Season 2, Episode 5: Individual Stocks Mess With Your Mind
How one woman coulda shoulda become a millionairess, if it wasn’t for some really good advice, stocks that tanked and stupid human psychology
We’re back for the real Season 2!
When you get a hot tip about individual stocks, can’t you just buy a bunch and get really rich and then laugh at all the people that weren’t as clever? But, wait, you have to sell them in order to get all those riches… So, can someone please just tell me when they’re about to go down so I can sell them then? No? Wait, what?
In this episode, we discuss how Sara’s stupid rational advice about buying Airbnb stocks prevented Caitlin from buying a Corvette, or losing a bunch of other people’s money, depending on how you look at it.
Sara makes it clear what her professional opinion is about borrowing money to invest (a hard pass) and Caitlin makes it clear how it’s possible to get emotionally attached to a losing stock (it may suck, but it’s mine). Human psychology and an insanely unpredictable market seem to conspire against all of our fantasy get-rich-quick schemes when it comes to buying individual stocks.
Also, we discuss this article that says that women retire with a quarter less wealth than men. WTF and how can we change this?
Ask us your dumb investing and finance questions for Season 2 on our Ask Us page!
This episode was edited by our co-producer Kelly West. Music by Bad Bad Hats and Devmo.
Transcript for Season 2, Episode 5: Individual Stocks Mess With Your Mind
Music intro by Bad Bad Hats
Caitlin Welcome to Women on the Verge of a Financial Breakthrough where we are figuring out finance, one dumb question at a time. I'm the dummy. Caitlin Meredith. I'm a mediator and coach based in the Bay Area.
Sara And I'm Sara Glakas. I'm an investor advisor and founder of Black Barn Financial, a registered investment advisor here in Austin, Texas, and also the founder of the Austin Women's Investing Group, which can be found on Meetup.
Caitlin So in this episode, I'm going to talk about my rage and anger at Sara for preventing me from becoming a millionaire or the richest woman in all the lands. Do you want to know do you want to know how you've done this?
Sara Is it because we're in a bear market and I told you to buy and all of your stocks are down?
Caitlin That that I'm adding that to the list. But specifically. Okay, I have to bring up a screenshot. On November 16th, 2020, I wrote you a text. Hey, Airbnb just e-mailed me that I'm eligible to buy shares through a directed share program when they go public. Minimum $300. More info coming out. Dumb risky idea or my invitation to become a millionairess? And what do you think your response was?
Sara I think my response was probably something like, do you have a few extra hundred or a few extra thousand dollars to throw at it? Then go for it.
Caitlin And why why was that your response? You're right, you said. Well, it's a little bit more briefly. You said and I say quote unquote. Yes, to Airbnb stock. And then I said, so should I try to buy max number of allowable shares? The max allowed is 275, which they're currently valuing at between $12,100 and $13,000 or 50 shares for $2200 to $2500 somewhere in between? For the record, I don't have $12,000. But if this will make me rich, I'll figure it out.
Sara So. Okay, so hold on. Let me get this straight. You didn't have any money, but you wanted to know how much you could afford to put into the Airbnb IPO.
Caitlin I had some money. I didn't have enough to max out what we were allowed. So what happened is, listeners, is that I was a very old time Airbnb host. So I started, I don't know, in 2012. I don't even remember when the company started, but early on. And so I was offered as an early host the option to buy shares of Airbnb stock before they went public. Right? Is that how I say it, Sara?
Sara Yes.
Caitlin And the idea being that I could buy it at the price that the market set it at before it was available to the rest of the world. And the case that you hope for is that it skyrockets once it hits the market.
Sara You were offered the ability to buy it at the IPO price, which is the first price that it set at. And then once you're able to buy and sell shares on the stock exchange, then the price just becomes whatever someone will pay you for it. And often times after an IPO, once the shares start trading on the secondary market, the price often goes up, but not always.
Caitlin Okay. And Airbnb was a private company. They just had a boss and a CEO, CFO or whatever, doing their business, making their money. But they wanted to expand, so they needed more money injected into their business and they wanted to make more money. And so they started selling shares so that other people could buy into their company, thus giving them a ton of cash. And then, what? How does this work?
Sara Oftentimes a company will go public in order to get outside investors to put more money into the company. So they say, okay, if you give us $50 billion, we'll give you this number of shares at this price. And then if we're a publicly traded company, you can either hold on to those shares, you can turn around and flip them to someone else. We don't really care. As long as you give us the $50 billion, we give you the shares and then you can do whatever you want after that.
Caitlin Okay. And there are some process in which someone determines what a fair price for one of the shares would be. And in this case, it was $68 per share. Who? Oh, I broke that news. Yes. Sorry, that was in my sequence.
Sara Oh, I don't remember. I mean, I'm excited to see what happened.
Caitlin So they first let me know on December 1st that it was or no, that was in November that it was going to be possible. And then on December 9th, the night before their public offering, I got an email saying, please be advised that Airbnb's initial public offering has priced at $68 per share and is now effective. And I essentially had 24 hours to decide how many of those shares think with a maximum of 300 shares that I could buy to buy. And so the question then, I'm sure there was this is not in our text exchange, so it had to be a frantic phone call. What the fuck do I do if you know how many of these, like it's priced at 68. So they think it's a really valuable company, right? So then I should borrow any amount of money I can to get as many shares as possible. And you were like, No, do not do that. Do not do that. How much can you comfortably afford? So the next day, December 10th, you texted me easy money with a gif of someone with a bunch of hundred dollar bills throwing them in the air. And I was like, Am I already rich? And you sent me a screenshot that showed the shares at $144.71, at which point I wanted to kill you, because I could have made that so much more money if I had borrowed all that money from all my friends and neighbors. So I said, I guess I'm not rich, rich light. You said, not quite rich enough to worry about the Biden tax plan yet. So I was like, yeah. So I then started reading all the headlines of other Airbnb hosts like me that had borrowed money, used all of their life savings, and had doubled their money overnight because isn't that what it is like 68 to whatever that was.
Sara 170 to 140. Yeah, that's a that's a that's a double.
Caitlin And I was like, what the fuck? I'm here with conservative Sara who's like, Just do the minimum of what you can afford. I'm like, I could be riding around in a Corvette right now if it wasn't for Sara the Downer. And so I've been harboring this rage ever since, and especially then I got my statement. So what I did end up doing is I invested earnings, I put I think I did 2500. That was the amount I bought 38 shares and I decided that was the amount that I could live with. You know, I didn't borrow money. I spent more on these stocks than I would have on anything else. But it was around 2500. Does that math add up if I bought 38 shares?
Sara Yeah, I just multiplied 38 by 68 and got 2584.
Caitlin So I found the text. I now own 38 shares of Airbnb, my first non index fund investment. Why 38? You said I should do between 25 and 50. I couldn't afford 50, so I decided to go midway and landed on 38 and I can't read the rest of the text, but 38 was when I had my daughter, so I decided it was a valuable number. So I did the 38, which ended up being about 20 $500. Did the conservative thing the next day in the news doubles. And I think, Oh my God, if I had done 10,000, I would have I would have 20,000 now. Oh, Sara. Heartbreaking.
Sara Idiot.
Caitlin Idiot. But here's the problem. I wouldn't have taken the money out. Right, because I would have been so excited. Oh, my God. It just double. Like, let's just see when it triples.
Sara Later, right?
Caitlin Oh, yeah. Like, I'm going all the way to a cool mill and then I'll take some out. So I got my first statement and ah, this couldn't have been my first, but one of the ones at March 31st, 2021. So this is a few months later, three months later. Total value of your account. I put 2500 in, I then had $7141. So like what was my return? 2500 and I got 7000 out.
Sara 171%.
Caitlin I was flying high, Sara. And I could have been so much higher. So if I had put the full ten grand in. How much would I have at that point?
Sara 27,000.
Caitlin Okay. I would have put 10,000 in and had 25. Okay. Now, if I had called you on that day or frantically texted me like, holy shit, it's worth 27 grand now, what would you have told me to do?
Sara I don't know. I probably would have asked when you needed the money. Is it if you sell? Are you ready to pay the capital gains? The difference between what you bought it for. The difference and what you sold it for.
Caitlin Okay.
Sara So factor that into the cost of selling.
Caitlin Okay. I don't think there's any way I would have sold that day because it was all good news. It was going up and going up and everybody was so proud of themselves. And also, I was feeling a little smug because everybody that I told that I had had the first bite at the apple of getting it before the IPO, they're like, Oh, God, I wish I'd had that. I was like, Look at me. I'm ahead of the game. So I've been like holding this grudge for, you know, now years because, like, what could have been what would have happened my one chance at an individual stock. And I'm stuck. I've hitched my wagon to this woman that only talks about index funds. Wouldn't let me beg, borrow and steal to get that extra money to go big on it. Well, so my most recent one. Do you know what happened to my $2,500? It's now $3,900. So I haven't lost anything, but all the heyday of those headlines of making My Millions is actually not happening. And if I had begged, borrowed and stolen to get that 10,000. So which would have been like 7500 in addition to the 2500, I wouldn't have very much to show for it.
Sara No
Caitlin I would you still owe that money back.
Sara Right.
Caitlin And now I'm back on planet Earth with my $4,000, which is, like, nice. It's more than 2500, but not as much as the heyday. And the key here is that I would have never known the day to sell the stock.
Sara Yeah.
Caitlin I wouldn't have known what day to take my winnings and leave the casino because it had been the best that it could be. And now maybe it'll go up slowly over time, who knows? But as we've seen with all these other countries. So it made me curious because I have so much envy of people that buy individual stocks. And here we are doing a podcast telling people to never do that. Now your message has always been, do index fund. All the money that you need for retirement needs to be in a safe, aggressive, safe index, like aggressive in that they can be, you know, only stocks, you know, or 90% stocks with only 10% bonds. But like index, do not put your eggs in one basket unless you never need to see that money ever again. Do I have that right?
Sara Yes, that's usually right. Sometimes people in certain industries or who work for certain companies end up with a concentrated stock position in individual stocks or. Kind of like you did take a flier on one or two individual stocks. But when I'm listening to your story like this is highlighting the risk of doing that. It's super important that you realize that in addition to. An individual stock being a stock in the category of stocks, which is relatively risky, that you're also kind of adding an additional risk on top of it. It's the risk that that company won't do very well or won't do very well for some period of time. And maybe you don't want to or can't wait for it to come back.
Caitlin And it ruins relationships, people, because I've been so angry at Sara, but now I also have to be thankful about that advice. And that's a complicated relationship where she prevented me from being a millionaire. I mean, at least a 10,000airre. But at the same time, that takes into account that I would have pulled the plug and not been totally seduced by the high flying stock and been like, Nope, this is good enough. I'm pulling right now and there's no way I would have ever gotten there on my own. And as we keep saying on this podcast, by the time I know something is bad, it is too late to do anything about it. And so I'm left with an impossible situation. But it reminded me of this other thing that happened at the same time, which was I had a new puppy. I brought him to doggy day care and the woman there was like, Oh, I just bought a bunch of Carnival Cruise stocks. And I was like, What the? Why would you do that? It was the, you know, think April, April, May 2020. Like, are you have you not seen the news? I think people were still stuck out at sea on these boats. And she had a friend that gave her a tip like, get in now. They're really low. So, Sara, will you tell me what the price of a Carnival cruise like? I don't know what the umbrella company is, but like Carnival Cruise stock would have been let's do like January 2020. So before before the bad time. Okay.
Sara Yeah. Okay. So January 27, 2020, the price closed at $43.53 a share
Caitlin Let's go mid April 2020.
Sara Oh, yikes. Okay. let's say April 13th, 2020, it had fallen to $12.56.
Caitlin Okay. So let's say theoretically this was the time she was buying because like buy low. Right?
Sara Right.
Caitlin What is it today?
Sara $9.
Caitlin Oh, my God. Today it's $9.
Sara Yeah. It had gone up to $30.54 by May 31st, 2021.
Caitlin But it still hasn't recovered to pre-pandemic levels. And if she bought at $12.56 or thereabouts, she would she lost money on those stocks if she still has them.
Sara If she still has them, yes.
Caitlin I mean, I know this is all theoretical. Like, what what day would she have woken up on that upswing to be like, ooh, I'm like cash out now. And if she didn't, because like me, she just thought it would always be good news or she forgot about it entirely. She's now lost whatever money she invested it. Not all of it. But, I don't feel good for her. I was so envious though. I thought it was such a brilliant strategy. Like, God, they're clever people in this world who see a market opportunity, you know, assume that it's just a temporary blip. And I think the pandemic presented so many opportunities for dum dums like me to be like, Ooh, Peloton, everybody's talking about Peloton. So let's look at Peloton like, would that have been a good because they're tanking right now. Right.
Sara So I've got their five year chart up. So where do you want to start?
Caitlin Let's start before the pandemic. Let's do January 2020. Were they public then? Yes. Okay.
Sara Okay. So let's say January 27, 2020.
Caitlin Okay.
Sara They were at $32.36.
Caitlin Okay. So, you know, respectable. I don't know anything about how big or small stock numbers should be prices, but like an amount, you wouldn't just buy a hundred of those, like, okay. And then let's do June of 2021.
Sara By June of 2021, it kind of gone up and then come back down. But on June 28th, 2021, it was $121.60.
Caitlin So, like, insane. I mean, I myself am responsible for four people buying Pelotons and I don't even have one.
Sara I know. I think you're responsible for me getting my peloton, which I love, by the way.
Caitlin It was like the name. So I then was so envious. Who bought those stocks? It was genius here. I'm like an idiot just telling people to buy the actual bike. I should have been buying the stocks because it's like they're the kings of the world. Well, what's the stock today?
Sara $9.39.
Caitlin Oh, my God. Really? It's the same as Carnival Cruises?
Sara Yes, that's just a coincidence.
Caitlin Fascinating. Yeah. So this is just that, like, afterschool special version of why buying individual stocks is so dangerous that I need to be reminded of it at least once a year because I've even had a success story like I haven't lost money yet on my Airbnb. But the fact that the success story is that I haven't lost money on my individual stocks talks about the risk. Unless you go into it saying either, A, this is money I don't ever need to see again. B, I'm going to wait till it increases 20% and then I'm pulling out like I've defined what profit I'm going to make from this and I'm getting out no matter what. Sort of like leaving the casino when you're on a winning streak, I assume it's like that. That counter acting against the psychological tendency we have to just think like good news means more good news is happening. When it comes to stocks. But to actually do well over time in multiple individual stocks, it would be such a crazy combination of luck, a kind of discipline that sort of goes against the kind of personality that it would take to even buy a bunch of individual stocks, it seems like. And a security in the decisions that you're making that over the long term, index funds, there's a reason for all of that and to not be caught up in the fanfare and the excitement and just the basic envy of the people around you that you're either reading about or now that have made these fluke millions from individual stocks. Am I giving this lecture? Right, Sara?
Sara Yeah. I mean, I think that. It's easy to underestimate how difficult it is to pick a winning stock. Analyzing a company, looking at its financials and figuring out which companies are going to get more customers and be able to raise prices and be able to cut expenses and be able to make more profits in the long run. It's really, really difficult and it's really, really competitive. I mean, back in the day, you were just competing with all of the wealthiest people on Wall Street, but now you're competing with all of the wealthiest people on Wall Street, plus their computers and their supercomputers and their algorithms that are able to read through financial statements in 1/2 and make a buy sell decision. So kind of venturing into individual stocks is adding another layer of risk. And it is super important that you appreciate that typically. And it sounds like kind of what you did. You know, for people who have identified something that they think is an opportunity and want to give it the old college try, having a position in an individual stock that is smaller than, and kind of outside, your core basket of index funds, can be a way where you can kind of meld those two things together if you feel so inclined. Right? Because I also knew, like in this text message exchange that you have like your target date fund or your index funds, whatever they are in your retirement. Right. So when like trying to hit a home run, trying to size that is important because the other super red flag is please do not borrow money to buy stocks.
Caitlin I could be so rich for those four weeks, it was so high.
Sara Debt never goes away. Asset prices fluctuate. But debt stays the same until you pay it off. Right. So that I'm thinking, like as I'm reading this, that's probably the actual bigger red flag is should I borrow money to buy this stock? And I can't think of one person where I would be like, totally. You should totally do that. Like 100% of the time I would be like, please do not borrow money to buy stocks. It's danger layered on top of danger.
Caitlin Okay. Because it's like a force multiplier for the unknowns when you're borrowing money on top of investing in individual stocks and in the stock market.
Sara Yes.
Caitlin Okay.
Sara It's making it exponentially more dangerous. If you borrow $100,000 to put it into stocks and you pick poorly or you just end up in a 2022 bear market, that I mean, these things happen and now all your stocks are worth $50,000 and you still owe the 100, what are you going to do? Yeah, right. Yeah, it's really dangerous.
Caitlin But what also made me think of, as you said, you know, getting to know the individual companies, financials, their prospects to attract new customers, their prospects of making more money, doing whatever they're doing, this ridiculous capitalist idea that there has to always be growth, even though that's completely not sustainable, subject for another episode. But you also can't predict a war in Ukraine that will then make there be no grain in half of the world or heating gas and half of the world. You can't obviously predict, you know, pandemic. You can't predict a lot of things that are way beyond just what the individual company's financials might be, and that could affect entire sectors of the economy beyond just that one company. And so I'm thinking with like we talked about in the bear market, one of the bear market episodes about investing in large growth cap stocks, which I still forget what that means. But I understand it to I mean, like the household names, Apple, Amazon, Google, stuff like that. So that entire sector has been hit right now, so.
Sara Oh, absolutely.
Caitlin So even if you had bought an index stock index fund in it, those would be similarly affected. Can you talk about that? How that's different. If I had bought an index fund that had Amazon, Google, all those big ones in it, that's now way down versus if I had bought individual shares of Apple stock.
Sara Yeah. I mean, so this is where it's kind of hit or miss, especially in a in an environment like this. If you buy a basket of stocks and they're all maybe they're all similar or maybe they're all large companies, maybe they're all large growth companies. And in this type of macroeconomic environment, they are out of favor. They're out of style. You can imagine a time where they come back into style. Right. And for most people in that space, you also kind of understand how those companies make money. And you can you can hang in there. Right. Also, like if one of the companies in that basket does horrible or disappears. Right. Still have other companies in the basket.
Caitlin Buffering that loss.
Sara Right. And which should recover. Like one of the hidden benefits of a recession is that some companies get wiped away and the companies that survive now have more customers. Right. Because there's less competition.
Caitlin Okay.
Sara So if you're in a basket of companies like in an index fund, some of those companies just don't make it. But the survivors end up stronger over a long period of time or they can end up stronger. Right. If you have one company that you've kind of bet the farm on and it's the wrong one.
Caitlin Yeah.
Sara If it goes away like Enron.
Caitlin Right.
Sara There is no recovery. There's no length of time that you can wait to wait for your Enron stock to come back. It's gone. It's at zero. It's bankrupt. It's gone forever. Yeah.
Caitlin Yeah.
Sara And so that's where the basket even if you want to be in a certain sector, you know, tech growth right now is very bad, right? This year has just been horrible. But you can probably imagine a future where it's sorted itself out and come back from the levels where it is today. Right. But picking one company in that basket is a lot trickier. Right? Like what if. Whatever, whatever company you choose, just isn't able to compete in whatever world pops out of this recession. Right. What if that's the wrong technology or there's too much competition or they can't provide services cost effectively? Whatever it is, there's a million things. By limiting yourself to the one company of the thousands and thousands and thousands of companies in the world, you are increasing your risk just by a lot.
Caitlin Okay, so I keep thinking, yeah, but like, Apple's never going to go anywhere. You know, they're going to be there forever. But then I'm thinking, but there are growth that can really even though I don't believe in this model, it's what makes us money. And if we're investing in the stock market. So even if I decide, well, Apple's not going to go away forever as a company, they could be making less money. And if I had had my money in an index fund, I could benefit from a group's growth that would be more than an individual stock. So even if they don't go away forever, even if they hold out and stick around, they might have a more protracted down time or not bounce back as quickly as the others in their category, for whatever reason. But I'm stuck with the one I chose instead of my group that are all in the same category.
Sara Right. I mean, with companies like Apple, Google, these are often the types of companies that people can stick with during a downturn. I mean, imagine if everybody is like, oh, shit, recessions coming. I'm going to delay getting a new iPhone by a year. I'm not going to I'm not going to buy a new iPhone every cycle. I'm going to double my cycle. Right. That has an impact on the number of phones that Apple sells and it will have an impact on the share price. Right. And that is happening right now. And then think like, okay, if that is happening right now and at the same time, a company like Exxon is just printing money by selling you something that you need every day of your life.
Caitlin Right.
Sara That if you own a basket of the S&P 500, as Apple is going down, Exxon is coming up and they're offsetting each other. Whereas if you just own Apple, you might be able to say like, yeah, I get it, Apple goes up and down. I love this company. I'm in it for the super long run. I'm going to get through the downturn. And there are a lot of people who do that right? Like, I don't care, I will never sell. I don't care how long it takes. But it's you have to be able to get through it, right? You have to be able to tolerate the times when whatever thing you are really attached to is not in style for some period of time. It could be a year, it could be two years. It could be five years. It could be ten years. Right. Like, do you have enough conviction at that point to hang in there while those natural cycles of the economy like work their way through?
Caitlin Right. And it just occurred to me, like the message that we keep saying, i.e. you and I'm trying to endorse it, is don't look, put it in index fund and don't look. But if you're doing that for an individual stock, you kind of by definition have to look because you bet on that one horse. And so, of course, you're going to look because you need more information about it, whereas an index fund, it will just the set it and forget it goes there. So you can't I'm not looking at my portfolio right now. I know everything's down. That information is not going to help me in any way. But when I look at my Airbnb one, you know, I have a lot of feelings towards you.
Sara Oh, I have no idea about the animosity.
Caitlin Well, we're in a good phase right now because the down, when it goes back up really high, we'll have to revisit this.
Sara I didn't say you couldn't buy more now if you have the money.
Caitlin Yeah but I was an insider. I that was like behind the curtain. It was like the only time I'll ever be invited to do that I think.
Sara What if it goes below $68? Has it gone below $68?
Caitlin I don't know. Look.
Sara Going to. I'm going to, Caitlin.
Caitlin Because I feel like there was talk at the time that it was overvalued. There was a big question mark about whether it was overvalued or not. And then it hit the market and they're like, see, it wasn't. But now. Hmm.
Sara Yeah. No, it hasn't gotten that low again. It got to $91.41 back in June, and it's only a $96.09. But you just keep an eye on it, right? Like, if it gets back down to $68, you could set a limit order right at $68.
Caitlin Oh, that's interesting. So I it was a little experiment. It was like, okay, I'm not doing this as my main investment strategy. You know, it's not like I always have an extra 2500 just sitting around, you know, looking for a job. But it felt like, okay, this is an interesting one to be part of. But it's never occurred to me that I would actually sell it. I do feel like that it's mine now. But if.
Sara You break it, you bought it.
Caitlin Yeah. Oh, yeah. We're in it for the long haul. And I can't tell, is that because I still am an Airbnb host. This just underlines my main point, which is we do not make sense in all of this stuff. There is some shiny object that we're attracted to. I have a mixture of envy of like aspirational living goals, like all this stuff that's wrapped up in it. That doesn't make me necessarily make good business decisions or my good financial health decisions because like the the moment the dog daycare woman tells me that she invested in Carnival, like I lose hours of my life because I know that some are like, Oh, that's a wasted time. Like, I have a strategy. So that's why I always feel like I want to revisit this topic because it's so alluring and I like, I quote unquote know better. I've been taught by the best and yet it is very complicated. And those days where people were writing about how they bought, you know, a new truck with their Airbnb, you know, I'm like, God, I'm doing it all wrong. There are so many opportunities to really question the most boring investment strategy that probably will win in the end if our past is any guide in the future and we're not immune from it, to now continue to think that individual stocks and I think people are more intelligent when they talk to me about individual stocks. I know I have an internal assessment that they're clever, that are go getters, that they're like understand the market in a way that I never will. I don't immediately label them as like ridiculous gamblers that are going to lose all their money. And I'm not saying they all are, but it's funny how I can really idealize like the kind of person that buys individual stocks and like, is killing it.
Sara That's so interesting. I do just want to point out to everyone that Caitlin ambushed me with this topic today. I had no idea this was where it was going. But I think it's fascinating because it's like everything that you are saying is true. Right?
Caitlin Do you have envy?
Sara Sometimes I guess. I don't know. I don't know if I have as much envy with individual stocks. I think that like kind of going back to I think what I see, I see the winners, right? But I also get a chance to see the losers in people's portfolios. Like I'll often see the stock that has gone to zero that people will just leave in there as a reminder that stocks go to zero. Right. And so I get to see both sides of it, right? Like if you get like a hot tip or something that seemed like a sure thing or something that someone just took a flier on, like, listen, I think this could work. I'm going to put $5,000 in it. If it doesn't, I'm not going to die. I have the rest of my portfolio to support me, so I get to see all of those things on people's statements. So it's a little bit. Less of envy. I know that, like, I'm personally not going to be able to find the next thing. The next Apple, the next Microsoft. Right. And there are other people out there looking. And good luck to them. But.
Caitlin No, that makes sense to me. And I know we've talked about that before in a previous episode, how we'd never see the headlines of the people that went for it and then lost all the money. I saw the headlines of the people who like me had invested in that Airbnb and then like doubled overnight like this crazy flash success. Not the ones like me that, like, got their rope, you know, thought they were winning. And then it came down, and now it's just kind of like an average, really no big headline piece of my investment portfolio. Yeah. And so either they're really bad stories or they're just like, it's fine. It hasn't done better than my index fund, but it hasn't, like, killed me either. Yeah. And so there's something synonymous with the individual stocks with, like, drama, with either the, like, get rich quick or that like Enron, like, you know, eviscerated. And the reality is that it's somewhere in between, but the risk is huge. And, I have, I think, a gendered view of it that like men have bought individual stocks and done well. And so when I hear women talking about it, I think like, oh, they're in the secret club now. Like, they really got to that higher point. And it's just a ridiculous story that I have from eighties business success movies.
Sara Yeah, I would say so.
Caitlin Yeah.
Sara I would say people talk about their winners, they don't talk about their losers. Right. And so whenever anyone has the winning story, you know, ask them if they've ever like what mistakes they've made. Right. You know, like and it's it's it's more common, like you said, for someone to have individual stocks and they're like, fine. Right. Like, maybe they've made a little bit more than the average. Maybe they've made a little bit less than the average. It's really rare to see someone who's hit a homerun, and it's pretty rare to see someone who's, you know, where it's just been like the the exact wrong thing. But those things do happen and they're the ones that do get the headlines. Most of the time you see someone's portfolio and you're like, Oh, like you inherited. 200 shares of Johnson and Johnson from your grandma. And then you chose to keep it and. Okay. Cool. Right. You know, like, it's, you know, it's not it wasn't Apple. It wasn't like it's Johnson Johnson.
Caitlin Just down a little.
Sara Bit. Like, it's it's fine.
Caitlin Right. That makes sense to me. I think this the ideal where you don't have to think about it. And that's that's where I'm at that like I it is too emotionally wrenching for me to try to even contemplate following the stock market and having my future be dictated by these numbers, which of course also happens when you look at your index fund portfolio. But that that idea that I would have had to choose if my retirement savings depended on my Airbnb stock, that that would have relied on me selling at this time where I was felt like that was still increasing. There's no way there's no way I could have made that decision in an appropriate way. And I don't think anybody would have known when the peak was.
Sara No.
Caitlin So Sara sent me an article yesterday called Women Globally Retire with a Quarter Less Wealth than Men. And it was on actually Bloomberg.com and we can put the link in the show notes so you can read it too to glean the lessons from it.
Sara Yeah, I think one of the takeaways from that article that I sent you, hopefully we can like put a link in the show notes or whatever. One of the takeaways was that for the women that are relatively well off, that disparity in wealth actually increases from their less wealthy peers. The difference in wealth between women and men in lower incomes is less than the difference in net worth for higher income men. Okay.
Caitlin Okay. So people in people with lower incomes, there's less difference between the genders at lower income brackets, but in higher, men are making are worth a lot more than women are.
Sara Right. And one of the reasons in the article was that women end up with less stock based compensation.
Caitlin Can you say what stock based compensation is?
Sara Sure. So when you when you're working at a company, oftentimes people get a salary. Mm hmm. But then they also might get stock options. Or stock grants.
Caitlin That are the company like if you're working at Amazon. Obviously, Amazon has stocks and at certain echelon of the hierarchy of employee is you might be offered to get your own shares and like instead of money, salary coming to your paycheck, they give you shares instead.
Sara Yes. And that can come in all different forms. But the idea is you get dollars like a salary and stock as part of your compensation. And so in the article it talked about how this difference in stock compensation seems to be the reason women are one of the reasons women end up with less wealth by the time they retire. And it was it was unexpected to me. Right. It like for me, I was reading that article and it just kind of brought back to the forefront of my mind something that you and I are working on and talking through and like the reason for this podcast, which is, hey, over time, owning assets and maybe those assets or stocks owning assets creates wealth. And so if you are compensated in stocks, chances are you will end up being wealthier than if you're not compensated with stocks, that you're just compensated with a salary. Right. And so I just thought that that was. It was interesting. And it was kind of this direct connection between the wealth building power, not of necessarily just income. Right. Right. Not just salary. But that, hey, like stocks should be, over long periods of time, wealth accumulators, right, like wealth growers. So if you can get your hands on more stock either by negotiating for it or working at places that provide some of their compensation in stock, you should end up wealthier over time.
Caitlin So what this brings up for me is that if I got hired by any of these companies a while. World Are we living in anyway? That's not my line of work. But I wouldn't even occur to me that that would be a bargaining point. Like I would think if there were stock options at all, that it would just be like, and this is what all new hires get like here it is like, I wouldn't it wouldn't be in my vocabulary to think of that as being a negotiation point. Whereas like I know that salary, I mean, it's taken me many, many decades to get here, but I know that salary. I could say like, no, wait a second, I'm looking for something with this salary, but it wouldn't even occur to me, which goes back to like a the secrecy that is around how much people make and what their packages are and offers are, how gendered that is, that men automatically get offered more or assume that they'll negotiate. So there's a completely different dynamic for them getting hired because they see it as a negotiation where I think women are just like, oh, the honor, the privilege of being able to work for you is so great that I will not, like, make you mad by trying to get what I'm worth. And so that loss of, like, historical knowledge about what you can negotiate for. And then also here's my other question, which is it's very funny that on the one hand, we're talking all about like individual stocks are the devil, don't do it. And then here we're saying that like, women should really have more individual stocks to build their wealth. Can you help me connect those dots?
Sara Yeah. So when typically when you get compensated with stock, it's in stock of the company that you work for.
Caitlin Okay.
Sara So you end up with a concentrated stock position.
Caitlin Right? Meaning concentrated. You have a bunch of stocks from one place, which is the company that you work for.
Sara Correct. So doing some planning around that is an opportunity. Right. How do you take the stock compensation and decide what portion you're going to keep in that company's stock, which is risky? Right. Your income and your wealth type.
Caitlin Tend on the healthy company. Mm hmm.
Sara Right. So, like, what is the company? What are their prospects? And then what plan do you have to either cap or periodically diversify out of that one company's stock into a more diversified basket of stocks?
Caitlin So what you're saying is they offer you they say we're going to give you a you know, we'll pay you $100,000 a year and you can have what is even the language they would use for your stock.
Sara What I mean in.
Caitlin That money or 25 shares of whatever.
Sara Right. It could be or refuse that are vested at a certain schedule. It could be a certain number of stock options at a certain strike price. It could be the opportunity to participate in employee stock purchase, plan it. So there are that could be stock grants based on how long you work there. So there is like a long list of time.
Caitlin In the world to understand any of the words you just said. But the thing is, people have some choices and it might make sense for them to get a lower salary, amount of dollars in their paycheck and get more of the stock options. But if they do that, they're not stuck with those shares necessarily. They can sell them and exchange them for other shares in a more to make a more diversified portfolio. Am I right?
Sara Right. Right. Typically, you don't have to own all of these shares forever. There's some period of time where you can sell them and take the proceeds and reinvest them into something more diversified. Where like, okay, if you are working at Apple and getting compensated in Apple stock, how much Apple do you want in your portfolio? Is there a way to if you know you're accumulating Apple stock, is there a way to adjust the rest of your portfolio to reduce the amount of Apple in the rest of your portfolio? Right. Because you know that you have this Big Apple position over there. So there's a lot of discussion that goes along with that. But I think that this idea of salary being one part and ownership of assets or ownership of stocks being a big part that almost always gets overlooked, right, by by women especially. It's like, okay, do I do I have my salary? Can I pay my bills? Can I take care of the people around me? Am I secure? Do I have my emergency fund? Do I have, like, everything covered? Like, there might be just that piece of accumulating assets, even when it's scary like it is right now, like triangulating stocks over time. Can it be part of your compensation? If it's not part of your compensation, can it be part of your overall wealth building strategy over long periods of time? Because that's what narrows the wealth gap between men and women.
Caitlin Right. And we've talked about this before. We'll keep saying that. The cash in your salary is not inflation proof. So you. You negotiate for this great salary, but in two years, the way things are right now, that has a lot less market power. Whereas if you have stocks or, you know, investments, assets, those will rise with inflation.
Sara Eventually. Eventually like that.
Caitlin Yeah, they're not we're not in 2022. No, we're not talking short term, but like. Right. The cash will never recover, but the investment portfolio can.
Sara Right. I mean, it does come back to that inflation fighting power of stocks over the long run versus having either your comp or your wealth tied up in something that does not keep pace with inflation, like super safe cash and super safe assets. How do you divide your your money between those two things or among those two things but that like even. You know, in November of 2022 with a worst year in a lot of years for the stock market and the bond market and the housing market and all the markets. Right. Basically, except for oil and gas.
Caitlin The supermarket.
Sara And the supermarket, definitely. Yeah.
Sara Right. Everything is just not good. But if we zoom out over the long run, if we want to end up with more money, we have to keep at it. We have to keep adding assets that over long periods of time should keep pace with inflation. And that's where stocks check.
Sara That box, right? Okay. Right. But mostly an index fund.
Sara It's the easiest to do it in an index fund.
Sara Think about it.
Sara Unless you're going to learn all about how Airbnb performs during different market cycles, you know, like it's yeah.
Caitlin It's exhausting. And I want to let you know, I forgive you for preventing me from being the thousand error. I get why you did it. And I also get why advising your friends is dangerous.
Sara I know. I'm like, what else? What other shitty advice have I giving you over time?
Caitlin But that's the thing. It wasn't shitty advice. It was exactly the right advice. And it's exactly what I should have done. Yet it's so complicated by all the other fantasies and dreams that can run through one's head, that are not based in reality, but that are based on these headlines and the what ifs. And that it's complicated to mix those up because the voice of reason is not always a fun one. I mean, most often not. Right. But I also.
Sara I disagree because I'm going to say that I think like for all stock investors or, you know, like if you're buying a house, if you're buying stocks, whatever it is, like you have to have some level of optimism, right? Like that. Like that's what the stock market is. It's like optimism and progress harnessed.
Caitlin Right. Yeah.
Sara So you do have to have like a positive outlook or like the chance to do all these things that we're talking about, like grow wealth, build wealth, make a good choice. Maybe it doesn't have to be like hit the homerun, but just like, oh, like, are we putting ourselves in a position to have this payoff? And if it doesn't. Can I live with the outcome? Right. I think that's really kind of what it comes down to.
Caitlin And my own individual struggle, battle, individual journey, challenge of what's the right amount of aggressive in building my financial future. I can't be where I was before ten years ago, which was completely passive, like blah blah blah. I don't want to hear about it, but it can't overcorrect to go elbows out and take huge risks because I'm like, I'm a big girl now. I'm going to do all these. So gauging for myself, what is the appropriate amount of risk? What is how do I sort of manifest my new financial knowledge and confidence to do smart things that aren't super, either passive or so conservative, that I'm actually not benefiting from being in the market as much as I could. And that's an individual struggle, I think. And stocks can bring out the most aggressive side. And yet that's sort of the direction I want to be going towards, but that's too far. So it's also just my own figuring out how to compensate for years of not paying attention to any of this stuff, but not overdoing it. And that seems like a that's for a lot of us at this point in our lives, figuring out how to get that right.
Sara Yeah. I mean, welcome to investing where you're going to make a ton of mistakes. Yeah, that's just like. That's just what happens, right? Or what things that feel like mistakes that with time to work themselves out. So there is that like there's optimism involved, there's some level of faith involved. But like you said, like maybe the most important thing is figuring out what risks you can. That you can live with the consequences if it doesn't go the direction that you hope it goes. Yeah, right. Like, you know, they say like one of the financial sayings is like, hope is not a strategy. Right. Right. So if it's like, oh, I'm going to buy this thing and hope it goes up. That could be a red flag. Right. Like, yeah. So I'm just hoping, but I don't have any, like, additional knowledge or expectation that I'm making the right choice. I'm hoping it's the right choice because the guy that gave me the tip said it was a good idea.
Caitlin Right.
Sara But there often is like, okay, I'm taking this calculated risk. I hope there's a big payoff or I think there will be a big payoff. And then if it goes against you. I mean, can you live with it? Right. I think that's what everyone is. Kind of gut checking now is can you live with a 20 or 30 or 40 or 50% decline in something that you really believed in? And if you can live with it, then, you know, that's that's what investing is is calibrating that through your whole entire.
Sara Yeah.
Sara Life lifetime. Right. And so just get used to it. Right.
Sara Yeah. And. Continue, but don't pay attention.
Caitlin Okay, Sara, any other last things you want to say about individual stocks or women getting more assets so that we can be as rich as men?
Sara Yeah. I mean, I think that if you don't have a better idea, just put some extra money in an index fund when the market is down and give it ten or 20 years. If you do have what you think is a really good, brilliant, well-researched idea. I don't I'm of the mind that there is some amount of money that some people have to take a shot, right. Makes things interesting. Sometimes it does pay off. But again, just like consider whether you can live with it if it doesn't pay.
Caitlin Off and that you won't know when to pull the plug.
Sara Yes. And that you are like it's easy to buy. Very difficult to sell.
Caitlin Because you're like the whole point of buying it is you're like, I have this, like, incredible idea. And then to say bye bye to that is also hard. Anyway, I've made the point, I believe. Okay. Thank you, Sara.
Caitlin Oh, so. So far, Caitlin.
Caitlin Bye. Bye.
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Caitlin Hey, before we go, thank you so much to Kelly West, who co-produced and edited this episode.
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Sara If your partner is making you ask for money, giving you an allowance are not letting you know about family income. This could be economic abuse.
Sara Learn more at thehotline.org, or call one 800 799 safe.
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Devmo I know the first thing you notice is that I'm covered in gold, the flick of the wrist it could turn a hot bitch cold, to get what you want in life girl you gotta be bold. Now Imma die rich, and I know...
Sara This podcast contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this podcast will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.