Rob Isbitts, the founder and chief investment strategist of etfyourself.com, joins “Forbes Talks” to give his best strategies for investing in the stock market.
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LifestyleTranscript
00:00 Hi, everyone. I'm Rosemary Miller here with Rob Isvitz, the founder and chief investment
00:09 strategist of ETFyourself.com. Rob is here to tell us a few of his top pieces of advice
00:16 for investing. Thank you so much for joining me today, Rob.
00:19 Oh, my pleasure, Rosemary. Let's get into it.
00:24 Well, Rob, before we talk about the current markets, could you summarize how you approach
00:28 the world of investing for income growth and preservation?
00:32 Sure, sure. I think it's always good at the outset to kind of know who you're listening
00:38 to. So my number one rule of investing is very simple. It's called ABL, avoid big loss.
00:46 Everybody determines for themselves what big is. When I was a client advisor for 27 years
00:52 before we sold the firm a few years ago, we had to do that individually. Now, as a writer,
00:58 researcher, ETFyourself.com founder, we're getting it out conceptually. So, you know,
01:04 30 years of investing and a lot of things have changed over that time. But what I think
01:12 is changing the most today is how the markets work and what influences them. And I think
01:18 sometimes people get a little bit too caught up in how much can I make and not thinking
01:25 about how much they can lose. So rule number one is ABL, avoid big loss. Rule number two,
01:30 frankly, make as much as you freaking can. But remember that one is more important than
01:36 two. And that will always give you, I think, a baseline, a worst case scenario that you
01:42 can work up from as opposed to sort of floating along and then getting a big surprise. Because
01:48 I've lived through a lot of those starting in 1987 through 2000 through '08 and all the
01:55 more recent ones. So, you know, you're talking to somebody that started his career in 1986
02:02 in New York City, World Trade Center. And I used to walk by the Schwab office every
02:08 day and all the other brokerage firms back then. And it would have a you would look inside
02:17 and you would see people lined up at the Quatron machine to punch in their tickers to see how
02:24 their stocks did. I know you're giving me that look and you should be because who can
02:29 imagine this today? Why can't you just get it from your phone? Well, it was way before
02:33 the phone, etc. So I've seen a lot of changes over 38 years now in professional investing.
02:41 So first, and a lot of these things are not market specific. I mean, 24/7 communication,
02:47 something we didn't have, let's say, in the 80s or even that much in the 90s. I remember
02:52 when my first child was born, I was carrying around a beeper, not a cell phone. So and
02:58 then for the second and the third, it was cell phone. Online trading. It makes it so
03:03 that anybody can do this. They can make investment decisions at, you know, in a flash, in a flash.
03:13 You know, indexing. And of course, you know, I'm ETF yourself.com founder. I mean, I've
03:18 spent a lot of time in the ETF business. And ETFs, while they're not all, they're not all
03:29 index based, most of them are. There's a lot of active ones, but a lot of them are based
03:32 on an index. So instead of having one or two or three, let's say, stock market indexes
03:38 back in the day that you would follow in the handwritten newspaper, OK, or the printed
03:43 newspaper. Instead, what we have now is all of these indexes and people invest in the
03:53 indexes. And that makes it so that a lot of stocks you think, well, why is my stock going
03:59 down? Well, maybe because a lot of people are piling out of the index. There's a lot
04:03 of selling of the index and the index is a force to sell your stock. So the nature of
04:08 ETFs, maybe we'll get into this in the future discussion, but the nature of ETFs, the presence
04:13 of ETFs and the dominance of ETFs taking money kind of from the mutual fund business has
04:19 led to this also. And then there's things like algorithmic trading, which we didn't
04:25 have this element before where they have the ability to move stocks up and down. I mean,
04:30 the 1987 crash was caused by a concept called portfolio insurance. And it was probably a
04:37 predecessor of the types of things we see today where exogenous factors, computers can
04:46 without any human emotion cause markets to accentuate their up and down moves. So this
04:51 makes it so that investors have to get educated about more than just like old old fashioned
04:56 fundamental analysis. And frankly, look, these are not negatives. This to me, the bottom
05:02 line is this is the golden era of do it yourself investing.
05:05 Wow. Well, speaking of do it yourself investing, I mean, we have a lot of newcomers in the
05:11 investment game lately. So what tips do you have for them and what are some common traps
05:16 that they tend to fall in and how can they be avoided?
05:19 Sure. I've written a lot recently about some comparisons of this current era to the dot
05:25 com era, which I lived through and managed money through and remember it well. You know,
05:32 there's I guess what the psychologists call the recency effect. So all things have gone
05:38 so well recently or I've only known good markets. Remember, until a couple of years ago, people
05:43 only knew low mortgage rates and low bond rates. And then it suddenly changed. And the
05:50 old rules of stocks and bonds moving, you know, to to sort of complement each other
05:56 went out the window. And I think it is a new era for that. So, you know, just on what you've
06:03 seen very recently or what you think the kind of time tested rules are, a lot of those they
06:10 haven't changed completely, but they're not as accurate as they used to be. So so that's
06:14 the first thing. The second is everybody kind of going back to this ABL avoid big loss concept.
06:20 Know what your panic point is, because you don't want to find out what it is when you
06:25 hit it for the first time. So I always think risk management, defense first, because making
06:30 money is, frankly, the easier part. It's just a matter of how much risk you're willing to
06:36 take to to make it. And I think I kind of describe the stock market as kind of like
06:42 a game of Twister where everybody's all tied up and, you know, the next move could end
06:48 the game because somebody is going to fall over and everybody's going to drop on the
06:50 floor. Well, you know, with a mag seven in the tech sector dominating today, those are
06:58 oddities. They are not. This is not business as usual for equity markets and it's not business
07:06 as usual for the bond market. And of course, Bitcoin is a new wild card into this whole
07:12 thing, too, with the ETFs coming out. So there's a lot of things that I think investors it
07:16 all comes down to. I think Rosemary, it's it's it's education, but not just education
07:23 for the sake of education. It is understanding yourself as an investor and finding, let's
07:29 call it humble and straightforward tools to be able to teach yourself.
07:37 So education, how does one educate themselves on the stock market? I mean, that's something
07:42 I struggled with when I first started learning about stocks. I didn't have anyone like you
07:48 here to teach me.
07:49 Well, I'm one I'm one of many, but thank you. And, you know, I I think what you have to
07:56 do. Somebody taught me this a long time ago. They said, you know, message delivered is
08:01 not always message received. So when a lot of the messages I think that are occurring
08:08 right now are a little bit hype driven. OK, investing has become exciting. It's always
08:16 been exciting to me, but not exciting because I think that I can make enough to to buy a
08:24 second home in a month. OK, but there's a lot of that out there. And I think that, look,
08:32 Wall Street, I've been part of it for 38 years, but I'm also a pretty big critic of traditional
08:37 Wall Street. And, you know, they they tend to emphasize things that would appeal to I
08:49 don't know, the left or right side of the brain, but but where you're going to jump
08:56 on something and it becomes like you're always chasing the last idea. So when it comes to
09:01 education, I think it starts with learn market history and look at everything with a skeptical
09:10 eye, actually, two skeptical eyes and and start with that. And then in terms of resources,
09:17 I mean, look, we're we're both are part of a community at Forbes, you know, among others
09:23 that that try to do that. But all I would say is be very picky about what you don't
09:32 blindly follow because somebody says this is the best or that's the best. And a lot
09:37 of it has to do with going back, learning history, learning how markets work. And don't
09:42 leave your education at the very high surface or or headline level.
09:48 Well, Rob, I guess I'm also wondering, could you tell us the difference between trading
09:55 and truly investing? Like as markets are going up, should you be taking your profits immediately?
10:00 Should you just hold for for the long term? What should you do there?
10:04 Yeah, good, good question there, because it's a personal choice. So I always say people
10:11 start first with what's my investment philosophy. A lot of what we do at ETF yourself dot com
10:15 is I tell people what I do so that they can help themselves figure out what they should
10:21 do. And we have lots of back and forth commentary and things like that. So, you know, I think
10:27 it starts with making it so that you know what your philosophy is, then develop a process
10:35 to follow that philosophy. Put some guardrails in again, the ABL. It's not about so much
10:42 targeting returns because targeting returns and looking at what did well in the past can
10:47 be very misleading. You know, there's a reason why every fund at the bottom says past performance
10:53 is no indicator of future returns. It's not. It's no guarantee. And as a matter of fact,
10:57 the only guarantee about it is that you can't have it because you weren't invested for it.
11:04 So everybody has to figure out what their what their true objectives are first. And
11:09 then it's a matter of saying, OK, what I can tell you, the one thing that has absolutely
11:15 changed about market just in the last probably five years, like in the pandemic period, is
11:20 that we are in an extended period now where most stocks have gone nowhere for about three
11:26 years and interest rates are much higher. But inflation is not resolved yet. And so
11:35 if you take those two things together, what you get is harder environment to make money
11:40 by simply buying and holding things for years. And that's part of the history. The stock
11:44 market has gone 13 years in one case this century without making a dime. That's on the
11:52 S&P. Most stocks did worse. As we sit here today, there's an ETF that tracks the average
11:58 performance of the top thousand stocks. So it's pretty expansive. The average stock of
12:05 the top thousand in the last, I believe, is two and a half years is flat. So all the stock
12:12 picks and all the other stuff. OK, but you again, you wouldn't know that, right? I can
12:16 see by your reaction that you wouldn't know that by looking at the headlines. What does
12:20 an all time high mean if it if it's at its highest level from two years ago? It means
12:25 two years of zero return. That's what it means to me. So again, I'm not trying to be a downer
12:30 or a gloom doomer. I'm just saying, like I said a few minutes ago, look at everything
12:34 with a skeptical eye. And and I think obviously the limited time we have today, that's sort
12:41 of the highlight. And, you know, I will look forward in future discussions to narrowing
12:47 that down and putting it on to today's market a little bit more than than I just did with
12:54 the top thousand stocks idea.
12:58 Well, thank you so much for joining me today, Rob. That was incredibly helpful.
13:03 All right. Thank you, Rosemary. Anytime.
13:05 Bye bye.
13:06 Bye bye.
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