Banks, buy what you know and financial disasters

Three random thoughts on personal finance, stock picking and financial mistakes:

Banks are the worst. I received this by email this week:

In a word – ridiculous.

Inflation is above 9%. The federal funds rate is now 2.5% and going even higher. You can earn 3% on a 6 month treasury bill these days.

Yet banks are still paying pennies on the dollar to hold your money.

Even my online savings account at Marcus is still only at 1.5%.

What are they waiting for?!

Credit card rates have increased very rapidly.

The savings account does not bring in so much.

It’s like they don’t even try anymore.

Buy what you know. One Up on Wall Street is one of the first investing books I ever read. Lynch’s “buy what you know” concept still resonates today because it’s simple and intuitive.

The idea that Lynch could invest in Hanes just because his wife informed him of the popularity of The Eggs pantyhose or a store in the mall made it easy.

Imagine if you would have bought Apple the day the original iPhone was released:

This strategy looks easy when you look at the winners.

How about looking at more recent examples?

I was going through some charts of many new brands I’ve been introduced to over the past two years and how terrible their stock market performance has been.

I ride my Peloton a few times a week. It’s convenient and a nice change of pace from the rest of my workout routine. The stock is down 93% from its highs.

I watch a lot of TV and movies. We now have two TVs with built-in Roku systems (and a Roku soundbar). I love the user interface. We use it regularly to find new TV shows and old movies. It’s easily the easiest remote I’ve ever used. The stock is down 83% from its highs.

RedFin provides fantastic housing market research. Michael and I have been mentioning their research on our podcast for years now. The stock is down 90% from its highs.

I like shopping for clothes, but I hate going to the store. Just to shake things up a bit, I started using Stitch Fix a year and a half ago. Every two months they send me a box of clothes where I give feedback and a stylist chooses my outfit. It’s like Christmas every time I open a box. The stock is down 94% from its highs.1

Buying what I know recently would have been a painful strategy.

I’m not trying to pick on Lynch here. He also said, “Spend at least as much time researching stock as you would choosing a fridge.”

Buy what you know was meant to be a starting point, not an automatic trigger to make a purchase.

But this strategy is much more difficult than it seems.

Everybody makes mistakes. Jonathan Clements has been one of my favorite personal finance writers since he started at The Wall Street Journal.

His writing combines healthy Wall Street skepticism with a strong dose of common sense by making complex topics easier to digest. My biggest problem with many finance gurus these days is that they seem like they’ve got it all figured out.

I appreciate people who are willing to talk about their mistakes as well as their successes.

Clements posted a retrospective last weekend at The Humble Dollar on the ups and downs of his financial life over the decades.

He shares financial gains and losses on everything from savings to divorce to real estate transactions to investing to career choices and regrets not getting more out of his money when he was younger.

It’s all worth reading, but the biggest lesson that came to me from Jonathan’s story is that we all make mistakes with our finances, even personal finance experts. And that’s OK!

No one has it all figured out.

Sometimes you have to make real-time decisions with imperfect information. Sometimes your emotions get the better of you. Sometimes it’s just bad luck that affects your finances.

Every financial plan should incorporate the potential for occasional errors.

The important thing is that you learn from these mistakes and try to minimize them in the future.

It’s also good to know that you can make a mistake in your career, relationships, or spending habits and still be successful as long as you’re a life saver.

Michael and I covered these topics and more in this week’s Animal Spirits video:



Subscribe to The Compound to never miss an episode.

Further reading:
Anticipated Joy versus Anticipated Regret

1I briefly owned this stock in 2020/2021, but sold it when the CEO and Founder stepped down (she was the reason I bought it in the first place). I nearly broke even, which feels like a win considering the carnage in the stock.


Leave a Comment

Your email address will not be published.

%d bloggers like this: