[00:00:00] Intro: Forget the civilized path. It’s time to break the chains of debt and dependency, take control of our financial lives, and live free. This is the Fiscally Savage Podcast.

[00:00:15] Dylan Bain: Hello and welcome to Fiscally Savage. I’m your host, Dylan Bain. And today, I wanna talk about 2010. That’s right, ladies and gentlemen. We wanna go back to the year of 2010, specifically March 21st, 2010. If that date rings a bell, it was probably because that is the day that the Deepwater Horizon oil platform in the Gulf of Mexico exploded and millions of barrels of oil were spilled into the Gulf of Mexico. And at the time, I’m not in the United States. I’m sitting in my apartment in Taiwan and I’m watching this and I turn to my wife. After all, we had just gotten married like a month before this had happened. I said to her I said, Honey, this is it. This is a great opportunity for us to get into the market and buy some shares at a low price because BP, which was the owner of the oil contract for that platform, was just cratering. The stock price was just falling and falling. And I’m sitting here and I’m so excited, and so I wait because I’m smart, right? I’m smart. I’m good at math. I can do some computer modeling. And I’m gonna be the smart guy because I can outthink the market. And so I wait and I wait. And then finally in June of 2010, I pull the trigger and I buy shares of BP at $67 a share. And I’m so excited because I have done all of my homework. I have read all of my research. I have done all of the analysis. This is going to be a slam dunk and I am absolutely certain of it. And one year later, I’m looking at the share price of BP and I sell every share I hold — $44 a share. And I’m sitting at my desk wondering how I managed to lose so badly.

[00:02:11] And it’s in that moment, ladies and gentlemen, as I’m sitting there at my desk in Taiwan looking at my losses at what I was certain was gonna be a sure bet because what I really thought was gonna happen is that BP was just gonna tank and then they were gonna come back out of this. And the whole world needs oil, right? And BP has just a ton of different properties that they are pulling and extracting oil out of, and so they’re gonna come back and when they do, I figured I’d buy low and I’d sell high. And so I did buy low. If you actually go and look at a stock chart for 2010 for BP what you will see is that I actually bought at just the right time. I bought in June when the stock bottomed out. And over the next three months, it had a really nice run and then it didn’t. In fact, if you look at what $67 a share for BP back in 2010 and then, you know, bring it forward here to the present, you would then see that on Friday, BP closed at $38 a share. So it still hasn’t recovered. Here and we are what? 13 years later? And so the important lesson to know here is that what I had done was I was trying to time the market. So at this point in my life, I’m newly married. I am a married man. And what I’m wanting to do is I want to build this life for my wife and my theoretical at that time children. And I was gonna do it because I was really smart, and ladies and gentlemen, at least I like to think that I’m very smart. I’m very accomplished. I understand things soberly. I can act with ice water in my veins when I need to, and so I figured just day trading into the stock market would be a really good plan. Unfortunately, like the vast majority of day traders, I lost a lot of money because I wasn’t thinking necessarily clearly because I didn’t understand how the risk works; because what I was really attracted to was all of the home runs that I saw other people hit.

[00:04:07] And so if you actually sit down and look at the performance of two assets, BP stock — I’m just using it as an example, okay? — and then something like VTSAX. What is VTSAX? VTSAX is Vanguard’s Total US Stock Market Index. An index fund is when you pool a bunch of people’s cash together and you buy a market-measuring index, so that the value of your pool of cash is gonna go up and down based upon that index. An index that you would be familiar with is something like the S&P 500 or the NASDAQ Composite or the Russell 2000. There’s a ton of these different indices. And so what VTSAX has done is said, We’re just gonna buy stocks for every single company traded on the US stock market in the same proportions that they are found on the US stock market. So if the market goes up, that fund goes up, and if the market goes down, that fund goes down. All it does is it tracks that. It is quite literally the most boring way to invest in the stock market. But if you look at those two funds, if we start off when I bought BP, which is right around the 1st of June 2010, and brought it to present, BP over that period of time has returned a total of a negative 22%. And that, ladies and gentlemen, also includes all of the dividends that BP has paid out over that same period of time. And so even if I had held that stock, that one individual stock, over that period of time, I would’ve been down 22%. But if I had made the same investment in VTSAX and then held it right now, I’d be sitting on an unrealized gain of 352%. That’s a pretty big difference — negative 22 versus a positive 352. There’s worlds of difference, but the major difference here is that in the one case with BP, all of my money is on one company in one place and my risk is huge. My fortunes now rise and fall based upon how well BP does, which in this case over 13 years has not been great. Versus my fortunes rising and falling based upon all of the companies in the US stock market. What you’ve done in the latter case is spread the risk across everything, going from gambling on just BP after Deepwater Horizon, which is what I was doing, versus making a bet and an investment in the entire US stock market.

[00:06:42] And don’t get me wrong. People will go into the market, they’ll time it, and they’ll hit it big. I’ve always been entertained when I look at things like the media. Remember the media has an agenda. It’s to make money, and nothing makes money like fear and outrage. If fear and outrage had a little sibling, that little sibling would be sensationalism. And it’s sensational to have people who did things like this is the man who called the 2008 recession back with a brand new warning, and why do they do that? Well, this guy was right one time. My question is, how often is he right all the time? Because anybody can win once but that doesn’t mean they’re going to win over the long term, and that doesn’t mean that they won in anything other than a coin toss. But that high risk/high reward when you’re gambling on one individual company, well, the probability that someone’s gonna win the lottery is a hundred percent, but the probability it’s you is very, very small, which is why we need to focus on risk.

[00:07:42] And let me just replay the example. If I had, for example, invested in VTSAX back in 2010 or I invested everything in Apple, well, Apple has outperformed the market hands down. But the risk profile between investing solely in BP and solely in Apple are relatively the same because you’re putting all your eggs in a singular basket. Which brings you into this idea of why do people do it? Well, because it’s sexy; because it’s exciting. And when we talk about net worth, everybody wants to see their net worth skyrocketing up because we all have this dream of if only my net worth was high enough, then I could retire early and I could do the things that truly mattered to me. The problem with that is that what it incentivizes people to do is to take large swings, and there are real estate courses and crypto strategies and Airbnb strategists who will line up to teach you how to go to work for yourself and take a big swing because maybe it worked for them but probably it didn’t. Actually, it just worked enough for them to start this company, so they can make money off of you trying to do it. It wasn’t the last time that I played the game of trying to time the market. I had to get burned a few more times. And let’s be honest here for a second. I’ve actually been more successful than I haven’t in doing this — not wildly successful obviously, but successful enough. But the difference is is that my long-term investments, the money that I put into the boring things, has been far more stable. The highs and the lows have been far more smooth over time and the return, quite frankly, has been far better but without the heartburn and all the anxiety of having to try to pick and time and get right all the different minutia in the market.

[00:09:29] So when it comes to investing and growing your net worth, it’s really important for us to understand how the game works. And ladies and gentlemen, this is really hard for humans to do. Why? Because at the end of the day, we are products of evolution, and evolution has developed us to look at very specific and certain things. For example, it turns out we are terrible at things like probability and statistics. We will make the wrong call almost every single time. Why? Because the probabilities are we’re going to be okay, but a dead monkey today doesn’t have babies tomorrow, and so we’re biased towards noticing and fixating on certain things. One example of this is the lottery, right? We fixate on, Oh my God, this person won the lottery. Oh my God, this is a Bitcoin millionaire. Oh my God, this person made it big doing X, Y, and Z. And we focus on that because it’s what we can see and what we see is resources and our monkey brain’s like, yes, I want that. I want that level of resources. The problem is is the monkey brain doesn’t stop and go, wait, wait, hold on a second. Am I seeing a mirage here? How many other people followed this exact path but didn’t make it? And so like in the case of a lottery, if we gave everyone who plays the lottery on average who doesn’t win 15 seconds on the evening news, you would on average have to watch TV for 23 consecutive years without stop in order to see all the people who played and lost. That’s huge. But our monkey brains don’t think about that.

[00:11:04] So in an attempt to try to help encourage you to be brilliant in the basics and understanding that good investing and solid, predictable wealth creation is going to be boring and to try to help you be brilliant in the basics, I wanna pitch you this idea of two baseball teams, the Singles and the Homers. Here’s how the game works. The Singles and the Homers, they only play each other and they play each other for a thousand consecutive games. The singles though they have optimized their team so that every time they’re at bat, they hit a single. And they can do this 75% of the time reliably, so just keep that in mind. The Singles only hit singles 75% of the time. The Homers, the Homers though they hit a homer 25% of the time. So singles 75% of the time, homers 25% of the time. And then they compete. So what I did is I used ChatGPT to create a simulation — took me quite a while to get the computer to actually do what I wanted to do — to actually sit down and play me a thousand baseball games with these statistics. Every time one of the people from the Singles got up there, he had a 75% chance of hitting a single. Every time a Homer got up there, he had a 25% of hitting a homer. And it ran the games and gave me how many games out of a thousand each one won and what the average score when one when the Singles won versus the average score when the Homers won. And what was interesting is that in my scenario, you have to kind of think about it like the Singles, they got a hit four — and be successful — four consecutive times before they get a run whereas the Homers just need to be successful once. But in a thousand games, the Singles won 54% of them. So on balance, the Singles win far more often. So now what I did, ladies and gentlemen, is I then reran this and I’m using ChatGPT, so I’ve got some major computing power to help me out, and I had them re-run this scenario but increasing the Homer percentage by 5%. So in game one, the Homers hit a homer 25% of the time. Then the next one next thousand games, they did 30 and so on until they hit the breakeven. And then after some fine tuning, the Homers don’t break even, which means that the Homers don’t perform as well as the Singles do until the Homers can reliably hit a homer 42% of the time, which means — and you might be sitting there thinking like, oh my God. Well, clearly the Homers have the better strategy. But stop and think about what it takes to hit a homer. On any given baseball team, you might have one, maybe two if your really great three guys who are your home run hitters who consistently hit them. Most of the time, they’re not overly successful. And so what it means is that in order to beat the boring team, the Singles — because let’s face it, no one was gonna wanna watch them play baseball — the other team has to be supernaturally good. And it’s not that the Homers won’t win. They do. And if you look at the average scores, when the Homers win, they win with almost twice as more points than when the Singles win. So that is to say, when the Homers win, they win bigger than the Singles win when they win. And so it’s not that it won’t happen. It’s not that the Homers won’t hit home runs and win games. It’s absolutely statistically certain that they in fact will. It’s just not likely, which quite frankly is boring.

[00:14:42] And so it’s important for us to understand in this particular scenario, I’m pitching two metaphorical baseball teams because that’s basically your choice when it comes to making your investments work for you. You can choose the boring, brilliant in the basics, statistically likely path or you can try to start swinging for homers. Because if you actually stop and think about it, the idea that you’d have a baseball team that could reliably hit homers 42% of the time is just kind of outrageous. But since the Moneyball incident in which the Oakland A’s started to optimize their teams, they actually have optimized so that they can get on base more than they can hit homers. Gone are the days in which everybody lined up to see the home run teams because the baseball teams are not optimized for that anymore. Why? Because over time, the boring, predictable strategy is going to win. And just like in baseball, the stock market works more or less the exact same way. Over time, the market is a weighing machine that weighs the quality of different companies, and they will rise and fall based upon that quality. But in the short run, it’s gambling. And gambling can be exciting. And those who win big, when they take big swings, they’re gonna post this everywhere. They’re gonna open YouTube channels. They’re gonna go on podcasts. They’re gonna be on Good Morning America. They’re gonna be on the five. They’re gonna be on all sorts of stuff, telling anybody who would listen because they won big and they want their 15 minutes of fame. And then a whole bunch of them are gonna start classes and conferences because you can do it too and they want to give back and all these other things. My question is if it was reliably predictable, wouldn’t they just keep doing it? And there are firms that are reliably predictable. It’s just unfortunate that those firms are actually closed and people that are retail investors like, you know, myself and you, we don’t get to invest in those companies.

[00:16:45] And so for us sitting here, the question we have to answer for ourselves is what exactly then do we want to do? Knowing that the people that we see most that seem outlandishly sexy and amazing and exciting, those are the ones who won and they won a high stakes game. Understanding that our perception is broken is really hard because when we get right down to it, what we start to hear is, oh, have you heard of this strategy? Have you heard of this strategy? And then your friends are seeing the same YouTube ads that you’re seeing. They’re getting the same reels that the algorithm at Instagram have sent them and TikTok have sent them. These are machines that are designed to rob you of your attention, and they’re gonna put the same things out over and over and over again until you start to believe it. That’s how they work. Unfortunately, the math on the backside doesn’t work. And again, this ties to our evolutionary psychology. Like we like to believe as humans that we are un-manipulable; that we could tell a lie if it was told to us. But the reality is when a supercomputer is pointing at your brain, you don’t stand much of a chance. And so understanding that that perception that there’s all these get-rich-quick strategies that’ll work and that’s a great way to grow your net worth, it’s not. The math simply doesn’t work.

[00:18:07] And so the process that we have to undertake when we are chasing our net worth and attempting to build a better life in the future, a more wealthy life in the future, is to find a strategy that is within your risk tolerance. Things like starting a business, real estate, crypto, Airbnb — well, ladies and gentlemen, the returns on that are huge. They’re home runs. And in fact, I was hunting a couple of weeks ago with a guy who has been a serial entrepreneur and he retired at age 36. He’s amazing. It’s incredible. And I’m really impressed with what he’s built. I also understand that what has happened there is he has taken calculated risks and has won at the majority of them over time. And he’s had a lot of other things, you know, mentors, friends that have helped him out. And when I look at my strategy, I’ll be like, well, I wanna do the same thing. Well, maybe. Depends on what your risk tolerance is. My risk tolerance just isn’t that high. Instead, what I’ve decided to do is I’ve decided to leverage more predictable tools. Because would starting a business, getting into real estate, getting into crypto, getting to Airbnb — can that generate huge returns? Totally. But will it redo that for you? Most likely not. And that’s the risk tolerance we have to understand. To understand that there’s risk, to understand that there’s ways to mediate that risk, and that if you just are looking at it and going, you know what? I just don’t want that level of heartburn, there are other options. So what’s the other option in this, if not for the home runs? It’s the singles. It’s low-cost indexing. It’s finding funds that are very low cost that track the market that will give you whatever the returns that are generated by everybody else trying to find better returns. That’s what indexing does. It’s boring. It’s lazy. It’s a set it and forget it. You start investing in it. You go back to the things that you’re very good at, the things that you make money at — climbing the corporate ladder, paying down your debt, focusing on having good conversations with your wife. And the whole time, you’re just taking a portion of your income and putting it in there. And over time, the compound interest will make it grow in a stable and relatively predictable fashion. And if we’re gonna look at the math behind it, it’s the surest path to wealth that most people take. The millionaire next door? Chances are good, they didn’t get there taking big swings. They got there by doing something boring but was also brilliant in the basics. It’s important for us to understand that we have to come to love the process. The process of creating wealth and the process of growing your net worth is exactly that — it’s a process. It’s not a weekend retreat. It’s not your khakis. It’s not an affirmation. It’s not a seminar. It’s not exciting. It’s just a process. And if you find yourself adrenalizing the highs and lows of building your net worth, you’re not investing. You’re gambling. And it’s important for us to understand that, too. So ladies and gentlemen, I wanna invite you to take a moment and ask yourself what is your process that you are working that over the long term will create inevitability for your wealth and for your future?

[00:21:33] Before I sign off today, ladies and gentlemen, I do wanna give credit to where credit is due. There are some brilliant books on this very topic. They are three books that I have learned a lot from that I’ve reread multiple times, and so I want to give you those three books right now and invite you to pick them up from your local bookstore or your local library. And those books are without further ado: A Random Walk Down Wall Street by Burton Malkiel, The Simple Path to Wealth by J. L, Collins, and Just Keep Buying by Nick Maggiulli. Those three books are great, ladies and gentlemen, and when it comes to helping you grow your net worth and really understand the state of play, they do a lot of explanations that are very in depth and technical that I wouldn’t put on a podcast but I would highly encourage you to pick the books up and give them a read. Until next time, ladies and gentlemen, go out there, take control of your financial lives, live free. I love you all. Thanks for listening and will talk to you soon.

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