Obviously, the Stock Market Is About to Crash…Buy, Buy, Buy!?!

Transcript

I don’t know about you, but if you ask me, watching the news for more than an hour these days makes it seem like the world is on the verge of imminent collapse. I mean one crazy headline after another seems to suggest we must be living in the end of times, and with that, the stock market is definitely going to crash. You name it, politics, international conflicts, domestic terrorism, economic uncertainty, we’ve got it all. Clearly, it’s just a matter of time before everything comes crashing down, isn’t it?

Welcome to the first season of Invested Poorly: Sad Tales of FInancial Fails, a short-form podcast designed to help everyday investors make wiser investment decisions by learning what NOT to do with their money. Host Jeff Harrell shares timeless stories from his former life as a financial advisor, about the poor—and irrational—choices he witnessed investors make that disrupted their journey to financial independence, or FI. Your ability to recognize, and avoid, similar mistakes could make all the difference for you along your path to reach FI.

Check out the “Introduction” episode for more background on Jeff, why he created this podcast, and how it can guide you to becoming the hero of your own investing story. Now, on with show.

This may be hard for some of you to believe, but whether you want to admit it or not, this is exactly what the world has looked like over the past century. Yet, despite two catastrophic World Wars, periods of mass inflation, multiple stock market bubbles, an epic real estate collapse, extreme political, social, and racial divisiveness, and let’s go ahead and throw in a global pandemic to top it all off, the stock market has still managed to deliver a total return of almost 10% per year over the past century. So, if despite everything I just mentioned and the historic resiliency of the stock market, you are still considering a bet against it, prepare yourself for a tale of what might happen to you.

Throughout my career, there were always a handful of market pundits preaching doom and gloom. Over time, some of these bearish pundits were given the name “Dr. Doom” when they were in the media spotlight because they routinely predicted devastating stock market crashes were right around the corner. As we all know, even a broken clock is right twice a day, so every so often these individuals had their day in the sun. However, following their advice over any meaningful period of time was a recipe for investment disaster. And I had a client who learned this the hard way.

Shortly after picking this guy up as a client, it became apparent you could classify him as a certified “doomsday prepper.” Almost immediately we began having frequent conversations about how bad things were all over the world. Over time, he became more and more aggressive about wanting to bet against the stock market, especially after he found out about inverse leveraged ETFs. These are investments that profit when the market goes down, but at a rate 2 or 3 times the actual return. He was convinced he could trade these securities and make a huge profit, so he took a substantial chunk of money out of the account we were managing for him and started investing it on his own.

Now, I could bore you to death with all the specifics of what he did over the next couple of years, but to cut to the chase, his portfolio lost more than 50% of its value over the same time period that the S&P 500 was up over 50%. As painful as this must have been, we all know that losing money is something nobody likes, but you know what’s even worse? Losing money when everyone else is making money. That stings twice as bad.

On top of that, as the losses piled up, his demeanor changed. He was always in a bad mood whenever I spoke to him, pretty much mad at the world that an economic collapse wasn’t happening right before our very eyes. To add insult to injury, the investment reports we sent to him always included the performance of the account he was managing on his own, so he could see just how bad he was doing.

Believe it or not, this went on for a couple of years and, while I’d like to say he eventually learned his lesson and stopped trying to profit from a down market, that didn’t happen. Eventually, he started trading in the other account we were still managing, and after the third or fourth time this happened, I told him I had had enough. Clearly, there was nothing I could do to help him at that point in time, so we agreed to part ways.

Although he isn’t the only client I terminated on my terms during my career, his story is the one I always bring up when people start asking me about betting against the market; because what I can tell you from this experience is, if you are going to do this, be prepared to become a grumpy and miserable person. You will turn on the TV and root for bad news, chaos, destruction and despair. You will become enraged when good things happen or a positive economic report is released. And without question you definitely will not want to hear a word from any of your friends about how much money they are making in the stock market. To put it bluntly, you will become a person no one wants to be around. Trust me.  So take my advice, and please, please, please, don’t let this happen to you.

I sure hope you enjoyed this episode of Invested Poorly and will be able to take something from it to improve your decision making as you navigate the twists and turns of your personal investing adventure. Be sure to check out my website at AreYouFI.com (that’s A R E Y O U F I dot com) where you can find resources and show notes with the charts and graphs I mention during the episodes. These are like little treasure maps that can help you choose more wisely along your quest to reach FI, or financial independence.

Never forget, in the short-term the stock market is unpredictable, and as my mischievous little nephew likes to say, “things just happen”! So focus on the long-term, by controlling your emotions, simplify your investments, and always… ignore the noise.

I’m your host, Jeff Harrell. Thanks for listening.

Invested Poorly: Sad Tales of FInancial Fails was created for informational purposes only and should not be relied on for specific tax, legal, or investment advice. You should consider consulting a qualified professional to review your situation before engaging in any transactions. Investing involves risk, including loss of principal and past performance is no guarantee of future results.

This podcast was produced by Ted Cragg. Learn more about creating podcast mini-series like this by visiting QuickEditPodcasts.com.