Nick Maggiulli — Just Keep Buying | Infinite Loops Podcast with Jim O’Shaughnessy (EP.103)

Key Takeaways

  • Just keep buying, or just keep buying over time
    • “It’s like an entire investment philosophy in three words.”Nick Maggiulli 
  • You only need to know two numbers to figure out where you are:
    • How much can you save in the next year? 
    • How much can your investments return in the next year?
  • “Figuring out where you are [on the save-invest continuum] and then spending your attention accordingly. That’s the whole idea.”Nick Maggiulli
  • Buying a house can definitely be a good investment, but it’s more of a personal decision than it is an investment choice
  • Debt is a continuum, it’s not necessarily good or bad. It’s all about how you use it
    • “The people who could best use debt are the people that don’t know it. That’s really the truth.”Nick Maggiulli 
  • All broke investors are the same, and all people who got rich can get rich in many different ways
    • It’s like the opening of Anna Karenina: “All happy families are alike, but all unhappy families are unhappy in their own way.” Nick Maggiulli quoting Tolstoy
  • In worst-case scenarios, your investment portfolio is going to be the least of your worries
    • “There’s no downside to investing because if there’s a true long-term absolute crash, humanity’s going to be screwed either way.”Nick Maggiulli
  • Nick advises against picking individual stocks because it’s going to take a long time before you know if you are good at it
  • We begin our lives with growth stocks (expectations), and then we end them as value stocks

Key Books Mentioned

Intro

  • Nick Maggiulli (@dollarsanddata), also known as Nicholas Numbers, the First of His Name, Master and Lord of All Empirical Data is a financial educator, and author of the blog “Of Dollars and Data
  • When it comes to money, everybody has big questions: 
    • Is there such a thing as good debt?
    • Is buying a house a good investment?
    • What’s the best way to get rich?
  • Jim O’Shaughnessy sits down with Nick Maggiulli to talk about some of the FAQs in the world of money. Find out how to take the next step on your path to financial independence
  • Host – Jim O’Shaughnessy (@jposhaughnessy)

“Just Keep Buying”

  • Coming up with the title of the book
    • Nick got it from a YouTuber called Roman Atwood
    • How did Roman get to three million subs? 
    • Three words: “just keep uploading.”
  • Nick had been writing on the stock market at the time
    • Just keep buying, or just keep buying over time
    • The name stuck; it was easy and it made sense. 
    • “It’s like an entire investment philosophy in three words.”Nick Maggiulli 
  • Nick’s book is less about his opinions and more about the empirical evidence
    • Instead of saying “debt is bad”, he presents the evidence

The Save-Invest Continuum

  • You only need to know two numbers to figure out where you are:
    • How much can you save in the next year? 
    • How much can your investments return in the next year?
  • Early in your career, chances are, you will earn more by saving than by investing
    • E.g. Let’s say you could save $500 a month
    • For the next 12 months, that’s $6000 (your first number)
    • Alternatively, by investing $20,000 you can get a 5% return in expectation, that’s $1000 (your second number)
    • $6000 is obviously bigger, which means you need to focus on growing your income and investing your savings to raise the other number
  • Over time, the investments will catch up, and they are going to earn you more than you could ever save in theory
    • “Figuring out where you are [on the save-invest continuum] and then spending your attention accordingly. That’s the whole idea.”Nick Maggiulli 

Is Buying a House a Good Investment?

  • Buying a house can definitely be a good investment, but it’s more of a personal decision than it is an investment choice
    • Looking at history, Nick believes the answer would have been “no”
    • In the last 20 years, we had a housing boom and crash
    • And now housing prices went through the roof
    • Recency bias – the mother of all biases
      • “Anyone who bought a house 3 years ago is like ‘wow I’m crushing it right now.'”Nick Maggiulli
  • Looking at the Shiller housing index, buying a house is probably not as good of an investment as equities
    • “When you sell that house, you have to buy another house as equally expensive. So you haven’t actually earned your equity unless you move to a cheaper area.” Nick Maggiulli 
  • Owning rental properties is a good option, but it’s not Nick’s cup of tea
    • Nick is biased against physical real estate
    • “I don’t think you should look at your house as an investment necessarily. What you’re really doing is you’re locking up your housing costs.”Nick Maggiulli 
  • Buy vs. rent
    • If know you’re going to be somewhere for a longer time (e.g. 10 years), and you have a stable financial and personal life, then it makes sense to own
    • Most people end up owning anyway
    • “I’m going to have to pay X number of dollars for rent. I’m going to have to pay X number of dollars for the mortgage. When this one goes below this one, all other things being equal, you’re probably better off locking in your cost of living.”Nick Maggiulli 

Debt Is Not Black and White

  • Debt is a continuum, it’s not necessarily good or bad
    • It’s all about how you use debt
  • “The Value of Debt in Building Wealth” by Thomas J. Anderson
    • Learn how to properly manage debt
    • The book helped Nick a lot
  • “The people who could best use debt are the people that don’t know it. That’s really the truth.”Nick Maggiulli 
    • If you don’t need it, use it because then it’s a benefit for you
  • Why would wealthy people need debt? 
    • Elon Musk doesn’t sell his Tesla stock, he gives it up as collateral and then borrows against it
    • He’s taking out debt
    • It makes more sense than to pay the cap gains bill
  • “Socialism works only for the rich. In other words, debt works best for the people who don’t need debt.”Jim O’ Shaughnessy

There’s No One True Path to Wealth Creation

  • There are multiple ways to get rich: buy stock, lever in real estate, buy NFTs or crypto, etc.
    • It’s like the opening of Anna Karenina: “All happy families are alike, but all unhappy families are unhappy in their own way.” Nick Maggiulli quoting Tolstoy
  • All broke investors are the same, and all people who got rich can get rich in many different ways
    • 90% of your assets should be income-producing of some sort
    • That doesn’t mean you can’t get rich with art or crypto

Market Recovery and the Importance of Diversification

  • Think about the long-term
    • If you think the market will never recover, then why are you investing at all?
    • Nick’s favorite quote on investing: “Fear has a greater grasp on human action than does the impressive weight of historical evidence.”Jeremy Siegel
  • In worst-case scenarios, your investment portfolio is going to be the least of your worries
    • “There’s no downside to investing because if there’s a true long-term absolute crash, humanity’s going to be screwed either way.”Nick Maggiulli
    • You will not be worried if you got a good dividend return this year, you will be worried about protecting your loved ones, getting food, etc.
  • You should be a diversified investor
    • That can be crypto, physical art, REITs, etc.
    • Going through a great depression’s going to be terrible for anyone no matter how you cut it
    • With diversification you can survive personal hits more easily

The Ideal Asset Allocation

  • For most of history, the 60/40 was a great option
    • Today, you’ll get the risk reduction, but you’re also going to see lower returns
  • Set and forget is fine, but keep in mind that the underlying system changes so you might have to reduce your bond allocation to generate some return
    • That means you have to take more risks to get the same level of return you were getting before
    • “Risk-free return is just not what it used to be.”  Nick Maggiulli 
  • People should own bonds for the risk reduction
    • It’s very hard to set one asset allocation and keep it forever
    • You have to figure out what’s the balance and how to make shifts over time 
    • There’s no perfect answer, for most people what matters is what they plan on doing with their life 
    • Forget about exact percentages

The Argument Against Stock Picking

  • The performance argument
    • Don’t pick individual stocks because most active stock pickers/managers can’t beat the market
    • Especially after multiple years (after fees), approx. 60 to 80% underperform
  • The existential argument 
    • Don’t keep the majority of your money in individual stocks
  • Nick advises against picking individual stocks because it’s going to take a long time before you know if you are good at it
    • Sometimes, picking stocks has a long feedback loop
    • For E.g. shooting a basketball is a very short feedback loop. It either goes in or it doesn’t
    • “With picking stocks, you can pick just stocks and you may not get the result for a year, two years, or three years before you realize if you’re good or not.” – Nick Maggiulli 

“You Start Life as a Growth Stock. You End It as a Value Stock.”

  • According to Nick, we begin our lives as growth stocks and end our lives as value stocks
    • A growth stock is for high expectations. You bid it up and you’re expecting a lot for it in the future.
    • Value stocks are the stocks that have been beaten down but they can outperform because of upside surprises 
  • If you look at some of the happiness data, that’s how a lot of us live our lives
    • In our early 20s, we have a lot of expectations for our future 
    • So many of us want to achieve things by a certain age, and for most people, a lot of those things don’t come true
  • Parts of your life are not what you expected “…maybe it’s not going to be
  • perfectly what you idealized and that’s fine.” – Nick Maggiulli 
    • That’s when upside surprises happen
    • We discover that we can get joy out of things that we haven’t yet learned to appreciate
    • And so our happiness starts to recover and it goes up
    • We begin our lives with growth stocks (expectations), and then we end them as value stocks
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