How Can Women Navigate Speculative Bubbles in Investing?

In this episode of the Wealth Wise Women Podcast, Wes Cuprill tackles the skepticism surrounding the financial markets and the importance of financial education, especially for women.

Building on last week's discussion about the disparity in financial advice given to women, Wes delves into historical market trends, speculative bubbles, and the role of Wall Street in shaping financial perceptions.

Discover why it's essential to educate yourself, seek professional advice, and engage in open conversations about money to overcome the distrust in the system. Learn about the significance of understanding market theories, the impact of speculative bubbles like the tulip mania and the GameStop craze, and how the AI boom may be contributing to another "castle in the sky" scenario.

Wes emphasizes the importance of staying informed and optimistic, even amidst market uncertainties, and highlights the growing trend of women investing in the stock market.

Tune in to gain insights into achieving financial success and fostering a more optimistic outlook on investing.
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Transcript

>> Wes Cuprill: 0:03

It's gotten to be cliche. The whole, we don't learn these things in high school. It's true. I mean, the education system is failing kids by not teaching them aspects of personal finance. But if they're not going to teach it, then it's on us as, ah, parents and mentors to teach kids then and teach them all the things that they need to know. And again, that starts with saying, you know what? This isn't a taboo topic. Hello and welcome to another episode of the Wealthwise Women Podcast. My name is Wes Cuprill and today's episode I want to build off of my conversation last week about the study that I read in regards to women receiving worse financial advice compared to men. If you haven't had a chance to listen to that episode, I highly encourage you to do so. It really is a lot of the reason why we, ah, at Money and Clarity have decided to shift our focus to helping women in particular plan for a secure retirement. Not only have women not received a lot of the right attention from financial advisors, this study also proves that when they do receive attention from advisors, they often receive lesser quality advice from them than that advisor would give to men. So, you know, it means we're on the right path with making sure that we give women the quality of advice that they not only want, but that they deserve. But I think too, when there's proof that financial advisors aren't giving women the best quality advice that they should, I think it leads a lot to distrust in the system. Generally speaking, I would say that the average person has a lot of skepticism about the stock market and skepticism about the financial advising industry or just Wall street in general. General. And that's perfectly understandable. I mean, just in the last 20 years, for the time that I've been alive, there's been multiple crashes and whatnot. You had the dot com bubble, you had the 2008 crash. And I think that's given rise to a lot of uncertainty about whether or not investing is the right thing to do. I've been going back and doing some reading on my end and I recently picked up the book from Burton Malkil titled A Random Walk Down Wall Street. He published this book about 50 years ago, and it was a project of his to discuss his thesis that a randomly selected portfolio of stocks will outperform the quote, unquote, professional managers on Wall Street. It's the idea that a monkey could throw darts at a dartboard containing various stocks and that portfolio would outperform the market in the long run. Now in the beginning of the book, Mail goes on to talk a lot about the various bubbles that have existed in history. And he also talks about some of the theories that Wall street uses to place a value on a given stock, the first of which is the firm foundation theory. This is more of a mathematical approach that takes a look at the earnings of the company and says that there's an intrinsic value to the stock price. But then the other one is the castle in the sky theory. And the whole idea of this is that the value of a stock is just whatever people are willing to pay for it. And so there's a lot of a psychological aspect to it. And that, I think, is a lot of what led to the craze of the tulip mania. If you haven't heard about this one, I encourage you to read up on it. The tulip mania was something that happened in Holland in the 1600s. It was pretty much the first big speculation bubble that we ever saw. The price of, tulip bulbs just shot through the roof. And people were making fortunes on tulip bulbs, but over time, they ended up losing fortunes on tulip bulbs. So that was really the first big bubble. But then after that, he goes on to talk about all of the other speculative bubbles..ble that have existed over the years. And he also goes on to talk a lot about the various sort of scams, for lack of a better word, perpetrated by Wall Streets over just the last few decades. I mean, in the 1930s, before the SEC and any regulation came around, there was countless fraud in the stock market. And a lot of that fraud is what drove the stock market crash of 1929. But, just because the SEC came around and regulations started being put into place, doesn mean the fraud has disappeared. We've had various bubbles and other scams come into play. One of the biggest ones that I read about was the conglomeration scam, if you will. These companies were forming these conglomerates in the 1960s that had nothing to do with each other. And all they were doing was basically pumping up their stock value in the short term. So those who were playing the game were able to get rich at the expense of the average person who psychologically didn't want to miss the boat. And as a result, these companies up there, I mean, you had electronics companies buying out, say, a tourism company. They had nothing to do with each other, but through creative mathematics, they were able to bump the stock price of the merged company without actually creating anything of value behind the scenes. I mean, ultimately, what really should be driving a stock price is the company's performance, its overall revenues to its expenses, are they turning a profit? But what Wall street does a great job of doing is finding ways to increase the value of a stock without the company changing anything about it. It's some creative mathematics, if you will. So ultimately, let me bring this back to say, yes, I understand that there is a lot of skepticism about the financial markets and skepticism that you aren't being played, that the system isn't riged. Ultimately I like to be optimistic. I think that there is still opportunity within the stock market. Obviously. Yes, I know that sounds self serving, me being a financial advisor, I would want to be optistic about it. But I truly do believe that while yes, there is some cronyism going on, the free market still reins. And I think the biggest thing is to just not buy into a lot of the speculative craze that can go on. We're seeing it right now, or at least we've seen it in the last couple years. The Gamestop craze that happened in the early 2020s. GameStop wasn't even doing anything differently with his business model. You just had a bunch of people on Reddit who found out that these hedge funds had a mass massive short position on GameStop. So they were driving the stock price of GameStop up. So that way they could squeeze, if you will, the hedge funds and make them hurt. It was kind of, you know, the little man taking it to Goliath and ultimately they did. These hedge funds lost a lot of money, but there was nothing that inherently changed in GameStop'operation it was just a big psychological thing that happened. And I think we're seeing a lot of that now with the AI boom. Yes, AI is taking over and AI will continue to have a very large role in our lives and it will continue to be it's the next big thing in tech and I think ultimately it will find its place and I think the craze will eventually calm down. But with the massive rise in stocks like Nvidia, I can't help but think that we are seeing another castle in the sky theory, that there's a lot of just speculation about what Nvidia is going to be able to do. Their price may not be actually reflective of where they are as a company, what they're able to inevitably achieve. So could be some downturn in long run, we don't know. But again we see the same thing over and over and over again. I think one of the biggest flaws as human beings is that we aren't able to learn from our mistakes. We end up trying to rationalize and say, well, this time is different than the last one. In truth, it really isn't. I would not be shocked to see Nvidia eventually have a correction. No, I don't think it's going bankrupt or anything like that. But eventually I think things will calm down. The AI craze will calm down and then inevitably, some point down the road, we will have yet another bubble on our hands. This episode of the Wealthwise Women podcast is brought to you by Money and Clarity. Wall street likes to make personal finance and investing complicated, but we are here to tell you that it isn't. But saving and investing for your future can bring with its stress, emotions and uncertainty, as well as many questions like how much do I need to have saved for retirement? What happens if the market declines? And probably the most important question of all, will I be okay? That's where we come in. Not only can we help simplify the financial planning process, we can also help guide you through all the emotions and uncertainty that come with planning for your future. So give us a call today at 513-563-7526 or go to visitwithmc.com to schedule a free no obligation consultation. We'll discuss how we might be able to help you achieve your financial goals and provide you peace of mind knowing that you will be okay. So what do we do when there is a lot of you speculation and skepticism as a result of that speculation? What do we do when we don't necessarily trust the market? You know, I think one of the good things is that women on average are investing more and more. In fact, in just the last few years, the percentage rate of women investing in the stock market has grown considerably. It was well under 50% about three years ago, before 2021. And I was just reading somewhere that it's now in the 70s, 70 something percent of women are participating in the stock market. That's fantastic. We want to see that continue to grow because ultimately as the younger generations are going to have more of a burden when it comes to planning for retirement. I don't think Social Security is going to, continue to exist down the road, at least not without a major change to the overall system. So retirements are going to have to buy and large, be self funded. So how do you make sure then that you save in order to, keep up with inflation? It's one thing to save money, but your money also needs to keep up with inflation and grow even More so. So the stock market is one way to do that. unfortunately, it seems that real estate also is one thing that people want to get into. It just seems to be another hot topic that people want to invest in. Real estate, that's great. It's obviously a great investment product or investment vehicle, but you need to understand its downsides too. One of the biggest issues with real estate is that's very illiquid. So while the appreciation of property is fantastic for capital gains, you need to make sure though that you can tap into any of that liquidity. And that's what's great about the stock market when it comes to planning for retirement, is that you can very, very quickly liquidate party of your portfolio to fund the rest of your life. But I think what I really want to say to end this episode though is talk about some strategies that you can use to combat some of the skepticism that I think is natural when it comes to the stock market and thinking the whole system is rigged against the majority of us by the big bad hedge funds. One thing, it sounds cliche, but ultimately educate yourself as much as possible. It's not to say that you need to fully understand what is a derivative or what exactly is a particular life insurance product or a, variable indexed annuity. You do however, need to have a high level understanding of how the market works. What are the various things that you can invest in, what are the pros and cons to the various things you can invest in? And ultimately what is your objective need to understand what it is that you want your retirement to look like. And then also what is it that you need to do to save for that retirement? A lot of people, I'm reading up on now, especially younger people, are saying, well, I'm investing in my 401k, but I don't really know how much or what I'm doing with it. That's a big miss, I think, on the financial industry's part, not education people. And ultimately I think a lot of financial industry people enjoy the fact that some people don't fully understand it. I'm on the opposite side that I want all clients to be as educated as possible. I mean, that's why we created our investor academy, which by the way is free. If you go to the investoracademy.net feel free to enroll for free. But education is one of the surest ways to ensure that you are prepared for retirement and your financial future. Second piece of advice I would give, yes, self serving as well seek professional advice. There are numerous Financial advisors out there. And yes, like in every industry, there are bad apples, but there are also good ones out there. I especially recommend you find those with certifications, especially a CFP designation, so that they have a fiduciary obligation to act in your best interests. But you don't necessarily even have to find a money manager. Find somebody who's willing to put together a plan for you. I don't recommend a free plan. I recommend one that they charge a fee for so that you know, it is comprehensive and holistic and takes look at your entire financial picture, and gives you a financial plan that ensures your long term financial health. But then I think the biggest piece of advice that I have for people when it comes to, you know, uncertainty and kind of skepticism about the financial markets is be willing to have the conversation. Now, I'm not saying I still think it's rude to talk about money, you know, how much you earn and all of that. But I think we at least in our families need to be more willing to talk about money, specifically wealth and how properly to save. One stat that I saw is that 61% of women would rather talk about their own death than they would talk about money. That's a very high number. And then only 29% of women in this particular survey I read said that their parents showed them how to grow wealth. And I think this is aiss by a lot of people. We need to recognize that money is just a thing and money is probably the easily most replaced resource in the world. So we need to kind of peel back some of the taboo around it and be willing to have a conversation about money again. It doesn't mean that you need to open up the books and say, here's so much I have, everybody. No, you need to be willing to talk about the various strategies that you employ to grow your wealth and talk about how you got there. Especially when it comes to teaching our kids about saving and retirement and investing, it's gotten to be cliche, the whole, we don't learn these things in high school. It's true. I mean, the education system is failing kids by not teaching them aspects of personal finance. But if they're not gonna teach it, then it's on us, as parents and mentors to teach kids then and teach them all the things that they need to know. And again, that starts with saying, you know what? This isn't a taboo topic. This is something that we need to be willing to discuss with people. So I think just those short strategies are enough to begin. Well, not A revolution, I want to say, but certainly a trend in the right direction that says, you know, there's always going to be the big institutional bad apples out there, and Hollywood's always going to portray the bad guy who really pulls the strings in the background that the system is rigged against us. However, seeing it firsthand, we have clients who have achieved financial success starting from nothing, and now they are on the road to financial prosperity. And their kits will also be able to inherit a large amount of financial prosperity because of the work done by their parents. So there is still plenty of wealth to be generated in the long term by everybody. And we need to have a little bit more trust in the system and be willing to say, yeah, everything's going to be okay. Yes, the media is always going to tell us the sky falling in tomorrow, the world will be over, the market will crash, cash will go away, etcetera, etcetera. That's not true. If it is, well, then we have much bigger things to worry about. I think nuclear war is really the only thing, though, that could really destroy life as we know it. Other, than that, I would say continue to be optimistic, have a little bit of faith in the system, not a lot. I'm not telling you to be completely blind to the cronyism that does go on, but we do need to be a little bit more optimistic as a whole than we currently are. Because I truly do believe tomorrow will be better than today, just like today was better than and yesterday. So I hope you enjoyed just a little bit of, rambling on my part. I just really wanted to talk to this topic and discuss why it's important to have some optimism and be willing to invest in the system and stay invested, because the stock market truly is the way to future wealth and independence in the long term. So if you'd ever like to meet to discuss this topic or anything else, please feel free go to, a visitwithm.com. also, I would love to hear your feedback. Now that we've put out several episodes of the podcast. Leave us reviews or shoot me a note. I would love to hear how we're doing. If there's any topics that you feel we should address, I would love to hear them. I'll put that in future episodes. Or if there's just general feedback that you have, I would love to hear it. That being said, I hope you enjoyed this episode and I'll see you in the next one. Thank you.