The Incredible Shrinking Alpha with Larry Swedroe - 6

Original publish date February 27, 2016 (hour 2). Note that content may be outdated as rules and regulations have changed. In episode 6 of YMYW, Larry Swedroe joins the show to discuss what recency bias is and why you should avoid it. Joe and Al ask Larry what the key to successful investing is, and Larry talks about his books The Incredible Shrinking Alpha and Think, Act and Invest like Warren Buffett.

2:12 “The conventional wisdom goes like this: take distributions first from taxable accounts such as your brokerage accounts, then from tax-deferred accounts like your IRAs and 401(k)s…that is the rule of thumb for most advisory firms”

8:05 Interview with Larry Swedroe

9:14 “What investors tend to do, as we know, is they tend to buy after periods of strong performance which means they’re buying when prices are high and then they tend to sell after periods of poor performance, which means valuations are relatively low and expected returns are not high”

10:01 “Research shows, shockingly, that individual investors on average are such poor investors that they actually underperform the very mutual funds they actually invest”

13:21 “The key to successful investing is to understand what Napoleon advised about military strategies: He said battles are never won on the field, they’re won in the preparation stage”

15:26 “You have to just accept that markets are unpredictable and you must have discipline, you want to be a buyer when everyone is panic selling and you want to be a seller when everyone else is getting greedy. There is a simple although not easy way of doing that and it’s called rebalancing your portfolio”

16:14 “What people don’t understand is really how stocks are priced”

20:01 “People have this notion that if they can get in and out of certain asset classes or get in and out of certain markets, that’s going to enhance their overall investment experience, but actually the opposite is true”

21:04 “The key is to understand how markets have changed over the last 70 years”

23:59 “It’s not necessarily the mutual fund, it’s the allocation and how you’re actually positioning the overall accounts towards different areas of the markets”

24:55 “Here’s the key: what investors need to focus on is not trying to choose a money manager or stock that they think will outperform…what you do want to focus on is putting your money in the asset classes that you believe are appropriate for you to hold”

28:43 “Investing is really simple; you need to have a well-thought-out plan to make sure you don’t take more risk than you have the ability, willingness and need to take”

35:25 “When you have a fund that’s outside of a retirement account and the manager is buying and selling, that’s causing short-term gains which are the most expensive of gains. Now all of sudden you’re paying more in taxes”