Transcription:

Best Practices for Investing in Stocks 10:30

Announcer: This is Blue Money, a finance podcast made for cops by cops. With us, you know your money’s safe. Lieutenant Jim Donnelly of the Bensalem Police Department and co-host Kevin McGarry of Valley Financial Group, come together to help protect and serve your financial needs. This is Blue Money.

Jim: I want to welcome everyone back to the Blue Money Podcast. This is your host, Jim Donnelly. I’m here with my co-host Kevin McGarry.

Kevin: Jimmy, what’s up man?

Jim: What’s up Kev? Today I thought we would talk about a hot topic out there about buying stocks. This really got big around Covid. I know a lot of police officers really started dabbling in starting buying stocks. Started day trading, swing trading. So, we started talking about, now Kev, I mean, we always say buying socks, it could be dangerous for guys when they don’t know what they’re doing. So, give me some thoughts on it, Kev.

Kevin: The market’s doing really well. The SNP500, fifth consecutive week, it’s been up. That’s the longest since Autumn 2021. The NASDAQ has had its eighth straight week, is second week up. That’s the longest since early 2019. And that’s all from the Dow Jones market data. And because of that, people were chasing, it’s been really up until May is around eight stocks gaining those returns over the last months, about 20 stocks. But you got Nvidia, Microsoft, Tesla, Apple, all running and everyone wants in and buy some. I mean, Nvidia had a couple great weeks there and especially with all the AI stuff coming out, and as much as we preach, stay diversified and don’t chase winners, human nature are, they want to chase the winner.

Jim: You know, Kevin, I mean, one thing that we always say I see with a lot of cops, I’m working with like people chasing the crowd. Like you just said, when the market’s going up and stocks are going through, everyone that wants a piece of something. So, they’re buying it high and it’s already probably inflated, it’s already overpriced, but they want a piece of it because it’s going up, right? And they don’t really do the research, they just follow the crowd. They really have no idea about the performance. They have no idea what the sheet looks like at the end of the month. They have no idea what’s going on. They just know everyone’s buying Microsoft or something and they all want to jump in. They don’t even know what the price is. They’re just buying it.

Kevin: No, the way I look at it too, Jimmy, I got this Covid dog, little golden doodle. We’re training pretty well, but we have all these rabbits in the neighborhood and I told the dog, sit there, right? Sit when he sees the rabbit, guess what that dog does when he sees the rabbit?

Jim: Runs.

Kevin: Chases the hell out of that rabbit. He’s never caught one yet. I feel like a lot of these investors.

Jim: It sounds like you in the basketball court, brother.

Kevin: I think the big thing is like, my dog it’s really difficult to catch a winning stock.

Jim: And I think the other thing that’s real difficult, Kev, like that’s a great example though, is emotions part of it. So, when people start losing, they want to sell quick. They don’t want to give a chance to make a bounce. The one thing that’s always chasing, they get greedy or they don’t want to ever go broke. So, when the markets just dropping, they don’t have that price where they want to sell. That’s the one thing you need a strategy. A lot of cops I talk to, I’ll be like what’s your strategy for buying stocks if you’re day trading, swing trading? Like, I’m here. Like, what are you doing? I’m not totally against it. I just want to hear what your strategy is. They’re like strategy. We’re just picking the ones I like. I’m like, well what are you backing at on? Well, I got a tip. I watched this podcast. They told me that this is really going to take off soon. So, they really have no like valid points to it. It’s just what they’re hearing someone say or they read something on the internet and they really have no idea what you’re talking about. And so a cryptocurrency, getting that Kev, [inaudible 00:03:38] cryptocurrency first everyone wanted a piece of cryptocurrency.

Kevin: And marijuana stocks and so forth. But like now with social media, everyone’s going to tell you about the pretty date. They tell you about the winners but not the losers, Jim. And then think about it, I mean there’s an article in the Wall Street Journal this week and stating in the SNP 500 and there’s a new bull market last week. After rising more than 20% from its October low. Now the bear market which lasted, they say 240 trading days was the index longest since 1948. I mean, we just get out of a bear market. The numbers are saying we’re out of it. And now everyone wants to get back in. Not only get back into a diversified portfolio, but chase the likes of Nvidia and Tesla, the stocks that are pretty, pretty, their Ps are really high and they seem pretty expensive.

Jim: Dude, that’s the thing Kev, like we can’t get it enough. And what we tell people, listen, we’re not against it. Even when we have portfolio reviews here and we’re going over it, what we think is like, if you’re a police officer out there and you’re maxing out your 457 and you’re IRAs, you have an emergency fund, you’re credit card debt zero. So, you’re squared away, but you have a little extra pocket money. Well, we say whatever you have, you can do 10%. We always think like 10% of your portfolio. It’s not crazy. And what that means is if you know in a football field it’s a hundred yards. If you only lose 10 yards, it ain’t going to crush your portfolio. It ain’t going to crush your emergency, your savings fund or you’re play money. So, anything more than that, we start getting reckless. So, if you’re going out there and think like, well, what’s a good amount to start with? We say we really care if I want to go any more than 10, let start at 5%. But if you’re out there and you’re betting half of your savings, your emergency fund because you have a hot tip, that’s where you’re going to get yourself in trouble.

Kevin: Or not just hot tip, but something that they’re seeing on the news or something that is performing really well and just because there’s good performance now doesn’t mean it’s guaranteed in the future, number one. And number two is, most times it is a losing game. I’ll give you an example. JP Morgan comes out with the guide to the market every year they update those numbers. One slide that was pretty, pretty popular in in their layout and in their on the site was diversification of the average and the average investor. It hasn’t been updated in a while. But if you look at that slide from 2001 to 2020, 20 year annualized return by asset class, the average investor during that time has averaged 2.9%. The average 6040 portfolio has averaged 6.4%. So I mean, you’re looking at over a 3% difference on your money. And one of the main reasons you’re seeing a difference between a return in the 6040 portfolio, the average investor, because the average investor, they’re getting in when it’s good and they’re getting out when it’s bad.

Jim: Yeah, that’s right. And so, I mean like a just sort went out there listening. We’re not totally against you playing and learning a little bit about stocks and some people say it’s gambling. I don’t know if it’s that extreme with it, but it’s part of gambling. But just be careful out there. We don’t want people to get over their heads, get too deep, start chasing money that you’re losing and always who think that you got to win everyone. A part of a strategy of buying stocks is you have to take some losses. You’re going to take something else. You’re going to need, don’t want to get out. You’re going to have to have that price that if it hits my you’re going to get out. But a lot of people hold on it because they think it’s going to raise again and it keeps dropping. So, we just have horror stories out there. We see a lot of police officers just lose a lot of money. A lot of money they should be investing their long term. Just thinking buying stocks, guys, chances are you’re not going to buy some penny stock and it’s just going to go crazy through the roof like a Bitcoin or an Amazon back in the day, it’s most likely it’s just not going to happen.

Kevin: So yeah, I think the big thing is, is if you have a plan, which we’re doing here, is financial planning for law enforcement. And the portfolio needs to, the assets need to be diversified to meet your goals and your long term needs. And if you have a 30, 40% weighting in one company, that’s a lot of hope in one company to help you achieve those goals. And based off the numbers by JP Morgan, a 3% difference could be critical over a 20 year period to you achieving those goals.

Jim: So, like I said, Kev, the one thing that’s overexposure to market, we believe in diversification. We believe that making sure everything’s spread out. Case one goes up, one goes down, you’re going to be okay. Like Kev said, some people have 40% all in one stock and it goes down. If it takes off, hey, listen man, you’re going to hit a home run here and there, but the majority of times it’s not going to be a winning strategy for you. So Kevin, what do you want people to remember from this podcast?

Kevin: I think the most important thing is there’s always going to be really, lack of a better word, sexy stories out there to make you make money. But be the turtle, slow patient and diversified historically is one. And helps you achieve those goals so you can live the life you want to live.

Jim: That’s great. Kevin, one thing I know always know from police officers out there, the worst thing that can happen to guys that start trading stocks, day trading, they hit that first one or two. So man, you go, it’s like going to blackjack table when you hit that first couple games, next you’re invincible.

Kevin: You think you know everything.

Jim: You think you know everything. You’re smarter in the market. So, guys just out there, man, be careful about buying stocks.

Kevin: And even when an advisor gives you a tip or a good idea and it hits a home run, the next one you’re going to leverage up the next idea. And that’s usually where you get hurt.

Jim: And that’s where it’s going to get hurt. So guys, think about it. We always remind everyone, long-term investing, make sure you’re maxing out those accounts and don’t try to get rich overnight. It’s really hard, man. Don’t get rich overnight. So, I want to thank everyone for listening guys, and be safe out there. 

Kevin: Be safe.

Announcer: Thanks for listening to Blue Money. To learn more about Jim and Kevin or for a free financial assessment, visit valleyfinancial.com or click on the link in the podcast description or show notes. Until next time, safe investing. 

This material is intended to be educational in nature and not as a recommendation for any particular strategy, approach, product or concept for any particular advisor or client. These materials are not intended for any form of substitute or individualized investment advice. This discussion is general in nature and therefore not intended to recommend or endorse any asset, class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment clients, as well as all other readers are encouraged to consult with their own professional advisors, including investment advisors and tax advisors. Valley Financial can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined here in.