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Payne Points of Wealth Podcast

Entrepreneurial Skill Does Not Equal Investment Skill Ep#116

By April 6, 2023April 19th, 2023No Comments

The market continues to go higher, despite a banking crisis. Interest rates are starting to come down. Things don’t seem as dire as once thought. We’ll give you our thoughts on what we see right now with the ten-year treasury at 3.5%. Markets inching higher throughout the year. What’s next in the economy? In the market? You’ll get our 2 cents.

On the Tipping Point, we have a very special guest and friend Chad Madden, an entrepreneur who had a liquidity event. He’s going to talk about the psychology of money, the thoughts, and the processes he went through to have that liquidity event. Things will be helpful for you with your journey to financial independence.

Is the Fed just making it up as they go?

  • We’re hearing conflicting comments from the Fed and statements that aren’t very reassuring like “nobody saw the banking crisis coming“.
  • It’s scary that Powell is projecting a negative GDP for the year – does it mean he’s hell-bent on causing a recession?

I get these questions from our clients, like "Bob, when were Jerome Powell or Janet Yellen smart? Can you name a time ever?"

Bob Payne

The doom and gloom doesn’t correlate with what you’re seeing in the real economy

  • 10-Year Treasury is down to 3.5%
  • There’s a big demand for housing we’re still undersupplied
  • We have lots of millennials that want homes
  • We should have a relatively strong housing market moving forward, especially if interest rates come down.
  • We’re finding green shoots and positive things that are happening in the economy but you never hear them mentioned on national TV

The only place a recession exists is in the media.

Ryan Payne

One mistake investors are making now.

Tech has rallied this year – but what about valuations?

Technology has had a magnificent run-up this year with the Nasdaq leading the way up by 16%, but it’s still about 50% from its all-time record high.

Ryan has talked with many entrepreneurs lately and everybody talks about owning the same stocks such as Nvidia, Amazon, and Google. Is this a dangerous trade right now? It seems these stocks are still well off their highs and their valuations are still extremely high.

[Tech] is getting a little bit of a bounce.. maybe time to start getting rid of some of that stuff.

Chris Payne

That’s why diversification is so critical

Even though you never want to eliminate any segment, like tech, from your portfolio, look at large growth companies like Apple, that have gigantic cash positions. They’re finally making money – passive income on their cash positions, unlike the Silicon Valley venture capital investors.

The key is you don't want to speculate on one company, one industry, one area the's so diverse, right? You've got to trust, but diversify.

Bob Payne

The Tipping Point

How to navigate a liquidity event

With our guest Chad Madden

Payne Points:

One of the things we do at Payne Capital Management is to guide people when they have a liquidity event like selling a business. How do I transition from having an income from a business to suddenly having this large chunk of money? What do I do with it?

Today we have our guest Chad Madden, an entrepreneur, who has recently been through a liquidity event when he sold a portion of his physical therapy business. Chad describes his process for navigating the journey.

Chad’s yearly income of up to $2 million went to zero but he suddenly had a large cash payout

Chad wanted to avoid the pitfalls that often happen to high-income earners when they have a liquidity event.

Preparation and due diligence were an important first step

Chad’s best first step was learning from the mistakes and the wisdom of other people. He discovered the number one pitfall was the expectation that you can keep living at the same income level.

The Psychology of Money

Chad and his wife talked with a mutual friend, Peter Shallard, who is known as The Shrink for Entrepreneurs and they had a series of sessions with him to discuss potential mistakes. He had them read The Psychology of Money, by Morgan Housel.

Chad and his wife created a plan

They agreed to have a plan to not touch the money and that it was going to be asset money because Chad is a father of six with only one out of the house right now.

I also did a lot of prep with my family at home to make sure that we weren't going to be, like a retired NFL player who played in the league for four years and now is claiming bankruptcy.

Chad Madden

Entrepreneurial Skill Does Not Equal Investing Skill

One of the mistakes they talked about with Peter is that a lot of entrepreneurial people tend to be risk-takers. But when they started their business they didn’t think they were taking risks, they were just doing what comes naturally. Peter helped them understand that just because you understand how to invest in your business, how to employ people, how to grow, expand, etc., that doesn’t mean that you’re going to be able to ace the market.

They put a lot of work into their finances and their family

  • They receive passive income from money invested in real estate 
  • Investments in long-term equities like basic index funds
  • They invest a little of the asset money every month into the market

We focused on how can we buy time [with our family] and not lose sleep over a percentage point.

Chad Madden

Hidden Facts of Finance

On a daily basis, the historical win rate is only about 55% for stocks, making 45% of all trading days have been losses. And just 5% of all trading days have closed at a new all-time high.

Some 4,643 out of a total 7,108 funds have zero manager investment. 

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