Our latest episode of “Gimme Some Truth” is live on iTunes and SoundCloud! Our topic this week ties into our recent blog post. Listen to hear how “laying up” might be a good strategy in both golf and investing!
TRANSCRIPT: Gimme Some Truth Ep. 5[00:00:00] Welcome to gimme some truth! I’m Kevin Castro your podcast producer and your co-hosts are Clint Walkner and Nate Condon the co owners and financial advisors at Walkner Condon financial advisors in Madison Wisconsin. This is a podcast series dedicated to eliminate some of the darkness around fees. Conflicts of interest and the motivation behind recommendations in the financial planning industry.
[00:00:22] Here are your hosts.
[00:00:39] (Intro Music).
[00:00:50] Welcome back to gimme some truth.
[00:00:52] Today’s episode we are tackling the idea of taking too much risk in the stock market and how that relates to laying up in golf. Clint recently played a round of golf with his father and he has a story to tell.
[00:01:07] Well it’s very telling when you play golf with people because you can kind of see how they react on the golf course. And you can extrapolate that on to life. And in some cases how they handle their own investments so they’re playing golf with my dad which Nate’s already kind of smiling because he knows exactly what this all means but so I’m playing over my dad and he gets out of this hole and he’s looking at and it’s you know I’m not a real long hole and about halfway through the hole there’s a creek. And so my dad used to be able to hit the ball farther than he can now but he’s got a nice new driver and in the last few rounds he said I just actually aim at the bridge over the water and then I just hit it and try to hit it over the bridge.
[00:01:57] And my friend keeps telling me why are you doing that. Just lay up and then hit your second shot on the green. Well my dad insists every time to pick up the driver and try to pound it over the water.
[00:02:10] And there’s no benefit necessarily for clearing the crick is right virtually not. I mean don’t get a prize. You don’t. No no you don’t you end up being like 120 yards away versus 150 yards away.
[00:02:22] And so if time talk about risk versus reward I’m not even going to get into the trying to hit a ball onto a bridge. And what that might do to your score.
[00:02:33] But just trying to hit the ball over the water gives you no real ancillary benefit. Yet he felt the need to be able to hit it over there because somehow you’re less of a man or something of you and a few times it’s worked out for him. Yeah a couple of times apparently.
[00:02:48] But if you think about the risk versus reward there are the chance that you actually hit it over that when you hit the ball. You know say he hits the ball 200 yards and this thing’s at like he’s got to hit the ball perfect 200 yards to hit it over every time. And you’re a weekend duffer golfer. The chance of you doing that on a regular basis pretty low.
[00:03:08] And the penalty of it is is high. Right. So when we look at how this relates to clients investing their money what does this tell us.
[00:03:18] Well it tells us that I think we have a preconceived notion that you know by balancing things out or doing the right thing somehow that’s making you less of a person or somehow it’s you know from a man’s perspective you go up just makes you less a man if you lay up on that shot. And there’s only one goal here it’s it’s to make the lowest score on a whole.
[00:03:39] Right. Right. And so if that’s our goal why don’t we just try to make a low score.
[00:03:44] But that’s not your dad’s goal hits to hit apparently two perfect shots you know shot over and somehow that makes him a better person if he hits the ball over and then he’s got to hit his next shot onto the green. But if you lay up you hit your next shot onto the green too. There’s no real difference in the two aside from be able to say I can hit it over the wall.
[00:04:03] The quick question Does your dad know he’s going to be on our podcast or is this going to be a surprise to him. Sorry dad.
[00:04:11] You the earth or authorisations sign. Do we have something on file to use him. His his likeness. It was 0 0 0 wasn’t Clint’s dad it was a friend of Clint’s. That this happened. Somebody that I know fairly well. That’s right.
[00:04:27] Make sure you’re not him. Yeah. So what this makes me think of when he’s doing this is you know Dad what’s your goal like is your goal to try to minimize risk to maximize your return.
[00:04:40] So in this perspective just get up there with your five iron and hit it short and hit another shot onto the green and you know maybe you get a birdie and if you hit it over the water you take the water into play. You if you actually try to hit the bridge the likelihood of that occur is so minuscule and maybe at the bridge that goes over maybe you hit the bridge and it kicks back in the water. I don’t know. So why don’t you take the smart play and the smart play here would be you know more times out of not if you have a five hour and you had there’s no way you can hit into the water versus hitting a driver. So we’ve taken that out of play completely. And so if we talk about investing you know there may be times where you know you shouldn’t try to press your risk you shouldn’t try to you know hit that individual stock and try to hit that homerun because you’re going to strike out a lot more to win.
[00:05:29] And it goes back to the point you were making earlier which was having a clear definition of what is the ultimate goal right. So the ultimate goal in the golf analogy is to make the lowest score you possibly can. The the ultimate goal in at least our conversations with clients is making their financial plan work for them so that they can ultimately have the retirement they want to have. It really has nothing to do with having one year or two years of incredible excess gains in their portfolio it’s more about consistently hitting the number that we need to hit to the ultimate goal is real.
[00:06:08] Yeah I think it’s the question of the scoreboard because some people have a different type of scoreboard for us. The scoreboard is can you maintain and live your lifestyle in the fullest possible way without having things keep you up at night and some other people I think judged differently when they get within our four walls. They say well the S&P 500 is well we’re looking against and it’s like yeah that’s that’s one thing you can benchmark our performance against but it doesn’t really perform. It doesn’t really benchmark against what you’re really trying to accomplish. It is can I continue to maintain my lifestyle if I lag the benchmark the S&P by 1 percent does that change anything.
[00:06:46] In most cases it doesn’t take the golf analogy one step further and kind of tied to the current state of the market.
[00:06:54] So if we go back to Clint’s dad I mean the Glyn’s friend a good catch could get.
[00:07:04] So let’s say he’s part of the last four holes in a row and now he steps up to this t of this hole where there’s a creek running through the fairway of course at that point he’s excited he’s feeling good. Of course at that point he’s going to want to hit it over the creek because he’s done so well up to that point.
[00:07:18] You’re hot you’re hot you’re feeling good. You don’t feel like you’re talking about my game.
[00:07:21] Hey. I’ve seen this movie a few times.
[00:07:25] So the idea there is we still shouldn’t make a dumb play and try to hit it over the creek when that’s not within our power or that doesn’t make the most sense for our play just because we’re hot over the last four holes. We still need to make the smart play and we’re actually getting that that question a decent amount nowadays of you know the markets really have had a great last couple of years. Boy I really should try to get aggressive now. Shouldn’t I dot dot dot to which we respond. No.
[00:07:54] It’s I mean it’s not smart. That way you need to just need to go out and you need to keep doing what you’re doing which is diversify which is be global in your allocation and and in some cases too if you haven’t made globally allocated over the last few years. Chalk it up to kind of dumb luck. Right. I mean if you had a lot of your money just sitting in the U.S. stock market investments you know good for you. But if we’re doing it well we think on a right way you should be you know looking at emerging markets and looking at Europe and having the U.S. and having a variety of different countries and your exposure to because the U.S. economy isn’t the number one performer in the whole world. So in order to capture some as rates of return you’ve got to be in those other countries and you know we don’t know and nor does anybody in this podcast know when these cycles are going to begin and end because we all don’t get sent e-mails when that occurs so you know we’ve got to diversify and be in it at all times and sometimes it will be good and sometimes it won’t.
[00:08:50] No. And this shouldn’t be misconstrued to say that we don’t ever think that taking an opportunistic risk is a bad play. You know that whole specifically is a bad hole to take that risk. Right. So maybe the next hole presents a series of variables that are better off for taking that calculated risk maybe the next goal is a shorter par five where good drive down the middle allows us to really take advantage and make that Burty achievable. And in that way you know a market that has pulled back 10 or 15 or even 20 percent in some cases can present that correct set of variables where. OK. Taking a little bit more risk at that time might make more sense than taking the risk where. Boy there’s very very very few variables that are lining up to say taking a ton of additional risk right now in this market is the right play.
[00:09:50] Throw in that you know when you hit that nice shot and you’re looking at a 250 yard approach shot where you have to have everything go right. Otherwise you might have disaster it’s just not the right time to do that. And we tell our clients too. I mean take the bulk of your money and be safe. And if you want to take a risk or two. Go ahead. But let’s limit those risks to a small percentage of your portfolio. I always like to say to our clients say if you want to make a ton of money in the stock market take our advice and do the exact opposite. Which is you know go ahead and put it all on red and put it all in one individual stock and you know give it a run. But you know you better only do that with a small portion of your portfolio because you’re going to drag out a lot more than you are going to hit that home run.
[00:10:33] Yeah it’s a difference of mindset when it comes to managing money and that’s where Glenn and I try to to center our efforts which is you know the scoreboard is making our financial the financial plans of our clients come to fruition and giving them as good a retirement as they possibly can while subjecting their money to the least amount of risk possible to make that plan work. And that’s always going to be our mindset and our direction. And it just in a lot of cases flies in the face of taking opportunistic risks when it just doesn’t make sense to do that.
[00:11:06] That’s right. And you’ve got to be in the game and we’re all going to have to play the game. So anytime that we play the game and all there’s risks and there’s plenty of risks in golf there’s sand water and tough fly and all kinds of different things that you can have or different risks on the course. We can’t eliminate those risks but we can minimize those risks we can hit the ball in certain places where we might not end up in the sand trap or might not end up in the water. And so it’s really important to be able to look at at this and kind of survey the landscape. And that’s why I think it’s important to work with a financial adviser to help them look at all the different risks that you have around you and try to minimize some and accept some and make everything as optimal as possible.
[00:11:50] If we if we close out the golf analogy by saying you know very very few people have the luxury to sit in the clubhouse and not step on the golf course and play at all and you know those are the people that have you know millions and millions of dollars in the bank I mean if people are fortunate to be in that situation maybe they don’t have to take any risk maybe they have the luxury to be able to sit back and literally earn zero rate of return on their money and still be able to live the retirement they want. But the vast vast majority of us don’t have that luxury so we do need to play the game. And so our our view of the world when it comes to playing the game is you know let’s let’s take risk or risk make sense let’s be smart we’re smart too to lay up and let’s ultimately achieve the final score that we want through a more measured way of play.
[00:12:40] And just note that you’re going to make bogey double bogey in a couple of holes here and there and that’s OK. And sometimes we have to wait around for some of those bets to come to fruition. I mean if you had been in emerging markets the last few years you might have said to yourself why do I have this asset class and then finally starting last year it came to fruition and came back in a big way. So sometimes you’ve got to weigh in on these ideas and sometimes we have to have it in your portfolio for a while before anything happens to it and a lot of times it can be a negative thing that happens to it and we just have to hang on allow that to recover. We’re still wondering that with certain investments do like commodities. They’ve been down for multiple years and it shows no sign of recovering but that’s why you have it in the portfolio because it’s an asset class that can go up by a lot and a year in some cases yeah it has a lot to do it just understanding the amount of risk that you want to take and then understanding where is the best time to apply that risk.
[00:13:36] And getting back to where the market is right now we just do not feel like it’s a risk on period of time. This feels like one of those holes where we should look to lay up we shouldn’t walk off the golf course. We should look to lay up.
[00:13:47] We should look to play it smart little defensive try to get our part and move on to the next t Well hopefully you guys enjoyed all the golf analogies and stories and the story about my friend or my dad and what we played outdoors.
[00:14:01] Yeah. Yeah. That all out there. Thanks a lot. Thanks a lot for listening and I will catch you for that. So is it true.
[00:14:20] Your money. Sky.
[00:14:49] Advisory services are offered through Walkner Condon financial advisors LLC or registered investment advisor in the states of Wisconsin and Texas. Clint Walker and Nate Condon are investment advisor representatives of Walker and Kevin Castros an office manager and marketing communications specialist for Walkner Condon financial advisors. He’s not registered and is participations podcast is limited to unregister activities and will not be providing any advice to the investor related nor should any comments he makes be construed as giving investment advice. Insurance products and services are offered through WC Insurance Services LLC walkner Condon financial advisors LLC and WC Insurance Services LLC are affiliated companies. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice you should always consult an attorney or tax professional regarding your specific legal or tax situation. What kind of financial advisors LLC is not engaged in the practice of law. Whenever you invest you are at risk of loss of principle as the market does fluctuate. Past performance is not indicative of future results. Purchases are subject to suitability. This requires a review of an investor’s objective risk tolerance and time horizons. Investing always involves risk and possible loss of capital. Long term care estate planning insurance products and tax advice are not offered through Fawkner current financial advisors LLC Walker Condon works on a best efforts basis and does not promise or guarantee any results. Past performance does not represent future results. Please see walknercondon dot com for additional disclosures