Miss a Stock...

SPEAKER_00 0:05

We're gone to a really great financial future. Tom and Don are talking real money.

Introduction to Stock Market Mysteries

SPEAKER_01 0:12

Everyone's heard the adage: if you miss a day, you miss a lot. It was used on radio all the time to try to get you to listen to talk radio or news radio. And uh we've used it when it comes to the stock market. We've said if you miss a day or two or three of the best ones, you're going to miss a lot. But it's not just if you miss a day, you miss a lot. If you miss the right stock, you miss almost all of the return of the stock market. Or so says our friend Henrik Bessenbinder of Arizona State University in Tempe, Arizona. Hi, everybody. I'm Don McDonald, along with Tom Cock on this another exciting edition of the Talking Real Money Podcast. Welcome to the program. We're glad you're there. And uh we uh we look forward to enlightening you and of course answering your questions at talkingrealmoney.com. So without further ado, do do do do do do, let's talk about Herr Bessenbinder. I know you're gonna do the accent.

SPEAKER_02 1:13

You didn't do the accent. No, no. It I uh uh it's this is of all the programs we do, this might be among the most important. True. I mean I think number one out of almost eighteen hundred podcasts. It's profound. It's so profound, I even went home and told my wife, and I don't tell her any of this stuff. I said, you gotta listen to these the numbers are the numbers are astonishing.

SPEAKER_01 1:36

They really are astonishing. Go ahead. Because his research before was more limited. This is a new study that that Dr. Bessenbinder has done on the stock market, and he went back how long? 100 years now. Hundred years of data, 1926 to 2025.

SPEAKER_02 1:54

Okay, that's a hundred years. Crazy. And in that time, publicly traded U.S. stocks are about thir there were about 30,000 common stocks. Let's just use 30,000.

SPEAKER_01 2:05

It's an easier number to over 100 years, about 30,000 different publicly traded stocks existed in the marketplace. Yeah.

SPEAKER_02 2:14

Exist or existed. Some of them were Enron, some of them were microscopic. In the United States only.

SPEAKER_01 2:20

Okay, because right now it's about what it what is it in the United States right now? About five or six thousand?

SPEAKER_02 2:24

Yeah, it's like five, I want to say five thousand. It's a small number. Um if you bought and held the whole thing, your return, thirty thousand. Huh? Percent. Oh, thirty thousand.

SPEAKER_01 2:39

No, it was thirty thousand stocks, Tom.

SPEAKER_02 2:42

I know. Thirty thousand. I mean, that's pretty good, right? That'd be good. Had to live a hundred years, you had to buy and hold for a hundred years, you had to be excited about the stock market in nineteen twenty-six, and you had to hang on through the what, the Great Depression, the near Great De uh recession, the et cetera, et cetera, et cetera.

SPEAKER_01 3:02

The market crash of 08 and all those fun things. So that's Oh, by the way, I just checked. There are 4,010 listed companies in the U.S.

Understanding Median vs. Average Returns

SPEAKER_02 3:12

Skinny, skinny, skinny. But here's the thing that's fascinating about that. So 30,000, remember 30,000 stocks, 30,000 percent return. Pretty good. Okay. But the median for stocks.

SPEAKER_01 3:26

Draw the line. There there's two different ways of measuring the middle. There's the average and there is the median. And the average is when you add them all up and then you divide them by however many there are. The median is the number between the bottom and the top. Yep. So the median for the stocks is fascinating. Is negative seven. Whoa. Okay, let's now really we gotta give this a minute to sink in. So over that hundred years, you made a 30,000 percent return on all 30,000 stocks. That's right. But if you were in the middle of those stocks, the middle of them, that means that at the low end, far more stocks lost a ton of money than stocks made money. Yeah. I just want to let that.

SPEAKER_02 4:25

And I'll give you that number, because he he he produced that. Um sixty percent of stocks incurred what he calls it wealth reductions. Negative returns is what I would call it.

SPEAKER_01 4:37

But you mean they lost you money.

SPEAKER_02 4:39

They lost you money. Yeah, because again, uh he doesn't say we're if he says 91 trillion dollars of wealth was created in this century, but 60 percent were losers. Astounding. Just astounding, crazy to me. Um and in that period uh by the way, 46 firms. This is the number to remember. I think out of the whole thing. Yeah, there's 30,000 stocks, yeah. The total return is 30,000, yeah, the median is net negative seven. Forty-six stocks account for half of the ninety-one trillion dollars in net wealth creation over the full century. Forty-six firms out of thirty thousand firms.

SPEAKER_01 5:25

Wow. Okay, that is actually a very wow number because what are the odds that you would have over 100 years? So basically, that's one stock every two years. Yeah. Exactly. And that's not an an accurate figure because, but, but on average, on average, as opposed to median, that's one great stock out of the whole market. And by the way, I looked at the whole market. I was just looking at exchange traded. It's 4,000 exchange traded, but when you throw in the all the other trading pink sheets, et cetera. Yeah, it's about 10,000, right around 10,000. So but we probably don't own that many of the 10 because we don't own the So what that says is you would have had to have picked the best out of 10,000 stocks at any given the best one out of 10,000 stocks in any given year, or the best one half. How could you expect to ever do that?

The Challenge of Picking Winning Stocks

SPEAKER_02 6:23

And uh it it's worse, right? When when you had to pick the right one, you had to know when to buy it, when to hold it, when to sell it. Right. Because you could you could own uh f you know, you could have owned Enron for a while and then see the end coming get out of that. I mean, you would have had to make these choices, it would have been very difficult because things perform very well and then they don't, right?

SPEAKER_01 6:44

I see why you think this is one of the most important stories we've ever done, because what it it truly says is beating the market by trying to pick the best stock or two or three has never happened. It just can occur. Yeah. Except for no, it can occur, but it's so rare as to be I mean it's like trying to win the lottery.

The Importance of Broad Diversification

SPEAKER_02 7:14

Picking a needle out of a pile of needles. Uh uh it's it it proves once again isn't it a needle in a haystack? That's it's a from a movie reference. But anyway, someone will know. But uh it again, it proves to me. Broad diversification is the only way to capture market returns. In other words, you gotta basically own them all because you're never gonna pick those 46. Or, as you said, one every, what was it, one a year, one every two years, whatever. One every two years. One every two years. Which if your investing life is 40 years, that's you're only gonna pick the 80 stocks, then, right? I mean it's no 20. 20, pardon me. Backwards. I'm adding in. You get more diversified. I it it absolutely it it it just So in other words, they can't all be Apple or NVIDIA. No, and yet everybody thinks that's what they would pick. Everybody believes, well, I was really smart and I got Tesla before it went to the moon. Um, because most of these are losers, most stocks really stink when it comes to performance. And that that's the negative is one thing, but most of them is I think a previous study by Henrik Bessenbinder pointed out, most of them make like T-bill type returns over the long haul, right? They don't make carefully.

SPEAKER_01 8:27

But what is truly beyond just the i impossibility uh of effectively and regularly buying the best stock, what it points out though on the other side of this proverbial coin is the fact that by owning them all, all of them, in aggregate, you just own the whole darn market. Those few stocks allow you still to do really well if you own them all, if you don't cherry pick.

SPEAKER_02 8:59

Yeah,$91 trillion sounds like a lot to me, even in a hundred years. Sounds like a couple of bucks.

SPEAKER_01 9:04

A thirty thousand percent return over a hundred years. Pretty good. Sounds like a lot.

The Psychology of Investing

SPEAKER_02 9:10

It does. Uh I mean, so again, broad diversification critical. Active management, the idea of picking stocks or timing markets or seeing trends or finding someone with a hot hand. I think you read this, you just have to know that's a loser's game. I mean, indexing is really the only way to invest to get market returns for a long period of time.

SPEAKER_01 9:31

Yeah, but it points out really one of our serious psychological flaws as human beings is we confuse evidence with anecdotes. When someone tells us, well, I've got a system that has successfully picked stocks over what period of time, that's anecdotal unless it has been vigorously tested by someone like Dr. Bessenbinder, who has basically tested it on mass and said, mm-mm, it doesn't work. The claims don't work. And maybe, and this goes back to some other studies that were done uh over the past 20 years, maybe, possibly, you know, Occam's Razor, you've heard that flip once or twice. Yeah. The simplest explanation is usually the right one. Occam's Razor says that those who do outperform may just be lucky. And there is, again, rigorous scientific research that was done and found that when you look at those who have done well picking stocks and you factor in risk, you find that very few, very almost zero, just slightly over zero percent, less than one percent, somewhere between zero and one, show some possible skill, something that can't just be explained away with luck. But again, what are the odds that out of all the money managers, the tens of thousands of those, or hundreds of thousands of those literally, you're gonna find that less than one percent that actually has skill and didn't just have skill, has skill going forward.

SPEAKER_02 11:15

Yeah, but then there's those three words hope springs eternal.

SPEAKER_01 11:19

Yeah. We're falling. Until we realize, listen to me, please listen. Okay. I know it's you don't want to you don't like changing. No one wants to believe it. No one wants to believe it, but hope is not a strategy. You can this doesn't work. It's not your brain is wired against logic. It is, it is. All you have to do is look at a lot of things going on in this world. Not just the stock market. Your own world. Yeah, exactly. Yeah, our our our our world, and I'm not gonna tell you which world, you know which world. Logic and reason and facts have been replaced by feelings and anecdotes and lies. Folks, stop, think, turn your brains on. They're actually pretty functional when you turn them on. Yeah.

SPEAKER_02 12:11

So again, broad diversification, not active management. Here's a and by the way, you really want to make sure you own those 46 stocks. Yeah, here's another thing that's fascinating.

SPEAKER_01 12:19

The only way you're gonna know that you have those 46 stocks is if you don't own them.

Fundamental Progress in Stock Prices

SPEAKER_02 12:23

Yep. Exactly. Uh perfect. The other thing he found, this is sort of an add-on, but this is fascinating. Fundamental progress, he calls it, determin has more of a determination of the stock price, income growth, right? The growth of earnings, company, et cetera, more than market sentiment. In other words, actual fundamentals do play a role in projecting in pushing stock prices up more than what people feel about companies. Over the long haul, the ones that have been successful. Fascinating. Fascinating.

Viewer Questions and Annuity Discussions

SPEAKER_01 12:53

Feelings. You need to get rid of your feelings, at least when it comes to your money. And if you can't do it, then maybe you should call and ask for a little help. And you know, that's where we come in. We have so many ways now to ask questions of us. We do. We have the talkingreal money.com website where you can go to the ask a question button and you can type a question for Tom's tree killing campaign, or you can speak it in for my tree saving uh uh process. Or there's another way. Call eight five five nine three five talk, eight five five-nine three five eight two five five, and we will put you on the show well kind of this way. And again, we also take those questions that come in at talkingreal money.com. Uh and on this, you know, episodes like this one. The Friday one is where the spoken ones go. This one, Tom gets to pull out a dead tree question.

Evaluating Annuity Products

SPEAKER_02 13:57

Yeah, they'll get a lot of them. Keep them coming. Just go to talkingrealmoney.com, contact us. Keith writes us from Orlando. No, it's the ask a question. Ask a question. We can't change it. Oh, which it'll take me 10 years to remember that. Uh Keith writes us from Orlando, Florida. I know you guys have spoken negatively about annuity products, and I'm well aware of why investors should be wary, but I'm considering this one product available from Fidelity. He says 70% of my portfolio is in stocks, 30% in bonds, CDs in cash. I'm considering investing options for$300,000 for a three-year period. The cash is earning 3.47 in an account at Fidelity, but this rate can and most likely will go down in the future. Well, listen, first right there. The odds now? No, no rate change this year.

SPEAKER_01 14:43

But we don't know idea this. Yeah, so that's projected. Go with that.

SPEAKER_02 14:47

Yeah. The the best call protected three-year CD I can find, Fidelity pays 3.95%. A three-year annuity from Mass Mutual at Fidelity has a jumbo rate, kind of$100,000, of 4.4. I understand the Fidelity rep may make a big commission, and I completely understand I cannot touch this for money for three years, and I'm okay because they're going to pay me 4.4%. I will have plenty of other cash to pull from for our living expenses. Gentlemen, am I missing anything there? Is there really is there a red flag? By the way, Standard and Poor's rating of Mass Mutual is double A plus, very strong. Why would I not buy this product? Three years, 4.4, get the money back later. Why not?

SPEAKER_01 15:31

It's not terrible. I mean, it's it's not great. Uh it's there are downsides though that the in the people selling them aren't going to tell you. Yes. They're Mass Mutual is very, very safe. They are very, very safe. They're a w they're a a strong company. However, years ago, Executive Life in California was a very safe, very well, highly rated company, and their um their uh uh ratings fell apart. The company fell apart. They they made some bad investments, and that can happen, and you're not gonna know it. They're not gonna warn you in advance. Uh so when we're talking about risk, and and the other thing is that illiquidity, it's three years. I'm looking at bankrate.com and there's an FDIC insured one-year CD at 4.15%. Why would you go with an annuity that locks you up for three unless you want a locked rate, okay? If you want a locked rate, you you want to lock that rate up for three years, then sure, that's fine. But uh if you're looking for more flexibility and liquidity, you're the differences aren't that great between a C D and a um uh the annuity, the MIGA. This is one of those MIGAs.

SPEAKER_02 17:07

Yeah, and and he points out that over the three years, the annuity would have paid him 13,200 and the um CD, let's see, where is he uh he didn't give the number there. Uh uh, but it the the account at Fidelity making three and a half basically pay him out ten thousand four hundred and the annuity thirteen thousand two hundred. I the reason why is just you're taking a modicum of risk here by investing in insurance company products rather than a guarantee from the FDIC, basically. That's why.

Listener Feedback and Podcast Changes

SPEAKER_01 17:38

Yeah, and and the that's and that's up to you to decide which is better for you. Yep. Um I I personally would if it was my absolutely 100% safe money, I'm a bigger fan of laddering CDs or bonds than I am of something like an annuity. I don't want my money locked up for three years. I really don't. Not for that safe emergency kind of money. So it really becomes what do you want to do? But I can find CDs right now, a lot of CDs at over 4%. You just have to shop around. Yep.

SPEAKER_02 18:15

And you could find it. So uh let's see, Ray writes us from Royalton, Vermont, VT.

SPEAKER_01 18:20

Well, we have a lot of questions in this episode.

SPEAKER_02 18:22

Yeah. Um, dear Don and Tom, back in January, Tom said the future plan for talking real money was just to put Roxy on, which would result in no more silly jokes. I I don't remember saying that, but I guess.

SPEAKER_01 18:35

I think you probably said it in jest. I think doing that. One of these days you're gonna learn that people take what you say actually seriously, which is a dumb thing. Do not listen to him.

SPEAKER_02 18:46

I think Roxy and Kath GPT can both add something to the show, but now that TRM is a 100% podcast and saying goodbye to radio, are there any other changes in the offing? No. Thank you for the good working bull.

SPEAKER_01 19:02

That's enough. That's enough.

SPEAKER_02 19:04

Going off the radio was enough of a change. What? What did we make? Well, we're we are recording people directly, uh, one-on-one, off the part of the podcast. Yeah. Okay, but that's relative that's still new. So what are you saying? Are the other changes? No.

SPEAKER_01 19:21

It it was traumatic for my wife.

unknown 19:23

Mine.

SPEAKER_01 19:24

She she suffered through this. It was like She is still suffering. You can't use you can't lose the radio show. What will I listen to on Saturdays? I said, Do you ever listen to the podcast? No. Nope. Nope. Don't listen to the podcast. Yeah. It's something about live thing. I'm going to miss it. I miss it. Live from Orlando and Duval, Washington. It's Saturday night. No, it's Saturday afternoon and it's not there anymore. It's not live.

SPEAKER_02 19:51

We miss you two doing that. So to all of you who are regular Saturday people. I don't miss it. Anyway, but no other big changes. We're still going to do five a week. We're still going to take your questions and calls, and we'll still incorporate Roxy from time to time in the podcast as well. I don't know about Kath.

SPEAKER_01 20:09

I haven't decided on her yet. They've been rewriting the programming, and she's not as much fun as she used to be. She's not as gliz.

SPEAKER_02 20:18

Isn't that always the case? Yeah.

SPEAKER_01 20:20

The longer you two old married two old married men waiting to die. I guess the same is true of me.

SPEAKER_02 20:32

I'm not as much fun as I used to be either, probably.

SPEAKER_01 20:34

The good news is we have determined that neither of our wives listen. We're okay. So we're okay unless someone snitches on us. Which they won't. And hey, this is a close-knit group here, folks. Don't do it, man. Don't do it. Be supportive. Be supportive. So anyway, let me tell you again how you can send us questions. So easy. So many ways. So little time. Go to talkingrealmoney.com. That's one of the easiest. Just go there and you click on the button that says ask a question. Then you type a question, or you get a mic, which you have on your phone, your iPad. Your computer has one built in, probably, and it's probably pretty good. And even if it's not really good, I'm going to apply AI to it and make it look make it sound good. So, you know, it's going to end up great no matter what. Just go there, click on that, record your question, or type your question, or call us at 855-935-talk, 855-935-8255. And if anybody is a masseuse or masseur out there and wants to help Tom with that rotator cuff issue, what is it?

SPEAKER_02 21:38

It's one of so many stupid dog that would be a start, but it's going to be a good idea. That would make another thirty-minute podcast right there. Something every day.

Services Offered by Talking Real Money

SPEAKER_01 22:00

It's not your fault. No one to blame but yourself. Hey everybody. Um if you want to oh, by the way, I forgot to mention this. If you need more time than you can spend with us on the program, you know, sometimes you got like this really messy portfolio, and you said, gosh, I wish someone would look at it and not try to sell me anything. Because most people are gonna try and sell you something. Uh we'll do that for you. We've been doing that for you for about 15 years now. And so far, no complaints, no high-pressure sales pitch, no cost. You can just meet with one of our 100%, they don't sell commission stuff, fiduciary advisors, and a fellow wealth, by going to talkingrullmoney.com, clicking the button that says meet an advisor. Heck, Tom would even do it. I do it regularly and I enjoy it almost every time.

SPEAKER_02 22:51

Glad you qualified. Almost qualified slightly, but you know, I I like it.

Wrap-Up and Call to Action

SPEAKER_01 22:56

All right, we're gonna wrap this one up. Please, please, please. Obscure old podcasters like us need all the help we can get, according to a Wall Street Journal article, because the celebrities are starting to take over podcasts. So help us non-celebrities by helping us grow the show by telling people word of mouth. It's really powerful, and it would really help us out a lot if you would, when you run into people who are dealing with money issues, to say, Oh, oh, oh, oh, I know where you should go. You should you should go to um talking real money.

SPEAKER_03 23:32

The opinions and views expressed on this podcast were current on the date recorded. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice, including any forward-looking estimates or statements which are based on certain expectations and assumptions. Although information and opinions given have been obtained from or based on sources believed to be reliable, no warranty or representation is made as to their correctness, completeness, or accuracy. Information presented on the podcast is not personalized investment advice from Oppello Wealth. The views and strategies described may not be suitable for everyone. This podcast does not identify all the risks, direct or indirect, or other considerations which might be material to you when entering any financial transaction. Past performance does not guarantee feature results, and profitable results cannot be guaranteed. We hope you realize that the information provided on Talking Real Money is for informational, educational, and hopefully enjoyable purposes only. The podcast is not trying to get you to buy or sell any financial products or securities. Instead, the program is provided as a public service by Appello Wealth, a fee-only registered investment advisor. Please see Appello Wealth's ADV Part 2A on our website for information regarding Appello's fees and services. Appello Capital, LLC, DBA Appello Wealth, is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in the states where it is properly registered or excluded or exempt from registration requirements. Registration with the SEC or any state securities authority does not imply a certain level of skill or training. Appello does not provide tax or legal advice, and nothing either stated or implied here should be inferred as providing such advice. Thanks for listening, and please visit talkingrealmoney.com for more information and important disclosure related to performance of any specific index or fund quoted in this podcast. And the lawyers get richer.