In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 06: Market Efficiency and the Case of Pete Rose.

LEARNING: Don’t try to pick stocks or time the market.

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over the 30 years or so that he’s been trying to help investors. 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 Chapter 06: Market Efficiency and the Case of Pete Rose.

Many people have difficulty understanding why smart investors working hard cannot gain an advantage over average investors who simply accept market returns. In this chapter, Larry uses an analogy in the world of sports betting to explain why the “collective wisdom of the market” is a difficult competitor.

Pete Rose was one of the greatest players in the history of baseball, finishing his career with more hits than any other player. It seems logical that Rose would have a significant advantage over other bettors.

Rose had 24 years of experience as a player and four years as a manager. In addition to having inside information on his own team, as a manager, he also studied the teams he competed against. Yet, despite these advantages, Rose lost $4,200 betting on his own team, $36,000 betting on other teams in the National League, and $7,000 betting on American League games.

This reveals that if an expert like Rose, who had access to private information, could not “beat the market,” then it’s very unlikely that ordinary individuals without similar knowledge would be able to do so.

Larry shares other examples of the efficiency of sports betting markets. One such example is a study covering six NBA seasons in which Professor Raymond Sauer found that the average difference between point spreads and actual point differences was astonishingly low—less than one-quarter of one point.

In horse racing, the final odds, which reflect the judgment of all bettors, reliably predict the outcome—the favorite wins most often, the second favorite is next most likely to win, and so on. This predictability of the market further emphasizes the futility of trying to exploit mispricings and the need for a more reliable investment strategy.

Larry goes on to quote James Surowiecki, author of “The Wisdom of Crowds,” who demonstrated that as long as people

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 05: Great Companies Do Not Make High-Return Investments.

LEARNING: A higher PE doesn’t mean a higher expected return.

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over the 30 years or so that he’s been trying to help investors. 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 Chapter 05: Great Companies Do Not Make High-Return Investments

In this chapter, Larry explains why investing in great companies doesn’t guarantee high returns.

When faced with the choice of buying the stocks of “great” companies or buying the stocks of “lousy” companies, Larry says most investors would instinctively choose the former.

This is an anomaly because people think the whole idea of investing is to identify a great company and, therefore, will get great returns. But if you understand finance, that doesn’t make any sense because the first basic rule of investing is that something you know is only information; it’s not value-added information unless the market doesn’t know it. This is because that information is already embedded in the price through the trading actions of all marketplace investors.

According to Larry, if it were true that markets provide returns commensurate with the amount of risk taken, one should expect great results if they invest in a passively managed portfolio consisting of small companies, which are intuitively riskier than large companies.

Small companies don’t have the economies of scale that large companies have, making them generally less efficient. They typically have weaker balance sheets and fewer sources of capital. When there is distress in the capital markets, smaller companies are generally the first to be cut off from access to capital, increasing the risk of bankruptcy. They don’t have the depth of management that larger companies do. They generally don’t have long track records from which investors can make judgments.

The cost of trading small stocks is much greater, increasing the risk of investing in them. When one compares the performance of the asset class of small companies with that of large companies, one gets the same results produced by the great companies versus value companies comparison.

The simple explanation for why great earnings don’t necessarily translate into great investment returns is that investors discount the future expected earnings of value stocks at a higher rate than...

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 04: Why Is Persistent Outperformance So Hard to Find?

LEARNING: Focus on building a robust asset allocation plan, regularly rebalancing it, and stick with it.

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over the 30 years or so that he’s been trying to help investors. 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 Chapter 04: Why Is Persistent Outperformance So Hard to Find?

In this chapter, Larry explains why persistent outperformance beyond the randomly expected is so hard to find.

According to Larry, the equivalent of the Holy Grail is finding the formula that allows many investors to time the market successfully. For others, it is finding the fund manager who can exploit market mispricings by buying undervalued stocks and perhaps shorting overvalued ones. However, markets are very highly efficient. An efficient market means that the price is the best estimate investors have of the right price. They don’t know the right price until after the fact.

The efficiency of the markets and the evidence of the effects of scale on trading costs explain why persistent outperformance beyond the randomly expected is so hard to find. Thus, the search by investors for persistent outperformance is likely to prove as successful as Sir Galahad’s search for the Holy Grail.

Larry adds that the only place we find the persistence of performance (beyond that which we would randomly expect) is at the very bottom—poorly performing funds tend to repeat. And the persistence of poor performance is not due to poor stock selection. Instead, it is due to high expenses.

Larry says the efficient market hypothesis (EMH) explains why all investors should expect a lack of persistence. It states that it is only by random good luck that a fund can persistently outperform after the expenses of its efforts. But there is also a practical reason for the lack of persistence: Successful active management sows the seeds of its own destruction.

Just as the EMH explains why investors cannot use publicly available information to beat the market (because all investors have access to that information, and it is therefore already embedded in prices), the same is true of active managers. Investors should not expect to outperform the market by using publicly available information to...

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 03: Persistence of Performance: Athletes Versus Investment Managers.

LEARNING: The nature of the competition in the investment arena is so different that conventional wisdom does not apply. What works in one paradigm does not necessarily work in another.

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over the 30 years or so that he’s been trying to help investors. 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 Chapter 03: Persistence of Performance: Athletes Versus Investment Managers.

In this chapter, Larry expounds on why we do not see the persistence of the outperformance of investment managers. He also tries to help investors understand how securities markets set prices.

One of the most strongly held beliefs is that successful people succeed not through luck but through the skill of persistence over time. So, people assume that successful active managers must also result from this skill, not just luck. Larry explains that while this may be true for athletes where competition is one-on-one, it is not the case when it comes to investing.

According to Dr. Mark Rubinstein, competition for an investment manager is not other individual investment managers but rather the market’s collective wisdom. Further, Rex Sinquefield states that just because there are some investors smarter than others, that advantage will not show up. The market is too vast and too informationally efficient. Many people fail to comprehend that in many forms of competition, such as chess, poker, or investing, the relative skill level plays the more critical role in determining outcomes, not the absolute level. The “paradox of skill” means that even as skill level rises, luck can become more crucial in determining outcomes if the level of competition also increases.

When it comes to outperforming the market, Larry cautions that investment managers are not engaged in a zero-sum game. In pursuing market-beating returns, they face significantly higher expenses than passive investors. These costs, which include research expenses, other fund operating expenses, bid-offer spreads, commissions, market impact costs, and taxes, can pose significant financial risks. Investors must be aware of these potential pitfalls and factor them

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 02: How Markets Set Prices.

LEARNING: Invest in passively managed funds and adopt a simple buy, hold, and rebalance strategy. While gamblers make bets, investors let the markets work for them, not against them.

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over the 30 years or so that he’s been trying to help investors. 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 Chapter 02: How Markets Set Prices.

In this chapter, Larry explains how markets set prices—probably the most important thing investors need to learn before they invest a penny. Without this knowledge, investors won’t know whether the stock they buy is undervalued or overvalued. Larry insists that investors should have a good understanding of how the market gets to a specific price.

To explain the complicated concept of how markets set prices, Larry uses an analogy related to college basketball backed up by academic research. Duke is a perennial contender for the national championship. Every year, it’s ranked in the top 25. At the start of every season, most college teams that are good try to schedule a few of what are called “cupcake” games to give their players a chance to get in the routine, learn the plays, get to know each other, etc., before they meet tougher competition.

Duke often scheduled a game against Army. Army traveled down every year to Duke, where they would get a big payday, and Duke would have an easy win. No one in their right mind would bet on Army to win that game because they have played probably 30-40 times already, and Duke has won every game. And they could play another 30 or 40 times and win every game. However, people decide to entice others to bet on Army.

To make it an equal bet, they create a point spread. The bookies set the initial point spread where they think they can get an equal amount of money bet on both sides. The bookies do their analysis and set the initial spread, but they don’t set the actual spread, which is determined by the betters in their actions. So if a lot of money starts coming in betting on Duke, the bookies will raise the spread until money starts coming in on Army until they get an equal amount of money. Then, the winner has to put up $110 to win $100. If they win, you get their $110 back and the bookies’s $100. But if you lose, you lose $110, not $100. So the bookies collect that $10 on the total of $200. So, what happens is that the point spread is...

BIO: Rizwan Memon is the Founder and President of Riz International, a Canada-based financial education firm that helps thousands worldwide maximize their financial success through trading.

STORY: Rizwan shorted GameStop’s stock, believing the price wouldn’t exceed $300. However, when Elon Musk tweeted about GameStop, the price increased to $500. Rizwan suffered a $160,000 loss on a single trade.

LEARNING: When shorting naked calls, make sure you have enough liquidity. Control the amount of money you bet on any particular position. Don’t trade on emotions.

Rizwan Memon is the Founder and President of Riz International, a Canada-based financial education firm that helps thousands of people worldwide maximize their financial success through trading.

Having 17 years of experience behind him, Rizwan is a seasoned expert in 8-figure stocks and options trading. Starting at 16 with just $5,000, he has made $10.5M+ in trading profits.

With 123,000 followers on Instagram and a vast global audience tuned into his trading advice, Rizwan has established himself as a voice of authority in the financial market. In 2023, he secured solid returns of 70% on his 7-figure trading account.

Rizwan’s personal investment journey took a hit in 2021 when he decided to buy GameStop stocks. He adopted a strategic approach, betting against the stock going above a certain ceiling. He believed that the stock would remain below $300 per share despite its already significant rise of 300%.

Gamestop was a disgruntled business that was not in great shape. It was on the verge of bankruptcy due to massive cash flow issues. Rizwan knew that this was unsustainable. So, he decided to put a ceiling on his investment, believing the stock would stay below $300. From a probability standpoint, the numbers were 99.5% in his favor. Rizwan shorted naked call options and loaded up a bit, but nothing substantive. After that, the stock went from $300 to $500 in about two days. This was after Elon Musk tweeted about GameStop. Rizwan knew he was in trouble. He remembers going to get groceries and sitting in the parking lot feeling miserable. Rizwan suffered a $160,000 loss on a single trade.

• When shorting naked calls, make sure you have enough liquidity.
• Trading patterns are always rapidly evolving.
• Sometimes, the math, the probabilities, and everything can make sense, and you still end up being wrong.
• Don’t trade on emotions.

• Black Swans can happen. To handle such events from an investing perspective, ensure you’re diversified.
• Control the amount of money you bet on any particular position.

Avoid engaging in trades that may be complex or outside of your purview. Regardless of what influencers say, be skeptical and do your due diligence.

If you have questions or want to learn more about investing in stock markets, Rizwan is readily available on LinkedIn and Instagram. He is committed to...

In this episode of Investing Principles, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 1: The Determinants of the Risk and Return of Stocks and Bonds.

LEARNING: Look for key metrics, traits, or characteristics that help them identify stocks that will outperform the market.

In this episode of Investing Principles, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories Larry has developed over the 30+ years he’s been trying to help investors. 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 Chapter 1: The Determinants of the Risk and Return of Stocks and Bonds.

In this chapter, Larry looks at research that revolutionized how people think about investing and how to build a winning portfolio. The goal is to help investors learn how to look for key metrics, traits, or characteristics that help them identify stocks that will outperform the market, at least in terms of delivering higher returns, not necessarily higher risk-adjusted returns.

The first research Larry talks about is by Eugene Fama and Kenneth French. Their paper “The Cross-Section of Expected Stock Returns” in The Journal of Finance focused on research that produced what has become known as the three-factor model. A factor is a common trait or characteristic of a stock or bond. The three factors explained by Fama and French are:

1. Market beta (the return of the market minus the return on one-month Treasury bills)
2. Size (the return on small stocks minus the return on large stocks)
3. Value (the return on value stocks minus the return on growth stocks).

The model can explain more than 90% of the variation of returns of diversified US equity portfolios. The research shows that ensemble funds are superior to individual funds. It’s better to have a multi-factor portfolio. So you could own, say, five different funds that have exposure to each individual factor, or you own one fund that gives you exposure to all those factors. The ensemble strategies always tend to do better.

Larry also highlights a second model by professors Fama and French, the two-factor model that explains the variation of returns of fixed-income portfolios. The two risk factors are term and default (credit risk). According to the model, the longer the term to maturity, the greater the risk; the lower the credit rating, the greater the risk. Markets compensate investors for taking risks with higher expected returns. As with equities, individual security selection and market timing do not play a significant role in explaining returns of fixed-income portfolios and thus should not be expected to add value.

Another significant academic research publication is the...

BIO: Mark Kohler, M.PR.A., C.P.A., J.D., is a highly respected Founding and Senior Partner at KKOS Lawyers, specializing in tax, legal, wealth, estate, and asset protection planning.

STORY: Mark and his partner bought two properties to put up on Airbnb. The first property needed just a bit of modification, but the second one required far more. It took them more time and money than expected to get it ready for renting.

LEARNING: Take ownership of your mistakes. If a problem occurs, admit it, step up, and try to solve it—don’t run away or stick your head in the sand. The majority of trouble we face in our lives will be caused by ourselves.

Mark Kohler, M.PR.A., C.P.A., J.D., is a highly respected Founding and Senior Partner at KKOS Lawyers, specializing in tax, legal, wealth, estate, and asset protection planning.

With a reputation as a YouTube personality, best-selling author, and national speaker, Mark is dedicated to guiding clients through complex legal and financial landscapes to achieve their American Dream.

He also serves as the co-founder and Board Member of the Directed IRA Trust Company and has launched the Main Street Certified Tax Advisor Program to train CPAs and Enrolled Agents nationwide.

As the co-host of The Main Street Business Podcast and The Directed IRA Podcast, he simplifies intricate topics like legal and tax strategy, asset protection, retirement, investing, and wealth growth.

Mark Kohler’s commitment to helping entrepreneurs and small business owners attain success and financial security has made him a trusted expert in the field. He has helped countless individuals and businesses navigate the financial and business world with confidence.

Mark and his partner bought two properties in Arizona to turn into Airbnbs. They aimed to modify them over two to three months and set them up on the Airbnb platform. They hoped to start renting them out during the winter, which is a great Airbnb season. The first property was beautiful and simply needed yard furnishings.

At the same time, 10 blocks away was the other property, which they thought would need some minor work, just like the first property. A few weeks later, they realized the property would take a ton of work, but the train had left the station, and there was no turning back. And so the damage began. The two partners added a lot of value to this property, but it was far more than they wanted to bite off and chew. Modifying the property took more time and money than expected.

• You can make a good investment, and something outside your control happens.
• Take ownership of what you’re doing wrong.
• If a problem occurs, admit it, step up, and try to solve it—don’t run away or stick your head in the sand.

• The majority of trouble we face in our lives will be caused by ourselves.
• When you do something wrong, admit it to yourself as a first step.
• If you cause damage to another person, you must amend and resolve it.
• You can’t get help on...