Time for another edition of Mr. Stillman's Opus. Walter Storholt here alongside John Stillman, and you might have heard one of John's recent radio shows where we talked about some of the dangerous mindsets that people often have as they approach retirement. John, so the five dangerous mindsets you outlined were complacency, overconfidence, fear, cynicism, and despair.
Let's break them down one by one. Complacency is up first. Well, we see complacency a lot right now in a time where the market's doing well. Financial decisions are easy for people to procrastinate to begin with.
And if you can come up with any kind of reason to procrastinate making decisions further, then you're going to do it. So when we see the market doing well, it becomes an easy excuse for people to be complacent and say, well, you know, things are going well right now. I don't really need to make any changes. My 401k is really, I've really seen a lot of growth in my 401k. So I'm just going to leave things as they are.
I'll kick this can down the road for another day. When the reality is that is exactly the time that you should probably be making some moves because buy low, sell high, right? Well, things are high right now.
It's a good time to capture some of those gains and move money elsewhere. But, you know, most folks minds don't work that way. And that's because of complacency.
If you can come up with any excuse at all to not make a decision today, you'll probably do it. Yes, that kick the can down the road mentality. I'm always reminded, especially if you have lived in North Carolina for any length of time, that Blue Cross Blue Shield commercial, which was extremely annoying, but obviously very effective. It still sticks in my mind today of the little guy saying it's like a white background. He's wearing like a blue shirt and he goes, I need health insurance, but I'll do it tomorrow.
And then the little miniature version of himself pops up and knocks on the glass because, hey, do it today. It's so simple, but still sticks in my mind to this day. But that's the complacency. That is pretty annoying, even just having heard you describe it. Yeah, it's like the worst commercial ever. But one of those ones that you remember. Or the best commercial ever, because years later. Exactly.
Depends on how you define good, right? So that's complacency. That's a pretty good one. By the way, John, I was hoping I could find a nice, catchy sort of what do they call those acronyms, like putting the letters, you know, C-O-F-C-D, the different. So I was trying to make a word.
I can't really find a word that that makes, but it does almost spell covefy. I was just going to say it was close. So that's pretty, which might be a dangerous mindset. It could be. It could be. Be careful. All right. Dangerous mindset number two, following up complacency is overconfidence.
This is probably pretty common. Yeah. And honestly, it's in a lot of ways along the same lines as complacency or not along the same lines, but honestly, in a lot of ways, we see overconfidence for the same reasons that we see complacency.
Interesting. So different types of people are going to react to good weeks in the market different ways. So some people are going to say, as we talked about with complacency, great. Everything's good right now. I don't need to make a decision today.
Let's put this off. Other people are going to interpret good times in the market and say, you know what? I really got this figured out. Things are going well. I'm good at allocating in my 401k. I'm really doing well the last couple of years. I've seen a lot of growth and then that overconfidence spills over into other areas of your investing because you think you really have it all figured out where the reality is somebody who pays no attention to their 401k at all.
They just put money in and they're invested in the same funds they were invested in seven years ago where they arbitrarily threw darts at a dart board and picked four or five different funds in their 401k. You know what? They're also doing well right now.
Yeah. So it bothers me sometimes when I see folks get too overconfident about their investing prowess just because their 401k is doing well right now. And that's, again, the problem of overconfidence.
And everything can kind of be linked back to that same starting point, John, of, yeah, things are going well right now. Here's how these different mindsets react to it. The one complacency, the other overconfidence. The other is fear, which might seem odd because the stock market has had this great rally lately. Why would fear be a dangerous mindset? Well, Ron Paul, I just saw an article this week that made major headlines. Ron Paul is now saying a 50 percent decline in the market basically is impending, probably going to happen within a year from now.
But hasn't he said things like that the last year and the year before that and the year before that? Fear is a really interesting mindset because we obviously have it for a good reason. That sort of, you know, caveman mentality of don't poke the bear and run the other direction, fight or flight responses and all those kinds of things. But fear can also be a really dangerous mindset. Can't remember the guy's name, but there was a fellow who wrote a book that was like 87 reasons the world will end in 1987. And it didn't.
But he published the second book, which sold as many copies, 88 reasons the world will end in 1988. And it kind of goes along the same lines as what you're saying with Ron Paul there. Again, different people are going to react to good times in the market different ways. And for a lot of people, it's paralyzing fear that, oh, my gosh, this is not sustainable. The market is going to crash tomorrow. And, you know, then you have folks in the media who are probably being paid by some organization to exacerbate this fear, pouring fuel on that fire, if you will. And so what you see is some people complacent, some people overconfident, some people deathly afraid of what's going to happen in the market because they say this is not sustainable and we're all going to die.
Now, obviously, there is some logic behind that mindset. When you have record highs in the market seemingly every week, yeah, that's probably a good indication that you're somewhere near the top. We don't know when the top is going to come. Could it be next week or two years from now?
We don't know. But when it seems like you're near the top, it's not illogical to say, OK, well, we probably need to be positioning ourselves for a crash. But that's not what we see when people have true fear. When they have fear, it's parked money in cash. We're not contributing anything to our 401K anymore. You've swung the pendulum in the complete opposite direction and you're so deathly afraid of a market crash that suddenly you put all your money on the sidelines.
The problem is, I've seen people in that boat for the last three or four years. 2013 was a great year in the market and a lot of people said, well, we've got to be near the top. 2008, 2009 was still fresh in their minds and they parked their money on the sidelines in 2013. Well, think of all the growth that they missed out on in the last couple of years. So, as it always comes down to, we have to have a plan for our money and it's not just what's going to happen, what do we think is going to happen with the market tomorrow?
It's how soon do we need this money and with that in mind, how do we invest accordingly? The guy who was writing the books, 87 Reasons Why, 88 Reasons Why in 1988, terrible business model in terms of longevity, was great until he got to the end of 1999. 99 Reasons Why, 1999. But then when you get to 2000, you've only got zero. And then 2001, only one reason.
You can't write a book on it. Or you could just do 2001 Reasons Why the World is Good. But then that's a lot more work. But now his workload goes way up. You maybe devote a paragraph to each reason instead of a chapter. He really shot himself in the foot, so to speak, with that business model, unfortunately.
Maybe that's why we don't see those books anymore these days. He's waiting for it to be 25 reasons again, then he'll start again. 2025, he'll make an appearance again. Yeah, exactly.
He probably died with his cult and Kool-Aid drinking incident several years ago. Yeah, exactly. All right, so complacency, overconfidence, fear. Then there's cynicism.
Where are you seeing cynicism today? Yeah, so I don't necessarily see this one as much as the others, but when I do see it, it tends to be a pretty extreme take on things, where it's like, I can't win this investing game. It's rigged against the little guy. It's all investment banks and big companies taking advantage of all the rest of us. When the reality is, that probably is true to an extent.
You're not going to beat those entities. But you can't let cynicism cause you to do nothing in the world of investing, because putting money under your mattress is not going to get the job done. So, put it this way. Let's suppose you had the option of investing in the market for, pick a period of time, 15 years. And you say, I could average 7% return over the course of those 15 years. But then you say, well, but it's not fair, because the big investment banks are making twice that much over that period of time.
It's rigged against me. They're making 14% while I'm only making 7%. OK, well, your other option is, not participate in the system at all. Go park your money in the mattress or coffee cans in the backyard, and you make nothing. Yeah, your money's still there, but you made nothing on it. In fact, you lost a buying power relative to inflation.
So, what's better? Not making as much as the big entities that you feel are out to get you? Or making even less than that, but saying, haha, I didn't participate in your scam, right? So, you just have to be very careful with that cynical mindset. I think, and again, I don't see that one a lot, but for the people that I do see it in, they are pretty extreme in their worldview. Yeah, and it can be a big problem because of that, which is something else to keep in mind. So, we're talking about dangerous mindsets.
One more to give you. Complacency, overconfidence, fear, cynicism. This has been a pretty downtrodden podcast so far, talking about all these dangerous mindsets.
So, let's end it with a bang, John. Despair, the final mindset to cover. Well, isn't there a movie, Dangerous Minds? Dangerous Minds?
Mid-90s or something? I don't really have seen it. Isn't that a show? Oh, no, it's Criminal Minds.
That is a show. Pretty sure that was a Dangerous Minds movie. Dangerous Minds. I'll look it up while you answer the question. In any event, despair.
So, we see a lot of people who just have this feeling, and I probably see, I don't know, three or four people a month that fit this category, where they really feel like either they're never going to be able to retire. 1995, Dangerous Minds, and the thriller drama category. There you go.
One hour and 39 minutes. Good to know. Only 29% on Rotten Tomatoes. Well, that tells you something right there. So, you have people who feel like they're never going to be able to retire, or they're going to have to work until a very advanced age, because they feel like they've done such a bad job. In a lot of cases, they're not in great financial condition. But, very often, they're in better shape than they realize. It's just because they have no plan at all, they can't evaluate where they are on their financial roadmap. So, once you actually put a plan together, and they say, okay, well, I need to focus on debt payoff for these next couple of years, and then focus really aggressively on saving for a couple of years.
You know what? I actually can retire at 68 instead of 78, as long as I manage things within these parameters here. And so, I see a lot of people in this despair category. Very often, it's because life has punched them in the throat in one way or the other. Whether it's a divorce has really changed their financial situation. Death of a spouse, illness of a spouse, illness for themselves.
So many things can really cause problems in your financial life that really has nothing to do with bad financial decisions you've made. There are other things in life. Usually, that's where we see the despair.
But, so often, with a plan, you find out that you're in better shape than you realize. So, don't let despair get the best of you. Very important to remember these dangerous mindsets. Are you letting them control or dictate your investing, your planning life a little bit too much? Complacency, overconfidence, fear, cynicism, despair.
All good ones to think about. They can be dangerous mindsets to approach retirement and financial planning with. So, make sure that, again, they're not in control of you. John, thanks for the help on these dangerous mindsets. Shoot for a more uplifting topic next time. Yeah, I'll do my best. Okay, we'll keep the positive, you know. We've got to balance a little bit.
That's dangerous mindsets. John Stillman, Walter Storholt. This has been another edition of Mr. Stillman's Opus. Thanks for listening.
Whisper: medium.en / 2023-11-27 00:46:40 / 2023-11-27 00:52:35 / 6