WEBVTT 00:00:00.000 --> 00:00:01.520 You know, I was standing at a coffee shop this 00:00:01.520 --> 00:00:03.899 morning waiting for my latte and I saw a guy 00:00:03.899 --> 00:00:06.780 in front of me just glued to his phone and he 00:00:06.780 --> 00:00:09.759 wasn't texting or on social media. He was watching 00:00:09.759 --> 00:00:13.179 one of those candlestick charts on a trading 00:00:13.179 --> 00:00:15.660 app, just watching these little green and red 00:00:15.660 --> 00:00:19.750 bars flicker up and down. And he looked. It's 00:00:19.750 --> 00:00:21.489 the modern condition, isn't it? We've sort of 00:00:21.489 --> 00:00:24.050 gamified the global financial system to the point 00:00:24.050 --> 00:00:25.710 where it fits in your pocket and gives you a 00:00:25.710 --> 00:00:28.550 dopamine hit or a cortisol hit every three seconds. 00:00:28.870 --> 00:00:31.929 Exactly. We are absolutely obsessed with speed. 00:00:32.390 --> 00:00:34.850 High frequency trading algorithms that execute 00:00:34.850 --> 00:00:37.490 orders in nanoseconds. Right. You have day traders 00:00:37.490 --> 00:00:40.009 trying to scalp a few cents off a stock movement 00:00:40.009 --> 00:00:42.350 before their lunch break. It feels like if you 00:00:42.350 --> 00:00:44.090 aren't moving at the speed of light, you're losing. 00:00:44.590 --> 00:00:46.590 Well, today I think we're going to pull the emergency 00:00:46.590 --> 00:00:49.359 brake on all of that. I hope so. We are going 00:00:49.359 --> 00:00:52.619 to look at a strategy that is arguably the complete 00:00:52.619 --> 00:00:55.560 antithesis of that entire culture. It really 00:00:55.560 --> 00:00:59.399 is. We are unpacking a concept that feels almost, 00:00:59.500 --> 00:01:03.240 I don't know, counterintuitive in 2026. It's 00:01:03.240 --> 00:01:05.359 basically the art of doing absolutely nothing. 00:01:05.540 --> 00:01:08.219 Well, I push back slightly on the word nothing. 00:01:08.730 --> 00:01:11.650 It's the art of doing nothing physically in terms 00:01:11.650 --> 00:01:13.609 of, you know, clicking buttons, but doing something 00:01:13.609 --> 00:01:16.310 very, very difficult psychologically. That's 00:01:16.310 --> 00:01:19.549 a fair point. We are diving deep into buy and 00:01:19.549 --> 00:01:21.849 hold. Yeah. And before you reel your eyes and 00:01:21.849 --> 00:01:24.450 think, OK, I know this, just buy an index fund 00:01:24.450 --> 00:01:26.409 and forget about it. Stick with us. Please do. 00:01:26.530 --> 00:01:28.549 Because when you actually dig into the source 00:01:28.549 --> 00:01:31.629 material, and we have a huge stack today ranging 00:01:31.629 --> 00:01:35.310 from Federal Reserve data to deep academic theory. 00:01:36.250 --> 00:01:39.230 This isn't just about laziness. It's a sophisticated 00:01:39.230 --> 00:01:41.469 financial framework that is technically known 00:01:41.469 --> 00:01:43.829 as position trading. That's the formal term, 00:01:43.950 --> 00:01:46.170 yes, position trading. And the mission for this 00:01:46.170 --> 00:01:49.090 deep dive is really to answer one specific question. 00:01:49.530 --> 00:01:52.969 What's that? Why is this passive style, where 00:01:52.969 --> 00:01:56.450 you essentially stand still like a statue, often 00:01:56.450 --> 00:01:58.430 so much more profitable than the active style 00:01:58.430 --> 00:02:00.609 where you're sweating over monitors trying to 00:02:00.609 --> 00:02:02.549 beat the market? It's the paradox of effort. 00:02:02.689 --> 00:02:04.890 It's so strange. Usually in life, working harder 00:02:04.890 --> 00:02:07.030 gets you more results. You know, if you dig a 00:02:07.030 --> 00:02:08.870 ditch for 10 hours, you get a bigger ditch than 00:02:08.870 --> 00:02:11.270 if you dig for one. But in investing, working 00:02:11.270 --> 00:02:13.789 harder, trading more might actually just make 00:02:13.789 --> 00:02:16.509 you broke. That is exactly what the data suggests. 00:02:17.120 --> 00:02:19.780 The correlation between activity and profitability 00:02:19.780 --> 00:02:24.219 is very often negative. It's a shocking finding, 00:02:24.400 --> 00:02:27.120 but it's true. So we've got the philosophy of 00:02:27.120 --> 00:02:29.680 billionaires, we've got the cold hard math on 00:02:29.680 --> 00:02:32.300 taxes, and we've got some fascinating insights 00:02:32.300 --> 00:02:35.080 on cognitive biases. It's a great mix. Let's 00:02:35.080 --> 00:02:37.860 get into it. What exactly is this beast we are 00:02:37.860 --> 00:02:39.919 dealing with? Okay, let's strip away the jargon 00:02:39.919 --> 00:02:42.840 for a second. When we say buy and hold or position 00:02:42.840 --> 00:02:45.439 trading, we are talking about a specific mindset. 00:02:46.030 --> 00:02:48.310 The source material defines it as an investment 00:02:48.310 --> 00:02:51.830 strategy where an investor buys assets. And this 00:02:51.830 --> 00:02:54.889 is a key distinction. They can be financial assets 00:02:54.889 --> 00:02:57.689 like stocks or they can be non -financial assets 00:02:57.689 --> 00:02:59.889 like real estate. Right. So this isn't just for 00:02:59.889 --> 00:03:02.530 the stock market. You could position trade. A 00:03:02.530 --> 00:03:04.930 plot of land or a piece of art. Exactly. You 00:03:04.930 --> 00:03:06.530 buy it with the intention of holding it for the 00:03:06.530 --> 00:03:09.030 long term. And the primary goal, the only real 00:03:09.030 --> 00:03:11.870 goal, is realizing price appreciation. But there's 00:03:11.870 --> 00:03:14.590 a catch. There is. Here's the caveat in the definition 00:03:14.590 --> 00:03:16.909 that I think does all the heavy lifting. It says 00:03:16.909 --> 00:03:20.789 you do this despite volatility. That is the position 00:03:20.789 --> 00:03:23.490 trader's litmus test right there. Volatility 00:03:23.490 --> 00:03:25.650 is, I guess, the price of admission to the whole 00:03:25.650 --> 00:03:28.349 show. It is. And can we define volatility for 00:03:28.349 --> 00:03:30.710 a second? Because I think people hear that word 00:03:30.710 --> 00:03:34.419 and they just think. danger or risk or I'm losing 00:03:34.419 --> 00:03:36.319 money. Please do. It gets thrown around a lot. 00:03:36.460 --> 00:03:39.319 In finance, volatility usually refers to how 00:03:39.319 --> 00:03:41.819 much the price of something swings around its 00:03:41.819 --> 00:03:44.120 average. We use standard deviation to measure 00:03:44.120 --> 00:03:45.900 it if you want to get technical. So give me an 00:03:45.900 --> 00:03:48.830 example. Low versus high. Okay. If a stock goes 00:03:48.830 --> 00:03:54.169 from $100 to $105, then down to $102, that's 00:03:54.169 --> 00:03:56.930 low volatility. It's a gentle ride. Like a lazy 00:03:56.930 --> 00:03:59.409 river. A lazy river, exactly. But if it goes 00:03:59.409 --> 00:04:02.909 from $100 to $150 and then crashes down to $50 00:04:02.909 --> 00:04:06.189 in a month... That's high volatility. That's 00:04:06.189 --> 00:04:07.469 the roller coaster that makes you want to throw 00:04:07.469 --> 00:04:09.949 up your lunch. Exactly. Now, the active trader 00:04:09.949 --> 00:04:12.409 or just the average person looks at that drop 00:04:12.409 --> 00:04:15.650 to $50 and they panic. They sell to stop the 00:04:15.650 --> 00:04:18.029 bleeding. The position trader looks at that wild 00:04:18.029 --> 00:04:22.769 swing that dropped to $50 and does nothing. See, 00:04:22.829 --> 00:04:24.910 that's where that lazy label comes from, isn't 00:04:24.910 --> 00:04:27.750 it? Yeah. If the house is on fire, you run. If 00:04:27.750 --> 00:04:30.529 your stock portfolio is crashing and you do nothing. 00:04:30.970 --> 00:04:33.649 Are you being disciplined or are you just asleep 00:04:33.649 --> 00:04:35.639 at the wheel? That's the common misconception, 00:04:35.860 --> 00:04:38.519 and it's a great question. The strategy is classified 00:04:38.519 --> 00:04:41.319 as passive management, yes, but our source material 00:04:41.319 --> 00:04:44.139 is very clear. This is not ignore and forget. 00:04:44.420 --> 00:04:47.540 It's not. No. It requires a profound level of 00:04:47.540 --> 00:04:49.920 confidence. You are holding, because you have 00:04:49.920 --> 00:04:52.620 a fundamental thesis, a core belief, that the 00:04:52.620 --> 00:04:55.300 value of what you own will be higher in 10 or 00:04:55.300 --> 00:04:58.120 20 years. So it's an active choice to be passive. 00:04:58.300 --> 00:05:00.720 Yeah. You aren't paralyzed by fear. You are, 00:05:00.860 --> 00:05:03.000 I guess, frozen by conviction. Exactly. It's 00:05:03.000 --> 00:05:04.810 like being a captain. of a ship in a storm you 00:05:04.810 --> 00:05:06.870 aren't spinning the wheel wildly trying to dodge 00:05:06.870 --> 00:05:08.449 every wave you're holding the course because 00:05:08.449 --> 00:05:10.550 you know where the port is okay so to do that 00:05:10.550 --> 00:05:13.430 what kind of person do you have to be the source 00:05:13.430 --> 00:05:16.250 talks about the mindset required yes and this 00:05:16.250 --> 00:05:18.629 is where it gets tough for most people the source 00:05:18.629 --> 00:05:21.370 says you have to battle some very specific inner 00:05:21.370 --> 00:05:25.170 demons first you cannot be prone to emotional 00:05:25.170 --> 00:05:28.290 decision making which is asking a lot of the 00:05:28.290 --> 00:05:32.110 human brain we are wired to flee from pain And 00:05:32.110 --> 00:05:34.550 a big red number on a screen feels like pain. 00:05:34.709 --> 00:05:37.290 It absolutely does. Neuroscience studies show 00:05:37.290 --> 00:05:39.790 that financial loss registers in the brain very 00:05:39.790 --> 00:05:43.350 similarly to actual physical pain. So you have 00:05:43.350 --> 00:05:45.990 to first understand your own risk aversion. Know 00:05:45.990 --> 00:05:48.589 thyself. Know thyself. But the biggest enemy, 00:05:48.750 --> 00:05:50.610 the one mentioned specifically in our source 00:05:50.610 --> 00:05:53.110 stack, is recency bias. I love this concept. 00:05:53.209 --> 00:05:54.689 Let's break this down because I think everyone 00:05:54.689 --> 00:05:56.569 suffers from this, whether they invest or not. 00:05:56.689 --> 00:06:00.310 For sure. Recency bias is this cognitive glitch 00:06:00.310 --> 00:06:03.040 where our... Our brains assume the future will 00:06:03.040 --> 00:06:05.540 look exactly like the immediate past. It's a 00:06:05.540 --> 00:06:08.000 mental shortcut our brains take to predict what's 00:06:08.000 --> 00:06:10.680 coming next. It's efficient, but often wrong. 00:06:11.240 --> 00:06:13.639 So if the market has been on a tear going up 00:06:13.639 --> 00:06:16.019 for six months straight. You assume it's a golden 00:06:16.019 --> 00:06:17.980 age that will last forever. You feel rich. You 00:06:17.980 --> 00:06:20.579 feel smart. And your brain just extrapolates 00:06:20.579 --> 00:06:22.560 that line going up and to the right indefinitely. 00:06:22.819 --> 00:06:26.379 And conversely, if the market dropped 5 % yesterday. 00:06:26.699 --> 00:06:29.459 You assume it's going to zero tomorrow. You extrapolate 00:06:29.459 --> 00:06:31.860 that immediate pain into the infinite future. 00:06:32.220 --> 00:06:34.279 That feels very familiar. It's human nature. 00:06:34.360 --> 00:06:37.810 A true position trader has to like. surgically 00:06:37.810 --> 00:06:40.689 remove that part of their brain. They do not 00:06:40.689 --> 00:06:43.509 judge the long term future based on the last 00:06:43.509 --> 00:06:46.209 five minutes of data. They do not sell just because 00:06:46.209 --> 00:06:49.410 of a temporary decline in value. It sounds almost 00:06:49.410 --> 00:06:51.910 stoic. Like you said, it's not about being lazy. 00:06:52.069 --> 00:06:54.470 It's about being incredibly disciplined. Like 00:06:54.470 --> 00:06:56.449 Marcus Aurelius managing a hedge fund or something. 00:06:56.629 --> 00:06:59.990 It is stoicism applied to finance. It's all about 00:06:59.990 --> 00:07:02.649 separating the signal, which is the long term 00:07:02.649 --> 00:07:05.850 value creation of a business or an economy from 00:07:05.850 --> 00:07:08.779 the norm. which is the daily meaningless price 00:07:08.779 --> 00:07:11.319 fluctuation. OK, so that's the definition. It's 00:07:11.319 --> 00:07:14.120 a long term marriage to your assets through sickness 00:07:14.120 --> 00:07:16.519 and in health. But let's look at the resume. 00:07:16.600 --> 00:07:19.139 Who actually vouches for this? Because if it's 00:07:19.139 --> 00:07:21.680 just academic theorists in an ivory tower, I'm 00:07:21.680 --> 00:07:23.899 a little skeptical. And you should be. But the 00:07:23.899 --> 00:07:26.480 source lists a murderer's row of investors here. 00:07:26.600 --> 00:07:29.540 It's not theory. It's practice. Lay the names 00:07:29.540 --> 00:07:31.819 on me. It's the financial equivalent of Mount 00:07:31.819 --> 00:07:35.250 Rushmore. We are talking Warren Buffett. Obviously. 00:07:35.430 --> 00:07:38.769 Jack Bogle, the founder of Vanguard. Burton Malkiel, 00:07:38.889 --> 00:07:42.209 who wrote A Random Walk Down Wall Street. A classic. 00:07:42.389 --> 00:07:45.029 John Templeton, Peter Lynch, Benjamin Graham. 00:07:45.209 --> 00:07:47.129 I mean, the list goes on. I want to pause on 00:07:47.129 --> 00:07:49.069 that list because those aren't just rich guys. 00:07:49.389 --> 00:07:52.250 They represent totally different, sometimes opposing 00:07:52.250 --> 00:07:55.009 philosophies. That's what strikes me as odd. 00:07:55.129 --> 00:07:57.870 Right. That's the key insight here. This is not 00:07:57.870 --> 00:08:00.209 a niche belief system. You have Warren Buffett 00:08:00.209 --> 00:08:02.769 and Benjamin Graham, the kings of value investing. 00:08:03.129 --> 00:08:05.889 They spend their lives picking individual stocks. 00:08:06.189 --> 00:08:09.230 They analyze balance sheets. They interview management. 00:08:10.269 --> 00:08:12.529 actively looking for diamonds in the rough. The 00:08:12.529 --> 00:08:15.310 ultimate active managers in terms of research. 00:08:15.569 --> 00:08:17.550 Then you have Jack Bogle, the father of the index 00:08:17.550 --> 00:08:20.069 fund, who basically said, don't even try to pick 00:08:20.069 --> 00:08:22.329 stocks. Just buy the whole market and go on vacation. 00:08:22.490 --> 00:08:24.490 Right. Buy the haystack. These guys shouldn't 00:08:24.490 --> 00:08:26.290 agree on anything. It's like a cat and a dog 00:08:26.290 --> 00:08:28.470 agreeing on what to have for dinner. But they 00:08:28.470 --> 00:08:31.329 do. They disagree on what to buy, but they agree 00:08:31.329 --> 00:08:33.190 entirely on how to hold it once you've bought 00:08:33.190 --> 00:08:36.750 it. Why? What is the common denominator? that 00:08:36.750 --> 00:08:39.710 unites a deep value stock picker like Graham 00:08:39.710 --> 00:08:43.049 with a broad market indexer like Bogle. It's 00:08:43.049 --> 00:08:45.309 the macro justification. The source points this 00:08:45.309 --> 00:08:47.850 out very clearly. They all believe that in the 00:08:47.850 --> 00:08:50.309 long run, there is an extremely high correlation 00:08:50.309 --> 00:08:52.330 between the stock market and overall economic 00:08:52.330 --> 00:08:55.419 growth. Betting on civilization or betting on 00:08:55.419 --> 00:08:57.679 America, as Buffett likes to say. Essentially, 00:08:57.779 --> 00:09:00.220 yes. If you believe that human beings will continue 00:09:00.220 --> 00:09:02.320 to innovate, that populations will generally 00:09:02.320 --> 00:09:04.840 grow, that productivity will increase over time, 00:09:04.980 --> 00:09:07.720 then you believe the economy will grow. And if 00:09:07.720 --> 00:09:10.360 the economy grows, corporate profits grow. And 00:09:10.360 --> 00:09:12.659 if corporate profits grow, then over the long 00:09:12.659 --> 00:09:15.200 term, stock prices have to rise to reflect that. 00:09:15.299 --> 00:09:19.080 It's just math. So if you trade in and out, jumping 00:09:19.080 --> 00:09:21.360 out of the market because you're scared of a 00:09:21.360 --> 00:09:24.320 recession or some headline. you are effectively 00:09:24.320 --> 00:09:27.399 betting against human progress. Or at least you're 00:09:27.399 --> 00:09:30.220 risking missing the ride when it resumes. The 00:09:30.220 --> 00:09:32.700 stock market is the engine of the economy. If 00:09:32.700 --> 00:09:34.860 you unplug the engine every time it sputters 00:09:34.860 --> 00:09:37.279 or makes a funny noise, you will never get anywhere. 00:09:37.519 --> 00:09:40.259 It's interesting because it reframes investing 00:09:40.259 --> 00:09:44.080 from gambling on a ticker symbol to participating 00:09:44.080 --> 00:09:47.259 in capitalism. That's it. You are an owner, not 00:09:47.259 --> 00:09:49.679 a gambler. Owners don't sell the business just 00:09:49.679 --> 00:09:52.039 because it had a bad month. If you owned a local 00:09:52.039 --> 00:09:54.879 pizza shop and you had a slow Tuesday, you wouldn't 00:09:54.879 --> 00:09:57.179 put a for sale sign on the door on Wednesday 00:09:57.179 --> 00:09:59.320 morning. No, you'd wait for Friday night when 00:09:59.320 --> 00:10:02.080 everyone wants pizza. Exactly. Buy and hold is 00:10:02.080 --> 00:10:04.100 about treating stocks like what they actually 00:10:04.100 --> 00:10:07.460 are. Fractional ownership of real businesses, 00:10:07.620 --> 00:10:10.240 not like chips in a casino. OK, I want to get 00:10:10.240 --> 00:10:12.460 a little nerdy here because the source material 00:10:12.460 --> 00:10:15.159 dives into the theory behind this. And there's 00:10:15.159 --> 00:10:17.600 a conflict in the logic that I'm struggling to 00:10:17.600 --> 00:10:19.899 wrap my head around. Let's do it. We talked about 00:10:19.899 --> 00:10:23.000 Buffett. And the source also brings up the efficient 00:10:23.000 --> 00:10:26.159 market hypothesis or EMH. Right. This is the 00:10:26.159 --> 00:10:28.620 great theoretical battleground of modern finance. 00:10:28.940 --> 00:10:31.000 So walk me through the efficient market hypothesis 00:10:31.000 --> 00:10:33.759 first. For the listener who maybe skipped Ecom 00:10:33.759 --> 00:10:37.970 101, what is the elevator pitch? The EMH. In 00:10:37.970 --> 00:10:40.090 its simplest form, basically states that the 00:10:40.090 --> 00:10:42.690 market is a giant, hyper -efficient information 00:10:42.690 --> 00:10:46.009 processing machine. It takes all known news, 00:10:46.250 --> 00:10:49.870 all earnings reports, all fears, hopes, and data, 00:10:49.990 --> 00:10:52.370 and incorporates it into the price of a stock 00:10:52.370 --> 00:10:55.590 instantly. So because of that, every stock is 00:10:55.590 --> 00:10:57.929 always fairly valued. That's the conclusion, 00:10:58.070 --> 00:11:00.909 yes. There are no real bargains to be found. 00:11:01.070 --> 00:11:04.350 If a stock is trading at $50, the EMH says it's 00:11:04.350 --> 00:11:07.070 because it's worth exactly $50 given everything 00:11:07.070 --> 00:11:09.909 we know right now. So there's no $100 bill lying 00:11:09.909 --> 00:11:12.049 on the sidewalk because in a world with millions 00:11:12.049 --> 00:11:13.909 of investors, someone else would have already 00:11:13.909 --> 00:11:15.789 picked it up. That's the classic analogy, yes. 00:11:15.950 --> 00:11:18.110 Okay, so if you believe in the EMH, you buy and 00:11:18.110 --> 00:11:20.789 hold because active trading is pointless. You 00:11:20.789 --> 00:11:22.389 can't beat the market because the market is always 00:11:22.389 --> 00:11:25.429 right, so you just join it. Correct. If the price 00:11:25.429 --> 00:11:28.120 is always right... Trying to find a wrong price 00:11:28.120 --> 00:11:30.600 is a fool's errand. You just buy the whole market 00:11:30.600 --> 00:11:33.620 and hold it forever. In fact, the extreme EMH 00:11:33.620 --> 00:11:35.779 advocates say you should never sell a security 00:11:35.779 --> 00:11:38.679 unless you specifically need the liquidity like 00:11:38.679 --> 00:11:41.200 you need to buy groceries or a house. But here 00:11:41.200 --> 00:11:44.700 is the paradox. The Buffett paradox, as the source 00:11:44.700 --> 00:11:47.360 calls it. Warren Buffett is the poster child 00:11:47.360 --> 00:11:49.960 for buy and hold. His favorite holding period 00:11:49.960 --> 00:11:54.019 is forever. But he's famously said on many occasions 00:11:54.019 --> 00:11:56.799 that the efficient market hypothesis is complete 00:11:56.799 --> 00:11:59.820 nonsense. He has. He's been very vocal about 00:11:59.820 --> 00:12:01.600 it. He has a great quote where he essentially 00:12:01.600 --> 00:12:03.980 says that if the markets were efficient, he'd 00:12:03.980 --> 00:12:06.440 be a beggar on the street with a tin cup. So 00:12:06.440 --> 00:12:09.019 wait a second. Buffett thinks the market is inefficient, 00:12:09.259 --> 00:12:12.659 that it makes huge emotional mistakes. Yes. But 00:12:12.659 --> 00:12:15.240 the EMH says the market is perfect and never 00:12:15.240 --> 00:12:18.159 makes mistakes. How do they both end up advocating 00:12:18.159 --> 00:12:21.490 for the exact same strategy? This is the nuance 00:12:21.490 --> 00:12:23.370 that I think most people miss, and it's a fantastic 00:12:23.370 --> 00:12:25.710 point. They arrive at the same destination from 00:12:25.710 --> 00:12:27.950 two completely different starting points. Okay, 00:12:28.009 --> 00:12:30.190 walk me through it. Buffett buys stocks because 00:12:30.190 --> 00:12:32.830 he thinks the market is inefficient. His entire 00:12:32.830 --> 00:12:35.370 fortune was built by finding a wonderful company 00:12:35.370 --> 00:12:38.169 that is intrinsically worth, say, $100 a share, 00:12:38.289 --> 00:12:41.450 but is selling for $50 because the market is 00:12:41.450 --> 00:12:43.629 panicking about a short -term problem or just 00:12:43.629 --> 00:12:46.110 ignoring it. So he exploits the market's mistake. 00:12:46.350 --> 00:12:49.120 He finds and exploits the mistake, but... And 00:12:49.120 --> 00:12:51.639 this is the crucial buy and hold part. He knows 00:12:51.639 --> 00:12:53.580 the market will eventually fix that mistake. 00:12:53.700 --> 00:12:56.299 The market will come to its senses, but it might 00:12:56.299 --> 00:12:58.159 not happen tomorrow. It might take five years 00:12:58.159 --> 00:13:01.539 or 10 years. So he buys the undervalued asset 00:13:01.539 --> 00:13:04.379 and just holds it patiently until the market 00:13:04.379 --> 00:13:07.080 price catches up to the business's true value. 00:13:07.279 --> 00:13:09.899 OK, I think I get it. So the EMH believer says 00:13:09.899 --> 00:13:12.159 buy and hold because the price is always right. 00:13:12.299 --> 00:13:15.250 Correct. And Buffett says. Buy and hold because 00:13:15.250 --> 00:13:17.549 the price was wrong. When I bought it, I got 00:13:17.549 --> 00:13:19.470 it cheap. And now I'm just waiting for all of 00:13:19.470 --> 00:13:21.289 you to figure out that I was right. Precisely. 00:13:21.509 --> 00:13:24.929 One path is based on humility. The idea that 00:13:24.929 --> 00:13:27.350 I know nothing, the market knows everything. 00:13:27.889 --> 00:13:30.350 The other path is based on a sort of intellectual 00:13:30.350 --> 00:13:33.990 arrogance. I know more than the market does about 00:13:33.990 --> 00:13:37.690 this specific company. But both paths lead to 00:13:37.690 --> 00:13:41.149 the exact same behavior. Inactivity. Holding. 00:13:41.549 --> 00:13:43.649 It really shows the robustness of the strategy 00:13:43.649 --> 00:13:45.750 then. It works whether you think you're a genius 00:13:45.750 --> 00:13:47.490 investor or whether you think you're perfectly 00:13:47.490 --> 00:13:50.149 average. As long as you have the patience. That 00:13:50.149 --> 00:13:52.549 is the one non -negotiable ingredient, no matter 00:13:52.549 --> 00:13:54.809 which philosophy you follow. All right. Enough 00:13:54.809 --> 00:13:56.610 of the high -minded philosophy. Let's talk about 00:13:56.610 --> 00:14:01.169 something everyone understands. The wallet. Because 00:14:01.169 --> 00:14:03.470 even if you don't care about market theory or 00:14:03.470 --> 00:14:06.870 Buffett, there is a very boring, very mathematical 00:14:06.870 --> 00:14:10.190 reason why buy and hold almost always wins. The 00:14:10.190 --> 00:14:12.450 friction argument. Yes. This is where the debate 00:14:12.450 --> 00:14:14.710 often ends for practical people. Friction. I 00:14:14.710 --> 00:14:16.610 like that word. It implies resistance, something 00:14:16.610 --> 00:14:18.590 slowing you down. And that's exactly what it 00:14:18.590 --> 00:14:20.190 is. Every time you move your money, every time 00:14:20.190 --> 00:14:22.169 you buy or sell, someone takes a slice of it. 00:14:22.330 --> 00:14:24.629 The source mentions commissions. Right. Commissions. 00:14:24.690 --> 00:14:27.169 Now, I know people are thinking, well, I use 00:14:27.169 --> 00:14:29.889 Robin Hood or some other app. Trading is free 00:14:29.889 --> 00:14:32.429 now. That's the marketing slogan. Yeah. Zero 00:14:32.429 --> 00:14:35.029 commission trading. But it's not really free. 00:14:35.210 --> 00:14:38.590 There are hidden costs. There's something called 00:14:38.590 --> 00:14:41.409 payment for order flow, where your broker sells 00:14:41.409 --> 00:14:44.070 your order to a high frequency trading firm to 00:14:44.070 --> 00:14:47.789 execute. There are bid ask spreads. That's the 00:14:47.789 --> 00:14:50.169 tiny difference between the price you can buy 00:14:50.169 --> 00:14:53.129 at and the price you can sell at. We call this 00:14:53.129 --> 00:14:55.629 slippage. So you're always leaking a little bit 00:14:55.629 --> 00:14:58.830 of oil every time you shift gears. Exactly. And 00:14:58.830 --> 00:15:01.129 if you're shifting gears 100 times a day, you 00:15:01.129 --> 00:15:03.809 run out of oil pretty fast. The buy and hold 00:15:03.809 --> 00:15:05.909 investor, meanwhile, just sits in one gear for 00:15:05.909 --> 00:15:08.309 20 years. They minimize all those little transaction 00:15:08.309 --> 00:15:10.590 costs. Those are small leaks. Let's talk about 00:15:10.590 --> 00:15:12.649 the big one. The shark in the water. It's not 00:15:12.649 --> 00:15:16.990 your broker. It's the IRS. The taxman. This is 00:15:16.990 --> 00:15:19.389 where the math becomes absolutely brutal for 00:15:19.389 --> 00:15:21.429 active traders. Break down the difference for 00:15:21.429 --> 00:15:24.070 us. Short term versus long term capital gains. 00:15:24.350 --> 00:15:27.860 OK. Generally speaking. In the U .S. and many 00:15:27.860 --> 00:15:30.559 other tax jurisdictions, the tax code is written 00:15:30.559 --> 00:15:33.799 to reward patients. If you buy an asset and then 00:15:33.799 --> 00:15:36.620 sell it for a profit within one year, that profit 00:15:36.620 --> 00:15:39.039 is considered a short -term capital gain. And 00:15:39.039 --> 00:15:42.240 that's taxed how? That is usually taxed as ordinary 00:15:42.240 --> 00:15:45.019 income. So it's taxed at the same high rate as 00:15:45.019 --> 00:15:47.740 my salary. Exactly. So if you're a high earner, 00:15:47.740 --> 00:15:52.120 that could be 35%, 37%, sometimes more, of your 00:15:52.120 --> 00:15:54.600 hard -won profit going straight to the government. 00:15:54.720 --> 00:15:57.759 Ouch. That stings. But if you hold that same 00:15:57.759 --> 00:16:00.639 asset for over a year, even just one day over 00:16:00.639 --> 00:16:03.000 a year, it becomes a long term capital gain. 00:16:03.100 --> 00:16:05.720 And that tax rate is significantly lower. How 00:16:05.720 --> 00:16:08.580 much lower? Often 15 percent or 20 percent for 00:16:08.580 --> 00:16:10.779 most people, sometimes even zero percent for 00:16:10.779 --> 00:16:12.580 lower income brackets. It's a massive difference. 00:16:12.639 --> 00:16:15.929 So by trading frequently. by being active you 00:16:15.929 --> 00:16:18.269 are voluntarily opting into a much higher tax 00:16:18.269 --> 00:16:21.190 bracket on your winnings you are actively penalizing 00:16:21.190 --> 00:16:23.409 your own success you are giving away your edge 00:16:23.409 --> 00:16:25.750 to the tax man but wait it gets even better for 00:16:25.750 --> 00:16:27.990 the buy and hold investor there is a second layer 00:16:27.990 --> 00:16:29.950 to this it's called the deferral effect this 00:16:29.950 --> 00:16:31.769 is the real magic of compound interest right 00:16:31.769 --> 00:16:33.970 yeah this is where the magic happens yes remember 00:16:33.970 --> 00:16:37.179 you only pay tax when you sell The act of selling 00:16:37.179 --> 00:16:39.600 is what's called a taxable event. Right. So let's 00:16:39.600 --> 00:16:42.080 say you buy a stock at $100 and it goes up to 00:16:42.080 --> 00:16:45.659 $200. You have a $100 unrealized gain. If you 00:16:45.659 --> 00:16:48.679 don't sell, how much tax do you owe? Zero. Zero. 00:16:48.940 --> 00:16:53.240 That entire $200 stays in the market, working 00:16:53.240 --> 00:16:55.659 for you, compounding for you next year. And if 00:16:55.659 --> 00:16:58.220 you do sell? The moment you sell, you trigger 00:16:58.220 --> 00:17:00.120 the taxable event. Let's say you owe, I don't 00:17:00.120 --> 00:17:03.350 know, $30 in taxes on that gain. You pay it immediately. 00:17:03.750 --> 00:17:06.950 Now you only have $170 to reinvest for next year. 00:17:07.029 --> 00:17:09.430 You have permanently impaired your capital base. 00:17:09.490 --> 00:17:12.190 We call this tax drag. You are dragging a heavy 00:17:12.190 --> 00:17:14.710 anchor behind your financial boat. So selling 00:17:14.710 --> 00:17:17.150 doesn't just risk missing a future market rally. 00:17:17.289 --> 00:17:20.440 It guarantees a bill from the taxman today. Exactly. 00:17:20.579 --> 00:17:22.759 The buy and hold investor is essentially getting 00:17:22.759 --> 00:17:24.819 an interest free loan from the government on 00:17:24.819 --> 00:17:27.400 their deferred taxes. You are keeping the government's 00:17:27.400 --> 00:17:29.559 money and using it to make more money for yourself, 00:17:29.720 --> 00:17:32.440 potentially for decades. It's the most powerful 00:17:32.440 --> 00:17:35.339 and most overlooked advantage they have. When 00:17:35.339 --> 00:17:37.940 you put it that way, active trading feels like 00:17:37.940 --> 00:17:40.470 trying to run up a down escalator. You're working 00:17:40.470 --> 00:17:42.829 so incredibly hard just to stay in the same place. 00:17:42.970 --> 00:17:45.190 That's a great analogy. And the math supports 00:17:45.190 --> 00:17:48.089 it time and time again. The friction of taxes 00:17:48.089 --> 00:17:50.529 and transaction fees is often more than enough 00:17:50.529 --> 00:17:54.130 to wipe out any alpha or extra profit a brilliant 00:17:54.130 --> 00:17:57.369 trader might generate. Okay. So the math is clear. 00:17:57.690 --> 00:18:00.769 The theory is clear. The titans of the industry 00:18:00.769 --> 00:18:04.130 all agree. So why doesn't everyone just do this? 00:18:04.230 --> 00:18:06.990 Why is... Day trading is still a thing. Why do 00:18:06.990 --> 00:18:09.430 we have entire cable news networks dedicated 00:18:09.430 --> 00:18:11.630 to what the market is doing right now? Because 00:18:11.630 --> 00:18:14.089 we are human. And humans, it turns out, are just 00:18:14.089 --> 00:18:16.589 terrible investors. Our brains are hardwired 00:18:16.589 --> 00:18:19.170 for survival on the savannah, not for compounding 00:18:19.170 --> 00:18:21.099 interest on Wall Street. We have some really 00:18:21.099 --> 00:18:23.380 specific data on this in the source notes from 00:18:23.380 --> 00:18:26.000 the Federal Reserve Bank of St. Louis, an economist 00:18:26.000 --> 00:18:29.259 named Yili Qin. Yes. This study is absolutely 00:18:29.259 --> 00:18:31.819 fascinating and a little bit depressing. He looked 00:18:31.819 --> 00:18:33.880 at a phenomenon called return chasing behavior. 00:18:34.279 --> 00:18:36.890 Which sounds exactly like what it is. It is. 00:18:36.930 --> 00:18:40.049 He analyzed the flows of money into and out of 00:18:40.049 --> 00:18:42.769 equity mutual funds over a long period, and he 00:18:42.769 --> 00:18:44.950 found a pattern that is almost tragic in its 00:18:44.950 --> 00:18:47.170 predictability. What other pattern? Investors 00:18:47.170 --> 00:18:49.650 tend to pour money into funds that have had high 00:18:49.650 --> 00:18:52.269 past returns, and they pull their money out of 00:18:52.269 --> 00:18:54.509 funds that have had low past returns. Okay, I 00:18:54.509 --> 00:18:56.269 have to play devil's advocate here for a second. 00:18:56.349 --> 00:18:59.730 That sounds logical on the surface. That horse 00:18:59.730 --> 00:19:01.450 is winning, so I'm going to bet on that horse. 00:19:01.609 --> 00:19:04.450 If a fund manager is hot, I want to give him 00:19:04.450 --> 00:19:07.349 my money. Why is that a trap? It's a trap because 00:19:07.349 --> 00:19:10.150 the stock market isn't a horse race. In a horse 00:19:10.150 --> 00:19:12.869 race, a fast horse is usually still fast tomorrow. 00:19:13.509 --> 00:19:15.890 In the stock market, we have a powerful force 00:19:15.890 --> 00:19:18.690 called mean reversion. Mean reversion. That sounds 00:19:18.690 --> 00:19:21.029 ominous. It just means that things tend to go 00:19:21.029 --> 00:19:23.549 back to the long -term average. If a fund just 00:19:23.549 --> 00:19:26.769 had a spectacular year and went up 50%, it is 00:19:26.769 --> 00:19:29.990 statistically very likely to cool off. It outperformed 00:19:29.990 --> 00:19:32.009 the average, so gravity is going to pull it back 00:19:32.009 --> 00:19:33.990 down toward that average. And what about a fund 00:19:33.990 --> 00:19:35.779 that just had a... a terrible year and dropped 00:19:35.779 --> 00:19:39.119 20 percent. Well, it's statistically more likely 00:19:39.119 --> 00:19:41.819 to bounce back in the future. It's underperformed. 00:19:41.900 --> 00:19:43.960 It's likely undervalued and it will probably 00:19:43.960 --> 00:19:46.880 revert back up toward the mean. So by chasing 00:19:46.880 --> 00:19:49.700 the winner, you are almost always buying at the 00:19:49.700 --> 00:19:52.720 peak. You are buying high. after the great returns 00:19:52.720 --> 00:19:55.700 have already happened. And by selling the loser, 00:19:55.880 --> 00:19:58.460 the fund that is doing badly, you are selling 00:19:58.460 --> 00:20:00.920 at the bottom. You are locking in your loss right 00:20:00.920 --> 00:20:03.480 before the potential recovery. The data had a 00:20:03.480 --> 00:20:05.660 specific number attached to this, a correlation 00:20:05.660 --> 00:20:08.660 coefficient. What was it again? Right. Yilichin 00:20:08.660 --> 00:20:11.079 calculated the correlation between fund flows, 00:20:11.299 --> 00:20:13.440 that's the money moving in, and the fund's past 00:20:13.440 --> 00:20:17.670 performance. The number was positive 0 .49. Okay, 00:20:17.690 --> 00:20:19.890 for the listener who isn't a statistician, translate 00:20:19.890 --> 00:20:22.609 what a 0 .49 correlation means. Sure. Correlation 00:20:22.609 --> 00:20:25.509 runs on a scale from an X1 to plus 1. Zero means 00:20:25.509 --> 00:20:27.809 there is absolutely no relationship. It's totally 00:20:27.809 --> 00:20:30.750 random. A plus 1 implies a perfect lockstep relationship. 00:20:30.970 --> 00:20:33.529 If A goes up, B always goes up by the same amount. 00:20:33.710 --> 00:20:36.950 So 0 .49 is a moderately strong positive relationship. 00:20:37.369 --> 00:20:39.430 And what does that prove? It proves, mathematically, 00:20:39.690 --> 00:20:41.829 that investors are driving while looking exclusively 00:20:41.829 --> 00:20:44.009 in the rearview mirror. And getting into a lot 00:20:44.009 --> 00:20:45.960 of wrecks because of it. Yilichin's conclusion 00:20:45.960 --> 00:20:49.380 in the paper was brutal and direct. He said this 00:20:49.380 --> 00:20:54.140 behavior explicitly reduces profit. You are systematically 00:20:54.140 --> 00:20:56.799 doing the exact opposite of the golden rule of 00:20:56.799 --> 00:21:00.599 investing. Buy low, sell high. You are, as a 00:21:00.599 --> 00:21:03.339 group, buying high and selling low. It's a behavioral 00:21:03.339 --> 00:21:06.640 tax. We are paying a tax for our own impatience 00:21:06.640 --> 00:21:08.920 and our own biases. It's the cost of following 00:21:08.920 --> 00:21:11.470 your gut. Your gut says, get out, it's crashing, 00:21:11.549 --> 00:21:14.829 or get in, everyone is getting rich. And in finance, 00:21:15.029 --> 00:21:18.170 your gut is almost always wrong. This leads us 00:21:18.170 --> 00:21:20.549 perfectly into the final boss of bad investing 00:21:20.549 --> 00:21:24.170 habits, market timing. The ultimate vanity project 00:21:24.170 --> 00:21:26.630 for an investor. The source defines market timing 00:21:26.630 --> 00:21:29.369 as selling a security with the specific goal 00:21:29.369 --> 00:21:32.049 of buying it again at a lower price. It's that 00:21:32.049 --> 00:21:34.369 fantasy we all have. I'll just get out before 00:21:34.369 --> 00:21:36.509 the crash, and then I'll buy back in at the absolute 00:21:36.509 --> 00:21:39.380 bottom. And it is a complete fantasy. It assumes 00:21:39.380 --> 00:21:42.099 that you sitting at your kitchen table are smarter 00:21:42.099 --> 00:21:44.359 than the collective wisdom of millions of other 00:21:44.359 --> 00:21:46.400 professional and amateur investors all looking 00:21:46.400 --> 00:21:48.539 at the same information. We've all heard the 00:21:48.539 --> 00:21:51.119 little sayings and adages sell in May and go 00:21:51.119 --> 00:21:53.380 away. The source mentions that one explicitly. 00:21:53.539 --> 00:21:56.200 They're called calendar effects. The idea that 00:21:56.200 --> 00:21:58.500 historically stocks have done poorly in the summer 00:21:58.500 --> 00:22:00.240 months. So you should sit it out and get back 00:22:00.240 --> 00:22:03.740 in around November. A buy and hold investor rejects 00:22:03.740 --> 00:22:06.720 this entirely. Why? I mean, is the historical 00:22:06.720 --> 00:22:09.220 data wrong? Sometimes the historical data shows 00:22:09.220 --> 00:22:12.039 these little patterns, sure, but they aren't 00:22:12.039 --> 00:22:14.440 consistent enough or strong enough to trade on, 00:22:14.539 --> 00:22:16.700 especially after you factor in the taxes and 00:22:16.700 --> 00:22:18.579 the transaction fees we just talked about. Right. 00:22:18.660 --> 00:22:21.380 But more importantly, the source references a 00:22:21.380 --> 00:22:24.119 specific study by Metcalf in a scientific journal, 00:22:24.319 --> 00:22:28.539 PLOS One. PLOS One is a serious peer -reviewed 00:22:28.539 --> 00:22:31.500 journal. What was their verdict on market timing? 00:22:31.799 --> 00:22:34.539 The verdict was clear. Market timing, on average, 00:22:34.720 --> 00:22:37.279 causes poor performance. The mathematics of timing 00:22:37.279 --> 00:22:39.440 usually work against the investor. Why is the 00:22:39.440 --> 00:22:41.619 math against you? It feels so intuitive. If I 00:22:41.619 --> 00:22:45.819 sell before a 20 % crash, I win. Right. You only 00:22:45.819 --> 00:22:47.759 win if you get back in at the right time. That's 00:22:47.759 --> 00:22:50.019 the catch. You have to be right twice. Explain 00:22:50.019 --> 00:22:52.180 that. That's a really good point. It's not enough 00:22:52.180 --> 00:22:53.839 to know when to sell. Let's say you're a genius 00:22:53.839 --> 00:22:56.900 or you just get incredibly lucky and you sell 00:22:56.900 --> 00:22:59.880 everything right before a 10 % market drop. You 00:22:59.880 --> 00:23:02.039 feel like a god. You're patting yourself on the 00:23:02.039 --> 00:23:07.460 back. You save 10%. But then the hard part begins. 00:23:08.460 --> 00:23:10.339 When you go up back in, the market starts to 00:23:10.339 --> 00:23:11.779 tick up a little bit. You think, oh, that's a 00:23:11.779 --> 00:23:13.700 dead cat bounce. It's a trick. It'll go lower. 00:23:13.799 --> 00:23:15.539 Right. I'll wait for the real bottom. Exactly. 00:23:15.619 --> 00:23:17.539 Then it goes up more. Now you think, OK, I'll 00:23:17.539 --> 00:23:19.660 just wait for a little pullback to get back in. 00:23:19.779 --> 00:23:21.859 Before you know it, the market hits a new all 00:23:21.859 --> 00:23:25.259 -time high. Now you are totally paralyzed. You 00:23:25.259 --> 00:23:27.680 have to buy back in at a higher price than you 00:23:27.680 --> 00:23:29.920 sold at. You lost money by trying to save money. 00:23:30.539 --> 00:23:33.039 There are those famous studies. I don't think 00:23:33.039 --> 00:23:34.579 they were in this specific source, but they're 00:23:34.579 --> 00:23:36.980 everywhere, about what happens if you miss the 00:23:36.980 --> 00:23:39.759 market's best days. Oh, absolutely. The source 00:23:39.759 --> 00:23:42.740 alludes to this massive risk. The vast majority 00:23:42.740 --> 00:23:46.339 of the market's long -term gains are often concentrated 00:23:46.339 --> 00:23:50.640 in a very, very few explosive trading days. And 00:23:50.640 --> 00:23:53.180 if you miss them? If you miss just the 10 best 00:23:53.180 --> 00:23:56.319 trading days over a 20 -year period, your total 00:23:56.319 --> 00:23:59.170 returns often get cut in half. or even worse. 00:23:59.410 --> 00:24:01.490 And those best days usually happen right in the 00:24:01.490 --> 00:24:03.829 middle of the worst chaos and volatility. They 00:24:03.829 --> 00:24:07.609 do. The biggest up days often happen right after 00:24:07.609 --> 00:24:10.289 the biggest down days. So if you panic and sell 00:24:10.289 --> 00:24:12.730 on the scary down day, you are guaranteed to 00:24:12.730 --> 00:24:14.869 not be there for the massive recovery day that 00:24:14.869 --> 00:24:16.829 follows. So if you try to dodge the raindrops, 00:24:16.930 --> 00:24:19.670 you end up missing the rainbow. Cheesy, but surprisingly 00:24:19.670 --> 00:24:22.670 accurate. Buy and hold is, at its core, an admission 00:24:22.670 --> 00:24:25.450 of humility. It's an investor saying, I cannot 00:24:25.450 --> 00:24:27.789 predict the future. I cannot predict the next. 00:24:27.849 --> 00:24:30.190 news cycle. I cannot time the market's emotional 00:24:30.190 --> 00:24:33.529 swings, so I will simply own the assets that 00:24:33.529 --> 00:24:35.849 benefit from the long -term growth of the economy. 00:24:36.109 --> 00:24:39.109 Wow. We have covered a massive amount of ground 00:24:39.109 --> 00:24:41.369 today. We started with the paradox of speed, 00:24:41.569 --> 00:24:44.650 why doing nothing is often the hardest and smartest 00:24:44.650 --> 00:24:47.190 thing to do in a fast -paced world. We define 00:24:47.190 --> 00:24:50.049 position trading. It's not laziness, it's confidence, 00:24:50.230 --> 00:24:52.750 despite volatility. It's the willingness to suffer 00:24:52.750 --> 00:24:55.369 short -term pain for long -term gain. We looked 00:24:55.369 --> 00:24:57.609 at the strange bedfellows of Warren Buffett and 00:24:57.609 --> 00:25:00.450 Jack Bogle, and we realized that whether you 00:25:00.450 --> 00:25:02.730 think the market is perfect like the EMH people 00:25:02.730 --> 00:25:06.569 do, or completely crazy like the value investors 00:25:06.569 --> 00:25:10.009 do, the practical answer is the same. Hold on. 00:25:10.269 --> 00:25:13.130 We saw the brutal math on how taxes and fees 00:25:13.130 --> 00:25:16.309 eat active traders alive, that friction is the 00:25:16.309 --> 00:25:19.049 silent killer of wealth. And we exposed our own 00:25:19.049 --> 00:25:23.170 worst enemy, our psychology. That .49 correlation 00:25:23.170 --> 00:25:25.710 coefficient from the St. Louis Fed showing how 00:25:25.710 --> 00:25:27.910 we are hardwired to chase yesterday's winners 00:25:27.910 --> 00:25:30.849 and lock in losses. It seems like buy and hold 00:25:30.849 --> 00:25:33.150 isn't just an investment strategy. It's more 00:25:33.150 --> 00:25:35.980 like a... a defense mechanism. That's the perfect 00:25:35.980 --> 00:25:37.940 way to frame it. It protects you from the market. 00:25:37.980 --> 00:25:40.579 Sure, it protects you from volatility, but mostly 00:25:40.579 --> 00:25:42.779 it protects you from yourself. It protects you 00:25:42.779 --> 00:25:45.359 from your own destructive urge to tinker. The 00:25:45.359 --> 00:25:47.700 urge to do something when the absolute best thing 00:25:47.700 --> 00:25:50.319 you can do is nothing. Now, I want to leave the 00:25:50.319 --> 00:25:52.240 listener with one final thought that really stuck 00:25:52.240 --> 00:25:53.960 with me from the source notes. It's a bit of 00:25:53.960 --> 00:25:56.019 a brain teaser. The source mentioned that the 00:25:56.019 --> 00:25:58.240 most extreme advocates of the efficient market 00:25:58.240 --> 00:26:01.619 hypothesis say you should never sell unless you 00:26:01.619 --> 00:26:04.279 absolutely need the money. Right. That is the 00:26:04.279 --> 00:26:06.539 ultimate logical conclusion of their theory. 00:26:06.619 --> 00:26:09.299 If everything is always perfectly priced, there's 00:26:09.299 --> 00:26:12.160 no reason to move. So here's a question. If that's 00:26:12.160 --> 00:26:15.299 true, if the price is always fair, does the act 00:26:15.299 --> 00:26:18.039 of selling ever make sense from a purely investment 00:26:18.039 --> 00:26:21.819 standpoint? Or is selling purely a lifestyle 00:26:21.819 --> 00:26:25.180 decision? That is a profound question. Because 00:26:25.180 --> 00:26:28.059 if the market is truly efficient, you never sell 00:26:28.059 --> 00:26:29.920 to take profits because where would you put that 00:26:29.920 --> 00:26:33.369 money? Any other asset you buy is also, by definition, 00:26:33.630 --> 00:26:36.690 fairly priced. So there's no advantage. And you'd 00:26:36.690 --> 00:26:39.150 never sell to cut your losses. Because the current 00:26:39.150 --> 00:26:41.869 price is already the fair price reflecting all 00:26:41.869 --> 00:26:44.309 known information. Selling doesn't help. Right. 00:26:44.369 --> 00:26:46.769 So the only logical reason to ever sell is because 00:26:46.769 --> 00:26:49.329 you need a sandwich. Or a house. Or to pay for 00:26:49.329 --> 00:26:51.849 retirement. Okay. It completely turns investing 00:26:51.849 --> 00:26:55.029 into a pure utility function. It takes the game 00:26:55.029 --> 00:26:57.869 and the ego out of it entirely. You aren't trying 00:26:57.869 --> 00:26:59.950 to score points. You're just trying to store 00:26:59.950 --> 00:27:02.529 value for when you need to spend it. And maybe, 00:27:02.630 --> 00:27:05.809 just maybe, stopping treating your life savings 00:27:05.809 --> 00:27:08.769 like a game is the single best piece of financial 00:27:08.769 --> 00:27:11.849 advice there is. I couldn't agree more. Sometimes 00:27:11.849 --> 00:27:14.769 the winning move is not to play. Just stand there. 00:27:14.950 --> 00:27:16.769 Thanks for diving deep with us. We'll see you 00:27:16.769 --> 00:27:17.089 next time.