WEBVTT - The Big Long: Risk and Reward With Ben Carlson 0:00:02.480 --> 0:00:30.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:19.200 --> 0:00:20.919 Welco nutrileons, I'm Joel Weber. 0:00:20.680 --> 0:00:23.400 And I'm Eric Balchunis. 0:00:22.720 --> 0:00:25.400 Excited to have a newcomer on the podcast today who's 0:00:25.440 --> 0:00:26.920 kind of a big deal. Yeah. 0:00:26.960 --> 0:00:28.720 I mean I've known him for a while. I remember 0:00:29.040 --> 0:00:33.440 my first book, The Institutional ETF Toolbox, I interviewed him. 0:00:33.440 --> 0:00:35.680 He was one of like thirty people I interviewed. He 0:00:35.760 --> 0:00:38.279 was really good. He came from the institutional world, so 0:00:38.320 --> 0:00:40.919 he really knew that world and this sort of called 0:00:40.960 --> 0:00:45.040 them unnatural barriers for ETFs in that world. Then he 0:00:45.159 --> 0:00:48.599 joined Redholtz and he's been blogging there and he has 0:00:48.640 --> 0:00:52.440 a podcast called Animal Spirits. Ben Carlson, I know him 0:00:52.479 --> 0:00:55.200 as a Wealth of common Sense. That's kind of his 0:00:55.880 --> 0:00:59.640 name of his brand, and he writes books and is 0:00:59.680 --> 0:01:04.160 always he's just really has great data, great takes. Classic 0:01:04.360 --> 0:01:08.160 sort of big long advisor as I call them, meaning 0:01:08.200 --> 0:01:11.440 that unlike the big short people who are like out 0:01:11.440 --> 0:01:13.120 there looking for tops and trying to be cool, like 0:01:13.240 --> 0:01:17.120 Christian Bale, these guys do the opposite. They're like, don't 0:01:17.160 --> 0:01:20.119 worry about it, so they invested, go along, and their 0:01:20.160 --> 0:01:21.160 their clients get rich. 0:01:21.640 --> 0:01:25.160 Okay, So Ben Carlson, who's the director of institutional asset 0:01:25.200 --> 0:01:29.280 Management at rich Holds Level Management, this time on Trillions 0:01:29.920 --> 0:01:32.520 riskin Reward. Ben, Welcome to Trillions. 0:01:32.640 --> 0:01:34.080 Hey guys, glad to be here. Eric. 0:01:34.120 --> 0:01:36.400 It's funny you and I talked a number of years 0:01:36.400 --> 0:01:38.120 ago and you said, Hey, I'm writing this book and 0:01:38.120 --> 0:01:39.360 I want I might want to call it the Big 0:01:39.400 --> 0:01:41.880 Long as opposed to the Big Short. And I liked 0:01:41.920 --> 0:01:43.640 that idea, and actually I was going to ask you first, 0:01:43.640 --> 0:01:45.640 but I talked to my publisher and I said, what 0:01:45.720 --> 0:01:47.560 if we call this the Big Long? And they said 0:01:47.600 --> 0:01:49.320 it's a little too cute. It's a great name, but 0:01:49.320 --> 0:01:50.720 it's a little too cute. So we said a lot 0:01:50.760 --> 0:01:51.760 of risk reward instead. 0:01:53.320 --> 0:01:55.880 Riskin Reward though kind of an obvious title. What took 0:01:55.920 --> 0:01:57.960 so long for somebody else to claim this title? 0:01:58.200 --> 0:01:59.960 I know, right, Yeah, that's my whole thing. 0:02:00.040 --> 0:02:02.560 It's just it's attached at the hip, like you don't 0:02:02.560 --> 0:02:04.240 get one without the other, and that's kind of the 0:02:04.240 --> 0:02:04.720 point of it. 0:02:05.040 --> 0:02:07.720 What made you decide this was the moment to do 0:02:07.760 --> 0:02:08.160 this book? 0:02:08.960 --> 0:02:10.520 I mean, I think this is kind of what I've 0:02:10.560 --> 0:02:12.520 been thinking about and writing about in my blog for 0:02:12.560 --> 0:02:15.000 the past whatever twelve years I've been doing. It is 0:02:15.200 --> 0:02:18.000 just I've been writing about the idea of long term investing, 0:02:18.400 --> 0:02:21.040 and I constantly get pushback from people. There are certain 0:02:21.080 --> 0:02:23.080 people who just can't wrap their head around this idea. 0:02:23.120 --> 0:02:25.400 And I get because some people just don't have the 0:02:25.440 --> 0:02:27.760 personality for it. And I think a lot of investing 0:02:27.880 --> 0:02:30.880 is like your own emotional makeup and personality, and some 0:02:30.919 --> 0:02:32.639 people just can't wrap their head around it. So like, hey, 0:02:32.639 --> 0:02:34.760 but what about what happened in Japan and what about 0:02:34.760 --> 0:02:37.080 the nineteen seventies inflation and what about this crash? And 0:02:37.120 --> 0:02:39.720 what about this bad period? And people are constantly giving 0:02:39.760 --> 0:02:42.160 me the like the exceptions to the rules and sod. 0:02:43.120 --> 0:02:43.320 Yeah. 0:02:43.320 --> 0:02:45.919 So I said, fine, I will do this myself. I'll 0:02:45.919 --> 0:02:48.600 play Devil's advocate. I'll show all the bad stuff that 0:02:48.639 --> 0:02:51.040 can and will happen, and then I'm still going to 0:02:51.080 --> 0:02:52.639 show you why it still makes sense to have a 0:02:52.680 --> 0:02:53.440 long term mindset. 0:02:53.760 --> 0:02:56.280 By the way, the book that we were in Arizona 0:02:56.320 --> 0:02:59.680 at the pre future Proof conference called Wealth Stack that 0:02:59.720 --> 0:03:02.960 they have and this book idea big long I was 0:03:03.000 --> 0:03:06.440 going to try to follow these four people or five advisors, 0:03:06.480 --> 0:03:08.800 just like Michael Lewis did with the big Short and 0:03:08.919 --> 0:03:12.919 just different kind of younger, up and coming advisors who 0:03:12.919 --> 0:03:15.919 were the complete opposite of these big short people. They 0:03:15.960 --> 0:03:18.120 saw something no one else saw, which is just don't 0:03:18.120 --> 0:03:20.079 do anything. I mean, you could say a lot of 0:03:20.160 --> 0:03:21.720 Vanguardians feel that way, but I just thought it was 0:03:21.800 --> 0:03:25.720 cool idea. That book turned into the Bogl effect. Sometimes 0:03:25.760 --> 0:03:27.840 I'll have an idea and it'll morph into something else. 0:03:28.280 --> 0:03:30.160 But I do have a chapter where I reference Big 0:03:30.160 --> 0:03:32.600 Long advisors in the Bogle effect. But I think Big 0:03:32.639 --> 0:03:34.520 Long would have been fine. But risk and reward is good. 0:03:34.520 --> 0:03:36.320 It's very clear what it is, and I think you 0:03:36.360 --> 0:03:38.640 do a good job one of the things. So let 0:03:38.680 --> 0:03:40.880 me just jump into a couple of things that I 0:03:40.880 --> 0:03:43.240 was interested in when I read the book. What would 0:03:43.280 --> 0:03:46.160 happen if you only purchase stocks at the absolute peak 0:03:46.200 --> 0:03:48.480 of the market, which is a whole other thing because 0:03:48.480 --> 0:03:51.160 people are like, oh my god, it's so overvaluated. That 0:03:51.280 --> 0:03:53.120 is a way to keep people from actually hitting the 0:03:53.160 --> 0:03:54.920 buy button. It's like, oh, I'm gonna wait, I'm gonna wait, 0:03:54.920 --> 0:03:56.360 I'm gonna wait. Well, what if you just bought at 0:03:56.400 --> 0:04:00.720 the worst possible times? You study this, the result be. 0:04:00.760 --> 0:04:03.200 Yeah, It's funny because I started my blog in twenty thirteen, 0:04:03.240 --> 0:04:05.080 and that's right when we finally hit new all time 0:04:05.120 --> 0:04:07.960 highs again after the Great Financial Crisis. And at the time, 0:04:08.440 --> 0:04:10.640 everyone goes, oh, no, we hit an all time high again. 0:04:10.640 --> 0:04:12.440 Remember what happened the last time we hit all time highs? 0:04:12.480 --> 0:04:14.840 The market crash, And people, even back then, this is 0:04:14.920 --> 0:04:17.960 twelve thirteen years ago, are like, there's no way this 0:04:18.000 --> 0:04:19.400 is going to last. It's it's going to fall off 0:04:19.400 --> 0:04:21.479 a cliff. And I said, okay, fine, let's pretend that 0:04:21.600 --> 0:04:23.800 does happen. You put your money into work right now, 0:04:23.920 --> 0:04:26.080 the market falls off a cliff, what happens? And so 0:04:26.320 --> 0:04:29.000 I looked at this, this theoretical guy, Bob, and he 0:04:29.040 --> 0:04:31.719 only bought over like his forty year period of investing. 0:04:31.760 --> 0:04:34.479 He bought at before the nineteen seventy three crash, he 0:04:34.560 --> 0:04:36.440 bought before the nineteen eighty seven crash. 0:04:36.600 --> 0:04:37.839 He bo Yeah, he Bob. 0:04:37.960 --> 0:04:40.480 He bought before the dot com crash, and he bought 0:04:40.520 --> 0:04:42.159 before the Great financial crash. And I said, but what 0:04:42.200 --> 0:04:45.120 if he just kept his money in He built up cash, 0:04:45.360 --> 0:04:47.640 he put it to work at these like four worst 0:04:47.640 --> 0:04:50.360 possible times ever, and he kept his money invested in 0:04:50.400 --> 0:04:52.479 the market. He didn't touch it after that, and the 0:04:52.520 --> 0:04:55.080 results were actually pretty good. Nick Madjuli, our numbers guy 0:04:55.160 --> 0:04:57.000 ran the IRR for me, and I think it was 0:04:57.120 --> 0:04:58.960 it was still like eight percent per year or something. 0:04:59.080 --> 0:05:01.000 Was crazy because he said, I cash the whole time. 0:05:01.160 --> 0:05:03.760 And I said, like, even though he was the worst 0:05:03.800 --> 0:05:06.400 investor ever, the world's worst market timer, he became a 0:05:06.440 --> 0:05:09.359 millionaire and that to this day. I wrote that in 0:05:09.360 --> 0:05:11.960 twenty fourteen. It's my most popular blog post of all time. 0:05:12.320 --> 0:05:14.800 People still read it every year, but I also get 0:05:14.839 --> 0:05:16.320 a ton of pushback on it, and so that was 0:05:16.360 --> 0:05:18.640 again the idea I wanted to update that study. I 0:05:18.640 --> 0:05:21.520 wanted to write about that for the book in just 0:05:21.560 --> 0:05:23.920 why I think time horizon is by far the most 0:05:23.920 --> 0:05:28.640 important thing for investors to define when they invest in anything, and. 0:05:28.640 --> 0:05:30.680 Tell us more about what that time horizon looks like. 0:05:30.680 --> 0:05:33.520 When you updated it Bob's time horizon. 0:05:33.200 --> 0:05:35.240 Yeah, it looked even better. But the funny thing is 0:05:35.600 --> 0:05:38.080 I also did some other variations of this, and I said, well, 0:05:38.080 --> 0:05:40.920 what if you just bought at like the lows, you 0:05:41.279 --> 0:05:43.359 built up your cash and at the lows of the 0:05:43.400 --> 0:05:46.840 crash you bought, you still did better just dollar cost 0:05:46.960 --> 0:05:49.920 averaging in so obviously dollar cost averaging works better than 0:05:49.920 --> 0:05:52.440 buying at peaks, of course, but if you just built 0:05:52.480 --> 0:05:54.360 up your cash for years and years and years and 0:05:54.600 --> 0:05:56.640 just put it to work at the bottom of the 0:05:56.640 --> 0:05:59.359 Great Financial Crisis or the bottom of the dot com boom, 0:05:59.400 --> 0:06:01.560 you know, after a burst, you would have still done 0:06:01.600 --> 0:06:04.200 better just dollar cost averaging. And that's the point is like, 0:06:05.120 --> 0:06:07.360 no one has the bad no one has bad enough 0:06:07.440 --> 0:06:09.560 luck to only invest in the peak, but no one 0:06:09.600 --> 0:06:11.960 is good enough to invest at the bottom of these 0:06:11.960 --> 0:06:14.279 things and time it perfectly. And if you just take 0:06:14.320 --> 0:06:16.080 that element out of it, the idea that like you're 0:06:16.080 --> 0:06:18.120 gonna wait for the dust to settle, or you're gonna 0:06:18.120 --> 0:06:21.400 time it perfectly. That's the idea that if you just 0:06:21.680 --> 0:06:23.839 like put in money on a regular basis, which is 0:06:23.839 --> 0:06:26.599 how most people invest anyway, you're gonna do fine. 0:06:27.040 --> 0:06:29.599 Yeah, there's a great stat and hear about the sixty 0:06:29.680 --> 0:06:33.600 forty portfolio, right, which a lot of ETF investors use. Historically, 0:06:33.600 --> 0:06:35.960 if you held a sixty forty portfolio for one month, 0:06:36.440 --> 0:06:39.159 there's a sixty four chance, sixty four percent chance that 0:06:39.160 --> 0:06:41.400 you would have had a positive return. But if you 0:06:41.400 --> 0:06:43.720 held it for ten years you were up one hundred 0:06:43.720 --> 0:06:46.080 percent of the time, and then he has these charts 0:06:46.120 --> 0:06:48.600 twenty years one hundred percent, five years ninety five percent. 0:06:49.040 --> 0:06:51.520 I mean, the odds are just so good. Do you 0:06:51.640 --> 0:06:55.800 find that people that are your clients and out there investors? 0:06:56.600 --> 0:06:59.720 Obviously with these kind of returns it's easier. But are 0:06:59.760 --> 0:07:02.760 they generally just constantly nervous or are they getting good 0:07:02.760 --> 0:07:08.000 at just like not even paying attention to their own 0:07:08.080 --> 0:07:10.520 doubts or the sort of doomers out there. 0:07:10.760 --> 0:07:12.960 I mean, there's definitely still people who are nervous all 0:07:13.000 --> 0:07:16.840 the time, but I think that investors have absolutely become 0:07:16.880 --> 0:07:19.200 better at this stuff. I think the last twenty years 0:07:19.360 --> 0:07:21.520 people have had it beaten into their heads. And Eric 0:07:21.520 --> 0:07:23.640 he wrote about the bugle head stuff, right. I think 0:07:23.640 --> 0:07:26.720 people have learned for years and years people said, listen, 0:07:26.720 --> 0:07:28.360 don't run out of the store when the stock market 0:07:28.440 --> 0:07:30.440 goes on sale, right, And we've seen that with the flows. 0:07:30.840 --> 0:07:31.000 Right. 0:07:31.280 --> 0:07:34.040 Anytime there's been a bear market this decade, the flows 0:07:34.120 --> 0:07:36.760 increase and people invest, and we get that from clients too. 0:07:36.960 --> 0:07:39.960 But I think on the whole, retail and DIY investors 0:07:40.000 --> 0:07:42.239 are so much better behaved than they were in the past. 0:07:43.320 --> 0:07:45.440 Yeah, and I want to just jump in here one 0:07:45.480 --> 0:07:47.080 thing in the Bogle effect that I pointed out, and 0:07:47.080 --> 0:07:48.640 I want to get your take on it. I know 0:07:48.720 --> 0:07:51.280 your advisors, and I give advisors a lot of credit. 0:07:51.320 --> 0:07:54.320 It is a very useful job, in my opinion, because 0:07:54.360 --> 0:07:56.680 people out there like this is like when I go 0:07:56.720 --> 0:07:59.160 to the Pep Boys, I don't know crap about the car, 0:07:59.200 --> 0:08:00.600 and I don't want to know any thing about it, 0:08:01.280 --> 0:08:03.320 and I want to trust somebody who like tells me, 0:08:03.360 --> 0:08:04.880 do I really need new break pads? 0:08:05.200 --> 0:08:05.440 You know? 0:08:05.560 --> 0:08:08.200 And an advisor does that with your portfolio, so there's 0:08:08.200 --> 0:08:10.760 always going to be a need for that. However, I 0:08:10.800 --> 0:08:13.080 do think the advisor's job was made a lot easier 0:08:13.680 --> 0:08:16.960 that Vanguard got an index fund down to about three 0:08:17.000 --> 0:08:20.520 basis points, because you can marry that thing and even 0:08:20.560 --> 0:08:23.920 with the markets it going down, at least you're in 0:08:24.040 --> 0:08:26.520 the what you feel is the best deal possible, like 0:08:27.280 --> 0:08:29.240 you're off the market. Back in the eighties and nineties, 0:08:29.280 --> 0:08:32.080 people would date I think five star managers, and I 0:08:32.080 --> 0:08:36.080 think just creating a marriable product I think is half 0:08:36.080 --> 0:08:36.520 the battle. 0:08:36.679 --> 0:08:40.080 Thoughts, Yes, it's way easier to rebalance into the pain 0:08:40.320 --> 0:08:42.480 when you know what you're investing in, Like you know 0:08:42.559 --> 0:08:44.319 that the whole stock market is not going to go 0:08:44.320 --> 0:08:46.240 to zero. It's you know, the thing I like to 0:08:46.240 --> 0:08:48.600 say about index funds is that, like, you never have 0:08:48.640 --> 0:08:51.040 an index fund that that decides to take a step 0:08:51.080 --> 0:08:52.920 back because it wants to spend more time with its family. 0:08:52.920 --> 0:08:54.839 That happens to heads for the managers all the time. Right, 0:08:55.040 --> 0:08:57.400 your index fund is not going to go through a divorce. 0:08:57.840 --> 0:08:59.640 And so I think that idea and that's why it 0:08:59.640 --> 0:09:01.440 instant sho't have such a hard time you talk about 0:09:01.440 --> 0:09:05.440 my nonprofit world, Eric, Whenever there would be an actively 0:09:05.440 --> 0:09:07.480 managed fund, it could be a hedge fund, could be 0:09:07.800 --> 0:09:10.600 an actively managed stock picker. Whenever they would get hit 0:09:10.600 --> 0:09:13.920 a rough patch, it was always really especially if they're discretionary. 0:09:14.400 --> 0:09:16.000 How do we know whether we should lean into the 0:09:16.000 --> 0:09:18.080 pain or whether we should give up on them. It's 0:09:18.120 --> 0:09:20.480 way easier to lean into the pain for a rules 0:09:20.480 --> 0:09:22.280 based strategy like an index fund or some sort of 0:09:22.320 --> 0:09:24.400 ETF like that, because you know it's going to come 0:09:24.440 --> 0:09:24.880 back eventually. 0:09:24.920 --> 0:09:25.720 These things are cyclical. 0:09:26.160 --> 0:09:28.120 You know, a lot of what you laid out here 0:09:28.240 --> 0:09:33.160 is about how behavior is the more important part than 0:09:33.360 --> 0:09:35.640 being brilliant and obviously that comes through in a lot 0:09:35.640 --> 0:09:38.440 of your writing too. So when you've thought about this 0:09:38.520 --> 0:09:41.559 and brought it to the book, what is the great 0:09:41.600 --> 0:09:44.760 psychological mistake that investors keep repeating? 0:09:45.320 --> 0:09:48.080 I think that there isn't one for every person. I 0:09:48.080 --> 0:09:51.280 think everyone has their own blind spots, and it's about understanding, 0:09:51.360 --> 0:09:54.280 like what's the lesser version of you? Because everyone has 0:09:54.280 --> 0:09:57.600 the regrets, right. The Bezos talks about regret minimization, like 0:09:57.640 --> 0:09:59.880 what are you going to regret more being too con 0:10:00.000 --> 0:10:02.880 servative in your portfolio and missing out on gains or 0:10:02.960 --> 0:10:05.400 being way too aggressive and taking part in losses. And 0:10:05.559 --> 0:10:07.240 there is no right answer if I think it's about 0:10:07.280 --> 0:10:09.400 knowing yourself in like your own emotional makeup. 0:10:09.400 --> 0:10:10.320 And I used to be this. 0:10:10.280 --> 0:10:13.840 Diehard person who thought everyone should be a Jack Boga 0:10:13.840 --> 0:10:16.840 decightful put all your money into index funds and just 0:10:17.360 --> 0:10:20.360 lose the password, right. But some people really just don't 0:10:20.400 --> 0:10:22.199 have the ability to do that. And I think it's 0:10:22.240 --> 0:10:24.520 fine as long as you can admit that. Some people say, listen, 0:10:25.080 --> 0:10:26.680 I know I'm young and I should have all my 0:10:26.720 --> 0:10:28.920 money in stocks, but I just can't do that because 0:10:29.120 --> 0:10:30.880 it won't allow me to sleep at night. So I 0:10:31.000 --> 0:10:33.760 keep twenty percent of my portfolio and T bills or something. 0:10:33.800 --> 0:10:36.000 And I think that's perfectly fine as long as you 0:10:36.120 --> 0:10:37.560 understand the trade offs that you're taking. 0:10:50.400 --> 0:10:52.400 Let's talk about that a little bit, because as the 0:10:52.440 --> 0:10:55.079 market keeps going up and up, and it is obviously 0:10:55.720 --> 0:11:00.840 historically stretched valuation wise, and I think what I find 0:11:01.800 --> 0:11:04.200 useful is and I want to get your take on 0:11:04.240 --> 0:11:09.560 diversification instead of like calling a top or shorting the market, 0:11:09.600 --> 0:11:12.560 which I feel like is what some people out there 0:11:12.640 --> 0:11:16.560 are either advising or doing themselves. It must suck to 0:11:16.640 --> 0:11:20.200 root against you as stocks like because they always prove 0:11:20.240 --> 0:11:22.040 you wrong. And why do you want to root against 0:11:22.080 --> 0:11:24.720 like companies doing well? And it just seems like a 0:11:24.760 --> 0:11:28.160 really rough way to live. These big short people want 0:11:28.200 --> 0:11:31.720 to bees whereas okay, you're nervous about it, why don't 0:11:31.760 --> 0:11:34.800 you just put more money in T bills or a 0:11:34.840 --> 0:11:38.400 goal or real estate, Like, just take the new money 0:11:38.400 --> 0:11:40.760 and put it into something that's not the stocks. That way, 0:11:41.240 --> 0:11:44.360 you can still root for your stocks, but you're adding 0:11:44.360 --> 0:11:47.040 to things that help you sleep at night. With that said, 0:11:47.640 --> 0:11:51.240 how do you know consider that and what else can 0:11:51.280 --> 0:11:53.480 you diversify into besides sponds? 0:11:53.760 --> 0:11:56.320 Yeah, I'm a big preacher of the fact that there 0:11:56.360 --> 0:11:59.240 is no free lunch in investing. But diversification's pretty darn close, 0:11:59.679 --> 0:12:02.320 right in terms of a risk management tool. And so 0:12:02.520 --> 0:12:05.360 I think that you diversify not only by asset class. 0:12:05.400 --> 0:12:08.520 So that's stocks, bonds, cash for some people, that's now alternatives, 0:12:08.559 --> 0:12:10.240 and there's a lot of different things that that could be. 0:12:10.920 --> 0:12:13.720 But then within those those buckets, I think you have 0:12:13.760 --> 0:12:16.800 to diversify by you know, geography and market cap and 0:12:16.800 --> 0:12:18.439 then strategy in a lot of cases. And I think 0:12:18.480 --> 0:12:20.319 what a lot of people learned. Bonds are the most 0:12:20.400 --> 0:12:23.160 boring part of the market obviously, but in twenty twenty two, 0:12:23.320 --> 0:12:26.600 when inflation went sky high and interest rates went from 0:12:26.679 --> 0:12:29.520 zero to five percent what felt like overnight, and people 0:12:29.559 --> 0:12:32.960 in there BN d ETF go, wait a minute, my 0:12:33.080 --> 0:12:34.520 bonds just fell twenty percent. 0:12:34.559 --> 0:12:37.320 What the heck? This is supposed to be the safe 0:12:37.320 --> 0:12:38.120 part of my portfolio. 0:12:38.200 --> 0:12:40.679 So now I think people have learned, oh, maybe I 0:12:40.720 --> 0:12:42.559 need to be diversified in my bonds too. So I 0:12:42.600 --> 0:12:44.840 need to have some T bills to account for the 0:12:44.840 --> 0:12:47.200 fact that rates might rise, and I need to account 0:12:47.200 --> 0:12:49.680 for that I might need tips to account for inflation, 0:12:49.720 --> 0:12:51.960 and so I think thinking through these things. It's not 0:12:52.000 --> 0:12:55.440 just like a one decision thing anymore. You might have 0:12:55.520 --> 0:12:58.400 to have further diversification. The hard part is you're always 0:12:58.440 --> 0:13:00.400 apologizing about something in your portfolio, and you have to 0:13:00.400 --> 0:13:01.760 be That's the other trade off is you have to 0:13:01.760 --> 0:13:04.280 be like, Okay, I know that these two pieces are 0:13:04.360 --> 0:13:07.320 going to fall and do poorly and they're not going 0:13:07.360 --> 0:13:08.760 to keep up when the rest of my portfolio is 0:13:08.760 --> 0:13:09.120 doing good. 0:13:09.120 --> 0:13:10.160 But you have to have it in the back of 0:13:10.160 --> 0:13:10.679 your mind. 0:13:10.520 --> 0:13:13.320 That each part of your portfolio has a specific job 0:13:13.360 --> 0:13:14.240 for a certain environment. 0:13:14.559 --> 0:13:17.080 Now, what about buffer ETFs. I thought what you just 0:13:17.120 --> 0:13:19.240 mentioned in twenty twenty two, when stocks and bonds both 0:13:19.280 --> 0:13:21.319 went down and the sixty to forty went down, I 0:13:21.360 --> 0:13:24.600 think especially boomers older investors freaked out that had never 0:13:24.640 --> 0:13:27.560 seen that before. Buffer ETFs are now close to one 0:13:27.600 --> 0:13:29.680 hundred billion dollars in assets. They came out of nowhere. 0:13:30.000 --> 0:13:32.520 These are ETFs that basically use options to sort of 0:13:32.559 --> 0:13:35.640 like lock in a type of downside. The cost is 0:13:35.679 --> 0:13:38.120 you give up some upside, so it's options to use 0:13:38.160 --> 0:13:41.360 a more sculpted outcome. They're very popular. I get it. 0:13:41.400 --> 0:13:43.240 To me, it's like taking a xanax kind. 0:13:43.080 --> 0:13:45.199 Of you know, fluff your pillow, help you sleep at night. 0:13:45.160 --> 0:13:48.480 Yeah, I mean, or pop a pill. I equate them 0:13:48.520 --> 0:13:51.440 to XANX because they do curing anxiety, but you give 0:13:51.520 --> 0:13:54.600 up a lot. And the alternative guys they're always like, oh, 0:13:54.600 --> 0:13:55.800 these buffers are bs. 0:13:55.840 --> 0:13:56.200 You got it. 0:13:56.200 --> 0:13:58.520 You should come to alternatives. But the alternatives are so 0:13:58.600 --> 0:14:02.680 expensive and are they even hedged. It's tough to evaluate. 0:14:02.679 --> 0:14:05.280 I'll turn to funds in general. What's your take on that? 0:14:05.360 --> 0:14:08.320 If somebody were looking for something other than the sixty 0:14:08.400 --> 0:14:10.360 forty because of what happened in twenty twenty two. 0:14:10.840 --> 0:14:14.440 We had Bruce Bond on our podcast right when the 0:14:14.480 --> 0:14:16.680 buffery TEFs came out and they were the first ones 0:14:16.720 --> 0:14:19.800 to do it right, and Michael and I my coast 0:14:19.800 --> 0:14:21.520 looked at each other afterwards and said, these things are 0:14:21.520 --> 0:14:23.880 going to be massive. Just the ideal a loone because 0:14:23.920 --> 0:14:26.480 it's a behavioral thing, and you're right. The quantitative guys 0:14:26.720 --> 0:14:28.640 hate these things because they go, why don't you just 0:14:28.640 --> 0:14:30.840 put your money in a seventy thirty portfolio? You probably 0:14:30.840 --> 0:14:34.080 get the same thing, right, but it's the behavioral piece 0:14:34.080 --> 0:14:36.440 where you can have some sort of certainty in terms of, 0:14:36.480 --> 0:14:37.600 like I'm going to have bookended. 0:14:37.680 --> 0:14:37.920 Right. 0:14:38.400 --> 0:14:41.200 Sure my upside is capped, but so is my downside. 0:14:41.400 --> 0:14:43.520 And I know what range I'm generally going to be in, 0:14:43.520 --> 0:14:46.080 and I think one of the areas, especially when rates 0:14:46.080 --> 0:14:48.360 were so low for so long, people wanted to find 0:14:48.400 --> 0:14:50.240 a middle ground, like I know I have stocks here 0:14:50.480 --> 0:14:52.880 and I have bonds or cash here. That's like my barbell, 0:14:53.320 --> 0:14:54.840 Like what do I have in the middle? And the 0:14:54.880 --> 0:14:57.440 middle thing is the hardest for people to find. Advisors 0:14:57.440 --> 0:14:59.480 have been looking at forever, and I think people are 0:14:59.480 --> 0:15:02.520 looking at as that middle ground in terms of yes, 0:15:02.560 --> 0:15:06.120 I'm giving something up, but especially for like retirees who 0:15:06.160 --> 0:15:08.040 are just so worried about listen, They've got they have 0:15:08.120 --> 0:15:10.760 more money in their portfolios than they ever thought possible 0:15:10.760 --> 0:15:12.560 because this bowl market has been raging so long. So 0:15:12.600 --> 0:15:14.920 it's kind of like how do I protect some of 0:15:14.960 --> 0:15:19.000 those gains and how how do I avoid huge losses 0:15:19.240 --> 0:15:21.840 while also maybe giving myself a chance to earn a 0:15:21.840 --> 0:15:23.520 little more than I can get in casher bonds. 0:15:23.600 --> 0:15:25.680 Ben, I want to bring it back to risk and reward. 0:15:25.760 --> 0:15:29.600 You have a lot of charts and infographics, highly visual 0:15:30.560 --> 0:15:32.560 that we might not be able to show on the podcast, 0:15:32.600 --> 0:15:33.960 but walk us through one of your favorites. 0:15:34.280 --> 0:15:35.240 Yeah, I think I counted. 0:15:35.240 --> 0:15:36.960 I think I did fifty two charts and tables for 0:15:37.000 --> 0:15:39.600 the book, so I'm very data heavy. I like the stories, 0:15:39.600 --> 0:15:41.680 but I like the numbers too. Okay, here's one of 0:15:41.680 --> 0:15:44.000 my favorite ones. If you look at the S and P. 0:15:44.080 --> 0:15:46.000 Five hundred and this book covers like the last hundred 0:15:46.040 --> 0:15:47.920 years or so of markets and all the bad stuff 0:15:47.920 --> 0:15:50.560 that can happen. The worst starting point in US stock 0:15:50.600 --> 0:15:53.480 market history was September nineteen twenty nine, right the stock 0:15:53.480 --> 0:15:56.240 market fell eighty six percent over the next three years 0:15:56.280 --> 0:15:59.400 in the Great Depression. If you would have invested in 0:15:59.440 --> 0:16:03.240 September nineteen twenty nine, in held your stocks, reinvested the 0:16:03.240 --> 0:16:06.200 dividends for thirty years, you would have had a total 0:16:06.240 --> 0:16:09.440 return of eight hundred and fifty percent seven point eight 0:16:09.440 --> 0:16:12.600 percent annual return. And that's the worst thirty year return 0:16:12.640 --> 0:16:13.760 you could have gotten in the S and P f 0:16:13.840 --> 0:16:15.640 F pick any month over the past one hundred years. 0:16:15.800 --> 0:16:18.080 The worst return over thirty years you've got was roughly 0:16:18.120 --> 0:16:20.680 eight percent per year. It's just mind boggling. And the 0:16:20.680 --> 0:16:22.960 funny thing is that the best return you got would 0:16:22.960 --> 0:16:24.840 have been starting in nineteen thirty two at the bottom, 0:16:25.040 --> 0:16:27.680 which is like fifteen percent per year. So that's like 0:16:27.720 --> 0:16:30.320 the time rising thing that Oh my gosh, that's inclusive 0:16:30.360 --> 0:16:33.160 of an eighty six percent crash and you still earned 0:16:33.560 --> 0:16:34.640 eight hundred and fifty percent. 0:16:34.720 --> 0:16:37.040 That's the worst thirty year return in this period. 0:16:37.560 --> 0:16:40.080 Let me ask about that, because you're kind of talking 0:16:40.080 --> 0:16:43.240 about the US stock market, which I think is the 0:16:43.280 --> 0:16:45.400 eighth wonder of the world. That's another book idea I had. 0:16:45.400 --> 0:16:48.040 I wanted to write about the Nasdaq one hundred, that frickin' 0:16:48.040 --> 0:16:51.080 index is. I mean, it's like, how on earth is 0:16:51.120 --> 0:16:54.200 it so good? But then I wanted to dive in 0:16:54.240 --> 0:16:56.560 why the US is so different. I think our stock 0:16:56.600 --> 0:16:59.560 market is special because you have now show Japan, which 0:16:59.600 --> 0:17:01.280 I get on Twitter a lot too. It's like you 0:17:01.320 --> 0:17:03.720 put something that's like, now do Japan, Well, Japan had 0:17:03.760 --> 0:17:07.040 like a long dead period, but other countries have too, 0:17:07.560 --> 0:17:09.480 and now International had a good year, but now the 0:17:09.520 --> 0:17:11.440 flows are coming right back to the US because the 0:17:11.520 --> 0:17:14.400 US is now roaring again. Just seems like International has 0:17:14.440 --> 0:17:17.119 these like mean reversion headfakes the last six months or 0:17:17.160 --> 0:17:19.399 a year, but for the most part, the US is 0:17:19.480 --> 0:17:23.680 just on another level. There's more trillion dollar companies here. 0:17:23.680 --> 0:17:27.040