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Speaker 1: This is Masters in Business with Barry Ridholds on Bloomberg Radio.

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Speaker 1: This week on Masters in Business, I have a special guest.

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Speaker 1: His name is Dr Robert Johnson. He is currently the

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Speaker 1: President of the American College of Finance. In his previous job,

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Speaker 1: he was a senior person at the cf A Institute,

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Speaker 1: where he pretty much was in charge of the Chartered

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Speaker 1: Financial Analyst Test. You can only take one part per year,

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Speaker 1: pass part one, and you have to wait a year

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Speaker 1: to pass part two, and then ultimately take the third

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Speaker 1: part in the third year. It has about a fifty

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Speaker 1: fail rate and a lot of people look at it

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Speaker 1: as a um really a most challenging exam they'll ever

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Speaker 1: encounter in their career in finance. We discuss all sorts

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Speaker 1: of things, everything from the value of value investing to

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Speaker 1: the impact of the FED on the investment process. UH,

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Speaker 1: if you are at all interested in how people become

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Speaker 1: certified to actually be c f A s and what

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Speaker 1: the value of those those letters are to either a

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Speaker 1: company or an investment bank or or an analyst, I

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Speaker 1: think you'll find this conversation quite interesting. Bob is really

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Speaker 1: an interesting guy to talk to. He's very knowledgeable about

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Speaker 1: a lot of areas tells some great stories about Warren Buffett.

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Speaker 1: One of the books he wrote, which is called Strategic

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Speaker 1: Value Investing, is on Buffets reading list. Every year at

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Speaker 1: Berkshire Hathaway's annual fest they have a list of suggested books.

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Speaker 1: His book has been on that list for quite some time. Anyway,

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Speaker 1: I found him to be just a genuine, fascinating, interesting guy,

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Speaker 1: and I think you'll enjoy the conversation. So, with no

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Speaker 1: further ado, my conversation with Dr Robert Johnson. This is

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Speaker 1: Masters in Business with Barry Ridholts on Bloomberg Radio. My

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Speaker 1: special guest this week is Dr Robert Johnson. Let me

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Speaker 1: just give you the short version of his curriculum VITA.

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Speaker 1: He is currently President and CEO at the American College

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Speaker 1: of Financial Services UH. He has been the recipient of

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Speaker 1: the Alfred C. Morley Distinguished Service Award when he was

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Speaker 1: one of the senior folks at the c f A Institute.

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Speaker 1: He has won the RFK Memorial Student Award for teaching achievement.

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Speaker 1: Serves on the editorial board of the Journal of Portfolio Management.

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Speaker 1: He really helped to develop and refine the Chartered Financial

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Speaker 1: Analyst test. Will get to that later. Today. He is

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Speaker 1: the author of numerous books, including Invest with the FED,

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Speaker 1: Strategic Value Investing, and Tools and Techniques of Investment Planning.

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Speaker 1: Dr Robert Johnson, Welcome to Bloomberg. Thank you very It's

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Speaker 1: terrific to be here. I'm thrilled to have you. We

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Speaker 1: met previously on Tom Keene Show, and I found it fascinating.

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Speaker 1: What are unique niche in the world of finance that

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Speaker 1: you occupy sort of one foot in the world of

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Speaker 1: academia and one foot in the world of actually helping

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Speaker 1: um people become chartered financial analysts. So so let's talk

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Speaker 1: a little bit about your background. When people when you

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Speaker 1: first meet people and they say, hey, Bob, what do

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Speaker 1: you do for a living? How do you answer that question, Barry,

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Speaker 1: I tell him I'm a pracademic. A pracademic, and that's

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Speaker 1: the word that I hope sometime comes into lexicon, the

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Speaker 1: popular lexicon. I hope it's in Wikipedia someday, maybe even

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Speaker 1: in Websters. But basically, a procademic is somebody who operates

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Speaker 1: both in the world of the practitioner and in the

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Speaker 1: world of academia. And unfortunately, I don't think that those

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Speaker 1: circles if you look at it in a Van Diagram

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Speaker 1: sense intersect very often, and I think that if we

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Speaker 1: had more of that, I think both worlds would benefit.

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Speaker 1: So that's that's fascinating. One of the questions I wanted

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Speaker 1: to ask you was you've sort of gone back and

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Speaker 1: forth between being a practitioner and being an academic. How

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Speaker 1: does one make that transition in either direction? How do

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Speaker 1: you go from a practitioner to an academic and vice versa. Well,

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Speaker 1: I think if you stay close to the edge of

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Speaker 1: each that it isn't much of a transition. When I

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Speaker 1: was a finance professor at Creighton University, I also ran

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Speaker 1: a money management firm. I had about fifty million dollars

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Speaker 1: under management of private wealth, and I was a much

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Speaker 1: better teacher because I was actually managing money. And I

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Speaker 1: think the same is true in reverse. I think that

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Speaker 1: folks who practice, if they look at the best in academia,

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Speaker 1: can benefit greatly. So I I really don't think it's

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Speaker 1: a tough transition if you if you kind of stay

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Speaker 1: close to the edge. Fortunately, I think people want to

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Speaker 1: operate in the center of those circles instead of where

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Speaker 1: they overlap. You know, we use so much academic research

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Speaker 1: in our regular practice. Whether it's the behavioral side as

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Speaker 1: to how people misbehave, or just classic UM portfolio management theory.

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Speaker 1: There's a lot of things to be learned from people

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Speaker 1: who are spending lots of time just doing deep thought.

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Speaker 1: You mentioned you were running a relatively small asset management business,

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Speaker 1: but you've also been an outside director on some fairly

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Speaker 1: substantial UM multibillion dollar management firms. What does the academic

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Speaker 1: bring to a twenty plus billion dollar funds and how

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Speaker 1: does that help you? How does being on a huge

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Speaker 1: twenty billion dollar funds board help you as an educator? Well,

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Speaker 1: I think it's discipline and rigor that that the academic

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Speaker 1: can bring to the to the asset manager, and I

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Speaker 1: think it's the best of academic research. Or instance, one

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Speaker 1: of the things we looked at when I was was

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Speaker 1: on the funds board that I was on was executive compensation. Well,

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Speaker 1: I happen to have done my dissertation and executive compensation,

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Speaker 1: and basically what my research showed was that incentive stock

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Speaker 1: options change the way people worked. So I think when

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Speaker 1: you bring some empirical evidence to the table that it

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Speaker 1: no longer is just anecdotal that I think it really

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Speaker 1: brings it to light and people can see that their

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Speaker 1: substantive research behind a lot of the findings, So not

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Speaker 1: just a story, but actual data that that underlines it. Look,

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Speaker 1: as long as you brought it up, let's talk a

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Speaker 1: little bit about executive compensation. My concern about stock options

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Speaker 1: are that you're paying people for based how well the

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Speaker 1: stock market does, as opposed to how much they've improved

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Speaker 1: the underlying company. True of false, true the delta. What

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Speaker 1: what you really would like to measure is the delta

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Speaker 1: how much how how much that particular executive change the

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Speaker 1: way that company operated, And too often they're just paid

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Speaker 1: for a tailwind. The market goes up, the sector goes up,

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Speaker 1: and your company within that sector is going to participate

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Speaker 1: in both of those, whether you're great or terrible, there's

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Speaker 1: going to be some overlap there exactly, and there's no

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Speaker 1: pure element. It's it's it's so difficult to disentangle the effects.

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Speaker 1: So let's talk about another rising tide. And in the

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Speaker 1: last minute and a half we have in the segment

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Speaker 1: you wrote the role of monetary policy and investment management.

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Speaker 1: Uh said differently, I was always taught don't fight the Fed.

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Speaker 1: What is the proper role of monetary policy? In investment management.

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Speaker 1: The curious thing is that when you say don't fight

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Speaker 1: the FED. Um. When I started that line of research,

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Speaker 1: I was an asset manager and I noticed and this

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Speaker 1: is in the late eighties. So remember in the late eighties,

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Speaker 1: the people in the industry didn't know who the chairman

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Speaker 1: of the FED to reserve it was. People didn't know

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Speaker 1: people didn't know what the FED was. Now it's front

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Speaker 1: page news. So if you put yourself back in there,

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Speaker 1: I noticed that when the FED changed policy, it influenced

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Speaker 1: asset prices, and so I wanted to rigorously study that

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Speaker 1: and empirically study that lo and behold. I started these

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Speaker 1: studies in the early nineties, and the culmination actually was

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Speaker 1: the book invest with the FED that was recently just

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Speaker 1: published by McGraw hill. We're gonna get to that in

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Speaker 1: a little while. That's on my list of things to

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Speaker 1: chat about. I'm Barry rid Helts. You're listening to Masters

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Speaker 1: in Business on Bloomberg Radio. My special guest this week

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Speaker 1: is Dr Robert Johnson. He is the president of the

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Speaker 1: American College of Financial Services. Before that, he was a

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Speaker 1: very senior person at the CIFA Institute, where he had

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Speaker 1: a lot to do with the Chartered Financial Analyst Test

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Speaker 1: the CIFA exam Levels one, two, and three as it's

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Speaker 1: known and hated. Let's talk a little bit about the

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Speaker 1: institute first. What exactly is the c f A Institute

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Speaker 1: c fan Stude is basically two things. The cf an

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Speaker 1: Stude is the organization that rights and administers the c

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Speaker 1: f A exams, and cfn Stute is also a membership organization.

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Speaker 1: To maintain the c f A charter, one needs to

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Speaker 1: be a member of cf A Institute, so it's a

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Speaker 1: membership organization. I believe the numbers now are probably about

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Speaker 1: a hundred fifty thousand people, So there's a hundred fifty

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Speaker 1: thousand cf A s out there in the world. You

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Speaker 1: can be a member of cf A Institute without being

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Speaker 1: a c f A. Very few are the lion share

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Speaker 1: of people are c f A charter holders, are cf

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Speaker 1: A candidates, some cf A candidates members safe to say

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Speaker 1: a hundred thousand people have gone through all three exams,

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Speaker 1: past all three exams, well, I think I think it's

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Speaker 1: probably more than that because the exam started in sixty three,

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Speaker 1: so some of those folks have died, so I think

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Speaker 1: that you've probably got over somewhere between a hundred and

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Speaker 1: probably i'd a quarter and UM, what were your what

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Speaker 1: was your role at the cf A Institute. You've had

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Speaker 1: a number of positions within the institute. It's funny, Barry,

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Speaker 1: I Uh, I'm laughing because I was at Creighton University.

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Speaker 1: I was a tenured full professor of finance, last of

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Speaker 1: the landed gentry in America, and c f A Institute

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Speaker 1: came calling and said that they would like me to

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Speaker 1: come and work on the curriculum. So I took a

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Speaker 1: two year leave of absence in n and I was

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Speaker 1: hired to UH to run the curriculum development process UM too.

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Speaker 1: About almost two years into the process, I was promoted

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Speaker 1: to being head of the c f A program, the

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Speaker 1: whole thing, the curriculum, exams, administering the exams, standard setting

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Speaker 1: the exams, the whole thing. So I resigned tenure at

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Speaker 1: cf at Creighton University and stayed on at cf A Institute.

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Speaker 1: A few years later UM, I would promoted to being

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Speaker 1: in charge of all educational products they do. Cf A

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Speaker 1: does some other educational They have the Certificate Investment Performance

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Speaker 1: Measurement UM. They run the Financial Analyst Journal UM. A

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Speaker 1: lot of professional publications, conferences and so forth. So I

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Speaker 1: was in charge of all of those UM. Later on

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Speaker 1: I was promoted to being Deputy CEO UM basically second

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Speaker 1: in command at CFA Institute and manage the lions share

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Speaker 1: of the organization reported up through to me at that time.

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Speaker 1: So uh and I ended up leaving in two thousand eleven.

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Speaker 1: So I was there fifteen years. Your your bio says

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Speaker 1: that you have quote extensive experience with the credentialing programs UNE.

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Speaker 1: Now in English, what exactly does that mean. Well, there's

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Speaker 1: a profession that's known as psychometrics, and these are people

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Speaker 1: who have PhDs in measurement and testing. This is the

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Speaker 1: science of test ng and the science of determining who

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Speaker 1: has indeed passed an examination. So what I did when

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Speaker 1: I was at cf Institute was I knew we were

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Speaker 1: good at finance, and we were good at investments, but

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Speaker 1: I was convinced we really weren't very good at developing

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Speaker 1: curriculum that was great for the distance learner. And I

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Speaker 1: certainly didn't think we knew how to write exam questions

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Speaker 1: like someone who studied that for a living did. So

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Speaker 1: I brought psychometricians into the process and Basically what I

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Speaker 1: what I believe happened is we professionalize the process of

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Speaker 1: writing the exams, developing the curriculum and so forth. I

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Speaker 1: love that expression, the distance learner, the person who's not

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Speaker 1: just memorizing something temporarily but learning it for the long haul. Well,

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Speaker 1: and the other thing Barry with the c f A

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Speaker 1: program was the lion's share of the candidates now or

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Speaker 1: from outside of North America, many for many of whom

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Speaker 1: English is a second language. So you have to take

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Speaker 1: that into account when fighting the curricular materials and writing

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Speaker 1: the exams. And that's a big factor. Now, um, you know,

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Speaker 1: just interest, just nomenclature and and just common terminology, no shorthand,

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Speaker 1: no colloquialisms. It has to be the queen's tongue so

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Speaker 1: to speak right. You have to think about the person

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Speaker 1: in in Thailand or in Cambodia or in uh in

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Speaker 1: Kenya who's studying this, who it isn't familiar with colloquial English. Huh,

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Speaker 1: that's that's really never thought about that before. That's quite interesting.

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Speaker 1: So the cf A exam has a reputation for being

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Speaker 1: a killer, especially um. Two of the levels are known

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Speaker 1: as being notoriously hard. The fail rate is fairly high.

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Speaker 1: What what is the fail rate on the each cf

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Speaker 1: A level? Gosh? Now, I believe the fail rate on

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Speaker 1: level one is about six the fail rate more than half? Right,

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Speaker 1: The fail rate on level two is I believe it

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Speaker 1: more than half, but still more than half. Failure rate

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Speaker 1: on level three is less than just you know, you

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Speaker 1: don't even have to study now the entrance walk right

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Speaker 1: through that. It's only like a forty eight percent fail rate?

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Speaker 1: Are you could cram in like an hour? Barry every year.

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Speaker 1: I used to get letters and phone calls when I

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Speaker 1: was in charge of the CFA program and people said, well,

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Speaker 1: you must have some mistake. I got a letter that

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Speaker 1: said I failed the exam. There must be some mistake there.

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Speaker 1: I have a degree from fill in your blank, Ivy

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Speaker 1: League University. I've never failed any exam in my life.

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Speaker 1: And something is wrong with you folks. Doesn't the Sea

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Speaker 1: Institute know about the gentleman cy? And the interesting thing

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Speaker 1: there is that my response and I didn't respond in

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Speaker 1: these terms, but um I I did a much nicer

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Speaker 1: way than this. But I used to say, you know,

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Speaker 1: this is a meritocracy. We don't know who you are.

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Speaker 1: We don't know your lineage. It's how you do on

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Speaker 1: that exam, and it means at eight percent of the

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Speaker 1: candidates did better than you. And and you know, we

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Speaker 1: had people from community colleges that were passing the exam

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Speaker 1: and I used to say, you know, I think you

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Speaker 1: might want to write your letter to your alma mater

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Speaker 1: instead of us. They're the ones that failed you. So

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Speaker 1: in the last minute or so, we have left. What

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Speaker 1: does this credential NG do for investors? What does it

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Speaker 1: do for corporate clients, and what does it do for

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Speaker 1: investment banks? I think it really ups people's game. And

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Speaker 1: when somebody is hiring a c FA charter holder around

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Speaker 1: the world, and this is the same whether you're in Um,

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Speaker 1: you know, Lagos, Nigeria, or Miami, Florida, you've gone through

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Speaker 1: the same exam. If you have the letter c f

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Speaker 1: A behind your name, it means the same thing. And

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Speaker 1: you've attained that that that that level. And I think

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Speaker 1: that employers know that you're really getting someone who not

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Speaker 1: only has mastered a body and knowledge, but really had

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Speaker 1: the discipline to go through it. Because it's an arduous process.

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Speaker 1: As you said, in fact Um, most of the successful

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Speaker 1: people failed at least one of those exams, and it's

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Speaker 1: tough when those exams are only given with level two

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Speaker 1: and three are only given once a year. So you

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Speaker 1: really gotta buckled down and say, now I got to

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Speaker 1: redo this all over and do even more work than

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Speaker 1: I did last time. And I think it's a signal

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Speaker 1: to UH two investors, to clients that these are these

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Speaker 1: folks are bit really best to breed. I'm Barry Ridholtz.

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Speaker 1: You're listening to Masters in Business on Bloomberg Radio. My

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Speaker 1: special guest today is Dr Robert Johnson. He is the

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Speaker 1: head of the American College of Financial Services. He used

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Speaker 1: to run the entire cf A Institute Chartered Financial Analyst

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Speaker 1: Testing program and the curriculum program, and is extremely knowledgeable

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Speaker 1: about all things cf A related. Let's talk about a

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Speaker 1: book you wrote way back when, called The Tools and

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Speaker 1: Techniques of Investment Planning. What what motivated you do to

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Speaker 1: pen a book of such a title. To be perfectly

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Speaker 1: honest with you, I want to do I have had

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Speaker 1: a relationship of professional relationship with the individual that I

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Speaker 1: wrote it with, and it was an excuse for us

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Speaker 1: to uh stay together. He worked with me at c

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Speaker 1: FA Institute and it was an opportunity to continue working

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Speaker 1: with him. His name is Tom Robinson. Tom is now

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Speaker 1: the president and CEO of Double A CSB International, the

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Speaker 1: accredited the Double A c s B, the accrediting agency

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Speaker 1: that does uh collegiate schools of business. Oh, really, collegiate

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Speaker 1: schools of business. So anybody who wants to my alamont

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Speaker 1: is Stonybrook. They added a school of business recently. They

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Speaker 1: had to jump through his hoops. They have to jump

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Speaker 1: through those hoops recently, years ago, recently. Um, that's interesting.

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Speaker 1: I don't even know such a thing. I assumed it existed.

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Speaker 1: I never knew what the acronym it was. So let's

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Speaker 1: talk a little bit about the details of that. What

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Speaker 1: should clients expect from their relationship with their financial advisor.

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Speaker 1: They should expect that that financial advisor is acting in

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Speaker 1: their interest. And unfortunately, what we have now is that

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Speaker 1: the landscape, I believe, is that we have what you

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Speaker 1: would refer to Barry as a financial services industry and

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Speaker 1: not a financial services profession. And I think you're a

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Speaker 1: profession if you have three qualities, and those three qualities

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Speaker 1: or knowledge that the second is that you have some experience,

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Speaker 1: and the third thing that makes you a professional is

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Speaker 1: that you aspire to a code of ethics. And whether

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Speaker 1: you're a doctor, whether you're a lawyer or an architect,

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Speaker 1: whatever your profession, a profession has to have those three elements.

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Speaker 1: And I think that's why, unfortunately the financial services financial

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Speaker 1: services is referred to as an industry instead of a profession.

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Speaker 1: And one of the things we want to do with

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Speaker 1: the American College that C. F. Anstude is doing in

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Speaker 1: the investment management realm, in financial planning is we want

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Speaker 1: to make financial services a profession. That's what we buyer

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Speaker 1: to do. So I'm on the same side of the

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Speaker 1: boat as you. I think we should have a fiduciary standard.

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Speaker 1: I think the best interests of the client should be paramount.

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Speaker 1: But let me, however, briefly take the other side of

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Speaker 1: the argument. This is what in the we just finished

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Speaker 1: a fairly robust debate about the fiduciary standard on retirement accounts.

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Speaker 1: I argued against people who said we shouldn't do that.

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Speaker 1: I said, there's no reason we shouldn't. But let me

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Speaker 1: push back, and and here's the argument that they said, Well,

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Speaker 1: if we're on the brokerag side, we have our own

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Speaker 1: ethical code that we're obligated to be maintain a certain

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Speaker 1: level of ethical standard. We may not have a fiduciary obligation,

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Speaker 1: but we certainly have to know our clients and have

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Speaker 1: only offer them suitable investments. And if we engage in

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Speaker 1: any behavior that transgresses from that, we could be penalized

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Speaker 1: or or I heard from the industry, what's what's wrong

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Speaker 1: from with that argument? I think suitability burries a pretty

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Speaker 1: low hurdle, to say the least. But I'm trying really

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Speaker 1: hard to take that side of the case. It's not easy.

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Speaker 1: I don't think I really don't think there's a lot

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Speaker 1: of people that oppose the statement that that people in

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Speaker 1: the financial services and i'll say profession here should act

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Speaker 1: as a fiduciary. I don't think there are many people

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Speaker 1: would argue with that. Where people are arguing is this

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Speaker 1: fiduciary standard, and that that it is fairly nebulous. For instance,

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Speaker 1: reasonable fees. We'll define what reasonable fees are, define how

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Speaker 1: much somebody needs to know in terms of fulfilling that

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Speaker 1: fiduciary standards. So let's separate that fact that we all

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Speaker 1: agree that people should be a fiduciary with the fact

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Speaker 1: that of course, the devil's in the details. Well, there

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Speaker 1: are such things as best practices. You can could average costs,

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Speaker 1: and there's always a gray line. Well, if the averages,

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Speaker 1: I'm going to use a fat round number. If the

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Speaker 1: average is one percent, and you think you're doing something

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Speaker 1: special and you're charging one in a quarter and one

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Speaker 1: and a half percent, I don't think anyone's gonna argue

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Speaker 1: that that is uxurious. On the other hands, when we

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Speaker 1: see nine percent and really multiples of an average one percent,

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Speaker 1: that that's a pretty bright line variation. So where it

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Speaker 1: gets a little challenging is okay, one percent is is standard.

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Speaker 1: One in a quarter is a little high, but it's

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Speaker 1: not ridiculous one and a half, especially for smaller accounts.

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Speaker 1: The question becomes, shouldn't it simply be what's in the

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Speaker 1: best interest of the client? Hey, here's our fee structure.

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Speaker 1: Were transparent, We're gonna disclose our fees. It's all out

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Speaker 1: in the open. There's no conflicts. Nobody else is paying

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Speaker 1: us uh under the table, it's all here in front

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Speaker 1: of you. It should be fairly easy to make the

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Speaker 1: interest of the clients that that shouldn't be a challenging standard.

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Speaker 1: Best interest or fiduciary should it? I think the worry is,

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Speaker 1: after the fact, how are you going to judge best interest?

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Speaker 1: And let me give you just uh an idea of

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Speaker 1: what I mean. Most of the studies out there, and

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Speaker 1: you know this, most of the studies out there show

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Speaker 1: that active managers underperform the indexes over the long haul. Right,

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Speaker 1: So if you take the fiduciary standard, and I know

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Speaker 1: that it's not going to be taken to the limit,

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Speaker 1: but if you take the fiduciary standard to the limit, gosh,

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Speaker 1: isn't the best interest to put people in index funds

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Speaker 1: that are virtually no cost? Now because index funds the

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Speaker 1: cost has gone to zero, and the wealth of the

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Speaker 1: evidence shows that at most active managers failed to beat

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Speaker 1: I think, listen, that's how I manage money. But that's

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Speaker 1: not what necessarily what everybody wants. Some people. If someone

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Speaker 1: says to me, look, I would be bored with that

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Speaker 1: and I wouldn't be able to stay with So I

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Speaker 1: need something just to keep me interested. You could talk

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Speaker 1: till you're blue in the face to that person. I

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Speaker 1: could say, look, all the academic data says overwhelmingly your

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Speaker 1: best bet is low cost. Broadly diversified global indices, you

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Speaker 1: rebalance it regularly, see you next year. Investing should be boring.

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Speaker 1: If a person says to me, I can't do that,

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Speaker 1: that would board me out of my mind. Then I

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Speaker 1: know in six months i'd be on too. The next advisor.

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Speaker 1: Well me personally, I would say, well, let me save

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Speaker 1: you the six months and go find another advisor now,

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Speaker 1: and we'll we'll just say, hey, this isn't a great fit.

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Speaker 1: But what about the advisor who understands that this guy

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Speaker 1: needs a little excitement in his life and and Sunday

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Speaker 1: night football doesn't get it done for him, and understands

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Speaker 1: the risk he's taking. It's weird for me to make

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Speaker 1: this argument because I don't believe any of it. But

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Speaker 1: he understands the risk he's taking in order to try

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Speaker 1: and capture alpha, that he might actually forego beta. But

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Speaker 1: he needs some of his portfolite. Here. We'll take ten percent.

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Speaker 1: We'll put you in this high octane slug and maybe

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Speaker 1: that will keep you focused on this so we could

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Speaker 1: let the bulk of your portfolio do what it's supposed

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Speaker 1: to do. If a client understands and wants that, is

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Speaker 1: it in his best interest to give him the medicine

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Speaker 1: that he doesn't want, isn't going to take and is

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Speaker 1: going to move on at a certain point, doesn't the

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Speaker 1: behavior of the investor become a question. Oh, I wouldn't

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Speaker 1: force it on anybody. But what I'm saying is the

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Speaker 1: lay investor that comes to the advisor, I mean, the

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Speaker 1: default to me would be indexing given the evidence under

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Speaker 1: the fiduciary standard. So I just think that the devil's

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Speaker 1: in the details. And and after the fact, if somebody

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Speaker 1: put an investor in active funds that underperformed, is that

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Speaker 1: active manager going to be is that is that person

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Speaker 1: going to be liable? And I don't know that we

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Speaker 1: know that yet. I don't think we could say after

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Speaker 1: the fact that if you went active because a client

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Speaker 1: requested it, and we know of active managers don't hit

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Speaker 1: their benchmark, Look, we can look at it over a decade.

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Speaker 1: Once you're taking cost fees, taxes. Almost nobody outperforms the

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Speaker 1: indexes over a deck, you know. But I'm even saying

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Speaker 1: the investor that comes, the lay investor that comes and

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Speaker 1: doesn't have a predisposition toward active or passive, and the

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Speaker 1: the advisor puts them in active, why did this advisor.

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Speaker 1: Investor go to this advisor. There are a lot of questions,

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Speaker 1: look the way, so let me I try not to

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Speaker 1: talk about my practice on the air because it's too

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Speaker 1: easy to just digress. But we set stuff up so

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Speaker 1: that there's a three step process, and step one is, hey,

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Speaker 1: are we a good fit for you? When we have

429
00:25:44,720 --> 00:25:48,040
Speaker 1: a client, content or prospective client contact us, and the

430
00:25:48,080 --> 00:25:50,840
Speaker 1: first thing he's doing is what's your sharp ratio? How

431
00:25:50,920 --> 00:25:52,919
Speaker 1: much draw down can I expect? How much should I

432
00:25:52,920 --> 00:25:56,679
Speaker 1: expect to outperform the market? You know that those are

433
00:25:56,720 --> 00:26:00,000
Speaker 1: red flags that let us force us to say, listen,

434
00:26:00,280 --> 00:26:03,400
Speaker 1: let we appreciate your interest, let us explain what we do.

435
00:26:04,359 --> 00:26:06,680
Speaker 1: And based on what you're describing, we're not sure you're

436
00:26:06,680 --> 00:26:09,240
Speaker 1: a good fit. But here's what we do, Global low

437
00:26:09,280 --> 00:26:12,399
Speaker 1: cost index blah blah blah. But you were looking for

438
00:26:12,440 --> 00:26:14,840
Speaker 1: a little more juice. Now let's figure out what you

439
00:26:14,880 --> 00:26:17,240
Speaker 1: really want need when you canna retire, when you gonna

440
00:26:17,280 --> 00:26:20,680
Speaker 1: draw down kids in college blah blah blah. And when

441
00:26:20,720 --> 00:26:23,960
Speaker 1: we get to how the money is deployed. If you

442
00:26:24,040 --> 00:26:25,879
Speaker 1: want to have a slug, if you want to have

443
00:26:25,880 --> 00:26:30,480
Speaker 1: a sleeve of your money in a really sexy high octane,

444
00:26:30,960 --> 00:26:33,280
Speaker 1: shoot the lights out when the times are good, but

445
00:26:34,000 --> 00:26:37,240
Speaker 1: get she lacked when the times are bad. Sort of sleeve.

446
00:26:37,920 --> 00:26:41,520
Speaker 1: We work with other third party managers. Just somebody who

447
00:26:41,560 --> 00:26:43,800
Speaker 1: I know offers that there's a handful of people who

448
00:26:43,840 --> 00:26:46,600
Speaker 1: were great at it, but we don't think that's the

449
00:26:46,640 --> 00:26:48,920
Speaker 1: best thing for you over the long haul. We think

450
00:26:48,920 --> 00:26:51,320
Speaker 1: over the long haul, hey, the market's going to give

451
00:26:51,320 --> 00:26:54,160
Speaker 1: you a certain amount with the lowest cost, the lowest

452
00:26:54,200 --> 00:26:56,359
Speaker 1: amount of risk, the lowest turn over, the lowest taxes,

453
00:26:56,359 --> 00:26:59,600
Speaker 1: blah blah blah blah blah. So sometimes you have to

454
00:26:59,760 --> 00:27:04,080
Speaker 1: look at a client who I swear this is true.

455
00:27:04,119 --> 00:27:06,280
Speaker 1: I tell this to people, and nobody believes me. I

456
00:27:06,320 --> 00:27:09,920
Speaker 1: got an email about five years ago from somebody who

457
00:27:10,000 --> 00:27:14,560
Speaker 1: who send says to me, um, I just inherited a

458
00:27:14,600 --> 00:27:16,360
Speaker 1: big slug of money, and I want to give half

459
00:27:16,359 --> 00:27:20,520
Speaker 1: a million dollars to five advisors, and whoever does the best,

460
00:27:20,800 --> 00:27:23,200
Speaker 1: I'm going to give ten million to. That's the money

461
00:27:23,200 --> 00:27:25,399
Speaker 1: behind it, and what was the best over what time period?

462
00:27:25,680 --> 00:27:28,199
Speaker 1: Over a year? So so I wrote him back and

463
00:27:28,240 --> 00:27:32,520
Speaker 1: said thank you, but no thanks. But before you dismiss

464
00:27:32,560 --> 00:27:35,879
Speaker 1: my dismissing of your offer, let me explain to you

465
00:27:35,920 --> 00:27:39,720
Speaker 1: what you just did. You just created created um a

466
00:27:39,840 --> 00:27:45,040
Speaker 1: game theory agency issue where you've incentivized five managers. They

467
00:27:45,080 --> 00:27:47,440
Speaker 1: know the odds are only one in five that you're

468
00:27:47,440 --> 00:27:50,879
Speaker 1: gonna they're gonna win, So you've incented them to swing

469
00:27:51,000 --> 00:27:53,760
Speaker 1: for the fences. And if they lose, well, I got

470
00:27:53,840 --> 00:27:57,080
Speaker 1: a year fees out of this guy, and if they win,

471
00:27:57,520 --> 00:28:01,119
Speaker 1: you can't tell the difference between lat repeatable process. So

472
00:28:01,760 --> 00:28:06,320
Speaker 1: no matter what, you just wasted a quarter two million dollars,

473
00:28:06,359 --> 00:28:09,000
Speaker 1: and heaven forbid, you give money to the guy who

474
00:28:09,040 --> 00:28:11,520
Speaker 1: did the best, and it has nothing to do with

475
00:28:11,560 --> 00:28:14,560
Speaker 1: how he should manage your ten million dollars. The question

476
00:28:14,680 --> 00:28:17,680
Speaker 1: you should be asking is what do I want to

477
00:28:17,760 --> 00:28:20,480
Speaker 1: use this money for money as a tool? How best

478
00:28:20,560 --> 00:28:22,960
Speaker 1: can I do that with the least amount of risk

479
00:28:23,040 --> 00:28:25,760
Speaker 1: to myself and my family? And where what is this

480
00:28:25,800 --> 00:28:28,760
Speaker 1: going to do for me over the next sixty years

481
00:28:28,760 --> 00:28:31,480
Speaker 1: and beyond not who's going to shoot the lights out?

482
00:28:31,520 --> 00:28:34,600
Speaker 1: So I have bragging rights at a cocktail party, but

483
00:28:34,960 --> 00:28:37,440
Speaker 1: nobody you know? So I never heard from that guy again.

484
00:28:37,480 --> 00:28:39,840
Speaker 1: And I swear that was the email. I remember it

485
00:28:40,000 --> 00:28:42,520
Speaker 1: was a million of person or a half of whatever

486
00:28:42,520 --> 00:28:47,480
Speaker 1: it was. It was some idiotic thing. When we look

487
00:28:47,600 --> 00:28:50,440
Speaker 1: at the right way to manage money for clients, is

488
00:28:50,520 --> 00:28:54,600
Speaker 1: that really that person, what that person wants or what

489
00:28:54,760 --> 00:28:58,880
Speaker 1: that person needs is should be paramounts. So so that's

490
00:28:58,880 --> 00:29:01,480
Speaker 1: the question. UM. I don't mean to go on a

491
00:29:01,520 --> 00:29:04,920
Speaker 1: massive digression in the last minute we have in this section.

492
00:29:05,320 --> 00:29:09,240
Speaker 1: Let me ask one short question. What is it that

493
00:29:09,360 --> 00:29:12,400
Speaker 1: the industry is doing right and and what's its biggest flaw.

494
00:29:15,280 --> 00:29:18,719
Speaker 1: I think that the biggest flaw is that the industry

495
00:29:19,120 --> 00:29:23,680
Speaker 1: doesn't encourage enough people to invest enough. And I don't

496
00:29:23,680 --> 00:29:27,000
Speaker 1: mean invest a large amount of money. I mean invest

497
00:29:27,200 --> 00:29:30,760
Speaker 1: people want to speculate. You talked about that. We're in

498
00:29:30,840 --> 00:29:35,920
Speaker 1: an era of four seven. People can check their account balances.

499
00:29:36,680 --> 00:29:40,600
Speaker 1: We have people that are constantly moderate monitoring what they're doing,

500
00:29:41,600 --> 00:29:45,640
Speaker 1: and people want this action. You know, it used to

501
00:29:45,680 --> 00:29:48,160
Speaker 1: be bury when I was back when I was teaching

502
00:29:48,160 --> 00:29:50,960
Speaker 1: at Creighton. I used to record on VHS tape. So

503
00:29:51,000 --> 00:29:53,440
Speaker 1: that's how long ago it was Wall Street Week with

504
00:29:53,600 --> 00:29:58,440
Speaker 1: Chris Verkeiser. We've gone from Wall Street Week now to

505
00:29:58,880 --> 00:30:02,680
Speaker 1: Jim Kramer scream mad Money. I heard something the other

506
00:30:02,760 --> 00:30:06,880
Speaker 1: day on one of the twenty four seven UM business

507
00:30:06,880 --> 00:30:10,479
Speaker 1: business networks that was really interesting. There was a debate

508
00:30:11,320 --> 00:30:14,760
Speaker 1: between two folks on a particular stock and they said, well,

509
00:30:14,840 --> 00:30:18,200
Speaker 1: let's let's figure out over the long term. We'll come

510
00:30:18,200 --> 00:30:20,640
Speaker 1: back over the long term and figure out who's right.

511
00:30:21,160 --> 00:30:23,280
Speaker 1: And they said, yeah, we'll come back in six months.

512
00:30:24,120 --> 00:30:27,760
Speaker 1: So six months has become the long term. I think

513
00:30:27,800 --> 00:30:32,880
Speaker 1: that that is the industry I believe is not doing

514
00:30:33,040 --> 00:30:37,160
Speaker 1: enough to promote investing and is you know, looking at

515
00:30:37,480 --> 00:30:40,680
Speaker 1: a speculating It's funny because over the course of my career,

516
00:30:41,320 --> 00:30:45,440
Speaker 1: my holding periods have gone from minutes, two months, two years,

517
00:30:45,480 --> 00:30:47,680
Speaker 1: to deck. I started out as a trader and if

518
00:30:47,720 --> 00:30:49,360
Speaker 1: you had to hold something for twenty minutes, it was

519
00:30:49,400 --> 00:30:53,760
Speaker 1: a long time, and then it slowly moved to long

520
00:30:53,800 --> 00:30:56,160
Speaker 1: long term being defined as six months to a year,

521
00:30:56,160 --> 00:30:58,920
Speaker 1: and now long term is decades. So I kind of

522
00:30:59,680 --> 00:31:03,680
Speaker 1: did full one eighty from my early days. But I

523
00:31:03,720 --> 00:31:06,800
Speaker 1: see everybody else go in the opposite direction, the holding

524
00:31:06,800 --> 00:31:09,840
Speaker 1: periods of getting shorter. Not talking about h f T

525
00:31:10,000 --> 00:31:12,600
Speaker 1: s with the guys who are holding things for a nanosecond,

526
00:31:12,640 --> 00:31:16,240
Speaker 1: I mean actual investors and traders. Is that your perception

527
00:31:16,280 --> 00:31:18,800
Speaker 1: of this as well? It is um, you know. I

528
00:31:18,840 --> 00:31:20,720
Speaker 1: think the other thing that I think the industry is

529
00:31:20,760 --> 00:31:23,880
Speaker 1: doing wrong is that they tend to take something that's

530
00:31:23,880 --> 00:31:28,760
Speaker 1: pretty inherently simple. Investing is really inherently simple and making

531
00:31:28,880 --> 00:31:32,719
Speaker 1: it very complex. I think investment bankers are wonderful for that.

532
00:31:32,760 --> 00:31:35,240
Speaker 1: They always kind of stay one step ahead of folks

533
00:31:35,320 --> 00:31:39,640
Speaker 1: in terms of making something incredibly complex that's pretty simple.

534
00:31:39,680 --> 00:31:42,720
Speaker 1: Think about what happened in the mortgage crisis. So there's

535
00:31:43,000 --> 00:31:45,320
Speaker 1: there's a lot of money in complexity. There is money

536
00:31:45,320 --> 00:31:47,280
Speaker 1: in complexity, and I think one of the things the

537
00:31:47,360 --> 00:31:51,600
Speaker 1: financial advisors should do for folks is that trusted advisors

538
00:31:51,640 --> 00:31:54,760
Speaker 1: should be able to cut through the complexity and go

539
00:31:54,880 --> 00:31:58,160
Speaker 1: the other way. Take something that's complex and make it simple.

540
00:31:58,720 --> 00:32:00,880
Speaker 1: Makes a whole lot of sense. When high was managing money,

541
00:32:00,920 --> 00:32:04,600
Speaker 1: That's what I said of what I did was counseling,

542
00:32:06,080 --> 00:32:10,200
Speaker 1: counseling and teaching. That's very very sounds very familiar. I'm

543
00:32:10,240 --> 00:32:12,960
Speaker 1: Barry rid Hults. You're listening to Masters in Business on

544
00:32:13,000 --> 00:32:16,600
Speaker 1: Bloomberg Radio. My special guest today is Dr Robert Johnson.

545
00:32:17,120 --> 00:32:21,840
Speaker 1: He is the president of the American College of Financial Services.

546
00:32:21,880 --> 00:32:25,280
Speaker 1: He's a former head of the Curriculum and Testing at

547
00:32:25,320 --> 00:32:29,080
Speaker 1: the c f A institute, author of a number of books.

548
00:32:29,200 --> 00:32:32,720
Speaker 1: Let's talk about um a couple of books you wrote

549
00:32:32,760 --> 00:32:36,520
Speaker 1: that I think are really interesting. What is it that

550
00:32:36,640 --> 00:32:40,280
Speaker 1: strategic value investing is and how does that differ from

551
00:32:40,320 --> 00:32:42,880
Speaker 1: just good old value investment. Well, first thing I have

552
00:32:42,960 --> 00:32:44,719
Speaker 1: to do is put a plug in for the book,

553
00:32:45,280 --> 00:32:48,360
Speaker 1: and I put this whole segment. Last week I found

554
00:32:48,360 --> 00:32:54,640
Speaker 1: out that my idol in the business, Mr Buffett, growing

555
00:32:54,760 --> 00:32:57,000
Speaker 1: up in almahaa Braska. How can you not look sure,

556
00:32:57,200 --> 00:33:01,320
Speaker 1: look up to Warren Buffett. Mr Buffett has put strategic

557
00:33:01,400 --> 00:33:05,160
Speaker 1: value investing on his annual reading list for the Berkshire

558
00:33:05,200 --> 00:33:08,120
Speaker 1: hand Hathaway Annual meeting. Oh my goodness, that's fantastic. There's

559
00:33:08,120 --> 00:33:10,800
Speaker 1: a very excited There are about three dozen books. I

560
00:33:10,880 --> 00:33:14,720
Speaker 1: will be in Omaha signing books along at the Berkshire

561
00:33:14,760 --> 00:33:19,280
Speaker 1: Hathaway meeting. And again, for somebody who grew up in Omaha, Nebraska,

562
00:33:19,520 --> 00:33:23,640
Speaker 1: that is about the pinnacle of a career in investments.

563
00:33:23,680 --> 00:33:26,240
Speaker 1: So someone from Berkshire reached out to you and said,

564
00:33:26,240 --> 00:33:28,800
Speaker 1: we want you at the annual meeting and come signed

565
00:33:28,800 --> 00:33:31,880
Speaker 1: books and will you get a chance that there's He

566
00:33:32,000 --> 00:33:35,720
Speaker 1: works with a bookstore in Omaha, and the bookstore puts

567
00:33:35,720 --> 00:33:38,800
Speaker 1: a list out of books that they believe should be

568
00:33:38,880 --> 00:33:43,280
Speaker 1: on the list. And how my book showed up on there,

569
00:33:43,320 --> 00:33:46,840
Speaker 1: I didn't know. But one of our PR people called

570
00:33:47,080 --> 00:33:50,040
Speaker 1: the Omaha bookstore that does this. The Bookworm is a

571
00:33:50,160 --> 00:33:52,600
Speaker 1: name of the book, and they said that an email

572
00:33:52,680 --> 00:33:55,240
Speaker 1: came from Mr Buffett personally to say, I want to

573
00:33:55,280 --> 00:33:58,960
Speaker 1: put this book on the list. So you know, I've

574
00:34:00,080 --> 00:34:04,480
Speaker 1: been on cloud nine since. But strategic, yeah, strategic value

575
00:34:04,480 --> 00:34:09,239
Speaker 1: investing is simply there are various schools of thought and

576
00:34:09,320 --> 00:34:12,719
Speaker 1: value investing. It started with Ben Graham, of course, uh

577
00:34:12,760 --> 00:34:16,240
Speaker 1: the father of value investing. But strate in strategic value investing,

578
00:34:16,280 --> 00:34:20,359
Speaker 1: we look at several definitions of value investing, whether that

579
00:34:20,400 --> 00:34:24,040
Speaker 1: be the traditional Graham and Dodd. We look at residual income,

580
00:34:24,160 --> 00:34:27,040
Speaker 1: we look at asset based approaches. We look at a

581
00:34:27,080 --> 00:34:31,239
Speaker 1: lot of different approaches to value investing. And what we

582
00:34:31,360 --> 00:34:34,480
Speaker 1: believe is that gives the reader the opportunity to kind

583
00:34:34,480 --> 00:34:38,160
Speaker 1: of figure out where their proclivity is, what kind of

584
00:34:38,239 --> 00:34:42,120
Speaker 1: style they may want to develop, because you know, value

585
00:34:42,160 --> 00:34:48,880
Speaker 1: investing is a discipline. UM name your value investor, Wally White's,

586
00:34:49,280 --> 00:34:52,520
Speaker 1: Warren Buffett, John Neff, they all have a little bit

587
00:34:52,560 --> 00:34:55,960
Speaker 1: of a different variations on a theme. So I think

588
00:34:56,000 --> 00:35:00,239
Speaker 1: that a book that describes all those different variations and

589
00:35:00,320 --> 00:35:03,279
Speaker 1: shows them to people and kind of cuts through a

590
00:35:03,320 --> 00:35:06,280
Speaker 1: lot of what they do, I think helps people develop

591
00:35:06,360 --> 00:35:11,239
Speaker 1: their own style. Huh, that's quite interesting, So let's keep

592
00:35:11,280 --> 00:35:15,319
Speaker 1: let's keep plowing away through. So you're saying that your

593
00:35:15,440 --> 00:35:20,480
Speaker 1: version of strategic value investing, it's based on traditional value investing.

594
00:35:20,520 --> 00:35:23,880
Speaker 1: You're just looking at certain variations on that theme, the

595
00:35:23,960 --> 00:35:26,879
Speaker 1: different variations on the theme. So let's talk about another

596
00:35:26,920 --> 00:35:29,560
Speaker 1: book of yours invest with the FED that came out

597
00:35:29,800 --> 00:35:34,120
Speaker 1: fairly recently. Um, what does that mean? And this goes

598
00:35:34,160 --> 00:35:38,759
Speaker 1: back to the old Marty's Wide comment don't fight the Fed. Yeah.

599
00:35:38,800 --> 00:35:40,759
Speaker 1: The other Marty's Wide quote that I love is he

600
00:35:40,800 --> 00:35:43,640
Speaker 1: said money makes the mare go if you look at

601
00:35:43,640 --> 00:35:47,319
Speaker 1: it as in terms of horse racing. Basically, what we

602
00:35:47,440 --> 00:35:50,200
Speaker 1: show in the book, and my co authors are Jerry

603
00:35:50,280 --> 00:35:53,800
Speaker 1: Jensen of Greaton University and Luis Garcia Fijo of Florida

604
00:35:53,840 --> 00:35:57,120
Speaker 1: Atlantic University. And once again this was an excuse to

605
00:35:57,200 --> 00:36:01,080
Speaker 1: keep working with former colleagues. Both of those individuals worked

606
00:36:01,080 --> 00:36:04,759
Speaker 1: with me on the c f A program. But basically

607
00:36:04,760 --> 00:36:08,440
Speaker 1: what we did was we in a very rigorous empirical

608
00:36:08,560 --> 00:36:16,439
Speaker 1: sense looked at FED policy and how different capital markets perform, stocks, bonds, commodities,

609
00:36:16,520 --> 00:36:18,560
Speaker 1: real estate, and so forth. And just to give you

610
00:36:18,600 --> 00:36:22,680
Speaker 1: a little flavor, when the FED was being expansive with

611
00:36:22,800 --> 00:36:27,200
Speaker 1: monetary policy, the SMP on average returned fifteen point two percent.

612
00:36:27,880 --> 00:36:31,640
Speaker 1: When the FED was being restrictive, the market returned the

613
00:36:31,760 --> 00:36:35,000
Speaker 1: SMP returned about five point nine percent. And this was

614
00:36:35,080 --> 00:36:39,440
Speaker 1: over a long time period of that's a giant, giant

615
00:36:39,719 --> 00:36:42,040
Speaker 1: and it's even and that was over a time period

616
00:36:42,080 --> 00:36:45,239
Speaker 1: from sixty six through two thousand thirteen. But it's even

617
00:36:45,239 --> 00:36:48,200
Speaker 1: bigger than that, Barry, because if you factor in inflation,

618
00:36:48,480 --> 00:36:52,400
Speaker 1: and inflation is higher in a restrictive environment than in

619
00:36:52,440 --> 00:36:56,840
Speaker 1: an expansive environment, real returns were about twelve percent different.

620
00:36:57,480 --> 00:37:00,200
Speaker 1: So there's something going on there. It's something that that

621
00:37:00,280 --> 00:37:03,920
Speaker 1: you can't ignore. Now, is that correlation relative to the

622
00:37:03,920 --> 00:37:07,080
Speaker 1: fact that when the FED is cutting it usually means

623
00:37:07,160 --> 00:37:11,359
Speaker 1: that you've just had a huge revaluation in markets and

624
00:37:11,400 --> 00:37:14,000
Speaker 1: you're you're getting to buy when things are fairly cheap,

625
00:37:14,840 --> 00:37:17,319
Speaker 1: or does it mean something else? Well, what I think

626
00:37:17,360 --> 00:37:22,120
Speaker 1: it means is that the FED both reacts to and

627
00:37:22,280 --> 00:37:27,040
Speaker 1: leads markets. Um, we're not saying that one causes the other.

628
00:37:27,280 --> 00:37:30,880
Speaker 1: We're not saying that the FED policy causes these returns.

629
00:37:31,360 --> 00:37:34,879
Speaker 1: We're simply saying that there's this correlation and that it's

630
00:37:34,920 --> 00:37:38,360
Speaker 1: something that's so dominant that you can't ignore it. And

631
00:37:38,400 --> 00:37:42,480
Speaker 1: here's the other interesting thing we found. We found that commodities,

632
00:37:43,400 --> 00:37:48,040
Speaker 1: the Golden Sacks Commodity Index, actually had a negative return

633
00:37:48,239 --> 00:37:53,400
Speaker 1: during expansive time periods and a very high return during

634
00:37:53,440 --> 00:37:57,799
Speaker 1: restrictive time periods. So you're not a big fan of commodities,

635
00:37:57,840 --> 00:38:00,319
Speaker 1: I take it then. I'm not a big fan of commas,

636
00:38:00,360 --> 00:38:03,840
Speaker 1: but they are a great diversifier during restrictive time periods.

637
00:38:03,920 --> 00:38:06,759
Speaker 1: And if you believe that we're moving into a restrictive

638
00:38:06,800 --> 00:38:10,839
Speaker 1: time period, which I believe we are, UM, I think

639
00:38:10,840 --> 00:38:14,040
Speaker 1: that you may see UH commodities performed pretty well in

640
00:38:14,600 --> 00:38:17,040
Speaker 1: the near term. But by the way, I've pulled up

641
00:38:17,160 --> 00:38:21,640
Speaker 1: your book on Amazon and looking at UH some of

642
00:38:21,640 --> 00:38:25,080
Speaker 1: the interesting comments here on invest with the FED five

643
00:38:25,120 --> 00:38:29,640
Speaker 1: stars on Amazon, forty plus reviews. That's actually really really interesting.

644
00:38:30,040 --> 00:38:33,880
Speaker 1: So it's not that the FED is what's driving the

645
00:38:33,920 --> 00:38:37,240
Speaker 1: markets necessarily. It's when the FED is doing their cycle,

646
00:38:37,280 --> 00:38:40,480
Speaker 1: when their expansionary something else is going on. When they're

647
00:38:40,920 --> 00:38:44,960
Speaker 1: less expansionary, different things going on, and you could parallel

648
00:38:45,120 --> 00:38:49,799
Speaker 1: their behavior in order to most advantageously position your portfolio.

649
00:38:50,000 --> 00:38:51,960
Speaker 1: And what we look at two is and I always

650
00:38:51,960 --> 00:38:55,120
Speaker 1: say the following, are you a golfer berry, I am not. Well,

651
00:38:55,160 --> 00:38:59,759
Speaker 1: there's a famous golf pro Harvey Peanick was Ben Cranshaw's

652
00:38:59,760 --> 00:39:03,279
Speaker 1: golf coach, and Harvey Peanuck had this saying that when

653
00:39:03,320 --> 00:39:05,680
Speaker 1: you get a golf lesson and you get a tip,

654
00:39:06,760 --> 00:39:09,399
Speaker 1: take an asper and don't take the whole bottle. And

655
00:39:09,440 --> 00:39:12,320
Speaker 1: what that means is that you don't over exaggerate something.

656
00:39:12,920 --> 00:39:15,960
Speaker 1: So with invest with the FED, what we suggest is

657
00:39:16,000 --> 00:39:18,960
Speaker 1: that you may want to tilt your asset allocations a

658
00:39:19,040 --> 00:39:22,479
Speaker 1: little bit with regard to FED policy. That doesn't mean

659
00:39:22,520 --> 00:39:25,640
Speaker 1: you sell out of equities completely and go to commodities

660
00:39:25,640 --> 00:39:28,800
Speaker 1: when the FED becomes restrictive. But for instance, we find

661
00:39:28,840 --> 00:39:35,200
Speaker 1: when the FED is restrictive that necessity goods perform pretty well,

662
00:39:35,800 --> 00:39:42,239
Speaker 1: and disc and UH and nondescrit and discretionary industries don't

663
00:39:42,280 --> 00:39:46,319
Speaker 1: perform very well. For instance, don't perform very well when

664
00:39:46,320 --> 00:39:50,200
Speaker 1: the FED is in a restrictive mode, but auto parts

665
00:39:50,520 --> 00:39:55,279
Speaker 1: perform pretty well. Healthcare, food, basic medicines, hospitals that that's

666
00:39:55,280 --> 00:39:57,319
Speaker 1: going to do well. People have to buy food and

667
00:39:57,320 --> 00:39:59,640
Speaker 1: brush their teeth no matter what. If you break your leg,

668
00:39:59,640 --> 00:40:01,840
Speaker 1: you're going the hospital. It doesn't matter what what's going

669
00:40:01,880 --> 00:40:03,600
Speaker 1: to happen. But you can delay that purchase of a

670
00:40:03,640 --> 00:40:05,759
Speaker 1: new car, you can delay that purchase of a new

671
00:40:05,800 --> 00:40:12,239
Speaker 1: suit UM during UM restrictive time periods. That that makes

672
00:40:12,280 --> 00:40:14,840
Speaker 1: perfect sense. What else do we know about not fighting

673
00:40:14,880 --> 00:40:17,160
Speaker 1: the FED and investing with them? What else would you

674
00:40:17,760 --> 00:40:20,680
Speaker 1: add to that conversation that you know, I don't want

675
00:40:20,680 --> 00:40:22,320
Speaker 1: to go chapter by chapter with the book, but I

676
00:40:22,360 --> 00:40:24,640
Speaker 1: thought there were some interesting things in there. Yeah. One

677
00:40:24,680 --> 00:40:28,720
Speaker 1: of the interesting things I think is that real estate, Uh,

678
00:40:28,880 --> 00:40:31,520
Speaker 1: real estate performs pretty well when the FED is in

679
00:40:31,520 --> 00:40:34,080
Speaker 1: a restrictive period. You know, many people would think real

680
00:40:34,200 --> 00:40:37,360
Speaker 1: estate doesn't perform, wouldn't perform because you're raising rates and

681
00:40:37,400 --> 00:40:41,880
Speaker 1: making mortgages more expensive. Usually when the FED is tightening,

682
00:40:41,920 --> 00:40:44,080
Speaker 1: it means that you later in the cycle and the

683
00:40:44,080 --> 00:40:48,480
Speaker 1: economy is already heated up. One would imagine that in

684
00:40:48,880 --> 00:40:52,279
Speaker 1: yours to the benefit of certainly residential real estate and

685
00:40:52,320 --> 00:40:55,359
Speaker 1: perhaps commercial resident real estate as well. And of course

686
00:40:55,400 --> 00:40:58,160
Speaker 1: we're looking at real estate investment trust data because you

687
00:40:58,200 --> 00:41:02,759
Speaker 1: can't get date on individual residences. You can't well, what

688
00:41:02,840 --> 00:41:05,040
Speaker 1: you can get is just so regional. You can't ruin

689
00:41:05,080 --> 00:41:09,920
Speaker 1: any specific questions. So so let's um, let's switch gears.

690
00:41:09,960 --> 00:41:12,920
Speaker 1: I know you left uh the c FA Institute in

691
00:41:12,960 --> 00:41:16,839
Speaker 1: two thousand and eleven. About that time, that's when the

692
00:41:17,080 --> 00:41:21,520
Speaker 1: SEC published a study that was mandated by Dodd Frank

693
00:41:22,320 --> 00:41:27,319
Speaker 1: that that specifically recommended that advisors, whether you're working on

694
00:41:27,400 --> 00:41:31,719
Speaker 1: retirement accounts or or discretionary investments, whether you're at a

695
00:41:31,719 --> 00:41:37,520
Speaker 1: broker dealer or at a registered investment advisory, all financial

696
00:41:37,560 --> 00:41:41,840
Speaker 1: advice providers should be put under the fiduciary standard. But

697
00:41:41,960 --> 00:41:44,440
Speaker 1: that ended up not happening. The SEC was deadlocked and

698
00:41:44,480 --> 00:41:47,040
Speaker 1: couldn't agree with that. What are your thoughts on on

699
00:41:47,080 --> 00:41:51,160
Speaker 1: that fiduciary standard for everybody? Yeah? Is it? Is it realistic?

700
00:41:51,200 --> 00:41:53,440
Speaker 1: Are you gonna be have people that are going to

701
00:41:53,480 --> 00:41:57,360
Speaker 1: be able to qualify professionally to do that? That would

702
00:41:57,360 --> 00:42:00,839
Speaker 1: be my response to that is, for instance, we can

703
00:42:01,080 --> 00:42:03,160
Speaker 1: we can set a very high bar that people have

704
00:42:03,239 --> 00:42:05,480
Speaker 1: to get over, but are enough people going to be

705
00:42:05,480 --> 00:42:07,440
Speaker 1: able to get over that bar to serve the public.

706
00:42:08,239 --> 00:42:10,520
Speaker 1: One of the things that I have concern about with

707
00:42:10,640 --> 00:42:14,520
Speaker 1: the current fiduciary standard is is is it going to

708
00:42:14,680 --> 00:42:19,239
Speaker 1: leave a middle market that desperately needs financial advice? Is

709
00:42:19,239 --> 00:42:21,440
Speaker 1: it going to leave it under certain We've been speaking

710
00:42:21,480 --> 00:42:25,480
Speaker 1: with Dr Robert Johnson, President and CEO at the American

711
00:42:25,600 --> 00:42:29,000
Speaker 1: College of Financial Services. Dr Johnson, if people want to

712
00:42:29,000 --> 00:42:31,560
Speaker 1: find your writings and your work, your your books are

713
00:42:31,560 --> 00:42:35,359
Speaker 1: obviously online. Where else can they read anything you've written, Well,

714
00:42:35,400 --> 00:42:39,600
Speaker 1: you can go to www dot the American College dot

715
00:42:39,600 --> 00:42:42,920
Speaker 1: e DU and see my profile in a link to

716
00:42:43,040 --> 00:42:47,280
Speaker 1: some of the writings that I've done. Well, define define

717
00:42:47,360 --> 00:42:52,120
Speaker 1: middle market, mom and pop and uh so with a

718
00:42:52,120 --> 00:42:54,560
Speaker 1: few thousand dollars to put in in uh in a

719
00:42:54,680 --> 00:42:57,000
Speaker 1: mutual fund every once in a while. So if you

720
00:42:57,120 --> 00:42:59,919
Speaker 1: go back and look at what took place post cry

721
00:43:00,120 --> 00:43:04,399
Speaker 1: is this we saw? We saw Merrill Lynch Tell Brokers. Hey,

722
00:43:04,480 --> 00:43:07,920
Speaker 1: if you're gonna have accounts under two D, that's up

723
00:43:07,960 --> 00:43:09,960
Speaker 1: to you, but we're not paying any commission on it.

724
00:43:10,400 --> 00:43:13,600
Speaker 1: Ubs Morgan Stanley, a number of other firms have similar

725
00:43:14,200 --> 00:43:17,920
Speaker 1: but if not but not identical restrictions. But there's really

726
00:43:17,960 --> 00:43:22,080
Speaker 1: a discouraging of taking small accounts from the big firms

727
00:43:22,120 --> 00:43:25,000
Speaker 1: because it's a huge volume and there's no money in it,

728
00:43:25,440 --> 00:43:28,480
Speaker 1: so and that's without the fiduciary standard. You have the

729
00:43:28,480 --> 00:43:31,319
Speaker 1: fiduciary standard, is there really much of a change if

730
00:43:31,360 --> 00:43:34,399
Speaker 1: those clients aren't being served today anyway? Seem I think

731
00:43:34,480 --> 00:43:36,680
Speaker 1: we need to find a way to serve that market

732
00:43:36,880 --> 00:43:39,960
Speaker 1: and and that comes I believe that that comes very

733
00:43:40,040 --> 00:43:44,040
Speaker 1: through education. You know, the Obama administration has made this

734
00:43:44,080 --> 00:43:46,879
Speaker 1: fiduciary standard a big part of what they want their

735
00:43:46,960 --> 00:43:51,160
Speaker 1: legacy to be well, and I don't think that the

736
00:43:51,239 --> 00:43:54,040
Speaker 1: intent is wrong, and I think the intent is is

737
00:43:55,080 --> 00:43:58,239
Speaker 1: it's it's very pure. But what I think is that

738
00:43:58,280 --> 00:44:01,319
Speaker 1: the realization is is that you're going to have this

739
00:44:01,360 --> 00:44:04,600
Speaker 1: middle market that isn't going to be attractive, that isn't

740
00:44:04,640 --> 00:44:07,480
Speaker 1: going to be profitably, be less served. And if you

741
00:44:07,640 --> 00:44:11,200
Speaker 1: really want to make inroads into the retirement income crisis,

742
00:44:11,320 --> 00:44:15,200
Speaker 1: which is arguably the biggest crisis in the country now

743
00:44:15,400 --> 00:44:17,600
Speaker 1: Charlie Ellis has been banging the drum on this for

744
00:44:17,960 --> 00:44:22,560
Speaker 1: years now, then somehow we have to encourage that market

745
00:44:22,680 --> 00:44:25,799
Speaker 1: segment to be served and not discourage it. And I

746
00:44:25,840 --> 00:44:29,360
Speaker 1: know that's not the intent of the fiduciary standard, but

747
00:44:29,400 --> 00:44:31,560
Speaker 1: I think that's actually going to be the realization of

748
00:44:31,600 --> 00:44:35,879
Speaker 1: the fiduciary standard. So the UK said, we don't care.

749
00:44:35,920 --> 00:44:38,600
Speaker 1: What's then do you have if you're managing retirement accounts

750
00:44:38,600 --> 00:44:41,480
Speaker 1: your fees a cap at fifty basis points? Is that

751
00:44:41,560 --> 00:44:46,879
Speaker 1: a solution? I it's a possible solution. But I I

752
00:44:46,920 --> 00:44:50,080
Speaker 1: think that what you are going to see, hopefully, is

753
00:44:50,120 --> 00:44:52,080
Speaker 1: that ten years down the road, we're going to have

754
00:44:52,160 --> 00:44:55,360
Speaker 1: seen some really creative and some really innovative people in

755
00:44:55,360 --> 00:44:58,759
Speaker 1: the financial services industry come up with a solution on

756
00:44:58,800 --> 00:45:02,160
Speaker 1: how to serve that market. But one of the things

757
00:45:02,160 --> 00:45:05,840
Speaker 1: that we kept hearing in this fiduciary standard debates was

758
00:45:05,920 --> 00:45:08,759
Speaker 1: the figure seventeen billion dollars. I'm sure you know that

759
00:45:08,760 --> 00:45:13,920
Speaker 1: that was what bad financial advice was costing Americans. Okay,

760
00:45:13,960 --> 00:45:18,239
Speaker 1: how much was good financial advice making Americans? Well, we

761
00:45:18,280 --> 00:45:21,200
Speaker 1: don't have to worry about good financial advice. It's doing good.

762
00:45:21,239 --> 00:45:23,919
Speaker 1: We have to worry about bad financial advice. By the way,

763
00:45:23,960 --> 00:45:27,799
Speaker 1: someone challenged me on that seventeen billion number. They said,

764
00:45:27,840 --> 00:45:29,880
Speaker 1: how how on earth did you come up with seventeen

765
00:45:30,480 --> 00:45:33,520
Speaker 1: And the answer was, well, if you look in in

766
00:45:33,640 --> 00:45:36,279
Speaker 1: four oh one k fourth not four o three, be

767
00:45:36,480 --> 00:45:39,600
Speaker 1: just four oh one k. And IRA's they were. I

768
00:45:39,640 --> 00:45:42,760
Speaker 1: want to say it was somewhere between fifteen and twenty trillion,

769
00:45:43,040 --> 00:45:48,320
Speaker 1: some like huge, huge number. Assume that bad financial advice

770
00:45:48,920 --> 00:45:51,480
Speaker 1: cost one percent of that, and let's assume that bad

771
00:45:51,520 --> 00:45:55,920
Speaker 1: financial advice is only ten percent, right, So the seventeen

772
00:45:55,960 --> 00:45:59,160
Speaker 1: trillion becomes a hundred and seventy billion, and then we're

773
00:45:59,160 --> 00:46:02,400
Speaker 1: gonna take a one percent drag on returns. That's how

774
00:46:02,440 --> 00:46:05,200
Speaker 1: they got to the seventeen billion. Now, I will tell

775
00:46:05,239 --> 00:46:08,520
Speaker 1: you that bad financial advice is out to more than

776
00:46:09,800 --> 00:46:13,200
Speaker 1: of clients out there in the world, and even worse,

777
00:46:13,360 --> 00:46:16,279
Speaker 1: it costs a whole lot more than one. I think

778
00:46:16,320 --> 00:46:18,239
Speaker 1: they were being really kind. I think the number is

779
00:46:18,280 --> 00:46:20,840
Speaker 1: close to the fifty billion dollars, but that's just my

780
00:46:20,960 --> 00:46:24,520
Speaker 1: back of the envelope calculation. The interesting thing too, though,

781
00:46:24,520 --> 00:46:27,400
Speaker 1: to me, Barry, is that if you really want to

782
00:46:27,400 --> 00:46:29,960
Speaker 1: solve the retirement income crisis, one of the one of

783
00:46:30,000 --> 00:46:34,040
Speaker 1: the solutions that the Obama administration came up with it

784
00:46:34,120 --> 00:46:36,920
Speaker 1: was this my r A accounts. Yeah, and that kind

785
00:46:36,920 --> 00:46:38,840
Speaker 1: of went nowhere. I was really surprised. I thought it

786
00:46:38,840 --> 00:46:41,200
Speaker 1: was an interesting idea, but the only thing you could

787
00:46:41,239 --> 00:46:44,840
Speaker 1: invest in was savings bonds. Makes that makes no sense.

788
00:46:44,920 --> 00:46:47,279
Speaker 1: We'll see. That's my point is that we want to

789
00:46:47,360 --> 00:46:50,160
Speaker 1: encourage people to save, and we want to we we

790
00:46:50,280 --> 00:46:54,400
Speaker 1: create this vehicle that's sanctioned by the government. Well it

791
00:46:54,480 --> 00:46:56,560
Speaker 1: must be a good thing. Well, you know as well

792
00:46:56,600 --> 00:46:58,120
Speaker 1: as I do. If you have a thirty year time

793
00:46:58,120 --> 00:47:00,680
Speaker 1: arising and you're investing in savings bond, you're giving money

794
00:47:00,680 --> 00:47:04,000
Speaker 1: a one giving a lot of money away. It's this

795
00:47:04,040 --> 00:47:12,200
Speaker 1: goes back to a lack of appropriate understanding of Congress's

796
00:47:12,280 --> 00:47:16,240
Speaker 1: own role. Look, there's no people are willing to lend

797
00:47:16,360 --> 00:47:20,640
Speaker 1: Uncle Sam money at absurdly low rates. Take advantage of that.

798
00:47:20,760 --> 00:47:24,319
Speaker 1: Take all of this debt, which is financed with all

799
00:47:24,360 --> 00:47:27,200
Speaker 1: the short term paper seventeen trillion or now it's almost

800
00:47:27,280 --> 00:47:30,719
Speaker 1: up to nineteen trillion. Take that debt rolling into a

801
00:47:30,800 --> 00:47:34,200
Speaker 1: fifty year bond. There's people are dying for yield, dying

802
00:47:34,239 --> 00:47:37,759
Speaker 1: for good paper. Rolling into a fifty year bond. Refinance

803
00:47:37,800 --> 00:47:40,800
Speaker 1: America's debt, get it as low as possible, do another,

804
00:47:40,920 --> 00:47:44,719
Speaker 1: build set of build America bonds and repave, rehearden the

805
00:47:44,719 --> 00:47:48,400
Speaker 1: airports and ports, redo the electrical grid. There's so much

806
00:47:48,440 --> 00:47:50,759
Speaker 1: stuff we could do if we weren't stuck in a

807
00:47:51,080 --> 00:47:56,560
Speaker 1: universe of partisan gridlock and just you know, the inability

808
00:47:56,600 --> 00:47:59,879
Speaker 1: to imagine what made America great in the old day

809
00:48:00,360 --> 00:48:04,640
Speaker 1: seems to have everybody confounded. It's not let's make America great,

810
00:48:04,719 --> 00:48:06,959
Speaker 1: it's what we have to do to just go back

811
00:48:06,960 --> 00:48:11,680
Speaker 1: to normal government functions instead of paralysis. And it was interesting.

812
00:48:11,719 --> 00:48:14,600
Speaker 1: I was asked one time what should we do um

813
00:48:15,000 --> 00:48:18,200
Speaker 1: on financial literacy in this country? And I said, well,

814
00:48:18,239 --> 00:48:21,680
Speaker 1: you should start with Congress. How about this, Why don't

815
00:48:21,680 --> 00:48:24,680
Speaker 1: we make them they have their own healthcare plan, they

816
00:48:24,680 --> 00:48:28,080
Speaker 1: have their own retirement plan, they have their own automatic

817
00:48:28,160 --> 00:48:31,239
Speaker 1: salary increases. Why don't we take all that away and

818
00:48:31,239 --> 00:48:35,319
Speaker 1: make Congress have social Security, Have Congress have Obamacare, and

819
00:48:35,400 --> 00:48:38,759
Speaker 1: have Congress uh get paid the federal minimum wage. We'll

820
00:48:38,800 --> 00:48:42,120
Speaker 1: see how fast things improve across all of those. If

821
00:48:42,120 --> 00:48:45,000
Speaker 1: you don't like Obamacare, then fix it. You have your

822
00:48:45,000 --> 00:48:49,120
Speaker 1: own Cadillac gold plated healthcare plan and your own gold

823
00:48:49,160 --> 00:48:52,719
Speaker 1: plated retirement plan. No wonder, Social Security is a mess,

824
00:48:52,719 --> 00:48:55,359
Speaker 1: and no wonder Medicaid is a mess. But that's me

825
00:48:55,400 --> 00:48:57,759
Speaker 1: getting on my soapbox in the last minute or so

826
00:48:57,880 --> 00:49:01,560
Speaker 1: that we have what should the average investor know about

827
00:49:01,600 --> 00:49:05,799
Speaker 1: the Federal Reserve and how it impacts their portfolio. That

828
00:49:06,120 --> 00:49:09,400
Speaker 1: if the FED is expansive in monetary policy, and the

829
00:49:09,760 --> 00:49:11,920
Speaker 1: real simple way to look at that as if interest

830
00:49:12,000 --> 00:49:16,200
Speaker 1: rates are falling, the stock market tends to do very well.

831
00:49:16,880 --> 00:49:20,120
Speaker 1: If interest rates are rising, the stock market tends to

832
00:49:20,200 --> 00:49:23,600
Speaker 1: do less well. And it's very consistent over time. So

833
00:49:23,680 --> 00:49:28,360
Speaker 1: my point is not that investors necessarily need to sell

834
00:49:28,440 --> 00:49:32,480
Speaker 1: out or need to make any make any transactions based

835
00:49:32,520 --> 00:49:35,680
Speaker 1: on FED policy, but that you need to, in in

836
00:49:35,800 --> 00:49:39,719
Speaker 1: Larry David's terms, you need to curb your enthusiasm when

837
00:49:39,760 --> 00:49:42,080
Speaker 1: the when the when the FED is raising rates, that

838
00:49:42,239 --> 00:49:45,839
Speaker 1: typically that isn't a very good market environment. Bob, thank

839
00:49:45,880 --> 00:49:48,239
Speaker 1: you so much for doing this. I appreciate um all

840
00:49:48,239 --> 00:49:51,719
Speaker 1: the time. This is really, uh an interesting conversation. It's

841
00:49:51,719 --> 00:49:54,200
Speaker 1: great to be here. Thank you. It's a little wonky,

842
00:49:54,280 --> 00:49:56,000
Speaker 1: it's a little in the weeds. I know there is

843
00:49:56,040 --> 00:49:58,040
Speaker 1: an audience that's going to eat this up and a

844
00:49:58,040 --> 00:50:01,640
Speaker 1: lot of people are going to go dr American College

845
00:50:01,680 --> 00:50:06,280
Speaker 1: of What how well known is the American College of Finance?

846
00:50:06,640 --> 00:50:10,120
Speaker 1: Not well enough? Not well enough known, berry um one

847
00:50:10,160 --> 00:50:12,880
Speaker 1: of the things that were very well known in the

848
00:50:12,920 --> 00:50:16,080
Speaker 1: domestic life insurance industry. In fact, that's the roots of

849
00:50:16,080 --> 00:50:20,000
Speaker 1: the college. The college was founded in nine We are

850
00:50:20,040 --> 00:50:24,359
Speaker 1: a nonprofit, accredited degree granting institution. We have the same

851
00:50:24,480 --> 00:50:30,080
Speaker 1: level of accreditation as a Yale, as a Columbia. It's

852
00:50:30,280 --> 00:50:34,480
Speaker 1: UH and UM. But we largely have been known in

853
00:50:34,520 --> 00:50:37,080
Speaker 1: the in the domestic life insurance industry. So do you

854
00:50:37,120 --> 00:50:39,400
Speaker 1: have a program where you train people to take whatever

855
00:50:39,440 --> 00:50:43,440
Speaker 1: the life insurance test is to become We administer the

856
00:50:43,480 --> 00:50:47,640
Speaker 1: CLU program, the Chartered Life Underwriter program. We also administer

857
00:50:47,760 --> 00:50:51,680
Speaker 1: the c HFC program, that Chartered Financial Consultant program, which

858
00:50:51,719 --> 00:50:54,600
Speaker 1: is very similar to the CFP. In fact, there's a

859
00:50:54,640 --> 00:50:58,719
Speaker 1: lot of overlap between the CFP. We also do CFP education.

860
00:50:58,760 --> 00:51:00,840
Speaker 1: By the way, we're one of the biggest providers of

861
00:51:00,880 --> 00:51:05,200
Speaker 1: CFP education. We're fan, big fans of the CFP program,

862
00:51:05,200 --> 00:51:09,880
Speaker 1: But our biggest program now is the Retirement Income Certified

863
00:51:09,920 --> 00:51:14,719
Speaker 1: Professional Program r I c P. And what it is, Barry,

864
00:51:14,800 --> 00:51:19,120
Speaker 1: is it's not the accumulation stage of retirement program. It's

865
00:51:19,160 --> 00:51:22,520
Speaker 1: the draw down. It's when do you take Social Security?

866
00:51:22,560 --> 00:51:25,799
Speaker 1: It's longevity annuities, It's what can your spend down be,

867
00:51:25,960 --> 00:51:29,600
Speaker 1: It's how is life insurance, long term care insurance, It's

868
00:51:29,640 --> 00:51:35,040
Speaker 1: all of that and that is obviously becoming increasingly important

869
00:51:35,640 --> 00:51:41,320
Speaker 1: because there's this uh you know, um um, basically perfect storm.

870
00:51:41,480 --> 00:51:46,600
Speaker 1: People are living longer, people are have under saved, and

871
00:51:46,640 --> 00:51:51,239
Speaker 1: we have extremely low fixed income interest rates in the environment.

872
00:51:51,280 --> 00:51:54,440
Speaker 1: Now it's a perfect storm for retirement income planning and

873
00:51:54,680 --> 00:51:58,400
Speaker 1: in a giant baby boom demographic as the pig is

874
00:51:58,440 --> 00:52:02,640
Speaker 1: almost through the python. And at the same those three

875
00:52:02,680 --> 00:52:07,560
Speaker 1: things plus what is it, sixty people a day of retirement.

876
00:52:07,800 --> 00:52:11,200
Speaker 1: It's ten thousand a day that retires some crazy number.

877
00:52:11,239 --> 00:52:13,440
Speaker 1: It's a huge, huge, And here's the other thing that

878
00:52:13,560 --> 00:52:15,480
Speaker 1: used to work. It used to work in our favor

879
00:52:15,560 --> 00:52:18,640
Speaker 1: when we had pension plans. You didn't have to plan

880
00:52:18,920 --> 00:52:21,680
Speaker 1: for that extreme event that you would live to be

881
00:52:21,719 --> 00:52:24,719
Speaker 1: a hundred years old. You only get one draw the

882
00:52:24,800 --> 00:52:29,279
Speaker 1: distribution and a defined defined contribution plan. Right, you have

883
00:52:29,440 --> 00:52:33,680
Speaker 1: to plan for that worst case slash best case scenario

884
00:52:33,800 --> 00:52:36,279
Speaker 1: that is that you live to be a hundred You

885
00:52:36,320 --> 00:52:40,719
Speaker 1: have to plan for that. In the pension world, there

886
00:52:40,800 --> 00:52:45,640
Speaker 1: was averaging, so that it's an inefficient way to do things.

887
00:52:45,719 --> 00:52:49,600
Speaker 1: Defined contribution plans are much more inefficient than defined benefits

888
00:52:49,600 --> 00:52:53,080
Speaker 1: are plans are societally, But of course, since we moved

889
00:52:53,120 --> 00:52:56,360
Speaker 1: into this defined contribution world. We have to plan for

890
00:52:56,400 --> 00:52:59,319
Speaker 1: those extreme events, and it's pretty clear most people are

891
00:52:59,360 --> 00:53:02,520
Speaker 1: not either adequately planning or if they're planning, they're not

892
00:53:02,560 --> 00:53:06,160
Speaker 1: adequately funding uh their retirement plans. The other thing that

893
00:53:06,200 --> 00:53:09,240
Speaker 1: I'm really excited about College with respect to retirement income

894
00:53:09,280 --> 00:53:12,879
Speaker 1: planning is we actually have our first cohort of PhD

895
00:53:12,960 --> 00:53:17,960
Speaker 1: students that have entered their dissertation stage on retirement income planning.

896
00:53:18,080 --> 00:53:21,960
Speaker 1: We're going to actually be minting PhDs in retirement income planning,

897
00:53:22,440 --> 00:53:27,200
Speaker 1: so that we hope that that helps inform the industry,

898
00:53:27,280 --> 00:53:32,200
Speaker 1: the profession to become better at at at retirement income planning.

899
00:53:32,320 --> 00:53:35,239
Speaker 1: That is truly fascinating. So that that leads me to

900
00:53:35,280 --> 00:53:37,759
Speaker 1: one of the questions we didn't get to before on

901
00:53:37,840 --> 00:53:42,319
Speaker 1: the financial planning segment, what sort of changes do you

902
00:53:42,360 --> 00:53:45,480
Speaker 1: see taking place for the financial planning industry over the

903
00:53:45,520 --> 00:53:48,400
Speaker 1: next decade or so. I think that there are real

904
00:53:48,800 --> 00:53:53,640
Speaker 1: um there's real pressure on costs, a lot more compliance costs,

905
00:53:54,480 --> 00:53:57,759
Speaker 1: and I think that you're seeing that fees are going

906
00:53:57,800 --> 00:54:00,920
Speaker 1: to be going down dramatically. So I think that the

907
00:54:01,200 --> 00:54:03,080
Speaker 1: financial planning industry is going to have to be a

908
00:54:03,120 --> 00:54:06,080
Speaker 1: whole lot more efficient and I also think they're gonna

909
00:54:06,200 --> 00:54:10,040
Speaker 1: have to really raise their game with the fiduciary standard,

910
00:54:10,160 --> 00:54:14,680
Speaker 1: really become better informed, really have a mastery over a

911
00:54:14,760 --> 00:54:18,920
Speaker 1: wider variety of products. You know, in the current advisory world,

912
00:54:19,640 --> 00:54:21,960
Speaker 1: you have some what I would call one trick ponies,

913
00:54:22,440 --> 00:54:25,080
Speaker 1: somebody that has a very deep knowledge about a very

914
00:54:25,120 --> 00:54:29,120
Speaker 1: small sleeve of of products. And I think what you're

915
00:54:29,160 --> 00:54:31,000
Speaker 1: going to see in the future as you're going to

916
00:54:31,040 --> 00:54:35,320
Speaker 1: see people that have to have a much broader um

917
00:54:35,360 --> 00:54:40,560
Speaker 1: expertise across a much broader array of products. Again my

918
00:54:40,680 --> 00:54:44,440
Speaker 1: own practice, we we've discovered that when you're doing corporate

919
00:54:44,480 --> 00:54:48,160
Speaker 1: retirement planning, the skill set, the things you need to

920
00:54:48,239 --> 00:54:51,960
Speaker 1: know about everything associated with four oh one K plan sponsors,

921
00:54:52,040 --> 00:54:57,360
Speaker 1: third party administrators, custodians. We hired a full time person

922
00:54:57,440 --> 00:55:01,480
Speaker 1: to just do that because it's not the sort of

923
00:55:01,520 --> 00:55:03,839
Speaker 1: thing that you could kind of do well. The bulk

924
00:55:03,880 --> 00:55:06,880
Speaker 1: of my practices this, but I dabble in you can't.

925
00:55:06,880 --> 00:55:09,000
Speaker 1: You have to have a person who is the expert

926
00:55:09,000 --> 00:55:11,600
Speaker 1: in that, who can answer any questions, who is doing

927
00:55:11,600 --> 00:55:14,520
Speaker 1: it for a while. And and if you look at

928
00:55:14,600 --> 00:55:19,040
Speaker 1: the nonprofit version, we work with some foundations and some charities,

929
00:55:19,360 --> 00:55:23,200
Speaker 1: so things have come up on the nonprofit side. The

930
00:55:23,239 --> 00:55:25,200
Speaker 1: nonprofit equivalent of the four oh one K is the

931
00:55:25,239 --> 00:55:28,080
Speaker 1: four oh three B. You would think it's the same rules,

932
00:55:28,120 --> 00:55:33,520
Speaker 1: but it's totally different rules and again same situation. If

933
00:55:33,520 --> 00:55:34,960
Speaker 1: you want to work in that space, you need a

934
00:55:34,960 --> 00:55:38,799
Speaker 1: person who's dedicated to that. Uh. We we ended up

935
00:55:38,800 --> 00:55:41,560
Speaker 1: bringing in a team that only works with teachers and

936
00:55:41,719 --> 00:55:47,080
Speaker 1: educators and other nonprofits because you can't you can't do

937
00:55:47,160 --> 00:55:49,719
Speaker 1: it on the side. You can't dabble, you can't be well.

938
00:55:49,760 --> 00:55:51,439
Speaker 1: The bulk of my clients are this, and I'm gonna

939
00:55:51,480 --> 00:55:54,680
Speaker 1: work with a handful of teachers to understand all the

940
00:55:54,719 --> 00:55:59,160
Speaker 1: permutations and wrinkles. It becomes a full time thing. And

941
00:55:59,239 --> 00:56:02,880
Speaker 1: so we're seeing more and more specialization. I wonder if

942
00:56:02,880 --> 00:56:06,640
Speaker 1: you're seeing that at all. Absolutely, And you said the

943
00:56:06,719 --> 00:56:10,520
Speaker 1: key word, there's teams. You're seeing advisory teams where people

944
00:56:10,600 --> 00:56:12,799
Speaker 1: work in teams and they have they each have their

945
00:56:12,840 --> 00:56:16,000
Speaker 1: own expertise, and you're gonna see much more of that

946
00:56:16,040 --> 00:56:20,040
Speaker 1: in the future, I believe. So there are all these

947
00:56:20,080 --> 00:56:24,080
Speaker 1: resources you can get from different firms. Were essentially a

948
00:56:24,200 --> 00:56:28,360
Speaker 1: vanguard dimensional fun. We work with other other asset managers,

949
00:56:28,360 --> 00:56:30,840
Speaker 1: but the bulk of our holdings are Vanguard and Dimensional

950
00:56:30,880 --> 00:56:36,920
Speaker 1: and Dimensional. D f A very intelligently recognized that they

951
00:56:36,920 --> 00:56:40,640
Speaker 1: were sitting at this fantastic nexus where all this information

952
00:56:40,719 --> 00:56:46,279
Speaker 1: was passing, and they signed up a person who only

953
00:56:46,320 --> 00:56:50,560
Speaker 1: looks at firm analytics to try and figure out, what

954
00:56:50,719 --> 00:56:52,839
Speaker 1: can we figure out from all the data we see

955
00:56:52,840 --> 00:56:55,160
Speaker 1: from firms? What are what are small firms and big

956
00:56:55,200 --> 00:56:57,640
Speaker 1: firms doing right? What are they doing wrong? What are

957
00:56:57,640 --> 00:57:01,719
Speaker 1: best practices? It's really fast anything that an asset manager

958
00:57:02,520 --> 00:57:07,160
Speaker 1: developed that sort of practice. And we see similar stuff

959
00:57:07,160 --> 00:57:10,359
Speaker 1: from Vanguard and similar stuff from from other shops. But

960
00:57:11,120 --> 00:57:13,720
Speaker 1: I find that fascinating that a person who you wouldn't

961
00:57:13,760 --> 00:57:17,240
Speaker 1: imagine would have a focus on that, just because of

962
00:57:17,240 --> 00:57:21,000
Speaker 1: where they sit, are capable of of gleaning great insights.

963
00:57:21,080 --> 00:57:22,760
Speaker 1: And you know the history of d f A. They

964
00:57:22,800 --> 00:57:27,000
Speaker 1: are academics. Well you have Eugene Farma and French. And

965
00:57:27,520 --> 00:57:30,040
Speaker 1: by the way, the Booth School in Chicago is named

966
00:57:30,080 --> 00:57:34,000
Speaker 1: after David Booth, the founder and CEO of Dimensional Funds.

967
00:57:34,320 --> 00:57:39,560
Speaker 1: They're a fascinating shop. They're essentially a hybrid. You know,

968
00:57:39,680 --> 00:57:42,080
Speaker 1: when I try and describe, well, I thought you guys

969
00:57:42,120 --> 00:57:45,520
Speaker 1: do indexing, Well, this is indexing, but it's indexing based

970
00:57:45,560 --> 00:57:48,920
Speaker 1: on this dimension. They were really I hate to use

971
00:57:48,920 --> 00:57:52,080
Speaker 1: the phrase smart beta, but they were really a factor

972
00:57:52,240 --> 00:57:56,120
Speaker 1: shop before that became the the hip phrase of the day.

973
00:57:56,400 --> 00:57:58,160
Speaker 1: And see to me, they would be the ultimate and

974
00:57:58,160 --> 00:58:02,720
Speaker 1: pracademics procademics. So you're taking that. I hate that word,

975
00:58:02,760 --> 00:58:09,320
Speaker 1: but I love the concept. Keep pracademics. I actually, uh

976
00:58:08,840 --> 00:58:13,560
Speaker 1: I I prefer academics. What would you call the other way?

977
00:58:13,600 --> 00:58:21,120
Speaker 1: If you want the other way but academs? That doesn't work.

978
00:58:21,400 --> 00:58:23,680
Speaker 1: It's um But the idea of saying, hey, here's what

979
00:58:23,720 --> 00:58:27,440
Speaker 1: the academic data shows, it's overwhelming. It's clear. Listen, the

980
00:58:27,480 --> 00:58:29,920
Speaker 1: market may not be perfectly efficient, but the odds are

981
00:58:29,960 --> 00:58:31,880
Speaker 1: that you're not going to beat the market on any

982
00:58:31,960 --> 00:58:35,240
Speaker 1: consistent basis over any length of time. What what is

983
00:58:35,240 --> 00:58:38,120
Speaker 1: it that we know? Well, we know quality beats junk

984
00:58:38,320 --> 00:58:42,440
Speaker 1: over long periods of time. Unleveraged companies are going to

985
00:58:42,560 --> 00:58:46,760
Speaker 1: do better than highly debt and inconsistent, and we know

986
00:58:46,840 --> 00:58:49,480
Speaker 1: that there's a small cap premium, and we know that

987
00:58:49,600 --> 00:58:53,760
Speaker 1: over long periods of time. Um, sometimes the US does

988
00:58:53,800 --> 00:58:56,960
Speaker 1: better than overseas. Sometimes overseas, there are all these things

989
00:58:57,000 --> 00:59:00,480
Speaker 1: that are out there that you cannot argue and don't

990
00:59:00,520 --> 00:59:06,040
Speaker 1: forget reversion of the main yesterday's winners or tomorrow's losers.

991
00:59:06,160 --> 00:59:09,560
Speaker 1: Losers are tomorrow's winners. Uh. One of my colleagues likes

992
00:59:09,600 --> 00:59:13,160
Speaker 1: to say, Hey, if something in your portfolio isn't doing poorly,

993
00:59:13,240 --> 00:59:16,160
Speaker 1: you're you're doing it wrong. You should always be If

994
00:59:16,200 --> 00:59:18,480
Speaker 1: you're diversified, you're gonna be sitting with something that's a

995
00:59:18,560 --> 00:59:22,120
Speaker 1: dog for now and eventually, uh it will it will

996
00:59:22,160 --> 00:59:25,240
Speaker 1: go from go to hero while one of your heroes

997
00:59:25,240 --> 00:59:28,840
Speaker 1: will eventually go the other way. Um. How would you

998
00:59:28,920 --> 00:59:33,200
Speaker 1: define the proper responsibilities and roles of the financial advisor.

999
00:59:33,920 --> 00:59:38,400
Speaker 1: I think the financial advisor is a trusted advisor who

1000
00:59:38,480 --> 00:59:43,360
Speaker 1: has who is an educator. At least that's what I

1001
00:59:43,360 --> 00:59:46,400
Speaker 1: feel a really good financial advisor is is I want

1002
00:59:46,440 --> 00:59:49,120
Speaker 1: to educate. If I'm a financial advisor, I want to

1003
00:59:49,280 --> 00:59:51,919
Speaker 1: educate my clients. I want my clients to feel good

1004
00:59:51,960 --> 00:59:55,640
Speaker 1: about what they're doing, not simply because I say so,

1005
00:59:56,280 --> 00:59:59,160
Speaker 1: but because I have been able to communicate with them.

1006
00:59:59,440 --> 01:00:02,600
Speaker 1: Why the half I am taking is a good path? Man,

1007
01:00:02,640 --> 01:00:05,680
Speaker 1: you are preaching to the choir here. Let me before

1008
01:00:05,720 --> 01:00:08,280
Speaker 1: we get into our favorite questions in in the last

1009
01:00:08,360 --> 01:00:11,360
Speaker 1: twenty minutes or so we have. Let me ask one

1010
01:00:11,400 --> 01:00:16,280
Speaker 1: more question. We briefly talked about the suitability standard and FINRA.

1011
01:00:17,040 --> 01:00:19,520
Speaker 1: Uh So, FINRA is the s R O is a

1012
01:00:19,520 --> 01:00:24,120
Speaker 1: self regulating organization that covers the brokerage firms, all of

1013
01:00:24,160 --> 01:00:27,400
Speaker 1: the broker dealers that aren't our I A s that

1014
01:00:27,480 --> 01:00:32,360
Speaker 1: aren't covered by the SEC. They're kind of an unusual organization.

1015
01:00:32,440 --> 01:00:35,160
Speaker 1: What what are your thoughts on on FINRA. Is FINRA

1016
01:00:35,320 --> 01:00:39,720
Speaker 1: really an s R oh, because isn't a self regulatory organization?

1017
01:00:39,840 --> 01:00:42,959
Speaker 1: Aren't It isn't the definition of that that you're from

1018
01:00:43,000 --> 01:00:47,880
Speaker 1: that industry. Yes, the lions share of the board at

1019
01:00:47,920 --> 01:00:51,760
Speaker 1: FINRA is from outside of the industry, so it really

1020
01:00:51,840 --> 01:00:55,440
Speaker 1: isn't accountable to the government. It really isn't accountable to

1021
01:00:55,480 --> 01:00:57,720
Speaker 1: the industry, and it really isn't accountable to the public.

1022
01:00:57,800 --> 01:01:02,280
Speaker 1: It's really an odd situation. I would think that FINNER

1023
01:01:02,480 --> 01:01:05,720
Speaker 1: would work better if it operated as a true s R. So,

1024
01:01:05,760 --> 01:01:09,720
Speaker 1: in other words, make the board all people. If you're

1025
01:01:09,720 --> 01:01:12,720
Speaker 1: going to be a self regulatory industry, the self part

1026
01:01:13,160 --> 01:01:15,920
Speaker 1: part self evident, I would think, right, So, the the

1027
01:01:16,040 --> 01:01:19,160
Speaker 1: people who are from outside the financial services sector who

1028
01:01:19,200 --> 01:01:24,240
Speaker 1: are on the board, why, why and what is the

1029
01:01:24,320 --> 01:01:26,600
Speaker 1: downside other than they don't really know the industry. Well,

1030
01:01:26,640 --> 01:01:28,440
Speaker 1: that's the point. I think that's the bad that's the

1031
01:01:28,440 --> 01:01:30,840
Speaker 1: bad one. If you're going to be a self regulatory industry,

1032
01:01:30,880 --> 01:01:33,160
Speaker 1: I think you really need to know the industry. Now,

1033
01:01:33,200 --> 01:01:36,640
Speaker 1: I'm the last person, literally the last person who would

1034
01:01:36,640 --> 01:01:40,360
Speaker 1: ever defend FINRA. I have my longstanding views on them.

1035
01:01:40,680 --> 01:01:42,440
Speaker 1: I've never had an issue with them, I've never been

1036
01:01:42,480 --> 01:01:45,640
Speaker 1: in trouble with them. But I'm not a fan. Ah.

1037
01:01:46,560 --> 01:01:49,840
Speaker 1: But to take the other side, they would say, well,

1038
01:01:49,960 --> 01:01:52,040
Speaker 1: we want to bring diversity of thought, we want to

1039
01:01:52,080 --> 01:01:54,840
Speaker 1: avoid group think. We don't want to be insular. We

1040
01:01:54,920 --> 01:01:58,200
Speaker 1: want to bring people who are gonna bring an outside perspective.

1041
01:01:58,240 --> 01:02:01,880
Speaker 1: And perhaps if we make it only industry people, we're

1042
01:02:01,920 --> 01:02:04,920
Speaker 1: gonna miss some important things. What is it that we

1043
01:02:04,960 --> 01:02:06,920
Speaker 1: need to see or do or what have you. But

1044
01:02:06,960 --> 01:02:10,160
Speaker 1: I think it's industry people. I think to to regulate

1045
01:02:10,200 --> 01:02:11,960
Speaker 1: the industry, you have to know the industry. I mean,

1046
01:02:12,160 --> 01:02:13,920
Speaker 1: it sounds like a crazy thing to say, but I

1047
01:02:14,000 --> 01:02:16,320
Speaker 1: really think that's the important aspect of this, and I

1048
01:02:17,160 --> 01:02:21,160
Speaker 1: believe that that that finner the sec There's a couple

1049
01:02:21,400 --> 01:02:23,840
Speaker 1: a couple of things here. There's the ability to regulate,

1050
01:02:23,880 --> 01:02:26,720
Speaker 1: and there's the will to regulate. And I don't think

1051
01:02:27,200 --> 01:02:31,200
Speaker 1: that between the SEC and finer that the the our

1052
01:02:31,280 --> 01:02:34,640
Speaker 1: our legislators have given them either the ability or the

1053
01:02:34,680 --> 01:02:37,040
Speaker 1: will to regulate. And I think that's one of the

1054
01:02:37,080 --> 01:02:40,840
Speaker 1: reasons that really contributed to financial crisis. They don't have

1055
01:02:40,920 --> 01:02:43,800
Speaker 1: the ability to regulate nor the will to regulate. And

1056
01:02:44,040 --> 01:02:47,000
Speaker 1: by ability and will, I define as do you have

1057
01:02:47,040 --> 01:02:50,000
Speaker 1: the laws on the books and you fund the organizations

1058
01:02:50,040 --> 01:02:54,320
Speaker 1: to be able to UH to to UH enact those laws,

1059
01:02:54,320 --> 01:02:58,480
Speaker 1: to carry out those laws. And I just if you

1060
01:02:58,480 --> 01:03:02,040
Speaker 1: look at, for instance, the SEC budget, it is a tiny,

1061
01:03:02,160 --> 01:03:04,959
Speaker 1: tiny fraction of really what it should and it keeps

1062
01:03:05,000 --> 01:03:07,480
Speaker 1: getting sliced, or at least it had been until the

1063
01:03:07,520 --> 01:03:12,200
Speaker 1: financial crisis. It's even after the crisis. Though even after

1064
01:03:12,240 --> 01:03:15,320
Speaker 1: the crisis it was don't they capture some of the

1065
01:03:15,360 --> 01:03:20,240
Speaker 1: fines the issue which creates this idiotic conflict where you're

1066
01:03:20,280 --> 01:03:24,440
Speaker 1: incentivizing industry the regulator to find industry in order to

1067
01:03:24,480 --> 01:03:26,080
Speaker 1: have a but then you have but you have then

1068
01:03:26,120 --> 01:03:28,560
Speaker 1: you have regulatory capture where you have people that are

1069
01:03:28,600 --> 01:03:31,120
Speaker 1: immediately going from the SEC to work in the industry

1070
01:03:31,120 --> 01:03:34,040
Speaker 1: and so forth. And there's a I just I I

1071
01:03:34,080 --> 01:03:36,960
Speaker 1: think that if you really want to make a robust regulator,

1072
01:03:36,960 --> 01:03:38,480
Speaker 1: you've got to fund it. You've got to give them

1073
01:03:38,480 --> 01:03:40,880
Speaker 1: both the ability and the will. All right, So let's

1074
01:03:40,920 --> 01:03:44,840
Speaker 1: put aside all these in the in the weeds, uh stuff,

1075
01:03:44,880 --> 01:03:48,080
Speaker 1: which I think is really quite fascinating. Let's jump to

1076
01:03:48,200 --> 01:03:52,200
Speaker 1: some of my favorite questions. UM, So I didn't ask

1077
01:03:52,200 --> 01:03:55,400
Speaker 1: you your background. What did you do before you got

1078
01:03:55,400 --> 01:03:59,440
Speaker 1: involved with the financial services industry? Was this right out

1079
01:03:59,440 --> 01:04:01,880
Speaker 1: of college? Out out of college Berry, I graduated in

1080
01:04:02,000 --> 01:04:04,960
Speaker 1: nineteen eighty, and go back and look at a yield

1081
01:04:05,080 --> 01:04:09,760
Speaker 1: curve in nineteen eight, Um, I wanted to find a

1082
01:04:09,880 --> 01:04:13,720
Speaker 1: job in the investment management business. Good luck in nineteen eight,

1083
01:04:14,400 --> 01:04:19,360
Speaker 1: twelve and a half, it was. It was a crazy time.

1084
01:04:19,560 --> 01:04:24,080
Speaker 1: So um I went on and got a master's degree.

1085
01:04:24,080 --> 01:04:27,520
Speaker 1: I was basically delaying, and I found a really interesting

1086
01:04:27,600 --> 01:04:30,760
Speaker 1: when I was When I was pursuing my master's degree,

1087
01:04:30,800 --> 01:04:32,880
Speaker 1: I got an assistant ship and I thought, you know,

1088
01:04:32,960 --> 01:04:36,080
Speaker 1: this academic lifestyle is a pretty good lifestyle if you

1089
01:04:36,160 --> 01:04:38,480
Speaker 1: get offered a ten year like I said, the last

1090
01:04:38,520 --> 01:04:41,640
Speaker 1: of the So I decided to make that a career

1091
01:04:42,120 --> 01:04:46,040
Speaker 1: and I but but while I was getting my PhD,

1092
01:04:46,080 --> 01:04:49,400
Speaker 1: I started a money management company and on the side,

1093
01:04:49,480 --> 01:04:55,320
Speaker 1: on the side, and that was night six, so right

1094
01:04:55,320 --> 01:04:57,960
Speaker 1: before the crash of eighty seven, and I cut my

1095
01:04:58,000 --> 01:04:59,880
Speaker 1: teeth on the crash of eighty seven. And one of

1096
01:04:59,880 --> 01:05:03,200
Speaker 1: the things that I learned was that it's much easier

1097
01:05:03,720 --> 01:05:05,600
Speaker 1: to lose your own money than it is to lose

1098
01:05:05,600 --> 01:05:08,520
Speaker 1: other people's money. Did I take Oh yeah, No, when

1099
01:05:08,520 --> 01:05:11,000
Speaker 1: you when you're six, you stop at least if you

1100
01:05:11,120 --> 01:05:14,360
Speaker 1: have a well developed sense of ethics. When do you

1101
01:05:14,560 --> 01:05:16,680
Speaker 1: make an investment, it goes down. You're not happy when

1102
01:05:16,680 --> 01:05:20,240
Speaker 1: it's other people's money. You're like I've heard I've seen

1103
01:05:20,280 --> 01:05:23,760
Speaker 1: people throw up in waste paper baskets. I remember earlier

1104
01:05:23,800 --> 01:05:25,880
Speaker 1: in my career waking up and just being sick to

1105
01:05:26,000 --> 01:05:28,800
Speaker 1: my stomach over I can't believe I have clients in

1106
01:05:28,840 --> 01:05:31,800
Speaker 1: this and it's a disaster. Or I can't believe this

1107
01:05:31,800 --> 01:05:34,800
Speaker 1: group of brokers has has clients in this and it's

1108
01:05:35,280 --> 01:05:39,200
Speaker 1: a nightmare. Even if it's temporary, it's a horrific, horrific

1109
01:05:39,200 --> 01:05:40,880
Speaker 1: If you want to you want to just wretch your

1110
01:05:40,920 --> 01:05:44,640
Speaker 1: guts up. A friend of mine, Rob Frame, talks about

1111
01:05:44,720 --> 01:05:47,040
Speaker 1: his vomit indicator. He knows it's time to buy when

1112
01:05:47,040 --> 01:05:50,120
Speaker 1: he's getting ready to puke, when he feels that coming up.

1113
01:05:50,680 --> 01:05:54,080
Speaker 1: It's in very and he's tracted over decades, and he says,

1114
01:05:54,120 --> 01:05:56,560
Speaker 1: when I feel like throwing up because of how sick

1115
01:05:56,640 --> 01:05:59,800
Speaker 1: I am as to what either I or the market

1116
01:05:59,800 --> 01:06:02,440
Speaker 1: have onto clients, usually it's a good time to go

1117
01:06:02,600 --> 01:06:06,240
Speaker 1: the other way. And I remember distinctly going in that

1118
01:06:06,400 --> 01:06:08,480
Speaker 1: Tuesday morning. I had a lot of cash to operate.

1119
01:06:08,520 --> 01:06:10,800
Speaker 1: I called all my clients on Monday night, you're talking

1120
01:06:10,800 --> 01:06:17,200
Speaker 1: the day after Black Friday, Monday, and I went and bought.

1121
01:06:17,200 --> 01:06:18,920
Speaker 1: It opened and I don't know if you remember, but

1122
01:06:18,960 --> 01:06:21,800
Speaker 1: it opened, so went the market went down at all, Yeah, no,

1123
01:06:22,040 --> 01:06:25,640
Speaker 1: until they unplugged. Tim Metz wrote a great book called

1124
01:06:25,680 --> 01:06:28,640
Speaker 1: Black Monday, and if you read the story, I'm drawing

1125
01:06:28,680 --> 01:06:31,000
Speaker 1: a blank on his name. Who used to be the

1126
01:06:31,040 --> 01:06:33,720
Speaker 1: head of the New York Fed. This was early in

1127
01:06:33,760 --> 01:06:37,040
Speaker 1: the days of the Chicago futures feeds. And he went

1128
01:06:37,040 --> 01:06:39,000
Speaker 1: and he went into the NYC and he saw the

1129
01:06:39,040 --> 01:06:42,320
Speaker 1: futures feed. That's what was driving that's at least the

1130
01:06:42,400 --> 01:06:46,600
Speaker 1: argent story that you saw what the futures were. He

1131
01:06:46,680 --> 01:06:51,720
Speaker 1: had that unplugged, and the big banks decided to re

1132
01:06:51,920 --> 01:06:54,480
Speaker 1: establish credit with the specialists because they had caught him

1133
01:06:54,520 --> 01:06:57,040
Speaker 1: off for we're about to and he said, so you

1134
01:06:57,280 --> 01:06:58,960
Speaker 1: don't want to ever do business with the New York

1135
01:06:59,000 --> 01:07:01,960
Speaker 1: Stock Exchange. Was if you got off credit today, you're done.

1136
01:07:02,400 --> 01:07:05,160
Speaker 1: Off the record, he says it to them. And if

1137
01:07:05,320 --> 01:07:09,160
Speaker 1: if you're interested in the academic history of that, read

1138
01:07:09,240 --> 01:07:12,960
Speaker 1: Tim Mats's Black Monday. It's a wonderful, wonderful book. So

1139
01:07:13,080 --> 01:07:15,760
Speaker 1: you were there on Tuesday and I went in and

1140
01:07:15,760 --> 01:07:19,680
Speaker 1: and I remember Tuesday morning was when I felt the worst.

1141
01:07:20,000 --> 01:07:21,680
Speaker 1: And how does the afternoon I felt a lot better.

1142
01:07:21,720 --> 01:07:24,160
Speaker 1: How long did it take before you got your confirms

1143
01:07:24,200 --> 01:07:26,760
Speaker 1: when you bought on Tuesday morning? Well, I when I

1144
01:07:26,800 --> 01:07:30,960
Speaker 1: was on the phone immediately. Yeah, so I I mean

1145
01:07:31,040 --> 01:07:34,400
Speaker 1: I knew you got filled. I got we got filled.

1146
01:07:34,520 --> 01:07:37,320
Speaker 1: Could could have been one of the greatest buying opportunities

1147
01:07:37,360 --> 01:07:40,840
Speaker 1: in decades, to say the least. Although march O nine

1148
01:07:40,920 --> 01:07:42,720
Speaker 1: is looking more and more like that, the march On

1149
01:07:42,840 --> 01:07:45,640
Speaker 1: nine looks pretty good. So who are some of your

1150
01:07:45,680 --> 01:07:50,200
Speaker 1: early mentors? Well, yeah, again, not a mentor, but I

1151
01:07:50,680 --> 01:07:56,520
Speaker 1: looked up to buffett Um and other investors who influenced you. Yeah,

1152
01:07:57,040 --> 01:08:02,960
Speaker 1: you mentioned you mentioned Graham. Certainly eight um Ben Graham

1153
01:08:02,960 --> 01:08:06,920
Speaker 1: certainly Phil Fisher, UM, phil Fisher being who um he

1154
01:08:06,960 --> 01:08:10,920
Speaker 1: wrote Common Stocks and Uncommon profets and Buffett claims that

1155
01:08:10,960 --> 01:08:16,280
Speaker 1: he is fifteen percent Fisher and Graham is what he

1156
01:08:16,320 --> 01:08:20,559
Speaker 1: says his makeup. UM. One of the curious things about

1157
01:08:20,600 --> 01:08:25,839
Speaker 1: being in Omaha, Uh, Barry, I had a UH class

1158
01:08:25,880 --> 01:08:29,320
Speaker 1: that managed real money. These are undergraduate students. At the time,

1159
01:08:29,320 --> 01:08:32,000
Speaker 1: it was the only class in the country where students

1160
01:08:32,080 --> 01:08:36,280
Speaker 1: for a year long managed real money UM and UM.

1161
01:08:36,360 --> 01:08:40,800
Speaker 1: The class. The the term ended right around the time

1162
01:08:40,840 --> 01:08:44,240
Speaker 1: of the Berkshire Hathaway Annual meeting, and Mr Buffett was

1163
01:08:44,280 --> 01:08:46,280
Speaker 1: gracious enough to come in and talk to the class

1164
01:08:46,280 --> 01:08:50,000
Speaker 1: a few But I always would ask him. I said,

1165
01:08:50,040 --> 01:08:51,960
Speaker 1: who's going to be in town that I can co

1166
01:08:52,120 --> 01:08:55,800
Speaker 1: opt into coming and talking to my class. So it's

1167
01:08:55,840 --> 01:08:57,920
Speaker 1: not enough that Warren Buffett is coming to speak to

1168
01:08:57,960 --> 01:09:00,800
Speaker 1: your class. While he's there, you're twisting his arm for hey,

1169
01:09:00,880 --> 01:09:03,400
Speaker 1: give me some more names. Yeah, and he Bill Ruwayne

1170
01:09:03,600 --> 01:09:06,120
Speaker 1: from the Sequoia Fund came and talked to my class

1171
01:09:06,160 --> 01:09:09,759
Speaker 1: one year, UM, and he had a really a very

1172
01:09:09,800 --> 01:09:12,400
Speaker 1: interesting story to tell too. But let me tell you

1173
01:09:12,479 --> 01:09:15,040
Speaker 1: one little, one little Buffet quip that I think tells

1174
01:09:15,040 --> 01:09:17,840
Speaker 1: you all you need to know about Mr Buffett. I

1175
01:09:17,880 --> 01:09:20,240
Speaker 1: would take my students to the annual meeting. He always

1176
01:09:20,240 --> 01:09:22,200
Speaker 1: sent us tickets that I could take my whole class

1177
01:09:22,360 --> 01:09:25,160
Speaker 1: or sixteen kids. We'd go to the annual meeting, and

1178
01:09:25,640 --> 01:09:28,000
Speaker 1: we would pose every year for a picture. He would

1179
01:09:28,040 --> 01:09:31,439
Speaker 1: come over and and pose for a picture. And one

1180
01:09:31,560 --> 01:09:36,200
Speaker 1: year I said, Warren, I said, what right if you

1181
01:09:36,240 --> 01:09:39,400
Speaker 1: were teaching this class, what books would you use? And

1182
01:09:39,520 --> 01:09:42,559
Speaker 1: he said, let me think about that, Bob, that sounds

1183
01:09:42,600 --> 01:09:45,600
Speaker 1: like a Buffet response. Three days later, Barry, this is

1184
01:09:45,720 --> 01:09:48,160
Speaker 1: three days after the annual meeting. I get a letter

1185
01:09:48,240 --> 01:09:52,400
Speaker 1: in the mail, Bob, and it was handwritten Bob. I

1186
01:09:52,479 --> 01:09:56,320
Speaker 1: would have the students read Security Analysis by Ben Graham,

1187
01:09:56,680 --> 01:10:01,519
Speaker 1: The Intelligent Investor, Security annalys by Graham, and uh the

1188
01:10:01,600 --> 01:10:04,599
Speaker 1: Intelligent Investor by Ben Graham, and Common Stocks and Uncommon

1189
01:10:04,680 --> 01:10:08,760
Speaker 1: Profits by Phil Fisher. H But he remembered me, and

1190
01:10:08,880 --> 01:10:11,800
Speaker 1: it wasn't that he had somebody writing that down wrote it.

1191
01:10:12,080 --> 01:10:14,640
Speaker 1: He remembered that I had asked that question, and I

1192
01:10:14,800 --> 01:10:18,320
Speaker 1: was the least important person that day to Mr Buffett's

1193
01:10:18,720 --> 01:10:21,200
Speaker 1: annual meeting. But he remembered me, and I got it.

1194
01:10:21,479 --> 01:10:24,240
Speaker 1: Three days later and I hope you have that that

1195
01:10:24,479 --> 01:10:27,800
Speaker 1: letter it's framed. No, no doubt about that. So you

1196
01:10:27,920 --> 01:10:31,080
Speaker 1: mentioned three books? Any other books worth bringing up? Yeah,

1197
01:10:31,200 --> 01:10:34,600
Speaker 1: margin of Safety? Mr Buffett also said Seth Clarmon. He

1198
01:10:34,680 --> 01:10:38,000
Speaker 1: said yeah. I asked him, I said, who's the next

1199
01:10:38,080 --> 01:10:41,360
Speaker 1: Warren Buffett? And he said Seth Clarmon. And so I

1200
01:10:41,479 --> 01:10:45,439
Speaker 1: looked and Seth Clarmon wrote Margin of Safety. I had

1201
01:10:45,520 --> 01:10:48,920
Speaker 1: my students buried by that book. Get out of here,

1202
01:10:49,040 --> 01:10:51,880
Speaker 1: so we can't. We used that in class and we

1203
01:10:52,040 --> 01:10:56,200
Speaker 1: bought sixteen copies, me and the students. That might be

1204
01:10:56,320 --> 01:11:00,840
Speaker 1: the best investment those kids ever made, compounded annual the

1205
01:11:00,960 --> 01:11:06,240
Speaker 1: actual value of the book from press. And I had

1206
01:11:06,240 --> 01:11:07,840
Speaker 1: a student. I still keep in touch with some of

1207
01:11:07,920 --> 01:11:09,800
Speaker 1: these kids. And I had a student call me and say,

1208
01:11:10,760 --> 01:11:13,800
Speaker 1: I just got two grand out of that book. He says,

1209
01:11:13,840 --> 01:11:17,400
Speaker 1: I can buy the pdf. The pdf is on the internet,

1210
01:11:17,520 --> 01:11:19,439
Speaker 1: is free. You can pick it up for for nothing.

1211
01:11:20,120 --> 01:11:22,000
Speaker 1: I would want to save the book, but that's just me.

1212
01:11:22,680 --> 01:11:26,799
Speaker 1: Um are so, for better or worse? What has changed

1213
01:11:26,880 --> 01:11:30,280
Speaker 1: since you joined the industry? Boy? A lot's change. There's

1214
01:11:30,320 --> 01:11:34,600
Speaker 1: more algorithmic trading, more high frequency trading, and you know,

1215
01:11:35,280 --> 01:11:38,200
Speaker 1: on balance, I think that's a really bad thing. They

1216
01:11:38,320 --> 01:11:41,360
Speaker 1: say that it helps liquidity, but you know, I was

1217
01:11:41,439 --> 01:11:44,040
Speaker 1: in I was in your camp, and I have guys

1218
01:11:44,160 --> 01:11:47,600
Speaker 1: like who guests of the show. David Booth of d

1219
01:11:47,800 --> 01:11:51,360
Speaker 1: f A, Bill McNabb CEO and chairman of Van Guard

1220
01:11:51,920 --> 01:11:56,000
Speaker 1: both insist to me that h f T has made

1221
01:11:56,040 --> 01:11:58,600
Speaker 1: their costs lower. It doesn't feel that way to me,

1222
01:11:58,800 --> 01:12:00,840
Speaker 1: but that's what they've said. Yeah, it doesn't feel that

1223
01:12:00,920 --> 01:12:03,200
Speaker 1: way to me too. You know, I said earlier, I

1224
01:12:03,280 --> 01:12:07,400
Speaker 1: think there's constant talking heads on TV encouraging people to

1225
01:12:08,600 --> 01:12:11,840
Speaker 1: have investment activity, is what I'd call it. I think

1226
01:12:11,920 --> 01:12:15,560
Speaker 1: we've gone to more trading and less investing. Um. You know,

1227
01:12:15,840 --> 01:12:19,880
Speaker 1: I think that people like my sister, who's a lay investor,

1228
01:12:20,520 --> 01:12:24,800
Speaker 1: I think that you should have constant action. And when

1229
01:12:24,880 --> 01:12:27,760
Speaker 1: she calls me and says, well, you know, you haven't

1230
01:12:27,840 --> 01:12:30,320
Speaker 1: suggested that I do anything, And I said, well, Nancy,

1231
01:12:30,400 --> 01:12:33,479
Speaker 1: I have you in Berkshire, Hathaway, you've done. Just just

1232
01:12:33,880 --> 01:12:37,120
Speaker 1: sit and be happy. My colleague Josh Brown has a

1233
01:12:37,240 --> 01:12:40,200
Speaker 1: quote I love, and he says, the solution to high

1234
01:12:40,280 --> 01:12:44,479
Speaker 1: frequency trading is low frequency trade. So the less you trade,

1235
01:12:44,600 --> 01:12:48,160
Speaker 1: the less likely you are to do something. Really silly.

1236
01:12:48,360 --> 01:12:51,799
Speaker 1: I think we have much more informational availability to investors,

1237
01:12:51,840 --> 01:12:54,000
Speaker 1: and I think that's a good thing, as does everybody.

1238
01:12:54,360 --> 01:12:58,240
Speaker 1: The takeaway the conversation with clients are what about this? Well,

1239
01:12:59,080 --> 01:13:01,719
Speaker 1: who doesn't know that? Therefore that's in the stock price?

1240
01:13:02,200 --> 01:13:05,400
Speaker 1: The way a piece of information is gonna give you

1241
01:13:05,560 --> 01:13:10,760
Speaker 1: an a investing advantage if it's a unique analysis or

1242
01:13:10,880 --> 01:13:14,000
Speaker 1: unique piece of data, assuming it doesn't get you sent

1243
01:13:14,120 --> 01:13:17,640
Speaker 1: to jail. So that really eliminates a lot of the

1244
01:13:18,080 --> 01:13:20,000
Speaker 1: But I think, Barry, it's more what you do with

1245
01:13:20,160 --> 01:13:23,280
Speaker 1: that information, because Warren Buffett looks the same information I

1246
01:13:23,400 --> 01:13:25,720
Speaker 1: look at and he does a lot more with it

1247
01:13:25,840 --> 01:13:28,439
Speaker 1: than I do. And but what I always say is

1248
01:13:28,479 --> 01:13:30,960
Speaker 1: the great thing about investing is you don't have to

1249
01:13:31,040 --> 01:13:33,720
Speaker 1: have an original idea. You just have to be able

1250
01:13:33,760 --> 01:13:35,960
Speaker 1: to recognize a really good idea when it comes through.

1251
01:13:36,720 --> 01:13:40,960
Speaker 1: So the my last two questions my favorite questions. So

1252
01:13:41,240 --> 01:13:44,479
Speaker 1: if a millennial or someone just graduating college where to

1253
01:13:44,560 --> 01:13:47,360
Speaker 1: come to you and say I'm interested in the career

1254
01:13:47,400 --> 01:13:49,840
Speaker 1: in finance, what sort of advice would you give them?

1255
01:13:50,360 --> 01:13:52,920
Speaker 1: My son is a millennial. My son is twenty one,

1256
01:13:53,640 --> 01:13:56,360
Speaker 1: and he has a different outlook than I did, And

1257
01:13:56,600 --> 01:14:00,160
Speaker 1: maybe it's a Maybe it's our upbringings because um, he

1258
01:14:00,280 --> 01:14:03,360
Speaker 1: grew up in a an environment where he didn't want

1259
01:14:03,400 --> 01:14:06,960
Speaker 1: for anything. I grew up in a lower middle class environment.

1260
01:14:07,640 --> 01:14:11,000
Speaker 1: Um I wanted to do well. My son wants to

1261
01:14:11,120 --> 01:14:16,879
Speaker 1: do good. I think that this profession, the financial services profession,

1262
01:14:17,040 --> 01:14:20,720
Speaker 1: can afford somebody the opportunity to do both. You can

1263
01:14:20,880 --> 01:14:24,479
Speaker 1: really do well in terms of financially well, but you

1264
01:14:24,600 --> 01:14:28,280
Speaker 1: can really do good. And I think that's very appealing

1265
01:14:28,400 --> 01:14:31,679
Speaker 1: to millennials. You know, if you put somebody on proper

1266
01:14:31,760 --> 01:14:37,200
Speaker 1: financial puttings footing, sound financial footing, that's life changing. And

1267
01:14:37,320 --> 01:14:39,560
Speaker 1: I think that if you do that right, and you

1268
01:14:40,360 --> 01:14:41,880
Speaker 1: you know, you do a good job at that, you

1269
01:14:41,920 --> 01:14:43,519
Speaker 1: can put your head on the pillow at night and

1270
01:14:43,560 --> 01:14:45,960
Speaker 1: feel pretty good about what you do. And you can

1271
01:14:46,000 --> 01:14:48,840
Speaker 1: also live a pretty good life, to say the least.

1272
01:14:49,080 --> 01:14:51,080
Speaker 1: And it's how much of that wanting to do good

1273
01:14:51,120 --> 01:14:53,639
Speaker 1: as a function of the fact that he's twenty one

1274
01:14:54,160 --> 01:14:57,320
Speaker 1: and when you're young and idealistic and life has kick

1275
01:14:57,400 --> 01:14:59,600
Speaker 1: the hell out of you, yet you can look at

1276
01:14:59,600 --> 01:15:01,680
Speaker 1: the world that way. Well, I think I've gone the

1277
01:15:01,720 --> 01:15:04,080
Speaker 1: other way. I think I started wanting to do well

1278
01:15:04,280 --> 01:15:07,920
Speaker 1: and now have done well and want to do good.

1279
01:15:08,360 --> 01:15:13,559
Speaker 1: That seems to be a pretty traditional factor for people.

1280
01:15:14,120 --> 01:15:16,960
Speaker 1: Once you realize that all your material needs are met,

1281
01:15:17,080 --> 01:15:19,400
Speaker 1: and how fortunate you are to be born in the

1282
01:15:19,520 --> 01:15:22,519
Speaker 1: United States, born in the century, and being a career

1283
01:15:22,640 --> 01:15:25,120
Speaker 1: that pays you more than anyone has any right to

1284
01:15:25,200 --> 01:15:28,680
Speaker 1: expect in a given lifetime relative to the rest of

1285
01:15:28,960 --> 01:15:33,760
Speaker 1: the um world, you start to think, Hey, I want

1286
01:15:33,760 --> 01:15:37,479
Speaker 1: to give some back and just recognize how appreciative I

1287
01:15:37,560 --> 01:15:41,120
Speaker 1: am of the opportunities that were afforded to me that

1288
01:15:41,240 --> 01:15:43,639
Speaker 1: might not have been afforded to everybody you know. For instance,

1289
01:15:43,680 --> 01:15:46,800
Speaker 1: people may roll our eyes about somebody who sells insurance that,

1290
01:15:46,960 --> 01:15:50,120
Speaker 1: oh god, who would want to sell insurance? Well, my

1291
01:15:50,320 --> 01:15:54,559
Speaker 1: son saw an instance where his uncle, my brother in law,

1292
01:15:54,720 --> 01:15:58,640
Speaker 1: was tragically killed in a car accident. His family they

1293
01:15:58,720 --> 01:16:02,120
Speaker 1: had life insurance on him. Uh, the the the agent

1294
01:16:02,400 --> 01:16:05,320
Speaker 1: basically delivered a check for two million dollars. So the

1295
01:16:05,400 --> 01:16:07,439
Speaker 1: house is paid for, the kids, college is paid for,

1296
01:16:07,600 --> 01:16:11,240
Speaker 1: retirement is set up, and although it's a terrible tragedy,

1297
01:16:11,960 --> 01:16:15,000
Speaker 1: at least it isn't a second tragedy when everybody is

1298
01:16:15,040 --> 01:16:17,040
Speaker 1: set back in their lives and can't achieve what they

1299
01:16:17,080 --> 01:16:18,880
Speaker 1: want to achieve, and you know he saw that, and

1300
01:16:18,960 --> 01:16:21,160
Speaker 1: I think that's shaping what he might want to do.

1301
01:16:21,760 --> 01:16:24,280
Speaker 1: So you could do well by doing good in other words,

1302
01:16:24,800 --> 01:16:27,280
Speaker 1: And our last question, I know they're gonna kick us

1303
01:16:27,280 --> 01:16:29,400
Speaker 1: out of here any second. What is it that you

1304
01:16:29,560 --> 01:16:33,240
Speaker 1: know about investing that you wish you knew thirty years

1305
01:16:33,280 --> 01:16:35,479
Speaker 1: ago when you were just getting out of school, but

1306
01:16:35,680 --> 01:16:38,679
Speaker 1: perhaps didn't thirty years ago. Well, I I sure wish

1307
01:16:38,720 --> 01:16:41,560
Speaker 1: I would have seen the mortgage crisis coming. Um. You know,

1308
01:16:41,640 --> 01:16:44,800
Speaker 1: it's funny, Barry, how many people now claim to have

1309
01:16:44,960 --> 01:16:47,160
Speaker 1: saw that coming. Really annoying to those of us who

1310
01:16:47,200 --> 01:16:49,439
Speaker 1: saw it coming. All these people who are making that

1311
01:16:49,600 --> 01:16:54,160
Speaker 1: claim it is I certainly didn't see that coming. You know,

1312
01:16:54,520 --> 01:16:57,320
Speaker 1: the thing that I see about investments is the the

1313
01:16:57,680 --> 01:17:00,680
Speaker 1: complexity of investments is just crazy. Ze I remember I

1314
01:17:00,760 --> 01:17:03,519
Speaker 1: had a student who went to work for Solomon Brothers,

1315
01:17:04,200 --> 01:17:06,759
Speaker 1: and he was on the mortgage desk and he called

1316
01:17:06,800 --> 01:17:08,800
Speaker 1: me and he said, I would like to ask you

1317
01:17:08,840 --> 01:17:11,600
Speaker 1: if you'd be interested in helping us um do a

1318
01:17:11,720 --> 01:17:14,439
Speaker 1: little consulting in on the mortgage back desk. And he

1319
01:17:14,560 --> 01:17:18,000
Speaker 1: sent me everything that he had on mortgage back securities,

1320
01:17:18,000 --> 01:17:20,640
Speaker 1: which were nascent at the time, and I said, I,

1321
01:17:21,000 --> 01:17:23,799
Speaker 1: I don't understand anybody can I don't understand how anybody

1322
01:17:23,800 --> 01:17:26,800
Speaker 1: can value these things. I have no idea because they're

1323
01:17:26,840 --> 01:17:30,320
Speaker 1: so complex. Well, great, we've we've hit our target. It

1324
01:17:30,680 --> 01:17:32,479
Speaker 1: turned out that that was what it was, and I

1325
01:17:32,479 --> 01:17:35,640
Speaker 1: couldn't provide him any help. Well, long story short, I

1326
01:17:35,760 --> 01:17:39,280
Speaker 1: think I was right. Um, but I think Barry that

1327
01:17:40,600 --> 01:17:43,200
Speaker 1: the theme that I would say is that I think

1328
01:17:43,280 --> 01:17:48,160
Speaker 1: that the investment world has gotten unnecessarily complex. Now is

1329
01:17:48,240 --> 01:17:51,120
Speaker 1: it safe to say that that's a feature, not a bug.

1330
01:17:51,640 --> 01:17:54,080
Speaker 1: It's not an accident that it happens that way, but

1331
01:17:54,680 --> 01:17:57,080
Speaker 1: there's not an element of design. I don't think it's

1332
01:17:57,080 --> 01:18:00,600
Speaker 1: an accident that it happens. I think that the the

1333
01:18:00,760 --> 01:18:06,360
Speaker 1: eye banking community is a pretty um sophisticated, savvy, and

1334
01:18:06,560 --> 01:18:11,320
Speaker 1: very intelligent group, and I think that they can uh

1335
01:18:12,760 --> 01:18:15,759
Speaker 1: come up with a lot of different products, financial products

1336
01:18:15,880 --> 01:18:19,759
Speaker 1: that it's very that they are. They're very difficult to value,

1337
01:18:19,960 --> 01:18:21,840
Speaker 1: and I think that there's a thing out there that

1338
01:18:22,160 --> 01:18:26,520
Speaker 1: that people are unwilling to say the words I don't understand,

1339
01:18:27,479 --> 01:18:29,280
Speaker 1: and I think that's one of Mr. But that's one

1340
01:18:29,280 --> 01:18:31,240
Speaker 1: of the things I've learned from Mr Buffett is that

1341
01:18:31,960 --> 01:18:35,639
Speaker 1: he stays away from investments that he doesn't understand. Famously

1342
01:18:35,680 --> 01:18:38,519
Speaker 1: stayed away from technologies in the late nineties. Everyone said

1343
01:18:38,520 --> 01:18:41,559
Speaker 1: he was a dinosaur, and then a year later everything

1344
01:18:41,680 --> 01:18:44,920
Speaker 1: crashes on him. Um, it's the idea of your circle

1345
01:18:44,960 --> 01:18:48,040
Speaker 1: of competence, So not how big your circle of competence is,

1346
01:18:48,120 --> 01:18:50,760
Speaker 1: it's that you stay within its perimeter. So what is

1347
01:18:50,840 --> 01:18:52,920
Speaker 1: that one thing you would that would have helped you

1348
01:18:53,000 --> 01:18:55,599
Speaker 1: in your career had you known it thirty years ago. Well,

1349
01:18:55,720 --> 01:18:58,080
Speaker 1: I think I did know it, and I think it's

1350
01:18:58,160 --> 01:19:01,560
Speaker 1: that I think that you stay within that circle of competence,

1351
01:19:01,680 --> 01:19:05,040
Speaker 1: and I think that if I could help people, it

1352
01:19:05,160 --> 01:19:07,280
Speaker 1: would have been that I would have hammered on that.

1353
01:19:08,280 --> 01:19:12,040
Speaker 1: Don't be ashamed to say that you don't understand something.

1354
01:19:13,080 --> 01:19:16,640
Speaker 1: Dr Bob Johnson, this has been absolutely fascinating. Thank you

1355
01:19:16,760 --> 01:19:21,160
Speaker 1: for being so generous with your time. If you've enjoyed

1356
01:19:21,240 --> 01:19:23,800
Speaker 1: this conversation, look up an inch or down an inch

1357
01:19:23,960 --> 01:19:27,439
Speaker 1: on Apple iTunes and you'll see the other let's call

1358
01:19:27,520 --> 01:19:32,439
Speaker 1: it ninety or so uh podcast radio broadcast conversations that

1359
01:19:32,560 --> 01:19:35,439
Speaker 1: we've been doing. I would be remiss if I did

1360
01:19:35,520 --> 01:19:39,360
Speaker 1: not thank Taylor Riggs and Charlie Volmer, my uh producer

1361
01:19:39,439 --> 01:19:42,160
Speaker 1: and booker for the show. And Michael bat Nick, the

1362
01:19:42,200 --> 01:19:45,040
Speaker 1: head of research who helps me put together all of

1363
01:19:45,120 --> 01:19:50,200
Speaker 1: these scintillating conversations. I'm Barry Ridhults. You've been listening to

1364
01:19:50,360 --> 01:19:52,880
Speaker 1: Masters in Business on Bloomberg Radio.