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How Not to Invest With Barry Ritholtz · Trillions

• 0:05
  Speaker 1: What can I Chillians.
• 0:06
  Speaker 2: I'm Joel Webber and I'm Eric Belchunas.
• 0:11
  Speaker 3: Eric a friend of the show who's also on Bloomberg
• 0:14
  Speaker 3: Radio and does podcasts here like Masters in Business. That's
• 0:17
  Speaker 3: a new book. His name is Barry Whittholts and the
• 0:19
  Speaker 3: book is How Not to Invest.
• 0:23
  Speaker 4: Yeah.
• 0:23
  Speaker 5: No, he's one of a kind. He was on this show,
• 0:27
  Speaker 5: I don't know, a couple of years ago.
• 0:28
  Speaker 3: We've had him on the podcast at least twice, but
• 0:33
  Speaker 3: he was.
• 0:33
  Speaker 5: The only one where we had to do a double
• 0:34
  Speaker 5: episode because it was so long. Yeah, and so use
• 0:37
  Speaker 5: your disillusion, use your dissolution one and two, and this
• 0:42
  Speaker 5: time we definitely got a like you could see, we
• 0:44
  Speaker 5: could have gone on and on and on. He's so interesting.
• 0:47
  Speaker 5: This book is chock full. It's basically called How Not
• 0:50
  Speaker 5: to Invest. I read it and found a bunch of
• 0:53
  Speaker 5: passages that were really interesting, some funny lot of Malcolm
• 0:58
  Speaker 5: Gladwellian kind of little factors.
• 1:00
  Speaker 4: In there that are metaphors for the market.
• 1:03
  Speaker 2: Just a lot to unpack and chew on.
• 1:05
  Speaker 3: Also, we're going to disclose that this interview was recent
• 1:10
  Speaker 3: and there have been a lot of things happening in
• 1:13
  Speaker 3: markets of late What's interesting about Barry, though, is he's
• 1:17
  Speaker 3: seen a lot of stuff, so he can kind of
• 1:19
  Speaker 3: go a little bit more high altitude. So this is
• 1:21
  Speaker 3: actually maybe the perfect year to be talking about a
• 1:25
  Speaker 3: book like this. Joining us on this episode Barry Ritholtz,
• 1:28
  Speaker 3: co founder, chairman and chief investment officer of Ritholt's Wealth Management,
• 1:35
  Speaker 3: this time on Trillions, How Not to Invest?
• 1:40
  Speaker 1: Berry, welcome back to Trillions.
• 1:42
  Speaker 4: Well, thanks for having me.
• 1:43
  Speaker 1: So this book is not small.
• 1:45
  Speaker 3: I think it's like approximately it's more than an inch
• 1:48
  Speaker 3: maybe less than.
• 1:49
  Speaker 1: Two inches thick.
• 1:50
  Speaker 4: It's deceptive. There's a few one hundred end notes, and
• 1:55
  Speaker 4: the chapters are really short. They're page and a half
• 1:58
  Speaker 4: two pages, three pages, so there's a lot a blank space.
• 2:01
  Speaker 4: I had to argue with the publisher not to start
• 2:04
  Speaker 4: each chapter in the middle. I made them started at
• 2:07
  Speaker 4: the top of the page. Otherwise it'd be like, you know,
• 2:10
  Speaker 4: Barbarer Streisan's photobiography being nine hundred and fifty pages long.
• 2:13
  Speaker 4: So not your first book. Not my first book. The
• 2:16
  Speaker 4: last one was Bailout Nation, was fifteen years. I crank
• 2:20
  Speaker 4: them out, every fifth sequel to this twenty four. There's
• 2:24
  Speaker 4: no stopping that time.
• 2:24
  Speaker 1: I possessed you to write How Not to Invest.
• 2:28
  Speaker 4: So you know, it has been a while since the
• 2:30
  Speaker 4: last book, and in between, we just happened to launch
• 2:33
  Speaker 4: a firm and have been growing it over the past,
• 2:36
  Speaker 4: you know, twelve years, and I've had a number of
• 2:39
  Speaker 4: friends and publishers and people kind of noticing me to
• 2:43
  Speaker 4: do another one. And my answer was, we've had hundreds
• 2:47
  Speaker 4: of thousands of books over the past century telling people
• 2:50
  Speaker 4: what to do, and most investors are still pretty mediocre.
• 2:54
  Speaker 4: And you know, I came home one vacation between Christmas
• 2:59
  Speaker 4: and New Year's, those few days to kill before everybody
• 3:01
  Speaker 4: goes back to the office, and I just started thumbing
• 3:04
  Speaker 4: through some old quarterly calls and market commentary and research notes,
• 3:09
  Speaker 4: and it seems like every other thing I wrote was
• 3:12
  Speaker 4: debunking some nonsense or another. And you know, I just
• 3:17
  Speaker 4: happen to start channeling Charlie Ellis, who wrote Winning the
• 3:21
  Speaker 4: Losers Game, where he compared tennis to investing, and it's
• 3:25
  Speaker 4: two games in one. Instead of trying to score points,
• 3:28
  Speaker 4: how about just make fewer errors and you come out
• 3:30
  Speaker 4: way ahead.
• 3:32
  Speaker 1: All right?
• 3:32
  Speaker 3: So, this book, as Eric mentioned, filled with hot takes.
• 3:36
  Speaker 3: We've got a few that we've plucked.
• 3:38
  Speaker 6: And we want to discuss them with that all right,
• 3:40
  Speaker 6: By the way, I don't think they're hot takes because
• 3:44
  Speaker 6: everything in there I've kind of discussed, granted in much
• 3:49
  Speaker 6: much shorter format.
• 3:50
  Speaker 4: Some stuff like the Cisco Fortune cover. I first wrote
• 3:55
  Speaker 4: about that in the year two thousand to Crickets, So
• 3:58
  Speaker 4: it might have been a hot take then, but nobody knew.
• 4:01
  Speaker 1: Who would appreciate your humility. We're gonna call him.
• 4:03
  Speaker 5: If we went to an RIA conference, these would not
• 4:06
  Speaker 5: or bogel Heads conference, these wouldn't be necessarily hot takes.
• 4:09
  Speaker 5: But inside a media apparatus as big as Bloomberg, a
• 4:12
  Speaker 5: lot of these are somewhat controversial and definitely challenge a
• 4:17
  Speaker 5: lot of the things you hear out there.
• 4:19
  Speaker 1: For instance, number one, number.
• 4:20
  Speaker 2: One, nobody knows anything. This is what you say.
• 4:24
  Speaker 5: Your one of your favorite qutes from William Goldman, who's
• 4:26
  Speaker 5: a Hollywood guy. I think he directed The Exorcist.
• 4:29
  Speaker 4: No, he is a scriptwriter.
• 4:30
  Speaker 2: Scriptwriter.
• 4:31
  Speaker 4: He won two Oscars, one for All the President's Men,
• 4:33
  Speaker 4: the other four I'm drawing a blank on it. Maybe
• 4:37
  Speaker 4: it was Butchcasting and The Sundance Kid. He wrote The
• 4:39
  Speaker 4: Marathon Man and famously wrote The Princess Bride, which later
• 4:44
  Speaker 4: became a Rob Ryner cult favorite. A buddy mine gave
• 4:48
  Speaker 4: me a copy of that book decades ago. I loved it.
• 4:51
  Speaker 4: And when I moved my blog in two thousand and
• 4:55
  Speaker 4: three from Yahoo GeoCities to six apart Type AD, I
• 5:01
  Speaker 4: needed a name. And his new book had just come out,
• 5:04
  Speaker 4: William Goldman's new book, and it was called The Big Picture,
• 5:07
  Speaker 4: and I'm like done.
• 5:08
  Speaker 5: So in this overall section, there's a really cool thing
• 5:12
  Speaker 5: on the Beatles Jrol where Ed Sullivan turned them down twice.
• 5:16
  Speaker 2: I didn't know that.
• 5:17
  Speaker 5: And then after they were on the Ed Sullivan Show,
• 5:19
  Speaker 5: which is how they made it, and you know how
• 5:21
  Speaker 5: they got exposed in America. All the papers were basically
• 5:24
  Speaker 5: like criticizing them. They're like, you know, this isn't going
• 5:27
  Speaker 5: to last, that they aren't good. He's basically laying the
• 5:30
  Speaker 5: groundwork that Hollywood misses a lot, the music industry misses
• 5:34
  Speaker 5: a lot, financed misses a lot. Then he goes into
• 5:36
  Speaker 5: people like Larry Summers and Michael Burry, which I thought
• 5:39
  Speaker 5: was interesting because Burry had that one big call, but
• 5:42
  Speaker 5: then you listed about ten other times he was yeah,
• 5:46
  Speaker 5: and you know, you talk about how nobody knows anything.
• 5:50
  Speaker 2: I mean it just.
• 5:51
  Speaker 5: Elaborate a little bit like sure what that really challenges
• 5:55
  Speaker 5: a lot of the whole complex.
• 5:57
  Speaker 4: Well, stop and think about Wall Street training program, of
• 6:01
  Speaker 4: which there are fewer and fewer these days. It's about
• 6:03
  Speaker 4: a year long training program at least it used to be,
• 6:06
  Speaker 4: and about a week of it is modern portfolio theory
• 6:09
  Speaker 4: and acid allocation, and then fifty one weeks is essentially
• 6:12
  Speaker 4: advanced sales training. And there's this very much fake it
• 6:15
  Speaker 4: till you make it attitude. I mean, we've all kind
• 6:19
  Speaker 4: of been there. You walk into a room, it's filled
• 6:21
  Speaker 4: with people who have been doing this longer, no more
• 6:24
  Speaker 4: than you, and nobody wants to say I don't understand this,
• 6:27
  Speaker 4: I don't know. So that in finance is pretty endemic.
• 6:31
  Speaker 4: But when you step back and objectively look at what
• 6:35
  Speaker 4: do we really know, when do we know it, what
• 6:38
  Speaker 4: do we know about the presence, it's pretty clear most
• 6:42
  Speaker 4: of us are pretty misinformed about the present. What we
• 6:46
  Speaker 4: recall are mostly you know, rose tinged nostalgia in the past,
• 6:51
  Speaker 4: and what we're looking for is, you know, one part
• 6:54
  Speaker 4: guess work, one part wishful thinking. And so when you
• 6:57
  Speaker 4: use the examples of how many studios passed on Raiders
• 7:02
  Speaker 4: of the Lost Ark Star wars Et. The list is endless.
• 7:05
  Speaker 4: When you look at squid Games couldn't get made for
• 7:08
  Speaker 4: ten years. John Wick, despite a stellar cast and the
• 7:13
  Speaker 4: guys who did the stunts and special effects on the Matrix,
• 7:18
  Speaker 4: which was a giant franchise. Canna Reeves had to write
• 7:21
  Speaker 4: a check out of his own pocket to finish the movies.
• 7:24
  Speaker 4: I'm assuming he got points. This is now a two
• 7:28
  Speaker 4: billion dollar franchise. Nobody wanted to make it, nobody wanted
• 7:31
  Speaker 4: to show it. People had no idea what was going
• 7:33
  Speaker 4: on with it. So I am probably the wrong messenger
• 7:37
  Speaker 4: for the concept that finance and investing requires more humility
• 7:41
  Speaker 4: than we bring to it. But as you're reading all
• 7:44
  Speaker 4: these things, it's pretty obvious that we really don't have
• 7:49
  Speaker 4: a good idea of what's happening now. We know even
• 7:52
  Speaker 4: less about what's coming next month and next year. Is
• 7:56
  Speaker 4: such a long period of time that randomness disrupts even
• 8:01
  Speaker 4: the most thoughtful forecast. Think about who was forecasting a
• 8:05
  Speaker 4: pandemic in December twenty nineteen. Who was forecasting either double
• 8:10
  Speaker 4: digit losses in stocks and bonds in twenty twenty two,
• 8:13
  Speaker 4: the fastest five hundred basis point increase in FED hikes,
• 8:17
  Speaker 4: the Russian that this is just one year, the Russian
• 8:20
  Speaker 4: invasion of Ukraine, the Gaza attack, and the response of
• 8:25
  Speaker 4: Israel to Haamad, Like nobody was talking about these things happening,
• 8:29
  Speaker 4: and so whatever your forecast is, it's really easy to
• 8:32
  Speaker 4: be derailed. And if your investing requires you to see
• 8:36
  Speaker 4: the future, you're in trouble.
• 8:38
  Speaker 5: So when I was writing my ETF book, I had
• 8:40
  Speaker 5: this same premise. I was like, and I asked your
• 8:43
  Speaker 5: colleague Josh Brown, who you work with, and he's on
• 8:45
  Speaker 5: the other channel.
• 8:46
  Speaker 2: We won't name the channel.
• 8:48
  Speaker 5: But I said to him, why, you know, why even
• 8:52
  Speaker 5: have a media like a TV station at all, like
• 8:55
  Speaker 5: if all of it means nothing, And he said he
• 8:58
  Speaker 5: basically said something like, well, look, if you turn on
• 9:00
  Speaker 5: ESPN just because they say, you know such and such,
• 9:03
  Speaker 5: this player is washed or this team is not good,
• 9:06
  Speaker 5: nobody's acting on that. It's just basically like more information entertainment. Yeah,
• 9:12
  Speaker 5: it's basically somewhat entertainment. And that's the general idea behind
• 9:16
  Speaker 5: a lot of financial media. It's just to give you
• 9:19
  Speaker 5: information around these things, but not necessarily investment advice. That
• 9:23
  Speaker 5: was his take, because I did find he has the
• 9:26
  Speaker 5: same opinion, but he also goes on and talks about stocks, right, and.
• 9:30
  Speaker 4: He talks about stocks in his personal accounts. It's not
• 9:32
  Speaker 4: how we manage money. We're not stock pickers. So essentially,
• 9:37
  Speaker 4: you know, you go back to when I was a kid.
• 9:39
  Speaker 4: Once a week on Friday night was Lewis Rukeiser for
• 9:42
  Speaker 4: an Now.
• 9:43
  Speaker 1: Yeah, Wall Street Week.
• 9:44
  Speaker 2: That was it.
• 9:44
  Speaker 4: That was the entirety of the financial media escape. Yeah,
• 9:49
  Speaker 4: you had the Wall Street Journal and you had barons
• 9:51
  Speaker 4: on weekends. I remember sitting out in my backyard at
• 9:55
  Speaker 4: the picnic table with a cup of coffee, thumbing through
• 9:58
  Speaker 4: barons because hey, I was starting on a training desk
• 10:01
  Speaker 4: and I wanted to learn what the hell was going on.
• 10:03
  Speaker 4: When you're young, you consume everything, and as you get
• 10:06
  Speaker 4: older and older, you learn to filter everything and just
• 10:09
  Speaker 4: select the best of what you can select. So you
• 10:13
  Speaker 4: know the concept that it's just entertainment, if that's all
• 10:16
  Speaker 4: it is. Then you got to wonder why the advertisers
• 10:20
  Speaker 4: are getting such big bucks. The reason we went at
• 10:23
  Speaker 4: one point we were peak financial media landscape when they
• 10:27
  Speaker 4: were I want to say four so there was CNN, CNBC, Bloomberg,
• 10:32
  Speaker 4: Fox Business, CNNfn to say nothing about a whole bunch
• 10:36
  Speaker 4: of other shows, And now we're down to two and
• 10:39
  Speaker 4: a half three channels. You know, I kind of liken
• 10:43
  Speaker 4: it to somewhere between ESPN seven and the Weather Channel.
• 10:48
  Speaker 4: If you're really into Australian rules Rugby, you know where
• 10:52
  Speaker 4: to find that.
• 10:53
  Speaker 1: It's ESPN plus now, I think, right, yeah.
• 10:55
  Speaker 4: But the Weather Channel is when there's a storm a coming,
• 10:58
  Speaker 4: we all flick to the Weather Channel. And that's what
• 11:01
  Speaker 4: financial television has really when their ratings go up, when
• 11:05
  Speaker 4: everything is clicking for them, it's in response to a storm.
• 11:09
  Speaker 4: Always ask yourself a simple question. Anybody who's sharing financial
• 11:13
  Speaker 4: advice with me, what are they selling? If you don't
• 11:17
  Speaker 4: ask that, then you're a little gullible and a little naive, which,
• 11:20
  Speaker 4: by the way, I very much was early in my career.
• 11:24
  Speaker 1: Well, disclaimer, because you are selling something other than a
• 11:26
  Speaker 1: book too, so.
• 11:27
  Speaker 4: And I put that in the book.
• 11:28
  Speaker 3: Yeah.
• 11:29
  Speaker 4: I actually out myself as hey, listen, I run an
• 11:31
  Speaker 4: asset management farm, I have a podcast, I have a blog.
• 11:35
  Speaker 4: I want your time, attention and money. It's pretty straightforward,
• 11:40
  Speaker 4: but I try and be honest about it and say here,
• 11:43
  Speaker 4: it's right here. It's very public. Now. Our business model
• 11:46
  Speaker 4: is a little weird because we're very on Wall Street.
• 11:49
  Speaker 4: It's like, hey, you could do it yourself. Here's how
• 11:52
  Speaker 4: knock yourself out. And the point oh one percent of
• 11:54
  Speaker 4: you that don't want to do it yourself. We don't
• 11:57
  Speaker 4: have any minimums. We're happy to take your cash and
• 12:00
  Speaker 4: and we have some other things we do along with it,
• 12:02
  Speaker 4: tax and estate planning and all the fun bells and
• 12:05
  Speaker 4: whistles that go around wealth management. But essentially everything we
• 12:11
  Speaker 4: produce in the firm individually is all here's how to
• 12:16
  Speaker 4: do it better than you've been told.
• 12:19
  Speaker 5: And you know this He kind of stole thunder from
• 12:21
  Speaker 5: the second point, which is he says the majority of
• 12:23
  Speaker 5: what the media turns out is irrelevant.
• 12:25
  Speaker 2: Let's dig into this a little bit.
• 12:26
  Speaker 1: We've hit this.
• 12:27
  Speaker 4: Yeah, well, the word is a ephemeral. It's ephemeral, and
• 12:30
  Speaker 4: that means it has a very short shelf life.
• 12:33
  Speaker 5: One of the areas I was fascinated by, and I
• 12:36
  Speaker 5: see this a lot, is denominator blindness. Yeah, this is
• 12:39
  Speaker 5: a really interesting concept about purposely leaving out the denominator
• 12:43
  Speaker 5: to make it sound more sensational.
• 12:45
  Speaker 4: So if you hear somebody a company laid off ten
• 12:49
  Speaker 4: thousand workers, what does that mean? Is that a lot
• 12:53
  Speaker 4: or a little? Is it a regional company with thirty
• 12:55
  Speaker 4: thousand employees laying off thirty three percent of your staff
• 12:58
  Speaker 4: is giant? Is it Walmart? That means one person every
• 13:02
  Speaker 4: five stores is losing their job, which probably happens every
• 13:06
  Speaker 4: day randomly anyway, So you need the context. Then you know.
• 13:11
  Speaker 4: There are some really funny examples of denominator blindness in
• 13:15
  Speaker 4: the book. So the three things I always talk about layoffs,
• 13:18
  Speaker 4: stock sell offs.
• 13:20
  Speaker 5: We'll talk about that for a minute. So the Dow
• 13:22
  Speaker 5: in points thing, which drives me crazy. Stock sold off
• 13:25
  Speaker 5: five hundred points today. Well, if it's the S and
• 13:28
  Speaker 5: P five hundred, that's a ten percent drop, and.
• 13:30
  Speaker 4: Holy cow, that's a giant whack. If it's the Dow,
• 13:34
  Speaker 4: it's less than a half a percent, and you know
• 13:37
  Speaker 4: that's normal daily trading.
• 13:39
  Speaker 2: Why do we care about that?
• 13:40
  Speaker 5: Do you think that they purposely leave it out in
• 13:43
  Speaker 5: order to get the clicks?
• 13:45
  Speaker 2: Is it ignorance or clickbait?
• 13:47
  Speaker 4: I'm not quite In the full Conspiracy X files, there
• 13:50
  Speaker 4: are no such things as coincidences. But you know, as
• 13:55
  Speaker 4: you know this, I always have to tell this to
• 13:57
  Speaker 4: people when you write a column. Sponsored for all these
• 14:01
  Speaker 4: things except the headline, right, The editors write the headline,
• 14:04
  Speaker 4: and so the editlers want there to be reads, they
• 14:08
  Speaker 4: want there to be clicks. No one is going to
• 14:11
  Speaker 4: read the headline zero point one percent of Walmart's employees.
• 14:14
  Speaker 1: Were let go.
• 14:15
  Speaker 4: Nobody's going to read that. But ten thousand people fired
• 14:18
  Speaker 4: at Walmart is a big headline.
• 14:20
  Speaker 2: And this is something I.
• 14:21
  Speaker 4: Deal with that.
• 14:21
  Speaker 1: You're coming for me as the as an editor here.
• 14:24
  Speaker 2: So there's a lot of subtext going on here.
• 14:27
  Speaker 4: I know you should see that. Okay, Going back and
• 14:31
  Speaker 4: forth between these two guys, it's really.
• 14:39
  Speaker 3: We also have three words, the most important words in investing?
• 14:45
  Speaker 1: What are they?
• 14:46
  Speaker 2: According to Barry? And I think I agree. I don't know.
• 14:50
  Speaker 5: I remember interviewing you once, I don't know, make ten
• 14:52
  Speaker 5: years ago when I first met you really something like that,
• 14:55
  Speaker 5: and you said something. I'm like, yeah, this guy's on
• 14:57
  Speaker 5: I love this, he goes. He goes, I said something
• 15:01
  Speaker 5: about this dichotomy of having an opinion but then also
• 15:04
  Speaker 5: saying but I really know, and he said, but saying
• 15:08
  Speaker 5: that the future is inherently unknowable. You will not get
• 15:12
  Speaker 5: you on television, right, just you can't go on there
• 15:15
  Speaker 5: and say I don't know. And so there's this motive
• 15:18
  Speaker 5: to not say I don't know.
• 15:20
  Speaker 2: Yet.
• 15:21
  Speaker 5: I think at the end of the day, a lot
• 15:22
  Speaker 5: of people would admit they don't know and the future
• 15:25
  Speaker 5: is unknown.
• 15:26
  Speaker 4: So I think that's a given. By the way, are
• 15:28
  Speaker 4: any of these hot takes that are controversial yet? I
• 15:31
  Speaker 4: don't think any of these are.
• 15:32
  Speaker 1: It's elegant bs okay.
• 15:35
  Speaker 4: So here's a little pushback that I thought was kind
• 15:38
  Speaker 4: of fascinating. Someone asked me, A client asked me, so
• 15:44
  Speaker 4: the whole COVID nineteen thing. Was that a design biochemical
• 15:49
  Speaker 4: biowarfare weapon that escaped the lab? Or was it something
• 15:54
  Speaker 4: that trans species hopped from the wet market? And I
• 15:57
  Speaker 4: perfect teachable moment. I'm like, not only do I not
• 16:01
  Speaker 4: have the slightest idea, I'm aware that I have no
• 16:06
  Speaker 4: national security clearance, so I don't know what those guys know.
• 16:09
  Speaker 4: I'm not a virologist, I'm not an epidemiologist. But here's
• 16:12
  Speaker 4: the important thing with.
• 16:13
  Speaker 1: But I did watch financial television this morning.
• 16:16
  Speaker 4: Right, I stayed at a Hampton's Inn. But why do
• 16:20
  Speaker 4: you feel that anybody outside of a tiny sphere of
• 16:23
  Speaker 4: experts should even profer an opinion about that. It's not
• 16:28
  Speaker 4: just that you don't know, because if you remember during
• 16:30
  Speaker 4: the pandemic, we had this rotating cycle of fake experts. Right,
• 16:36
  Speaker 4: First you're an expert in vaccination, then you're an expert
• 16:39
  Speaker 4: in constitutional law, then you're an expert in war strategy.
• 16:42
  Speaker 4: Then you're an expert and it's like, here's an idea.
• 16:45
  Speaker 4: I understand the American school educational system is built on
• 16:49
  Speaker 4: standardized testing, but you're not obligated to have an opinion
• 16:54
  Speaker 4: on everything. And I really like the way Warren Buffett
• 16:58
  Speaker 4: describes it in you could stand at the plate with
• 17:02
  Speaker 4: your bat on your shoulder. There are no cult strikes.
• 17:05
  Speaker 4: You could just wait for your pitch. I think that
• 17:07
  Speaker 4: includes when you go on TV. You don't have to
• 17:10
  Speaker 4: and you are an expert in a given space, you
• 17:13
  Speaker 4: don't have to engage in epistemic trespass and opine on
• 17:18
  Speaker 4: areas of which you have zero expertise. I do annual
• 17:23
  Speaker 4: MEA culpers every year. And here's what I got wrong.
• 17:26
  Speaker 4: I can't tell you how often when I get something wrong,
• 17:29
  Speaker 4: it's because I kind of ventured out of my area
• 17:32
  Speaker 4: where I have expertise and allowed myself to wander into
• 17:36
  Speaker 4: areas where really I have no business speculating or a
• 17:39
  Speaker 4: pining and that is a relatively rare perspective in finance.
• 17:45
  Speaker 5: I also think I don't know, in my opinion, if
• 17:47
  Speaker 5: you brought it out to politics, religion, there's so much
• 17:51
  Speaker 5: A little I don't know goes a long way towards
• 17:54
  Speaker 5: just soothing a lot of division, like people get stuck
• 17:59
  Speaker 5: in these rigids and it just creates all kinds of friction.
• 18:02
  Speaker 5: I think, so I don't know to me is almost
• 18:05
  Speaker 5: like a philosophical outlook that I think is very positive.
• 18:09
  Speaker 4: Go back to Socrates, go to Aristotle. I think was
• 18:12
  Speaker 4: Socrates who said the only thing I know is how
• 18:14
  Speaker 4: little I know. And so that's three thousand years ago.
• 18:19
  Speaker 4: None of this is new, which just sort of placed
• 18:21
  Speaker 4: in a different context. And when you look at the
• 18:24
  Speaker 4: example I like is Therahnose, when you look at how
• 18:27
  Speaker 4: many people from outside of medical field devices biotech were
• 18:32
  Speaker 4: on their board, none of those guys had any clue
• 18:36
  Speaker 4: what was going on, and how are they capable of
• 18:39
  Speaker 4: identifying if it's a fraud or not. They just saw
• 18:43
  Speaker 4: the coverage everybody relied on everybody else's. You know, they
• 18:47
  Speaker 4: must have done their due diligence, and apparently nobody did.
• 18:51
  Speaker 5: There's another quote that was in this section. I don't
• 18:54
  Speaker 5: think it's totally really, I don't know, but it kind
• 18:55
  Speaker 5: of is a little bit. It's from Eddie Elfenbeinin, who's
• 18:58
  Speaker 5: a famous thought picker and has an ET. Anyway, he says,
• 19:02
  Speaker 5: somebody says this or market, This market reminds me of
• 19:05
  Speaker 5: nineteen eighty seven. The response is, really, you think the
• 19:08
  Speaker 5: market will return thirty fivefold over the next thirty seven years?
• 19:12
  Speaker 1: That's your voice.
• 19:13
  Speaker 5: No, that's Eddie saying it, but he couldn't. It's irresistible.
• 19:17
  Speaker 5: I see why I had so good right That.
• 19:19
  Speaker 2: Reminds me of right now.
• 19:20
  Speaker 5: There's a lot of like ugh, and I'm like, I
• 19:23
  Speaker 5: think a lot of people have settled into not selling,
• 19:27
  Speaker 5: and I think the Bogel give him a lot of credit.
• 19:29
  Speaker 5: Vanguard cheap index funds. People can get married to that
• 19:32
  Speaker 5: product and they're like, you know, I can't market time,
• 19:36
  Speaker 5: and if I do, I'll sell the and they just
• 19:38
  Speaker 5: like the hell with it. And I'm not going to
• 19:40
  Speaker 5: go to an active manager. So the passive money which
• 19:43
  Speaker 5: you are a part of Never Sells, and I think
• 19:47
  Speaker 5: has seen through some of this stuff and is like, yeah,
• 19:51
  Speaker 5: I don't really care what you say.
• 19:52
  Speaker 4: And I think the passive money found its way to
• 19:55
  Speaker 4: Blackrock and Vanguard not because of an emission of I on. No.
• 20:00
  Speaker 4: My pet theory and you could see it post financial
• 20:04
  Speaker 4: crisis is think about the decade leading up to the GFC.
• 20:08
  Speaker 4: So you had the analyst scandal and the IPO scandal,
• 20:11
  Speaker 4: and you had all these crazy things going on. That's
• 20:14
  Speaker 4: before you know, the financial crisis, and before Madeoff and
• 20:17
  Speaker 4: all this stuff, and it just got to the point
• 20:20
  Speaker 4: where it felt like mom and Pop took their ball
• 20:22
  Speaker 4: and went home. And by ball I mean money and
• 20:25
  Speaker 4: by home I mean Vanguard. That's kind of Hey, you
• 20:27
  Speaker 4: know what I need to invest for the future. I'm
• 20:29
  Speaker 4: saving for buying a house, paying for the kids, college, retirement, whatever.
• 20:34
  Speaker 4: But I don't want to pay high fees and I'm
• 20:36
  Speaker 4: not confident that anybody who's picking stocks for me is
• 20:41
  Speaker 4: doing a good job. So I'm just going to own
• 20:43
  Speaker 4: the whole market see in thirty years.
• 20:45
  Speaker 2: By the way, that was he gave me that quote
• 20:46
  Speaker 2: for the bogal effect. You got like olies, but goodies.
• 20:49
  Speaker 5: I think that was not so it's you know that's
• 20:53
  Speaker 5: in my book, which I interviewed him saying the same
• 20:55
  Speaker 5: thing about four years ago. But real quick, yes that's true.
• 20:59
  Speaker 5: And you see the our team has this phrase called
• 21:02
  Speaker 5: the vanguard put.
• 21:03
  Speaker 1: Uh huh.
• 21:03
  Speaker 5: So there's the FED put the Trump put in the
• 21:05
  Speaker 5: vanguard put. I think Josh calls it the relentless bid,
• 21:07
  Speaker 5: the relentless bid. You're a vanguard investor, or, like it,
• 21:10
  Speaker 5: you're an index fun investor. Can anything happen over the
• 21:13
  Speaker 5: next you know, seven eight months that would get you
• 21:16
  Speaker 5: to like take all your money out of the US
• 21:19
  Speaker 5: stock market.
• 21:20
  Speaker 4: You know, the only time I've done that was the
• 21:23
  Speaker 4: end of seven And I was pretty public about talking
• 21:26
  Speaker 4: about we were short a bunch of companies. Is back
• 21:28
  Speaker 4: when I was on an institutional shop, we were short
• 21:31
  Speaker 4: a bunch of companies. Pretty famously got into a yelling
• 21:34
  Speaker 4: match with Charlie Gasparino of being Shortlyhman Brothers. He did
• 21:39
  Speaker 4: me a giant favor. Who you gonna believe, right, Altzer
• 21:41
  Speaker 4: Dick Fault And it turned out that clip. I wish
• 21:44
  Speaker 4: that clip was still around. But what made that kind
• 21:48
  Speaker 4: of unique is how unbelievably obvious. It was if you
• 21:54
  Speaker 4: looked at it from just the right perspective, you had
• 21:57
  Speaker 4: a squint, you had it was almost like a three
• 21:59
  Speaker 4: D poster that you know, you had to catch it
• 22:02
  Speaker 4: just right. If you looked at it from traditional things, Hey,
• 22:05
  Speaker 4: the market was trending higher, profits were still relatively high. Yeah,
• 22:09
  Speaker 4: there's some problems over real estate, but it's contained, so
• 22:15
  Speaker 4: I would never say never. And we're not just so
• 22:18
  Speaker 4: you know, we're not pure index investors. First, you know,
• 22:21
  Speaker 4: that should be the core, whether it's VTI of Vanguard
• 22:26
  Speaker 4: Total Market or black Rock. Pick your poison and that's
• 22:31
  Speaker 4: the tree, and you decorate it with ornaments and garlands,
• 22:34
  Speaker 4: and some people like shareholders yield Momentum Japan, India. My
• 22:39
  Speaker 4: favorite example is emerging markets small cap value. If you
• 22:43
  Speaker 4: want to hang that on your tree, knock yourself out.
• 22:47
  Speaker 4: But as long as you know, you'll never get alpha,
• 22:50
  Speaker 4: if you don't even get beata, And that's kind of
• 22:53
  Speaker 4: why indexing should be. Pick a number fifty sixty percent
• 22:58
  Speaker 4: of your portfolio. That's your core, and then whatever you
• 23:01
  Speaker 4: want to do around that, knock yourself out.
• 23:04
  Speaker 3: I'm writing that quote town you can't get out.
• 23:08
  Speaker 4: Right, good, stop and thinking about that. Wait, you're trying
• 23:11
  Speaker 4: to outperform the market. You're not even getting what the
• 23:13
  Speaker 4: market's getting. You're underperforming. And by the way, I love
• 23:17
  Speaker 4: the research, and I think the chart of use was
• 23:19
  Speaker 4: JP Morgan's chart. I love the research shows showing not
• 23:23
  Speaker 4: just that investors underperform the market, they underperformed their own investments,
• 23:28
  Speaker 4: which sounds impossible, but it just means they're buying high
• 23:32
  Speaker 4: and chasing stuff. And you know, ARC, I think Kathy
• 23:37
  Speaker 4: woods get is both overly fetted and gets a bad
• 23:41
  Speaker 4: rap unfairly because she put up one of the greatest
• 23:45
  Speaker 4: years in mutual funds and ETF history. It's not her
• 23:49
  Speaker 4: fault that ninety two percent of ARC investors decided to
• 23:54
  Speaker 4: buy after a three hundred percent move up. That she
• 23:58
  Speaker 4: picked some great things and they went straight up. Everybody
• 24:01
  Speaker 4: piled in late. That's human nature. That's not her fault.
• 24:06
  Speaker 1: Okay, the next hot take.
• 24:08
  Speaker 2: I tweeted this out. This's got a lot.
• 24:10
  Speaker 5: It's got a lot of people going, Okay, the dollar
• 24:13
  Speaker 5: has lost ninety six percent of its purchasing power over
• 24:16
  Speaker 5: the last century. That says, says idiots, you say, it's
• 24:20
  Speaker 5: the most misleading claim in all of finance, and you
• 24:24
  Speaker 5: say the dollar was not meant to be a store
• 24:26
  Speaker 5: of value. It's a medium of exchange, isn't it. I
• 24:28
  Speaker 5: put this out and I don't know if you know, Joel,
• 24:30
  Speaker 5: but I've got more crypto followers these days. Yeah, and
• 24:33
  Speaker 5: a lot of people did not like it. They were
• 24:35
  Speaker 5: they said, oh, what's hold on?
• 24:37
  Speaker 4: I say, can you tell me people who have a
• 24:38
  Speaker 4: vested interest in an alternative currency to the dollar are
• 24:42
  Speaker 4: not happy with me calling them out on their BS sales?
• 24:44
  Speaker 4: Pitch go figure.
• 24:46
  Speaker 2: This is my favorite reply.
• 24:48
  Speaker 5: Ready, I really like Barry, but I think he's institutionalized
• 24:52
  Speaker 5: in a failing system.
• 24:54
  Speaker 4: Yeah, of all the things I've had people tell me
• 24:57
  Speaker 4: I should be institutionalized, I get that. But here's the reality.
• 25:01
  Speaker 4: By the way, let's start with a meme and then
• 25:03
  Speaker 4: we'll go back to the past century. The meme really
• 25:07
  Speaker 4: that I love, which shows up on TikTok Investors, which
• 25:11
  Speaker 4: is fantastic.
• 25:12
  Speaker 2: I love that.
• 25:12
  Speaker 4: I love that fantastic feed is they show Kevin from
• 25:17
  Speaker 4: home alone and if you remember, he goes to the
• 25:20
  Speaker 4: supermarket by himself. Are you here by yourself? No, I'm
• 25:24
  Speaker 4: eight years old. Do you think my mother would let
• 25:26
  Speaker 4: me come here and he buys twenty dollars and fifty
• 25:28
  Speaker 4: two cents worth of groceries In nineteen ninety, I think
• 25:33
  Speaker 4: that's when the Year movie came out, and then the Goldbugs,
• 25:36
  Speaker 4: the crypto people, a lot of people like today buy
• 25:39
  Speaker 4: that same thing today is fifty seven dollars. And I'm like, well,
• 25:43
  Speaker 4: let me ask you the obvious question. It's twenty twenty five.
• 25:47
  Speaker 4: Are you working, yes, So when you buy groceries, are
• 25:50
  Speaker 4: using twenty twenty five dollars or using nineteen ninety dollars?
• 25:54
  Speaker 4: Because why would you put fifty seven dollars away in
• 25:58
  Speaker 4: nineteen ninety. I'm good going grocery shopping in twenty twenty five.
• 26:02
  Speaker 4: That's number one. Number two. You talked a little bit
• 26:04
  Speaker 4: about denominator blindness. Hey, if this is how much groceries went, Well,
• 26:09
  Speaker 4: we work for a living and we buy groceries with
• 26:12
  Speaker 4: our wages. How have wages done over the same time.
• 26:15
  Speaker 4: And as it turns out, wages have gone up about
• 26:18
  Speaker 4: one hundred and ten percent of how much the groceries
• 26:21
  Speaker 4: went up, according to BLS data. In other words, over
• 26:24
  Speaker 4: the past thirty five years, the groceries have gotten a
• 26:27
  Speaker 4: little cheaper relative to the median income. But my favorite
• 26:32
  Speaker 4: example there is if you would have instead of putting
• 26:36
  Speaker 4: the twenty dollars and fifty two cents away to wait
• 26:40
  Speaker 4: and come by it groceries in twenty twenty five for
• 26:43
  Speaker 4: almost triple the amount you put it in the S
• 26:45
  Speaker 4: and P. Five hundred, Well, guess what it's worth almost
• 26:48
  Speaker 4: I don't even remember the number from the book, thousand dollars.
• 26:50
  Speaker 2: I think it's like six figures. In the percentage of return.
• 26:53
  Speaker 4: It's way way over what so cost is. And that's
• 26:56
  Speaker 4: the whole point.
• 26:57
  Speaker 1: So how not to invest? M don't eat, just invest.
• 27:02
  Speaker 4: No, The point is, don't you know Joan Robinson, one
• 27:06
  Speaker 4: of the most famous female economists of the twentieth century,
• 27:11
  Speaker 4: said we study economics not to learn about the economy,
• 27:15
  Speaker 4: but so as to not be fooled by economists. This
• 27:18
  Speaker 4: is a classic example of all right, you have to
• 27:21
  Speaker 4: show both sides. If you're showing me the consumer spending
• 27:25
  Speaker 4: double entry accounting, you have to show me the earnings
• 27:27
  Speaker 4: of income. But reality is, you get paid today.
• 27:31
  Speaker 2: What do you do with that money?
• 27:33
  Speaker 4: You pay your rent or mortgage, You buy food, medicine, clothes.
• 27:37
  Speaker 4: Occasionally some entertainment, vacation, healthcare, and you pay your taxes
• 27:41
  Speaker 4: and then whatever's leftover you invest in the market, You
• 27:44
  Speaker 4: invest in your business. You invest, you don't put it
• 27:47
  Speaker 4: away for a century. Yeah, because that's what a medium
• 27:50
  Speaker 4: of exchange is. It was never supposed to be a
• 27:53
  Speaker 4: store of value.
• 27:54
  Speaker 5: So the one pushback to that is some of the
• 27:57
  Speaker 5: comments were, this is an elitist take because half of
• 28:00
  Speaker 5: the country doesn't invest, and.
• 28:02
  Speaker 4: If most of the country doesn't invest, and so they're
• 28:04
  Speaker 4: absolutely right.
• 28:05
  Speaker 5: I think out of the money printing in debt really
• 28:08
  Speaker 5: is a if you owned thoughts, you've gotten totally rich.
• 28:10
  Speaker 5: So some of the people consider a lot of the
• 28:12
  Speaker 5: money printing was actually a regressive tax on poor people.
• 28:15
  Speaker 4: You're not gonna get a push So Number one my
• 28:18
  Speaker 4: argument in Bailout Nation in the last book was there
• 28:21
  Speaker 4: are these beautiful buildings downtown with these tall columns, and
• 28:25
  Speaker 4: that's where all these banks should have gone to declare bankruptcy.
• 28:28
  Speaker 4: The reason we had monetary repression and ZURP and everything
• 28:33
  Speaker 4: else that came along post financial crisis was, hey, we
• 28:36
  Speaker 4: just spent trillions of dollars bailing out the banks and
• 28:38
  Speaker 4: all these things. Let's not cause them to run into problems.
• 28:43
  Speaker 4: We have all these assets on their balance sheet. If
• 28:45
  Speaker 4: we normalize rates, I don't mean raise them, just normalize them,
• 28:49
  Speaker 4: all this paper defaults and we have a problem. I
• 28:52
  Speaker 4: think they're right. I advocated doing exactly that, taking these
• 28:57
  Speaker 4: banks down. Uncle Sam does a prepackaged bank you sent
• 29:01
  Speaker 4: all these However, here's where I'm going to push back
• 29:04
  Speaker 4: a little bit on the elitist thing. You can't say
• 29:06
  Speaker 4: to me investing in stocks as elitist, Buy golden bitcoin instead.
• 29:12
  Speaker 4: I mean, we're talking about keep in mind something like
• 29:16
  Speaker 4: the top ten percent of Americans hold eighty seven percent
• 29:20
  Speaker 4: of all the stocks and bonds. Right, It's only since
• 29:24
  Speaker 4: the sixties that finance has been slightly democratized, but it's
• 29:30
  Speaker 4: still a pyramid, and the top decile owns a lot.
• 29:35
  Speaker 4: That said, if you want to say that there's inflation,
• 29:41
  Speaker 4: you have to explain why you're going back one hundred years, right.
• 29:47
  Speaker 4: It just none of it makes any sense if you
• 29:50
  Speaker 4: just look at it for a moment and say, well,
• 29:53
  Speaker 4: I don't care. I don't get paid in nineteen seventeen dollars.
• 29:57
  Speaker 4: I get paid in twenty twenty five dollars, and and
• 30:00
  Speaker 4: I try and spend the money before it loses its value.
• 30:03
  Speaker 4: I spend it, I invest it, I pay my taxes
• 30:05
  Speaker 4: with it.
• 30:07
  Speaker 5: I don't know why they put him in a bitcoin
• 30:09
  Speaker 5: person on TV and just hit the record button.
• 30:11
  Speaker 4: I'd watch that, by the way, ten seconds on bitcoin
• 30:15
  Speaker 4: the way. And I think I mentioned this in the book.
• 30:17
  Speaker 4: The way I try and contextualize bitcoin is it's a
• 30:21
  Speaker 4: technology company, a little bigger than Facebook, a little smaller
• 30:25
  Speaker 4: than Google. Suddenly, it's not a brand new asset class.
• 30:28
  Speaker 4: It's not a new currency. It's a you know, it's
• 30:32
  Speaker 4: a solution to certain types of problems that haven't become
• 30:36
  Speaker 4: widely adopted yet. I think that's a fair description. And
• 30:41
  Speaker 4: I own some We own a little bitcoin in ethereum personally.
• 30:47
  Speaker 1: Hot take number five if you're counting.
• 30:51
  Speaker 5: Yeah, this one's a little we kind of cover this,
• 30:53
  Speaker 5: but there's something inside of it that I want to
• 30:55
  Speaker 5: bring up. Okay, so if you want to be there
• 30:57
  Speaker 5: for the good times, you must suffer through the bad times.
• 31:01
  Speaker 4: Next.
• 31:01
  Speaker 2: Yeah, I mean most is an interesting word here. I
• 31:04
  Speaker 2: kind of agree with you.
• 31:05
  Speaker 5: You know, Morgan Housel, who wrote your forward, had this
• 31:07
  Speaker 5: great way to frame it of volatility and down markets
• 31:11
  Speaker 5: are the price of admission. Yeah, because the other thing is, oh, well,
• 31:14
  Speaker 5: I'll just time around it, which I just does anybody
• 31:17
  Speaker 5: really believe that's possible. If you resign the fact that
• 31:20
  Speaker 5: it market timing is almost impossible, then you have to
• 31:24
  Speaker 5: just hang in there pretty much. And that's sort of
• 31:26
  Speaker 5: the cost of admission.
• 31:28
  Speaker 4: So two things. First, I more or less got the
• 31:31
  Speaker 4: top right of the financial crisis and then went on
• 31:34
  Speaker 4: TV the day before the bottoms and said cover your
• 31:36
  Speaker 4: shorts and go long here. And I'm the first guy
• 31:39
  Speaker 4: to admit I can't tell if that was skill o'lock.
• 31:42
  Speaker 4: You could ask me the same question thirty sixty nineties
• 31:45
  Speaker 4: before after I would have given you the same answer,
• 31:47
  Speaker 4: at least in terms of the bottom. So if I'm
• 31:50
  Speaker 4: not willing and I think a lot of people miss that,
• 31:53
  Speaker 4: and if I'm willing to say I don't want to
• 31:56
  Speaker 4: rely on my gut to sling billions dollars around.
• 32:00
  Speaker 5: COVID, I think was like everybody's like, oh, it's over.
• 32:03
  Speaker 5: And then like if you sold in like late March,
• 32:05
  Speaker 5: you got screwed. You missed the whole rebound because who
• 32:08
  Speaker 5: knew that fed was? I mean, you don't know these things.
• 32:11
  Speaker 4: The most amount of pushback to any Bloomberg column I
• 32:14
  Speaker 4: ever wrote was April first, twenty twenty, which was don't
• 32:19
  Speaker 4: assume COVID end of the secular bull market and there
• 32:22
  Speaker 4: was no great insight. I based this on something Gary B.
• 32:26
  Speaker 4: Smithwork wrote on TheStreet dot Com in two thousand and
• 32:29
  Speaker 4: one post nine to eleven. And if you go back
• 32:32
  Speaker 4: and look at all the externalities that shook the market,
• 32:35
  Speaker 4: everything from World War two and Pearl Harbor jfk assassination
• 32:38
  Speaker 4: to nine to eleven, what happens. Market's wobble, that's your
• 32:42
  Speaker 4: emotional reaction. Some rationality comes back in, and then that
• 32:46
  Speaker 4: sends them back to resume their prior trend. So when
• 32:49
  Speaker 4: you have something from outside of the stock market, the economy,
• 32:53
  Speaker 4: what have you, the assumption is, hey, we're still in
• 32:56
  Speaker 4: a bull market. Why would you assume that this temporary setback.
• 33:00
  Speaker 4: Now I spend a lot of time why twenty percent
• 33:02
  Speaker 4: is not a bear market? It's nonsense. So down thirty
• 33:05
  Speaker 4: four percent wasn't the reason to be out of stocks,
• 33:09
  Speaker 4: and that was a very fast down thirty four percent.
• 33:12
  Speaker 4: But hey, you know, if you can look through and
• 33:15
  Speaker 4: say it looks like a vaccine is coming, it looks
• 33:17
  Speaker 4: like fiscal stimulus is coming. There's another side of this.
• 33:21
  Speaker 4: Don't just assume this is over. That turned out to
• 33:23
  Speaker 4: be a good call, But it really wasn't a call.
• 33:27
  Speaker 4: It was I don't know what happens next, but here's
• 33:30
  Speaker 4: what happened every time we had something like this in
• 33:32
  Speaker 4: the past. And the point was, if you can just
• 33:35
  Speaker 4: put these things into context and take a deep breath,
• 33:38
  Speaker 4: you know, you don't have to run around and have
• 33:41
  Speaker 4: an emotional response. And every time we see a panic,
• 33:46
  Speaker 4: it's a panic, is pure emotion. So I'm sorry to
• 33:49
  Speaker 4: I've interrupted. I just wanted to. That was the most
• 33:53
  Speaker 4: hate mail I've ever gotten, and it was delightful.
• 34:02
  Speaker 5: One point three percent of public companies in the United
• 34:06
  Speaker 5: States account for all of the market gains.
• 34:09
  Speaker 4: Right, So there's two numbers in here. One is four percent.
• 34:13
  Speaker 4: Three numbers four percent, two point three percent overseas one
• 34:17
  Speaker 4: point something in the US you kind of have to
• 34:20
  Speaker 4: take out a bunch of other but in shurance, non
• 34:24
  Speaker 4: trades minority, right, that's why they did it all. Henry
• 34:28
  Speaker 4: Bessenbinder from Arizona State University did this study looking at
• 34:33
  Speaker 4: the difference between long term returns of stocks and bonds,
• 34:36
  Speaker 4: and this was an accidental discovery that you know, most
• 34:41
  Speaker 4: stocks are not important. You have some that are up
• 34:44
  Speaker 4: a little, some that are down a little, they cancel out.
• 34:46
  Speaker 4: You have the ones that eventually go to the pink sheets.
• 34:50
  Speaker 4: So we'll remove all those. You left with a tiny
• 34:53
  Speaker 4: handful of stocks and the big drivers. If you don't
• 34:57
  Speaker 4: own those, you were going to underperform only.
• 35:00
  Speaker 1: One point three. And then we're talking historical here.
• 35:03
  Speaker 4: That I think the data went back to nineteen I
• 35:07
  Speaker 4: don't remember, it's twenty nine or fifty. It's in there somewhere.
• 35:10
  Speaker 5: Morgan Housel's book had something very similar, and I've heard
• 35:12
  Speaker 5: this so many times, and this is I think one
• 35:14
  Speaker 5: of the strongest cases for indexing.
• 35:16
  Speaker 4: Well.
• 35:16
  Speaker 1: Well, I was going to say there's no way, no
• 35:18
  Speaker 1: way to get it right.
• 35:19
  Speaker 4: Well, that's not true. That's not true. There is a
• 35:21
  Speaker 4: way to get it one. As we've seen the rise
• 35:24
  Speaker 4: of quants and hedge funds, some of that school of
• 35:29
  Speaker 4: approach is using model to identify stocks that are going
• 35:33
  Speaker 4: to perform well in the future by looking for the
• 35:35
  Speaker 4: traits that have performed well in the past. The problem
• 35:38
  Speaker 4: with that is the assumption that the future will look
• 35:40
  Speaker 4: like the past, and so sometimes it works, sometimes it doesn't.
• 35:43
  Speaker 4: There are two types of screening. You can either screen
• 35:46
  Speaker 4: in for the stocks that are going to be in
• 35:48
  Speaker 4: that one two three percent, or you could screen out
• 35:52
  Speaker 4: the stocks that are the worst of the worst, in
• 35:54
  Speaker 4: the bottom fifty percent, and either of those give you
• 35:58
  Speaker 4: a shot at creating alpha. But still, despite that, the
• 36:04
  Speaker 4: people who outperform the market few and far between. It
• 36:07
  Speaker 4: it's not a majority. Each year. When you look at
• 36:10
  Speaker 4: a twelve month process, you go to five years, eighty
• 36:12
  Speaker 4: three percent fail to beat the benchmark or the market.
• 36:15
  Speaker 4: Ten years it's over ninety percent, And when you go
• 36:17
  Speaker 4: to twenty years, it's virtually nobody. Net of fees, it's
• 36:21
  Speaker 4: a handful of names that we know because they are
• 36:24
  Speaker 4: the exceptions that test the rule. It's buffet, it's Lynch,
• 36:27
  Speaker 4: it's go down the list of I don't know a
• 36:29
  Speaker 4: dozen or two outliers.
• 36:32
  Speaker 5: Speaking of fund managers, one thing in here that I
• 36:35
  Speaker 5: did not know, and I thought this was interesting, is
• 36:37
  Speaker 5: fund managers are good at buying but bad at selling.
• 36:39
  Speaker 1: So you're saying this is the next hot take.
• 36:41
  Speaker 2: By the way, this is the next hot take.
• 36:42
  Speaker 5: It's based on a study you read, but I thought
• 36:45
  Speaker 5: it was interesting because I hadn't really heard of it,
• 36:47
  Speaker 5: And basically, they're good at identifying good stocks, they're just
• 36:51
  Speaker 5: horrible at selling them, and random selling actually outperform their
• 36:55
  Speaker 5: own funds.
• 36:56
  Speaker 4: That's what's so crazy about it. So first, if you
• 36:58
  Speaker 4: just stop and think about it, when you were selecting
• 37:01
  Speaker 4: a stock, you were making a logical decision based on
• 37:05
  Speaker 4: your expectations on products and revenue and profitability, and it's
• 37:10
  Speaker 4: a pretty reasonable thought process. When you're selling a stock,
• 37:15
  Speaker 4: it's somewhat emotional because it's either oh, they're in trouble
• 37:19
  Speaker 4: and I have to get out, or no, this is nothing,
• 37:22
  Speaker 4: I'm not going to sell and you watch it collapse,
• 37:25
  Speaker 4: or oh, these guys disappointed again, I've had enough, And
• 37:28
  Speaker 4: those all seem like very emotional decisions. And the way
• 37:33
  Speaker 4: the study did it is they would look at each
• 37:35
  Speaker 4: of these managers' portfolios and every time they sold, they
• 37:39
  Speaker 4: would take a different stock in their portfolio and randomly
• 37:43
  Speaker 4: sell it and ran the parallel portfolios. And it was
• 37:46
  Speaker 4: worth I think it was worth about one hundred base points.
• 37:48
  Speaker 4: Fifty to one hundred base points. That's a giant number
• 37:52
  Speaker 4: when you're looking for seven eight nine percent a year.
• 37:54
  Speaker 4: It's bonkers. But they're surprisingly good buyers. They're just terrible sellers.
• 37:59
  Speaker 1: I get that.
• 37:59
  Speaker 3: I mean, but if you're like mostly the Vanguard crowd,
• 38:03
  Speaker 3: you would be just like put money in and never sell.
• 38:07
  Speaker 3: So why would you expect them to know how to sell?
• 38:10
  Speaker 4: You sell individual stocks. They don't know how to sell
• 38:13
  Speaker 4: individual stocks. And I think that's pretty clear. The Vanguard
• 38:17
  Speaker 4: holders or the black Rock holders, they sell when they
• 38:20
  Speaker 4: need the money. They sell when they're buying a house
• 38:23
  Speaker 4: or retiring or you know, generational wealth transfer, all that
• 38:26
  Speaker 4: fun stuff. So it's pretty there are reasons to sell.
• 38:31
  Speaker 4: But the question is are you selling a fund or
• 38:33
  Speaker 4: an ETF or you saying I'm going to sell x
• 38:35
  Speaker 4: y Z. Usually they're selling XYZ in response to some
• 38:39
  Speaker 4: external stimuli or suddenly, who's the new shiny thing at
• 38:44
  Speaker 4: the dance. Let's sell XYZ and buy ABC.
• 38:50
  Speaker 1: Next hot take.
• 38:51
  Speaker 5: Politics and investing don't mix. I think you make a
• 38:54
  Speaker 5: good case here. I remember, I just want to make
• 38:57
  Speaker 5: sure we're clear that this is you agree with both
• 38:59
  Speaker 5: sides of the coin, because I find that Let's talk
• 39:01
  Speaker 5: about esgifman, I remember when the anti ESG ETFs came out.
• 39:04
  Speaker 2: You trash them.
• 39:05
  Speaker 5: It's like you were triggered over them and then but
• 39:08
  Speaker 5: you didn't really talk about the esgtfs. I think they
• 39:12
  Speaker 5: are the two sides of the same coin. It's active
• 39:14
  Speaker 5: management disguise, and if you trash one, you kind of
• 39:17
  Speaker 5: have to trash the other.
• 39:18
  Speaker 2: Oh you agree, totally agree.
• 39:20
  Speaker 4: But let me give you a little twist to that. Okay,
• 39:22
  Speaker 4: So we're big direct indexers also primarily for people who
• 39:27
  Speaker 4: have concentrated stock positions and they're managing around a potentially
• 39:31
  Speaker 4: giant capital gains tax. And part of the reason this
• 39:34
  Speaker 4: is the canvas product that was originally O'Shaughnessy. It's now
• 39:37
  Speaker 4: part of Franklin Templeton, and I want to say about
• 39:40
  Speaker 4: a billion five of our five and changes in that product,
• 39:43
  Speaker 4: and we've gotten really good results. I was originally completely
• 39:47
  Speaker 4: wrong about it. I assumed that would be for to
• 39:51
  Speaker 4: quote Meyer Statman, to have the investors' values be reflected
• 39:57
  Speaker 4: in their portfolios, which is kind of what you I
• 40:00
  Speaker 4: heard leading into that. Really the main request we get.
• 40:03
  Speaker 4: I don't want guns. I don't want tobacco. That's the
• 40:06
  Speaker 4: big twist out of that. But it's not and that's
• 40:09
  Speaker 4: for I don't believe in these things. They're doing damage
• 40:12
  Speaker 4: to the country, and I just don't want it, says
• 40:15
  Speaker 4: some people. By the way, if you talk to the
• 40:17
  Speaker 4: folks at the Canvas Group, they'll tell you the portfolios
• 40:20
  Speaker 4: they run for the New York Bishop's Retirement Planning, Like
• 40:24
  Speaker 4: you can tune, Hey, we don't want any of board
• 40:27
  Speaker 4: efficients or anybody that's paying for You could tune it
• 40:30
  Speaker 4: with great precision and take out what you don't want
• 40:32
  Speaker 4: in that. So there are ETFs like Blessed and MAGA.
• 40:37
  Speaker 4: It's Callie Cox's our market strategy. She ran a study
• 40:40
  Speaker 4: and said, here's how much one hundred dollars invested in
• 40:44
  Speaker 4: the market since nineteen fifty it under Republican presidents, under
• 40:48
  Speaker 4: democratic presidents, and under all of them, and I'm doing them.
• 40:51
  Speaker 4: It's a chart in the book. It's like fifty seven
• 40:53
  Speaker 4: dollars under Democrat Republican pregnant presidents, and seventy two dollars
• 40:57
  Speaker 4: under Republican presidents unles I'm gonna have, and like twelve
• 41:01
  Speaker 4: hundred dollars under all presidents. And so just making that
• 41:05
  Speaker 4: bet seems to be really foolish. Another great study in
• 41:09
  Speaker 4: there is looking at zip codes and seeing how people
• 41:11
  Speaker 4: traded in response to presidential So you could tell us
• 41:14
  Speaker 4: it a red or a blue zip code, and if
• 41:18
  Speaker 4: it's a blue zip code and a red person is
• 41:20
  Speaker 4: elected president, they move to cash. If it's a red
• 41:23
  Speaker 4: zip code and a blue president is elected, they moved
• 41:25
  Speaker 4: to cash. Partisan bias that hurts portfolios knows no party.
• 41:32
  Speaker 4: It's just human nature making bad emotional decisions.
• 41:36
  Speaker 1: Very else, how about to invest? Thanks for joining us.
• 41:39
  Speaker 3: On trillions, Thank you for having me, Thanks for listening
• 41:48
  Speaker 3: to Trillions.
• 41:48
  Speaker 1: Until next time.
• 41:49
  Speaker 3: You can find us on the Bloomberg terminal, Bloomberg dot com,
• 41:52
  Speaker 3: Apple Podcasts, Spotify.
• 41:54
  Speaker 1: Or wherever else you'd like to listen. We'd love to
• 41:56
  Speaker 1: hear from you.
• 41:57
  Speaker 3: Hit us up on social I'm at Joel webershow at
• 42:00
  Speaker 3: Eric Balcinis. Trillions is produced by Magnus Henrikson. Brendan Newman
• 42:04
  Speaker 3: is our executive producer. Sage Bauman is the head of
• 42:07
  Speaker 3: Bloomberg Podcast