Brutally honest guide to not losing money in the market

Transcript from https://podmenti.com/t/e82aa868e064fc7a

If you could tell me something in the next fifteen minutes that would make me a better investor, what's the first point you would just hammer into my head?
Oh my god, put the f
Phone down. Stop trading.
I feel like I can root
Well I know I can be what I want to
I'm putting my law in it like my day so on the road, less travel, never bag. I think the interesting place to start is we've had a few different people from the school of investing wisdom come on, sort of the value investing genealogy.
And me and Sam, although we are not
investors. We're definitely like entrepreneurs first and then, you know, investing as a sort of hobby sport type of thing.
We're so attracted to it. We love the sort of investment wisdom, especially especially the your version, which is the the aweshocks common sense.
version of investing, which is less about how to be super smart and do advanced things and just how to be less stupid than you already are. And don't worry, you'll be fine. And so uh I'm excited to talk to you. You have a cool story. You uh
You started off
really in the content game and the media game, blogging back in Geo Cities, early on with podcasting and
built a large
Uh investment advisory shop.
Uh called uh named after yourself. I think you guys got to what was a placeholder, by the way. That was not supposed to be permanent. Like
Let's just call it Rit Holtz for now. Someone else said
And we'll find a better name and then we never found a better name. The background is
Uh
Go to law school, do really well.
hate being a lawyer.
A client is running
A trading desk that was a predecessor shop to e Trade.
And so I started on a trading desk.
And found it was just mayhem. It was just
random and and volatile and I was more fascinated
by why the people around me
Some days we're killing it, some days we're getting killed.
Like what's going on with their process?
And that sent me down the rabbit hole.
of um behavioral finance.
It just was the only explanation I found.
As to why
The same person could be doing really well.
One week and applying the same process
Get Shellac the next week.
It's decision making, it's emotions.
It's uh cognitive biases.
Can you explain your uh Christmas tree analogy for for constructing a portfolio?
Sure, that's really easy. So
Війно да историкли
Very few people beat the index.
On a regular basis. In any given year.
Less than half of active managers beat their index.
You take that to five year, it's something like twenty one percent. You take it to ten years,
Uh it's it's less than ten percent. One out of ten people. So that includes like huge firms.
Includes everybody.
Mutual fund, ETF, hedge fund, whatever.
And then go to twenty years and it's a handful of names you know. Peter Lynch, Warren Buffett, et cetera.
So if the core of your portfolio is a broad index
You know, you can't
get alpha meaning outperformance if you're not at least starting
With beta.
And when we say people don't beat their index
It means not only are they not getting what the market gives them, they're getting less than that.
So forget beating what the market gets, then not even getting what the market gets.
So pick a number fifty, sixty, seventy percent of your portfolio is that core.
And by core index I mean
Um, US broadbase market indexes, uh Vanguard's VOO last week.
became the first ETF over a trillion dollars.
And that's just a super low cost broad index.
You wanna own some overseas stocks that uh overseas indexes?
That's fine. Now the tree is
The the garland, the decoration, the lights, the tinsel, that's whatever stink
of your own you want to put on your portfolio. So if you like momentum, great. And uh you want a little more tech?
However you wanna decorate it.
You know, we we've looked at these
Assortments of different portfolios.
They all more or less end up in a similar place.
Some are a little better, some are a little worse. They all end up trailing the index.
If
Two thirds of your money is in a broad index.
Well, at least you know you're starting with that basis point and
Hey, I think Japan is great. I'm gonna own EWJ or
I think India is the next big coun country after Korea. So I'm gonna own that ETF. I if if you wanna have
A little bit of decoration on the tree.
That's fine. Just recognize
You're aiming to outperform
And the odds are very much that you're gonna underperform. So so is this a little bit like when you
do a diet and they're like, Yeah, we're gonna do a cheat meal on Sunday. And it's not that the cheat meal is good for you, it's just that
It's probably the only thing that's gonna keep you on on the guardrails of of the other six days of the week being on track.
Is that why you even have the decorations, or would it just be better to be a hundred percent in the passive index and call it a day? So my cheat meal is the cowboy account. Uh uh we have clients. Listen, what's more fun, what's sexier.

Investing in startups, investing in the hot new
Um, publicly traded technology.
Uh you you look at all the things that we talk about, the media, television, print, web.
It's it's never about own a broadly diversified portfolio of low cost indexes.
Rebalance every few years, see in a few decades.
Now what do you do?
With the other twenty three hours and and fifty nine minutes.
a a a day if you have to fill it with content.
So all this sexy news, all this exciting stuff.
That's
That's ninety percent of the fire hose. Would that be the best finance channel? They just say that at the top of every hour, and then they just play like home alone reruns for fi for the next fifty-nine minutes. And and actually those investors would do way better than anybody watching uh I tell the metaphor of this little gardening channel and they have a tree cam
They plant a tree and it just it's very bucolic and relaxing and
And it's just there and everybody is happy with it.
And then the channel gets bought by private equity and now they gotta sex it up.
So everything becomes a fake conflict.
That's the wrong tree for this area. Too much water, you planted it too deep, and no, it's not deep enough. It's not getting enough
And meanwhile the tree could not care less about what they're saying.
It just quietly grows.
And that
is how I think of the media
And and the broad index
Say what you want. Vanguard and BlackRock have
Between the two of them have twenty five trillion dollars in assets.
because they've dominated low cost indexing.
А financial crisis
was very much the last straw
for mom and pop investors. Now you have all new generation of people
on DraftKings and Robin Hood speculating
But everybody who's over forty kinda lived through this and said, You know what?
I'm gonna take my ball and go home.
And by ball I mean
Capital and by home I mean Black Rock and Vanguard.
And you know, before oh eight, oh nine, Vanguard was under a trillion dollars. They're like eleven or twelve
trillion dollars, uh BlackRock is thirteen or fourteen trillion like these are giant, giant firms. And so
That's kinda what happened. That's the base core.
And you know, the tree just keeps growing.
What's the biggest
return one of your clients has had via their cowboy account.
So we've we've had people that have had some bitcoin when it
Skyrocketed.
We've had clients that had a lot of Tesla.
that blew up, you know, in twenty and twenty one, it it exploded.
Heading into the pandemic.
The people that

Do like Teledoc and Zoom and Peloton.
And they just exploded. But what always happens
It's so hard to sell something.
'Cause most of our cells like I owned Apple
When the I
Pod, not iPhone, iPod came out.
It was fifteen dollars a share, thirteen cash. There's no downside.
And it tripled, it went up to forty five. And I thought I was a genius selling it.
And then it proceeds to gain another nine thousand percent.
Um
But we've seen that, you know, one of my favorite stories in the book is the CEO of Peloton.
Wasn't getting especially great advice.
At one point on on paper he was worth I don't know, two or three billion dollars.
And just leveraged himself to the hilt, bought a whole bunch of stuff.
Then of course as the pandemic starts to
As as the vaccine starts going around and we start to see the light at the end of the tunnel
Peladin crashes. He must have taken a whole bunch of stock loans.
Against that.
Capital.
had a sixty million dollar place in East Hampton, had to sell that, was just liquidating everything.
And just
You know, you s it's always a shame when you see that.
I mean, how many disasters do we have to live through before you realize
Any stock can go to zero.
So anytime you're trading an individual name.
The odds Henrik Henrik Bessenbinder at Univ uh Arizona State
Business school
did a couple of studies and he basically found out
That the entire value in the market
comes from between one and two percent of stocks.
So what are the odds? Fifty to one, a hundred to one?
That the company that you love so much that's run up
So much this year is gonna do it for another
Ten or twenty years.
You wanna hear something funny? Sean, I uh we we did a podcast with Lloyd Blankfind the other day. You know the Yeah, he's got a book out.
Yeah, he's it was it's a great book and he's you know, for the listener, he's the former CO of Goldman, he's a big shy, great guy.
He told me uh go I was like
You're retired. What do you do now? He's like
I love to day trade.
He goes in fact.
I knew I was gonna do this podcast for two hours and it kinda made made me anxious because I'm always grabbing my phone to look at like my stocks and so I had to put all my orders in in advance uh in preparation because I'm not gonna be available and I I he's like right now, I wanna look at my phone, right now.
And then after the podcast I was like, Well, what are you gonna do now? He's like Well
Markets closed, so I don't have anything else to do. I guess I'll walk home. And I don't know how his portfolio uh how he said seventy percent of his net worth. I I think he said that, don't quote me, but something like that is
in his pickings. Um and so he said he's doing good, but it was just so funny
And what's interesting is that
I I'm sure he's doing great. If anyone's gonna do great, it's probably someone like him. That said.
It's like even if you're a a Titan of industry, you're on top of the world, you know everyone, you're a who's who.
There's probably a world where he's gonna make every single mistake, the same mistake that an eighteen year old degenerate Robin Hood trader is going to make. And I find that's interesting.
That we all still do these things. Lloyd, listen to me.
Put
Phone down. Stop trading. Seventy percent of your net worth should be in Muni bonds.
paying you a huge tax free yield.
You wanna dick around with a few million dollars, knock yourself out.
But if you're actively trading seventy percent of your net worth, which is a couple of billion dollars.
I am disappointed to tell you that you are making the biggest risk adjusted mistake.

And the schmuck that used to run Goldman Sachs.
Should know better.
Stop it.
Day trading.
Looks like I'm not invited to I'm not invited to Shabbat dinner anymore, so uh thanks, Barry. Oh my God. I I I hope I hope your memory your numbers are wrong.
So so here's the fascinating behavioral side of that.
On this show we have spent hours talking to some of the best investors alive.
Well, lucky for you, the team at HubSpot, they have pulled out the principles that matter most and turned it into a very simple, easy to read
Wealth Guide.
It's thirty five principals from the top investors. We're talking guys who have been on the pod like Howard Marks, Manish Pabry, Morgan Housel, Kathy Wood, and a ton others.
So these are all their frameworks, their mental models, their rules, basically how to play the long game and how to avoid ruin.
You can get it in the link below.
We see this all the time. I mention the clients, hey, do I buy a Ferrari or not?
The folks who are and I mean this in all seriousness to to Lloyd.
People who a guy like him
Work really hard his whole career.
Constantly striving and saving and investing and putting money away and accumulating stock options and going through all this.
It is really difficult, even for people who are
You know, masters of the universe, billionaires.
To s recognize and just stop and say
I won!
Hey, I won!
I don't have to put this much capital at risk.
Because over the decades
I have just seen
That story play out.
And end badly.
Hey, I'm sure Lloyd'll be fine. He doesn't have to take financial advice.
From Little L me.
But anybody who walks into the office with a giant portfolio
The the challenge is
How do we convince you that you've won?
And how do we make you
Крейта поліо.
That is
Highest probability of
reaching whatever your goals are.
And PS if your goal is just more
Well then you're gonna be disappointed both
in your portfolio in your life.
Yeah.
You uh you mentioned something about selling.
And I thought there was two interesting things in your book about selling. One was about panic selling and the data around
what happens with panic selling. The other was that
hedge fund there was some study about hedge fund managers
where their buys were actually good, but their sells were terrible. And I wanted can you can you explain those two ideas around selling? So so
Again, a lot of behavioral finance research behind this.
It turns out that people panic sell
Into a market crash.
Something like a third of them.
Never return to equities.
So let's just use either the twenty twenty, thirty four percent
pandemic sell off or more likely
The oh eight oh nine fifty seven percent market crash.
Imagine selling down fifty seven percent.
Not getting back into equities and watching
Fifteen percent a year compound.
Over that entire
Period. It it it it's shocking. You
So you take a a a million dollar portfolio, you're out.
At like
Uh
four hundred and fifty thousand net worth. If you never would have sold it
It would be worth ten X today. It would be four point five billion.
And to be fair, you are getting a percent or two
Uh up until twenty twenty two, now you start to get four percent.
In a money market, three point seven percent today.
But that doesn't compare to a ten X and it
doesn't keep up with inflation.
So that's the first data point that's shocking. Panic sell into a portfolio
One in three people never get back into equities.
The hedge fund uh the buys are good, but the sells are worse than just if they sold at random. So I I love this study. It's by Alex Emis, who is a University of Chicago professor.
But they did this study where they looked at all these buys.
And
My explanation is the buyers are rational.
spreadsheet database, the cell are always emotional.
But the clever thing that Professor Amos did was
Hey, how can we tell how good these cells were?
I know instead of selling the company
that the m manager wanted to sell
Let's randomly pick
Anything else this
That's in this manager's
uh portfolio when sell that instead.
And it turned out that the random cells
outperform the manager selected cells.
By something like 150 to 200 basis points. Maybe it was even more. It was some crazy amount.
And it's like
It makes sense that the buys are thoughtful and logical.
But the cell often are
Emotional, impatient.
You know, sometimes the stock doesn't work out right away.
Uh people sell it, even though the underlying thesis was correct.
Sometimes something else bright and shiny comes along and you gotta sell something so you have
Money to buy that?
It's an amazing data point and it just goes to show you
Most of our decision making is bad, and so one solution
Make fewer decisions.
Mm-hmm.
Hey, can I um
I'm gonna I'm gonna pick a friendly fight with you.
Sure.
Uh so
You say by low cost index funds.
I'm on board with you. Anyone who's listened to this pod knows you're you're speaking my language.
But why would I pay you a fee then to do that?
You don't have to. The our whole business model from day one
has been
Um, so we've been writing in public, myself and my partners.
Hey, you could do this yourself.
You don't need anybody, you just need
put together a broad portfolio of low cost indexes.
Manage your own behavior, stay out of your own way and you know, check in on it once or twice a year.
That's it.
And there are a bunch of people who said
Well I like the advice, but
I have a little more complexity in my portfolio. I have tax issues. I have estate issues. I have
Whatever I need some help.
With this.
Um, we don't have minimums. We set up different levels of
Uh we have two digital platforms, one for under a quarter million dollars.
And one for a quarter million to a million.
But our whole
you know, line of bullshit has always been
Do it yourself, you don't need our help.
And it turned out something like point oh one percent of our readers
Said, I don't have the time, I don't have the discipline.
I'm not interested in this crap. I I pay someone to do my taxes.
I pay someone a mow my
Yard. I'm gonna pay you guys to manage our our money.
I did a post a couple of weeks ago about organizational alpha.
And
If you beat
the market by fifty basis points or are or below the market.
By fifty basis points, clients could not really care less about that.
However
If you manage to quarterback their finances in a way that
Um, our tax team has done a great job minimizing
Capital gains taxes.
We use a couple of complex products and I always think simple is better than complex.
Unless it really solves a sticky problem.
So direct indexing really helps with that.
Sam, do you direct index or do you know what that is?
Yeah, I know what it is. I don't do it. Yeah, Sean's uh
Pe people make fun of me, uh Barry on the show because I am a very strict like at this point it's a little bit m like ninety ten equities and bonds.
But um I don't even think you need the ten. You got thirty years before you need the money. Why drag the portfolio down with bonds?
Which by the way is somewhat controversial.
Um it just helps. Uh it's a it's a mostly emotional decision. But direct indexing. It's summarized as instead of buying an index fund, you have a program that basically buys the stocks of the components. Right.
The components of the index
In the same proportion. It seems like over the course of like, for example, the way that my personal finances are set up, I I don't intend I live off my income. I don't ever intend to sell my uh direct or my index portfolio in case i I guess I would sell it in an emergency.
But why would I do direct indexing if I don't intend to sell it? I I love that question. So you guys have both sold
Startups.
And ended up with substantial capital gains. And so in any given year, even when the markets are up.
There's some twenty, thirty, forty percent of stocks that are down
And of that group that's down, there are some that are down
Substantially.
So if you have VU, I think is seven hundred or eight hundred
uh positions the S P five hundred is five hundred
You look at the bottom decile, the bottom ten percent of stocks.
And all right, this this
Small cap.
Biotech is down forty percent.
I'm gonna sell it and replace it with something that looks
Very similar, another small cap.
biotech that's down.
In the same space
I harvest that loss, the portfolio value doesn't change.
The way the portfolio ch trades doesn't change.
But if you do that every year, you could pick up seventy five, eighty five basis points.
In Q one of twenty twenty, when the market was down.
Thirty four percent. O'Shaughnessy did a research study on direct indexing. Their study said that it was four hundred plus basis points of losses
Harvested
And replaced with very similar companies and when the recovery happened
It it matched the performance of the index'cause effectively it's the same thing.
So
Founder stock, IPO stock, sale of a business.
Inheritance
Uh high concentration positions every now and then someone comes in and says
Hey, I have a$10 million portfolio and I've owned Fill in the Blank.
Apple
For fifteen years, and now it's ninety percent of my portfolio.
How do you get them out of that position without
Paying a giant
Cap.
Gains tax.
And so this has been like a very effective way to uh
To do that.
Uh it's not for everybody. It adds complexity. It adds a little bit of cost, not much, but some.
Um
But it's definitely useful for that.
For most people
I don't think it's necessary.
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Can I ask you a bunch of stories? Uh I wanna I wanna do a story time thing because
The cool thing about you is you've been doing the content game for so long and so I know you've met some incredibly interesting people. I wanna do a little rapid fire bit. Sure.
Uh of all the people you've had on the podcast or interviewed at conferences or or uh through work.
Who's the person who you think uh our listener should research and some like someone you admire.
So you mentioned Ray Dalio and Howard Marks, those are obvious.
I'll give you I'll give you a couple of really interesting names.
Richard Barton is this
former Microsoft employee who who founded Expedia and Zillow and
Just one crazy company after another.
He's got this crazy framework, I think uh Sean and I have talked about it. His whole
I think I'm summarizing this correctly, Sean. I think he said um
His whole career is taking messy data and organizing it. Or I think he even said I I free the data.
Data that exists that is just not transparently easily structured and available.
And make it transparent, easy structure, and available. And so if you look at what he did with housing
You know, the housing data, that's the MLS data, he made it more easy to access through Zillow.
They did it with Expedia. He did it with Glassdoor. And it's the same thesis he's just played out in like four, you know, plus
Uh different companies at this point. I'll give you a couple of other names that are a little below the radar, even though they're
They're all
kinda known to the industry.
Um
I I think David Rubinstein of the Carlisle group
could be the best human being I've ever met in my life.
That guy's awesome.
Have you seen the show, Sean?
Yeah, of course. I'm just thinking this I didn't know he was such a legend. I just thought he's an interviewer because I just only ever seen him doing interviews.
I didn't realise he
was the founder of of Carlisle. And he's like a he's a hi I knew him as like a historian. He has these amazing books. I'm reading one of his books on Washington and Lincoln and the rest of the presidents. I I don't even think of him as a money guy.
So
He started out in the D C area when Carlisle started
And he would put together these
Um off the record conversations
With experts in spaces that were being debated.
by Congress, and then he would invite a whole bunch of congressmen and senators and staffers from both sides.
And the idea was
This isn't partisan, this is political isn't political.
This is just a way for you guys to hear from an expert.
Who you may not
And why did he do that? No. He just wanted
The Congress of the country he lived in.
To be better informed and make better, more knowledgeable. But was he a big shot when he did that? No, he was Carlisle was a tiny little company.
That was specializing in a telecom and that's why they were based in D C
And eventually expanded to everything else.
So later on his career he super becomes wealthy.
And the Washington Monument starts falling apart, the cement starts cracking, it's a couple hundred years old.
And Congress
Ping
Paralyzed and incompetent.
He's an idiot and a congressman, but I repeat myself is the Mark Twain quote quote.
They couldn't get their shit together.
So he steps in and says to Congress
Hey, I'm gonna fix this.
See if you idiots can get around to passing
legislation. I'm just gonna patch it up.
See if you can
Do a permanent fix and I'd appreciate
If you pay me back one of these days.
He basically guilted them into fixing all the national monuments.
This was in like the eighties and nineties.
And then he's a kid who grows up in Baltimore and Baltimore's a city
That's having a hard time.
He buys the Baltimore Orioles, promises the city that it will not move.
Over the next twenty years.
And I think he said, and I'm gonna keep the beer and hot dog costs the same for the next ten years.
Not what you think of when you think of as private equity. What personality attributes do you think made him great as a business person? Because he sounds like a a warm and lovely guy, but he's in PE, which is not particularly a warm and and lovely industry. He is really, really good at
Finding a a a space that is being ignored by the rest of the market.
And
Not just ignored, but undervalued.
So telecom wasn't sexy in the eighties. There was some post Reagan deregulation.
And it kinda got ignored for a while.
So and not just like the the big names, but the
You know, the block and tackling.
Or all of the fundamental pieces
Just the ability to
It's not even see around corners. It's identify a spot.
That the market's
Have missed
Was he prolific in his extracurricular activities w in the s in the uh upswing of the business, or was this like a post wealthy thing?
I think it I think they were on parallel tracks.
I don't know. How does one do that? So I just hit up Carlisle, by the way. Carlisle has five hundred billion dollars A U M. How does it work? If they keep plugging away, they'll they'll get there someday.
How how how does one do that? How on earth do you do all these amazing?
I met him
Um
I met someone who worked for him.
And I said, Hey, tell your boss he's stealing my gig at at Bloomberg. What the hell?
I've been doing this podcast since twenty thirteen.
You know, s he comes in and Bigfoot's in and takes the video version of it.
And it
I I was joking, it got back to him and I got an email and I said, Why don't you come on the show? Let's talk about your career. So we did.
What what about the other end of the spectrum? You know, f uh finance and money attracts a lot of other people who will

you know, inaccurate or bad advice. The you know maybe self self s interested advice.
Who do you think has done some damage to the space?
uh put a lot of bad advice out there or a bad philosophy that is uh not one that somebody should follow, even if it is popular or visible.
So those people don't get the invites to show up on the podcast.
Um, I I've been having an ongoing
Fight with zero hedge.
Zero Hedge is uh is that a blog or is that a community? I I don't think it it's a it's a it's sort of a cross between Reddit and a blog. It's it's got a lot of contributors
Uh eventually they tapped into
Bitcoin into gold and
You know, that that was their their argument.
Listen, the the
There's a
Ted Sturgeon quote in the book.
Sturgeon was a science fiction writer in the fifties and he used to get the his question
How come so much of science fiction is not good?
And his answer was ninety percent of everything is crap.
And so that's become Sturgeon's law.
And so most of the stuff you see
In print, on television, on social media
Um, on Sub Stack, most of the stuff isn't worth the time or effort.

People send me subscriptions to stuff all the time. Hey, I sign you up for my uh sub stack.
you unsubscribe me blaff me.
I didn't ask you to do that. Stop sending me your digital shit.
And the reason for that is simply this.
You know
My mom taught me never take candy from strangers.
And that includes
Research, writing, commentary, opinion.
Before I read something from somebody who I'm not familiar with
It's a research lift to decide is this person
Worth the time, effort, energy.
What's their track record? What's their process? Did they just get lucky once?
And that's it? Or do they have a defendable
Approach to this have they lived through a few cycles?
Have they seen ups and downs? Do they have
A good temperament.
Or every day like Friday where Nasdaq is down four percent.
They run around with a hair on fire. This is the big one, it's all over.
Like if they have that sort of attitude
I don't have room for them.
Probab I'm guessing you have an opinion, either positive or negative on the the
Uh, what's his name? The Rich Dad Poor Dad guy. Uh I forgot what his name is. Oh my God, Kayasaki. He's he's been he's a chapter in the book.
And I
I never read the book. I didn't know anything about him.
Um
And my colleague Ben Carlson does a post.
About some of this is like ten years ago.
About some of his tweets.
And they're
Terrible.
sell sell equity, sell this, sell that.
Like he is just super bearish the whole twenty tens. And then my favorite tweet of his
Which I reference in a chapter in the book on him.
Was twenty eight.
Get out!
of US housing
US single family home market.
The фінаншal кріс возвані ша.
Cell housing.
And ironically
There has never been a better time in recent history.
To buy
single family homes in the US.
And when I I someone asked me the question, they said
Well, how could he he have known the pandemic was gonna happen and all these things happening in housing
And that's the point.
That's right. He couldn't have known.
What are you telling me? You're defending his shitty forecast by saying
He couldn't know the future. That's why you don't make forecasts.
You don't know the future. And
The takeaway from this
Із Олав Властріт, Оле Фінанс.
has a uh humility problem. And I say this
I have a lot of my biggest mistakes in the book.
I famously passed on or infamously passed on Robin Hood.
In twenty fourteen.
Uh at an eighty million dollar valuation, I uh
An app that lets millennials
Trade for free? That is the dumbest

U aside from the fact that it's totally off brand with the indexing thing
Millennials don't even have money. What is if this is
You know
Payment for order flow.
The dumbest idea I've ever heard.
My buddy Howard.
uh Lindsen made a hundred million dollars on on that investment. And I'm an investor in in other things Howard has done.
And I was just like, Oh so stupid.
Um so I'm not just saying
Everybody's dumb and I'm smart. I'm as dumb as everybody else.
But at least I'm kind of aware of it and starting to
From the place of we all need a little humility.
'Cause we don't know what's gonna happen. We barely know what's happening today.
Our recollection of what happened yesterday is always tinged
With a a a little glow of rosy nostalgia.
The our our expectations for the future is mostly
Um hopes and wishful thinking.
Like
The whole human condition requires a little more
Humbleness.
And
Admitting how little we know about what's going on.
Help me a little bit here. I love like you have this post that I love. It's called Nobody Knows Anything and you basically like say uh this one's about SpaceX, but you're the whole the the premise of a lot of your posts is like
Goldman, whatever, the big the big shots. They make these predictions. And the truth is is it's just so hard to forecast.
And you said that ninety percent of
information out there is garbage.
Right. What's your ten percent? Who can I uh read right now um and get my information from, whether it be news or evergreen stuff.
That uh is the ten percent in your opinion. Sure. So I'll give you my list, but the caveat is
the process of you figuring out who should be on your list
is very helpful. Going through the process
thinking about it. What do I need? What do I need help for? So
Let me throw out a bunch of names w uh uh We want the whole information diet. Yeah. And and by the way, obviously my whole team is a big part of this.
Uh Josh Brown, Michael Batnik, Nick Majouli, Ben Carlson
Blair Du Ducasny. Go go through the whole list. There's a lot of us
writing. So I I don't wanna just talk about my group
It's a little too self promotional. Let me talk about others.
So let me start with just broad
Economic analysis
Uh it it's hard to do better th than Ed Yardini. Um, he is very thoughtful, very data driven.
He's been very constructive and bullish during this market.
He very constructively said, Hey, you know, the US has had a great run.
We're starting to see signs.

Um, he's just been a solid, solid guy. He's been doing it for forty years. He started it
Deutsche Bank.
Um really solid.
It looks like Ed Yardini's paid, right? That's not a free one. Yeah, Ed Yardini is paid.
If I want to look at
Marketing.
dynamics and structure. That's Sam Rowe.
Sam Row, you could do the free version, you could do the full version and is a little more uh expensive.
Yeah, on the behavioral finance side.
Uh it's tough to beat Morgan Housel. He just is a great storyteller.
uh really gives a lot of insight with that.
Real estate is Jonathan Miller. Um, I've been tracking Jonathan for forever. I'm friends with him personally.
Like here's a guy that really understands
Uh what's happening with with
both residential real estate and and the state of of prices in the industry.
You know, as you go further and further into the weeds.
So Jim Chanos for all things short selling
Michael Lewis for all things.
Wall Street culture and and psychology.
He has a new book coming out in the fall on Doge. I'm really looking forward to it. By the way, Michael Lewis is one of these guys that
You think you have an idea of who he is.
From his books.
And then you hear him speak.
And
He is just hilarious.
Um Dick Thaler is the other one. Richard Thaler uh of of
Chicago on on the real hardcore research on
uh behavioral finance. There's so many people. I'm leaving so many so many people. Autism capital, the Twitter handle hasn't made the list so far.
You know, there's actually some academic research that has found
Neuro atypicals do better.
at market timing'cause they are not subject to the same
social pressure and emotional
Trading. Speaking of SpaceX, have you read the story in uh in his biography of Elon's
Quick foray into finance, his internship.

Oh what happened. This is a great story. So he goes uh I mean I'll try to recall it off the top of my head here, but he
He's in school in Canada. He starts cold calling like f to get an internship or to get a job. He he calls like, you know, the CEO of some
Some investment bank or some bank out there.
And he goes and he gets a job.
And he's supposed to be doing whatever he's doing, but he he
starts going really deep on um like some s South American uh oil companies or something like that. Something where there's like a political issue and he saw almost like a Buffett style thing where he's like, look
They've completely mispriced
Um these assets are mispriced. They're trading at the wrong levels because
Even in the worst case scenario, you're safe and then there's all the upside of if it if it actually gets uh opened up or whatever. He pitches the guy and the guy's like, Okay, go find out what we can do. So he calls
He's like, Hey, I'm Elon Musk and I would like to place an order or a trade, like uh how much volume can I do? And they were like
You can do whatever you want.
Five five million dollars of this right now? They're like
Son, you could buy fifty million dollars of this if you want.
So he goes back and he tells the CEO, Hey, I think we should make this huge trade.
And then basically it gets shot down for just like
Because they're just risk averse.
And uh
He sees that it it would've played out well and he just decides like
This whole thing is stupid. Like, A, I'm never gonna work for other people because
I presented a completely logical argument and it got shot down for illogical reasons. And so I just never want to be in that position again. And also
I should just go build things instead of just do this financial engineering stuff. I should go do actual engineering and he leaves and he never never comes back. He was a failed retail stockbroker, is that what you're telling me? There's no financial engineering there.
He had no track record. He was a rookie.
Why would anyone listen to him? That that's
That's the amazing thing. You look back at Warren Buffett in nineteen sixty seven.
I think half the people
Who who heard his pitch would like, Yeah, why do I want to listen to this guy?
I started out as a math and science
student at Stonybrook undergraduate.
The outgoing
department chair, uh mathematics department chair was this guy named
Jim Simons.
leaves to form Renaissance technologies
the most successful hedge fund in all of history.
If you would have met this guy in nineteen seventy nine, you you would say, Why this guy looks homeless. Yeah, I saw him. He looked like he was he looked like a smoke. And he was smoking cigs all the time. He kinda looked like a filthy animal.
I you you would think this guy I'm like, I'm not giving this guy my money, he's gonna smoke it.
Uh, Sean, what do you what are you pulling up here? Break out the textbook.
I got the I got the story. All right.
It was about Latin American debt. Banks had made billions of loans to countries such as Brazil and Mexico. They could not be repaid. The secretary Nicholas Brady had packaged those debt obligations in something known as Brady Bonds. Yes, exactly.
Uh, they were backed by the US government, must believe they would always be worth at least fifty cents on the dollar, but some were selling as low as twenty cents. He figured that Scotia Bank could make billions if they bought these at a cheap price.
So he called the training desk.
And he asked, you know, if s the stuff I said.
He thought to himself, Jackpot, this is a no lose proposition. I run and I tell Peter, the CEO, about it.
The bank ends up rejecting the idea.
They said they already had too much Latin American debt.
He said, Wow, this is insane. This is how big banks think.
Um, he goes, it was a good thing. It gave me a healthy disrespect for the financial industry, and that gave me the audacity to eventually start what became PayPal.
He didn't really start PayPal, he started a competitive product and eventually it was merged to PayPal, but
L let's not let that get in the way of the story.
All right, so he had a good idea.
A few.
I don't I I have no choice. I I I can't help it. You just came here spitting fire, man. Like it you're not going to be able to do it. Someone says something that's bullshit, I can't help but
I know discretion is the better part of valor, but
When people are out there saying stuff
That is nonsense.
That ultimately leads people
to um lose money.
Do you think you ever have to get security?
No.
Listen, if someone wanted me dead, I would've been dead a long time ago. That's that's not a uh
And who wants to live their life that way? What did he say that makes you think he needs security from who? Guy Kawasaki? No, man. No. Not that nerd. But I'm just saying that like when you deal with big numbers and you have a big audience and you're dealing with people's money and stuff, I sometimes I think of like the risk reward of just like having someone on, you know, around you when you go to the city.
I I got bad news for you. Nobody cares that much about me. I'm not I'm not that important.
And look, he here's the reality. I've got it. I mean, that is impressive, but it what's I mean, do you have a you have a microphone, you have an audience. Yeah. So
In the modern world it's a cacophony of voices.
No one voice.
is dominant and and
You know, Elon Musk bought Twitter.
And so his voice uh
Is amplified.
When you look at the value he's created over the years.
All right, so whatever the PayPal merger ended up being
And then Tesla and now SpaceX.
He doesn't have to exaggerate. This guy has changed
The world.
Right.
Tesla
completely change the automobile industry.
SpaceX completely changed
A number of industries, uh, aerospace.
Um
the the concept of getting anything into earth orbit
satellite. I mean, he's had such a giant impact.
Yeah you don't need to
Polish the hagiography. Your accomplishments speak for themselves.
So
I have to burnish my
crappy undergraduate and
graduate career. I I I don't have an that much to brag about.
From then when I see a guy like that
Um
Like he didn't found Tesla, he joined Tesla later.
His genius was recognizing
Oh no, what you need to do is sell a car
That's just miles away from everybody else and don't think like a traditional car company.
This is a technology appliance, not
uh an internal combustion engine. Like y I give him credit
For the stuff he's done. That's move the needle.
Uh I
I'm not a fan of the SpaceX IPO, but I sure as hell don't want to bet against him.
He's just proven himself time and a time again.
You know, he's a tough guy to be on the opposite side of the trade from.
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I wanna go back to the bragging question.
I wanna because uh I know you've been doing this forever. I've listened to your podcast and read your blog, but I still wanna know as an entrepreneur.
The business so can you give like
A short answer to like just some of the numbers about how big the firm is. So the last uh AD V update we did with the SEC was december thirty first.
That was seven point six billion dollars.
But when we launched in twenty thirteen
That was the start of the third best fifteen year run in history. Does that mean like it's a fifty million dollar a year company?
We don't because we're private, we don't disclose our
Um revenue and stuff, but
You know, we average somewhere around seventy basis points.
Uh in terms of our our fees.
When we were a billion dollars, we had like thirty five people, the typical
billion dollar group at a big
Bracket firm is
Two salespeople, a sales assistant.
And someone helping on portfolio. So they that would be four people. We were
Almost ten X that.
So we've always been building as if
our growth rate is going to continue and we've been growing
uh about thirty percent a year f since we launched. So you you said you famously called
the housing crisis. And from what I understand, there's an interesting story there. So so first and this is so dumb.
My mom was a real estate agent.
And so in oh three, oh four, oh five we were having all these conversations about
How weird the real estate market was.
And the normal cycle is
Come out of recession, the economy begins to expand.
And when I'm looking at all that data.
Прі фінаншо крайси.
Nothing lined up with what you typically see. It was very much a
backwards real estate driven economy. In other words
Instead of real estate being the beneficiary of an expanding economy, more hires.
Better income.
It was the opposite. And so any time you bought a house you could refinance a few years later.
at a lower price and some people were doing
home equity lines of credit and taking cash to subsidize their lifestyle.
Because in the mid two thousands middle class workers hadn't really seen
uh raises above inflation for decades.
And so
People were spending the equity
In their homes. And so I started hunting
for some data and for some academic research.
And in two thousand and six Reinhart and Rogoth
Did a white paper.
Uh that eventually became the book This Time Is Different, Eight Hundred Years of Financial Folly Folly.
And the white paper said
When you have a bubble driven by credit.
On average, we see real estate dropping thirty two percent.
And I use that as a leaping off point to say
All right, I'm too lazy to do all five hundred S P stocks.
But let's look at the thirty Dow stock. And what is a thirty two percent
Drop and real estate meaning.
to their business, to their revenue and
Long story short, I kinda spitball a price of sixty eight hundred. How contrarian of a belief was that?
All the stuff I had been writing about
uh housing and and subprime and derivatives
It was all up on the blog. It was all very public.
So
Yeah, and it's been about a year being the
Dumbest man on Wall Street, which was kinda fun.
All of O seven. It's like you're obviously an idiot.
And even the piece that talked about sixty eight hundred said
Look, the market is in an uptrend. We continue to see multiple expansion.
You don't put on a short, you don't get out of stocks if you're an institutional trader
Until that trend line breaks, then that trend line didn't break.
for for a solid year and change.
So I spent a year being pretty much the
the dumbest person on Wall Street.
Starting in January, February, March of O eight.
Cudlow started having me on every week and then twice a week and then it just got to be
Mayhem because
You know, nobody saw it com I should say very few people saw it coming.
I I recall
being on C and B C with um Peter Bookvar.
And they literally when we talked about, you know, the potential downside, and I want to say this was late.
Oh seven.
They literally
literally laughed at us. And I remember walking our offices were not that far.
And I'm like, either we're really right or we're really wrong, but there's nowhere in between.
Do you guys remember the book Snowball about Warren Buffett? Sure, absolutely. I just I just started reading it and the very first scene is basically Warren Buffett at the Allen Coe
conference, which is the who's who. So it's always like the hottest new kids plus like the old guard in this in the room together. And at this time it was all the best dot com companies. And they're all there thinking they're the hot shit. Sort of like how AI companies are now. They think they're the best. And Warren
has this famous line, I think he says, um, only criticize a category, never criticize like a particular name, and I'll compliment particular names. So he tries to be the point is he tries to be really polite about it, but he basically says the dot com thing, it's gonna be bad.
And if you look at like car companies in the nineteen twenties, you would have thought that you knowing how cars are gonna end, the place to be is in cars right now. We gotta start a car company. But of the two thousand car companies who launched right when the boom was happening.
Basically like three still exist and most went out of business and he basically said this is what's gonna happen with dot coms and he tried to do it very respectfully, but it was still very insulting to the audience because they were there. And I think he even made like a bunch of jokes. He was like, You guys I think he even said something like you guys all even have mistr mistresses probably right now. You think you're you think you're the best
But it's gonna come.
It's gotta come. And it's sort of interesting.
To
figure out inside of someone's head when they see this one
bit of data and they're and they make this very contrarian bet and how even
Warren Buffett was like
Quite nervous about that.
I know I'm gonna be right, but if I'm not right soon
Then I'm really gonna look stupid here.
And I think that's like that behavior of like making that call is actually quite fascinating.
There's a famous technical trader from
you know, the nineteen twenties and and nineteen teens
called uh Richard Wyckoff and he wrote a book
How I trade and invest in stocks and bonds.
And
If you would go back and read that book
Everything he talks about just substitute AI
For intern for for telegram.
And dot coms for railroads.
And it could have been written
Last year. It's over a hundred years old.
And it's as fresh as nothing ever changes, there's nothing new.
Over the sun. Yeah, the technology is a is different.
But what's the takeaway?
New stuff.
Can get overhyped. Not can get overhyped.
Always will get overhyped.
Which isn't, by the way, a bad thing. That's a feature, not a bug.
There's a great book called uh Pop, Why Bubbles Are Great for the Economy.
And think about the dot com era. Think about all of the
fiber that was laid global crossing and metromedia fiber and uh the hundreds and hundreds of millions of dollars, billions of dollars
In fiberlade, I one point in time I want to say it was like over a thousand dollars a mile.
The dot com collapse ha comes, all these companies go belly up.
And then the the legacy
cable companies and the legacy
Phone companies buy it up for pennies per mile.
And because it was so cheap to own at that point.
All the things that came afterwards, YouTube
Facebook, Instagram, all of the bandwidth intensive
Technology.
Well
they wouldn't have been viable if it was a thousand dollars a mile
to lay fat pipes, but for pennies a mile out of bankruptcy.
En so
I'm not predicting this is gonna happen with AI, but
It happened with railroads, it happened with televisions, it happened with radio, internet.
Um, electronics companies, semiconductors, internet mobile.
Cars go down the list every new technology that comes along.
seem to go through this process. Every new technology is
Innovative
Things that are not stuck with all the sunk costs.
And all the legacy platforms and so they get to move
Forward, faster, cheaper, better.
So I don't know what
Who the winners in AI are gonna be.
But when we look back at it twenty years from now
Look at the computer i industry.
H P
Gateway, go down the list of companies that
had billion dollar valuations and
effectively went down to zero.
You do the same thing with mobile phones.
How's that uh Ericsson phone do you have? Are you gonna replace it with the new Nokia?
Oh wait, nobody buys that shit anymore, even Motorola.
They're gone because between the iPhone and Android
Everything else has been replaced.
It's nice to talk to someone, Barry, who uh
doesn't hold back. I think you're you're we we thoroughly enjoy that. Uh and you know, Sean and I have been uh seeing your stuff pop up for years. We're happy we were able to talk. Appreciate you coming on. Uh shout out the book.
Uh sure. How not to invest right over there, hardcover paperback.
You know, the last book was Bail Out Nation was fifteen years ago and I just it was a slog. It was tough to write.
This book was just a joy. It was so much fun.
to go back over all these conversations I've had and all this research I've done over the years
And published when no one knew who the hell I was.
You're a gem of a guy, man. We appreciate you so much.
Well, thanks so much for having me. I I I
Really enjoy this sort of stuff.
It's what keeps me going every day.
Alright, that's it. That's a part.
I feel like I can rule the world and no way
Be what I want to
I put my law in it like no day song On a roadless travel never looking back
All right, let's take a quick break to talk about a podcast. Cause if you're listening to this, you like podcasts. And what's better than one podcast? Another podcast. And let me tell you, another podcast you should check out. It's called Success Story.
If you like hearing about different success stories and hearing QA sessions with successful business leaders or hearing keynote presentations or just checking out conversations about sales and business and marketing tactics, this is a great podcast for you. So check it out wherever you get your podcasts.