In this episode of Investment Strategy Made Simple (ISMS), Andrew gets into part two of his discussion with Larry Swedroe: Ignorance is Bliss. Today, they discuss three chapters of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this series, they discuss mistake number 32: Are You Subject to the Money Illusion? Mistake 33: Do You Believe Demographics Are Destiny? And mistake 34: Do You Follow a Prudent Process When Choosing a Financial Advisory Firm?

LEARNING: Understand how the money illusion works to avoid making financial mistakes. Focus on managing risk and not trying to manage returns. Past performance is meaningless for active managers.

In this episode of Investment Strategy Made Simple (ISMS), Andrew gets into part two of his discussion with Larry Swedroe: Ignorance is Bliss. Larry is the head of financial and economic research at Buckingham Wealth Partners. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.

Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss three chapters of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this series, they discuss mistake number 32: Are You Subject to the Money Illusion? Mistake 33: Do You Believe Demographics Are Destiny? And mistake 34: Do You Follow a Prudent Process When Choosing a Financial Advisory Firm?

According to Larry, one of the illusions with great potential for creating investment mistakes is the money illusion. Money illusion occurs when people confuse inflation returns, nominal or real returns, and how the economy is impacted differently. It has great potential for creating mistakes because it relates to one of the most popular indicators used by investors to determine if the market is undervalued or overvalued, known as the Fed Model.

The problem with the Fed Model, leading to a false conclusion, is that it fails to consider that inflation has a different impact on corporate earnings than it does on the return on fixed-income instruments. Over the long term, the nominal growth rate of corporate earnings has been in line with the economy’s nominal growth rate, and the real growth rate of corporate earnings has been in line with the economy’s real growth. Thus, the real growth rate of earnings is not impacted by inflation in the long term. On the other hand, the yield to maturity on a 10-year bond is a nominal return, and, therefore, the real return on the bond will be negatively impacted by inflation. The error of comparing a number that is not impacted by inflation to one that is leads to the “money illusion.”

Larry says the empirical evidence and logic are pretty simple: Corporate earnings grow in line with the GDP. If they grew much faster, they would dominate the whole economy, and there’d be nothing left for wages.

While gaining knowledge of how a magical illusion works has the negative effect of ruining the illusion, understanding the “magic” of financial illusions is beneficial to investors as it should help...

BIO: Chris Ball started his career in 2004 as a tax adviser with KPMG LLP. He then transitioned and founded Hoxton Capital Management in 2018. The group’s sole emphasis is helping HNW and UHNW clients with borderless global financial advice. Chris’ specialty is assisting individuals with their retirement planning needs.

STORY: When Chris started his career young and fresh, he got into spread betting. That didn’t go so well, and he lost 10,000 pounds, which was a lot of money in 2008. In terms of business, he wasted over $750,000 on bad hiring decisions.

LEARNING: Don’t enter markets that you don’t understand. If someone is not 100% right, don’t hire them.

Chris Ball started his career in 2004 as a tax adviser with KPMG LLP. After seven years with KPMG, Chris moved to the Middle East to join the deVere Group, where he continued his work as an IFA. He started in their Abu Dhabi offices and eventually headed up the Qatar operations for the group, which dealt with HNW and UHNW individuals.

Chris then transitioned and founded Hoxton Capital Management in 2018. The group’s sole emphasis is helping HNW and UHNW clients with borderless global financial advice. Chris’ specialty is assisting individuals with their retirement planning needs.

Chris has three children with his wife.

When Chris started his career young and fresh, he got into spread betting. That didn’t go so well, and he lost 10,000 pounds, which was a lot of money in 2008. In terms of business, he wasted over $750,000 on bad hiring decisions.

• Don’t enter markets that you don’t understand.
• If someone is not 100% right, don’t hire them.
• Playing at things never produces good results. You have to be 100% dedicated and focused on your work.

Hire and fire quickly. If someone is not suitable and you spot it, fire immediately. Don’t keep giving people a chance after chance.

Chris recommends using his recently launched Hoxton Wealth App, available on iTunes, Apple App Store, Google Store, and the company’s website. It’s completely free. The app enables people with accounts in different countries to live link those accounts and view them in a currency of their choice. It also has cash flow modeling, which enables people to see if they have enough money saved for various goals.

Chris’s number one goal for the next 12 months is to launch a wealth app and attract 100,000 users.

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BIO: Vivek Raina is a seasoned veteran with over two decades of experience in the broadband industry. As the CEO and Co-Founder of Excitel, he leads the mission to connect BHARAT, propelling the company to the top three ISPs in India—a remarkable feat in just eight years.

STORY: Vivek spent 10 years finding an investor to fund his business idea. He wishes he had spent these years advancing his corporate career.

LEARNING: Working for somebody is fragile. Every failure teaches you something and makes you a better version of yourself. Do something you’re passionate about.

Vivek Raina is a seasoned veteran with over two decades of experience in the broadband industry. As the CEO and Co-Founder of Excitel, he leads the mission to connect BHARAT, propelling the company to the top three ISPs in India—a remarkable feat in just eight years. With a million subscribers spanning 55+ cities, Vivek’s leadership has revolutionized lives through pioneering unlimited internet broadband.

Vivek hails from Kashmir and is now based in Delhi. His journey includes impactful roles at Hathway, Reliance, and Pacenet, highlighting his exceptional leadership skills.

Within two years of employment, Vivek had decided he would not stay employed—he would do something independently. Vivek started showing his ideas to people, hoping that someone would be interested in funding him. Some of the ideas were really bad, while others were good. Vivek didn’t manage to get an investor. Most people would offer him a salary or some incentives to work with him. It took Vivek 10 years to convince somebody to invest money in his idea. It took another three years to convince them to start a company, and in 2014, he got his first investment.

Vivek considers the 10 years he spent making this foundation his worst investment ever because if he had concentrated on a corporate job instead, he would be a millionaire by now. It’s also his best investment because if he had not gone through the grind and learned what he learned, he wouldn’t have been the successful entrepreneur he is today.

• Working for somebody is fragile.
• Every failure teaches you something and makes you a better version of yourself.
• Do something you’re passionate about—nobody can beat you at what you’re good at.

• Don’t be too harsh on yourself when you fail. Remember, you did your best with what you knew at the time.

To succeed, you need to be where the action is. Secondly, decide what to do because this is a once-in-a-lifetime shot. If you get it wrong, you lose many years. So choose carefully, and pick the stuff you’re naturally good at.

If you’re interested in startups and want to be successful in business, Vivek recommends reading Nicholas Taleb’s Taleb’s books. They will change your perspective.

If you need to be aware of your own biases and how your mind plays with you, read Daniel Kahneman’s Thinking, Fast and Slow, and The Almanack of Naval Ravikant: A Guide to...