Being humble, content, and patient aren't just good spiritual qualities. They are also crucial qualities of a disciplined investor.
SMI executive editor Mark Biller talked about that with host Rob West yesterday on MoneyWise Live from Moody Radio.
To listen, click the play button below. Scroll down for the transcript.
(And for more radio appearances by members of the SMI team, visit our Resources page.)
MoneyWise Live, with Rob West and Steve Moore, airs daily at 4:00 p.m. ET/3:00 CT.
Rob West: "The Seven Qualities of Disciplined Investor" — coming up next on MoneyWise Live.
Well, Mark Biller is the executive editor at Sound Mind Investing, and if there's one thing we know about their teaching it's to make disciplined decisions about investing — and today especially. Mark, welcome back to the program.
Mark Biller: Hey, Rob, good to be here with you.
Rob West: Glad to have you here. And we say "today especially" because today was one of those days where it required discipline and not emotional reactions in the market.
Mark Biller: Yeah, absolutely. It's been a little dicey out there these last several days. So people that have maybe gotten a little complacent since the earlier-in-the-year volatility are getting a little taste of that again here in September.
Rob West: Well, let's dive into this. SMI's founder, Austin Pryor, has a great article on the importance of discipline in the latest SMI newsletter. So I'd love today, Mark, for you to start by giving us the overall theme before perhaps we dive into the details.
Mark Biller: I guess, big picture, what we've learned over the 30 years that we've been publishing SMI is that really when it comes to investing, learning what you're supposed to do is actually relatively easy, but doing what you're supposed to do, that's surprisingly hard. And so, you know, we can be our own worst enemies a lot of the time — especially when the market becomes unusually volatile like we were talking about earlier last year, and to a much lesser degree here in the last few weeks.
And, you know, the one thing Rob that separates the top professionals from the rest of us — and which can take years to really develop — is emotional self-control. Our emotions tend to interact with the news and the market events in ways that sabotage us. You know, we've all heard the ideal of "buying low and selling high," but emotionally it's really hard to do either one of those. And our experience shows that most investors tend to do the exact opposite.
Rob West: Well, and we're often willing to admit that only after we've made the mistake. So why don't you give us some examples perhaps of what you mean by that?
Mark Biller: Yeah, sure. Well, you know, recently we've been seeing that very few investors were willing to "sell high" even after we'd had this huge market rebound since March over the last six months. In recent weeks, and leading up to the beginning of September, there were a lot of caution signs of really high valuations, a really steep ascent to the stock market, but as is usually the case when the markets have been good lately, our greed tends to kick in a little bit and investors want to keep making even more.
You know, on the flip side of the coin, the reverse is also true. It's not easy to "buy low." We're seeing that right now today. We've had a little sell-off, but instead of people getting probably more eager to buy, usually prices are dropping because of the news is bad or the economy isn't looking good. People get a little more pessimistic and uncertain. And it's hard to put money at risk when you have those types of conditions. So instead of buying near the lows, people tend to wait for conditions to improve first. And then at that point prices usually aren't all that low anymore.
The big-picture point is: for most people, their emotions tend to run the investing show. And so you've got to figure out some way to break through that dynamic. For us at SMI we do that by following mechanical strategies that sometimes force us to act even when we really don't want to because we've got a signal that we've predetermined is going to force us to take action. So we put in the work designing those systems on the front end, when we're not under any emotional pressure from the market, so that we can take action when the strategy say to, instead of what our emotions are telling us.
Rob West: This is MoneyWise Live.
Rob West: Welcome back to MoneyWise Live. I'm Rob West. Steve Moore is off today. Mark Biller with me throughout the program today. And Mark and I will be taking your phone calls: 800-525-7000.
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We're talking with Mark biller today about the "seven qualities of a disciplined investor — and Mark you've identified these seven qualities that we need to develop to overcome our emotions. Let's dive into the list. What's first?
Mark Biller: Well, it's one that we actually don't often think about in terms of investing and it's to be humble. You know, we need to accept that "there's nothing new under the sun," as Ecclesiastes 1:9 tells us. And the instructions that God's given us and his Word have proven time and again to be practical and effective — and there's real safety and following the priorities and guidelines that he's provided for our protection. You know, really, if we abandon those principles and those priorities, we're saying we have more confidence in our own thinking then in his, which obviously we don't want to be in that position!
And the second quality really goes hand in hand with that and that's to be conscientious. And what we mean by that is seeing yourself as a caretaker of what God has entrusted to you. We need to acknowledge that when we take undue risks, we're really jeopardizing his wealth — because we're not in this just for ourselves, but to responsibly build our assets so that we can provide for our families and give more generously.
You know, hopefully, everybody listening to this broadcast feels similarly to the way we do at SMI, which is that we want to play our part and taking the gospel of Christ to the millions who've never heard it, and being good stewards and good investors is one way that we can help play that out.
Rob West: Yeah, there's no question about that. I love that. We've got to start by being humble, being conscientious — you know, understanding that God owns it all isn't just acknowledging the truth, it's critical for keeping our emotions at bay. And I think when we understand that it changes everything.
Mark, what's next on the list?
Mark Biller: Next up is to be prepared — and that means developing a written plan that lays out your investment strategy. It should reflect your personal goals and appropriate level of risk and understanding how all the parts of your portfolio fit together and the role that each part plays. And then once you've got that plan, you want your buying and selling to be dictated by the plan instead of by your emotions or any other outside conditions or inputs.
You know, our goal here is to be an initiator and not a responder — because there's always going to be input, hammering you to try and get you to act. And you want to be acting "inside-out," not "outside-in."
Rob West: Well, if you're reacting to biblical principles, you're reacting based on a set of rules that have been predetermined, you're always going to perform better as to how you're making decisions rather than reacting to the news of the day, which will invariably take you in the wrong direction. Great insights, Mark.
Let's turn our attention to the phone lines. Debbie is calling today from Chattanooga. Debbie, you're on MoneyWise Live. Go right ahead.
Caller: Hi, thank you. I've been listening to your radio station for several years, even when Larry Burkett was on. So it really has been a lot of help.
Let me explain a little bit about my situation. Right now, I have an IRA that I self-manage. I actually had it in a 401(k) and changed jobs, and so I rolled it over into a self-managed and so I've doing it myself. That's been about 10 years, and it's grown quite a bit. And I was considering using a Kingdom Advisor at this point because I don't feel like I really know that much. And I just, I've never been really comfortable with it. I do let my emotions take control sometimes. But the question I have is when you move this over with someone else, and all those funds would be changing, since the market is at an all-time high at this point, does that mean that everything that I put in over in these new funds will be more volatile if we have a downturn?
Rob West: Debbie, do you mind if I ask what you have roughly in investible assets?
Caller: Well, in that fund, it's around — about, close to $ 95,000 altogether, with mine and my husband's.
Rob West: Okay. Very good. Mark, timing on moving to an actively managed portfolio? Any considerations for Debbie?
Mark Biller: Well, the beautiful thing here, Debbie, is that the money is in an IRA. So first of all, if you do end up making changes with an advisor, you're not going to have to worry about taxes — you know, if your investments are up in that account, you can still make changes without that, having any tax implications.
Now, as far as the style of how that advisor is going to invest the money, there are lots of different approaches that different advisors take. And that's actually a really key part of hiring an advisor that you're kind of doing an interview process to make sure you're comfortable with the approach that they take. So, you know, you may find an advisor that maybe isn't using a dramatically different approach than what you've been doing on your own, or you may find an advisor that's doing something dramatically different — and you need to make sure that you're comfortable either way. So I wouldn't assume that it's going to have to be a certain way when you go with an advisor, but that's definitely a question you want to get into fairly early in that process.
Rob West: Mark, what would be, maybe, the top three questions you would ask when you're interviewing a prospective advisor?
Mark Biller: You know, I think that it's always good to tick the box of finding out about the investor's qualifications — you know, any certifications they have that type of thing. As we just talked about, you definitely want to dig in a little bit into the specifics of how they're going to manage your money. You know, some people use mostly index funds and that kind of thing, which may be great with you, maybe not — maybe you're looking for a more active approach. Maybe they have multiple strategies, which is kind of the approach that SMI Advisory takes. So you really want to understand the strategies. That's very important because if you don't understand them on the front end, you might not be comfortable once you see them start to play out within your account. So those would be two really important ones.
And then of course you always want to inquire about costs. Some people feel funny about asking those questions, but it's just like any other business transaction. You need to know what you're going to be paying and how that is going to be billed. So those would be three that I would definitely have near the top of my list.
How about you, Rob? What else would you add to that?
Rob West: Well, I would just want to make sure the person asks you more questions than they do sell you on something, because you want to make sure that there's a good rapport and that this is somebody who's interested in what God has for you, as opposed to trying to just convince you that they're the best advisor. Debbie, we appreciate your call today. I hope that's helpful.
More to come with Mark Biller right around the corner. We're talking about the disciplines of an investor from a biblical perspective. You can find the article at soundmindinvesting.org. We'll take more of your calls right around the corner. 800-525-7000. Thanks for being along with us today. This is MoneyWise Live.
Rob West: Welcome back to MoneyWise Live. I'm Rob West, Steve Moore is off today. Sitting in with me this hour is Mark Biller of soundmindinvesting.org. We've been talking about the seven qualities of a disciplined investor.
And, you know, Mark, in markets like this, especially where it seems like there's always a few high flyers, those particular companies that are just way out ahead of the others — I'm thinking about companies like Tesla and a few others as of late, and it seems like every season has one or two that are doing that — you know, there's a temptation to react and feel like you're missing out on something. And, "Maybe I need to take a portion of what I've been squirreling away and jump into one of those stocks." How should we process that?
Mark Biller: Yeah, you're so right, Rob. One of the hardest things for investors is to resist the "fear of missing out" — you know, they talk about FOMO and chasing that those high flyers — because, you know, it might be somebody in the office or whatever the talking all the time about how much money they're making trading Tesla or whatever it is. And it is hard to resist that. You're trying to maybe do the slow and steady plotting thing and here your neighbor is, seemingly, making money, hand over fist.
You know, I think that it's important to keep in mind that it's very similar to what we see in terms of consumer goods. You know, we see the person in the nice car, the nice house, but we're only seeing one half of the balance sheet. And so it is when you see somebody making a lot of money with high flyers during a particularly strong market, you're only seeing one half of the balance sheet, so to speak, the other half being what happens when the market turns. And oftentimes those quickly earned gains have a way of, of evaporating just as quickly.
So, you know, we just want to try to stay anchored in that "slow and steady wins the race," the "steady plodding leads to prosperity" as Scripture teaches us, and operating again, like we said, inside-out instead of outside-in — not being influenced by the mania or the panic of the moment in the markets, but instead charting our own course, knowing what we need to accomplish our own financial goals and just relentlessly operating and executing on that plan.
Rob West: We've been talking today about the seven qualities of a disciplined investor. Mark, you told us we need to be humble, we need to be conscientious, we should be prepared. But this next discipline really speaks to what you were just talking about there with the urge to jump into a high-flying stock. What is it?
Mark Biller: Yeah, the next one on the list is an emotion that you want to have and that's to be content. You know, when we're overly focused on profits, we run into a danger zone as the apostle Paul warns us in 1 Timothy 6, when he says, "Those who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge people into ruin and destruction. For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs."
So as we're drawing up our financial plan, it's important to be reasonable in our financial ambitions — because we know that more money is lost due to greed than probably any other single factor. People tend to take on too much risk when they're reaching and shooting for really high returns. Now, on the other hand, if your plan is drawn up so that it's going to get you where you need to go while earning reasonable historical rates of return — maybe 8-to-10% per year at the high end — then you're less likely to go off-script chasing these risky investments that promise the moon, because you can see how your plan is going to lead you to success without needing to take those big risks.
Rob West: Yeah. Mark, we've been covering these disciplines of an investor. You've mentioned several of them already. I'd love for you to talk about this last one. It's accountability. What does that have to do with investing?
Mark Biller: Yeah, well, you know, we've talked about creating a plan and we often talk about that on these programs, the importance of having a plan to operate from — and the accountability piece there is that we suggest showing that plan to either a spouse, maybe a trusted Christian friend, and then reviewing it periodically to show that you're being faithful with it. And the main reason that we suggest that is it's a lot harder, you'll think harder at least, about deviating from that plan if you know that you're gonna be answering for what you've been doing to somebody else. You're gonna think twice before you make exceptions if you're doing that. And of course, as we've talked about earlier in the program, if you're working with an advisor, that's a great form of accountability as well, to help keep you on track.
So to wrap all this up, Rob, our main point here is taking these steps is going to help assure that you're honoring the Lord and his priorities. They're going to help you strike a wise balance between the risks and rewards of the marketplace. And that way, when you do run into these inevitable bear markets and economic storms, we can be of good cheer. God tells us in Psalm 32, "I will instruct you and teach you in the way you should go; I will counsel you with my loving eye on you.... The LORD's unfailing love surrounds the one who trusts in him." And that's what we're trying to do with these seven disciplines.
Rob West: I love it. If you'd like to read all seven, you can find the article that's right at the heart of our conversation today at soundmindinvesting.org.
Back to the phones — Lakeland, Florida. Peter, we're delighted to have you on MoneyWise Live today. Go right ahead.
Caller: Hello, fellas. Thank you so much for all your program and just a pleasure to hear you share your wisdom and answer questions that people have. And I appreciate it a lot. So thanks for taking my call. And I just turned 50 last month and my wife and I were blessed enough to pay off her house last year and our three kids are grown. And so we're in a place where we're trying to be smart and look at saving up some money for retirement, and having to started to plan for it — a little bit late, but God's blessed us pretty well though. And I recently sat down with a investment — a gal at through Edward Jones — and got some stock picks that were recommended through the Oxford Communiqué. I'm sure y'all heard of that. But I just was kind of wondering if there's a, like a percentage or — I'd like some advice on I'm doing some stock investments. And if, if I should just keep doing the 401(k) and the Roth or if I should invest in stocks and dabble in that and — looking for some advice.
Rob West: Yeah, absolutely, Peter — and thanks for your kind remarks. So congratulations for paying off your house! You're 50 years old, it sounds like you are maxing out your 401(k) on a monthly basis. You're also contributing to a Roth. But you have some, perhaps, some discretionary income in addition to that that you're looking to put into the market. Is that right?
Caller: Yeah. I invested like 60,000 in the market and I'm I'm learning quickly, rapidly, you know, doing the trade stops and all this different stuff. And I'm kind of counting on this investor to help me with it — financial advisor, you know. She picked a few for me, and ultimately I trust God I'm doing something right and he can use it ultimtely for his glory.
Rob West: What are your thoughts, Mark, on investing directly in the market — perhaps beyond contributions to a 401(k) — in individual stocks?
Mark Biller: You know, I think the big picture here is that we would encourage you to view all of your investments — the 401(k), the Roth, anything you've got in a taxable account that you're supplementing those others with — we would encourage you to view all of that as a single portfolio. So you're not thinking about, "Well, that's my 401(k), and I'm doing that with that, and that's my Roth, and I'm doing that with that." But rather to think of that as one big portfolio. Now you might favor certain types of investments in those specific accounts and that's fine, but it's not like, "Well, in my 401(k) and Roth, I do mutual funds, but over here in this other account, I do individual stocks." It doesn't need to be that way. In other words, you can own similar things in in all of these different accounts. And that may be a simpler way to think of your total portfolio.
You know, in terms of individual stocks, there's nothing wrong with trading individual stocks, but I do think that's harder for most individuals than investing through mutual funds. And the reason for that is the diversification that those mutual funds gives you. It's much easier to build a well-diversified portfolio with a handful of mutual funds than it is to get a similar type of diversification across a larger number of stocks. Individual stocks just require you to put a lot more effort into really knowing those individual companies. And if you're going to be investing in, you know, 10 or 12 of those that's 10 or 12 companies, you have to keep up with. When you use a mutual fund, you're counting on the manager to do that for you. They're the ones that are needing to keep up with what's going on with those companies.
So, Peter, I definitely wouldn't say don't trade individual stocks. It's not that at all. I just don't want you to feel like you need to do that in addition to investing in mutual funds. If the mutual funds seemed like they're putting you on a path to get you where you need to go, it's perfectly fine to have a mutual-fund-only portfolio across all of your accounts.
Rob West: Very good. Peter, we appreciate your call today.
Mark, it's been great having you along in Steve's seat today. He'll be back later in the week, but we appreciate you sitting in — and we're grateful for our partnership with Sound Mind Investing.
Mark Biller: Well, happy to do it, Rob. Any time.
Rob West: All right, God bless you, buddy. Let us say thanks to my team today: Dan Anderson, Aaron Julian, Amy Rios, and Jim Henry.
I'm Rob West. And this is a partnership between Moody Radio and MoneyWise Media.
Thanks for tuning in today. Thanks for your calls. We'll look forward to having you back tomorrow on the next edition of MoneyWise Live!