034 | The Stock Series Part 2 | JL Collins

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Jul 31, 2017

JL Collins, author of The Simple Path to Wealth, shares invaluable financial wisdom. He delves into the Great Depression and the 1929 Crash, shedding light on the risks of margin trading. Collins discusses the psychological resilience needed during market fluctuations, arguing that crashes can benefit young investors by offering 'stocks on sale.' He emphasizes the importance of a disciplined savings strategy and maintaining confidence in market recovery, detailing the dynamics of asset allocation between equities and bonds for a robust investment approach.

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ANECDOTE

Margin Buying Worsened 1929 Crash

JL Collins explains how buying stocks on margin magnified gains and losses before the 1929 crash.
Leverage increased the crash impact causing rapid market decline and forced selling due to margin calls.

ADVICE

Avoid Margin and Exit Early

Don't buy stocks on margin and be cautious when aggressive margin use and easy money hype appear.
Once a crash happens, it's usually too late to avoid losses; exit early if you sense market excess.

INSIGHT

Market Growth Tied to US Economy

The stock market reflects the health of the US economy; unless it collapses, the market generally goes up over time.
Belief in the enduring strength of the US economy underpins JL Collins' investment advice.

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034 | This podcast is Part 2 of the Stock Series discussion with JL Collins, author of The Simple Path to Wealth and the website JLCollinsNH; we discuss the Great Depression and the mindset you need to be a successful long-term investor, plus how to allocate between equities and bonds.

In Today’s Podcast we cover: Part 2 of the Stock Series conversation with Jim Collins If you have not yet listened to Part 1 you can listen to it here Be sure to check out the associated Friday Roundup here for Brad and Jonathan's take-aways

A discussion of what happened during the Great Depression and the Crash of 1929 A large portion of the crash was due to many people buying stock on margin Jim’s explanation of leverage and buying stocks on margin Jim’s Four Lessons to watch out for Making peace in your mind when a crash/correction happens. What caused it? Psychology or something legitimate?

Unless you believe the US economy has permanently collapsed, then “the market always goes up” over time according to Jim Jim says the best thing that can happen to a young investor is a market crash as you get to purchase stocks “on sale” for potentially years Savings rate is the most crucial aspect for the FI community since it allows you to continually invest in good markets and bad Bull markets and bear markets are a part of life.

We need to toughen up mentally to prepare for both Jim’s explanation of the 40 year period starting in 1975 showing the calamities that happened and yet how far the market increased Nobody knows what the next 40 years will hold, but we have a dynamic economy What stage of investment life are you in? It varies depending on your age Wealth building and wealth preservation stages and the discussion surrounding both When you’re in the wealth building stage you need to have your psychology correct: Keep pumping money into the market and take advantage of sales when the market goes down 100% equities in the wealth building stage per Jim When you stop working for money you are in the wealth preservation stage What percentage should you have in stocks and bonds in the wealth preservation stage

The more you have in bonds the smoother your ride will be, but the lower your return will be Your tolerance for volatility will determine your percentage in equities and bonds Would Jim ever consider going back to 100% equities? Mathematically you are always better off in stocks than bonds over the long-term

Even Jim contemplated selling during recent market plunges, so everyone is susceptible to this