Why Investors Need Less FOMO and More Patience

I love watching the red and green, I love knowing what's going on. I love even reading the headlines, but I don't want to hear the talk. I don't want to hear the inflection about what may or may not happen because it may or may not happen. But if you say the may happen with more conviction than the not, it gives you that thing where "Am I missing it? What is it?" Welcome to "The Informed Investor," the podcast that brings you research and insights to help separate the news from the noise. Welcome everybody to "The Informed Investor." It is a show brought to you by Dimensional Fund Advisors who is bringing financial science to investing. I'm Mark Gochnour, and you can see today we are not in our Austin, Texas office, we are out in our Santa Monica, California office with a beautiful day and a beautiful beach. And we have a very special guest here located in the area. Blaine Lourd, fantastic to have you here today. Thanks for joining us. Thank you, Mark. And you live, what, a mile or two away from here? You get this stuff every day, all day. Pretty much. Yeah. Yep, yep. And grateful for it. Yep. And you're with LourdMurray? I am. And why don't you just give us a little bit of background about the firm and then we'll dive into some of your personal history here in just a minute. Yeah, happy to. LourdMurray is a full service advisory and financial planning firm. We manage approximately $8 billion. We started in 2006 and 30 employees, have an office here in LA, and also one in San Diego, and the main one's here. That's an incredible 20-year experience. Congratulations to you and everybody in the firm. Thank you. Phenomenal growth there. A lot of families you're taking care of, getting great experiences too. Yeah. So well done. One of the things we like to do on the show, we base a lot of this on headlines. So I'm gonna read a couple of headlines as we go through this. The first one, and I know it's something that you're involved in in a big time here day to day, particularly in I think the Los Angeles area, but I gotta get my glasses on here. "FOMO vs. fear, the emotional tug of war driving investment decisions." And Blaine, I mean, that's just something that's on every investor's mindset and it seems to migrate quickly. Sometimes they're worried about and a lot of anxiety things going on around the world. Sometimes it's a little bit of greed. The FOMO of missing out. Tell us a little bit about that, I guess your initial reaction to the headline. To be a successful investor over time, as we've known forever, you don't have to make predictions, you don't have to do sector bets. You just have to really stay in your seat. I got in this business when the Dow was at 2,000. Now it's at 53,000. What year was that? 1987. And so, a lot has happened in those, God, 40 years, Mark. I can't believe it. Next year will be 40 years, but a lot's happened. Recessions, business expansions, contractions, Republicans, Democrats- Wars. Wars, dot-coms, CVSs, all of the things. And yet, if you can ignore all of that and you can stick with a plan, that you can stick with that is right for you, it's pretty hard not to make money and reach your goals. I like that concept of it's not hard to make money over time. There's a whole bunch of stuff I'm gonna ask you to follow up on on those questions, but let's set it up. Let's go through your experiences because I think that'll help set up some of the things that we're gonna get into here based on what you just mentioned there. So 1987, kind of walk us back to, you're from Louisiana, right? Tell us a little bit about that and then tell us about how you got into the business. I'm from Louisiana. I grew up in a little town called New Iberia, Louisiana. If you know anything about Louisiana, especially then, heavy, heavy oil and gas state. 40% of the economy in 1995 was still oil and gas related. And oil peaked in 1981, West Texas Intermediate was cut down by 3/4 by 1986. I went to LSU to study petroleum engineering. I always thought I was gonna work for my father who was in the oil and gas business. And at some point, three or four years in, he came up to see me, and we had a Budweiser at this bar named Murphy's and he said, "Son, I don't think this oil and gas thing is gonna work out for you. And I don't even know if it's gonna work out for me." And I'm like, "Dad, what are you talking about?" This is oil. This has been the dream for us to work together forever. He's like, "Well, I just don't know, I don't know if I'm gonna make it. And frankly, we should probably figure something else out for you." And I was like, "What?" He says, "I've been thinking about that. I think you'd be a really good stockbroker." I didn't realize at the time, it was kind of a backhanded compliment now that I know, but he introduced me to this guy. I went to his office, he talked on the phone, and every time he hung up the phone, he said, "I made X, I made X, I made X." And then we went to play golf and the next day my dad's like, "What do you think?" I'm like, "Dad, that guy I don't know about. He doesn't seem that sharp, but he made a lot of money in a day." And my dad was like, "Exactly, Blaine." And that's kind of how it started, and I went to work for, tried to find a job in Houston, Texas where I was living, and then I moved out here. And coincidentally, I got a job at E.F. Hutton a half a block away, which is no longer here, of course. And then I worked at various firms over the year and I seem to enjoy it. I like the people, I like talking to people. I seem to be somewhat good at it and I'm good at convincing people to do things, and time goes on and here I am. So you were at a major firm, we'll call it a Wall Street firm. You're here in Southern California, but you're at a major Wall Street firm. You're getting your Series 7. I was. On what day? I was studying for my Series 7 and a week away from the test on Black Monday. So Black Monday was a week before you're gonna take the Series 7. Yes. And Black Monday, one day. One day. Market was down, what, 21, 22% that day? Yep. And I was studying 'cause back then, there were pneumatic coning systems for orders. There was smoking in offices. There was lots of bells and whistles going off. And I knew something was going on and I sat across from this guy or I was in this little library like studying and I remember the guy I sat across from and he was chain smoking and I was like, "Man, what is happening out there today?" And I walked out and his name was Ken and I said, "Ken, what's going on?" And he looks at me and I see the Quotron, which is all red. And he's like, "More sellers than buyers, Blaine." Of course, not knowing at the time, that was really, that can't be. Yeah, it's impossible. Yeah. But that's how I was kind of christened into it. A week later I passed the test and I sold municipal bonds for two years because no one wanted to buy stocks, which is a great lesson. No one wanted to buy stocks and it was the absolute best time to be buying them. Yeah. If you liked them before that day, they're what, 21, 22% lower price the next day. But as we know, right, Mark, we talk about it all the time, people don't buy stocks like they buy their shirts. Expand on that comment. No one is stirred by low prices, only high prices. And it's back to the FOMO thing. I'm gonna chase this because everyone else is and man, everyone's making money. XYZ company down 30% on a Wednesday from where it was on a Monday probably is kind of the same company unless something absolutely horrendous has happened. But they love it on a Monday at 30% higher and hate it on a Wednesday. And what we try to do as advisors is keep them out of that idiosyncratic risk panic. Market went up from 2,000 to 53,000 since I've been doing it. Not all stocks went up. Many stocks have gone away. In fact, most of- Most. Most of the stocks that were marketed by the I-Bankers and the .com ramp up. Pets.com is no longer listed, but if you had a diversified portfolio of whatever it is and things change, but ultimately and inexorably, the creative community of risk-takers who want to make their lives better, their family better, their world better, find a way. In my opening comments, I made a comment about particularly some of this FOMO or some of the anxiety, I think it's a little bit stronger in the LA basin. And I don't know if that's a fair assessment. You can certainly push back on me around that, but I think it is tough, this idea of keeping up with the Joneses or missing out. It just seems to be so much more intense, at least when we lived out here for about eight years. And so, that's something I know as you counsel, coach, work with a lot of your clients. When they read an article or they have a buddy that says you should be doing this or you're really missing out, how do you walk through that conversation? Early end of summer is the worst time in my life because every one of my clients has been on vacation somewhere really cool and they are around people who are really cool who only talk about the winners, only give unsolicited advice about what they should be doing, only subtly say, "Has Blaine asked you about this and why not?" I don't pretend to know where we are in this bull market cycle for equities. I really don't. Middle, certainly not the beginning. Don't know if we're at the end. I don't worry about that stuff. As I've always said, Nostradamus is dead and I'm not sure he was ever really alive. But what you hear about now, especially with this magnificent technology called AI, large language models is VC funds, early stage, middle stage opportunities to do a B, a C round on this technology that everyone has to have and will have. I know the investment pyramid well. I think what happens in markets like this though is it somehow gets inverted and a lot of people think that the speculation is an investment. And of course it is, unless it doesn't work. If it works, right? Unless it doesn't work. And so, what I hear about mostly now is VC funds, private equity positions, SPACs. I can get you into X at this valuation and right now it's valued at this valuation. Who marks that value? What does that even mean? When's it gonna monetize? Well, maybe in the next two years, how much more money do they need? Those are questions that get lost in the shuffle of the, "I got to get in, my friend's in, he says I'm gonna make tons. I believe in this, Blaine. Tell me why I can't do this." And oftentimes I can't tell them why they can't do it. I can just reframe the conversation in a way where it maybe gives them a little pause. Maybe I get talked into it and say, "Yeah, you can do this or you should do this." But that's kind of where we are in the cycle, right, because AI is, I mean, it's different. It is the internet without pets.com, but is it different at a $3 trillion valuation on $25 billion revenue? What does that mean? I don't know. Yeah. And I like your point about it's different, but it's kind of not different in the sense of, you mentioned SPACs. I heard about that a ton about four or five years ago. NFTs, of course it was Bitcoins. Everyone's kind of calming on that a little bit. There's always something. There's always something. Catching attention. And maybe if clients just want to go and speculate, it's okay to have some fun, sometimes. You give them a little fun budget to go do some of that stuff? Like I said, it's a trade-off conversation. How much can you afford to lose? "Blaine, we're not gonna lose. I think we should do more." I mean, those are the kind of FOMO conversations you have in cycles like this where all of it seems like we're in the new gold rush. And I've been doing this a long time to realize that the price of a cheery consensus is very rarely worth the cost. It does give me some pause. And oftentimes, we can't save everyone from their worst impulses, but over time, if it happens enough or they start to see it, we can help and we hope to. But I'd say FOMO is bad here, but I'd say FOMO is bad in most of the large metropolitan areas in the clientele that we serve. What else do you do when you get rich? You buy things. And you're probably hanging around with, I think you made this point earlier, very successful people, whether it's been through different businesses or whatever it is where there's sports folks, things like that. You're with successful people and they have probably ideas and then they come to you with those ideas, so you have to work through them. They come to us and I am not here to really say what you should or shouldn't do to make you happy. I just want to make sure that happiness is explained in the ephemeral way that it will be. We just try to talk it out, walk it out, and some people are gonna make those decisions and good for them. I want people to enjoy their lives, but I also want them to understand it's a trade-off. Here's what it ultimately means. Well, and find balance. Yeah. Enjoy your life and still be responsible with your future in terms of- And the people that you told me in a discovery meeting that you need to take care of, right? Because it's usually when you ring the register, if you will, and get wealthy enough to hire a financial advisor to help you with these complex things, to help you organize through all of these complex things. Yeah, I want to go back to the media and how a lot of the people in the media may not necessarily be experts, certainly not in forecasting the future because they wouldn't be doing that job if they could. They'd be managing their own money probably or for some close friends around that. I always like to highlight too that, but that's okay. They're just in a different business. They're just in a different business. They're in the business of getting advertising revenue, not necessarily giving investment advice. Exactly. It's why I watch Bloomberg on mute. I love watching the red and green. I love knowing what's going on. I love even reading the headlines, but I don't want to hear the talk. I don't want to hear the inflection about what may or may not happen because it may or may not happen. But if you say the may happen with more conviction than the not, it gives you that thing where "Am I missing it? What is it?" Hey, one of the things you mentioned too was the role of a financial professional. So I want to read you a headline and then get your thoughts on that one here. So here's one of the headlines I had for you. "Seven red flags to look for in a financial advisor." Now I think that context is concerning things perhaps. So let me give you, I usually will get your thoughts on a headline, but I guess I'm gonna give my own thoughts first. And then I'll let you weigh in here. And when I see something like that, I go back to Dan Wheeler who he's passed away since, but he started the advisor business here at Dimensional and incredibly passionate about a belief system, incredibly passionate about the role of an advisor and somebody's financial success. And he would talk about advisors and say, listen, over his experience, there's two types that he's come across, a true advisor, and then one he would call a facilitator, which is a little bit more of a salesperson where they're like saying, "Hey, Mr. or Mrs. Kleiner prospect, do you want A, B or C because I'll do whichever one you want." And that may not be in their best interest to let them choose necessarily. And so, I think about that article then, sort of potential red flags to be aware of as you think through a financial professional. That's kind of where my mind went, but I'm asking you this because you are so strong in your convictions in the role of an advisor. So I'd just love to get your thoughts on how you think about that headline and some flags perhaps investors should be thinking about. The advisory business has changed so much since I started LourdMurray, used to be Lourd Capital in 2006, right? It was asset allocation. And now as our business has scaled and the clientele we serve has gotten much more sophisticated, rarely do I find myself on a day-to-day basis talking about the portfolio. I am trying to solve complex family or enterprise ideas in a way that clients can understand them. And planning now has become so complex in a lot of ways, especially for the wealthiest families. But you're spot on, Mark, when you say there is a difference between an advisor and, what'd you call it? A facilitator. A facilitator. And there's still a lot of them out there and we try to be the opposite of that. I think it's why for us, the fiduciary model is so important. How does this advisor, and I really take umbrage with a lot of people that call themselves advisors when there's something different, when they're really a salesman for a bank or a brokerage firm or whatever. And I'm not saying all those people are bad at all. I know a lot of great ones, but I'm an advisor or I get paid one way and one way only and it is not to do anything other than provide the advice that I believe is right for you and you agree to that fee in advance. And any other fee that you may have to pay that we need to pay to solve these complex family and enterprise problems, you are going to know about it in advance. There will be nothing hidden, nothing, any of that. Full disclosure. Yeah. Full transparency. Always. As it should be. Always. Yeah. Maybe that's a good point for some of these potential red flags might be, okay, defining cost structure across the spectrum from an asset manager to obviously the advisor, advice fee, custodial fee. I mean, just even something as simple as that. Are you a market maker in these bonds? Where are these bonds coming from? How are you getting paid? Is this private equity fund? Do you have a position in it in any way? Is this mutual fund part of some sort of soft dollar arrangement? How is all of that working? I mean, we want to be open architecture. I don't want any sort of economic glue, as a lot of people like to call it, to affect my ability to give you the truth about what I think this is. It goes back to that idea of the fiduciary. Yeah. Always doing what's right for the client, not necessarily, well, not at all. Not at all. Based on what other sources of revenue perhaps may or may not be coming in around that. All right. Let me hit up another source of emotion with investors. We're coming up on midterm election season and politics. And as you know, it's as polarized as certainly I've ever remembered when it comes to politics. How do you coach somebody that comes in and says, "Well, I'm really frustrated with X, Y, Z party, so I want my money out or in the market" based on their political views? Polarized, divisive as ever. I think the data's pretty clear about what politics are and aren't to the worldwide global commercial market system. We've seen all the charts, Democrats, Republicans, the returns are very close to the same. The market is such an amazing thing. It can discount quickly. It can adjust quickly. And as I said earlier, nothing is going to ultimately stop this creative force to better our family's lives. Therefore, ultimately, how do we do that? We better the world's lives. We take our risks. We want to do things. It's tough, though, because a lot of people get really ingrained in their opinion about it and how it is going to affect them and the world. And all of the data shows they are always wrong. And it's hard to say that to someone directly. So what I try to do is just, "Tell me how you're feeling. Tell me what this means. Let's talk about this. And since this all happened two weeks ago, I know you've been thinking about it, but what's really happened in the market?" And most of the time, it's probably going up. Yeah. Well, and you say most of the time they're wrong, meaning, "Hey, if I make this decision because of political view," the market doesn't work out the way that they were worried about, meaning it usually doesn't go down, it goes up over longer periods of time. Yeah. And the market's not so worried about whatever you think you're hearing and whatever it ultimately means. It's why I like Fama's work so much. It's why I like Markowitz's work so much. We don't know what we think we know, but we do know a lot, and that is risk and return are related. Time in the market has always paid us. How we allocate our assets based on our long-term goals and needs and what we're trying to do is the most important thing. Is it important who wins the Senate? Well, it's probably important to the person I'm talking to. And I don't want to discount that because I don't want to be that guy that says, "No, I'm just part of the global commercial culture and I don't really care" because they don't want to hear that either. I want to listen to them. I want to talk to them about it. And then I want to get back to the facts of what has always happened. And that is, markets will correct and we will figure it out and the market will figure it out for us. Please stay in your seat. Yeah, I like how you say that about you should be passionate about your political views. No question. We have that right. You should be. Just separate that from your investment decisions because, again, the things you highlighted there, over time, there's a return on capital and that's the market. And whatever you're worried about politically, somewhere is built into that market price and future expectations. As well, I was talking to somebody last week, a business owner, and they were worried about some of the stuff going on with the elections. I said, "Well, depending on the party you're worried about, what if they win? Are you gonna shut your business down?" He's like, "No." I'm like, "No, you figure it out, right? You adjust depending whatever happens with the political views or what the Senate does or Congress or tax rates or anything, right?" And you're a business owner, right? You guys just adjust to figure out whether it's a small business or these big, massive global corporations. You work with what you got to make corporate profits. That's the beauty of a market capitalistic system. My overarching theme would be the market is smarter than the politicians, and thank God for that. Can I steal that line? Yeah, please. Yeah. The market is smarter than the politicians. Always. And thank God for that. Always has been. Yeah. It's this processing machine, right? I've heard Bob Merton say that, a Nobel Laureate, that it's the most complete source of information that we're aware of out there, right? Because everyone's bringing their perspectives, views in the information set into a market price. And it's gotten more efficient, faster over time in a way that we don't know what we think we know. You were telling me about a story about Saban, about his coaching style that I think is fantastic. So, good for the audience to hear that one. I love Saban for so many reasons. He used to get into press conferences and reporters would say, "Hey, has Mark, the store quarterback, read all the stuff about him being a Heisman contender?" And he's like, "I hope not because that is rat poison to the brain and that is rat poison to this team." You start consuming that stuff, you will die of complacency, of arrogance, of lack of ambition, of all of the things that we don't want you to be as a player, as we want you to be hungry, and we want you to line up next to the, on the field every day thinking that you have something to prove. Not that you've already proved it, because we have proved nothing. This is game 10, not game 13. And I think that analogy around rat poison can take, we can take a lot of meaning into the investment world, reading headlines, rat poison, watching CNBC, rat poison, letting your emotions around any particular thing, you know, possible political wins or losses get in the way of what you're trying to do for your family. Because when we started this process, Mark, you said you had a 15-year time horizon with this capital or a 20-year time horizon with this capital. Do you have 20 years or are we gonna eat this rat poison and take it down to one day? I love it. Well, and what was coming to my mind as you were describing that is Saban with his game plan. And your point about you have a plan for clients too, right? The rat poison can destroy the plan that you have in place. A plan has been thoroughly thought out with lots of conversations and lots of questions and lots of back and forth. How's it make sense? What makes sense? Why are we doing this? Who are you? Who are you trying to take care of? What type of return do we need to earn based on the money you have, based on how you're gonna deposit, based on how you're gonna spend? What is it? Okay, we're gonna help you organize this and we're gonna do it with all of the financial science behind us that is available. And we're pretty sure this will work. Of course, I can't guarantee anything because anything could happen in this world. But we're pretty sure based on all of this, remember 2,000 at E.F. Hutton, the 53,000 at LourdMurray, lots has happened, but inextricably we get paid to take this risk. Yeah, a belief in capitalism, a belief in return on investment, a belief in innovation that drove a lot of those experiences. I mean, I don't even know if I can call it capitalism anymore, kind of the unknown ideal because whatever it is, it's not as pure as a guy like me would like it to be. So I call it the global commercial culture, but still we get paid for the risks we take. You made a comment earlier about in your early days, somebody said, "Hey, there are more sellers than buyers." And we talked about that can't be the case. If somebody's selling something, somebody's got to be buying, right? So that's equilibrium. When I was studying for my Series 7 and I believed it. I went home and told my girlfriend there were more sellers than buyers and thought I was so smart about it. Were there any other, I don't know what we'd call them, let's call them myths or something like that, that over your experience and your career that have evolved that are still top of investors' minds out there out in the marketplace? Because I still hear that one on the news, more sellers than buyers. It's different this time. Any other things like that come to mind? I mean, I think those are probably the most top of mind. More sellers than buyers can't be true. It's different this time. How many times are we gonna hear that? It's really never different. The hope and fear cycle comes, the business cycle comes, things get overvalued, things get undervalued and things move along. What else? The track record, we hear about that a lot, especially after someone's been super hot. Yep, yeah, yeah. And then we know all the stats show that the super hot guys usually don't, girls don't usually stay super hot, somehow get really cold. I mean, you think about all of the people that have had a two to three to four-year period where people hung on their every word about markets and now they've been rolled into the dustbin of hasn't had really good trade in two decades. So I think it's complicated, but not. Yeah, it's hard that luck versus skill. People think it was skill that probably got some good returns. Then they have some rough times, which is probably not the, they don't get stupid. It's probably just bad luck on the downside, but it's probably perhaps maybe a little bit of luck on the upside too on some of those managers. Yeah. And lots of billionaires have come from taking very aggressive positions and gotten lucky. And we've also seen them never heard of again. And it's so odd. And one day I hope I'm one of those guys. Well, you've done it the hard way, right? It's gonna take a big bet and get lucky. You've done it the hard way actually working and developing a business and growing a business and doing the right thing for tons and tons of clients out there. So congratulations again on the success of your business. I've got two key takeaways. The market is a lot smarter than politicians. Yes. That was a great line. Yes. I'm taking away here. And then be careful with the rat poison. The rat poison. The stuff you're reading about or hearing about there, don't let it go and change your investment plan. If you must watch CNBC or Bloomberg, put your favorite music on and put it on mute. It'll make your life a whole lot easier. Well, and Ken French, and you know Ken, he always said that, "Yeah, you want to stay informed. But once you're informed, shut her down," right? Hit the mute button because you don't need to hear the more noise that's out there. And it's never ending. And it's never ending because, again, that's how they get paid, right? It's to get clicks and views and audiences. Blaine, thanks for being on the show. It was fantastic. I really enjoyed it. Love your perspective. And again, congratulations on all the families you've taken good care of for those last 20 years. It's been fantastic. Thank you so much. And thanks for all of you for joining "The Informed Investor." Great to have you tune in here. And a big theme today with Blaine was around this idea of just tuning out the noise, kind of sticking to your plan. And so, I want to reference that David Booth, our Co-Founder and Chairman here at Dimensional on his book, "Stay Calm." It fits in nicely with the conversation today, kind of connecting a lot of the things we live our life. The way we make trade-offs, similar to what Blaine was talking about here today is very similar in the way you can think about investments in markets. So thanks for everybody. Have a great rest of the day.