AAR15 - Avoiding Financial Biases with John De Goey

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2:16Greetings everyone. Welcome back to at any rate. My name is Evan Ray, and we are here to help you make sustainable financial changes without breaking a sweat. And today we've got another fresh face on the podcast. I'm grateful to welcome John DeGoy, author of Bullshift, host of the Make Better Wealth Decisions podcast, portfolio manager at Design Securities, an FP Canada fellow, a certified financial planner, and a chartered investment manager. And with those five minutes of accolades in, and I'm sure I've missed some, it's fantastic to speak with you, John. How are you doing? I'm doing very well, Evan.

2:44How are you today? I am doing fantastically today, actually. Good morning. So why don't you start off by just telling us a bit about yourself other than the bajillion things that I just stated about you and how you initially became an advisor, became an advocate for professionalism and transparency and focusing on evidence-based advice. Yeah, I was doing my master's in a co-op program in Ottawa, Canada, and I was looking at being a public servant. I was a master's in public administration, it's like an MBA only for government and it's a co-op program. And so there were committee hearings being held for the government and the government of the day was Brian Mulroney's conservatives.

3:24They were holding some meetings with regard to the proposed goods and services tax. And I was sitting in on those hearings and realizing that I had a real interest in the economy as a maybe a sort of source of concern maybe that I didn't really realize before and then in another work term I was doing some work at consumer and corporate affairs and I was looking into credit card rates and trying to help consumers make better decisions and being more aware of that and it dawned on me before I even considered a career as a portfolio manager as a financial advisor, that I was a bit of a consumer advocate, that it revealed itself to me.

4:07It wasn't something that I sought out. It just, oh, I guess I'm a consumer advocate. I didn't really realize. So when I got into the business, and ironically, I got into the business 32 years ago, right after Labor Day in 1993, so it's 32 years. I did the usual work in trying to build my practice the way anyone would start building a practice, but it became obvious to me that that consumer advocacy was part of who I was. And so I started writing and I've written three books and I've written, you know, hundreds of articles and I've done various things. But I would say that the real, the roots, the genesis of all of that was when I was in graduate school.

4:51That's incredibly interesting hearing that consumer advocacy is definitely something that we're going to get back to, but something, one kind of more personal question that I ask every guest that I have on is when would you say was your personal financial awakening? You know, when did you hit that point, maybe wake up one day and say, finances for myself is something incredibly important. It's something I need to focus on and learn about. And, you know, prior to that, maybe people kind of just see it as something that exists and it's kind of intangible. And then one day they say, oh crap, this is, I need to pay attention to this.

5:20I've got two answers for that, Evan. It was when I was in graduate school and I took a course in finance and I was thinking, I'm going to work in government, but holy crap, is this ever useful stuff? I've got to make sure I to apply it when I'm earning money so that I can invest and learn how to take advantage of compounding. So a lot of that was something that I realized in graduate school. But then I graduated graduate school and a year or two later, I was looking for work and I had moved from Ottawa to Toronto and didn't know what I really wanted. And I ran into a guy from my alumni association and he encouraged me to read a book called The Wealthy Barber written by a colleague of mine, David Chilton.

6:04David's only a year or two older than I am. So he was writing this book when he was still in his twenties. And yeah, in fact, he may have been 30 when he wrote it, but I don't think so. And reading that book, it's a very homespun, sort of easy to read, sort of, it's a book that drives home the point that you don't have to be a wizard, but you need to have just the focus and discipline to make regular contributions. And, and again, all the things that I thought about when I was in school started coming back to me and went, aha, I remember that, that mental note that I made to myself three, four years ago, well, I've got to start doing this now.

6:42And those two semi-epiphanies combined were what got me into realizing that this is really what I needed to do. Yeah, that is the epitome of the perfect light bulb moment. And The Wealthy Barber is actually one of those books that's been on my to-do list to read. So I'll be interested to move that up the list and get to that. Evan, I'll tell you right now, David's putting out a new edition in the next, if not in 2020, and I know he's just finishing it off right now in 2025. It will certainly be out by 2026. And I know I've spoken to him. I've heard him speak on other podcasts that he's looking forward to the project and getting it done.

7:17The book that was released in circa 1990 is a bit dated. So just wait a year and then he'll have a whole new book out and it'll be A, it'll be more current and B, it'll be easier to find because he deliberately allowed it to go out of print 10 or 20 years ago because it was becoming dated. Okay, okay. Very interesting. I obviously did not know that. That is insider information. I appreciate that, and I'll keep that in mind. So kind of going back to when you first had this awakening, I'm sure that at the time you had a ton of biases, as we all do. We're all human. What are some important biases that you feel like a ton of people have?

7:57And also, what are some biases that you feel like you had at that time when you were first taking graduate courses and you were kind of diving into this? First off, you're right. We all have biases and part of the problem about having biases is that you don't, many people don't know that they have them. And so it's a double problem. Not only are you biased, but you're oblivious to your own biases. The one that I would say that I had that I think virtually everyone who is in their late twenties or early thirties is, is overconfidence. A lot of people will just think, oh, the world is my oyster.

8:34I'm going to find the love of my life. I'm going to, I'm going to have a career where I slay and do really, really well. And I'm life is going to be full of meaning and purpose and, and so forth. And various people define success in, in, in different ways. And, and it may be that that's what comes to pass, but many people, when you when they're older and grayer like I am, they'll look back and say, you know, I was a bit naive about what I thought I could do. And they come to realize that that overconfidence is not the sort of thing that they... it's good to have confidence. I mean, it's what gets you going, it's what motivates you, it's what makes the world go around.

9:14So again, it's not altogether bad, but it is nonetheless a bias and you need to recognize that it's a bias. It's a bias that oftentimes works in our favor rather than against us. But there are dozens of others And as time has gone on and I've spent more time as a financial advisor and as a portfolio manager, I've read a whole bunch of books about behavioral finance and behavioral economics. And there are different things like, say, recency bias, where you focus on what happened last week or what's in the news right now. And you extrapolate and think that whatever is going on in the current environment is likely to persist for the foreseeable future when that's not necessarily the case.

9:55But you oftentimes discount things that happened a generation or two ago because you think of that as being ancient history. And while that was, you know, that was something you read in textbooks, but it doesn't happen in the real world where it won't happen again, you know, or it won't happen to me. But whatever is right in front of you right now seems a lot more pressing when, in fact, it might also be transitory and might not be anymore. or in fact, oftentimes is less relevant than the things that you read about a generation ago, which might come back. I'll give you one example of that, one potential example, at least of that.

10:29In the 1970s, 50 some odd years ago, the Western world was hit with a bout of something called stagflation, and no one had even heard the phrase before, but it's a portmanteau. You take two different words and put them together. You've got a stagnant economy, and you've got an inflationary environment. And there are a lot of people who are now saying as we head into the last four months of 2025, that the world is heading for another bout of stagflation. And that is a very real concern that the economies of the Western world are slowing as a result of tariffs and broken supply chains and the economic demographics, various things.

11:09And there's a lot of inflationary pressure because central banks are still printing money like mad. And a lot of people are concerned about that. But most people, given their recency bias, will say, oh, that's something that happened in the 70s. That's not going to happen now. And that was my father's or my grandfather's problem. But I'm not going to experience stagflation in my lifetime because it's the sort of thing that we've figured out how to fix. And by the way, the fix was draconian. The fix was double-digit interest rates in order to keep the inflation under control, which manufactured a severe recession in 1982.

11:47So they tried various things to fix it for many, many years. They couldn't fix it. It was persisting for a very long time and no one knew what to do about it until Paul Volcker came along and said, okay, well, I know what to do and you're not going to like it, but he fixed the problem. And we could be in a similar situation right now in 2025, but recency bias is causing people to think that they don't frankly they don't want to think about it so you know the thought of it being of it coming back is so untenable that they act as though it's not going to come back even though there's now a fair bit of empirical evidence that it looks like it's becoming increasingly probable okay yeah that's that's that's incredibly interesting that's good advice and as a financial advisor if your client were to come to you with these kinds of concerns would you would you guide them to maybe you know study the past a little bit i've talked in previous episodes about how just going back and looking at stock charts of what previous stock performance has been or overall market performance or whatever isn't really going to give you a feel for what it's like to actually live through what that movement was like whether it was really negative and and you can't you can't imagine what that negativity felt like or whether it was a huge bull market and you can't imagine what that that like you were talking about overconfidence felt Like, do you feel like looking back at history is enough?

13:02Or would you say, you know, turn off the television, don't even look at all of the craziness that's happening right now? Or how would you advise somebody to healthily go about handling that? The old saying is that history doesn't repeat itself, but it rhymes. So it's never exactly the same. What I would say is all of the things you've mentioned, Evan, are useful. So read history books, read newspapers. it's sort of like a murder mystery where you're trying to piece together the puzzles. If you can read about what happened since we talked about stagflation a moment ago, what you can do is you can compare and contrast with Wikipedia, read about stagflation in the 70s, and then read the newspapers in the here and now and come to your own conclusions.

13:46But a lot of us have the bias where we just want things to be true. And so because we want it to be true, we don't really look at it critically. We don't think critically. We subjectively assume that what we want to happen is what will happen. Or we optimistically assume that the best possible outcome is the one that will come. And I don't want to say that's entirely bad because of what I said a moment ago about overconfidence. It's actually good to be confident about the future. It gives you the wherewithal to move to a new city, to start a new job, to start your family, to buy a home, whatever else.

14:23You need to have some confidence that things are going to work out in order to do that. And you don't want to be frozen and paralyzed based on what happened in the past because it may not happen or it certainly won't happen the exact same way in the future. but it's the sort of thing that I think both reading history and reading newspapers today or wherever you get your information today are useful and compare and contrast the two to see what's different and what's the same. And then hopefully you can think about, well, what's going to go on? So as an example, we now have Federal Reserve for the Chair, Jay Powell, is now talking about cutting rates in order to keep the economy moving.

15:04That's now something that has been coming out of what happened to Jackson Hole recently. That is a very new position for the central bank in the United States over the past five or six or seven months compared to what we've been hearing throughout most of 2025. Well, that would be a change in stance and it would be inflationary and it would be good for dealing with the stag part, but it would exacerbate the inflation part. and so that is the exact opposite of the stance that was taken by Volcker in the very late 70s and early 80s. So again, we have a similar circumstance, but the prescription already seems to be different, which means that if in fact this plays out, the outcome is likely to be different as well.

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18:05What's the best way to get started in the market? Download my ebook for free at stockmarketpdf.com. Okay, that's very interesting to hear. Speaking some about the confidence that you need to have to look towards your future goals and be able to essentially make progress personally or else you're just going to be stuck always too fearful about what all the possible outcomes would be. Something that I like to ask people about is their personal finance goals and what their whys behind those are, meaning why is that important to you other than just having a bunch more commas in your bank account. Right.

18:39So for me, my personal, my finance goal is actually, it's personal to me in a way that almost anybody else that you're speaking to wouldn't say it. My personal goal is to change the way the industry works. That's not going to add commas to my bank account. But what I'm doing is I'm literally writing books to help the industry recognize its biases. And if I can get the industry to recognize that some of the advice that's being given is being given that is misguided and contrary to empirical evidence, and that optimism bias is a real risk to investors because they don't think about what could possibly go wrong.

19:19And, you know, it's my mission to get people not necessarily to act differently, although that would be wonderful, but at an absolute minimum to stop and reflect upon what they're doing and to think if they should be doing things differently. I don't want to be unduly prescriptive, but my concern is that too many people are leading unexamined lives and I want people to reflect upon what they're doing and to act with purpose as opposed to just you know rotely going along with what everyone else is doing and doing it because that's how that's how you get into trouble by not thinking for yourself because everyone's circumstances are different and you need to realize that you know that that you need to think for yourself and you can't just rely on what your co-workers or people in your softball team are doing you've got to be able to stop and say, okay, but what about me?

20:07Do I really believe this? And what kind of changes would you foresee or want to foresee in the world if people were to take that advice and think for themselves and not just follow the status quo? Yeah. My most recent book, Bullshit, that you mentioned off the top, rails against optimism bias. And so we've talked about a few biases and that's one that we haven't talked about yet. So let me take a moment about that one, because it is one of those biases that is really great 19 times out of 20. But my concern, of course, is that 20th time when it's not so great. So optimism bias is a situation where you think that you acknowledge that bad things will happen, but you simultaneously think they're not going to happen to you personally.

20:51So I'll give you the example that everyone uses. Most people know that 40 to 50 % of all marriages in the Western world and in divorce. Most people know that that's more or less what the divorce rate is. But if you ask a newlywed couple on their wedding day, if they will divorce, they will say, well, no, that 40 to 50%, that's other people. But of course, they're part of the data set. Like they're if you if you fast forward, you know, 40 or 50 years, every couple that you've asked that said that'll never happen to them, 40 to 50 % of them will have ended up divorcing. So bad things happen. but we don't want to consider the possibility that they will happen to us personally.

21:33So that's a real risk with regard to economic downturns. I think a lot of people, if you, again, talking about being students of history, if you go back almost a century, in the roaring 20s, there had never been anything like a Great Depression in recorded history, nothing like what we saw in the 30s. And if you were to ask people, you know, So A, will the economy slow down and head in reverse? And B, will you be able to deal with it? Most people would say, well, probably A, probably not. And B, of course, it'll be no problem because I'm, you know, I'm bulletproof. A lot of people think that things are likely to be better than they are, partially because it's just so painful to have to think about what could go wrong if it went really, really wrong.

22:22So again, that optimism bias gets you through garden variety, bear markets and garden variety recessions and things going a little bit bad. And if times are tough for four months or eight months or whatever, you'll get through it. But if things are bad for four years or eight years at a time, it's not so easy to get through. and most people, because they haven't experienced something that lasted that long, that was that severe, they can't really get their head around what it would be. And that's a real risk. So I'm trying to get people to say, look, I'm not asking you to be, I'm not a pessimist.

22:59I'm not asking people to be a Debbie Downer. I'm just saying, be realistic about what could happen and give that some thought now before something really bad happens so that you can deal with it when it happens. and and speaking of dealing with it when it does happen are things like you know an emergency fund retirement accounts different diversified investment accounts some high-yield savings account those kinds of things are those enough would you would you feel like those are enough of a guardrail to protect you from something that severe happening you know half a dozen 10 a decade years of a downturn or would this need to be you know far more extreme than that absolutely not enough that's the things that you've talked about evan having an emergency fund or having access to a line of credit if you're a homeowner or what have you those are all great things for those 19 times out of 20 garden variety downturns that i've been talking about earlier but it's not going to be enough for the when you know the mother of all bear markets if we have a situation that's really, really profound, how will you deal with it?

24:04So the short answer to your question is no. Let me give you another example of what I mean of what could go wrong. Something that's maybe a little more current, but on foreign shores. So again, people think it won't happen to us. The Nikkei 225, the Japanese stock market index hit an all-time high at the end of 1989. And at the time, the Japanese stock market was by far the second largest market in the world after the United States. It literally hit its all-time high at the time on New Year's Eve, on December 31st of 89. And then for over 30 years, the market was below where it was, where it closed on December 31st of 89.

24:45So all throughout the 90s, all throughout the aughts, all throughout the 2010s, the Nikkei 225 was lower than it was on December 31st of 89. It's only been in the past year or two. So, you know, people say take a long-term view, but if you're, let's say 50 years old and you've, and you're, and you're living in Kyoto and you've got most of your money in the Japanese stock market, well, you're taking a long-term view. Yeah. Well, in 30 some odd years, you'll either A, be dead or B, finally get back to where you were when you were 50, when you're 81 or 82 or 83, because I think it was about a third of a century.

25:22I think it was 33 years. So I don't think it got back. I don't think the Nikkei got back until 2023, if I'm not mistaken, to its previous highs. So it's the sort of thing where that is the sort of thing where most people have never, they've never experienced it. And as a result, they don't even contemplate the possibility that they might experience it. So how do you prepare for that? The short answer is probably there's not really a great way to prepare other than to use the principles of portfolio construction. So diversify broadly within and throughout asset classes, domestic and foreign, stocks and bonds, other assets like real estate, commodities.

26:03If we are in fact heading to an inflationary environment, then tangible assets, again, I mentioned real estate, but also resources, gold, those sorts of things. I'm not suggesting you should have, you know, don't put all your money in any one of those things, but diversify within them. Whereas a lot of people, what I find is that if you look at what happened with the dot-com bubble, a lot of people not only had money in the stock market, they had their money in technology stocks because that was what was hot. But that's part of the recency bias of looking at what's hot today. So if you were to look at, say, the MAG7 stocks, you look at the NVIDIAs and the Teslas and whatnot of the world, they're trading at nosebleed multiples.