This week we are going to continue our discussion on “Why are you worrying so much?!”  Last week we set the stage for the idea that there is a war for your money but more importantly a war going on for your mind!

In order to protect ourselves and be prepared for this battle, we need to have a really good understanding of what it looks like and how this war is being waged. On today’s show we are going to do exactly that! But first…

(1:28) Disclaimer: Please do not take advice from me on this show. As a licensed Fiduciary I am only allowed to give advice to clients. Unless you’re a client, I can’t give you advice because I don’t know you. Think of this podcast as helpful hints and education only. And please, before implementing any information or ideas you hear on this show, always consult your legal adviser, your tax adviser, and your financial adviser.

(2:50) Practical Planning segment: Last week I spoke about how this battle is waged and how it starts at a very young age with The Stock Market Game as early as age 9 or 10 in Elementary and middle schools.

We talked about the wall street bullies and how the media stokes the fears of the everyday investor and can lead folks to make some very bad and painful financial decisions and steer them right into the grasp of these bullies.

Occasionally I meet with someone that has run into one of these bullies and fell victim to their tactics.  A few years ago, we had someone walk into our office. Now we don’t get a lot of walk-ins, but this gentleman wanted my opinion on the Iraqi Dinar currency. Of course, I have heard of this scam for years. It goes like this: After the War at some point in the future, Iraq was going to re-value its currency. So if the Dinar was currently valued at something like 1100 Dinar to 1 US dollar, after re-valuation, overnight, it was going to gain (at the low end of the false promise) 70,000 percent over night and at the high end over 100,000 percent gain.

Of course, this never happened. If you search Iraqi Dinar scam on google you’ll see 461,000 results search results.

(5:00) Check this video out if you aren’t familiar:  https://www.youtube.com/watch?v=T4P-9pxKfm4. This is an example of outright conmen… the worst of the worst.

The other bullies are not so easy to spot because they disguise themselves as normal.  As I said earlier, the financial media (of all types) are complicit in this because they often have these folks on their shows or on the front cover of the magazines touting some lofty prediction or claiming some type of expertise in picking the winners.

(5:00) These are the prognosticator’s and the stock pickers we mentioned in last week’s show. Listen this clip of Harry Dent, circa 2012. How many people listened to this clip and acted on the fears instigated by his words? He is a Harvard grad and well-known economist, but he’s also a Wall Street bully.

(10:00) So let’s dive into this a bit more & understand how our brain works and how these folks and the big wall street banks create the illusion that we need them. And without them we are doomed.

Last week I said the investor mind is made up of 4 parts:

• Cognitive: What we know – facts, statistics, data.
• Perception: How we see things. Your way of understanding or interpreting information.
• Instincts: How we behave. How you are programmed as a human being to react.
• Emotion: How you feel.

All of these play a factor in your decision making.

Here’s a theoretical formula for being a successful investor: the cognitive part of your brain must take the lead over your instincts, emotions, and perceptions, multiplied by the media.

(12:00) The cognitive part of the brain has to be in charge and take priority over the other parts of your mind, which is a lot easier said than done! How many of you think what you know is the determining factor to the actions you take?

We have three simple rules for investing:

1. Own Equities
2. Diversify Globally
3. Rebalance

In our cognitive brain, these may make sense. But in practice there’s more to the story.

Here is an example: Rules to losing weight are theoretically simple – what are they? Eat less & move more. How many of you have a commitment to good health? How many of you have put something in your body that was out of alignment with your commitment to good health in the last 30 days? 2 Weeks? Today?

Or how about this?  Maybe you’ve been successful in the past with losing weight.  You’ve followed the rules and gotten results!

Then you decide to “reward” yourself with some cheesecake. Right!? Following the rules long-term is hard.  Knowing the rules does not guarantee good behavior – you’re human.

In investing, no one’s truly in agreement about what the rules are – so what are the chances that your behavior is going to be consistently productive?

(15:30) Instincts: As human beings, our behavior in most situations is rooted in our instincts. This comes down to 2 basic instincts: Pleasure and Pain. Things that are painful threaten our survival and things that are pleasurable add to our ability to survive.

Instincts can give you mixed messages that don’t work. Can you think of an example of something that is painful that is good for you?

Working out/exercise is a clear one because it can be painful to some people, but it’s good for your health. Now, can you think of something that is pleasurable but is bad for you?

Eating too much may be one… it tastes good but can cause health problems.

How does this play out in investing?

Let’s say for example you are looking at an investment statement in 2008 and you are holding long term government bonds, and they did 25% gross of fees- pain or pleasure? You also held US Small stocks and they did -38% – pain or pleasure? So, what do you want to do instinctively – bonds toward or away? Bonds feel great. You probably want more!

US Small towards or away? Stocks are so painful. You probably want to get out of them!

So, what happens if we follow our instincts? We break all the rules of investing.  We know we are supposed to buy low and sell high, but our instincts won’t let us. In our experience, when the market has crashed in the past, people are not lining up and calling our office to ask us to buy more of what’s down. Your instincts are your enemy when it comes to investing.

(19:30) Some people say, “Don’t invest emotionally.” We are all human. We cannot get rid of them. The goal is to understand your emotions and to manage them.

How many of you are married? How many of you did an un-emotional analysis of your future partner to determine if you should get married?

Isn’t it true that we make that decision based on emotion? Of course it is. However, in investing that can be extremely harmful and cause serious long-term repercussions. Emotions such as Fear and Greed area extremely destructive when it comes to your money!

(21:40) Our perceptions are how we see things, how we interpret things. We cannot eliminate it – it’s part of life. Sometimes, even if you look for it, your perception is the same. Think about the extremely skilled magician; David Copperfield. (Mis-direction, card tricks, sleight of hand.)

Some of these folks are so skilled that even if you are looking for deceiving tactics, you still can’t identify it! Our perceptions won’t let us. This is a huge problem when it comes to investing. Some of these wall street bullies are really good at manipulating our perceptions and ultimately what we want to believe. This is known as Wish Fulfillment!

All these pieces of the investors mind are multiplied by the effects of the financial media. The media wants to take advantage of this because they profit from it! The more shocking, the more sensational, the more we tune in creates higher ratings and increased magazine & newspaper sales!

(24:10) The biggest problem that you will face when investing is that your emotions, instincts, perceptions, and the media feed on each other to get you to do the wrong thing and make investing mistakes.

Those who are like this… they don’t want to do the work, don’t want to see where their behavior contributed to the results they’ve gotten this far. That’s ok, you will keep getting the same kind of results that you’ve gotten.

But then, there are those who ARE willing to look at your behavior, willing to do the work to have the future you want, willing to stand up to the bullies that are working against you and your American Dream. Get in the game and fight back! Get mad that there are people out there preying on your American Dream! Bullies are cowards in disguise – once you stand up to them they back off.

The question is are you ready to fight? Are you ready to reclaim your American Dream? Because I want to fight with you.

Make it a study to learn the right way to invest.  On our next episode we will go into what we consider the right way to invest.

Final Disclaimer: We appreciate you joining us today for this episode of The Fiscal Blueprint. Be sure to visit fiscalblueprint.com to access the most recent content available including all past shows.

Remember it’s not about the money but about your life! Having a mindset and living a life of abundance rather than scarcity will change the direction of your life forever!! Enjoy the Journey!!!

Opinions voiced in this recording are for general information only and not intended to offer specific advice or recommendations to any individual. All performance references are historical and no guarantee of future results. All indices are unmanaged and not available for direct investment.