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The worst thing that can happen to someone who steps into a casino for the first time is that they win.
Search this video
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Good investing is simple, but not easy.
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Everybody's trying to find the next Nvidia.
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Everybody wants to tap out before the tariff sell-off starts and then jump back in at the bottom.
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We impose our desires and our wants on the market and ask it to do things it really doesn't do.
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Stay out of your own way. Don't make any mistakes.
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Let the market work for you and you'll be fine.
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Compounding will take care of itself as long as you don't get in the way. Well, hello everyone.
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It's Jim O'Shaughnessy with yet another Infinite Loops.
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Today, I have my good friend who I think I've known you for like most of my adult life, Barry.
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Barry Ritholtz, the chairman and CIO of Ritholtz Wealth Management, one of the hottest wealth managers out there, host of Bloomberg's Masters in Business.
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I think it's probably one of the most popular business podcasts out there. Certainly the oldest.
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It would coming up on 11 years and over 550 episodes.
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And you're also one of the first bloggers, 2003.
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Actually, 1998 was the blog No way. Really? on GeoCities.
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And to tell you how old I am. Wow.
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to teach myself HTML to be able to post.
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And back in the '90s, it would take me like 20 minutes to write up my notes that I want to post and then 2 hours to code it.
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You literally are doing it, you know, uh open paren, you know, a equals h r e f slash like and if there was a space in the wrong place, everything would break.
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And when Typepad reached out and said, Six Apart reached out and said, "Hey, we have this new blog software called Typepad. It's WYSIWYG.
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You don't have to do any coding."
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I'm like, "All right, I'll I'll check it out."
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And suddenly, 2 hours a day magically were That That's why I One of the reasons I pushed back on the we've seen no productivity gains from technology like this used to take me hours and now it's seconds.
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I don't know what you guys are doing wrong, but I don't believe you're measuring productivity correctly.
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Well, that, you know, leads us into why we're talking today.
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You have a fantastic new book out which I love the title because this could be the infinite book, right?
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You're on infinite loops, it could be an infinite book. How not to invest.
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Essentially, make fewer errors, make more money.
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Yeah, the This comes back from an idea from two of my favorite Charlie's.
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A sentence that isn't said uh I don't think uh ever.
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So So you go back to the 1970s and I know you are a market historian and a data junkie as am I, but um Charlie Ellis was on the board of Vanguard, he ran Greenwich Asso- Greenwich Associates, he was chairman of the Yale endowment, like a serious player in the history of markets.
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And he wrote a paper in the '70s that eventually became a book.
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And the book was Winning the Loser's Game.
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And he draws the comparison, it's festooned with all sorts of charming, wonderful um sports references cuz Charlie is this charming, wonderful person.
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Um but my favorite sports metaphor he uses is tennis.
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And been playing tennis for about, you know, 10 years.
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And most people are amateurs. The 0.
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01% of tennis players who are professionals, they're are really Charlie draws the makes the conclusion, there are two different games.
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Tennis is two different games.
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The winner's game is the game that the professionals play.
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You score by hitting aces, by just kissing the line, by by slicing, by hitting with power, by putting the ball in all sorts of challenging places with all sorts of um uh swings that require a lot of technique and expertise.
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Professionals win tennis by scoring points. The rest of us, the 99.
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whatever percent of us amateurs, that's not how we win a tennis game.
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We actually lose by making unforced errors.
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We double fault on a serve. We hit it into the net. We hit it wide. We hit it long.
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We hit it with not enough spin, so it just bounces right up to the sweet spot of our opponent's um swing.
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And so, if you just make fewer of these unforced errors, uh if you ever take any of the performance driving classes, it's kind of the same thing.
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If you just stay within your own skill set and don't try and do much, that let the other person beat themselves.
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That's um that's how amateurs win games.
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And Ellis draws the parallel to investing.
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Everybody's trying to find the next Nvidia.
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Everybody wants to tap out before the tariff sell-off starts and then jump back in at the bottom.
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And the reality is, that's not how you win as an investor.
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As an investor, stay out of your own way.
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don't make any mistakes, let the market work for you, and you'll be fine.
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Compounding will take care of itself as long as you don't get in the way.
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Yeah, and the challenge that I always have, Barry, is you and I have been saying this to people for 30 plus years? Sure.
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And yet, human OS seems to be impervious to much of this what we think of as self-explanatory information, data. I mean, literally data.
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We have more than a century of data that proves your points, proves my points.
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And yet, we are always constantly, even ourselves, right? I'm human, you're human.
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We We have the same problems with falling into traps, with thinking, you know, that's true of everyone else, but not me. I am the only exception.
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How do you How do you deal with that?
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You know, I I wrote up a story the other day that um it had come up because I started getting, you know, all the March Madness advertisements.
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And so, I've been a big Knicks fan uh my whole life.
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Like, I kind came of age basketball-wise during the Larry Bird-Magic Johnson era, which was followed by the Detroit Bad Boys, and then of course the Bulls and Michael Jordan.
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And I always thought the New York Knicks, of which I am a big fan, never got a fair shake from the refs.
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And uh the the Patrick Ewing, Charles Oakley, Mason, Starks era, they were always on the verge, they never could get past Jordan.
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It always felt like the refs gave Jordan like, how many steps was that, refs?
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It was four steps to the Uh and and I always used to be so frustrated, so infuriated.
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And then one day um somebody who I was a regular on CNBC with I met in the green room like I met you, big Joe Bessecker of Emerald Asset Management was a big I keep saying St. John's, but it's not St. John's.
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He went to a school like that and he's a big, you know, alum and donor, so he gets fabulous tickets to the NITs, which take place at the Garden.
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And so he invites me to a game.
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And um And and all this has to do with our own biases and our blind spot as to our biases.
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And so I'm a professional basketball fan. I'm a Knicks fan.
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I went to a state school.
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I didn't go to North Carolina or Michigan. I could care less.
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I could not care less about college basketball.
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I have no skin in the game.
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Don't care about the outcome, but hey, I'll see a game from the fifth row. That's awesome.
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Like my seats were up in the boondocks for the Knicks, section 205.
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Wait, center court, five rows back? Where do I sign up?
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So I go with Joe to see um see this game.
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And he's a big guy with a booming voice and he is just haranguing the refs all game. Ref, that's a foul. Like what? Not really.
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Yeah, the hand is part of the ball. That's not a foul. Ref, travel.
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And I'm like, Joey, two and a half steps on a layup. That's, you know, given. Charge. That was a charge.
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Joe, the guy was still moving. He wasn't planted. That's not a charge.
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You got to be there and you know, own the space.
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You can't jump in front of some.
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And on and on this is going and suddenly I have this sinking feeling, this realization that oh my god, I'm this bad when it comes to the Knicks and I'm objective here cuz I don't care who wins.
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And not only am I recognizing my own bias blind spot, but suddenly I realized, man, I've been operating in this world that's wholly delusional and completely of my own creation.
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And what else do I think I'm right about?
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What else am I biased about that I simply have no idea that I'm clueless.
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And so, I want to say that was like 2011, 2012, something like that.
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And um it was very eye-opening, cuz up until that time it was everybody else.
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You're You're 100% right.
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It was Well, first of all, frequently when clients call up freaked out about something, it's usually either bad information or a fundamental lack of framing or context.
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And you know, I Do you I don't know if you remember this?
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Sometime about a decade ago, I don't know who first started putting this chart out, but it's like, how are we going to get by?
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Look at the New York Stock Exchange mar- margin levels.
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They're at all-time highs.
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And it's like, well, where's the rest of the context? What do you mean?
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Well, here's the chart if we put the value of the market and the the margin debt at the same time, they just track each other.
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So, when 2014, all the memes, NYSE margin is at an all-time high. Yeah, so is the market. That That's how it goes.
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And so, you know, you were It's so easy to spot these things in other people, and it's so hard to spot it in yourself.
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And to some degree, that was the thinking behind the book.
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Hey, if I could get people to spot some of the silly things that I do and other investors do and billionaires do, maybe it'll be a little easier to recognize those mistakes in yourself.
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Yeah, and it's sometimes I think we would both feel like Don Quixote, right?
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Tilting at windmills because like I remember conversations and as you know, they're almost always when markets are at extremes, right?
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Like the dot-com, I remember everyone telling me, you know, Jim, what are you doing investing in these bricks and mortar companies? They're history. I mean, you're crazy.
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And then of course the great financial crisis comes along and Barry, I'm not kidding, I had one of our most devoted advisors.
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This guy could do our pitch at my old company O'Shaughnessy better than I could do. Honestly.
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Go down my Ari Rosenbaum, who you know, Sure.
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Jim, you really got to come down with me because I think he's I think he's shaky.
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And so I'm walking He's broken.
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I'm walking into his office, Barry.
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This is February of '09, okay?
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So you you know what happens afterwards, right?
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So I'm walking into the office.
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He's got a beautiful office in DC. He stops me.
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He's sitting at his desk.
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He just puts his hand up and he goes, O'Shaughnessy, I know that briefcase is filled with all sorts of charts and tables about why I should be getting really crazy long here. I don't care.
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It's different this time.
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I mean, literally Barry, every one of the faults that lead us to these horrible decisions and it was just like literally here was a guy who was about as devoted to the process as I I and then decides let's throw the towel in.
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How do you How do you and your colleagues at your shop, how do you stop your clients from doing this?
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So there's there's a couple of ways to bring people to a headspace where market turmoil doesn't affect them the way it used to.
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So the first thing is proactively.
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Meaning if the first time you're calling your client to have a conversation about hey, you know, markets don't just go up, they go down also.
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If the first time you're calling them is 10-15% into a correction, well, you're already late.
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So rule number one is be proactive.
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Rule number two is manage people's expectations, especially when you have a great year.
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So you know me, I'm not big on making forecasts and predictions, we don't do that.
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Um but we do a quarterly call for clients and here's the broad overview of the markets and here's the broad overview of the economy and here's what all this means for your portfolio and here's one last tidbit to think about.
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But when we uh in January of this year, when we did the Q1 call, rather than make a market forecast, what we tell people is hey admittedly small data set of years where the market is up 20 to 25% plus for 2 years consecutively.
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Really only happened like a dozen times and a big chunk of that is the 96 through 2000.
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But historically, what this means is sometimes market's up, sometimes the market's down following this, but it generally it means just lower your expectations for this year.
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Hey, we just had two great years that are roughly the equivalent of four or five years in a bull market.
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We could go sideways for 3 years.
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You're still above the historical average.
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So, let's just ratchet down our expectations.
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Don't think about 20 plus percent gains for a third year in a row.
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Think more along the lines of plus 10% to minus 10%.
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That's the historical range you should be thinking about.
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Um and so, but you know, if I came to you in 2020 at the end of '22 and said, "Here's the deal.
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Two consecutive years plus 25, two consecutive years flat to minus 10%.
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Would you sign on for that?"
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You would say, "Hell yeah."
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So, the second thing is managing expectations.
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And then the third thing is just showing people here's what market history looks like and here's how often you can expect it down 5% down 10% down 20% and by the way, down 30% back up the truck.
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And even if we end up down 50%, that's your second leg in.
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But understand that unless you're late 60s and about to retire, if specially if you're under 30, 40, 50, hey, this is an opportunity if you don't need the money for 15, 20 years.
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Well, hey, you've been complaining about chasing these how expensive everything is.
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Now they're on sale down 20%, not that we're there yet, but we want people to think about major sell-offs as an opportunity, not as a oh woe is me moment.
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And as long as they go into that, you know, I started on a trading desk and the most interesting thing I learned from the senior traders, one was a former army ranger, one was a Navy SEAL, another was a Marine jungle combat instructor, and these guys used to tell stories, literal war stories, about the prep they did before they would go on a mission.
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And they literally map out everything that happens, and what do you do if this goes wrong here?
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There's a plan A, plan B, plan C, every step of the way.
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But the thing that the SEAL had mentioned that I found so fascinating was I all right, your gun jams in a firefight, what's your plan B? How do you deal with it?
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How much time do you take to try and fix it?
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When do you abandon the weapon?
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And when what is your emotional state?
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Like if your reaction is panic, you're going to get yourself killed and your teammates killed.
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But if your reaction reaction is, "Hey, mechanical things break. I have another sidearm. I have another piece.
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I could grab this weapon."
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Panic is when things go bad and you don't know what to do.
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But if you have a plan A, plan B, plan C, and you are prepared for the emotionality of the moment, you They just say we just do our jobs and keep working, you know, keep moving towards the objective.
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And that attitude is incredibly, you know, insightful and helpful to say, "Not only do you have to intellectually anticipate the ordinary course of events where markets will fall 3, 4% in a day, 20% in a quarter, but you have to imagine what your emotional state will be.
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So when it happens, you kind of recognize, "Oh, we planned for this.
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I knew this could happen. I And it is happening.
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So here's what I'm going to do.
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I've already got written rid of the stuff I thought was speculative and junky.
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I'm sitting on a little bit of cash.
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Hey, down 20% I'm a buyer, and down 30% I'm a buyer again."
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And so if you go in, I'm going to take advantage of this once-every-five-year opportunity that presents itself.
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So, a lot of it is getting people emotionally prepared, making them think in terms of opportunistic investing, adding, rebalancing into equity when when it falls a certain amount.
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Uh but then lastly, thinking about the downside as not a negative, but as a positive.
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And it's funny cuz you learn that um a financial literacy has a really short half-life, and you have to constantly drum that in, cuz if you educate somebody, a year later, a lot of that's kind of faded.
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Hey, I kind of remember you said something about how often a down 10% happens.
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What are we supposed to do?
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And you know, our advisors, God bless them, they are deep into that.
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They spend a lot of time.
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Um Josh had a had a really great comment in the morning meeting today.
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This sort of environment is where advisors earn their keep.
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It's where advisor alpha comes from.
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You prevent someone from panic selling at the worst part possible time, you've earned your fees for the next 10 years.
20:26
The interesting, and again, I know you're such a historian, the word capitulation, which is often used to describe bear market lows, it literally means surrender. How do bottoms get made?
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When enough people throw in the towel, I can't take the pain anymore. I uncle.
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Well, you know, when you give, that's how bottoms get made.
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And there's a section in the book that talks about the crazy thing about bear market bottoms is a little over 30%, almost a third of people who sell, panic sell into a bottom, never return to equities, which is just shocking.
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And just think about what that means for those families' retirements 10, 20, 30 years hence.
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Yeah, it is such a sticky wicket.
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Uh I used to when I started my career, I was going to publish these books, say, here's a level playing field, here's how you can do it, you can do it yourself.
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And then I had, you know, years and years of experience that taught me, you know what?
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I'm going to change my advice.
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I I I'm going to tell everyone get a financial advisor because literally I was watching people who were big fans of the books, they liked the strategies, everything, and literally throwing the towel capitulating, throwing the towel in.
21:57
But if somebody So, somebody picks up your book, how not to invest, and they don't maybe maybe they're young, maybe they don't have enough yet for an advisor.
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How would you guide them?
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Take Take me through how they can use the book to maximize their ability to not screw up in all of these situations. Sure.
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So, you know, it's an old joke, uh gambler's joke, the worst thing that can happen to someone who steps into a casino for the first time is that they win.
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And similarly, the worst thing that can happen is the first time you buy a stock and it goes straight up.
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So, I I want them to understand some of the basics.
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Um and our whole business model is we give great advice away for free. And hey, if 0.
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1% of you don't want to do it yourself, um which you can, you could do it yourself if you're a little thoughtful, spend a few minutes a month, and manage your own behavior, you're great.
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If you if you don't want to do that, if that's not of interest, we're happy to do it for you.
23:03
But the basic concept is have a broadly diversified portfolio that at least the core of it is low-cost broad indexes.
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You could rebalance those every couple of years.
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I think if you're in your 20s, 30s, 40s, you really don't need fixed income unless you're so risk-averse and you're going to be so panicked every time we get, you know, a month like this.
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It's a drag on returns for 20-year-old.
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It's a necessary part of the portfolio for a 50, 60, 70-year-old.
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Although 60/40 seems a little high when rates are as low as they've been for a 50-year-old.
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But that's the first thing.
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Have your core portfolio.
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I don't care if it's Spy or VTI or VOO or pick your favorite broad index.
23:59
And then if you're like enthusiastic about, I know you're a fan of momentum.
24:05
I'm a fan of small-cap emerging market value.
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Like there's a lot of little ways you can, you know, hang ornaments on the tree.
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Hey, India seems to finally be making economic progress.
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Let's let's buy an India ETF.
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So you you the 50, 60, 70% of your portfolio is just broad-based low-cost indexes and you know, we've been looking at Europe as a perennial laggard.
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All right, now the US seems pricey enough and Europe seems cheap enough.
24:38
If you want to add a Europe ETF, go ahead.
24:41
And you know, the idea is that all these little things give you an opportunity to express your perspective or not.
24:50
Like whether or not you think the Nasdaq 100 is where you want to be for the next 20 years or not.
24:54
Putting 5% of a portfolio when the rest is pretty broad-based, when you're looking for 8, 10, 12% a year over long periods of time at a very low cost basis, adding a little flavor to that if it keeps you from doing something silly with the rest of the portfolio is fine.
25:16
And then your next goal is to continue to to add to that, to dollar cost average into that over the course of your career.
25:25
And then the most important thing is to not interfere with the market's ability to compound.
25:34
That's the great gift of the market is there aren't a lot of guarantees in life.
25:38
Over, you know, longer periods of time and you could I I I feel comfortable saying 20-plus years.
25:47
I used to say 10-plus years, but, you know, '66 to '82, 2000 to 2013, 10 is a little tight for the worst-case scenarios.
25:56
Um, but over 20-year periods, compounding works miracles.
25:59
compounding works miracles. And by the way, if you continue to dollar cost average as some people did from 20 to 2013 and the stories abounded in in '66 to '82, think about how frustrating that must have been for the 13 years between the dot-com implosion through the mortgage bubble, through the
26:24
financial crisis, through the flash crash until 2013 when you finally, um, all the indices, uh, surpassed their previous highs and you've been making no returns and then suddenly it explodes upwards because you're just slowly buying over time and nothing's really happening and it it's going up, it's going down, it's stuck in a range. And then once that breaks out
26:46
And then once that breaks out to a new bull market, as it did in March 2013, you're off to the races and 10 years later, you, depending on what how you invested, you five, six, seven X'd your money.
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And the money is made during the bear market, the gains aren't realized until the subsequent bull market.
27:09
All bull markets pull gains forward from the next decade and people forget about that.
27:14
So, my advice to those folks are stay out of your own way, let the market work for you.
27:19
If you insist on picking stocks or market timing or whatever stuff you want to do, do that in a small basis, but leave your primary investment dollars alone to operate with the highest probability outcomes for highest probability for successful outcomes.
27:44
Yeah, and I've I've often said good investing is simple, but not easy.
27:52
And it's that part where I just continually try to come up with ways, and you're very good at this, like you've just done, uh to get people to to not be hyperbolic discounters, right?
28:07
When the when when when the TV news is screaming at you, you know, tariffs and the Nasdaq is down 13%.
28:17
It just automatically kind of shuts down the prefrontal cortex, goes right to the emotional center of the brain, and people are often forgetting all of, you know, this very, very straightforward advice.
28:33
Is is there any kind of process, I'm a huge believer, as you know, in process over individual outcomes.
28:39
If you can follow a process, and through thick and thin, right?
28:44
You've You've got to make that deal with yourself.
28:46
You're going to be ahead of 90 plus percent of everyone out there doing hit and miss.
28:54
Um when when you're first chatting with a potential client, do you have a sense?
29:02
Do you have a sense of Okay, this is going to be a great client or Oh my god, this is not going to be a great client.
29:09
So, very often every the recency effect colors everything everybody says and done does.
29:18
And And so, you end up with you know, hey, what This is why it's so hard to really find out what someone's risk tolerances are because what just happened over the past 3 months affects how they're looking forward.
29:33
If we're in the middle of a rampaging bull market and we're up 20% for the year, oh, no, I I'm fine with risk. I'm very tolerant. I doesn't affect me.
29:43
The market, I mean, we're barely off the highs.
29:45
That's what's so amusing.
29:45
Have that same conversation with someone today with Nvidia down a trillion dollars in market cap.
29:52
No, no, I'm very conservative investor.
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I'm I'm very risk averse.
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I want a moderate portfolio.
29:57
And so, that that's the challenge is trying to figure out who they really are and what they'll they'll put up with, but I have found a lot of success in getting people to understand the broader context.
30:12
And I'll give you a a great example since you brought up television and tariffs and all the stuff that's on TV today.
30:23
Most of what we see in financial television and financial media, it could be prints, newspapers, magazines, it could be radio, and of course, the infinite more of the internet and social media and Tik Tok and Instagram and all that stuff.
30:41
Think of what the world was like, and I love having this conversation with a 20-something or a 30-something who just assumed the media world is the same as it always was.
30:51
Like, let me explain to you what happened before you were born.
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There was one financial television show on.
30:58
It was 30 minutes once a week on Friday night.
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It was Louis Rukeyser who would come out in a very grandfatherly way, tell you what happened that week, tell you why most of it was just noise, and then he would bring a guest out and talk about a specific thing, and that was it.
31:16
You It wasn't 24/7 constantly being pushed to you.
31:22
And then some years later FNN, Financial News Network, merged with I don't remember the other merger, and and that was the birth of CNBC.
31:31
Not long after that was Bloomberg Radio and then Bloomberg TV and then CNNFN, which has since gone away, and then Fox Business, which isn't nearly as available as Fox News is.
31:46
Um and so we we barely need one financial channel.
31:52
Why do we have four financial channels?
31:56
Because if you are investing for retirement or generational wealth transfer or even you have a newborn baby and you're saving for their college in 18 years, who cares what happens on a random Tuesday?
32:11
It's not Hey, you know what?
32:14
January nonfarm payroll in 2022 is irrelevant if your kid isn't going to school until 2040 or if you're not retiring until 2050.
32:23
We are so immersed in the here and now, we lose context of You know, I I'm a I'm a big watch guy, but not for the reasons you would think.
32:38
I became a watch guy as a kid cuz I was fascinated by the concept of time. Right?
32:46
So, we see each other because photons bounce, you know, the particle that carries light, that part of the electromagnetic spectrum bounces off me and and hits your optic nerve and and you see something.
33:00
Um we have yet to discover chronons or or or time particles.
33:07
And the philosophical argument that's been made by some people is that time is a completely human concept that does not exist outside of human consciousness.
33:19
There is the here and now and that's all that's ever existed.
33:21
It has progressed um measured by the relative positions of different things as the universe expands, but when we think about the past and we think about the future, the past is just tinged recollections and faulty memories with the rosy glow of nostalgia and the future is a lot of our hopes and dreams and wishful thinking.
33:45
And those two elements dramatically impact how we think about money, risk, and time.
33:51
And so, gee, you know, I really want to buy that big house on the beach.
33:56
I really want to buy take that vacation.
33:59
I really want to do this.
34:01
And if only the I could find that stock that will be a 10-bagger I can afford to do this.
34:06
Like we we impose our desires and our wants on the market and ask it to do things it really doesn't do.
34:16
Instead of just saying, "Hey, there's the here and now and 20 years from now, that here and now, future Jim, future Barry, um will need money to live on in retirement."
34:31
I like to tell clients a met you have to learn how to time travel.
34:36
And the way you time travel is not getting into HG Wells' time machine or a tardis and travel somehow always back to London.
34:45
But um But just picture yourself what's the world going to be like in 15 20 years?
34:52
What are your financial needs are going to be like?
34:54
And you know, I jokingly tell my wife about nighttime Barry and morning Barry.
35:00
Every morning morning Barry is thrilled at nighttime Barry set the coffee maker so that when morning Barry rolls out of bed at 5:00, there's hot delicious steaming coffee.
35:10
And that's you know, an 8 9 hour difference.
35:16
If you can plan ahead 9 hours, well, can't you plan ahead 10 20 years?
35:21
What you can even make the argument that this administration is wacky and crazy as all these things are, if you don't need money for 15 or 20 years, yeah, this is going to be a very volatile ride.
35:35
Tariffs are on, tariffs are off, tariffs are on.
35:37
The the implication that a lot of this is sort of hard to understand the reasoning and very very variable.
35:45
Hey, you got to look past 2028 and think about I don't need this money till 2034 or 2042.
35:54
And so the next 5 or 10 years is not relevant to me.
36:00
What do you think about what another thing that we have seen, I think some of it very good, some of it really not great for investors, is over the last 10 15 years there has been a huge amount of innovation both in terms of things that you can buy, for example, ETFs.
36:19
They've been around longer than that, but like they were a real improvement in my opinion, for most people because of the way taxes got handled, because of the, you know, all of that. Mhm.
36:32
Um, and then things that we did that you were one of our, uh, you actually were our first, That's right.
36:41
That's right. advisor to give us great advice where we build custom portfolios, and it turns out, we were chatting about it the other day, we thought it was all everyone at O Sam thought it was going to be, oh, people are going to be
36:54
delighted that they can customize their portfolio, or, you know, if they're anti-smoking, they can get rid of all the tobacco stocks, and then when we saw it actually being used, what was number one with a bullet with number two way below, number one was tax alpha, tax management. I think that's a great
37:13
I think that's a great innovation.
37:16
What What are some others that both good and bad that that you've see and and give me your your views on them? Sure.
37:25
And and and by the way, the genesis of this section in the book comes from the very amusing quip from former Fed chair Paul Volcker, who said, "There's been no innovation in finance other than the ATM."
37:40
And while there was some elements of truth to that 25, 30 years ago, it it clearly is no longer true.
37:45
And I'll I'll give you a handful of my favorite examples.
37:50
So, first, it's not just ETFs, but it's the ability to explore any aspect of the world that you think has a possibility of being an interesting investing, and there's already some sort of ETF.
38:08
I don't care if it's a microcap sleeve or a momentum sleeve or a emerging market small cap value, there somebody has already done that. It's already out there. So, that's number one.
38:22
Number two, and this is a double-edged sword, is the ability to trade for essentially free.
38:28
Now, you and I both know that there's a little bit of a spread, and there's, you know, there are there is no free lunch. There is a cost to it.
38:38
But, it's become spreads have narrowed.
38:41
I started on a trading desk where regularly there were and and back then it was fractions. It wasn't even decimals. I remember.
38:48
And it was eighths, quarters, and halves.
38:50
Like, they were like we used to joke, "Look at the spread.
38:52
You could drive a truck through that."
38:53
And you could make money if it was 11, you know, if it was a stock that was 24 by 25.
38:57
I'm a buyer at 24 and an eighth, and I'm a seller at 24 and 7/8, and you would get filled.
39:05
And eventually the market shrinks those um spreads.
39:07
Now, the spreads are tiny, so you're not paying up when you want to buy, you're paying down when you want to sell.
39:19
And um the cost for execution is next to nothing.
39:22
In fact, since you brought up Canvas, I think we were one of the we were if we weren't the first, we were certainly one of the first clients.
39:30
No, I think you actually were the first.
39:32
the first, and I think we may still be the largest.
39:33
We're we're of the we're 1.
39:36
5 out of almost Our last ADV was five.
39:40
We're really The next ADV will probably have a higher handle on it, but we're about 25% of our assets, and the uh the old way of doing tax-loss harvesting was kind of modest and kind of routine, and you were just taking the average of all your funds.
39:59
The beauty of direct indexing is you get to open up the wrapper, reach inside, take the bottom 10-20% of the worst performers.
40:06
Like, even in a year where the market's up 15%, you have a handful of stocks that are down 10, 20, 30% or more.
40:14
Sell those, replace them with something that quantitatively looks very simple.
40:19
Hey, it's this size, it's this sector, it's this valuation.
40:25
Find me something similar.
40:25
And so, capturing those losses and on paper, but replacing it with something very similar, it's been a game-changer, especially for people who are sitting on, you know, if you're in any of the forget even Magnificent Seven.
40:41
It's like the top 50 stocks, you're sitting on massive gains.
40:45
A founder stock, IPO shares, low cost basis, inherited stock, employee stock option plan.
40:52
You know, if you get someone an extra 50 basis points over the benchmark or you underperform by 50 basis points, people kind of shrug it off.
41:02
But regardless of the size of someone's portfolio and if you say, hey, you know, we managed to reduce your ordinary income tax versus the capital gains that you have by 50 or $100,000, oh my god, it's the greatest thing since sliced bread.
41:22
Nobody is happy sending a big check to Uncle Sam.
41:25
It takes it Listen, I you have this windfall and it takes a little of the joy out of it that 20 plus about 4% goes to Uncle Sam.
41:33
And if you have the ability to say, by the way, you have all these unrealized losses that we were able to realize on paper without affecting your portfolio and now your million dollars in capital gains from all the Nvidia you've sold is only going to be 750,000, so we've saved you, you know, do the math, $80,000 in taxes, they're like, this isn't This isn't crazy Wesley Snipes or stuff.
42:02
This is not No, no, this is all IRS guideline approved, black letter law.
42:07
The IRS has signed off on this.
42:10
Everybody's happy with this.
42:12
This is just straightforward.
42:15
So, that's another innovation.
42:18
Just to show you how how much the world has changed.
42:20
And let me again reiterate the free trading and on apps like that have gamified trading on like Robinhood, I think that's a negative.
42:30
Um just go back and look at all the 2020 and 2021 Instagrams and I love the uh Twitter feed, TikTok investors, and you see the incredibly reckless, irresponsible things that people say without any guardrails, without any um gatekeepers.
42:50
And unfortunately, um it got so bad that the IRS literally had to put out a list of things that aren't true.
42:58
You know, if it turns out that if you're out on a boat in international waters on April 15th, you still got to pay taxes. That That's bad advice.
43:09
Um and that's sort of crazy.
43:11
Crap, the IRS literally put out 42 things or 39 things that are not true that keep showing up on social media.
43:19
You I I link to I I think it's a footnote, the actual URL in the book.
43:21
Um but there's so much of this has really become positive.
43:27
For first, your ability to just I told the story the other day when we used to do our quarterly updates to clients, we'd have to print out everybody's results.
43:39
Then you'd have to print out a run of labels, sticky labels, and then you got to goddamn make sure the right account goes to the right person.
43:49
And it was like a week of work.
43:53
And now, everybody can see their actual performance year-to-date, week-to-date, tick by tick, since inception versus benchmark.
44:02
It's just software, it's easy easy as pie.
44:04
Moving money has become much easier.
44:08
Uh I rebuilt a truck down in Colombia to send money internationally used to be expensive and time consuming.
44:15
And now there are apps like World Remit or Remitly where you can move, you know, $10,000 at a time and it's again, it's IRS compliant, it's know your client compliant.
44:28
It does all the checks all the boxes it's supposed to.
44:30
Um, the the other downside of all this progress is we are continually playing catch-up and playing defense in the arms race against cybercrime.
44:46
And that's, you know, the fact that we've moved everything online, people sometimes forget how dangerous a place it can be.
44:53
So that's another form of education where you're constantly saying to clients, here's the password, here's the safe word, here's how, like if we get a phone call and someone says transfer all this money over here, blah blah blah, like there are certain things they have to do for that to happen.
45:10
And um, it it just continually gets more and more stringent.
45:17
We're constantly educating people.
45:18
Um, I I just put up a link uh, I don't remember if it was today or yesterday, but teach your parents who are targets of scammers and fraudsters, anytime they get an unsolicited phone call from somebody that asks them for information, say, what company are you calling from?
45:46
Great, I'm going to look up the number and call you back.
45:50
And even something as simple as that, I got a phone call from from my bank the other day.
45:57
And I'm like, hey, why are you calling me?
46:00
Well, we saw some activity on your account. I'm like, great.
46:04
The number on the back of the credit card, is that where I can reach you? Yes. Hang up, call them back.
46:07
Hey, can I have so-and-so in this department?
46:12
And it's just simple things like that.
46:14
So, whereas there are just endless innovations in terms of software, the trading and it is a golden age for investors.
46:23
You can get exposure to not just the local market, but an international market for hundreds of a basis point.
46:31
It costs you nothing to trade.
46:34
It costs you is no minimum at most custodians.
46:36
You can do all these things. It's so easy.
46:42
Just make sure you're aware of the risks that happen that are the other side of the double-edged sword.
46:48
The XX trading for for free trading or the fact that you can so easily see your accounts and access money and move it means you have to be extra vigilant against uh fraud and scams. Yeah.
47:02
Um they've even got some voice cloners now. And Really?
47:06
For you and I who have such public voices, Yeah.
47:09
everybody and same with my partner Josh, Yeah.
47:12
everybody in the firm has is told that if you get an angry call from me or Josh insisting you do something, call the other one and find out if it's Yeah.
47:22
Because half the time these are, you know, public figures and AI, you can make them say anything. Yeah.
47:30
And uh I've I've I've had that demonstrated and it's really freaky. Uh A little scary.
47:35
an an acquaintance uh called me uh with my voice. Oh, really?
47:42
You know, the old scam was calling grandma, "Grandma, I got into uh I got arrested. I need money for bail.
47:50
Mom and dad aren't answer."
47:50
Like that was literally an email scam and now it's a voice scam. Yeah.
47:57
and and it's it's funny because I I'm always trying to think countermeasures.
48:03
How how are we going to defeat the grifters and the scammers because they're very clever and the the it's the praying on the weakest part of society that just boils my blood. 100%.
48:18
these people have, you know, scraped and saved, invested and and then, you know, all of it goes away.
48:23
And I I think that's really good advice for your clients.
48:28
I was thinking as I was listening a little earlier, you started on a trading floor. Yeah.
48:32
And how was your transition from a trader mentality, which requires a really different kind of skill set than an investor mentality?
48:46
How How did you Walk me through that transition?
48:48
Did Did something happen? It was It was gradual.
48:52
First, I loved being a trader.
48:54
And and back in the '90s, they threw everybody in the deep end of the pool.
48:59
Whoever didn't drown, hey, you're a trader. Congratulations. Exactly.
49:04
I don't really think of myself as particularly self-aware.
49:06
I tend to think of myself as a little more oblivious than that.
49:11
However, Welcome to the club, by the way.
49:15
And listen, we all have our own neuropathies and some of us are a little more neuroatypical than than others.
49:24
Um, but you want to learn how to use your personal um advantages and disadvantages to best effect.
49:32
And one of the things I was kind of fascinated by was why does all these guys, and back then it was all guys, on a long desk, you know, and there were rows of them, why do the results vary so much from person to person and even from month to month?
49:49
So, he's killing it this month and the next month he can't trade his way out of a paper bag.
49:53
This guy is making a ton of money this month, then And so, I got really lucky um in I want to say it was like '96 or '97, I read a book from Cornell Professor Thomas Gilovich Oh, yeah.
50:10
called How We Know What Is and So.
50:11
Certainly the first 2/3 of it is just a deep dive into why we make all these emotional errors, and why that's so.
50:18
You know, you call it the EOS, I call it the wetware.
50:23
Why is evolutionarily built into our our operating system, and uh it kind of sent me down, and I want to say that book was like '91 or '93.
50:35
Like, probably the first major book on behavioral finance that was published, unintentionally about behavioral finance.
50:44
And um it kind of so, I kind of learned to how to ask different traders, "Tell me why you like this position.
50:52
Tell me why you keep adding to it as it goes up."
50:54
Or I I have a vivid Do you remember the MicroStrategy collapse in the late '90s, when it was a fake note?
51:04
Someone figured out how to get Yahoo to publish notes, and the stock got collapsed.
51:10
And I watched this guy just keep buying the whole way down.
51:14
The company comes out, it it's a fake. This isn't us.
51:17
This is And the guy who actually released it eventually got arrested.
51:22
And the stock was like 120, and it had fallen to 20 or 30, some crazy number.
51:27
And it recovered to like 60 or 70.
51:30
There still was some stink on it.
51:32
But the guy who was doubling up and tripling up all the way down, like I was fascinated by his risk-taking.
51:37
And hey, what happens if this is true, and it opens up, and it's down 20 from where you your last buy?
51:44
He's like, "I'm out of the business."
51:47
Hey, do you really want to engage in that sort of existential risk-taking?
51:51
Is that Does that make sense?
51:55
He goes, "Well, at the time I wasn't thinking about the risk." Oh, all right.
51:58
So, wait, you're on a trading desk, you're not only executing orders for the firm, you're trading on behalf of your own P&L, and you're doubling down and doubling down, and it kind of This is the start of the transition where it's like, "Oh, I could blow up, and I'm out of the business."
52:16
I I don't want that much risk in my It's bad enough that I'm up 100 grand one month, I'm down 75 grand the next month.
52:24
My wife is like, "Can I I'll take less money, but steady. Can we Can we do that?"
52:28
And I'm like, "Not if I stay on the trading desk."
52:30
So, so the decision was made. I moved into research.
52:34
I worked for a guy named Larry Hart, who was a former software programmer at the predecessor to Lucent, uh Bell Labs.
52:46
This was at Prime Charter, which eventually became part of Oppenheimer.
52:51
Where By the way, I work at places I leave, they immediately get bought.
52:52
It's like, "Oh, that Riddles guy is gone.
52:56
Great, now we can buy you."
52:56
Um And it happened like three times in a row.
53:00
Um So, Larry Hart would write these like just deep technical research pieces into um various companies.
53:11
And one day one of the brokers came up to me and said, "Listen, we love Larry.
53:16
We don't understand a damn word he says.
53:17
Pick one or two of his favorite stocks, and can you translate this into English so we can So, I want to say this is like '97 or '98.
53:28
So, the two stocks I had picked were single-digit stocks that I thought, "Hey, maybe these could double."
53:33
And one was EMC at about seven bucks, ran up to 82.
53:38
And I just like, "Hey, just think about storage for Amex, Chicago Board of Option Trades, and I forgot what the third thing was.
53:48
They do all the the digital storage for all the transactions they have.
53:53
Oh, okay, Big Iron, we get it.
53:55
And then AOL, the entry ramp to the internet in the 1990s. And again, under $10.
54:02
And um just being able to have that conversation about and and the evolution is from trader to analyst to strategist, and then eventually to chief investment officer, where all the things we've learned over the years, you know, let's just do less. Let's take what we know.
54:23
Let's remove the speculation from investing.
54:26
Let's You know, Howard Marks tells this delightful bit of math that the problem with active management, forget the fees, it's if you're top 10 or 20%, then statistically, in any given year, statistically, you're going to end up bottom 10 or 20%.
54:49
There's no way around it.
54:49
Your geography, your style, your investment focus, everything comes in and out of favor.
54:55
And if you just take beta year after year, if you just get what the market gives you, after 20 years, you're in the top 20% just because you don't have that sequence of returns problem, where one year you're minus 10% and the market's plus 30%, you can never recover from that.
55:15
Even if the market's plus 10 and you're minus 10, you're you're hanging out in the top quartile and the bottom quartile just destroys those returns over time.
55:28
It interferes with the compounding.
55:28
On the other hand, beta compounds and eventually ends up, if you give it long enough, 20 years, you're in the top quartile.
55:38
30 years, you're in the top decile.
55:40
Just by outlasting everybody who Bill Miller beat the S&P 15 straight years.
55:46
And then, you know, in the financial crisis has a horrible year and drops from the top of the league tables to the bottom of the league tables.
55:52
The beta just it it it's plain vanilla.
55:55
It's boring, but to quote Paul Samuelson, who is Nobel laureate, investing should be like watching grass grow or watching paint dry.
56:09
If you want some excitement, take 800 bucks, go to Vegas, and have at it.
56:14
But investing should be boring.
56:17
Yeah, and and I just keep coming back to that because you know, I've thought of many different stories, many different ways to explain that.
56:28
And some of them land, most of them don't.
56:31
And you you know the sequence, right?
56:34
It's like when markets are either flat or trending upward, everyone is like, oh yeah, absolutely. Oh, yeah, I get that.
56:42
I once did an experiment where I would ask people that we were managing money for to sign a letter that says, "Dear Jim, I realize that I'm saying all of this now, but that I probably will also call you in a panic when the my portfolio is down more than 10%.
57:02
You're going to remind me of this letter."
57:05
And honestly, Barry, I've I had people I stopped doing it because people got mad at me.
57:09
But but but like literally, I had people put the letter down on my desk and say, "I didn't sign that."
57:20
But you know, you were proactive and and a big part of success for any asset management firm or any advisor is not hiding under your desk when everything is red on the screen. Totally.
57:35
Um but being proactive with you know, when we call clients like we are doing this week and saying, "Hey, we don't know where this ends.
57:42
Maybe this is a quarter to a third of the way through. Who knows?
57:45
But it it you know, the otherwise the economy is doing fine and even if all of this craziness causes a recession, it'll cause a mild you know, we don't see this as a great financial crisis.
57:59
We don't see this as um not as short as COVID, not as bad as GFC, but you know, if somehow we body checked the economy, um you know, strong economies can take a hit.
58:12
And we've seen that over the past couple of years.
58:14
You keep putting more and more burdens on the economy and it becomes susceptible to a shock.
58:20
So if we have a shock, yeah, maybe we end up with a modest recession.
58:26
Um you know, uh 3 months ago it was I thought there was I I disagreed with Torsten Slok who said 0% chance of recession in 2025.
58:34
I'm like, "Hey, it's never zero, but okay, it's 5%.
58:37
I'll I'll give you that."
58:40
I think the odds of a recession have are still relatively low, but all this tariff mayhem and all this I hate to use the word uncertainty, but the lack of consistency, the lack of an explanation to to finance and to explain on the basis of what does Canada have to do with our fentanyl problem?
59:04
It's not where fentanyl's coming in.
59:06
The like the confusing nature of this on again, off again, on again, off again set of tariffs has led to a situation where hey, you know, the odds of a recession, while still historically low, are appreciably higher than where they were on January 19th.
59:21
So we feel like this could go on, it could end tomorrow, it could go on another 6 months.
59:28
We don't know, but just brace yourself cuz the fun of the past 2 years seems to be replaced with something that's a little more challenging. People are thrilled.
59:37
Even if it's bad news, they want to know that A, the guy who manages their money is paying attention to this stuff and B, they're being proactive.
59:46
And we hear it especially if if you have an account uh or if a client has an account with you and somebody else, and hey, how come every time the hits the fan, you're the only guys that call me?
59:59
Well, because we know we're not selling alpha.
1:00:02
We know that this is what happens.
1:00:05
Markets go up and down, and it's why in the beginning of 2025 we said lower your expectations for when you have back-to-back 25% years, they tend to be that's it.
1:00:16
That tends to be uh you you you've gotten just gotten four or five years of gains in 2 years.
1:00:25
Uh expect a little rougher sledding than we've enjoyed, but that's the nature of this is that the market is discounting what's going to happen in the future.
1:00:34
And so after 2 great years, all right, now the market's saying uh it's going to be a little harder.
1:00:40
Yeah, uh that was the one rule I had at all of the various shops I either started or worked for, and that was when things are going badly, you are on the phone. Right.
1:00:52
Uh because things are going well, it doesn't hurt to say, "Hey, enjoy this, Yeah.
1:00:56
but you know, we hope this goes for another 10 years, but historically, these things tend to peter out in in less time than that.
1:01:04
So, Counter programming, right?
1:01:10
When things are really, really great, you give them the call and you say, "Hey, we're having fun, too, but this is not going to last."
1:01:16
Yeah, this too shall pass, right?
1:01:18
Um who over your career uh written a lot of books.
1:01:25
You've met a lot of really fascinating people.
1:01:27
Who in your mind who are some of the better investors that you've met over your career?
1:01:33
And and what kind of characteristics, what kind of personalities did they have? Were they unified?
1:01:41
Were they very different?
1:01:43
I'd I'd be really fascinated to hear your take.
1:01:45
So I've done just about 550 Masters in Business podcast and I've I've met a bunch of really impressive people.
1:01:56
And um So they're all different in in how they invest and how they think about money and and in their personas, but there are some themes that seem to be pretty consistent with a lot of them.
1:02:10
So let me just throw a couple of names out cuz they're so different in in what they do.
1:02:14
So you know, I take a Howard Marks who is a distressed fixed income investor and put up like an amazing track record over the past couple of years not only on the fixed income side, but his when he comes out and occasionally criticizes the equity side of the market, you got to pay attention. Um famously his amazon.
1:02:38
com research piece in the beginning of 20 2000 January 2000 was amazon.
1:02:44
bomb that eventually got picked up by Barron's and man was that timing perfect.
1:02:50
And he's become a little more circumspect over the past year.
1:02:57
Um certainly if you followed his advice on things like Nvidia, um you're you're ahead of of everybody else.
1:03:05
And then, you know, there's some other really fascinating people.
1:03:07
Boaz Weinstein runs a hedge fund and he is constantly looking at intermarket issues and and had found a way to make money investing in SPACs that people have overlooked.
1:03:21
So, if SPACs are guaranteeing went back when interest rates were 2% and SPACs were guaranteeing you 7% until they found their purchase, like nobody was arbitraging that.
1:03:34
He figured out there's a way to arbitrage that and and made like just like a really bright, really in- insightful um person.
1:03:40
And then when you look at the emerging market side, uh I'm sorry, the emerging manager side, there's a handful of smart, young um fund managers who have put together a pretty incredible track record.
1:03:56
For now, their funds are small, they're less than 5 years, so it's hard to extrapolate, but I'm kind of fascinated by that.
1:04:04
Um I've I've interviewed Steve Cohen once or twice.
1:04:10
Certainly an intriguing guy, Dmitri uh Bulosny, another really intriguing guy.
1:04:16
But here's the thing that I find so fascinating.
1:04:20
Every one of these guys, and it's not false humility, like I've kind of I could smell when I'm having someone me like that.
1:04:27
But every one of them have talked about the role of fortuity and luck in life.
1:04:37
And you know, someone when someone like Howard Marks says, "You know, I have a tremendous amount of gratitude for how lucky I've been."
1:04:45
You know, your initial response is, "Not for nothing, but you're really smart, you're really hard working, you're incredibly insightful."
1:04:52
And he said, "Everybody I went to I I think he was Columbia Business School.
1:04:57
Everybody I went to grad school with was really smart, really hard working, filled with insight.
1:05:04
Intelligence and work ethic, that's just table stakes to enter the arena."
1:05:07
He He "I I've been really fortunate.
1:05:10
Right place, right time, certain things went my way.
1:05:16
And there was this event and this meeting and this coincidence.
1:05:18
And you know, you and I had coffee uh by accident 20 years ago on on a Starbucks that had an outdoor seating area on Park Avenue.
1:05:31
Uh who knows how the world is different if you and I just didn't have coffee the same day. Right?
1:05:37
Just just I was starting, "Hey, don't we know each other?"
1:05:40
"Yeah, you used to do CNBC, right?"
1:05:42
Yeah, it's like just I remember uh just like completely random stuff.
1:05:48
And so it's one thing if you hear it once, if you if you have one experience.
1:05:52
You know, I'm not a big you know, you you there is a little bit of survivorship bias and you only remember the coincidences and the million other times you go for coffee where you don't bump into anybody, you just forget about.
1:06:02
But when you hear the same thing from a Ray Dalio, from Howard Marks, from you know, just go Lee Cooperman, just go down the list of these, you know, amazing people who have built Bill Gross and um uh Jeff Sherman over at DoubleLine and Jeff Gundlach and uh Jeremy Siegel and and Jeremy Schwartz at WisdomTree.
1:06:27
When you hear the same thing over and over and over again.
1:06:32
Um uh David Booth who founded DFA and Richard Thaler who just happened to take this class instead of that class, showed up to hear a a conversation from Tversky and Kahneman 40 years ago.
1:06:46
Like just crazy random stuff.
1:06:52
You really have to acknowledge, hey, sometimes serendipity has a tremendous impact on where the world evolves to.
1:07:00
Now, there's a lot to be said for uh I I don't love the phrase creating luck, but being prepared for when opportunity presents itself, cuz you know, every now and then there's a situation where something happens and one person kind of obliviously walks by and you know, I I I always wonder how many people bought lottery tickets that won and didn't even know about it, just lost it.
1:07:28
Cuz there's some crazy percentage of unclaimed winning lottery tickets and so you just wonder is it just something as simple as someone not checking, forgetting?
1:07:39
And and so you see the same thing kind of happen in the real world where if you're prepared and you've done your homework and opportunity breaks your way, something happens that you're ready to take advantage of it, that's the combination of intelligence and hard work meets serendipity.
1:07:58
And so after the you know, the hundredth wildly successful finance person says always be grateful.
1:08:09
You know, Scott Galloway at NYU who's you know, by any measure wildly successful, his line is I was born a straight white male in the United States in the 1960s.
1:08:24
Right there I hit the lotto. Most of us don't.
1:08:26
Just being a citizen of this country um is a huge huge advantage versus you know, two-thirds of the rest of the world, right?
1:08:36
Hey, it's harder in China, it's even harder in Russia, to say nothing of the rest of the third world.
1:08:41
You have some people in Europe who who have done well and the average person in Europe Europe, well, at least they have health care and college and retirement paid for.
1:08:51
for. But you know, we underestimate the impact of randomness not just in our success but in the markets and the economy, in geopolitics, I think the reason year-out forecasts people do so poorly with them is that they completely underestimate how often a random event, like a pandemic, like
1:09:17
the Russian invasion of Ukraine, like the terrorist attack in Israel and then the subsequent war in Gaza, like nobody has this on their bingo sheet in in December year ahead look, but when it happens, it just totally derails everything that that people had plans. Randomness and by the way,
1:09:35
Randomness and by the way, people hate that.
1:09:38
No one wants to be told so much of what happens in the world is completely random and not even remotely anticipatable.
1:09:48
So, you just have to be prepared for that to happen and understand, you know, the weird thing I find myself occasionally telling people is this is not your fault.
1:09:57
This red on the screen it it's what the price the the hard part, the uncomfortable part is the cost of admission for the gains.
1:10:06
And it's nothing that you did wrong.
1:10:11
It's just something you have to tough out.
1:10:13
For whatever reason, you know, and it's not like Trump didn't tell us he was going to put tariffs in.
1:10:17
He calls himself tariffs man.
1:10:19
We I think nobody expected it to be quite this on-again, off-again type of volatility that leads to down 4% days in the Nasdaq.
1:10:27
Um but, you know, this is this is life in the modern world and you have to take the good with the bad.
1:10:38
Have there been on that note, uh did you have times in your own investing career where you where you felt like uh man, like this this is it.
1:10:50
Like I'm I'm I'm just going to throw in the towel and and I'm just going to do something else.
1:10:58
So, the you recall the MCI WorldCom merger? Does that Oh, yeah. Sure. Yeah.
1:11:04
So, it was one of those days where half the office is out and hey, let the newbie, let the rookie man me in the terminal.
1:11:14
So, I'm watching all these positions for people cuz they got to go do something on a slow Tuesday or whatever it was.
1:11:18
I remember just you know, Day Faber came on CNBC and he starts talking about it and I just hit I'm hitting buy. Buy.
1:11:28
None of my orders are coming back.
1:11:30
And then suddenly all these confirms come back and then the stock starts running up and then it's halted and my stomach dropped and I'm like, if this opens up down 10, I'm done. I'm out of the business.
1:11:43
And not only did it open up because the news was confirmed after it reopened, I was so far over buying power.
1:11:52
And this is back in the day of what we used to call sneakernet where at the end of the day you saved your blotter, your P&L onto a 3.
1:12:01
5 disk and you had to walk it into the head trader's office. That was sneakernet.
1:12:05
And but you can move trades around and when everybody came back, I pulled a few guys, "Hey, I need to talk to you.
1:12:12
Listen, I'm not having a good month.
1:12:14
I can't take a loser from you. Now, here's the deal. I got a big winner. I don't have room.
1:12:18
I need I'll give this to you.
1:12:21
You're going to handle the taxes and everything else.
1:12:23
You're just going to give me you know, here's here's 100 grand, give me 30, deal with the rest." He's like, "Done."
1:12:28
So, I did that with a few people.
1:12:31
That that that trade kind of paid for my first house.
1:12:36
Um but that was the moment where it's like, "I can't take a risk of the software buying more stock than I can legitimately afford."
1:12:46
And if Faber came out, you know, and said and Bernie Ebbers said this is a rumor.
1:12:51
We're not We're This is This transaction isn't happening.'"
1:12:56
Uh I'm I'm you know, I'm teaching uh I'm teaching philosophy at at some college somewhere.
1:13:07
Well, I would take that class uh because uh you know, the as I was going through your book, I was just thinking to myself, you know, Barry is really at heart a philosopher because uh like the the the way you approach everything is very very thoughtful.
1:13:26
And you know, I think at the end of the day, if you have an underlying philosophy that makes sense to you, resonates with for you, you'll be okay, right?
1:13:35
Like when I was younger, I was a real proselytizer and you know, "This is the way. This is the future.
1:13:43
This is what you've got to do."
1:13:45
And then I realized that there were many more paths to heaven.
1:13:50
But what underlined underlay all of them was an articulated process that the person could feel comfortable maintaining.
1:14:03
Um and so one of the things that I find really interesting in the book is not only the underlying philosophy of it, but the way it is consistently applied, right?
1:14:17
Like it it it's like I was once My wife was asking me once when we had all of our stuff was doing really really well and she's like, "You know, you Why aren't you like happier?"
1:14:35
And I and I said "I know how the movie ends." Exactly, right?
1:14:38
I know I've seen the end of the movie.
1:14:41
And and and so for me, the process turned to be quantitative, right? Right.
1:14:46
others, I had a good friend who was European, uh lived and traded in Vienna.
1:14:52
He He didn't like quant stuff, but what he learned was when he just felt himself getting overwhelmed, he immediately got up from his desk and went put his gear on and did a mile or 2-mi run.
1:15:09
But, everybody that I've seen or talked to that really has done quite well has that underlying process that they follow.
1:15:20
Ooh What What are some of the techniques when you're dealing with people who you understand they You understand the way they look at the market.
1:15:28
You understand all of that, but they're at They're having a dark night of the soul. Sure.
1:15:35
So So, first, and this This is just me kind of growing up a little bit, when Bailout Nation came out in 2000 9 or January 2010, thing came out at the end of the year in uh Yeah, no, no, it was uh September 2009.
1:15:54
Like I kind of felt as a prosel- fellow proselytizer, okay, people want to know how the financial crisis happened, here it is.
1:16:02
I I didn't want to write this book.
1:16:04
I I was asked to write this book cuz I'd been covering Lehman and and Bear Stearns and all this other stuff.
1:16:11
Hey, it wasn't any one thing.
1:16:11
It wasn't any one philosophy.
1:16:13
It was a combination of low rates and a lack of gain in um uh real income and deregulation and the Commodity Futures Modernization Act and um We We weren't calling it ZIRP back then, but it was zero interest rate policy.
1:16:33
And all these plus a dozen other things and all these things came together and I was frustrated in '10, '11, '12, why we why we still debating this?
1:16:43
We've we figured this out.
1:16:44
We know how this happened.
1:16:47
The new book, I'm like, hey, you know what?
1:16:50
I understand there are people who going to want to believe stuff regardless of whether it's right or wrong.
1:16:57
They have their their I almost want to call it religious beliefs or deep ideologies about investing in markets, and I am not going to assume responsibility for bringing them to the promised land.
1:17:10
You you almost have to say not that I have here the secret and it's just for you who subscribe to my $5,000 newsletter. It's not that.
1:17:22
It's like, hey, you know, not everybody wants to hear what you're going to say.
1:17:28
Not everybody is going to believe what I think is a cogent, intelligent, well-articulated argument for here's what you shouldn't do, and if you don't do this, and you do some of these things, you'll be just fine.
1:17:42
And more importantly, you won't be stressed about it cuz you'll understand that you're just fine.
1:17:48
You'll understand how important having a good set of information sources are.
1:17:54
That you shouldn't just, you know, dip into the firehose of media nonsense.
1:17:58
You should very carefully select who you know is intelligent and has a good track record and has a process that's worthwhile.
1:18:06
And you know, you could put them on your All-Star team, and it doesn't have to be anyone masthead.
1:18:13
It's these people at Barron's and these people at Bloomberg and these people at the Wall Street Journal and these people at at New York Times and the Atlantic and the LA Times and Vanity Fair and and this Substack and that.
1:18:26
Um I love TikTok investors on Twitter.
1:18:30
They're just it's just a endless stream of what not to do.
1:18:32
And you put together your Allstate group and when Jonathan Miller says "Hey, housing is really become cheap."
1:18:41
pay attention cuz he's got a 40-year track record of telling people when housing is way too expensive and due to come back down and you know, each area that I I track I have an expert in it that all they focus on is that space.
1:18:57
So So the proselytizing is no longer "How come people are still debating this?"
1:19:04
The with the little age and gray hair and wisdom, I think the proselytizing goes to "Not everybody cares what you have to say.
1:19:15
Not everybody is receptive to this message.
1:19:18
Some people just aren't ready to hear this."
1:19:20
But there are enough people that this will help them over the long haul.
1:19:26
My favorite thing in the world were the emails that I got throughout the 2010s.
1:19:34
"Hey, I followed you out of the market in '08.
1:19:36
I understood what you had been writing about in '06 and '07.
1:19:40
When you went back in in March '09, I thought you were insane, but I held my nose and said, 'All right, we're already down 57%.
1:19:47
How much worse can it be?' And thank you."
1:19:50
Like you get We've talked about you get emails and stuff like that.
1:19:53
And so you kind of recognize "Hey, I can't get everybody to understand what's in their own best interest, but some people will pay attention to this.
1:20:05
Maybe some people will be somewhat entertained by it."
1:20:07
I try You know, Bailout Nation was kind of a slog, right? It was heavy subject.
1:20:11
Um I as an attorney didn't understand why we weren't allowing insolvent companies to use those very handsome buildings downtown with the Roman architecture and the columns.
1:20:27
Some people call them bankruptcy courts.
1:20:29
Like why don't we just you know, why are we making everybody tough this out?
1:20:36
If you blew yourself up, well, we have a process for that.
1:20:39
Let's stick to the pro And And then aside from the fact that every other month another company would blow up and I'd have to rewrite that chapter.
1:20:46
Um this book was just a joy to write.
1:20:48
It was so much fun that Michael Batnick, who rolls his eyes every time I tell a war story, it's like, all right, tell you what, I'm going to take all these stories and put them in a book and you can't roll your eyes on them cuz and other people who haven't heard them will find them interesting.
1:21:04
And the feedback that I I find so interesting is I learn the most lessons about investing from things outside of investing.
1:21:13
I can't tell you how often I hear that.
1:21:18
So, when we talk about every movie studio passing on Star Wars and ET and John Wick and Raiders of the Lost Ark because even the experts, to quote Paul Graham, their expertise is made in a different world.
1:21:33
They became experts in how the way the world used to be.
1:21:38
Forecasting what taste moves moviegoers taste is going to be 5 years forward or forecasting where the stock market, which company, which sector, how the economy's going to be doing a year or two out, it's pretty obvious nobody consistently does that well.
1:21:54
And if your portfolio success is dependent on your forecasting ability, you're in trouble.
1:22:00
So, the better option is let me at least have the core of what I do be beta and I'm guaranteed this measure of success and anything around the edges is is just gravy.
1:22:11
For us, that gravy is tax alpha, advisor alpha, and the ability to educate people about what is real and what is not.
1:22:22
about what is real and what is not. What made this book such a pleasure to write, It was really a joy to write after the slog of the last book was just simply um how much fun it was to go over all these stories that my guys have heard to death, that they're tired of, and to put
1:22:39
it in a context that made it sort of fun and useful and, you know, just uh if I, you know, Nick in my office, who who who Alex calls Nicky Numbers, he loved part two, which is all totally data-driven about how few stocks drive returns and how frequently managers underperform and even how investors underperform their own holdings and on and on. Uh that's like
1:23:04
Uh that's like the meat of the data part of the book, but I kind of I sandwich that in a soft, chewy, delicious uh bunch of stories in the beginning about media and about how nobody knows anything and how often we are all wrong about things and in front of it.
1:23:22
And then the back half of it is I didn't want to rewrite um the psychology of money or thinking fast and slow, so I tried to emphasize all the things that are um I tried to emphasize all the things that were very specifically um under understood, not well understood within the world of of behavioral finance, like epistemic trespass and a lot of people think they know Dunning-Kruger, but the irony is they don't.
1:23:53
Um which I I've talked about that with David Dunning and he's like, "Yeah, it's kind of amusing how many people like I he I I didn't put this in the book.
1:24:03
David Dunning tells a story about someone explaining Dunning-Kruger to him once and I just thought that was hilarious. And what do you do?
1:24:10
Oh, I'm a professor of psychology at a University of Michigan. Oh, that must be fun.
1:24:15
You must be familiar with uh Dunning-Kruger. Uh you could say that.
1:24:22
Like it's just like stories like that are just hilarious.
1:24:24
And I'm sure I'm mangling it.
1:24:26
He tells it much better than me, but um Uh, you know, the ability to kind of sneak the lessons in when nobody's looking, that that's what made putting this book together so much fun.
1:24:35
Yeah, I think it's a great book and uh beginners will learn a lot if they pick it up because you don't have to make all those mistakes. Right.
1:24:46
Barry points them out for you, but if you've been investing for decades, buy the book because you're going to see yourself in there.
1:24:56
I certainly saw myself in there when I was reading it, so I highly recommend it to everyone.
1:25:01
Uh, well, Barry, this has been enormously fun for me.
1:25:06
I always enjoy talking with you.
1:25:09
Um, as you know, our final question here on Infinite Loops is we're going to make you the emperor of the world. You can't kill anyone.
1:25:16
You can't put anyone in a re-education camp, but what we are going to do is we're going to hand you a magical microphone and you can say two things into it that are going to incept the entire population of the world.
1:25:31
Whatever their next day is, they're going to wake up and they're going to say, you know, unlike all the other times where I had a great idea or two and I didn't do anything about it or act on it, these two things I'm going to actually start acting on today.
1:25:47
What are you going to incept in the world?
1:25:49
So, the two biggest takeaways that I think so few of us actually internalize, even if we understand it intellectually, we don't emotionally grasp it.
1:26:00
One is how important it is to be humble, to have humility.
1:26:06
By the way, not something really associated with my brand, but as the book was coming together, it's like, man, we really know so little about today and nothing about tomorrow.
1:26:19
If we all went about the day a little less cocky, a little more humble, everything we touched would be better.
1:26:27
And it's not, you know, it's not a false modesty.
1:26:30
You're not professing your ignorance.
1:26:32
It's just a recognition there's lots of stuff we know, but there's a even more stuff we don't know.
1:26:38
And if if we were aware of that, I think it would make us uh much smarter investors, business people, um spouses, etc.
1:26:47
And then the second thing, and it's corny, but it's true.
1:26:52
The clichés exist for a reason, is compounding is just so powerful.
1:26:57
And the story I tell in the book, um I you know, I've never been a fan of the the dollar has lost 96% of its purchasing power over the past century.
1:27:11
Like, well, you don't spend 1925 dollars today. You spend 2025.
1:27:14
Uh what's the other half of that equation?
1:27:17
How much has your earning power gone up?
1:27:19
It's double entry bookkeeping.
1:27:21
But I use a metaphor, I tell a story, two guys going off to World War I.
1:27:25
One invests a thousand dollars in the stock broad stock market index.
1:27:29
The other buries a thousand dollars in mason jars.
1:27:31
A hundred years later, uh their great-grandkids access that money.
1:27:38
And yeah, if your great-great-grandpappy buried the money, well, a thousand dollars today a thousand dollars a hundred years ago was a fortune.
1:27:46
A thousand dollars today, um yeah, it's lost 96% of its purchasing power.
1:27:52
But when I ask people to guess what a thousand dollars invested in the market a century ago is, people say a million dollars, three million.
1:27:59
It's more than 32 million dollars.
1:28:02
And when I tell the story going forward, if you buried ten thousand dollars today, what's it worth in a century?
1:28:09
When you tell people $320 million, they absolutely will bet you money that that's impossible.
1:28:17
And it's just the rule of 72.
1:28:19
It's just So, Warren Buffett at 96 or 97, I don't even know how old he is now, has become so wealthy in the past 7 years because the rule of 72 and the doubling effect every For him, it's like every 8 years, suddenly he goes from 5 million to 10 million to 20, 40, 80.
1:28:40
And the If you live live long enough as he and Charlie have, what started out as a large fortune becomes an absolutely enormous fortune because of compounding.
1:28:56
So, my takeaway is start investing early and more importantly, don't interfere with the market's ability to compound your money over time.
1:29:07
We We Our biggest mistake Our biggest mistake is just interfering with the math of compounding.
1:29:13
If If we're a little humbler and allow compounding to work its magic, everything will work out. Great advice, Barry.
1:29:20
And the book is available everywhere.
1:29:23
What is the release date again? Remind me. March 18th. All right.
1:29:28
I recommend everyone buy a copy.
1:29:33
Really great chatting with you, Barry. And I'll see you soon. As always, a delight. Thank you so much, Jim. All right. Cheers. That was great.