1500: Bias Holding You Back, Chartered Financial Institute, Choices & Checklists

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your financial Independence Day. You really can do it. And now, here's your host, Jason Hartman, with the complete solution for real estate investors.

Welcome to a milestone episode. Yes, today is a big deal and you are here with us to celebrate. It is a milestone. This is a big milestone. Why is that? Because it's episode number 1500. 1500 episodes. So that means if you are new to the show today, you only have 1499 prior episodes to go back and listen to. So enjoy that. I know you will want to. I know you will want to. We have many people who have listened to all of our episodes two and even three times. And gosh, we are just totally flattered. Thank you. Thank you. I'm glad the information is that valuable to you that you would go and listen to every episode, not even just one time, but two or three times. We appreciate that and are just really glad to see it's valuable. You know, when I started podcasting back in 2006, and before that I had a little radio show on KRLA AM Radio in Los Angeles, California, where I grew up when I did that. And we turned that radio show into a podcast of sorts. And I remember when we were in the studio recording, we recorded the first couple of episodes in studio, I met Dennis Prager and I'd met him a couple of times over the years, been to some lectures that he's done and got to meet him and shake his hand at those. But then I met him in the studio too, and he actually endorsed us on the radio for a couple of years. Few years, I don't know. Along with Larry Elder, Dennis Prager, Al Rantel, and several of the other famous talk show hosts on talk radio. And I know talk radio. I'm not sure it's as big a deal as it used to be because a lot of people are listening to streaming services like podcasting nowadays. So it's all changed. The world has definitely changed. But every 10th episode, we go off topic and discuss something of general interest. And I wanted to get Dennis Whateley back on the show because he was one of my original mentors at age 17 who changed my life. And he was on episode number 150, and I've been talking to his son, actually, Dennis Whateley Jr. And I said it would be so cool if your dad could come back on the show for episode 1500, because he was on episode 150. So we didn't get that. So guess what? You are stuck with yours truly today. But I think you'll like the topic we're going to cover. And it is a 10th show topic, but it certainly relates to our financial health and our overall life satisfaction and our level of happiness and really, really influences the decisions we make. And what else does it influence? It also influences the decisions we don't make. And as the fantastic song by the band Rush would say, that song free Will. If you choose not to decide, you still have made a choice. And that really is what we talk about a lot in another way, when we talk about how you can't hear the dogs that don't bark and the profound impact of things unseen, that's what that addresses to some extent. Because if you choose not to decide, you still have made a choice. Most definitely true. For example, in the investing world, look at your property portfolio. So if you've got a portfolio of 15 properties, for example, and you bought them all@JasonHartman.com properties because you are extremely wise, that was a good decision. I know, I know. It was, wasn't it? Anyway, if you do that every day, you keep those properties, you have chosen not to decide, but you still have made a choice. And I'm not saying it's a bad choice. I actually think that's almost always a good choice. Because every day you decided not to sell anything you own, you basically bought it back. Because if you choose not to decide, you still have made a choice. So if you don't sell an asset you have, you are essentially buying it. And where this bias. Now we're getting to the topic at hand, Jason. We're going to talk about bias. No, not in some politically correct, virtue signaling, social justice warrior stupid way. Because hey, most of those people are pretty stupid. Talk about the title of the James Dean movie just sums up these people. They are rebels without a cause. That's exactly. We have a whole world full of rebels without a cause. Sadly, they just are engaging in stuff and it's really not a cause. But they somehow have deluded themselves into Thinking it's a cause because they have these crazy biases that affect their mind, pollute their mind in so many ways. But we're not going to go into that. No, we're not. We're going to talk about investing biases. So if you choose not to decide, you still have made a choice. And here's where that really becomes a flaw. When someone has a property that is in an expensive cyclical market, and it's the story I use the example of because it was so true. In that little part of Newport Beach, California where I used to live called Corona del Mar, it was particularly true there a lot of little beach cottage type places. Balboa island would be another one where people have owned them for a long, long time. And they bought them decades ago for much lower prices. And they probably didn't refinance them, they just kept them. And as they kept them, the properties appreciated, they paid down the mortgages and they think, well, I'm getting $5,000 a month rental income and my mortgage payment is only $3,000 a month. Never mind, I have a million dollars equity in this property tied up, doing nothing, nada, zero, zip, zilch, nothing. Sleepy money, lazy money. And that is a bias. And it is a bias that is costing them a fortune. A fortune. Why is it costing them so much? Because it's money that is asleep. It's what I call lazy money. Sleepy money. Look, if you own a business or you manage people in a company and they're lazy, you want to get rid of them. You don't want a lazy employee. You don't want a team member who's not pulling their weight. If you're running a sports team, maybe you got a softball team that you, you know, that you're the captain of or something like that. You don't want players that are lazy, that won't work at it, that bring down the whole team. Okay, well, what is all this equity doing in a property? It's lazy. It's asleep. Like I've said, for what have I been teaching this principle for 17 years? There is a metric in real estate investing which is bogus. It is a faulty metric. What is that metric? Well, some of you know what I'm going to say and some do not. It is return on equity.

The reality is there is no return on equity. Well, you know there is and there isn't, okay? What I mean is that the property will appreciate by X amount of dollars regardless of how much equity you have in it. If you have 0 equity or 100% equity. It's going to do the same thing. It's going to go up or down. It's going to have the same amount of cash flow either way. I have yet in all these years, in the hundreds and hundreds, you know, I might be at over a thousand now. I don't know how many tenants I've had over the years in all my properties. And this is just my personal properties, not clients properties. Of course, that's many more. No tenant has ever asked me, gee, how much equity do you have in the property? How much is your mortgage payment? Because I want to make sure I can cover that for you and give you some positive cash flow, too. Nobody ever asked that question because they don't care. The property is the same property regardless of the amount of equity it has. This is a bias, and it's a fatal bias that really hurts investors. So I'm looking at a survey here, and this is from the CFA Institute. Okay. We've had several CFAs on the. On the show over the years, one, not the least of which is Dan Ammerman, one of my favorites. He was on the show again just recently. He's been on many times. He is a charter financial analyst. So this is from the CFA Institute, and it says which biases affect investing decisions the most? The herding bias, 34%. And that's being influenced by other people who are following trends. And it's the old saying that your parents probably asked you the question to make you think better. Well, if the group was jumping off a cliff, would you do it, too? Hopefully not. Don't be a sheep, okay? Don't just blindly follow the herd. But 34% of investors do this. They have that bias. How about this one? Confirmation bias? So we all have all these biases because we're social creatures and we're going to be influenced. And we have all sorts of things deep within our minds that just screw us up. Some of these things serve us. Some are ancient beliefs that are really in the firmware. So from thousands or millions of years ago, when the world was a very different place. And they're just programmed in. And some of those help us survive, and some really hurt us because we're in a different world. It would be like this one here. I'll give you. I'll give you one of my own. I'll call this one. Well, you could call it the conservatism bias, but it's not really that. It's a little different. I'm creating a new one right now. I'm going to call it the savings bias. Okay, so what is the savings bias that I just made up? I just made it up. Okay? If you hear some other loser copy me talking about this, remember, you heard it here first. You know, I have this one competitor that just knocks off all of my stuff, rips off everything I do. Oh, what a loser. What a weasel. That person may be listening. Hi, weasel. So the savings bias. This is the bias my grandparents had. And my mother has it, too, but to a lesser degree. Why? Because the grandparents grew up in the Great Depression. And in that world, when we were on the gold Standard prior to 1971 and then way back into the 30s, both of those things influenced them. Saving was a good deal. But savers have been decimated in this new world we live in since 1971. And by the way, I was watching Richard Nixon's speech just the other day. He Tricky Dicky, I am not a crook. That's what he used to say, right? Your president is not a crook. And Tricky Dicky Nixon, he said when he took us off the gold standard, when he closed the gold window, he said a key word. What was that keyword? He said the word temporarily. Well, it wasn't so temporary, was it, Tricky Dicky. No, it wasn't. Anyway, listen, I like Nixon. I think Nixon was a pretty awesome man. He got caught up in that little thing called Watergate, obviously, which was like the biggest scandal ever until that time. But it. If you look at today's scandals and you look at Slick Willy Bill Clinton, I mean, the Clintons. The criminal enterprise known as the Clintons. Wow. Oh, my God. Tricky Dicky was amateur hour compared to the Clintons.

And hey, I'm not being political. Trump has had a few scandals himself, but they're not like the Clintons. The Clintons are just, I mean, few. I don't know if anybody could match the Clintons and the level of scandal they have created. I don't want to say participated in, because they're like the creators of it. They're so bad. They're, you know, like the criminal known as Hillary Clinton. Okay, I digress. So confirmation bias, savings bias. So saving money is a bad deal, not a good deal. You got to invest money because the game has changed. But this old bias is still a program that runs, and people make mistakes because they have that old bias. Now, I'm not saying that capital formation is bad. Obviously, you need capital formation to grow and to be an investor. But once you save enough, then you need to convert that savings to investment. And so in our world, when you have about 20, $25,000, then it's time to be investing, not saving. Because if that money is in the bank and you're saving, you're actually losing. You're not saving. That word is so misleading. If you have savings bias, then you are losing. You're getting eaten alive by taxes and inflation and the profound impact of what didn't happen because you can't hear the dogs that don't bark. So if you're saving, it's not just that it taxes and inflation or hurting you with that savings bias, well, you're also losing the opportunity cost. See, what you should have is a bias toward directing your attention to opportunity cost. So there you go. I just created another one, opportunity cost bias. And I mean that in a positive way in the sense that if you understand opportunity cost, you'll never be the fool with that million dollars equity in that property in Corona del Mar. I used the example of a moment ago. And you'll never be the person with too much money in the bank and too little in investments, because not only did you lose by taxes and inflation attacking your savings, but you also lost the opportunity cost of what you would have earned had you invested that money. Well. And if you go to jasonhartman.com and you look in the properties section and you see those performas that show a return on investment, you know, look at, it's always a projection, but past performance is no guarantee of results. But what else can you go by? I mean, we've had many, many investors and you've heard many of them on the show, vastly outperform the returns of the performas listed on our website. Okay. You know, and those will list returns of in excess of 20% annually. Because income property is a multidimensional asset class. You're earning returns from all these different ways. And a lot of investors don't know how to do the math. They don't know how to keep score properly. And sometimes they think they're losing when they're actually winning because they simply don't know how to do the math. So very important not to have the savings bias or any bias like that. For example, how about this one? So we went over herding bias, confirmation bias. How about this one? Overconfidence bias. This is where the ego that can really serve us, by the way. I think the ego can be a very good thing. Most people bash the ego all the time because they just don't get it. If it wasn't for the ego progress, essentially wouldn't occur. Almost all progress is throughout history has been the result of an ego. Of an ego wanting to build something, create something, do something, change something. That's the ego at work in a very positive way. And if you want to study the ego, which is not all good, it certainly has its bad sides. On the good side, study Ayn Rand. Read Atlas Shrugged. Obviously, that's, I think, her magnum opus. That's her masterwork, Atlas shrugged. It's only 1200 pages, so it's a big undertaking. But you can see the movie. Okay. There are three parts to it. It's basically three movies. But if you want to read something small and easy by Ayn Rand, read a small book of essays called the Virtue of Selfishness. And interestingly, she says, why did I name it the Virtue of Selfishness? Because really, when you read the essays, it has very little to do with that. She said she named it that because she wanted the title to bother people. Yes, she wanted the title to bother people. But it is a great collection of essays, the Virtue of Selfishness. And the one essay that's really short in the virtue of selfishness that I would direct your attention to immediately is entitled the Monument Builders. The Monument Builders short, quick essay inside the Virtue of Selfishness by Ayn Rand. It's brilliant, and it really, really tells you the very visible difference between the United States of America and other countries that have lapsed into some degree of totalitarianism or socialism or communism. It's just amazing. Ayn Rand, a Russian Jew who immigrated to the US and just fell in love with it, because it really is a pretty great country. And by the way, US listeners, Happy Fourth of July. We just celebrated that a couple days ago. To everybody around the world, Happy 4th of July. Even though you may not celebrate it, that was a pretty important point in world history because those founding fathers of the U.S. you know, they certainly weren't perfect, but those evil, old, white religious men, they did a pretty good job. I don't know how we've got this whole generation of people that hate America, but they're just stupid. Yeah. Really just ungrateful people. So that's that. So overconfidence, bias, overestimating skills and accuracy. Okay, so that's the ego on the bad side. Now, by the way, I said the books you should read for the ego on the good side. Let me tell you the books you should read for the ego on the bad side, okay? A very small, easy book by Gerald Jampolsky called Love Is Letting Go of Fear. It's Incredible. Really incredible. But here's what it's based on. And I read that book many, many years ago. Decades ago, actually. It's great, great book. And it shows the downside of the ego. What it's based on, though, is a brilliant, longer book. And I don't want to make this seem like it's a religious thing, because it's really not. Although this book I'm about to mention has a. I don't know if it's a religious overtone. Yeah, it is. It's a religious overtone. But it's called A Course in Miracles. And I just encourage you to read it as a. As an academic person. Okay. Because it is pretty. There's a lot of brilliance in that book, A Course in Miracles, but just a little short, quick book. Love is Letting Go of Fear. Phenomenal. It's about relationships and how we relate to each other, but it really tells you a lot about how your ego does get in the way and how it influences you. So the ego, good and bad. It's not good or bad. It's good and bad. Something that needs to be managed so it can do its best thing. Okay, how about this one? Availability bias. Judging outcomes by past experiences of similar occurrences or outcomes. So what is available to us? Well, we're going to be influenced by that, because what's not available, we're not going to pay much attention to it. If the opportunity to get into some investment is not available to you, then you're not going to really consider it. And thankfully, real estate income property is the most democratic investment in the world. Almost everybody can do it and almost everybody loves it because it's. It's the best thing going. It's the most historically proven asset class in the entire world, as some brilliant guy always says, one who has his ego under control.

I thought you'd enjoy that. Okay, so anyway, loss aversion. Now this is. This is a good one. This is a good one. Disliking losses more than liking gains. And that is a bias we all have. It's in our firmware and it really, really hurts us. And you see all the time these examples of extremely successful people whose judgment is not clouded by these biases, by them knowing they exist and managing them, okay? So that they don't have these irrational assumptions or beliefs that just warp their behavior and help them make bad decisions that are not based on evidence, not based on facts, not based on reality. And they understand that these biases are conscious, but a lot of them are unconscious. So they're under the surface. Look, the iceberg, the thing that destroyed the Titanic, most of it is what it's underwater. You only see a little bit of it. That's our conscious versus our subconscious mind. It's like that iceberg. Understand that? But doing more to protect what you have versus the opportunity for gain of something else that is costing you a fortune. That is an expensive bias. Okay, that loss aversion bias. So make sure you control that one, the conservatism. So will you do more to protect what you already have, or will you do more to gain something greater than you already have? This is probably the one that just ruins people. It is the possibly one of the most damaging of these biases. I'd say that one in confirmation bias, loss aversion and confirmation bias, those are probably a couple of the maybe most common or most destructive for investors. Now, we don't have a lot of time, but there's a lot more because I went down the rabbit hole on this when I was thinking, what am I going to do for episode 1500? And we've got some 10th episodes in the can that we're ready to publish for you. But, you know, I just thought this one was special and I thought, I want to talk to you myself. So that's what I did. So I went down the rabbit hole. I was all over Wikipedia, I was all over the Internet looking at stuff. And there are so many of these, it's amazing. But they can largely be categorized into two types. The cognitive type of bias and the emotional type of bias. And those display themselves differently. So maybe we'll talk about this stuff in a future episode. Here's another one I think is pretty important, and it's called the endowment bias. Oh, by the way, did I finish the graph? So loss aversion bias affects 13% of investors. Remember, this is self reporting. So the reality is there's a bias, right? There's a bias about reporting the bias. Just to finish up on the graph, the hurting bias, 34% influences our decisions. Confirmation bias, 20%, overconfidence bias, 17% and availability bias, 15%. Loss aversion, 13%. I don't know about that because I'd say loss aversion is way up there. Herding is definitely up there too. And that is their number one bias. But that's just one survey and it's biased. Okay, but endowment bias, I think is pretty significant. Why is that? Well, think of an endowment, right? What is an endowment? No, it's not the ripoff endowment that these universities have. Like The Harvard Endowment. How is it that these universities get government aid either directly or through government insured loans, when they are so freaking rich and they are ripping students off like crazy? I'm not just picking on Harvard. I'm picking on all of them. But Harvard is the biggest, I believe. I mean, it's just ridiculous. Why do these universities need these big endowments? It's.

The university government debt enslavement complex. One of the bigger scams to be perpetrated on humanity, or at least us humanity. All right, all right. Okay. So endowment bias. Think of an endowment. It's essentially what you already have. So you have this endowment, and an investor will be led to overestimate the value of an investment simply because they made a decision at one time to purchase it. They made a decision to invest in it. So they think it's the thing. So they bought that stock or that bond fund and they think, oh, you know, if it's not going well, the market is just wrong. And you know the saying about that. The market can remain irrational a lot longer than you can remain solvent. So endowment bias can be a pretty tricky one, and that can really, really hurt you. So the thing to do here is to know that we all have these. We all have these. Some are conscious. Most are unconscious. They're directing our decisions, our actions, our words, our thoughts, our deeds. And they are hurting us. Many times not helping us. Sometimes they help us, but most of the time especially because we're unaware of them, a lot of times, they are hurting us. They cause us to make irrational decisions. They cause us to sell a property or a stock that might be better off, something better off kept. Okay? They cause us to not look at the math, but just to look at a problem that is proximate, that's right in front of us. So how does this happen with income property? You get an email and your property manager or your tenant tells you, oh, my God, the air conditioning broke or the dishwasher broke or the garbage disposal broke. And you think, I'm so sick of this. It feels like someone's chipping away at me all the time. Well, hey, guess what, folks? That's the way life is. People are always chipping away at you in every which way. Under the sun. Your spouse or significant other is nagging you, trying to get you to do something you don't want to do. They got the honeydew list. They're bugging you about this or that. Your kids are pulling at you, your employees are pulling at you. Your boss is nagging you or giving you a hard time about something. Folks, this is life. It's life. Deal with it. Okay? It happens with properties, it happens with tenants. It happens with everything in the criminal enterprise, the modern version of organized crime known as Wall Street. It's happening all the time behind the scenes. You just only see the final number, which usually stinks. And I know what you're going to say. You're going to say, well, Jason, sometimes stocks go up and sometimes I do really well with my Wall street portfolio. Yeah, but do you have opportunity cost bias? In a good way, yeah. Did you ask yourself, compared to what? Hey, that's a new one. Let's have the. Compare to what Bias. Let's have the dogs that don't bark bias. Can't hear the dogs that don't bark because what else didn't happen? Okay, so your stocks went up by 15%. Good for you. Great. But how did that compare to the property you could have bought with that money that would have had an ROI on it of 22%?

Yeah. How did that compare? Not that great. So there you go. We all get that we have biases. So what do we do about it? Well, one thing that can really keep us safe from whatever bias we have, and we have many of them, is to simply use what I learned to use when I was learning to fly an airplane. Yes, I. For those of you who don't know, many of you do, I was taking flying lessons many, many years ago. And I just love aviation. When I was a kid, you know, I would ride my bike to Santa Monica Airport, which is a small airport in la, in the people's. The Socialist Republic of Santa Monica, the Communist Republic of Santa Monica. I would ride my bike over there, which, by the way, was a rather long distance. You know, when I was a kid, I used to ride my bike everywhere. I used to take taxis. I used to do all kinds of stuff on my own. I used to take the bus. Okay. Helicopter, parents. Maybe your kids won't die if they do something without you carting them around everywhere. Just a thought. Just a thought.

I don't know. Whatever. I think it's good to be. Give your kids some independence. Let them do some stuff for themselves. I think it was good for me anyway. I was a latchkey kid. I just went wherever I want. Availed myself of all the transportation. The bus, you know, the blue bus. That's what it was called, the blue bus. Or then there was the rtd, the yellow buses, they had those, too. And you'd get in and you know, put a quarter in the thing and go sit there with a bunch of strangers and, you know, wonder if any of them were going to kill you. Okay. And we used to take the bus to the beach. I do go alone. I do it with friends. You know, we'd ride our bikes everywhere. I'd ride my bike alone. I'd ride my bike with friends all over the place. I rode my bike from Mar Vista to Century City, if you know where that is, to Westwood to the beach in Santa Monica, all over the place. And I used to ride my bike to the Santa Monica airport to watch the planes take off and land. I just love airplanes for some reason. I don't know why. Just a thing. It's a bias. So what do they have when you are learning to fly? Well, you have this thing, it's called a kneeboard. And all of you pilots know what I'm talking about here. So you have a knee board and, you know, it's got like a little Velcro strap and you strap it around your leg and it's there. And what does it have on it? It has your checklist. Your checklist. And no matter how experienced you are, you use a checklist because if you forget something, it's life or death. And pilots always use checklists. And I hear that doctors do this too, which is great. Go. Before we sew the patient up, let's make sure we didn't leave anything inside, like a sponge or an instrument or something, you know, that would be bad. So let's go through the checklist. Okay. And there's a book which I didn't read, but I think it's interesting. I started to and got bored. And it's called the Checklist Manifesto. Very popular book with some people. I have not read it. Can't tell you much. But the idea of a checklist is a good idea to manage the bias. That's a good idea to manage the bias. So we are going to come up with a checklist for you. And maybe, just maybe, we'll have it done in time for our upcoming Meet the Masters of income property event. 22nd anniversary meet the Masters of Income Property event. And where is it located? It's virtual. So any of you from anywhere in the world can attend. I know you folks have flown in from Australia, from South Africa, from Europe, from the Middle east, from Asia, and you've flown into our events. This time you don't have to fly. So it's online, our first virtual event. And we're super excited. A whole bunch of you have been buying tickets. So thank you for getting your tickets in and you can go to jason hartman.com masters grab your tickets for that and hopefully we'll have this checklist finished. And we are working very diligently. I got a whole team of people working on this, by the way, to launch two, not one, but two really awesome things at this upcoming Meet the Masters. So stay tuned for that. But go get your tickets today. Jasonhartman.com masters and until tomorrow, manage, recognize and manage any bias you have. Think about them, look it up, do a little research on it. I'll have more maybe in some future episodes because I think this is a really important topic. And thank you for listening to episode 1500 today and until tomorrow. Happy investing.

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