Earl Jordan Yaokasin on How to Achieve Financial Independence
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With over two decades of experience in the financial industry, Earl Jordan Yaokasin, CFA, has built a reputation as a trusted wealth architect through his firm, WealthArch Investment Services, based in Pasadena, California. This independent investment firm has been delivering exceptional service to its clients for more than a decade, and this interview with Earl Jordan will bring you a wealth of insights into how the financial world works.
In this article
The birth of WealthArch
Joy Wallet: What inspired you to start WealthArch Investment Services?
Earl Jordan: Early in my investing career, I was so surprised that very few wealth management companies embraced Warren Buffett’s investment philosophy. So, I started my own firm to invest the way I wanted to and not be tied to someone else’s investment philosophy.
At my previous employer, my personal portfolio outperformed the portfolio managers and analysts that I worked with, so I wanted to give others the opportunity to invest alongside me. I wanted to give others a different option for investing in stocks — a less risky way.
- Highly competitive rates
- FDIC insured
- No monthly or hidden fees
Key strategies to minimize portfolio volatility
Joy Wallet: What key strategies do you use to minimize portfolio volatility?
Earl Jordan: I use two strategies. First, I only invest in stocks that have a margin of safety. In other words, I only invest in stocks that are undervalued. That usually gives the portfolio less volatility. However, it is important to note that I don’t shy away from short-term volatility but focus on minimizing the chance of permanent losses. Risk and volatility are not necessarily the same.
Second, if there is nothing attractive to me, I am not afraid to hold large amounts of cash. This minimized volatility during the start of COVID-19 in March 2020 and also during the recent correction in 2022. For me, cash isn’t an active decision but rather a residual outcome depending on the opportunities I see in the market.
Stock selection
Earl Jordan: My favorite stocks to begin thoroughly analyzing come from two places. The first is when I hear or see a stock drop significantly. The second is when an investor I respect invests in a new stock or adds to an existing position.
Investing 101
Joy Wallet: What advice do you have for beginners looking to start investing?
Earl Jordan: I recommend they read The Warren Buffett Way by Robert Hagstrom. I wrote a blog post titled 8 Steps to Becoming a Great Stock Investor, which also contains good advice.
Achieving financial independence
Joy Wallet: How do you help clients achieve financial independence?
Earl Jordan: There are many financial professionals who start by creating a plan, but that plan is useless unless the investment execution is done well.
At WealthArch, we focus on investment execution and regularly review our clients’ financial situations and goals. We compare various projections for their net worth and make adjustments when needed so that they will be on track for financial independence. We don’t need to charge thousands of dollars to come up with a 100-page, glamourous, hard-bound document to tell if our clients are on track to retire at the age they want to.
Building trust with clients
Joy Wallet: What steps do you take to ensure transparency with your clients?
Earl Jordan: WealthArch is quite unique in this regard. I write many investment reports, from updates after quarterly earnings releases to details behind every material trade I make and my thoughts on various macro events. What makes our approach to transparency unique is that due to my obsession with investing, I typically write a high-quality, detailed report within 24 hours of an event occurring.
I was actually on vacation recently, and I told my clients that my reports could be a week late, but I stayed up late and woke up early to finish these reports within 24 hours of the event. I can't stop myself from needing to analyze these earnings reports as soon as possible because 100% of my investable net worth is in the same investments as my clients’.
Success in action
Earl Jordan: In my earlier years, I was only patient when buying. I would wait for a very long time until there was some kind of panic or a major worry for a stock or sector, and then I would buy a stock that declined more than what I thought it deserved. It was the selling aspect that tested my patience. When the stock price rose to my intrinsic value calculation, I would sell it. Years later, I saw that most of the stocks I sold had gone much higher than I ever expected. In other words, my biggest mistakes didn’t come from losing money but from selling winners too soon.
After almost two decades of being so mathematically rigid, I tweaked the strategy. I now hold certain companies that have strong, long-term competitive advantages and a high potential for compounding profits, even if they may occasionally go above my intrinsic value estimate.
For example, a very well-known media stock dropped from a high of around $690 in Oct 2021 to below $200 in 2022. I purchased some shares at around $222, then at $200, then in the $170s. Had I not changed my strategy, I would have started selling the stock above $300. The shares are now around $600.
Risk management
Joy Wallet: How do you manage risks during market downturns?
Earl Jordan: The best way to actually manage risk is to know all your investments deeply before the downturn comes (because it eventually does). I like to stress-test all of them and imagine how the companies and their stock prices will do when a major recession happens, like the financial crisis in 2008. Will they survive? How did they do in 2008?
When you know your investments well, you know which ones you can add to at cheaper prices and which you shouldn’t blindly average down. The work begins during the good times and intensifies when the downturn happens. If you start strategizing only when the downturn has occurred, you’ll likely make more mistakes.
Avoiding financial pitfalls
Joy Wallet: What are the most common financial mistakes people make, and how can they avoid them?
Earl Jordan: The biggest mistake people make is being overconfident. Unlike chess, there is a lot of luck in investing, especially in the short run. The danger of getting good results early in your investing journey is that one can mistakenly think the results were due to skill when it could have been through luck.
We have had a bull market since 2009, thanks to unprecedented monetary and fiscal stimulus. In my opinion, the corrections in 2020 and 2022 were not as severe as the 2008 financial crisis.
During the next large market correction, like 2008, many people could get caught off-guard. The danger overconfidence brings is that some people would invest more and more money at high prices just as market enthusiasm peaks.
We’ve seen countless examples of overconfidence, and even Nobel Prize winners are not immune to it. Success can inflate everyone’s head, even mine. So, we always have to be on guard. We must always imagine how we could be wrong and how our investments could turn out unfavorably.
Hand in hand with overconfidence is recency bias. People tend to project what has happened in recent memory to the long term.
There’s a popular saying on Wall Street: “Everyone looks like a genius in a bull market.” But as Warren Buffett says, “When the tide turns, you know who was swimming naked.”
The key to overcoming recency bias is to be a student of history. Mark Twain also said, “History does not repeat itself, but it does rhyme.”
Auction-driven markets like the stock market will always be cyclical because humans are susceptible to greed and fear, especially when it comes to money.
Another book on my recommended reading list is Thinking, Fast and Slow. This book will help your readers learn about many other biases and how to avoid them.
Choosing the right advisor
Joy Wallet: What should individuals look for when choosing a financial advisor?
Earl Jordan: The question that most individuals ask a financial advisor is, “Are you a fiduciary?” I am a fiduciary, but the problem with asking this question is that I can’t imagine anyone saying no, even when they are not. If they say yes, how do you truly know if they are acting in their clients’ best interest all the time?
So, rather than asking that, I recommend that people try to determine if the financial advisor is merely a salesperson or someone who really knows how to invest. Some questions they can ask are:
“What is your investment strategy and philosophy?”
“How do you think about risk?”
“What kind of investment research do you do?”
“How do you invest your own money?”
“How did you invest during the 2008 financial crisis?”
- Highly competitive rates
- FDIC insured
- No monthly or hidden fees
Contingency planning
Joy Wallet: What is your approach to contingency planning?
Earl Jordan: An emergency fund is incredibly important. It is the foundation for all your finances. Unexpected events happen all the time, and the last thing you want to do is sell your investments when everyone is panicking because you don’t have enough cash in the bank. This is the cardinal sin of investing.
As for life and disability insurance, make sure you conduct an assessment to determine if you need it and how much coverage is warranted. Non-term life insurance policies generate high commissions for the agent and large profit margins for the company, so I do not recommend anything but term life insurance if you need life insurance coverage.
Client success stories
Joy Wallet: Can you discuss a client success story that highlights your firm's impact?
Earl Jordan: In 2014, my very first client who wasn’t a family member or friend had a goal to retire at 60 (in 2022). He used to invest in stocks himself but lost a lot of money. In 2021, one year ahead of schedule, we determined that he had achieved financial independence and could retire from his full-time job with peace of mind. He told me later, "It feels good that I can finally relax."
Because of a disciplined value investing approach, he knows that even if the market has a 50% (or larger) correction in retirement, he will continue to thrive because we will aggressively invest when stock prices are low.
Finding joy
Joy Wallet: What brings you the most joy in life?
Earl Jordan: My family has always been my top priority. Thanks to my wife's support, I am living my dreams. It has been a fun journey seeing my kids grow and become wonderful human beings.
My second priority is to continuously invest money well. If I can do this in the decades to come, not only will I be able to increase my family’s net worth, but my clients’ portfolios will increase as well since they are invested the same way I am.
Investing is my passion, but it is through helping others achieve their financial goals that I find fulfillment. Knowing that I have made a difference in their lives gives me immense joy.
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