mattson Money, and the author of several books, including Main Street Money, The Dirty Filthy Lies My Broker Taught Me, and most recently, Experiencing the American Dream.

1:02His work draws heavily on academic research and behavioral finance. He's known for challenging the traditional Wall Street mindset while empowering everyday investors to make smarter, more intentional decisions. Mark, welcome to The Motley Fool. It's great to be with you, Rich. Thank you so much for taking the time to come on. And as the intro would indicate, there's a lot to get to. But I guess for the listener who doesn't know your full story, how did you first become, for lack of a better word, kind of passionate about rethinking how Americans invest? Yeah, like so many people that had to rethink things, what I was doing wasn't working.

1:35I went to work for a large broker-dealer, chub securities at the time they're very very large into financial planning insurance and investments and i would put my clients in actively managed mutual funds you know that had 20 or even 30 year track records and i would notice at the age of 27 that these managers who had these great long track records weren't repeating and my clients were losing money anywhere from three to five percent a year sometimes even worse trying to chase the track record of these managers and i I attended a workshop in San Francisco, a debate between Rex Sinkfeld and a guy named Donald Yachman, who was one of the top money managers at the time.

2:13And the debate was, look, are markets so inefficient that beautiful, brave, smart people can consistently beat it? Or is the market relatively efficient such that only random and unpredictable people beat the market and then they don't repeat their performance going forward? And that explained to a large degree why this whole thing of stock picking, market timing, and track record investing wasn't working for my clients. How would you summarize your core investing philosophy in a couple of sentences? Yeah. Number one is that understanding that markets are efficient. All the knowable and predictable information is factored into the price today.

2:49Therefore, only random or unpredictable events change prices going forward. The second is that the returns come from the cost of capital, meaning that every stock has a cost of capital, a risk, a number of raising money that is the equivalent to the return to the investor. And then you got to broadly diversify globally to reduce the risk long-term. I know you said that investors don't need to try to outsmart the market, but instead try to stop outsmarting themselves. What do you mean by that? And what's an example of a way an investor, you know, kind of tries to outsmart himself in a way he can, you know, kind of arrest that?

3:22Well, in the book, I talk about the fact that the human brain is not situated very well for investing. You know, you don't go back 5 ,000 years ago and find a pie chart and a standard deviation on the wall of a cave somewhere. This is relatively new for human beings in the last couple hundred years. And there's all kinds of problems with the human brain. One is familiarity bias. We like to invest in buy stocks that we're familiar with. Hindsight bias. We say, oh, wow, look how great NVIDIA did over the last 10 years. Well, yeah, but that's hindsight. You don't get to go back in a time machine and buy it right before it did its performance.

3:55FOMO, fear of missing out. We want to chase what's hot. We want to chase what other people are buying. Hurting bias. If your neighbors are doing it, if they're talking about it on TV, hurting is great for zebra, terrible for investors. And then of course you have instincts and emotions. Emotionally, we're very excited when things go up. We tend to dump more money in those things. And then we have fear and anger, sadness, grief when we lose money and it causes us to be extremely imprudent with our assets. And your own human behavior, even if I gave you the perfect model and said, just do this for 30 years and rebalance, I've never seen anyone be able to do it, pull it off over the last 30 years.

4:33So your own brain is, I think, your own worst enemy. Hey, ich bin der Sparfuchs von Sparsim.de. Du bist verliebt in dein Smartphone, aber dein aktueller Handy-Tarif ist eher so toxische Beziehung? Dann hab ich was für dich. 60 GB 5G im Vodafone-Netz for only 9 ,99€ a month. With a 50€ Wechselbonus surfst you five months free. Green Flag Alarm. Make now close with your old phone number and get your new new deal on Spasim.de.

5:19is very consistent with when you first started writing books? Well, that's a great, what a great question. So I think the world would be a much better place if people could admit when they're wrong, especially politicians, that'd be helpful. In 1991, when I started the company, I was 27 years old. And I thought, maybe a bit naively, is that this academic methodology of investing, efficient market theory, factor model, and modern portfolio theory, that it was so obvious and so clear that this is the way the world had to function and work, that people would stop gambling with their money. They'd stop speculating.

5:51They'd prudently invest. They would be disciplined. And nothing has been further from the truth. Not only do I not see investors doing it, I don't see advisors doing it either. It's easy to say diversify and rebalance. However, when markets run way up, advisors tend to double down on the asset categories that are high. For example, right now, most portfolios are overweighted to large U.S. tech companies. They're not rebalancing. They're chasing more of what's high. So this idea of stock picking, market timing, track record investing, being destructive and getting away from it, it's been the exact opposite.

6:25There's more stock picking, more market timing, because now we're bombarded 24-7 with the Internet, with 24-7 news programs we didn't used to have back then in 1991. And now you have more exotic, destructive investments than you did in 1991. Now we have 1 ,500 ETFs, 99 % of them. No one should actually own because they're just gambling. We have Bitcoin, which is toxic because there's no assets actually backing it up. We have commodities you can trade. You can literally take out your cell phone right next to your DraftKings, and you can get on Robinhood, and you can trade stocks all day long. So this idea of ending speculation, ending gambling, and prudently investing for your life goals.

7:09That got completely hijacked by technology and the media. And I think it's worse now than it was worse. I think what hasn't changed is it's no easier to beat the market than it was 30 years ago. 85 % of all active managers fail to deliver a market rate of return. Of those 15 % that get lucky over any 10-year period of time, there's zero correlation about their ability to continue that into the future. So markets have stayed extremely efficient. It's extremely hard to beat them. And it's very, very dangerous for most investors to try. And that hasn't changed. In the book, you talk about how investors are trained to kind of delegate their thinking to their brokers.

7:48Well, I guess in 2005, clearly like the CNBCs, and you had a lot more information than you might've had 15 years prior to that. But do you think that that's still the case? Or do you think we've kind of evolved from there? Well, I know specifically answer this question because every year we manage$12.2 billion for investors all over the United States. and every day we analyze portfolios. So I know exactly what they have in their portfolios. Most investors have what I call a Frankenstein portfolio. They have maybe six or seven of the big magnificent eight in there. They've got some growth mutual funds.

8:22They might have some commodities. They might have some REITs. They might have some Bitcoin. And so one year, this asset looks good. Oh, that stock's high. I'll buy that one. Oh, Bitcoin's high. Let's buy Bitcoin. Oh, gold. Peter Schiff told me gold's never going to go down. I'm going to buy that. So they end up putting all this garbage into their portfolio. No one seriously analyzes the risk return, the standard deviation, the volatility of the portfolio. So they're doing all of it. They're stock picking themselves. They're hiring advisors. They're getting a Morningstar and they're buying five-star mutual funds.

8:58They're gambling with Bitcoin and crypto. They're doing commodities. So I was in an interview with Dr. Fama, Nobel Prize winner, and I said, what do you think about all this technology? And he said, well, I think it's you can lose your money faster than ever before. I concur with that statement. But Rich, they're doing it all. And there's no rhyme or reason to any of it other than whatever was high over the last two or three years. Bam, that's what they're putting their money in. Right. Yeah. And, you know, kind of along those lines, you also talk a bit about activity bias and the feeling that, you know, if you're doing something, if you're, if you're, I don't want to say the word churning because it's your own account, but if you're in there actively doing something that's better than nothing, how does that hurt returns?

9:38And do you think that that's still an issue, you know, kind of 20 years on? Yeah, I think, I think you're right, Rich. I think it's turning your own account for sure. Churning it, you know, you go to Vegas. First of all, you can't just go straight to your hotel room. They, they make you wind your way through the casino, right? Hopefully they'll grab you and you'll start gambling on your way to your room. You used to pull the arm on the games, but now you push the button and it's whirls around. People who love playing slot machines, they feel like they have more control the more they push the button.

10:12The reality is because it's gambling and speculation, they actually have more risk and they're more out of control. You know, it's like drinking. The more you do it, the more out of control you become. And people feel like because they're at least doing something that they're having some control over their portfolio. But it's not true. They're chasing what's hot. So it's more dangerous. They're incurring commissions. They're incurring bid ask spread cost. If they did make a gain on the stock, now they're paying capital gains tax. So this whole churning, you can lose a lot of money for churning.

10:44And normally what they're doing is they're just chasing what's been hot over the last three to five years. having no analysis. I always ask investors, is risk important? And they say, yeah. And I said, okay, well, how do you measure risk? And they go, I don't know how to measure it. I said, well, do you think you can control something you can't even measure? And they're like, no, I don't think I can. And that's a very good way to look at it. But you measure it with standard deviation and volatility, and you never want to invest in something that you don't actually fully understand the risk of.

11:16How do you define abundance as it relates to money? Abundance is different for everybody. So in the light of no purpose for money, there's no amount of money that's enough. So if you don't have a purpose, and not just your money, but for your life, because your purpose for money is your purpose for life. If I don't have a purpose for my money in my life, then no amount of money will ever be enough. You win the lottery, you win$100 million, that's not enough. won't make you happy. If I have a purpose though for my life and for my money, for example, creating love or creating freedom for other people, then I technically don't even need money.

11:56You know, if I didn't have, if I just had enough to eat and just to, you know, bare minimum in life, I could visit a person in the hospital, hold their hand, you know, spend time with them, make sure that they know they're loved and cared about. And this is a lesson that people have known, whether it's Gandhi or Mother Teresa or other people that had very, very little wealth, but had amazing lives full of abundance and love and relatedness to other people. So focus on the purpose. Don't focus on the money. Focus on helping other people. Don't focus on the Ferrari. You might get a Ferrari. You help enough people.

12:30That's one of the great things about capitalism. If you help enough people, you will make money. So focus on asking great questions, focus on a massive amount of action, focus on what your screens are and recognize when you have a disempowering screen and how can I change that screen so that it gives me power to take action. Yeah. The Civil War and Reconstruction was a pivotal era in American history. When a war was fought to save the Union and to free the slaves. And when the work to rebuild the nation after that war was over turned into a struggle to guarantee liberty and justice for all Americans.

13:09I'm Tracy. And I'm Rich. And we want to invite you to join us as we take an in-depth look at this pivotal era in American history. Look for the Civil War and Reconstruction wherever you find your podcasts. and for a listener who is starting from zero or is very early in their you know kind of investing days what's the first step you would argue for you know kind of building wealth dollar cost average uh if you're just starting out if you're just starting out you're in your 20s or 30s you know figure pay yourself first this is one from my dad way back in day but even if it's 200 a month 100 a month just start don't wait until you've paid off your school debt don't wait until you paid off your credit card.

13:55Don't listen to Dave Ramsey. Look, start paying yourself and start doing it now. You know, most of you are going to have some level of debt from now till the day you die. So get used to it. But start putting away your money right now because with compound interest over time, it's going to make a big difference. And don't get Robin Hood on your phone. Don't get DraftKings on your phone. Don't go down this new Gen Z methodology of gambling and speculating with your money. It's not worth it. And ignore what your friends are doing because they don't have any idea what they're doing. Yeah, it's not a game.

14:31For a listener who is maybe not a beginner, but is also not, you know, kind of 60 years old, let's, you know, let's say they're kind of in their 30s or their 40s. How do they know if they're on track financially without, you know, kind of obsessing over the numbers, whether it's how close am I to being able to retire? What are the metrics? And obviously everybody's different, but just kind of broadly speaking. That's a great question. The reality is that's almost an impossible question to answer. It's almost impossible because number one is you don't know what life circumstances you're going to have in 20 years.

15:02You have no idea what your expenses are going to be. You have no idea what health insurance is going to do. You have no idea what social security is going to do. You have very little idea what real inflation is going to do. So it's a very murky water to swim in. And to assume that, wow, if I just, I calculate it, I need eight and a half percent rate of return to reach my goal at age 65, that that's, financial planners like to play that game, but that's not a very good game to play. Another thing they will say is, you know, oh, count on using 4%, the 4 % rule. If I have a million dollars, that's going to give me$40 ,000 a year of income.

15:35Here's what I would say to most people. Don't ever retire. I think the idea of retirement is an outdated thing that when you had a defined benefit pension plan, when you worked for GM or you worked for Ford and you were on the line for 30 years and then you retire, I think that was a bygone age. But I think also retirement is a recipe for death. You would look at people's health, their vitality, their life tends to dramatically go down when they retire. I would try to pick a job, a career, consulting. I'd pick something that can keep you passionate until the day that you die. You know, if you end up being a multimillionaire and you have $30 million, great, retire if you want.

16:18But if not, find something you love and don't ever stop doing it. What question do you wish more people asked you about money or just asked about money? What question do you wish people were more curious about? That's a great question. Wow, you've asked so many great questions. I have never had that question. I have never. Let me think. What do I wish they would ask me about? I wish they would ask me how to use money as a way to create fulfillment and love and connection in life. Because money so many times can cause jealousy, anger, and resentment, even in family members. So if people would focus more on how can I use money as a powerful tool to make the world a better place?

17:01That would be an awesome question one that's worth spending a lifetime answering. It's a great answer. Well mark Matson Thank you so much for the time Obviously as I you know kind of said at the beginning He's written a number of books that are you know great to read and and there's so many other you know kind of Mediums where you can you can find his work mark. Thank you very much for coming on Motley Fool conversations Thanks so much. That was blast

17:27As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For The Motley Fool Money Team, I'm Matt Greer. Thanks for listening, and we will see you tomorrow.

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