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