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Mike Stohler: Hey everybody.
Welcome back to another episode

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of The Richer Geek Podcast.
Today we have Mark Hebner, he is

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the Founder and CEO of Index
Fund Advisors, Inc. , is on a

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mission to change the way the
world invest by replacing

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speculation with education. And
actually the investing company,

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Acorns was inspired by his
methodology. How're you doing,

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bud?

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Mark Hebner: Acorns.

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Mike Stohler: Acorns.Yeah.

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Mark Hebner: Yeah. Acorns is an
app that helps people kind of

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save and invest.

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Mike Stohler: So we're going to
get into a little bit of what we

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think the stock market is, and
the traditional advisors tell us

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to believe, give us a little bit
about your background, how you

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got started and where you're at
now?

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Mark Hebner: Sure, so I started
this company 25 years ago, on

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March 5th of 2024, it would be
25 years. We'd been planning our

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big celebration of that. I
started with the idea that most

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of my friends and relatives had
been essentially gambling in the

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market. And we're not aware that
a passively managed index fund

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actually does better on a
risk-adjusted cost, adjusted

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basis than people sort of
gambling among different types

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of stocks. So you have to
benchmark their performance. If

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they're buying large stocks,
gambling and the S&P 500 stocks,

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then you compare that to the S&P
500. If they're buying

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technology, stocks, you want to
compare it to NASDAQ and

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different benchmarks out there
that are available. And most

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people didn't really understand,
and probably even today, don't

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understand this concept of
benchmarking their returns

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against an alternative
investment, which would be these

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passively managed index based
funds. So anyway, so we started

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25 years ago, we were really an
internet-based investment

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advisory business with
investment advisors on the phone

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and doing webcasts, way back
then and 1999. We were trying to

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do that with clients. We had all
the tools, but most clients

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didn't. But after COVID, it
works great now, because

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everybody knows how to use Zoom.
Anyway, we started basically

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with zero and today we have 5
billion in assets under

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management as of the year end of
2023. We've obtained about, I

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don't know, 2400 clients, and
help them manage their wealth in

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what we like to call the most
optimized way that's optimized

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between the risks they take and
the return they expect to earn.

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Did it help you?

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Mike Stohler: Yeah, it does.
You're speaking about index

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funds. What is an index fund,
compared to all the other stuff

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that you can do out there?

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Mark Hebner: Sure. The most
famous of them is the S&P 500

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fund, though, there's 500
stocks. And when you invest in

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them, they put the most money of
your investment in the largest

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company, they call it a market
cap weighted index based on the

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market capitalization of a
stock. So Apple, Microsoft are

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going to get the most amount of
money of all the of your

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investment, maybe it's I don't
even know what it is today, five

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6% goes into those stocks, and
then it goes down. And so the

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smallest company in the S&P 500
gets the least amount. But

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that's just one index. I think
there's literally hundreds of

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1000s of indexes today. If you
look at all the different

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companies doing index creation,
and there's even indexes created

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by academics, they call them
research indexes. Among the most

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famous there are a couple of
guys, Eugene Fama and Kenneth

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French, they're the Fama French
indexes. And they slice up the

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market to value companies and
growt h companies and large

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companies, small companies, and
they do that international us

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emerging market. So there's all
kinds of ways you can slice and

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dice markets. But I like to say
an index fund is a set of rules

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of ownership that are held
constant, regardless of the

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market condition. That last part
is the hard part for people.

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They think, oh my gosh, it's
2008 2009 I've got to change my

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investment strategy, something
went wrong with the market, what

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have you and or whatever it
might be COVID, you know, and

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March of 2020 market takes a big
dump people get scared want to

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sell, but you don't want to do
that you want to basically bear

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the risk to capture the return.
That's what returns are tied to

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it's basically the risk you
expose your assets to.

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Mike Stohler: Do you feel that
the index is probably the most

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cautious part instead of going
out on your own or saying "Hey,

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you know this EV stock kind of
tanked today."

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Why not put some money into it?
Should we diversify some of

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that? Or just say, you know
what? The S&P, this index,

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they've given you 10 plus
percent? Just stick with what

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you know.

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Mark Hebner: I think the
beginning of your question had

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to do with the risk of them,
right?

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Mike Stohler: Yeah.

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Mike Stohler: Yeah, that does
make sense. And that's probably

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Mark Hebner: So risk can be
quantified with basically the

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variability of the return of
that investment over some

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reasonably long period of time.
And if you look at the risk of

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one stock, versus the risk of
500 stocks, it's a little more

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than double. Okay, so what that
means is the ranges of outcomes,

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both on the negative and the
positive side, are twice as much

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as you would expect from owning
500 stocks. So from that

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perspective, it's less risky.
But here's the key, the expected

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return of one stock is the same
as the expected return of all

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500 together. And that's because
on average, those 500 stocks

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earn that 10% a year, and you
just don't know people think

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they know, but you don't know
which stock is going to get 100%

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return or go bust. Okay. So this
is a Nobel Prize for Harry

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Markowitz, that the expected
return of one stock and 500

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stocks is both 10% a year. But
when you buy all 500, you

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basically double the certainty
of getting that return. And they

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call that the only free lunch in
investing, because you've

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improved your expectation of
getting that return by diversifying.

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why it's big news when a stock
falls out of the S&P or a

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company, because now they're not
part of that index. I know,

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Tesla goes in and out in and
out, as just one example. And

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other big companies fall in and
out, is that why it's such a big

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deal, all of a sudden, they're
not available in those big

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indexes anymore?

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Mark Hebner: It can be a big
deal to those individual stocks.

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But I wouldn't say over the long
term, that's a short term, maybe

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opportunity to kind of gamble on
those. But you'd have to be so

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careful, that price adjusts
immediately, that the

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information is known to traders,
this is a real problem for

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investors is they read news, and
they haven't quite appreciated

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the fact. But by the time
they've read it, the price is

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already adjusted to it. And so
you're too late, virtually all

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the time is the way you should
at least perceive it. The

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probability that you know,
something that's not already

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embedded in the stock price is
virtually zero.

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Mike Stohler: Yeah.

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Mark Hebner: The goal of most
investors is to discover a

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security that's undervalued or
overvalued. If it's undervalued,

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that means, you know, the market
hasn't quite appreciated what

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you know, then you should back
up the truck and load up on

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those stocks. And if it's
overvalued, you shouldn't be

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selling them and getting them
out. But the real problem is,

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instead of that all securities
are fairly valued all the time.

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And why is that because we have
10 million traders, half of them

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buyers, half of them, the
sellers, they're trading 10

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billion shares a day, at through
this huge processing machine, if

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you will, of all these sub 40
publicly traded markets all over

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the world, we arrive at the fair
market value of all of these

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securities virtually all the
time. And so you should just

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give up on this idea of
speculating on mispriced

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securities, and just accept them
as being the fair price. And

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instead of having speculation as
the reason for your return.

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Think of it as basically
capturing the cost of capital of

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those firms. That's a little bit
difficult. But every person who

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gets capital has some costs
something they have to give up

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to get that cash, right. And all
sellers of securities give up

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their future return. If I sell
you Tesla today, I think "Oh,

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maybe in the next 12 months,
it's going to make 10%." And so

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I want to price that free
compensates me for the

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probability of getting that 10%.
That's what investing is about

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is it's basically capturing the
cost of capital of the seller of

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whatever security you're buying.
But the other way you can think

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about this, as you just said,
10% for 95 years now, those

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large companies have earned
about, it's about 9.8, I think

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percent per year for 95 years,
that should tell you something,

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but if you invested in smaller
companies, those are riskier,

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have higher cost of capital,
it's more like 12%. And then if

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you look at value companies,
it's also in that 12, maybe a

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little excess, and these numbers
are all based on indexes. You

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know, we have indexes for that
long for a period of time,

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that's the other reason to use
an index is you have more data

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about the risks and returns of
those stocks that have those

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characteristics. They're large,
they're small, their value their

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growth.

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Mike Stohler: Yeah. What do you
say about you know, some of us

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have been burned by our brokers,
because they get perhaps,

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something on the front something
that they steer you. How does

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that work? And what are some of
the tactics that you know, I

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love this little blurb that you
have? It's, they have tactics

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that are cleverly designed to
make your broker rich, and not

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you.

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Mark Hebner: Exactly. As in most
business transactions, you want

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to follow the money, okay? How
is somebody else making money

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off of you. And in the brokerage
business, their model is to make

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money on transactions almost in
all cases, it's a transactional

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business, right? We call that
the broker deal dealer world,

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there's another classification
of investment advice through

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registered investment advisors,
and registered investment

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advisors have a fiduciary duty,
while brokers don't one's

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regulated by FINRA and one's
regulated by the SEC. But the

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way you get around that, is you
work with an advisor who just

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takes a percentage of your
assets. So they're not motivated

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to get you to trade, or get you
all emotionally excited about

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buying or selling, and basically
creating transactions. The short

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answer, I hate to say it, but
brokers are not the best place

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for investors because they
encourage this trading. And

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we've now through all this
research that I've mentioned to

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you, we've concluded that the
more you trade, the worse off

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you are not the better off you
are. We'd like to say, you know,

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why they call brokers is when
they're done with you, your

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broker?

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Mike Stohler: Well, I haven't
heard that one. That's very

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true. For instance, I remember
back in the day, I wanted to

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spend x amount of 10s of 1000s
of dollars on gold when it was

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$100 announced. Sure, and the
guy goes, no, no, no, there's a

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fund out there, or there's a
something American fund that has

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gold mines. And that's what they
want to do, instead of put money

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on gold, because he got 5% on
the front, he got whatever on

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the back.

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Mark Hebner: Right.

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Mike Stohler: And I missed out
on gold being $100 an ounce, you

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know, so that's sort of the
cleverly designed stuff that...

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Mark Hebner: I want to just give
you a few seconds. I know we're

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running short on time about gold
and virtually all commodities,

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okay. The value of a company is
basically the present value of

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their future earnings. Gold has
no earnings, a Bitcoin has no

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earnings, all commodities are
not profit generating

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investments, okay. So their
value just as a speculation,

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based on future supply and
demand, which really, nobody

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knows, I mean, this whole thing
about 21 million Bitcoins, and

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you know, the bid demands gotta
go up, and blah, blah, blah. But

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there's really no foundational
earnings tied to any of these

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commodities, I would avoid them
like the plague. I've got the

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data right here, the long term
return of gold is about 4%,

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which is about the same as
inflation, except for gold has

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this huge volatility of about
18% standard deviation, that's a

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measure of risk. That's one of
the things that investors want

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to try to pay attention to. They
want to see how much return

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they're getting for the risk,
they're exposing their assets

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to. And that's the Nobel Prize
for this guy named Harry

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Markowitz. He went back and
looked at the returns and the

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basically the variability of
return the uncertainty of

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return. And when you do that, it
gives you a set of investments

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that have maximize the return
given the risk, historically

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speaking, and if you have a
really large sample size, I'd

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say 30, 40, 50 years, then that
gives you a better estimate of

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what you could anticipate
literally every year going

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forward. That's the application
of statistics to the market. And

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statistics works as long as
these prices are fair, so that

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there's not opportunities to
sort of outsmart the market. And

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that's basically what we've
concluded. And that's all in my

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book, Index Funds. And we call
it The 12-Step Recovery Program

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for Active Investors because
that's sort of modeled after

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gamblers anonymous, they
actually have a brochure about

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stock market gamblers. And so I
just kind of use it as a rough

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framework for the design of my
book and providing this

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education so that people will
not engage in speculation, as

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you said at the front.

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Mike Stohler: Yeah, so let's
talk about that. I never thought

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about this, that there are
people out there that are day

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trading and they can't get off
the computer. That's right and

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If it's almost like playing
poker or going to the casino.

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Mark Hebner: It is like, it's
not almost it is the same.

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Mike Stohler: It is the same. So
it's just another, it's money.

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Right? So this is the 10th
edition of the 20th anniversary

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of your book Index Funds: The
12-Step Recovery Program for

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Active Investors. Let's talk a
little bit about that. And

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what's in it, how do you even
say, "Hey, yeah, I'm an addict."

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Mark Hebner: So we actually have
a list of things. And this is

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what actually gamblers anonymous
does. Also, I think they have 10

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items, 10 things that would give
you an indication that maybe you

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have a some level of addiction
to gambling. And it's things

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like as the first thing you
think about in the morning, is

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where's Tesla stock going to be
the day, and I should run to my

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computer and still look at the
charts from the last three days

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is or last three hours, and
tried to decide what I should be

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doing. And are your thoughts
consumed with the market, as you

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mentioned, these day traders, I
guarantee you, a large

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percentage of their thinking is
dedicated to the next trade. And

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there is the real of the big
return. And the regret of the

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loss that is constantly nagging
at them. Gamblers anonymous,

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calls each trade an action. And
it's like a hit of adrenaline,

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when they actually make this
decision to buy to sell. This is

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what is the addiction, like it
is for drugs, and smoking and

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alcohol, so many other things.
It's basically becomes

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addictive. As you said, very few
people recognize that as an

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aspect of investing. But I
assure you it is there's there's

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been brain studies where addicts
have been shown cocaine, and

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then they've been shown a way to
get rich quick, this is the real

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issue here, people think they're
going to cheat risk, and get

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rich really quick instead of
slow. Basically, money comes

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slowly, it doesn't come fast.
And so what that does is it

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lights up the same component,
same areas of our brain, that

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are tied to our addictive
behaviors. My book covers all of

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these in step one about
basically, are you an active

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investor. And then in the
traditional 12 steps, they want

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to come up with something that
will be more important to you

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than your addiction, right. And
so traditionally, they come up

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with some god or some religion
that gets you away from your

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addiction. And what occurred to
me is the academics and in

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particular, those who won Nobel
Prizes, for their work on how

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investing works should be your
investing gods, not just

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somebody who had a great return
last year or last three years or

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whatever, what you want to see
is independent, peer reviewed

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empirical research. And in
particular, that research that

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was so good, a bunch of other
academics voted on it to get the

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Nobel Prize. And that's what my
step two is about, we list all

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these various Nobel prizes that
lead to this basically a

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portfolio of index funds type of
strategy for investing.

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Mike Stohler: So instead of
saying, "Stop doing this," and

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maybe stop doing the daily
trading and things like that,

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you try to get them to change
their mindset and say, hey,

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look, you can still invest, but
do it the smart way. Do it the

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proven way, is that correct?

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Mark Hebner: That's right. I
like to think of it as given

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them an education, you know,
just like anytime you go to

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school, you might walk into some
class with some preconceived

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notions about a topic. But then
as the professor starts laying

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out the facts for you, you're
going Oh, okay. I mean, you

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might think of it as a doctor or
a lawyer, you know, anything

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like that, where there's a
certain expertise to be known.

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In investing, there is a huge
body of research and academic

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papers that I almost guarantee
you very few investors paid any

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attention to. So I mentioned a
couple of Nobel Prizes for you.

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Some of them have to do with
this risk of return. The other

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Nobel Prize I talked about with
where the prices are fair, and a

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third Nobel Prize. Well, it's
actually a component of prices

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being fair, but small companies
have done better than large and

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values done better than growth.
There's a lot of Nobel prizes

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have been thrown around here
that people basically aren't

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aware of. And once they know
these ideas, have that sort of

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Nobel seal on them, then maybe
they'll pay a little more

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attention to them, as opposed to
their broker who probably didn't

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even graduate from college. I
hate to say this doesn't take a

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lot to get a brokerage license,
they send you to a review

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course. And then you take a test
and you're out giving an

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investment advice to people.
It's kind of scary.

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Mike Stohler: Yeah, it is scary.
You know, every time I walk into

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my bank, there's a 27 year old
kid say, "Hey, you know, yeah,

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00:20:15,050 --> 00:20:18,350
let me talk to you about
retirement fund 2036 or

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00:20:18,350 --> 00:20:21,890
something like that." And I'm
like, "No, that's okay."

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Mark Hebner: Because you need
some help. Mike, you can call

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me.

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Mike Stohler: There you go. I
appreciate it.  Everybody, we're

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00:20:28,600 --> 00:20:32,560
talking about book Index Funds:
The 12-Step Recovery Program for

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00:20:32,560 --> 00:20:38,410
Active Investors, and Mark
Hebner. So what do you see Mark?

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We're in an election year.

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Mark Hebner: Yep.

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Mike Stohler: The stocks always
respond, usually, this time of

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year, are people going to be
relieved? Or do you still see

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some volatility? What do you see
2024? And then maybe the end of

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2024 to 2025? What are your
thoughts?

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Mark Hebner: So listen
carefully. Nobody knows,

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including me.

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Mike Stohler: Good answer.

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Mark Hebner: Stocks follow
basically a normal bell curves

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and their monthly returns. And
the reason is, those forecasts

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that you just said, are all in
the minds of the 10 million

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traders today. They're all
thinking about that. And as they

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go to place their trades, they
embed their knowledge, the

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00:21:26,110 --> 00:21:31,420
current surveys, and the polls
of all the experts or whatever,

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all the things that they know,
one group of people think that's

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a buy and other group, people
think it's a sell. And they kind

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of go almost negotiate to get to
the just the fair price, given

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all that information. So you
know, it's kind of interesting,

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when you look back over time,
the returns of the market are

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almost precisely the same for
Democrats as they are for

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Republicans. And I've know both
sides might like to say, hey,

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the market is going to do better
under this or that. But just

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like I told you before, this
news and information gets

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embedded in the price so
quickly, it's too late for you

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to benefit based on your idea or
your forecast. Yeah, we used to

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joke that people would read the
Wall Street Journal as if they

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were the only ones reading it.
And then they would go and place

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their trades. First of all, by
the time it's getting printed in

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the Wall Street Journal, it's
really old. It's the Bloomberg

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Terminal. And that's why Michael
Bloomberg is so wealthy, that

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scrolls that news for the whole
world through all these

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Bloomberg terminals all at the
same second. And even there,

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half the people think it's a
buyer and have them think it's a

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sell, and they come together and
come up with a fair price. So

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the answer is, and let me just
add the record of these

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forecasters are horrible. Who
monitors these forecasts of all

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these people walking across the
stage on CNBC? They ought to

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introduce that. Okay, what's
been your accuracy over the last

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100? Forecast? Okay, well, I can
tell you, it's pretty low. The

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accuracy needed is 74%. And
there is no long term record

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like 100 forecasts or more that
exceeds 74%. Let me explain that

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really quick. Because that 10%
return you mentioned. Turns out

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it's only about three or four
days a year that make up that

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10%. So a big day is like two
and a half 3%. Right? So let's

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just say it's two and a half,
four of those big equal your 10%

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return. So if you weren't there
weren't invested when those big

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days came along, then you missed
out on your 10%. And this is why

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it's so difficult to forecast in
a way that would allow you to do

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better than just buying and
holding that is sort of the

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benchmark, if you will, the buy
and hold index have a similar

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risk. All speculators should
hold themselves accountable to

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that, but they don't.

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Mike Stohler: Yeah, that's
fascinating, you know, hearing

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it that way, because it's the
same thing in real estate by the

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time it gets to an MLS or
listing.

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Mark Hebner: Right.

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Mike Stohler: No one else wants
it. Because all the big guys

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turned it down. And now that you
get to see it.

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Mark Hebner: I mean, they're the
whole pocket listing, right,

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they get right in there. There's
phone calls made before it even

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gets in there. They put it on
there for we might call the

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newbies.

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Right.

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Mike Stohler: Exactly. That's
exactly. Let's give it a shot.

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Mark, it's been a pleasure
having you on where can people

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find you? What's the website's
LinkedIn?

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00:24:42,630 --> 00:24:45,417
Mark Hebner: So the websites
ifa.com That's india, frank,

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00:24:45,481 --> 00:24:49,282
alpha dot com. It stands for
Index Fund Advisors. And all of

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00:24:49,346 --> 00:24:52,831
our information is there. We
have incredible charts and

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00:24:52,894 --> 00:24:56,379
videos and articles that were
considered one of the top

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00:24:56,442 --> 00:25:00,371
resources for investing I would
say in the world are what I'll

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call proper investing, and not
speculation. And hopefully, your

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listeners will be sobered up by
this information. So you don't

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want to continue to gamble in
the market, like they are

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probably doing now I guess you
have a lot of tech listeners, I

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00:25:16,021 --> 00:25:19,823
think you might have said. So
you know, those people like to

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maybe gamble within their
industry. But I can assure you,

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even though they work in those
companies, all the analysts and

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00:25:27,553 --> 00:25:30,974
all the other people that are
trading those securities

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00:25:31,037 --> 00:25:34,966
combined, are going to know more
than you. So let it go. So we

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00:25:35,029 --> 00:25:38,577
have a little questionnaire. So
what do you do with your

404
00:25:38,641 --> 00:25:42,126
investment, you take this
questionnaire to find out how

405
00:25:42,189 --> 00:25:45,927
much risk is right for you. And
then there's a portfolio of

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00:25:45,991 --> 00:25:49,856
index funds that we show on our
website, that we can now show

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00:25:49,919 --> 00:25:53,531
historic data for 95 years
because there are indexes. And

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00:25:53,594 --> 00:25:57,206
that's all spelled out my 12
steps to in my book. There's

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00:25:57,269 --> 00:26:00,944
also an audio book, which is
kind of nice. I know a lot of

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00:26:01,007 --> 00:26:04,936
tech listeners are probably more
into an audio book, just like

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00:26:04,999 --> 00:26:09,054
they might be listening to this
podcast, right. And those with a

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00:26:09,117 --> 00:26:13,046
Kindle or any device pretty much
can do a Kindle, you can also

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00:26:13,109 --> 00:26:13,680
get that.

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00:26:13,690 --> 00:26:15,700
Mike Stohler: Well, there you
go. Well, thank you Mark. And

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00:26:15,790 --> 00:26:21,610
again, everybody it is Mark
Hebner, ifa.com His book, go to

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00:26:21,610 --> 00:26:27,070
Amazon, and it's Index Funds:
The 12-Step Recovery Program for

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00:26:27,070 --> 00:26:30,310
Active Investors. Mark, it's
been a pleasure having you on

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00:26:30,310 --> 00:26:32,950
The Richer Geek Podcast. Have a
wonderful day.

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00:26:32,980 --> 00:26:35,350
Mark Hebner: Yeah. You're doing
good work there, Mike. Thank

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00:26:35,350 --> 00:26:35,620
you.

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Mike Stohler: Thank you.