Timothy Mullooly

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In this week’s podcast, the guys discuss a recently filed complaint against Robinhood. Day trading apps have become more popular in 2020, but far too many individuals simply don’t know the dangers involved with this casino-like platform. Investing is not a game. It should not be fun, and anyone who convinces you it is fun does not have your best interest in mind.

Show Notes

‘Massachusetts Regulators File Complaint Against Robinhood’ – The Wall Street Journal

‘When the Stock Market is Too Much Fun’ – Jason Zweig – The Wall Street Journal

‘45% of Americans Don’t Know How Much Tax is Withheld’ – Darla Mercado – CNBC

The Dangers of Day Trading Apps – Transcript

DISCLAIMER: Tom Mullooly is an investment advisor representative with Mullooly Asset Management. All opinions expressed by Tom and his podcast guests are solely their own opinions and do not necessarily reflect the opinions of Mullooly Asset Management. This podcast is for informational purposes only, and should not be relied upon as a basis for investment decisions. Clients of Mullooly Asset Management may maintain positions in securities discussed in this podcast.

Tom Mullooly: Welcome back to the podcast. This is episode number 336. I am Tom Mullooly and joining me today is Tim Mullooly and Brendan.

Tim Mullooly: So there’s an article in the Wall Street Journal, and there’s a couple articles over the last few weeks about it. I’m talking about Robinhood and there was a complaint filed in Massachusetts against Robinhood.

Tom Mullooly: I understand that this is not just any complaint. This is the securities regulators for the state, or the Commonwealth of Massachusetts have filed this complaint against Robinhood.

Tim Mullooly: It said that… So Robinhood has aggressively marketing towards inexperienced investors and failed to implement controls to protect them. There’s a lot of cases of just crazy amounts of trades happening in people’s accounts and over a short amount of time. And they have little to no investing experience. And we know here how dangerous that can be for some people, if they don’t know what they’re doing and they’re trading in and out of stocks, things that they don’t understand can be pretty dangerous for people out there.

Tom Mullooly: I think what really opened my eyes where, if you want to speculate 500 or 1,000 bucks in some crazy stock, that’s fine. I think if it’s suitable for the right size of your net worth, for what you want to speculate with. But in reading through the article in the Wall Street Journal and reading through the complaint, it seems like Robinhood markets option trading in a similar vein with trading and stocks. And I just don’t think that folks really understand what’s involved when you’re buying and selling options, whether it’s puts or calls.

Brendan: I think all of this has only been exacerbated by how crazy the market has been this year in terms of to the downside and upside tons of volatility, plenty of ground covered in between. And so Robin has been around for a few years now, but we’re just starting to see, I guess, people fully understand what goes on, on their platform more so this year as maybe more people decided to dive into day trading for sport. Bored at home during the pandemic, I guess.

Tim Mullooly: Yeah. Yeah. That definitely has factored into it. We talked about earlier in the year, two people didn’t have sports to bet on, so they turn to the stock market to try and quote unquote “bet on,” some of these individual stocks.

Brendan: I think that’s the biggest problem in some of this is. And is it Robinhood’s fault? They’re basically playing into people’s worst instincts. And so they’re trying to adopt a platform that looks like a visit to the casino or some kind of online betting app, like a draft Kings or something like that. And so it seems a lot of the prompts and the interface that they have, it’s designed to get people to interact with it. I guess maybe they’re running into a problem because securities laws is more strict than what somebody-

Tim Mullooly: Like casino, gambling was.

Brendan: Casino is allowed to do this sort of thing. But if it involves stocks or marketable securities, then there’s a little more regulation on that than you might run into otherwise.

Tim Mullooly: It seems like Robinhood operates more just like a technology app that is more interested in getting as many interactions and downloads and users as they can. Just growing their user base and not necessarily making sure that they’re taking care of the people that are actually putting money into the account.

Brendan: It’s a free service. So when something is free, I think you’ve got to realize that you are the product. If they’re giving it to you, it’s like social media platforms too. We are the product because they’re selling advertisements. That we allow them to profit from, by participating on their platform. And so, yeah.

Tom Mullooly: So here’s a platform and app that’s done little to no marketing and they’ve got 13 million accounts now. I don’t know what the average size is, but we’ve gotten calls from folks who want to speculate 1,000 bucks or 2,000 bucks in something. And we’ve even told them, if you want to do that, think about Robinhood. You can do it right on your phone.

Tim Mullooly: And it’s because, we here have a fiduciary responsibility to our clients. So if they want to buy these things that we wouldn’t own or don’t own for our clients, we don’t want that here under our watch. So you point them towards a Robinhood where they can get exposure to those things. But now, obviously, as we’re finding Robinhood doesn’t have any sort of real fiduciary responsibility to their clients or the users, I would say. I guess they kind of do in Massachusetts, but not on a national level.

Tom Mullooly: You had raised this right before we turned on the microphone. You want to talk about that a bit?

Tim Mullooly: Yeah. I mean, there was the Department of Labor’s fiduciary rule last year or the year before trying to go in across the country that didn’t end up happening. But as soon as that got shot down, Massachusetts as a state adopted its own fiduciary rule for brokers and advisors earlier this year. So the complaint that was in the Wall Street Journal article was saying that it didn’t adhere to the fiduciary rule that they now have in place in Massachusetts. So that’s just for the state of Massachusetts. It’s not here in New Jersey or anywhere else in the country.

Tom Mullooly: So the regulation in Massachusetts, I’m just going to read this part, stipulates that a broker dealer and that’s Robinhood, has a duty of loyalty to its customers in part, by making recommendations that give priority to the customer’s interest, without regard to the interests of any other party. Regulators say the lists of popular trades to which users have access, have the potential to influence the securities that traders buy without the company conducting any kind of suitability analysis. So Galvin’s complaint goes on to explain that this is no different from a broker handing a list of securities to a customer, and then pretending to be surprised when the customer purchases securities from that list. And then proclaiming he made no recommendation to the customer.

Brendan: I wonder how much of this is just Robinhood testing the boundaries though, because nobody has really done this style of investing platform app before. And so there really aren’t clear cut rules, because I’m not… I get the point of that statement, but I don’t think it is exactly the same. Because Robinhood is just using an algorithm to say, “Hey, here’s what other people are doing.” It’s like Twitter, “What’s trending.” Sort of thing. So I don’t think it is implied that like…

Tim Mullooly: It’s not a specific recommendation.

Brendan: It’s not like, “Hey, other people are doing this because it’s a good idea.” It’s just that other people are doing it. I don’t know if that’s necessarily a recommendation. So maybe this sort of legal action… I mean, is it necessarily bad for Robinhood? They might be fine to do this. And then other people are going to start doing it too. So it can just define what the laws are going to be as more and more of these platforms start to exist. I’m not sure it’s going to be a death knell for Robinhood.

Tim Mullooly: I think there was something in the Wall Street Journal article that said that they made a settlement of one point something million last year for something similar like this. But they have 13 million users and ads and things going on, how much money do they have coming in? A settlement for $1 million dollars might not be very much to them. So like you’re saying they could just be testing the boundaries, end up settling out of court for a small amount of money. And now they know what they can do.

Brendan: And the worst case for them is that they’re told they have to stop this and they have a fine, and then they cut it out. But the people are still on their app. The people are there already. So in terms of generating popularity, I mean, they’ve done what they wanted to do, whether or not this is legally allowed on a go-forward basis, right?

Tom Mullooly: The complaint continues on and it talks about the… I think it’s pronounced gamification, but it’s gamification of the trading process by using alerts on people’s phones. It’s an app. So you’re using it on a phone or an iPad. And you get these prompts apparently telling you, “Hey, check your account. This thing is up. Take a look. You may want to think about this.” And it’s leading to people who are doing… We’re not even going to call it overtrading, but they’re doing… People with no investment experience are doing massive amounts of trading. The article in the Wall Street Journal and there are screenshots floating around the web on Twitter of other examples from the complaint. But in Massachusetts, they talked about one customer with no investment experience made more than 12,700 trades in over six months.

Brendan: I think we might’ve mentioned this before, but I just wonder what the 1099s are going to look like for some of these Robinhood people. And if they even understand what that is from an investment standpoint, I’m sure they’re-

Tom Mullooly: You are going to get a phone book dropped on there. And it has to be mail.

Brendan: It’s going to be all short term gains and losses, depending on what they’ve done. I just wonder how many people are actually accounting for that because the tax surprise. I mean, even if you did well, that’s an unpleasant surprise to have a bunch of short-term capital gains on the books. That’s not great.

Tom Mullooly: But this kind of spills over into other topics. The whole idea of… I don’t know if it’s a disclosure issue or making sure that people understand the risks involved with buying and selling options. The risks involved with buying and selling leveraged and inverse ETFs. We’ve actually done a few podcasts on these things. It’s been a while because we tend not to get involved in them.

Brendan: Literally nobody needs to invest in these.

Tim Mullooly: Especially people that have no investing experience at all. And just going back to what you were saying about gamifying investing. I mean, we were just saying, they want to make it seem like it’s a casino that it’s fun, but we say here investing shouldn’t be fun. it should be boring.

Brendan: If somebody has convinced you that investing is fun, they’re profiting off of you somehow, I promise. It’s not a game.

Tom Mullooly: It’s fun for them, because they’re making money on you. So there was also this item that they brought up about… They started a money market fund. They started the fund with a waiting list. And the way you could move up on the waiting list was to tap the app as many times, as you could, during the day. Once you hit a thousand taps, they said you’re tapped out for the day, come back and-

Brendan: Come back tomorrow.

Tom Mullooly: Come back tomorrow and start tapping. So you can move up the wait list. I don’t understand that one at all.

Brendan: I mean, it’s got to be some kind of engagement thing. So not only does it keep people just generally addicted to their app, but also engagement stats have to be through the roof. So if they’re showing that to people who they want to add money to Robinhood, to become investors, backers of their product. They can show them engagements at skyrocketing because they’ve got hundreds of thousands of people tapping on their phone a thousand times a day to get into some money market funds. They don’t know how the stats are getting there I’m sure, but it looks good for them.

Tim Mullooly: That’s what I was saying earlier where it seems they’re, they’re more of just an app. The people running the ship there just care more about-

Brendan: Engagement.

Tim Mullooly: … app growth and user engagement and getting investors on the backend to throw money to support Robinhood as an app. They don’t necessarily… They’re not flaunting the huge success stories of people that make money on their app. It doesn’t matter to them, as long as there’s people there tapping-

Brendan: As long as they’re on the app.

Tim Mullooly: Yeah, as long as there’s people they’re tapping 1,000 times a day, that’s why they send you push notifications. It sounds like Snapchat or Instagram, they want users on the platform. They don’t care what they’re doing once they’re on the platform.

Tom Mullooly: It just seems kind of kooky to me that there’s a lot of people making hundreds and thousands of trades on a weekly basis. And they’re tapping their phone, tapping the app hundreds, and maybe 1,000 times a day. This is a lot of people with a lot of free time on their hands.

Tim Mullooly: Well, like Brendan said earlier, I mean, this is why it got so popular during 2020, because there was nothing else to do for a long time for people. And for a lot of people there still isn’t. If you’re out of work or maybe it seems an enticing idea to try and make some extra money if you’re not working. It’s a dangerous proposal. We know to kind of bet the rent in a sense on day trading stocks. But I don’t know. In a year like this, in 2020 people might not have felt there was any other option for them.

Tom Mullooly: I’m going to be the get off my lawn guy. But if I were not working and worried about money, I wouldn’t be trying to make it by trading stocks. I just wouldn’t. So I’d be more focused on preserving my pile of cash.

Brendan: I mean, I think that lottery mentality plays right into this, whether it’s on Robinhood or any of the other on my brokerage firms. I mean, you see advertisements for them too touting how they can teach you to trade options and stuff. And I think that that’s just as shady, as trying to get people to do it on an app. So I don’t think it’s good. The places where you’re going to place the trade. Again, you are the product, whether the trades are free or not, they’re letting you have an account and trade on their platform because they’re profiting from that somehow. And so I think you’ve got to remember that they’re encouraging you to trade, not because it’s going to be better for you as an investor, but because it’s better for them.

I don’t think that they owe you anything really. So I think you’ve got to be the one to come around to the idea that I think less is more when it comes to investing, at least as it pertains to trading. I mean, the Nick Murray line is, investments are like a wet bar soap, the more you touch it, the less you have. And that kind of wisdom has been out there for a long time. But it seems every era has its own team of-

Tim Mullooly: Traders. Yeah.

Brendan … day traders, who just don’t want to believe it. So I don’t know. This is the new age of that, I suppose.

Tom Mullooly: So they do… Robinhood, like all brokers makes money on payment for order flow. And so when Brendan refers to, on a free platform, you are the product, that’s exactly what’s happening. So in order to do the trades, they are selling your trade away to another broker. And so the firm Robinhood collects fees, not from you, but from other brokers who were placing the trades on exchanges. They’re paying for order flow. It’s a vicious cycle, what’s going on with this. Now, this app has been pretty successful for the right reasons or wrong reasons. And just about every brokerage firm out there now offers an app on their phone. I personally would… I try and discourage people from checking their accounts on their phones, but it’s inevitable. People are going to look and they look more when markets are volatile in both directions up and down. I just wish they wouldn’t do that.

Brendan: I’m just thinking, anything that’s an app, if you have it on your phone, you’re going to open it from time to time. And so I mean, you would check in less frequently if the app just wasn’t on. Because we all have the apps on our phones, you just mindlessly open them sometimes because you’re bored. It’s like, “Okay, I’m going to open this. I’m going to open Twitter again.” Or, “I’m going to check Ring when I know that nothing’s even happening.” I do all this stuff on my own phone. So if I had one too, that had an investment account in it, especially if it were sending me push notifications, then yeah. I’d probably log in more. That’s just human nature. That’s all they’re playing into by doing this sort of stuff, I think.

Tom Mullooly: I have an app on my phone from a conference that I attended three years ago and it’s still on my phone. It’s ridiculous. I actually opened it a couple of weeks ago. I was like, “What is this for?”

Tim Mullooly: Yeah, I mean, Robinhood is just what seems like the first trading app that’s going to come along that’s become really popular. But there’s always going to be more ones that come along. And I think it just goes back to the point between trading and investing and what we always try and tell people the method of how you can do it has changed over the years and it’s gotten easier. You can have it in the palm of your hand now as you’re walking around outside. But the underlying principle is still the same that day trading your account is dangerous and it’s different from investing. So however, the method of how you do it, I think for people listening, that’s the ultimate point of articles like this is to kind of at least try and drill that point home.

Tom Mullooly: Did you have another item that you wanted to talk about?

Tim Mullooly: Yeah, real quick. There was an article last week in CNBC and the headline pretty much says it all. We don’t really need to go into the details of the article. But the headline is that 45% of Americans don’t know how much tax is withheld from their pay.

Tom Mullooly: Too much. Of course, of course.

Tim Mullooly: Yeah. With it being December, you can look at this stuff anytime a year, but the end of the year is typically a good time for people to look back at how much came out in taxes. You’re going to get tax forms for the end of the year to file your taxes for 2020.

Brendan: The way the withholding form works, I think leads to a lot of the confusion because it doesn’t tell you a dollar amount based on your income, or even like a percentage figure. It asks you leading questions, like your status for filing your taxes, single or married, head of household, that sort of thing. It asks you how many dependents you have in your household, things like that. And then companies use that to back into the withholding percentages that get applied to your paycheck. And I think it might be a little more straightforward if they did that differently. Especially considering now that the form for the withholdings doesn’t even really match up with how things work on the updated 1040, that most of us file for taxes each year. So I think that’s a big disconnect there because you don’t have to apply a percentage. You answer some questions and they… It’s an inexact science, I guess, it’s what I’m getting at.

Tim Mullooly: And do you do it one time. It’s not like you need to do it every year.

Brendan: You could though.

Tim Mullooly: You could and-

Brendan: Worth reviewing.

Tim Mullooly: Yeah, they do say in the article that it is worth reviewing every year, especially if the amount that you’re bringing in changes, you should at least review it. But I mean, you fill out this form when you start at a company and then you don’t have to, you might not look at it again for another five years, six years.

Brendan: Work is probably not going to prompt you to do anything about your withholding.

Tim Mullooly: Exactly.

Brendan: And I think when most people find out there’s a discrepancy is when they haven’t changed it, something changed somewhat dramatically, like a life event filing status or a change in income. And then the following year, whenever it happens to be, when they go to do their taxes, there’s a big surprise.

Tom Mullooly: I got whacked.

Brendan: And so around this time of year, not a bad time to review, just because you would, if you’re applying payroll changes now, in terms of your withholdings, you’re probably starting with a clean slate come January and so.

Tom Mullooly: It is a good thing to look at every year in December. I want to remain professional, but I do chuckle a little bit when I hear people say, oh, that accountant is no good. I paid way too much in taxes. When I brought my tax stuff into that person, I need a new accountant because I wound up paying too much. The accountant had little or nothing to do with that.

Brendan: It has everything to do with your withholdings. And so, I mean, if you didn’t get a return, meaning a refund from your taxes and you’re upset about that or you owed money. I mean, if somebody is preparing your taxes for you, I think a good barometer of whether or not they’re worth their money is if they can help you to adjust your withholdings to change that rather than just giving you the scoop after the fact. But whether it’s your preparer or your financial advisor, I mean, somebody can help you to fine tune that. So there’s fewer surprises moving forward.

Tim Mullooly: Yeah. Just a quick step from the article, they said the IRS issued $125 million in refunds in 2019. And the average was about $2,500 per refund.

Tom Mullooly: It’s a lot of money.

Tim Mullooly: I mean, obviously there’s… It is a lot of money and obviously there’s going to be outliers there that drag the average up. But we’ve talked on different podcasts and videos about how you can mentally think of a tax refund. Some people think of it as a nice bonus, around tax time. But it’s really just your money coming back to you. You could just adjust the withholding, like we were just talking about and get more in paycheck on a weekly or monthly basis however you get paid.

Tom Mullooly: Back when people were actually traveling for fun before the pandemic. I do know of some families that intentionally over withheld because they would get this money back in the spring. And that would be their annual vacation or their trip.

Brendan: I would just say that if you’re doing that, that’s fine. Just make sure it’s actually going to happen. Conversely, if you wanted to do… I mean, you could set something up to just auto deposit into a savings account each month.

Tom Mullooly: You could save it. Yeah.

Brendan: So if you were going to get the average of $2,500 back, you could just send 200 bucks to a savings account each month, and then you’ve got your vacation money come 12 months later.

Tom Mullooly: Right there.

Brendan: Like clockwork and you don’t have to wait for the IRS to fork it over, be surprised when it isn’t there, because something change in your tax situation.

Tim Mullooly: There was a change.

Brendan: We ran into that in 2018, the first year after the Tax Cuts and Jobs Act was implemented because some of that actually went on without people realizing it. And they changed the withholdings so that people got a little more in their paychecks.

Tim Mullooly: But not enough for people to realize it on a weekly basis. But then they realize it-

Brendan: But then the refund that they would anticipate the following April wasn’t there and people were bent out of shape about it when they were really no better or worse off. It was just the money was delivered to them in a different fashion rather than a lump sum they got monthly.

Tom Mullooly: Not communicated very well. That’s going to wrap up episode 336. Thanks again for tuning in and we will catch up with you on the next episode.

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Following a Yahoo Finance article from Dave Ramsey, the guys weigh in on 10 personal finance tips.  While Ramsey speaks to the masses, the guys take some of the one-line advice and add some context, nuance, and personalization to it.  It’s called personal finance for a reason, right?

Show Notes

‘Dave Ramsey Says Beware of These 10 Major Money Don’ts’ – Sarah Cunnane – Yahoo! Finance

10 Personal Finance Tips to Consider – Transcript

DISCLAIMER: Tom Mullooly is an investment advisor representative with Mullooly Asset Management. All opinions expressed by Tom and his podcast guests are solely their own opinions, and do not necessarily reflect the opinions of Mullooly Asset Management. This podcast is for informational purposes only, and should not be relied upon as a basis for investment decisions. Clients of Mullooly Asset Management may maintain positions in securities discussed in this podcast.

Tom Mullooly: Welcome back to the podcast. This is episode number 335. I am Tom Mullooly. I’m joined today with Tim Mullooly and Brendan Mullooly. Hey guys.

Tim Mullooly: Hello.

Brendan M: The gang’s all here.

Tom Mullooly: The gang is all here. Tim, we’re going to take a look at Dave Ramsey’s top 10 list.

Tim Mullooly: Yeah, there was an article in Yahoo Finance. That’s our go-to place for deep economic threads. Well, they have some interesting things that the everyday person will come across, so it’s useful to go and check out what other people are reading and-

Tom Mullooly: Absolutely.

Tim Mullooly: … a popular person in the personal finance space that the everyday person reads is about Dave Ramsey. So this article was his 10 major money don’ts, so it’s 10 things that he says not to do with your money. So we’re going to run through the list of the 10 points here and show which ones we agree with or don’t agree with and why. So the first one that he had is his biggest thing. It’s about debt. He says, “Don’t try to tackle your biggest debts first.” His whole thing is going after the ones that have the lowest balance in it, so that you can tackle those ones first and completely eliminate it. It feels good to completely cross one off the list and then move on to the next thing. What do you guys think about that?

Brendan M: I say probably, because I get the idea of crossing a liability off your balance sheet. It feels good. There’s like a void, but in a positive way that it’s gone. I guess the caveat that I would add is that like if you have a ton of consumer debt, that’s like 20% interest on a credit card, and you’ve got like $2,000 out on a home equity line of credit that’s like 3% or something like that, don’t do that because I think that that’s not sensical, but-

Tom Mullooly: That’s a good point. In general, sure.

Brendan M: I don’t have a huge problem with that.

Tim Mullooly: I think one of the biggest points for all 10 of these is that Dave Ramsey speaks to the masses. It doesn’t necessarily mean that it’s going to work for you. So this is all just general blanket advice that he throws over his entire audience.

Tom Mullooly: Yeah. There is some merit to getting some wins under your belt. By the time some people realize that they’re that far down the hole, they need some wins under their belt to gain a little confidence and also gain a little momentum. I know that he talks about the snowball approach towards paying off your debt. And if you have a smaller debt and you’re paying, I don’t know, $100 to that, once you’re done with that, take that same $100 and apply it to the next one. And you start to pick up a lot of momentum doing things that way. It actually is, I think, a good … That snowball approach I think is actually really helpful for people who are so far down the hole that they need a plan.

Brendan M: So, you get out.

Tim Mullooly: It’s a good way to get people started, because sometimes if you’re swamped in debt from a bunch of different places, you don’t know where to start. So that’s a good way to get the ball rolling, the snowball rolling in a sense. But it’s definitely-

Tom Mullooly: But Brendan’s point I think is really paying off the higher debt first.

Tim Mullooly: It’s definitely a behavioral trick versus you could actually sit down and do the math and figure out which one is-

Brendan M: Costing you more money.

Tim Mullooly: Yeah. Which one is the most cost-effective to get rid of first. One point that I will add is that his thing doesn’t mean just focus all of your money on these small debts. You still need to make the minimum payments on the rest of your debt. So you’re not completely ignoring the other things. You’re just making the minimum so you don’t fall behind on it and let that interest build up a lot.

Tom Mullooly: We take it for granted, but I think it should be said, I guess this would be 1A, is when you start to do this, I mean, cut up the credit cards. Have one. I mean, we’ve done a couple of episodes talking about that.

Brendan M: I think important point by Tim, because a lot of times we speak with folks who are thinking of things not only in terms of paying down a debt, if there’s multiple mouths to feed, so to speak, but also in terms of saving for things, that we tend to think in a binary sense, like I’m going to do this thing and not that thing. However, I think that if you’re really taking charge of your cashflow, you can address multiple debts at the same time that you can save for multiple goals and you just right size them to prioritize, hey, I want to pay down this debt first or, hey, I want to save more towards this goal because it’s sooner or because it’s more important to me or whatever the case is. And these are things that we’re helping folks to do. And I think that it’s a simple thing, but it’s just too much sometimes to think about doing several things at once. But I think that good personal finance would say that you probably are doing more than one thing at a time.

Tim Mullooly: All right. So the second don’t that he had on this list was don’t try to justify frivolous purchases. The picture in the article was a couple looking at this new boat that they just bought.

Tom Mullooly: That’s my official comment, that little laugh there.

Tim Mullooly: We say to people all the time, when we’re looking at their numbers, we don’t care what the numbers are. If it’s important to you and you want to spend money on it and it will bring you some joy in your life, then go ahead.

Brendan M: Yeah. The way I like to approach that personally in my cashflow is budget out for things that are fixed, but I just have a category that’s discretionary that I put onto a credit card each month and I pay off at the end of the month. And I know what my budget is for that category of spending, but it doesn’t matter what it gets spent on. So to Tim’s point, if I decide in one month that I want to buy whatever, then that’s fine, and it could be frivolous and I can fully admit to myself that it’s frivolous and that I don’t need it. And it’s okay because that’s a thing that I budgeted for and it’s fine. And the whole point of the category was that it can be frivolous and stupid and it doesn’t matter.

Tom Mullooly: I’m also just going to take what Ramsey put and put it into some real context. Something that we all saw on Twitter today, someone that we know tweeted that there is now 84 months, 0% interest on SUVs. So, if you’re struggling financially, trying to decide between an Escalade and a Tahoe, probably not where your mind should be. It should be more towards, hey, it might be better to wait before we can afford something like that, versus how many times have we sat down with people who have said, “I got this car because it was 0% interest”? They didn’t even realize that the interest is packed into the price.

Brendan M: Or that the car is just completely outside of-

Tom Mullooly: Affordability.

Brendan M: Yeah, what’s affordable anyway. But yeah, I don’t know. It’s tough because on one hand, I think people should spend money on what they want to spend money on. It’s their money after all. On the other hand, I think maybe, I don’t know, again, the intention of this comment, but I think maybe just, we all spend money on frivolous things, so when something is frivolous, just admit it to yourself. It’s fine. And that might make it easier in the future to determine what’s important to you and what isn’t. Just be honest about it though.

Tom Mullooly: Sure.

Tim Mullooly: Yeah. Yeah. I think there’s a difference also between planned frivolous spending and impulsive frivolous spending. So if you’re going to spend on stuff that falls under the frivolous category, like you said, budget for it, or it’s not a surprise. It’s something you’ve worked into your cashflow, and that actually makes sense.

Tom Mullooly: I do like Brendan’s approach better, saying, “Hey, I have this monthly amount that I’m going to spend or not spend this month.”

Brendan M: Yeah, you don’t have to.

Tom Mullooly: Maybe next month I don’t spend it and now I’ve got double or whatever.

Tim Mullooly: It’s being responsibly frivolous.

Tom Mullooly: Oh, I like that.

Brendan M: Yeah.

Tim Mullooly: Moving on to the third point, it kind of ties in with that second conversation. But it says don’t buy with credit what you can buy with cash. I think generally I agree with that. There might be exceptions, but if you have the money to pay for something, don’t put it on a credit card, or if you are going to put it on a credit card, make sure you have the money, the cash to pay it off. Like you said, you pay it off at the end of the month every month.

Tom Mullooly: When the bill comes in, yeah.

Brendan M: Yeah. I don’t think I would necessarily call that buying with credit because it’s not really. Depending on where you are in the credit cycle, that could be giving yourself an extra week or two to do it and just using a credit card to continue building a credit history. I think buying with credit to me implies that you’re buying it and financing it at some rate of interest.

Tom Mullooly: Over time.

Brendan M: And I think that if you have the cash to pay for something without financing it, then in most cases, it probably makes sense to just buy it with the cash. Because especially with interest rates where they are today, if you’re keeping the money at the bank, that’s a negative situation for you. You’re costing yourself money by not just paying for it upfront when you could.
Tom Mullooly: The only time that I would hesitate with that would be if you’re invading your emergency stash.

Tim Mullooly: To buy something.

Brendan M: And it depends on how … If you have $20,000 in the bank and you need to buy something that costs $20,000, I don’t know that I would put every penny and then leave yourself without a safety net kind of thing.

Tim Mullooly: Maybe a blend of the two there.

Brendan M: Exactly, right.

Tim Mullooly: Finance some of it.

Brendan M: And again, it doesn’t have to be all or nothing. Yeah. I would say that, think of it, that you don’t want to put every penny you have into it, but at the same time, there’s no reason to pay interest on something if you don’t need to.

Tom Mullooly: This is probably a good point in the podcast to just remind folks that when you do get your credit card bill or your loan payment, they’re asking for the minimum payment on that. You’re always allowed to send in more. It doesn’t mean that you have to contractually obligate yourself to 97 payments of whatever Citibank tells you to send in.

Tim Mullooly: Okay. So the fourth point is just don’t buy new. He was talking about cars. He said, “Never buy a new car.” I don’t know if I agree with that. It depends on what you intend to do, I think, with the car. So you buy a new car, but your plan is to drive it for a decade until it breaks down and you can’t drive it anymore.

Brendan M: I think if you can afford to financially, which is … I mean, that’s different for everybody and people have different opinions on what afford actually means. But if you’re at a point where you can afford to buy new cars, I don’t see why not if you can, and especially, again, like we were talking about just before this, if you can afford to pay cash and buy a new car, then by all means, go right ahead. What does it matter at that point?

Tom Mullooly: I think I’ve probably bought more cars than anybody should in their lifetime and I’m still in my 50s. So I have told both of you that this car that I bought will probably be my last car or one of the last cars. I bought it as a car that came off lease. So it was a 2016 car. I bought it at the end of 2018. The car had 30,000 miles on it.

Brendan M: And how much of a discount off of the brand new did you get because of the-

Tom Mullooly: I bought it for half price.

Brendan M: Right. So I think that-

Tom Mullooly: It was a car that originally, the original sticker was like $59,000. I got it for around 30 grand. I think it’s a matter of just knowing my situation. I had leased several cars before that. When I turned the leases back in, I was never even close to going over the miles. And I said, “I could have made all of these payments and I would own the car now.” So that’s what I did. I picked out a car that I really, really like, and I still really like the car a couple of years later. And PS, I’ve driven the car for the last two years about 11,000 miles. I mean, I’m hardly putting any miles on the car right now.

Tim Mullooly: Right. The fifth point was don’t spend when you can invest.

Brendan M: These are all really, really general bits of advice. So I don’t want to like condemn what he’s saying, because I don’t even … Who is unintended for? Like I said, the answer to every one of these is it depends. So some distinctions I would make are obviously I think you need to have a little bit of your monthly cashflow situation earmarked for you to spend, and to spend, like I alluded to earlier, frivolously or without care, but to put restraints on it. Say, “All right, based upon the bills we have to pay and what’s coming in each month, we can realistically afford to just totally blow X.” And so to stay within those guardrails, but to just do it, because if you don’t have anywhere to just blow off steam like that and do whatever the heck you want, I think you’re going to be in a situation where maybe you stay on a budget for like six months, and then you have this giant splurge-

Tim Mullooly: Blow up.

Brendan M: … blow up where you set yourself back six months by doing it because you just did something too strict and crazy. So, I get the point. You want to save and you probably want to save more than you’re spending on, especially on what’s called discretionary items, but you just have to right size it for your situation.

Tim Mullooly: Yeah. We’ve also seen people that jump straight to invest, and that has sometimes been a mistake for people.

Brendan M: Right. So the distinction between save and invest and for what and how.

Tim Mullooly: Right, yeah.

Brendan M: All these questions that you’ve got to do in between.

Tim Mullooly: All right. So the sixth point that he had was don’t go to a fancy college. I think his point being that there are very expensive schools out there, and it doesn’t necessarily matter, to an extent, what school you get your degree from. I think there are some exceptions to that. I don’t really know where I stand on that.

Brendan M: Yeah. I don’t know. I think it’s, especially lately, like with people doing remote school for let’s call it almost the last year now. I think it’s an in vogue take to say it doesn’t matter at all where you go to school, but I don’t think I’m 100% there yet. I get some of the points, but I’m not entirely there.

Tim Mullooly: Especially with what’s happened in the last year, like you said, with remote learning. And even before that, it was becoming a more and more popular take that a college doesn’t matter, just start working and getting life experience. College is too expensive. I don’t really-

Brendan M: I see merits to both, and I don’t think that either is 100% right for anybody. Yeah, I don’t know. I mean, I get the idea that some schools are expensive. So maybe the point is more just to go to a school where you intend to do something that should give you a good chance to succeed in the field you want to, and for which the loans, or however you’re going to pay for it, will be manageable. Just understand the amount of debt you’re taking on and the bet that you’re making. Like, I’m betting that within five years of graduating from this school with a degree in X, I will have a job that enables me to realistically pay these loans and live a lifestyle that isn’t entirely crippled by that. Just trying to do that algebra to decide whether things are worthwhile or not. I think, certainly you’d be more aware of stuff like that.

Tom Mullooly: I go back and forth on this all the time. The first seriously heated discussion I had with my own father was, this was in 1979. He was pitching me on going to Nassau Community College, when I had just been accepted to pretty much every college I applied to. And I couldn’t believe that I was even having this conversation. But I grew up in a family of nine kids. How do you afford to do all of that? You can’t. Having said that, I also know that college is part educational, part social. I think what’s happening to college students now over the last 12 months is really going to damage their careers if they can’t react fast enough. Part of going to college is making the social. It’s learning the social skills, but it’s also the social connections that you make that you’re going to have for life. And I think that’s really important. So I don’t really know where that fits on the going to college spectrum, but I do think that there is some merit, some value to that.

Tim Mullooly: Yeah. I think it’s just being smarter about where you choose to go to school, kind of a combination of what you guys both just said. You might not need to go to that super duper expensive school if you can go to a more reasonably priced school and get a similar type of degree or experience that you’re looking for. So I think it’s just more about doing your research and not just recklessly taking on debt because you want to go to a certain school with a name tag attached to it. His next point was for after college. He said, “Don’t splurge once you graduate,” directed at the first few years after you graduate. You want to get your career established, get a job and start making money. Once you start making money, it can be enticing to want to spend some of that on potentially frivolous things, going back to the second point.

Tom Mullooly: I’ve seen a lot of people over my career, people who have graduated from college, so this is like over a 40 year spectrum. People who have graduated from college, and the first thing they did was they took six months off and they just traveled the world or they went out and they bought a car and basically dug a hole for themselves. They did some of these things that Ramsey talks about, and it can really put you in a jam right away. And people forget, those student loans start clicking in six months after graduation. So usually you graduate in May, happy Thanksgiving. You’ve got to write a check.

Brendan M: It’s probably the first time in your life, if you’ve successfully obtained a job right out of school, whatever level of school that is for you, it’s probably one of the first times you’re making anything much more than minimum wage. You’re maybe working summer jobs or high school jobs and maybe making a little more than that if you’re doing something with tips, like waiting tables, but in general, it’s the first time you’re making a salaried job, hopefully. So the numbers that you’re seeing, it’s new and it can make you feel relatively rich in comparison to yourself a year or two or three prior. So, I can see how it would be easy to make decisions that are not necessarily super wise. I think you’ve just got to consider that there are fixed costs each month that need to be taken care of.

So even if you’ve got a salary that makes you feel rich now, you’ve got to subtract … Don’t just take the gross salary and be like, “I’m rich.” You’ve got to net out stuff like your taxes and bills that are going to be due. And then you really see what’s left at the end of the month, and you may or may not be in a position to buy the things that you want or do the sort of stuff that Ramsey is alluding to, I think.

Tom Mullooly: So this is the pot calling the kettle black. My first paycheck from EF Hutton in September of ’83, I went out and bought a stereo, and it was my entire paycheck. I had these column speakers that were 60 inches tall and I got a new thing that just came out on the market called a subwoofer.

Brendan M: Nice.

Tom Mullooly: Yeah, I was rocking.

Tim Mullooly: Well, a follow-up question to that. How old were you?

Tom Mullooly: 20.

Tim Mullooly: Exactly. So I also think that, you think about a 20-year-old kid or someone who just got out of college, like I literally just called them kids. I still think of people in their early 20s as kids. So it’s-

Brendan M: Be realistic about what you expect from them too.

Tom Mullooly: Sure.

Tim Mullooly: Exactly. It makes sense-

Brendan M: You were just living in college, eating ramen noodles, and now you have a salary.

Tim Mullooly: Yeah, exactly.

Brendan M: Okay.

Tim Mullooly: Right. So I understand where some of the splurging is coming from with these college graduates right out of school. It doesn’t excuse 100% of it, but it does explain.

Brendan M: Don’t financially cripple yourself, but yeah, I think from our vantage point, be real.

Tim Mullooly: What can we realistically expect from these 20, 21, 22-year-old people?

Tom Mullooly: Yeah.

Tim Mullooly: The eighth point on the list, don’t give your kids an allowance. As the only person at the table with children, what was your take on allowance? I forget because I was a child.

Tom Mullooly: Actually, I did start you guys on an allowance, and a couple of weeks in, I would forget, or I wouldn’t have any money in my pocket. I wouldn’t have cash. And I couldn’t tell you guys, “Well, I’m getting paid next week. You’ll have to wait.” So after a while it was like, “Hey, why don’t you do this thing, and I’ll give you a quarter or a dollar.” Something like that.

Tim Mullooly: That was Ramsey’s point.

Tom Mullooly: That’s kind of where he went with it too. Yeah.

Tim Mullooly: Right. He said, “Don’t just give them money for doing nothing. Give them money, but maybe,” like you said, “ask them to do a chore around their house.” And it’s-

Brendan M: Didn’t he say to call it something different too? He was like, “Call it like a commission or something.”

Tim Mullooly: Yeah, a commission, not an allowance, or something.

Brendan M: Well, but just to get children on board with the idea that-

Tim Mullooly: You earn this.

Brendan M: … you work and you earn money for doing something, as opposed to something that you should just collect for existing. It’s like, “All right. So, here’s your money. You mowed the lawn this week. Here’s $10. Thanks for doing that. And there’s more where that came from if you want to work harder.”

Tim Mullooly: All right. Moving on to the ninth point that he brought up. Don’t try to get rich too quickly. This is-

Tom Mullooly: So, the flipping the Airbnb IPO. Is that not a good idea?

Tim Mullooly: This kind of goes back to what I said before about people that invest before they should probably invest. You’re putting the cart before the horse and making financial moves that you probably shouldn’t without the proper foundation underneath you. We talk about all the time, there are steps. There’s a hierarchy of things that you need to accomplish before you start investing or doing other things that could potentially “get you rich”.

Tom Mullooly: You’ve bumped into some day traders lately. It seems like we’ve gone full circle in 20 years. The day traders are back.

Brendan M: I mean, I think we’ve gone full circle in this calendar year in 2020, because we went from extreme fear in March to probably something close to extreme greed this last month or two. So yeah, I think getting rich quick, whether that means investing in the market or some other kind of a scheme, and I know that by calling it a scheme, I’m revealing my hand here. I just think that if the plan is to get really rich in a short period of time, that something is wrong and it’s probably not going to go the way that you think. And so to just be realistic about how all the people who we try to emulate and learn from really grew their wealth over time. None of them were sudden wealth situations. They were people who built businesses and invested wisely and did things prudently over decades.

And I think that that’s unfortunately the way that you actually become wealthy. And some people don’t want to hear that, but it’s the truth. And that’s the only way I’m comfortable telling somebody that they can be wealthy one day is by doing things right, consistently over a multi-decade horizon.

Tim Mullooly: All right. So the last point in this article is don’t buy an engagement ring from a jewelry store. I disagree with this. I’ve never bought an engagement ring, but you two have. So, what do you think?

Brendan M: Some people talked about going to New York City and going to the diamond district or whatever. I didn’t know enough to do that, and I honestly couldn’t be bothered. So, I went to a jewelry store and I bought an engagement ring that way, and I’m perfectly happy with it. I spent what I thought was reasonable and my wife is very happy with the ring. So, I don’t judge anybody. If they wanted to do it differently than me, that’s great. As long as it works for you, I don’t have feelings about that.

Tom Mullooly: So I happened to work with a guy who knew a guy. This guy actually worked in the diamond district. I picked out a nice diamond for my wife’s ring at this guy’s dining room table at his home in Brooklyn. Me going into the city back then, no big deal, in the ’80s. I lived on long Island. I was in the city probably once a week. So that was not a problem for me. I think if I lived here or anywhere else, I would be going to the mall.

Brendan M: I felt like the whole thing was kind of like a for me, because I’m so low information as it pertains to diamonds. I told the gentleman at the store what I was looking for, and then I came back a week later to look at several different stones. And he’s putting it under a magnifying glass, like, “Look at this thing, look at that thing,” as if I have any idea whatsoever.

Tim Mullooly: Ooh, it’s shiny.

Brendan M: I don’t know. And I felt comfortable buying it at a store because you presume that they’re a reputable place. They’ve been there for a while, that you’re not getting completely cheated on this. It’s not like an efficient market where I see the bid-ask spread, like when I’m trading an ETF at TD Ameritrade. I have no information on this and I have no desire to learn about how to pick out diamonds. So it was just kind of a thing that, “Hey, I would like to get engaged. I need to have a ring.” So however people arrive at doing that, if they know more than I do and want to really dig into that process, that’s great. It wasn’t for me. I kept it simple, I think.

Tom Mullooly: I think that the bigger message there is at certain points during our lives, we’re going to get involved in things that we just don’t know enough about. We just don’t know what the real price of a diamond is. We just don’t know what the real price of that car is sitting on the lot or sitting on a used car lot. What problems came with that? There’s a lot of things that go on. I mean, we could apply the same conversation to bonds. What is a bond worth? Well, it’s worth whatever these five-

Tim Mullooly: Your house.

Tom Mullooly: … bond desks are going to bid for your bond. That’s the value of the bond.

Tim Mullooly: Yeah. It’s what the market will bear that day at that point in time.

Tom Mullooly: Exactly right. And so there’s a lot of episodes in our lives that we just don’t have enough information to make a good guess. So we do the best we can.

Brendan M: So, you do what’s good enough.

Tim Mullooly: Yeah.

Tom Mullooly: That’s right.

Tim Mullooly: And I think when it comes to an engagement ring, sure, you could make a financially better decision, but it’s such a personal thing, that if that’s what you want to do and that’s what makes you happy, then it’s too personal of a thing, I think, for me to have the financials outweigh the personal, or sentimental value of what you’re doing.

Tom Mullooly: I can get it $5 cheaper at Zales.

Tim Mullooly: Right. It’s like, you’re going to nickel and dime your engagement ring? It doesn’t-

Tom Mullooly: What are you saying?

Brendan M: It’s not an investment.

Tim Mullooly: Right, yeah.

Brendan M: It’s for a completely different purpose than that. So, yeah, I totally agree with that.

Tim Mullooly: All right. Well that was the 10 don’ts from Dave Ramsey. Glad we could give our two cents on all of them. That’s going to wrap up episode 335 of the Mullooly Asset podcast. We’ll see you next week.

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If 2020 has taught us anything, it’s that price targets for the following year are really just guesses.  At best they’re entertainment and at worst they’re harmful nonsense to individual investors.  Nobody could’ve predicted the events of 2020, and surely nobody could’ve predicted the market’s reaction to those events.  Our advice for 2021: stop trying to predict the market future.

Show Notes

‘Tis the Season for 2020 Market Forecasts’ – Mullooly Asset Podcast Ep. 287

‘Who are You Listening To?’ – Josh Brown – The Reformed Broker

2021 Price Targets Don’t Matter – Transcript

DISCLAIMER: Tom Mullooly is an investment advisor representative with Mullooly Asset Management. All opinions expressed by Tom and his podcast guests are solely their own opinions and do not necessarily reflect the opinions of Mullooly Asset Management. This podcast is for informational purposes only, and should not be relied upon as a basis for investment decisions. Clients of Mullooly Asset Management may maintain positions in securities discussed in this podcast.

Tim Mullooly: Welcome back to the podcast. This is episode number 334 of the Mullooly Asset Management podcast. This is Tim Mullooly. Brendan is here with me today. Brendan, how’s it going?

Brendan: Going well. It’s the end of the year. You know what that means?

Tim Mullooly: Tis the Season. Last year, we’ll start off with this. Last year episode 287. If you go back was called Tis the Season for 2020 market forecasts. This one appropriately, we’ll say, Tis the season for 2021 market forecasts.

Brendan: So how many people foresaw in their market forecast for 2020, how this year was going to go?

Tim Mullooly: Approximately zero. There might be some people out there who, their numbers might be somewhat accurate, but the route that we took to get there, literally no one could have predicted what happened throughout this year.

Brendan: And also if you went back to this time last year, and instead of giving a price target, you gave somebody the information about what was going to happen.

Tim Mullooly: Here are the events that’s going to happen over the year of 2020.

Brendan: Right.

Tim Mullooly: What’s your price target now?

Brendan: Right, exactly. So I think even if you had all the information in the playbook, meaning there are the known events, such as we’re going to have an election later in the year and by the way, we’re going to have a pandemic right at the beginning of the year. And that’s going to stretch the entirety of the rest of the year. What do you want to do with stocks as a result?

Tim Mullooly: Yeah.

Brendan: Most people probably would have said sell or be hedge or buy bonds or puts or gold or some other sort of stuff. And that’s been not at all what you would have wanted to do this year, surprisingly.

Tim Mullooly: 2020 has just been a good reminder for price targets since the last month of the year, here in December. Every year you see people coming out with their price targets for the following year. It’s just a good reminder that these price targets are at best entertainment and at worst harmful nonsense if you’re taking action on some of these price targets with your investments.

Brendan: Yeah. You’re going to see people from different banks, investment shops, and they’re going to be making the rounds on their white paper notes or their TV appearances to say that the S&P 500, the Dow Jones, the 10 year yield, or Bitcoin, this is where they’re going to end 2021. And it’s all just nonsense, it’s guesses, but it kind of gets passed off as something more scientific than that. People will give you very precise numbers in these predictions that makes it seem like they’ve done quantum physics behind the scenes to come up with this price target. When in reality, it’s just a guess.

Tim Mullooly: Yeah. Some people tend to rag on the people. Like it might sound like we’re ragging on the people that make these forecasts or these price targets. But the only reason they’re doing it is because people out there in the general public want to hear them, you know? So it’s a two-way street there. They wouldn’t need to make these price targets if people didn’t demand it from them.

Brendan: Yeah.

Tim Mullooly: Stop demanding price targets from people and you won’t have to hear their guesses.

Brendan: Also important to keep in mind too, that folks will make price targets now. We saw this a year ago, so you’ll make a price target now, at the end of 2019, last year at the end of 2019, that says this is where I think things will end up at the end of 2020, and then.

Tim Mullooly: A 12-month price target.

Brendan: Yeah. Yeah. And so then they’ll come back after the market action we saw in February and March and amend their prices for the first quarter. Well, now considering what’s happened in the first quarter, this is where I think the year will end up.

Tim Mullooly: The rest of the year 2020 price targets. The nine month price targets.

Brendan: They’ll amend it lower.

Tim Mullooly: Yeah.

Brendan: And then over the summer, as things start to recover, they come back out and say, well, considering all of this and the progress that we’ve made, here’s where we think the year’s ending up. And so what they ultimately end up doing is they basically shoot an arrow and then walk at the end of the year and draw a bullseye around it and start celebrating as if they called it.

Tim Mullooly: Yeah.

Brendan: See how right we were. And you don’t need that sort of information to invest appropriately. You didn’t need to have a 2020 price target to do well this year. What you actually needed to do was understand your own time horizon and why you’re investing in the first place so that you were set up appropriately to endure the downside volatility of February and March, and then also reap the rewards of the recovery that we’ve seen since March.

Tim Mullooly: Right? Like you said too, a little bit earlier, even if you knew the events, you still don’t know what the market’s going to do. So we always talk about how predicting the future is impossible, but you would have needed to predict two things correctly to be right here in 2020, if you were trying to jump in, jump out, jump in, jump out based on what’s going on.

Brendan: Not only would you have had the unknowable event, but you have to then predict how people are going to react to that event, which is even more impossible than foreseeing something in the first place, because it involves human emotions of millions of people across the face of the earth.

Tim Mullooly: Yeah. So your price target would have had to see COVID-19 coming and then it would have also had to see how people were going to react to that in terms of the market.

Brendan: And also stimulus response from the fed and from Congress.

Tim Mullooly: And what kind of impact they were going to have on the market and how people thought about that.

Brendan: So what they did was, these are things that we’ve never even seen before. So to predict that would have been, wow, you really think they’re going to do that. There’s no precedent for that. This whole year has been unprecedented this, unprecedented that.

Tim Mullooly: Right.

Brendan: And you don’t need to play these games, I guess, is what we’re telling folks. And I think that’s what we told them last year, too, that we didn’t need to have a price target to make an appropriate portfolio for clients.

Tim Mullooly: Yeah. I went back and I re-listened to episode 287 when we were talking about people’s 2020 price targets. And a lot of the conversation in 2019 was about interest rates and the fed. There was no mention of COVID-19. There was no mention of a pandemic. There was no mention of vaccines, stimulus, recessions. At that point, we didn’t even know that Joe Biden was going to be, we didn’t know who was going to be running the democratic nominee. So we didn’t even know what the election was going to look like or what was going to happen from that. But the messages that we had were the same at the end of 2019 as they have been throughout the year and as they still are today going into 2021.

Brendan: Yeah and sometimes it’s a boring message sometimes. Because a lot of the advice we have is evergreen. And sometimes it seems like there’s no way that evergreen advice could be right, considering this. This is totally different. This is something we’ve never seen before. And I think I’d err on the side of saying that’s not the case and that’s a trap. And I think that when it seems like the eat your vegetables kind of boring advice that sometimes we have to give out, when it most seems like that is no longer appropriate, is exactly when you need to do it the most. And it seemed like that in multiple cases this year, not only during the sell-off earlier when the virus first hit, but also in the month or two leading up to the presidential election.

Tim Mullooly: Yeah.

Brendan: We had plenty of discussion about that here on the podcast and in videos and on the blog.

Tim Mullooly: So there’s pretty much two textbook examples of staying the course and our message here, like you said, the boring, eat your vegetables, kind of sit there, do nothing approach. It worked out two times this year so far. Again, we don’t know what’s going to happen in the future, but based on things that have transpired, as time goes on, it seems like that’s usually the thing to do.

Brendan: Our advice is never going to be right because some short term market view of ours has been proven correct or anything like that. It’s never because of that. And so you’re right to say that we don’t know what the short term brings for the market, and we’ll never purport to know that. However, we do purport and understand our clients and what they’re doing and their circumstances and what they’re comfortable with and their goals. We do understand all of that stuff and that’s how we’re building our portfolios. And I think that’s why we can help folks get through a year like this successfully because those are the things that matter even when they don’t seem like they’re the most important things.

Tim Mullooly: Yeah. I agree. And on top of that broader message of how events impact the market. Another message that we talked about in 287 last year was about the benefits of diversification and how big name stocks can come and go. So the benefit of having exposure to different areas, we were talking about the different decades where international was the place to be. Or you did better in bonds than U.S. stocks or different areas of the stock market.

Brendan: And it’s still valid. We just saw that with the returns that we saw in November.

Tim Mullooly: Yeah, exactly.

Brendan: That was a perfect case in point of what you’re describing in terms of, most of the year large cap U.S. stocks and technology stocks did really well through all of the virus. And you obviously realized the value of having bonds in your portfolio during the sell-off in March. But just last month we saw the S&P 500 up 10%, but we saw some other areas of the market, meaning some of this diversification you’re talking about, do even better. Small cap stocks were up 16% in the month of November. That was their best month ever recorded for the S&P 600 index, which is the small cap stocks. And surprisingly enough, or maybe not, the worst ever month for them was March of this year.

Tim Mullooly: Yeah. And I know we’ve said it before, either on podcasts or videos, but you know, the research shows that usually the best and worst months for the market in general or different areas like you’re saying, small caps, those best and worst, the extremes tend to happen really close to each other. So it’s hard to jump in and jump out because you might be jumping out to avoid one of the worst months, but odds are you’re not going to get back in before you potentially miss one of the best months.

Brendan: Yeah. There was absolutely no signal or sign in March to say that small caps are about to get creamed, worst month ever. Just as there was no sign as the calendar turned from October to November that they were about to take off and have their best month ever.

Tim Mullooly: Yeah.

Brendan: And so short of having something like that, which, hint hint, does not exist, short of having something like that, you just need to make sure that you own some of these areas and that you do so in proportions that are appropriate, given what you’re trying to accomplish, which is exactly what we help clients with. We can’t do short term market timing to nail these tops and bottoms, their best and worth worst months, but we can help people to own these things in reasonable proportions, given their goals and what they’re trying to do.

Tim Mullooly: It doesn’t always work out the way that it did in November. Today is December 3rd, it’s one month from election day. There are plenty of people who wanted to kind of wait out the election and see what happens. Should we take some money off the table? We don’t know what’s going to happen either way, depending on who wins.

Brendan: Yeah.

Tim Mullooly: Before the election, leading up to it, once the quote unquote dust settles, we’ll be able to get back in. Right. Exactly. So it doesn’t always work out this way, but it was a clear…

Brendan: Classic example of why you can’t do stuff like that.

Tim Mullooly: Exactly.

Brendan: Because like I just said, small cap stocks up 16% in that month, mid cap up 12. Value stocks, which had been lagging all year, up 14.

Tim Mullooly: Right.

Brendan: The S&P 500, even just the plain old market, up 10. You can’t afford to miss that many 10% months over your investing lifetime. Because if you missed enough of them, they don’t happen that often. And all you’re doing is you’re eroding your returns. And I know that in a lot of cases, it may have seemed like the smarter savvy thing to do, because there’s a lot of uncertainty. There’s this big event that everybody’s worried about. Seems like a great time to just wait and see. But it wasn’t a great time to wait and see.

Tim Mullooly: And there’s still uncertainty.

Brendan: Yeah, yeah.

Tim Mullooly: There are still things up in the air.

Brendan: We don’t have all the answers and we’re never going to. There’s always going to be a crisis de jour on the horizon.

Tim Mullooly: Right.

Brendan: And that’s just something that we have to deal with as investors. That’s why we make money by owning stocks. It’s for bearing that risk.

Tim Mullooly: Right. Yeah.

Brendan: It’s because we don’t know. If we knew for sure how everything was going to play out, there would be no risk involved.

Tim Mullooly: Yeah, exactly. There’s trade offs to wanting to see how things play out versus to just potentially buckle up for whatever’s going to happen.

Brendan: Understand that there’s uncertainty. Try to wrap your mind around what the potential outcomes could be.

Tim Mullooly: Yeah.

Brendan: And then do something based upon your comfort levels of what the possibilities are.

Tim Mullooly: Yeah. And it’s easier said than done to look at what’s going on in the country, whether it’s political or to what’s going on in the stock market and your own personal investments. It feels like everything is intertwined. Like this is going on in the country, or this is going on, or this headline is saying this. So like, I think my stocks are going to go down. It’s really hard to separate everything out from like getting caught up in what’s happening versus your own long-term portfolio. It’s really hard to separate the two.

Brendan: But you have to do your best with it.

Tim Mullooly: Yeah. That’s where you want to get to.

Brendan: So having said all that, where do you think the S&P ends 2021, Tim?

Tim Mullooly: One funny thing actually from episode 287, we were talking about different stocks that were around that are no longer around anymore. And one that Tom said on that podcast was Eastman Kodak. And you guys were talking about how Kodak was once a massive stock and how it’s essentially bankrupt now and out of business. And little did we know Kodak was going to have a quick 15 seconds of fame here in 2020? You remember that?

Brendan: Yeah. Hot second, where we were all talking about them.

Tim Mullooly: Yeah.

Brendan: This year with people buying their stock on Robinhood and things like that. So, yeah, that is funny.

Tim Mullooly: Yeah. There was a chart that we have talked about before and it goes back to listening to people on TV or these guys that are making these price targets. And it’s important to remember who they are, where they’re coming from and their incentives, and why they might be saying what they’re saying. The chart and in the show notes, I think we’ve posted it before, but it’s called like the Armageddonist chart, because it’s a handful of guys that for the last decade essentially have been saying, get out of the stock market and go to cash.

Brendan: Yeah. And it shows that if you flipped and you did what they said on the date they said it like what your returns would have been like there.

Tim Mullooly: Right.

Brendan: And it’s the opposite of the chart you’d like to see. It’s from the top left to the bottom, right?. They’re all money losing trades.

Tim Mullooly: Yes.

Brendan: So maybe eventually they’re vindicated, but I think the important point, like you said, Tim, is to just remember that when somebody is giving a price target, there’s something to it. So they’re probably talking their own book or it could even be a veiled commercial for whatever it is that they do. Listen, if you want to watch that sort of stuff and use it as entertainment, that’s great. But don’t go making changes to your investments or even really considering it based on what anybody has to say.

Tim Mullooly: Right? Yeah. It might seem like they’re speaking directly to you, but they’re not your fiduciary advisor. They don’t have your best interests personally.

Brendan: They probably aren’t even doing anything as a result of those guesses with their own money.

Tim Mullooly: Exactly. It would be great to see a graphic on the TV screen of someone who is giving advice about the direction of the market or their price target for the next year. How is their money invested. What are they doing if they manage a hedge fund or client’s money, what are they doing with that? I think there’s something to be said. You mentioned the phrase earlier, not wrong, just early. That doesn’t really apply when the timeframe there is a decade. You’re just wrong at that point. Eventually these guys on the chart and people that make these sort of calls. They may eventually be right. But if you’re wrong for 10 years before that? That’s not the track record that you want. You’re just wrong at that point.

Brendan: You can call for market corrections or drops in stocks as much as you want and eventually you’re going to be right, because eventually markets do go down just like they eventually go up, too. There’s nothing to say that’s useful information to predict the market going down, unless you have an exact date and the amount that it’s going to go down. I’m not sure that’s even helpful to folks, but it certainly gets headlines. It gets you invited back on to talk shows and all that, articles written about what you have to say. So, it accomplishes that but I’m not sure it really helps anybody. And, again, I’m not sure that folks predicting that sort of thing are necessarily going out and shorting stocks or doing anything as a result.

Tim Mullooly: Yeah. And I think these guys who are perpetually bearish in a sense about the market, at least for the last decade, the chart was updated to show this year as well. So the market, we did see an extremely quick bear market, but we went down 35%, and the chart reflects that, but these guys still are net incorrect. So it just goes to show if you told these guys before the year started, too, they’d double down on their predictions and they’d still be wrong.

Brendan: Yeah, it’s a game you don’t have to play.

Tim Mullooly: Yeah.

Brendan: Unless you want to be a guest on financial TV shows and then I guess you do have to play it. But that’s fortunately not something that we have to sign up for.

Tim Mullooly: Right. It feels like it doesn’t need to be said over and over again, but predicting the future is impossible.

Brendan: Right.

Tim Mullooly: And we say it a lot, but it bears repeating because for some reason people out there like to try and convince other people that they can do it. We’re here to say that that is not the case.

Brendan: We can’t, you can’t, nobody can. And it’s totally okay. You don’t need to be a good investor.

Tim Mullooly: So I fully look forward or to having our Tis the Season 2021 podcast next year. One thing that I did want to bring up, this is not market-related, but it had to do with some predictions that we made and it drives the point home that predicting the future is really, really hard. We’re going into week 12, I think, or 13 of the NFL season. And I remember we were sitting here weeks ago at the beginning, right before week one. And I asked you what you thought the Jets were going to do this year.

Brendan: What did I say?

Tim Mullooly: I think you said either five and 11 or six and 10.

Brendan: All right. So I was bearish, but not bearish enough.

Tim Mullooly: I said they were going to go like 500. And if any of you are NFL watchers or Jets fans along with us, I feel your pain. And also, it just shows how very wrong we were.

Brendan: We’ll stick to helping folks with their investments.

Tim Mullooly: Exactly. Yeah. All right. Well, that’s going to wrap up episode 334 of the Mullooly Asset Management podcast. Thanks for tuning in. We’ll catch you next time.

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