Speaker 1: Welcome with trillions. I'm Joel Weber and I'm Eric Belserness.
Speaker 1: Do you know who Barry Ritt Holds is. Yeah, a
Speaker 1: little bit kind of a big deal here. He's been
Speaker 1: around for a while. He's a money manager, a Bloomberg
Speaker 1: opinion columnists, and he's also a fellow podcast host. His
Speaker 1: podcast Masters in Business is literally a crash course in
Speaker 1: business with some of the biggest names in everything from
Speaker 1: finance to banking to managing money. Yeah. Absolutely, he's one
Speaker 1: of the most interesting people. He runs an advisors shop
Speaker 1: that is cutting edge and in a couple of ways,
Speaker 1: Rid Holts Wealth Management. You know, I'm on Twitter and
Speaker 1: a lot of those guys are very popular. Their blog
Speaker 1: posts are really great. And Barry is very honest and
Speaker 1: a lot of real brutally honest and he's not afraid
Speaker 1: to answer any question, even if it's about advisor fees
Speaker 1: and whatnot. And I've seen him operate on Twitter and
Speaker 1: he'll take on anybody. He'll answer anything. He's just very
Speaker 1: vocal and obviously he's used to interviewing people, so I
Speaker 1: thought it'd be interesting to interview him. And I know
Speaker 1: he's a big E T F user. That's the that's
Speaker 1: the cool part because he managed I mean, he manages
Speaker 1: a lot of money, is he and his team, and
Speaker 1: he has some really important views about e t s. Yeah,
Speaker 1: when someone goes out and says E t F serve
Speaker 1: the devil, he tends to be on the other side
Speaker 1: of that. And I've noticed that because he's using them.
Speaker 1: I mean, he has real people's money in e t
Speaker 1: F so he better believe they're they work and they're good.
Speaker 1: So we asked him about e t f s passive.
Speaker 1: He'ses some active while he's not persuaded by thematic e
Speaker 1: t f s, even if he likes the industry. I
Speaker 1: thought that was interesting. And also just this this low
Speaker 1: cost migration that advisors are loving in the asset management
Speaker 1: side but hasn't quite hit the advisors side, and that's
Speaker 1: a third rail issue. But he'll he he took it
Speaker 1: on and he was not afraid to talk about He
Speaker 1: wasn't afraid to talk about anything we hit on. I
Speaker 1: think God, uh, portfolio management, trump, p F trump trade everything,
Speaker 1: And you know when you talk about being honest about
Speaker 1: those things, he really is that way in his columns
Speaker 1: and on Twitter, and so are the people he works
Speaker 1: with so we asked them, you know, as an advisor
Speaker 1: with clients, has that helped and has it ever hurt?
Speaker 1: I thought it was interesting. So what we're gonna call
Speaker 1: this episode because we actually have so much material, it's
Speaker 1: like a double album. It's a double podcast, so the
Speaker 1: white album I have one even better. Use Your Disillusion
Speaker 1: one and two. And I say that because Barry talks
Speaker 1: about disillusion being the reason a lot of money has
Speaker 1: shifted over to passive in the past ten years. Sidebar
Speaker 1: guns and Roses. Use your Illusion one or two? Which
Speaker 1: is your preferred I can't remember, probably the one with
Speaker 1: Don't Cry. That's probably my favorite song from that whole thing.
Speaker 1: But um, there's a I don't know half of it
Speaker 1: is good. The other half of its number two This
Speaker 1: weekend trillions, Use Your Disillusion one and two with Barry
Speaker 1: Barry Evan ridd Alts go how did you become who
Speaker 1: you are? Um? So I'll share a deep, dark secret
Speaker 1: with you guys. And nobody believes me when I say this,
Speaker 1: but it's really true. A lot of what I do
Speaker 1: is just because I'm entertaining myself. So Daniel Boston is
Speaker 1: the Librarian of Congress for former Librarian of Congress, and
Speaker 1: he famously once said, I write to figure out what
Speaker 1: I think, and besides that hour all the bars are closed, unquote,
Speaker 1: And that's really true. You don't understand your own thought process.
Speaker 1: You don't know what you really think until you go
Speaker 1: through the entire process of putting it on paper, figuring out.
Speaker 1: Here's my intro, here my supporting points, here's my conclusion.
Speaker 1: We have a very muddled internal dialogue. Most people are
Speaker 1: not crystal clear about their viewpoints and their positions. It's
Speaker 1: why people are so easily influenced. They don't really know
Speaker 1: what they believe. There's a handful of things that they're
Speaker 1: probably pretty deeply as constant, their personal spirituality, their religion,
Speaker 1: some of their ethics. However, a lot of what they
Speaker 1: think they believe it is very squishing and so often
Speaker 1: ill defined. So writing really helps you figure that out.
Speaker 1: And what started with the blog was frustration with the
Speaker 1: nineties and two thousands media, which I thought the financial media.
Speaker 1: I thought the financial media was pretty mediocre and in
Speaker 1: a lot of ways punctuated with excellence, but a lot
Speaker 1: of really terrible stuff. So at most major newspapers, um,
Speaker 1: someone would get hired for the economics beat because it
Speaker 1: was terrible, and they would send them to all right,
Speaker 1: you're gonna go to the Treasury and you're gonna get
Speaker 1: this report. This comes out at eight o'clock. And then
Speaker 1: you know on Friday, you're gonna the first Friday of
Speaker 1: the month, you're gonna go do non farm payroll at
Speaker 1: the labor to point. And they used to actually go
Speaker 1: to these places and they would write these terrible things
Speaker 1: about what happened. Most people who are language oriented don't
Speaker 1: frequently have the math skills to keep up with that um,
Speaker 1: and they don't understand things like causation, and they don't
Speaker 1: understand so so you ended up with these things that
Speaker 1: most of the time don't matter UM, but occasionally are
Speaker 1: important and we're frequently wrong. And so the entire blog
Speaker 1: The Big Picture began as a pushback to that. Just
Speaker 1: by I would read something and it would frustrate me
Speaker 1: because I knew it was either wrong or to the
Speaker 1: average investor misleading, And the same thing was true with
Speaker 1: the podcast. I used to pull my hair into my head.
Speaker 1: There would be some fantastic person on if Choose your Poison,
Speaker 1: Bloomberg TV or CNBC or Fox Business or Fox News
Speaker 1: before they had Fox Business or CNN, bisy this and
Speaker 1: they would do this terrible interview, what's your favorite stock?
Speaker 1: Where's the dal gonna be in a year? Hey? When
Speaker 1: is the Fed gonna cut rates? Or rates? And I'm like, wait,
Speaker 1: this guy is brilliant. He wrote the seminal white paper
Speaker 1: on fill in the blank? Who is he? How did
Speaker 1: he get that way? So the podcast, if the blog,
Speaker 1: was pushed back to financial media. The podcast, which just
Speaker 1: celebrated its fourth anniversary. Is that the is that like
Speaker 1: the Wood anniversary? I don't know. It's two hundred plus interviews,
Speaker 1: many of each last twelve eighteen hours. Things like that,
Speaker 1: and it's it's the podcast was pushed back to the
Speaker 1: electronic media's refusal to have and I shouldn't say refusal,
Speaker 1: the rarity of a very good interview with people who
Speaker 1: are intelligent and accomplished and have a unique perspective and
Speaker 1: have something to say. Who cares what their favorite stock is?
Speaker 1: They walk out of the building, it's already stale. Asked
Speaker 1: them something that's evergreen and important. How did you get
Speaker 1: into the managing money? So I started as a trader
Speaker 1: a few decades ago, and that was a ton of fun. Um.
Speaker 1: You make a lot of money, some months you lose
Speaker 1: a lot of money. But it was really, really interesting,
Speaker 1: and eventually I came to the conclusion that it was
Speaker 1: fair as far as I was concerned. The compensation ended
Speaker 1: up being fairly random um. But most fascinating to me
Speaker 1: was the guys on the desk around me, And it
Speaker 1: was back then it was all guys, and this person
Speaker 1: is making money this month and this person isn't, and
Speaker 1: then you flip it, and that sent me down a
Speaker 1: rabbit hole of why performance exists and how people some
Speaker 1: people dwell and some people don't, and the entire behavioral
Speaker 1: finance UM rabbit hole opened up to me in the
Speaker 1: mid nineties. But I went from there to research. It
Speaker 1: was became an assistant to a technology strategist at a
Speaker 1: firm that no longer exists. It was ended up being
Speaker 1: brought by Oppenheimer, and then eventually became a market strategist.
Speaker 1: And so the first twenty years of my career I said,
Speaker 1: turned down money, listen, I can't compromise the objectivity I
Speaker 1: have and in doing my research or so, I foolishly,
Speaker 1: But eventually it became clear to me that when I
Speaker 1: would refer people to other Oh this guy you want
Speaker 1: Muni bonds, Go talk to him all you want to.
Speaker 1: It dawned on me one day when I referred to
Speaker 1: somebody to a Muni bond specialist. The person came back
Speaker 1: to me and said, so tell me about this private
Speaker 1: placement there they're talking about. And I suddenly had a
Speaker 1: tremendous insight. Oh my god, I have massive reputational liability
Speaker 1: and probably legal liability if I send someone, not getting
Speaker 1: paid for it, never asking for a dime, but thinking
Speaker 1: I'm doing the right thing by sending people to And
Speaker 1: at that point it was like, all right, that's it.
Speaker 1: I'm I'm done making those sort of idiotic risk decisions
Speaker 1: folding people to other people. Congratulations, you're the first client
Speaker 1: of the Ridoltz Group. And and that's how that began.
Speaker 1: And that was just about a decade. You still had
Speaker 1: that first client, Yes, still do. And how many clients
Speaker 1: do you have to I want to say we work
Speaker 1: with about five hundred families a little under and we're
Speaker 1: up to about nine hundred million dollars. We're just shy
Speaker 1: of a billion, and we're just shy of five years,
Speaker 1: which will September is our um champagne party anniversary. Can
Speaker 1: I tell you something. We discussed that internally in the
Speaker 1: office and decided it was a bad look. And instead,
Speaker 1: I know this sounds like hokey and self serving, we
Speaker 1: decided that the whole New York office is going to
Speaker 1: go volunteer somewhere on that anniversary. I know that it
Speaker 1: sounds it sounds artificial, but it really isn't. Because this
Speaker 1: industry is somewhat notorious for a lot of um back
Speaker 1: padding and we're all guilty of it, and I'm I'm
Speaker 1: we would like to avoid that sort of that sort
Speaker 1: of luck. All right, So, Barry, we invited you on
Speaker 1: this podcast which is about e t F s because
Speaker 1: I've seen you right about e t F s. You
Speaker 1: you speak at many of the E t F conferences,
Speaker 1: You've talked about investing in them. Just talk about, you know,
Speaker 1: as an advisor, what E t F have done for
Speaker 1: your business and how you use them. Sure, so, there
Speaker 1: are a couple of really obvious, simple advantages of e
Speaker 1: t F s. Perhaps first and foremost is the tax
Speaker 1: structure is vastly superior to most other things. And and
Speaker 1: that's number one. Number two with e t F s
Speaker 1: if you're dealing, we set up an online this is
Speaker 1: already a couple of years old. We set up an
Speaker 1: online I hate the term robo advisor, but an automated
Speaker 1: UM solution that is low touch, low cost, and it
Speaker 1: it trades essentially commissioned free at t D using all
Speaker 1: of these ETFs from various names like Vanguard and black
Speaker 1: Rock and State Treat and and what have you. And
Speaker 1: that that circle of of commission free stuff is always changing,
Speaker 1: but we don't change the portfolio reflected regardless. You can
Speaker 1: set up a well diversified portfolio, not with two million dollars,
Speaker 1: not with two hundred thousand dollars, but with you know,
Speaker 1: twenty dollars. That wasn't possible pre e t fs. It
Speaker 1: didn't make sense to buy five thousand dollars worth of
Speaker 1: mutual fund given the costs and the price breaks and
Speaker 1: what have you. But you can do that with with
Speaker 1: e t fs. When it comes time to rebalance or
Speaker 1: what have you, you can you can make those sort
Speaker 1: of changes very easily. And what's your e t F
Speaker 1: index fund active mutual fund balance in in a typical
Speaker 1: portfolio or in that nine million dollars in firm assets.
Speaker 1: How's that allocated? Roughly percentage? So I don't want to
Speaker 1: misspeak because you're you're us three things, So let me
Speaker 1: give you a broad overview and then we'll drill drill down. UM.
Speaker 1: So we typically believe in a broad, globally diversified, low
Speaker 1: cost asset allocation model, and we use dimensional funds, Van
Speaker 1: guard uh So, Wisdom Tree funds, UM basically all the
Speaker 1: all the names you would know, and you don't need
Speaker 1: a million funds to be really diversified. UM are we
Speaker 1: between ten and fifteen gives you pretty much the entire
Speaker 1: world ten and fifteen holdings UM. Some of the portfolios
Speaker 1: we have UM or all A E t f s.
Speaker 1: We have a tactical portfolio we use which isn't the
Speaker 1: typical tactical portfolio. It exists. It's rules driven, it's pretty
Speaker 1: basic quantitative strategy. But the idea is, if your holdings
Speaker 1: is in a portfolio that gets out of the way
Speaker 1: for the fat part of a thirty or forty market collapse,
Speaker 1: then you could leave your real money alone and not
Speaker 1: try and market time. Not that this market times, but
Speaker 1: it's basically a trend following system. And the idea is
Speaker 1: if the market really has a wild hiccup. Well, your
Speaker 1: average seventy percent stock bond portfolio with a slug in
Speaker 1: the tactical, it ends up looking like fifty fifty. And
Speaker 1: so if you can't withdraw withstand a draw down in
Speaker 1: your portfolio, which is what a fifty fifty portfolio should
Speaker 1: do in a crash, um, then you shouldn't be in equities.
Speaker 1: What are you telling clients now that this is the
Speaker 1: fat part of the economic cycle that we're hitting on
Speaker 1: all cylinders, that when you come out of an economic
Speaker 1: um crisis, out of a financial credit crisis, that you
Speaker 1: tend to have a long, slow recovery. By the way,
Speaker 1: this isn't us saying this. I've been writing this in
Speaker 1: on Bloomberg and elsewhere for you know, pretty much the
Speaker 1: whole run. Um. You look at the research from Ryan
Speaker 1: Hart and rogue Off, it's pretty clear um week GDP week,
Speaker 1: consumer UH spending, soft job creation, soft wage gains, weak
Speaker 1: home price appreciation is what typically describes the post credit
Speaker 1: crisis recoveries. This has been playing out with some variables
Speaker 1: pretty close to that script, which implies that this cycle
Speaker 1: will go much longer than most people believe. Um. I've
Speaker 1: I've been reading people call for a recession I don't know,
Speaker 1: just about twice a year for the past ten years. UM,
Speaker 1: It's hard to see anything on the immediate horizon that
Speaker 1: is a threat. The feed is tightening, but they're tightening
Speaker 1: from very low levels with very low, small amounts of inflation. Now,
Speaker 1: all these can change. Maybe the tariffs put through push
Speaker 1: through a lot of a lot of inflation, maybe some
Speaker 1: other uh saber rattling causes a problem. So typically an
Speaker 1: external shock to a strong economic recovery or a strong
Speaker 1: economic cycle doesn't really affect it. But when you have
Speaker 1: an economy that's starting to falter, doesn't take much of
Speaker 1: a shove to send it sprawling. So far, the economy
Speaker 1: has been very robust and has with withstood a series
Speaker 1: of I'm not going to be politically correct, I'm just
Speaker 1: gonna say a series of ill thought out, um economic
Speaker 1: actions by this administration that in a weaker economy, would
Speaker 1: have caused a recession. They're just fortunate that they inherited
Speaker 1: a very strong economy. Otherwise we would be looking at
Speaker 1: something far less. I would be far less sanguine about
Speaker 1: what was going on in d C. If I wasn't
Speaker 1: confident enough that the economy me was robust. There's a
Speaker 1: lot of people you talk about this sort of economic
Speaker 1: bullmarket that we've been seeing for quite a while. There's
Speaker 1: a lot of chatter out there, and you've heard it,
Speaker 1: You've actually written about it that oh, it's this Russian
Speaker 1: too passive, that's just blindly lifting all these stocks. And
Speaker 1: look out, when the passive bubble pops, everybody is going
Speaker 1: to be uh running back to active. What's your take
Speaker 1: on all this is somebody who uses passive? Does any
Speaker 1: of that breakthrough to you? Right? Well, we use passive
Speaker 1: and active. Um. I think the bulk of most people's
Speaker 1: portfolio should be mostly passive, and I think if they
Speaker 1: want to throw an overlay of value or small cap
Speaker 1: or whatever, that's perfectly fine. The passive indexing versus active
Speaker 1: management debate has been frighteningly ignorant, shockingly self serving. Some
Speaker 1: of the stupidest crap I've ever read about finances come
Speaker 1: out of it. Indexing is Marxism? Do you remember that nonsense?
Speaker 1: Of course, it's a bubble that's gonna crash everything. How
Speaker 1: is indexing about? So let's let's put this into context. First,
Speaker 1: indexing began forty years ago. And despite the obviousite obvious
Speaker 1: advantages of low cost, low taxes, low turnover, no specific
Speaker 1: benchmark other than the benchmark the SPH, the pursuit of
Speaker 1: alpha typically leaves to not even achieving beta. So the
Speaker 1: intellectual underpinnings of this have been around for literally decades.
Speaker 1: It was only in the past ten years that this
Speaker 1: blew up. And so when you look at the context
Speaker 1: of this, why why did this blow up? And and
Speaker 1: I'll give you five reasons, And I think this helps
Speaker 1: explain why it's not a bubble, it's not Marxism, it's
Speaker 1: not the end of capitalism. It's first of all, you
Speaker 1: go back to the late nineties yearly two thousands, scandal
Speaker 1: after scandal after scandal, the I p O spinning scandal,
Speaker 1: the analyst scandals, the accounting scandals, that one after another
Speaker 1: aftern that's before we get to Bernie made Off in
Speaker 1: all the Ponzi schemes and everything else, and then the
Speaker 1: dot com collapse. I think at a certain point, the
Speaker 1: mom and pop investor says, you know, I've played this
Speaker 1: game and it doesn't seem to work for me. Right.
Speaker 1: That's before high frequency trading made um individuals feel like
Speaker 1: the market was skewed against them. Um. But as we
Speaker 1: say in our office, the solution to high frequency trading
Speaker 1: is low frequency trading. If you're not an active trader,
Speaker 1: that doesn't affect you. So that's number one. Number two,
Speaker 1: you had a series of giant market crashes, the dot
Speaker 1: com collapse, then the housing collapse, then then the Great
Speaker 1: Financial Crisis, then the commodities crop collapse. It seems wherever
Speaker 1: investors went hunting for alpha, they got their heads handed
Speaker 1: to them. And at a certain point, the mainstream investor says,
Speaker 1: you know what, screw you guys. I'm taking my ball
Speaker 1: and going home. And so for them who have to
Speaker 1: be invested if they want to retire, it made sense
Speaker 1: to say, I'm not gonna pay commissions. I'm gonna pay
Speaker 1: an eight dollar fee to buy an index at t
Speaker 1: D or Schwab or wherever, or go robo or go
Speaker 1: robo um or you know, I've been promised this out performance,
Speaker 1: but when you actually do the math, the performance isn't there. Uh.
Speaker 1: The brokers end up capturing the lion share of of
Speaker 1: whatever upside there is. If you Jim Chanos said on
Speaker 1: on Masters in Business, you know when he started his
Speaker 1: hedge fund thirty years ago, there were three hundred guys
Speaker 1: creating alpha, all guys back then. Now there's eleven thousand
Speaker 1: funds and it's the same three hundred people creating alpha.
Speaker 1: So unless you're fortunate enough to be in one of
Speaker 1: those funds, you're paying a lot for underperformance. And I
Speaker 1: think again the public is kind of figured out they're
Speaker 1: not in those funds, they don't access to it. And
Speaker 1: then the fourth, and I think the most most important
Speaker 1: thing is behavioral finance has become so ubiquitous and so
Speaker 1: well understood that the average person says, you know, I'm
Speaker 1: full of um my own biases, and I'm emotional, and
Speaker 1: I don't necessarily have the discipline to do this the
Speaker 1: right way. So they've begun to recognize rather than try
Speaker 1: and play that game, I'm just gonna buy an index
Speaker 1: and seeing forty years, Well, this is all what's fueled
Speaker 1: why we have a podcast called Trillions about et f s. Right,
Speaker 1: Why do people even need advisors? Why not just do
Speaker 1: the robot thing that you have for So there's three
Speaker 1: part answers to that. First, some people don't even need
Speaker 1: robo advisors. They can do it themselves. I spoke it
Speaker 1: years ago and an a a ii um events And
Speaker 1: this wife comes up to me with her husband and
Speaker 1: tow and says, tell my husband, he's an idiot. So
Speaker 1: I turned to the guy and say, sir, you're an idiot.
Speaker 1: Now that I've called your husband idiot, why do you
Speaker 1: think he's an idiot? And she says, he keeps buying
Speaker 1: all these stocks that are collapsing. I go, stocks like
Speaker 1: Lehman an a I g or No, he bought Disney
Speaker 1: when it fell, and he bought JP Morgan. Ma'am if
Speaker 1: he has the I go, are you panicking and selling?
Speaker 1: He's now? I buy one at here, I do one
Speaker 1: entry when it falls x percent, I do a second
Speaker 1: entry here. I only buy quality companies without a lot
Speaker 1: of debt, and a lot of them. Ma'am, he's not
Speaker 1: an idiot, I go, I write, he's doing fine. You
Speaker 1: could now. You need to be disciplined, you need to
Speaker 1: be thoughtful, you need to spend a lot of time.
Speaker 1: The person had been retired since his mid fifties. He
Speaker 1: loves this, and he's he was. He goes, I beat
Speaker 1: in the market four out of the past seven years,
Speaker 1: or something like that. And when you missed, he goes
Speaker 1: I was right there. Okay, so I said the wife, ma'am,
Speaker 1: I don't want to He's doing a good job. So
Speaker 1: that's one person, But that's not the average investor. The
Speaker 1: average investor doesn't have the time, doesn't have the discipline,
Speaker 1: doesn't have the emotional balance to not get sucked in
Speaker 1: to the vortex when everything gets hairy and things are
Speaker 1: flying over your head and everything on the news is
Speaker 1: the world is ending. Some group of people. Uh, the
Speaker 1: robo advisors are perfectly valid for listen, I want a
Speaker 1: simple portfolio. I don't care what you have to say.
Speaker 1: I don't want to speak to you. Uh. Once a quarter,
Speaker 1: send me an update, and once a year tell me
Speaker 1: if I'm on target form my plan. I mean, doesn't
Speaker 1: that actually breed good behavior though one would think, But again,
Speaker 1: that's not the average investor. The average investor. Whenever you
Speaker 1: do a survey asking people what their risk tolerance is,
Speaker 1: what you get is not their risk tolerance. What you
Speaker 1: get is how the market behaved over the prior ninety days.
Speaker 1: If the markets falling, they're really conservative and they don't
Speaker 1: want to take a lot of risk. When the market
Speaker 1: screaming higher, listen, I'm aggressive and I can withstand, So
Speaker 1: it doesn't tell you anything. So you really have to
Speaker 1: be aware of what people say isn't very often what
Speaker 1: they do. And then there's another group of people who
Speaker 1: are running businesses or owning companies, or very busy in
Speaker 1: a professional career, and they know they don't have the
Speaker 1: time or energy or discipline or focus. And besides, they
Speaker 1: would rather spend their time and energy on their own
Speaker 1: business than dealing with their own four oh one K,
Speaker 1: their employees for one k, setting stuff up for the kids.
Speaker 1: Some people have generational wealth and issues. Some people want
Speaker 1: to give money to philanthropy. Some people want to make
Speaker 1: sure that when they sell a business that they don't
Speaker 1: max out their taxes. That there's a ton of things
Speaker 1: that require some expertise. And that's the typical advisor client
Speaker 1: that gets what they pay for. You know, if someone says, listen,
Speaker 1: just buy me an S and P five hundred, why
Speaker 1: would those people pay, you know, an advisor for that
Speaker 1: They don't need that. The issue becomes the complexity which
Speaker 1: is out there, the the discipline to manage your own
Speaker 1: behavior and what you need in terms of various services
Speaker 1: real quick sidebar. There's a you know, a pot e
Speaker 1: t F, there's a cybersecurity ETF, robotics. These them ets
Speaker 1: have risen a little bit. A lot of people blow
Speaker 1: them off, but a lot of the stocks they hold
Speaker 1: are young. There won't be in the big index is
Speaker 1: for a while then most people own Is there a
Speaker 1: case for them? Do you ever get tempted by some
Speaker 1: of these more speculative areas, Yes, there's a case for them. No,
Speaker 1: I'm never tempted by them. But like you know how
Speaker 1: Google had the big earnings recently. Um, and then everybody
Speaker 1: on Twitter does this thing where they quote people who
Speaker 1: said Google is not going anywhere. I feel like those
Speaker 1: are the same people who pooh poo like a pot
Speaker 1: et F because they're like, oh, it's a joke. Um,
Speaker 1: I don't think it's a joke. But it's just speculation. Correct.
Speaker 1: But if Google was sort of uh waved off back
Speaker 1: then or looked at is maybe high flying or speculative.
Speaker 1: Shouldn't things that are speculative today be taken more seriously
Speaker 1: to get your claws into that young industry or young
Speaker 1: stock as opposed to waiting until it's an adult and
Speaker 1: finally makes it in the SMP five hundred, Alex, I'll
Speaker 1: take survivorship bias for one please. So you're telling me
Speaker 1: about Google today, but you're not mentioning pets dot Com
Speaker 1: or Cosmo or any of the other thousands of pieces
Speaker 1: of crap that came and go. Remember Google was like
Speaker 1: the twenty six search engine. I was a beta tester
Speaker 1: er for Google back in the you know, eighteenth century,
Speaker 1: and I remember playing with it for a day in
Speaker 1: sending an email to the person who invited me, this
Speaker 1: is interesting, how can I invest in your company? Was
Speaker 1: that like a Yahoo dot Com email? I don't even
Speaker 1: know it was a OK? It was dialing right that
Speaker 1: crazy era. So let's separate the pot et fs from
Speaker 1: And a buddy of mine runs a cannabinoid wellness and
Speaker 1: health hedge funds described buddy, uh, this is somebody. Todd
Speaker 1: Harrison is somebody I'm friendly with. Never indulged in in
Speaker 1: any leafing material with him. Um, but he's a person
Speaker 1: whose office was right near the World Trade Center during
Speaker 1: nine eleven, had horrific survivorship guilt. They put him on
Speaker 1: the usual opioids and depressants. He hated what it did
Speaker 1: to him. He said, I'm not who I used to be.
Speaker 1: Eventually found his way to some legal medical Like there
Speaker 1: have been medical marijuana legal in New York for really
Speaker 1: really specific diseases. It's not like quote unquote medical marijuana
Speaker 1: when it was in California, where m hey, dude, I'm
Speaker 1: having a hard time sleep open. Oh here's some weed
Speaker 1: that that is not what New York was. And look
Speaker 1: at look at what's taking place state by state. Does
Speaker 1: anybody doubt that fifty years from now medical regular marijuana
Speaker 1: is sold over the counter like beer. How about twenty
Speaker 1: years from now, how about ten years from now? At
Speaker 1: a certain point, it's clear we can't incarceraate millions of
Speaker 1: people for weed and pay millions of dollars billions of
Speaker 1: dollars to drug companies for things that may or may
Speaker 1: not work. Oh and thanks for the opioid. Sessions would
Speaker 1: like to speak with you now, you know Sessions. So
Speaker 1: this whole crew is a temporary setback to the relentless
Speaker 1: march forward of progress, not just politically, technologically, sociologically. So
Speaker 1: you sound like you understand the pot industry, the growth
Speaker 1: and all this. This is a great example high right now,
Speaker 1: no high on life. I can say it. But it's
Speaker 1: a good example because we do talk about the ETFs
Speaker 1: in the show a lot. But as an investor out there,
Speaker 1: w E d s on. But say you're listening out there,
Speaker 1: m J is the ticker. It's a diversified basket of
Speaker 1: pot Starry Jane. It could have been better, but I
Speaker 1: think we need how does nobody up something? Well, I
Speaker 1: think the issuers didn't want to go too far and
Speaker 1: like really irk the sec by like doing a touchdown
Speaker 1: dance with the ticker. But the ticker ticker makes a
Speaker 1: big difference. But here's a case where you know the
Speaker 1: industry you bought you kind of sound like you're, um,
Speaker 1: I'm intrigued by it. But but but as an investor,
Speaker 1: what stops you from trying to get an early foothold
Speaker 1: in using say diversified basket like MJ. That's a great question. Well,
Speaker 1: first of all, I have you know the the old
Speaker 1: joke is the second mouse gets the cheese. The settlers,
Speaker 1: the early settlers are the ones with the arrows in
Speaker 1: their back. Um, I don't I don't know, I don't
Speaker 1: know if m Ben Franklin type stuff right there. So
Speaker 1: the question we we mentioned, we mentioned Google right, So
Speaker 1: is this the first group of stocks? Is this the
Speaker 1: second group? Like? How many? How many dog pile and
Speaker 1: go and what were some of the other out of Vista?
Speaker 1: How many of these other mediocre search engines do we
Speaker 1: have to go through before Google comes along, executes better,
Speaker 1: has a broader vision, can do all that chance they
Speaker 1: need to do. So maybe m J is a home run,
Speaker 1: or maybe it's a speculat piece of graphic goes nowhere.
Speaker 1: I have no way to tell that. So you have
Speaker 1: an aud advantage to some extent because of being media savvy.
Speaker 1: Your whole team is just you. Guys are especially candid
Speaker 1: and entertaining. I mean I think you're at the tip
Speaker 1: of the spear in that regards. Then at the back
Speaker 1: end there's these asset managers and advisors will call them traditional. Um,
Speaker 1: you never hear from them. If you do, you get
Speaker 1: like a research report that's been vetted by fifteen lawyers.
Speaker 1: It feels late and milk toast. Yeah, you know what
Speaker 1: I mean? Um, is this Twitter and this sort of Um,
Speaker 1: what's the word I'm looking for? Social media? Or is
Speaker 1: this the future? Or do you think it will sort
Speaker 1: of live over here in a more compartmentalized and the
Speaker 1: tradition will will will stay because they do have a
Speaker 1: ton of assets, or is it all gonna slowly switch over?
Speaker 1: Where you fear the Fidelity portfolio manager um, you know,
Speaker 1: debating you over Jeff Sessions on Twitter. So the answer
Speaker 1: to that is yes and no. I don't see Fidelity, Vanguard,
Speaker 1: black Rock, Goldman, Sachs, Morgan, Stanley Schwab. I don't see
Speaker 1: them as occupying the space we do. Now they'll they
Speaker 1: all have started blobs of some sort. Many of them
Speaker 1: have podcasts. Go down the list of some of the
Speaker 1: stuff that we do, some of the media we do.
Speaker 1: But you know, keep in mind, you have to be
Speaker 1: you have to recognize the history of this. The blog
Speaker 1: started because in the eighties you had to have gone
Speaker 1: to a rights the right school, you had to work
Speaker 1: for the right firm. Otherwise you're not getting on TV,
Speaker 1: you're not getting on radio. Um. And so it was
Speaker 1: it was there were gatekeepers and walls and the rest
Speaker 1: of us were sort of voiceless. That began to change
Speaker 1: with the Street. Dot Com was sort of a and
Speaker 1: the Yahoo message boards. There was a broad democratization of
Speaker 1: media and discussion and debate about investing. The problem is
Speaker 1: Yahoo message boards were filled with fake news that was
Speaker 1: really fake news. Long as we're saying things that were wrong,
Speaker 1: for shorts were saying things that were wrong, and everybody
Speaker 1: the search for the truth um was fought and and
Speaker 1: the old expression is a lie gets halfway a one
Speaker 1: in the world, while the truth is still putting on
Speaker 1: its shoes. So what avengely that evolved into was And
Speaker 1: I described the signal to loss ratio in a number
Speaker 1: of columns over the years. I've written about this a lot.
Speaker 1: But at a certain point, people no longer read mast heads.
Speaker 1: They read specific um writers. So at the Wall Street Journal,
Speaker 1: it's Spencer Jacob. It used to be jesse Eisener, he's
Speaker 1: now a pro publica. At Slate and elsewhere it's Henry
Speaker 1: Grayber and it's Dan Gross. I mean, I give you
Speaker 1: a list of a hundred people at at Bloomberg, they're
Speaker 1: a hundred people I follow. So what started happening is
Speaker 1: the precursor to social media began when if you're paying attention,
Speaker 1: you start to notice, Hey, this person is right a
Speaker 1: whole lot more than they're wrong. I'm gonna pay attention
Speaker 1: to what what they say and that eventually has become
Speaker 1: so from Yahoo message boards to the street dot com
Speaker 1: to really cherry picking the best writers to social media.
Speaker 1: People kind of figured out that it's not a monolith
Speaker 1: that you can pick out writers who are better than
Speaker 1: others who have something to I mean everything. Morgan Housel
Speaker 1: rights I devour because because he's spectacular. Um, if you're
Speaker 1: interested in Donald Trump, then you must read every column
Speaker 1: that Tim O'Brien writes because he has insights that nobody else,
Speaker 1: having been sued by Trump and documents. This brings up
Speaker 1: a good question, which is, have you ever had a
Speaker 1: client upset about something you tweeted, maybe political or or whatnot?
Speaker 1: Does that ever bite you? Um? It does? But you know,
Speaker 1: I wish I could say we were so brilliant that
Speaker 1: this whole thing is by design, But it's not. So.
Speaker 1: The typical Wall Street adviser is very much right of center,
Speaker 1: not even right leaning. They tend to be politically and
Speaker 1: financially conservative. I don't know why. It just kind of
Speaker 1: has happened over the years. Maybe that's a result of
Speaker 1: tax policy, I'm I'm guessing, But you know, I think
Speaker 1: of myself as fistially conservative and socially progressive with a
Speaker 1: libertarian streak. That means, but by the way, I love
Speaker 1: harassing my libertarian friends who I accused of being cowardly hypocrites.
Speaker 1: So wait, the government can't get involved in euthan asia
Speaker 1: or weed, but they can get involved in birth control
Speaker 1: and abortion rights. You have to be intellectually consistent. Let's
Speaker 1: say you write that, and there's a libertarian cline ever
Speaker 1: called say Barry, come on man, stop um. So we've
Speaker 1: we've had conversations with people. We've had conversation with people
Speaker 1: who have said, gee, we wish you wouldn't weigh in.
Speaker 1: So let me back up a little bit. So the
Speaker 1: we do a monthly letter or quarterly letter, and and
Speaker 1: when occasionally special events happens, we'll do it the night
Speaker 1: before the election. In I write, I write my quarterly letter,
Speaker 1: and I leave the last paragraph blank because I know
Speaker 1: enough about random outcomes that I know I don't know
Speaker 1: what the what the final results will be in the
Speaker 1: pulse have been really close. But but the basic premise
Speaker 1: of the column was the of the monthly letter was
Speaker 1: presidents get way too much credit for when things go
Speaker 1: right and way too much blame for when things go wrong,
Speaker 1: And you really have to go out of your way
Speaker 1: to screw up royally for a president to impact uh
Speaker 1: a market and so gee, you could look at some
Speaker 1: of the stuff Nixon did between Watergate and and some
Speaker 1: of the other and and Vietnam. You could look at
Speaker 1: George w Um, you could look at Carter. You could
Speaker 1: see a number of presidents who their worst decisions probably
Speaker 1: pressured the stock market. On the other hand, you know,
Speaker 1: a rip roaring market doesn't care uh eighty two to
Speaker 1: two thousand. You know, I don't. Clinton got impeached, the
Speaker 1: market left and it kept going. Uh. The same thing
Speaker 1: with Bush. Bush cut taxes, He did this, he did that,
Speaker 1: and the market imploded. So it's almost as if the
Speaker 1: markets don't care about this, which is a theme. But
Speaker 1: the last paragraph of of the letter was which I
Speaker 1: wrote the next morning, was Hey, many of you have
Speaker 1: enjoyed tremendous gains over the since the market bottomed in
Speaker 1: March o nine, and many of you have expressed concerns
Speaker 1: about things that all good libertarians are in favor of,
Speaker 1: like equality of marriage, or or the environment or this
Speaker 1: or so take your ill gotten tax cuts which are
Speaker 1: likely to come out of the recent election of Trump,
Speaker 1: and don't be afraid to spend the money, uh with
Speaker 1: some of your favorite causes. If if you're unhappy with
Speaker 1: the social programs that come out of this, feel free
Speaker 1: to put money into whatever you on. And that rationality
Speaker 1: that basis in reality politics matters much less to markets. Hey,
Speaker 1: does this affect discounted cash flow? Does this effect profits?
Speaker 1: Then it's just background noise. It's not relevant. Where we're
Speaker 1: starting to see the early signs that that might be
Speaker 1: changing is the trade warren Tariffson. Eventually, I think tariffs
Speaker 1: could assuming the adults don't get back in charge, it
Speaker 1: could eventually push through and cause more inflation and close
Speaker 1: the fete to Titan sooner, which leads to crimping of credit,
Speaker 1: which leads to her session, which leads to the market correction.
Speaker 1: That is what I think as a higher probability worst
Speaker 1: case scenario, as opposed to the terrible Black Swans, or
Speaker 1: as opposed to Everything's great forever. You know, two years out,
Speaker 1: three years out, if we make a number, if we
Speaker 1: continue to make a number of bad decisions, and I
Speaker 1: will say the tariffs are really not well thought out.
Speaker 1: The twelve billion dollar aid I think exports of they
Speaker 1: want to cover the cost of trade war. Wait, why
Speaker 1: are taxpayers paying for this? How are we winning If
Speaker 1: taxpayers are paying for the negative impact of tariffs, this
Speaker 1: sounds like a terrible idea. And if we keep doing that,
Speaker 1: it's gonna send inflation higher. And if that happens, it's
Speaker 1: not a good thing. So some people don't like that.
Speaker 1: Our clients are all self selecting. Our clients come to
Speaker 1: us because they more or less agree with us. Half
Speaker 1: our conversations begin. My guy at fill in the blank
Speaker 1: is a jerk. You guys seem to be making sense.
Speaker 1: So if if one out of twenty people say I
Speaker 1: don't like what you wrote about the president, Hey, you
Speaker 1: should be more concerned with what he's doing to soybean
Speaker 1: prices because you live in the Midwest, then you should
Speaker 1: be concerned about me complaining about the By the way,
Speaker 1: you notice how the Chinese are very, very um strategic
Speaker 1: in how they issue there their counter tariffs. It's like,
Speaker 1: we're gonna you. You want to play this game, Fine,
Speaker 1: we're smarter than you. We're gonna mess with your base.
Speaker 1: Have at it um active pass if he said, and
Speaker 1: he is active a little bit. We've tended to see
Speaker 1: in the flows that active fixed income mutual funds are
Speaker 1: still taking in money, not a lot, but their treading water.
Speaker 1: At least it's active equity that's getting just total blood bath.
Speaker 1: Um does that a line with what what you feel
Speaker 1: with active? Do you go active on the fixed income
Speaker 1: sid you think there's more value? So well, the a
Speaker 1: the academic data demonstrates that active fixed income is a
Speaker 1: winner versus passive because if it's passive, you're buying everything good,
Speaker 1: band and different. With active, you get to choose your price,
Speaker 1: you get to choose your duration, you get to choose
Speaker 1: your quality. Even within the same Hey, I want you know,
Speaker 1: B plus plus to end up and I want five
Speaker 1: to ten years then with this and I want that.
Speaker 1: So the data is active fixed income is superior in
Speaker 1: excess of the cost. So there's that. Last a year
Speaker 1: ago we swapped out a passive bond funds for a
Speaker 1: active bond funds and the overlap and holdings was something
Speaker 1: like sixty or eighty percent. I'm doing it for memory,
Speaker 1: but the twenty or that was different. I don't even
Speaker 1: think it was. I think it was less was enough
Speaker 1: to make a big difference in the performance at the
Speaker 1: same risk level. So the tradeoff is you're paying a
Speaker 1: little more, but you're getting more. Uh so, ay, that's worthwhile.
Speaker 1: Active versus passive, I think is the wrong way to
Speaker 1: look at it. It's expensive versus cheap. Morning Star did
Speaker 1: a study, I want to say it was twenty one.
Speaker 1: What the morning Stars know? What high costs to low costs?
Speaker 1: I mean, that's the big trend. But but let's go
Speaker 1: to fixed income active. First of all, do you use
Speaker 1: the et F structure or the mutual funds? Mutual funds
Speaker 1: you do? Why? Well, the holding periods are much longer
Speaker 1: so you don't run into the tax situations. And to
Speaker 1: be honest, a lot of the better mutual funds active,
Speaker 1: I want to say it, make sure I'm getting us right.
Speaker 1: Active mutual funds don't have a less expensive parallel e
Speaker 1: t F. If you remember when Pimco we no longer
Speaker 1: own but Pimco when they rolled out the e t
Speaker 1: F s, they were more expensive than the mutual fund
Speaker 1: because they didn't want to see a mass of outflux,
Speaker 1: although it was cheaper than the A class. So if
Speaker 1: you're a retail you got a bad deal, right. So
Speaker 1: it's priced right in between the I and the a
Speaker 1: What a coincidence Gunlock did the same thing. Yes, because
Speaker 1: it makes sense to do that in the in the
Speaker 1: when you're choosing a fixed income active fund um. I
Speaker 1: know costs is important for you. How important is cost
Speaker 1: versus sort of the record of the fund. So it's
Speaker 1: a holistic approach. You have to look at everything. My
Speaker 1: favorite morning Store research report and remember they lledge funds
Speaker 1: on the basis of their Star report. If you can
Speaker 1: only look at one thing when reviewing a mutual fund,
Speaker 1: says Morning Star. It turns out cost is the most
Speaker 1: important thing if you are choosing amongst five star funds
Speaker 1: versus cheapest funds, choosing the cheapest outperformed the five star approach.
Speaker 1: I give them credit not only for publishing that, but
Speaker 1: not taking it down and revisiting it every few years.
Speaker 1: Uh So, cost is really really important over long periods
Speaker 1: of time. The compound makes a tremendous Compounding makes a
Speaker 1: tremendous difference. There's a Vanguard study about you know, the
Speaker 1: average Vanguard. I think it's like seventeen basis points at
Speaker 1: whatever it is. It's some ungodly cheaper thing. The typical
Speaker 1: act of mutual fund used to be about one quarter
Speaker 1: over a thirty year period. It's an immense It's like
Speaker 1: thirty difference in total returns compounded over that. It was
Speaker 1: just massive, So cost matters. I don't care as much
Speaker 1: about recent performance as I do the process. It has
Speaker 1: to be defendable, it has to be rational, it has
Speaker 1: to make sense, and hopefully be repeatable. You know, my
Speaker 1: favorite example in the world of hedge funds is UH,
Speaker 1: Paulson and Co. So when John Paulson had the greatest
Speaker 1: trade ever bidding against the mortgage collapse, in the subprime
Speaker 1: and derivative collapse, I think he was a like a
Speaker 1: five billion dollar fund or whatever, and following the collapse
Speaker 1: he swelled up to thirty or forty billion dollars and
Speaker 1: then proceeded to underperformed for a good number of years.
Speaker 1: So it turned out that that was a great trade,
Speaker 1: but it wasn't a repeatable process. We run into the
Speaker 1: same thing with UM mutual funds. Hey is this. There
Speaker 1: was one mutual fund we had that had a huge
Speaker 1: amount of mortgages in it UM and basically was outperforming
Speaker 1: the comparably risk based UH corporate it's and treasuries post
Speaker 1: financial crisis, but at a certain point, mortgage backs in
Speaker 1: a rising rate environment are not going to do well,
Speaker 1: So you don't want to sit with that forever. So
Speaker 1: we ended up rotating out of that to UH a
Speaker 1: more focused corporate and investment grade bonds. So you're giving
Speaker 1: up a little bit of recent performance when you do that,
Speaker 1: but you're lowering your fees and you're making your perspective
Speaker 1: gains UH much better because it's a process that's not
Speaker 1: dependent on one specific asset class in one specific part
Speaker 1: of the economic cycle, which is before rates start to rise.
Speaker 1: You're an advisor, you can see that low cost is
Speaker 1: sort of sweeping the advisor world, especially because the move
Speaker 1: to you know, being fiduciaries and getting a fee based
Speaker 1: payment model as opposed to a commission. But yet the
Speaker 1: institutional world still seems really really into sort of private
Speaker 1: equity hedge funds picking, hiring and firing external managers right
Speaker 1: and left. Where do you see that evolving? I think
Speaker 1: you wrote a column once talking about what pension should do.
Speaker 1: Do you see that institutional world evolving more to like
Speaker 1: sort of your model, because it is interesting, like you
Speaker 1: especially like endownminds, Like we in Business Week we profile
Speaker 1: the small college endowment that's been all basically you know,
Speaker 1: indexed for you Yeah, that one did the best or
Speaker 1: one of the best. I mean there's always the outlier
Speaker 1: like Yale or you know, they crush it, but not
Speaker 1: for a while. But it's a great question of like,
Speaker 1: what happens to institutional money, why don't they do that now?
Speaker 1: So so, first of all, let me preface this by
Speaker 1: explaining how much professionals love unsolicited advice. They love that. Second,
Speaker 1: you've already seen that begin to take place right there.
Speaker 1: There are a number of funds that move, have been moving,
Speaker 1: pension funds, endowments go down the list, have been moving
Speaker 1: at least part of their asset base. Look at Cowper's
Speaker 1: fired all their hedge funds. Took two years to unwind
Speaker 1: that crap. But still this is not you know, they
Speaker 1: are not immune from the same trend that years ago.
Speaker 1: I went to a state pension fund in the Tri
Speaker 1: State area. They're quarterly, meaning I was invited to speak
Speaker 1: by someone there, and I listened to a parade of
Speaker 1: a dozen consultants explain why all the crap there in
Speaker 1: this year, which hasn't done well, is perfectly positioned to
Speaker 1: do well next year. And now is not the time
Speaker 1: to sell this, to sell any of this stuff, And
Speaker 1: and everybody around the table was nodding their head, and
Speaker 1: I sat there just grinding my molars. And when I
Speaker 1: got literally the head of the table, whole giant rectangular place,
Speaker 1: I said, look, I prepared these really um smart, well
Speaker 1: thought out remarks, but it's clear that they will be
Speaker 1: wasted on you. And I know I'm never going to
Speaker 1: do business with anyone in this room, So for five minutes,
Speaker 1: let's just pull the bullshit aside and give you the
Speaker 1: straight dope. None of these guys here know what the
Speaker 1: hell they're talking about. They are salesmen and they are
Speaker 1: really good at it, because halfway through their pitches, I'm like, wow,
Speaker 1: that's great. How do I get into some of that?
Speaker 1: Oh wait, they've underperformed every year. You've had them for
Speaker 1: ten years and charged you a massive amount of money
Speaker 1: for the privilege. How stupid are you? How could you
Speaker 1: guys continue giving money to guys who are They're not
Speaker 1: just wrong, they're wrong and consistently wrong, and you keep
Speaker 1: buying the same line of bs every Hey, you know,
Speaker 1: it's it's like the someone's having an affair on their wife,
Speaker 1: and they keep saying to the level I'm gonna leave
Speaker 1: her next year. No, no, next year is when we
Speaker 1: finally it's one. It's year after yearfter year they're selling
Speaker 1: telling you the same thing. They're selling you, the same
Speaker 1: bill of goods, and it's crap. And I can't believe
Speaker 1: people in this room with a fiduciary obligation to the
Speaker 1: pensioners are buying into this. So really, I'm on the
Speaker 1: wrong side of this business. I shouldn't be telling you
Speaker 1: about asset management. I should be going to your beneficiaries
Speaker 1: and saying, let's talk about the subsequent litigation suing these
Speaker 1: idiots who have underperformed your portfolio because it keeps them,
Speaker 1: uh in high paying board seats. I can't explain why
Speaker 1: this is going on, but it's a parent um. It's
Speaker 1: apparent that all these promises are nonsense. When are you
Speaker 1: people gonna wake up and realize you're being sold a
Speaker 1: bill of goods. I'm sorry, that's not as as entertaining
Speaker 1: as what I had prepared, but I just can't. I
Speaker 1: listened to a parade of nonsense and everybody around the
Speaker 1: table is nodding their head. Do they invent you back?
Speaker 1: Never Well, it's funny. We we had bogelon we interviewed
Speaker 1: him for um uh this separate episode, and he was
Speaker 1: saying he was upset the I C I would not
Speaker 1: invite him to speak, and I said, I think what
Speaker 1: you're saying to this piece of people is just too
Speaker 1: There's definitely an internal conflict within the industry, and I
Speaker 1: think even within companies and within people of this move
Speaker 1: to lower feed caught goods. But if you're in the
Speaker 1: financial industry, you're feeding off of the higher costs revenue.
Speaker 1: And I think as investors and people a practitioners, there's
Speaker 1: definitely some tension going on that he that he taps into.
Speaker 1: That's my theory on why he was not invited even
Speaker 1: though he's you know, clearly um warranted to know there's
Speaker 1: there's the only expert explanation for I C I not
Speaker 1: inviting him as cowardice. There's no other explanation. Listen, Apple
Speaker 1: taught us all about cannibalization, which the financial industry has
Speaker 1: a real hard time with. Apple puts out an iPod
Speaker 1: for five dollars and it has to you know, ten
Speaker 1: meg's the next year, Apple says, here's what we're gonna do.
Speaker 1: We're gonna give you thirty megs and it's four hundred dollars,
Speaker 1: and the next meg, next year it's a hundred megs
Speaker 1: and it's two hundred dollars, and then it's a gig
Speaker 1: for a hundred dollars and nobody can catch them. That
Speaker 1: was the iPod, than the iPad, than the iPhone. Could
Speaker 1: you imagine the average finance company saying, we know this
Speaker 1: is one and a half percent and it's underperformed, but
Speaker 1: here's what's gonna we're gonna give you, and now it's
Speaker 1: seventy basis points. It doesn't happen to their credit. A
Speaker 1: handful of companies, I'll include Fidelity in this, I'll include
Speaker 1: Schwab in this, have have lowered fees. State Street, black
Speaker 1: Rock have lowered fees on a number of their products.
Speaker 1: Some companies will will choose a loss leader and say,
Speaker 1: even Goldman Success, what a seven or a nine basis
Speaker 1: point fund? Someone will come in and say, we'll lower this.
Speaker 1: I think the math was that ten years ago the
Speaker 1: cheapest funds in in uh just about every category was
Speaker 1: seventy percent of them were Vanguard. Now the cheapest fund
Speaker 1: in every category, I want to say it's thirty five
Speaker 1: or Vanguard. It's not that they've raised their rates. It's
Speaker 1: that the Vanguard effect has driven everybody else, if not
Speaker 1: across the board, at least to pick one or two
Speaker 1: things and really slash the price on it. So it's
Speaker 1: very much challenging to get any industry. It's not just finance. Hey,
Speaker 1: this is your bread and butter. You should cut your
Speaker 1: fees fift and we cut our fees fift and when
Speaker 1: we were debating it, it's like, Wow, that's a big
Speaker 1: chunk of money. What's that going to do to our
Speaker 1: gas flow? And we're a small, you know, not even
Speaker 1: five year old company. Imagine you're a forty year old
Speaker 1: company making billions of dollars a year and some consultant
Speaker 1: comes in and says you should slash your fees in half.
Speaker 1: Back to the e t F. As an avid user,
Speaker 1: what limitations do you think they have? So there's some
Speaker 1: obvious ones and then some less obvious ones. The to me,
Speaker 1: the most obvious limitation is liquidity that as you get
Speaker 1: into some of the backwaters, some of the esoteric ones,
Speaker 1: you know, they have market caps of a hundred or
Speaker 1: two hundred million dollars and they trade by appointment, and
Speaker 1: and that's a little bit of a problem if the
Speaker 1: whole idea of of e t F s or that
Speaker 1: they trade, uh not just the tax aspect, but you
Speaker 1: can trade during the day and then it's so there's
Speaker 1: no advantage there. So so that's number one. Number two,
Speaker 1: and just to clarify it, there's probably a thousand ETFs
Speaker 1: less than a hundred millions, so that's about half. So
Speaker 1: you as an advisor, you just sort of eliminate all
Speaker 1: those right off the bat. They become really challenging to
Speaker 1: work with. I don't want to say we eliminate them,
Speaker 1: but it's a factor when you're making a decision. Uh. Second,
Speaker 1: the entire process of bringing out an e t F
Speaker 1: public to to that process is wildly complicated. Overly exp
Speaker 1: ends of the internal expense ratios that these fun small
Speaker 1: these small fund companies paying, they're pretty outrageous. And so
Speaker 1: it's the playing field does not level. There's a huge
Speaker 1: advantage to the black Rock state streets, van guards, etcetera.
Speaker 1: I want to say the top three or top four
Speaker 1: are something like seventy of the a U M. It's
Speaker 1: something ungodly top three or se the U N. So
Speaker 1: if we want innovation, if we want creativity, if we
Speaker 1: want to try a bunch of things straight against the
Speaker 1: wall and see what sticks as an industry, I think
Speaker 1: the SEC needs to make that process a little less expensive,
Speaker 1: a little more streamlines. I had a front row. Well,
Speaker 1: they are right, the E t F role will do so. Now,
Speaker 1: on the other hand, we don't want a million or
Speaker 1: fly by night bs C tfs. But it shouldn't be
Speaker 1: an impediment to a small firm with a good idea.
Speaker 1: Shouldn't say I can't do this because it's gonna cost
Speaker 1: me a million dollars. What would be your idea? Are
Speaker 1: good idea if you launched one for an E T F?
Speaker 1: I don't think there's a factor based E S G
Speaker 1: E t F out there, at least when you and
Speaker 1: I had a conversation about this last summer. When I
Speaker 1: looked at it, I could not find a factor based
Speaker 1: UM B S G E t F. I thought that
Speaker 1: was interesting, Well, the problem with that M E S
Speaker 1: G isn't selling. And factors are seven hundred of our
Speaker 1: seven dred smart Beta. And you talked about not being you,
Speaker 1: weren't being you weren't moved so much by factory E
Speaker 1: T S. Would you be moved by a factor E
Speaker 1: s G. No, that's what I mean. There should be
Speaker 1: a factor based E s G E T F and
Speaker 1: and but you know by the time this broadcast there
Speaker 1: will be one. But when we first spoke about it,
Speaker 1: and here's the thing about E s G, people have said, well,
Speaker 1: there's not a lot of motion towards that. When you
Speaker 1: look at the people who say they're interested in E
Speaker 1: s G investing, environmental, social and governance investing, they tend
Speaker 1: to be millennials, and they tend to be women. And
Speaker 1: we are on the leading edge of a make up
Speaker 1: a number thirty plus trillion dollar generational wealth transfer from
Speaker 1: the boomers to the exers, and the millennials who consists
Speaker 1: of it will go to the wife, and then we'll
Speaker 1: go to the kids typically, And that's the people who
Speaker 1: say they're interested in E s G. So I think
Speaker 1: it's early to write off E s G. You disagree.
Speaker 1: I do. And here's why you talk about boomers, right,
Speaker 1: nobody was more progressive than they were in the sixties.
Speaker 1: Why aren't they into E s It's the worst generation ever?
Speaker 1: Come on, they were all into this. Look. I remember
Speaker 1: Michael Stipe had the acid rain hat. We were all
Speaker 1: into it too. But but general, I'm saying every generation
Speaker 1: is into when they're young. It seems to me there's
Speaker 1: so probably a and I don't want to say you
Speaker 1: get corrupt or you just stop caring, But like, is
Speaker 1: it take the kids, the soccer electricians coming about it,
Speaker 1: so you get busy? YEA, So is it not? Millennials
Speaker 1: are into it now. It's just whoever is young is
Speaker 1: into it, and then they get out. That's a good theory.
Speaker 1: I think that in the sixties climate change was a
Speaker 1: very abstract theoretical concept other than a handful of flat earther's.
Speaker 1: Everybody now knows that climate change is real. It's like
Speaker 1: I wouldn't buy a place in in on the coast
Speaker 1: in Florida. Now I would rent because that's gonna be
Speaker 1: underwater soon. Now it might be a hundred years, it
Speaker 1: might be fifty years unless technology comes along with a
Speaker 1: magic little thing, and and sufficiently advanced technology is indistinguishable
Speaker 1: from from magic. If we eventually come up a way
Speaker 1: to pull CEO two out of the atmosphere and to
Speaker 1: reduce the greenhouse effect, then all the worst case scenarios
Speaker 1: don't come to fruition, and I really hope technology solves that. However,
Speaker 1: right now it looks like this is gonna be an
Speaker 1: issue that the next few generations are going to have
Speaker 1: to wrestle with, uh long after we shuffle off this
Speaker 1: mortal coil. So I think this generation is more serious
Speaker 1: about it than the Boomers, the worst generation. We're in
Speaker 1: the sixties. By the way, everything bad in the world
Speaker 1: you can blame on the Boomers. All the debt is
Speaker 1: blamed on the Boomers. The music was good STDs, I'll
Speaker 1: give you that, Okay, STDs. You can blame on the
Speaker 1: the movies in the sixties, with a handful of exceptions.
Speaker 1: Graduate unwatchable. Graduate is much later than that apocalypse. Now,
Speaker 1: the seventies was really the Golden Yes apocalypse, right, So
Speaker 1: my my movie washing is thirties and forties, fifties. The
Speaker 1: sixties is a is a. There are some good movies,
Speaker 1: but it's a so you I blame most of bad
Speaker 1: things that happen on on the baby Boomers, of which
Speaker 1: I don't consider myself. I'm I'm in the valley between
Speaker 1: the exers of the boom. So that's it for episode one,
Speaker 1: but we're not done talking with Barry red Holtz. To
Speaker 1: keep listening, though, you'll have to go back to your
Speaker 1: favorite podcast op and find episode two.