The investing mistakes Wall Street veterans still think about

Listen, I got this together because I wanted to have this conversation about first experiences in the industry, right? What you learned, what mistakes you made, and how we can educate people today. So I have a question from a listener, Karen from New York, who says to me, if I could go back and give my younger self one trading rule to live by, what would it be and why? So John, why don't you start us off? Biggest mistake I made investing when I was young was being too heavily weighted in bonds. Believe it or not, 65% of my portfolio was in bonds. That was absolutely stupid. Well, how old were you when you did that? I was in about 25, 26. And nobody told you otherwise? Nobody. In fact, the recommendation was to keep a lot of money in bonds. This was going to be for my retirement, okay? At age 25? Right. Yeah. If you're worried about your retirement at 25. Well, what year was that? What year was that? That would be about 1980, 1979, 1980, which was, by the way, in 1979, what did business week tell us? Equities were dead. Really? Yeah. They were in a lot of trouble at that point in time. That's because of persistently high inflation, very high interest rates. And not to be forgotten, shortly thereafter, we had what? Corporate bond yields were at 16 or 17%. So actually, in retrospect, because Fed funds were 21%, I think, in 1980, 81, right? When inflation had gone through the roof. And Paul Volcker, Fed chair at the time, jammed rates at 21% to try to kill the economy. Yeah. And when you think about it, not a lot of investors went into bonds, corporate bonds. One guy did. I think it was the CFO of Chrysler, if I got his name offhand. He put all their money into these corporate bonds, again, yielding 15, 16%. He made out like a bandit. But it's hard to argue with that actually at 15 or 16% consistently. I'm going to make you laugh. I'm 65. I don't own one bond in my portfolio yet. I am all stock. I have never owned a bond. I am all stocks. I'm actually, and I'm probably overweight tech. And I'm a bond guy. There you go. So what's one mistake you made early on? Well- He went into bonds. I went into bonds. Another one went into bonds. I went into the bond market. Right. I should have gone into the equity market, I think. But look, I mean, you've got to be humble, I think, along the way. I've traded these markets my entire life. I think when you're right, you feel it. When you're wrong, you've got to feel it. And if you're wrong, you've got to feel it and get out. I mean, you cut your losses, move forward. That is the one thing that I've tried to keep with me my entire career. It's like when you feel you're wrong, don't be stubborn about it. Just get out and change it. Right. I think that's right. I think that's a problem a lot of people have is they don't want to admit they're wrong. When they're wrong, they don't want to believe they're wrong. Right. And so you end up holding that position. Well, it's ego comes into play. 100 percent. And if ego comes into play, you're going to get burned over time. Yeah. For sure. Adam? I'm sort of tempted to take the other side of this in that, not that I'm never wrong. I'm wrong plenty of times. But I'm a long-term investor. And for years, I wanted to be a trader. I thought it was really cool to be able to say, I'm a trader. Phone here and a phone here and back to back the guy. Yeah, buy, sell. Once I realized that that was not an efficient use of my time, because I just wasn't good at that, that I was much better at identifying companies where I thought by doing fundamental analysis, they could double, triple their cash flow over time, put a forward multiple of earnings on that cash flow and find companies where we could double, triple, quadruple our money over time. I was much better served by doing that. Right. And so if I could tell my younger self something going back into time, I would say, figure out what you're good at and in part, trust your gut on what you're good at. Look at the numbers, but also listen to your gut. And I used to get so stressed out about trading. And once I became more focused on the long-term and cash flow, that whole stress just evaporated. And now when a name goes against me, if I really believe that I have the thesis correct, I'm happy to own something down 30, 35%. I'm okay with it. Right. And I think that's fair. You have to be really comfortable in your thesis to make sure that that thesis hasn't changed. The stock's down 30%. And by the way, thesis can't be a hunch. Thesis has to be, you ran the numbers. Oh no, you did the analysis. That's for sure. I got to tell you, I think if there's one thing that I would tell my younger self today, and I would tell any younger person, is start early and be consistent. Even if it's $50 a month, start early and put it away and be consistent and have that long focus, but don't go to bonds. Equities is the point you have to make. Now they're dealing 4% or 5%. But a great idea. You can go to bonds now, but when they were at zero, it's like, don't go to bonds. But I think that would be my note to myself would be as a 25-year-old or a 30-year-old, even if it's $50, $100 a month, whatever it is, just do it and be consistent about it. Be consistent. Month after month, put that money away. Because consistency, I think over the long run, it proves to be the winner. And be well diversified. That's important too. Don't have all your money in one stock. I've been in that position where gigantic capital gains. I don't want to sell it because I don't want to pay the tax on the capital gain, but then maybe I should have in retrospect. Right. Sold early. Well, I think it's funny because I don't think it's ever wrong to take a profit, right? There are some people to your point, they're in the money, they're in the money, they don't want to sell it. Well, at some point it makes sense to take the profit on some of it because otherwise. So I had a mentor of many years and he said to me, whenever you find a stock you want to own, put a target on it. That's right. And when it gets to the target, sell a portion. That's right. Sell a quarter, sell the third. Because the problem is once you buy, you're only rational once and it's before you buy the stock. Because once you own it, you fall in love with it. You say, oh my God, this company is so great. Maybe, maybe not. So it's a way of honoring discipline. And I've incorporated that in my fund management. And the beauty of selling a little bit when it gets to your target, it did what you expected. And you're freeing up capital to go find the next company. And you're still in the name. Because you haven't sold out the whole position. Discipline is the right word to use. That's right. Whether you're short-term, long-term, discipline, it dictates everything in investing. Right. You need to be disciplined. What do you guys think about consensus price targets for stocks? You have any faith in that? Yeah. That's one of my gut checks when I'm looking. So I'm on Bloomberg, right? And there are a few favorite pages. One of them is ANR, Analyst Research. And as a gut check, I won't look at that. I'll just run the numbers. I'll do my research. It'll take me a few hours, and I'll run the numbers on what I think the company's worth. And then as a gut check, I look at what the other analysts are saying. Right. To see where you are, whether you're kind of in the earth. Am I crazy bullish, or I'm in line, or, you know, whatever. Right. That's interesting. When I do a macro forecast, I cheat too. I look at what the average forecast is, and I put my forecast in and take the midpoint between the two and leave it at that. Oh, really? Yeah. Sometimes you win, you know, but you're not going to make a big mistake relative to the consensus. You want to beat the consensus, but you don't want to lose to the consensus by a wide margin. That's smart. No, it is smart. It's kind of interesting that because your business is you forecast rates, you forecast credit. Am I right? And, you know, GDP, consumer spending, everything else. So that's been very hard to do, by the way, forecast consumer spending. This is a great surprise we're living with because we have hardly anything in terms of jobs growth. And yet consumer spending is going ahead at a above average pace, you know, better than 3%. That's a shocker. Do you think GDP is really above 5% as the Atlanta Fed is estimating? When you take this shrinkage of the trade deficit out and jump in inventories, it goes down to less than 3%. That's what they're not telling you. And that's another point that I'd like to make is nowadays, a lot of the analysts and the stuff you're getting on TV and the financial press, they don't look under the hood that much. They don't. They don't. They don't do that with... Well, because it doesn't fit the narrative. If they look under the hood, it doesn't fit the narrative that they want you to know, right? But that's important to know. A hundred percent it's important to know. I think that's where it comes down to, you kind of do your own work, right? You got to do your own work. Not that necessarily it's on purpose, right? But you have to look under the hood. You have to be somewhat responsible for yourself. And of course, the analysts at Yahoo Finance are going to go ahead and look under the hood for you. The story behind the story. That's right. But even at under three, for instance, even at under three, that's still a healthy rate for the economy to grow. It's non-inflationary too, I would add. That's important. Whereas a five number, if it really were that, it's probably inflationary. Very inflationary. It would be inflationary if it were consistent, right? The first quarter, the second quarter, the third quarter. If it's one quarter, I'm actually so sure it's inflationary. But if it was consistent, then I would say yes, right? It's a lot of import, export, right, John? Yeah, right. Yeah. It's gold and special factors. In the end, right? It's not domestic consumption. It's not. It's all exports, boom, because of something related to gold. And there was a reduction in imports for the simple fact that early in 2025, all these companies brought ahead their imports in order to avoid tariffs. They imported early, so they didn't have to pay tariffs later. And that will change eventually. Mark, by the way, so Delta, I mean, this is brilliant. So Delta was taking delivery of one of the Airbus airplanes. But the problem is, if they brought it in as an import, right? You know, it's tariffed at whatever. At the time, it was like 30%. So what they did is they chartered the Airbus, the brand new Airbus, on a special flight from Toulouse, France to Tokyo, and then Tokyo to San Francisco. By the time it got to San Francisco, it had already done one flight. It was a used aircraft. It was a used aircraft. No tariffs. No tariffs. Is that good? They are smart. Look, let me ask you a question about if you were talking to somebody new, right, that was just getting into it, how important would you tell them it is to pay attention to the macro backdrop versus just someone saying, I like the stock, look at it. You know, everyone's chasing it. They want to jump in just on the chart and not necessarily listening to the macro backdrop. I think you have to listen. Yeah, you have to listen to it. You know, you want to see what's going on. Yeah, if you find out that current dollar consumer spending is growing by five or six percent, and you're thinking of going into this consumer products company where their sales are growing by 15 or 20 percent, maybe that's a warning sign that that type of sales growth is not sustainable. Right. On the other hand, AI, that's a different story. Artificial intelligence, NVIDIA, what their sales numbers look like, that's a dynamic industry. It's just growing. It's evolved. That's a new dynamic, right? That's really the fourth industrial revolution that's happening right under our eyes. But I think it's important, though, to talk to somebody who's just starting out about mistakes you made and lessons learned and how to learn from those mistakes, right? How to, you know, we already said you have to learn to take profits. You can't necessarily just continue to ride it, right? You have to do your homework, right? You have to be responsible for yourself, and you've got to kind of be consistent in your discipline. Remain diversified, right? Make sure you're building it. And you don't actually, listen, when you're first starting out, and you got $1,000 or $2,000 or $3,000, it's difficult to be diversified. But as it continues to grow, then you can become more diversified. And diversified to you means what else besides just US stocks? International. International, as I said, you know, you still might want fixed income for defensive purposes, okay? That has a role to play. If you suddenly have a recession, a deep recession, well, you're going to see that bond yield plummet, okay? From what is it, four and a quarter percent? Probably goes down to 2%, if not lower. It's always possible. And that would offset the losses that you might suffer elsewhere. And I wouldn't necessarily sell everything in the event of a recession, especially if the company itself is still sound. Right. So you don't want to have the business cycle dictate whether or not you buy or whether or not you sell a security that's under pressure. I'd like to see the two-year come down to two and a half percent. And the 10-year can stay at, you know, three and three quarters. I mean, I think if you look at even in the global financial crisis, what led us to something that was really, really bad was the long end, right? Long-end yields were coming down really, really high, really low. And I know this administration, they want long-end yields much lower, but they're higher for a reason. The economy is doing good. That's right. And if you've got good policy and inflation is running a little bit higher than expected, long-end rates are going to remain where they are right now. And there's nothing wrong with that. I don't think. You got to look at the treasury bond yield as a regulator. I think this is what you're touching on. It's a regulator of economic activity. The economy is doing better. And if you don't want the economy to overheat, that 10-year yield long, you know, treasury bond yields better go higher in order to prevent the economy from overheating and putting you in a position where you suffer from persistently rapid price inflation. Yeah, absolutely. And vice versa. How do you turn in your mind, how do you turn a bad trade into a good lesson for yourself? Right? Like, how do you take this mistake or this error that you made? How do you turn that into a good lesson for yourself? Ask yourself, where did I go wrong? What didn't I get? Right. Admittedly, sometimes there's nothing to get. Right. It was just, you know, something that was unrelated or a macro issue that had nothing to do with the company. That happens. But chances are, there's something that you didn't get right. If you're honest with yourself. And one of the things, especially when you're young, if you're listening, you're excited about it, and somebody whispers in your ear and says, you got to buy this stock. And you do it without doing your homework. And then you get, you get, you know, it blows up on you. You only have yourself to blame. There's your point. Well, do your homework. Lesson learned. Sizing the position is critical. That's right. Never be too big in anything. I generally size everything at anywhere from two to 4% of capital. Right. So let's say I had $100,000. Doesn't blow you up. Right. No positions more than $4,000 of capital at cost. You don't want to go out and buy it. That's 4%. The big guys, Apple, Amazon, et cetera, 4%. The little guys no one's ever heard of that may one day triple, quadruple, et cetera. They're 2%. And even if a couple of those blow up. Okay. And that's exactly the point. 2% because if they blow up, they're not going to kill you. Yeah. Right. And I've had a few of those. We've all had a few of those. Are you telling people to do index funds? That's what it sounds like. No, no, no. Absolutely not. No. No, I know my portfolio has typically 40 names. Right now we're at 44. It's a growth portfolio, the American Ingenuity Portfolio. And so if I'm not beating the index consistently, I feel I'm not doing my job. In fact, I interviewed at a place many years ago, Brown Brothers Harriman. The old conservative Boston bank. And so these young analysts said, okay, so we have a question for you in the interview. They go, so if you were, describe yourself in terms of a beta. And right, you know, a beta, the market has a beta of one. So if the stock has a beta of 1.2, it's 20% more volatile. So, and they thought they were being really cute. Oh, describe yourself in terms of beta, Mr. Economics major. And I said, oh, well, I'm probably a one, two, one, three. And you could just see they were shocked. You know, the old Boston from one, two, one, three. Why are you so volatile? I said, if I can't beat the market, I'm no good. I was, I was 20, you know, two. I did not get the job. Answer your question. It's interesting because you say index funds. I think when you're starting out, when you don't really know, and you're not, and you're trying to build an initial portfolio, I think you have to start with index or ETF funds, right? Because, you know, you take 500 bucks, what do you do? You're going to buy a share and a half of Apple. I mean, you can, but, but, and you could do it that way. If you're going to be consistent, if every month or whatever, every couple of months, you're going to put in two, three dollars, you're going to buy a share, a share, a share. You could do it that way. Or you could start out by creating an ETF portfolio, which is going to give you a broad exposure until such time that it grows enough that you then can start to then diversify more with individual names. That's what I would do if I was starting out. Or you can buy 10-year yields right now at four and a quarter. And by the way, after inflation, make a percent a year. When the S&P has given you 18% or Nasdaq's 24%. I had to get that in there. You're the bond guy. I can tell you, I'm amazed at such a young age that you said you had 65%. To me, that's just amazing. You know, you know, I was trying to stay, you know, like my parents, they lived through the great depression. And so they're trying to provide me with some guidance. And I said, what do you think? Bonds, equities? And my mom goes, bonds, bonds, you should have seen what happened to my friends and whatnot during the great. And that's how they thought. Yeah, yeah. They didn't get out of that mindset. I mean, until years later. Well, listen, that mindset. That's right. And like you said, into the 70s and early 80s, when the market, when the equity market was just horrible. Horrible. 1982, I was on the floor of the New York Stock Exchange, because that's where I spent 40 years of my life as an institutional floor broker, which was really one of the most exciting experiences of my life. But one way or the other, I was there. I was 19 years old in the summer of 1982 when Paul Volk was Fed Chair. And Ronald Reagan had just become president. We had just done the Reagan tax thing. And they made that surprise announcement on Tuesday, August 17th, where they initiated, and they gave birth to the greatest bull market that the country in the world has ever known. When they decided, they came out and they cut interest rates by 10%. 10% was two full percentage points, because they went 21%, right? Wow. And so that was the day on that Tuesday. And the market exploded, right? And the Dow was up 4.5%. The Dow was 792. So 4.5% was 35 points on the Dow. But it was a percentage move that was amazing, right? But it was at that moment that that whole argument went out the window, because then rates started to come down. And the equity market just took off for 25 years. And still, as recently as 1984, I was getting a 10% interest rate on my insured savings deposit. OK, that's shocking. Yeah, well, 1984, right? My first mortgage was 1983. I had a 15.5% mortgage in 1983, right? Have you refinanced yet? People complain about these mortgage rates right now. Yeah, I know. It's crazy. And I'm saying, like, you know, it's crazy. You're crying about 6%, give me a break. I think portability, I think, is a good concept here. They do it in the UK. They do it in Canada. But at the end of the day, you look at mortgage rates now, like in the context of what we're used to, money is still cheap in general. I agree with you. To Adam's point, crybabies. Yeah, I mean, my first mortgage was $7.25. But I kept calling the bank. I said, if it goes under $6, and they finally called me, I got $5.85, and I thought I was the king, you know, and a hero. And now rates are $6, $6.05, and people are just pulling out, oh, this is so high, it's so expensive. But I will say, you can't blame them, because for 15 years, rates were zero, and mortgage rates were 2.5%. They were abnormally low. Abnormally low, but this whole generation of people grew up with 2.5% mortgage rates. So 6% looks like you jury us. 150%. So it's not necessarily different. It's what they learned, right? It's what they learned, yes. When I was 19, the rates were 20%. My mortgage was 59%. I just accepted that as what it was. I talked to a lot of these, you're 150% on it. I talked to a lot of these younger kids, and they're like, this is all they know. This is all what they've grown up with. So they think zero rates are completely normal, and it's like, it's not. But you can't blame them, because that's what they learned. That's what they learned. And by the way, so is free health care, and so is free tuition. I think what we're overlooking is the ratio of a price of a home to income was still significantly lower when you had a 4.5% mortgage yield versus where you are today. Today is crazy. The highest ratio since probably 2006, 2007. But again, because they kept rates for so long, low for so long, that housing prices just went way out of whack. Right. And the fiscal stimulus, not only the monetary. 100%. Yeah, together. And that was a big mistake. I'm always puzzled by the fact that back then, when you had these gargantuan federal budget deficits when spending is taking off in Washington, at the same time, of course, you had Jerome Paul cutting, keeping rates zero percent. Right, right. Fed funds rate, basically, which made absolutely no sense. Well, do you remember, he actually said, I'm OK letting the economy run a little hot. It ran hot. Well, you know what, he made a big mistake, in my view, during the pandemic. He could have just bought treasuries, and he bought mortgages, and he's got all of these mortgages on his balance sheet, and they're not rolling off. No, OK, I hear you. Right. I hear you. Janet Yellen could have refinanced long-term debt at one and a half percent, which she never did. Right. Let's not even go there. Listen, gentlemen, thank you for coming out. I really enjoyed the conversation. The pasta will be right out. That's a wrap for today's Trader Talk. But the conversation continues. Subscribe on Apple Podcasts, Spotify, Amazon Music, or wherever you get your podcasts. You got questions or topics you want covered? Email us at TraderTalkatYahooInc.com because we're always listening. Until the next time, stay sharp, stay disciplined, and stay in touch. Take good care.