In this week’s episode of Retire in Texas, Darryl Lyons, CEO and co-founder of PAX Financial Group, discusses the complexities of cognitive dissonance and its impact on financial decisions. Drawing from recent experiences and a notable psychological experiment, Darryl examines how holding conflicting thoughts can lead to anxiety and poor decision-making, especially in investing.
Key highlights include:
*Insights from ringing the bell at the New York Stock Exchange and attending the Alliance Defending Freedom Conference.
*Understanding how social pressure can influence individual decisions, even against clear evidence.
*Analysis of recent inflation trends, the health of banks, and the performance of companies beyond the prominent “Magnificent Seven.”
*Discussions on the implications of conflicts in Ukraine and Israel, and the potential impact on the markets.
*Observations on how political developments, including the upcoming election, might affect investor sentiment and market behavior.
Tune in to this week’s episode to gain valuable perspectives on navigating today’s financial environment and visit PAXFinancialGroup.com for more resources. If you enjoyed today’s episode, make sure to leave a comment and share the show with a friend!
PAX Podcast Ep. 138 Transcript
Hey, this is Darryl Lyons, CEO and co-founder of PAX Financial Group. Thanks for tuning in to Retire in Texas. Remember, this information is general in-nature. It’s not intended to provide specific investment, tax, or legal advice. Visit PAXFinancialGroup.com for more information.
And for those who are not clients of PAX, click on the connect with us button and we’ll have an advisor connect with you, a 15-minute consult and it’s just to see if it’s a good fit. It may or may not be a good fit, but that’s just a way to start an initial conversation.
So, hey, I’ve really been on a whirlwind the last couple of weeks. I was actually in New York. I was with an investment firm, Inspire. We rang the bell on the New York Stock Exchange, which was really an amazing experience, as you can imagine.
With the launch of a new exchange traded fund. I’m, we’re PAX doesn’t manufacture that fund, but we use them a lot. They invited us. So, that was really neat. And then, then after that, I yeah, I was at home for a little bit. And then I went to the Alliance Defending Freedom Conference, which was in Florida, and quite a bit of plane exchanges and all that nonsense that you have to deal with when you travel.
But it was an incredible experience, and really met some very passionate and articulate people who are really fighting very hard for the freedom to express yourself, the freedom to express truth, and freedom of religion. And so, if you haven’t checked out Alliance Defending Freedom, you certainly should.
So, it’s been a whirlwind, and I’ll try to encapsulate some of the experience for the podcast listeners here soon.
Okay. So, I’d like to share an experiment with you. It’s called the Asch experiment. Some of you guys may or may not have heard of this. It was done in the 1950s. And so, there’s a group of eight college students that participate in a very simple task. Now, all but one of these college students were actors.
There was one that was, I guess you could say the, that person that – they were all boys, college boys, college males. There was one that wasn’t in on it. He was the exception. Everyone else was actors. All seven were actors.
And they were, the group was shown two cards. One card had a line on it, little black line, and the other card had three different lines. And they were asked in the group, which, in the second card, which line matches the first card.
And it wasn’t a trick question. It was very obvious. There’s a short one, there’s one that matched and then there was a very long one. So it’s very clear. Wasn’t anything manipulative. You might have seen this before.
Well, so the actors, now I’m condensing this experiment, but the actors in, in various scenarios, collectively with confidence, picked a line that was clearly not the same size, clearly not the same size.
So, what we’re trying to find out through this, it was a conformity experiment, is if all seven of the actors said something that was clearly not true, would the one that’s not in on it conform just because they feel uncomfortable? Or maybe they’re second guessing themselves?
And sure enough, it was about 35% of the time after they did a lot of experiments, 35% of the time, the one that wasn’t the actor conformed, even though it was very clear that all seven of the actors picked something that was clearly not the same size.
That one individual participant was not comfortable speaking his or her mind or his mind in this case, because they were all men. And stating, “What’s wrong with you guys? That one’s clearly not the same size.”
And so, it was a, it was a conformity exercise that has been discussed in the field of psychology for a long time, and I’m actually less, although the conformity thought process is very interesting, but I’m actually less interested in the conformity piece today and really interested in the cognitive dissonance. The idea that you’re holding two competing thoughts in your head at the same time, and the anxiety that exists when you do that.
In fact, if you look at the original Greek word of anxiety, it’s actually two words combined. One verb and one noun: divided mind.
And so, as I think about this participant who is not an actor and how he was struggling with these two competing thoughts and the anxiety that exists when you’re struggling with these two competing thoughts and how that same anxiety exists when we invest.
I had some headlines hit my email box when I came back from some of these conferences and one of them said, “China’s submarine closes in on a US submarine,” and the other one said, not shortly after that, “Biden is about to crash the dollar.”
Or, you know, I can turn in, I can turn my news on to any a.m. radio host, specifically in the Christian space, and absolutely get a Chicken Little message.
Now, I’ve told you before, they’re all sponsored by gold salespeople, all of them. So that’s kind of their message now. But there’s all these kind of either truths or half-truths woven in there. And it’s hard to discern. So, I’m sitting here going, “Man, I want to be optimistic about the future, but I just heard something about the market crashing.”
And so, it messes with our mind and creates anxiety. It gives us a divided mind.
So, I thought, let’s, let’s just kind of unpack what’s going on in the world today. And I’ll do that in just a short amount of time. And we’ll – I think at the very end, we may not have answers to what the future holds, but at least we will recognize that this is a consistent issue that we’re all dealing with.
And I think recognizing it is one of the most important things for us to do. And then I’ll talk a little bit about solutions. But there’s, when it comes to solutions, that’s a whole other podcast. There’s a lot of tactical things you could do, but let’s just jump into the current state of affairs in our world right now, and let’s just turn our attention to the markets in general.
And the markets will start to focus in on the election here soon. But it’s actually still – I know the headlines are one thing. A lot of headline news about the election and whether Joe Biden can, will continue or not, but the markets have a lot of interest in the inflation right now, still very much inflation focused.
It was interesting because they came out with some June information and you may or may not heard this, but it’s the first time that we’ve seen the CPI, which we measure, this is one of the key measurements, not the only measurement but one of the key measurements of inflation, it’s the first time that we’ve seen it fall month, month over month in four years.
Inflation now is back down to 3% and the Federal Reserve has a target of 2%. So, I think many of us might say that’s pretty convenient as we come into the election. It seems like there’s maybe a little manipulation going on.
But, but, the reason it logically makes sense is because the way economics work is that when prices get too high, people vote with their wallets, and they stop buying stuff.
And so ultimately those prices come back down. And that’s why we’ve seen used cars in the past year go down 10%. There’s a certain inflection point where people just say, “I’m not, I’m not getting a Starbucks anymore.”
So that’s how rationally things work in the markets, prices go up, demand drops and prices come back down. And so, this is an ongoing trend. And if it is in fact true and there’s not this cohesive manipulation, then that’s a healthy market.
But, you know, we had this last market crash in 2008 that really was collectively a bunch of bank failures. So, tell me how the banks are doing right now. Well, all three, well, let me go back a little bit.
The banks did this stress test, and it was, it was done by the fed, facilitated by the fed. And it was, it would, tested them on severe economic situations and all of them passed. So that’s good.
But I think if you dig into the test themselves, you and I think a lot of people are challenging the efficacy of those test in the data used.
So, the bank’s health is still questionable but what about companies in general? Are they making money? Because we all invest in these companies collectively through mutual funds and exchange traded funds. I think that’s a great question because we just want to know, are they making money or not? What’s the truth here?
Well, we know these big artificial intelligence companies are making a ton of money like Nvidia. We know that for certain.
But many of us are investing not in just the, what we’ve called Magnificent Seven, but there’s 493 other companies in that composite of S&P 500. Are they making any money? A lot of us have our retirement nest egg in those other companies, not just the seven. So, are they, are they not making money?
Well, they haven’t actually seen much growth since the fourth quarter of 2022. And so as excited we are about this stock market, a lot of us have companies that haven’t made a lot of money in a while.
But there has been some green shoots. And so, I think Bank, if you look at this Bank of America forecast, they are forecasting some very attractive earnings here in the near future.
And July 11th was a very interesting day because what we saw is, some people call it a rotation, some people call, broadening out. They actually have two different meetings. But regardless, we saw very interesting growth opportunities in the smaller companies represented by the Russell 2000 and the bond markets that were completely different return profiles than those Magnificent Seven.
So, we saw some great returns in that July 11th day that hopefully will translate into future returns for those that owned companies outside of the Magnificent Seven.
But these big companies, they still matter and we still have to pay attention to them. And so will Apple make money? Will they figure this thing out? I think what you’re going to start seeing is a lot of products starting to not work as well because they require updates.
And if you don’t have a new Apple phone, then you don’t get the update and some of the features don’t work. Because they’re not selling as many phones as they like and they’ve got to figure out a way to encourage all of us who are still holding a bunch of old iPhones to upgrade, because that’s how they make money.
And, you know, if we go in a Tesla, which would also be one of those Magnificent Seven companies, we will see if they get any momentum in these self-driving vehicles. And that’ll be the talk of the town here in the near future.
But, but real estate Darryl, what about real estate? Especially, you know, going back to the bank things, you know, there’s a bunch of real estate that, you know, these office buildings aren’t being occupied because now people working from home and the prices were crazy high.
And some say there’s a just a huge tsunami of problems in these office buildings. A regional banks are holding all this debt and, and it’s just going to collapse.
But the interesting thing is it looks to be orderly. It’s not like a huge surprise. We can kind of see when these office buildings’ debt comes due. And I honestly, private equity is sitting there licking their chops like an angel vulture waiting to buy some of these properties. So, we’ll see how that plays out.
I know I’m almost done, but a couple more buts here. Just a couple more, but hang with me.
But what about Israel and Ukraine? That’s a mess and it’s scary. And I’m actually, It’s kind of a weird, I’ve got a kind of this, divergent in thoughts because I have friends in Moldova and Ukraine.
For those that don’t know, we’ve started a ministry over there to get kids off the basketball court, onto the streets to learn about life, leadership and Jesus. And one of my dear friends over there, who’s a coach, was 30 minutes from arriving at the hospital because his son had a stomach issue and a missile destroyed the hospital, like I, it’s on camera.
You send me all the information on it and videos on it. It’s crazy. My bigger, my bigger concern is that we’ve kind of become numb to what’s going on in there. And there’s a lot of good people that are suffering.
That’s probably my biggest concern. I do want resolved, just like all of us in Israel and Ukraine. And I think a lot of us have anchored into the, to the money manipulation that does occur, which I think we’ve all recognized that there’s just ridiculous amounts of money that are just going to nonsense. But my heart is still with some friends in that region.
Darryl, I have one more but, one more but and this but is Joe Biden, Uncle Joe Biden. What are we going to do there?
Well, what’s interesting, if you looked at the debates that he did, was it a speech or debate? I have no idea what happened there. I actually do know what happened.
But what was interesting is the market has an After-hours trading feature called the Futures Market. It was very interesting when it was, when it was clear that Trump, had a, had a competitive edge over Biden. The stock market started to trickle up in the Futures Market.
It was clear evidence that the market is – and I know you could say if you’re on the other side of the aisle, well, I’m manipulating data. I’m just showing you what happened. And was reinforced on CNBC. This is not, this was, I don’t think, debatable necessarily. The market, I think shows, so far is showing that it’s very favorable to the Trump administration.
Namely not, namely because of the regulatory environment. It’s let, this is all clear. It’s not it’s not, not this is not polarization of politics. This is simply clear. Trump was less burdensome from a regulatory perspective.
And for that reason, companies like that environment, they can focus on growth and don’t have to focus on DEI or other regulatory concerns that, that, that take up the, any free bandwidth that leadership has to focus on things that are really important. And so, the Biden administration certainly has been more conducive to regulatory.
And there’s three letter agencies. There’s been a lot of burdens that have been put through there. And so, I think what we’re going to see is, is a favorable outcome that will be conducive to a good stock market.
But, but a contested election, that seems pretty reasonable, doesn’t it? Regardless of the outcome, my biggest concern is that we have had fair weather generally in the stock market. We’ve had very fair weather.
So, if we do have a storm called a contested election, my biggest concern is how we collectively, react to a storm. It’s like, let’s say we’ve had clear skies and all of a sudden it rains, and we forget how to drive in the rain. That’s probably my biggest concern.
So, as you can see, there’s a lot of buts in the stock market. There’s a lot of buts. And that’s where this divided mind becomes problematic.
I feel really really confident long-term. And I think a lot of us do. I mean, there’s just some cool things happening. Certainly, artificial intelligence, these data centers, semiconductors, even thermal management for semiconductors, reshoring, bringing manufacturing back here, aerospace, bridges and highways being redone, which kind of stirs up the economy. Even these weight loss drugs.
There’s just, that’s just the tip of the iceberg of all the good things that are happening through this American ecosystem. But we still have this cognitive dissonance, this divided mind that just we can’t get away from.
And I want to suggest this to you. This is very important, very very important. Emotions and money do not mix. It’s like toothpaste and orange juice.
Please remember that. And remember that smart investors, the Buffett’s of the world, Peter Lynch’s, all the big names, they think long term and you think different when you think long term. Have a great day.
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